DISCUSSION
The annual audits of the financial statements of the City and its component units were completed on December 1, 2020. The financial statements were prepared in accordance with all applicable accounting standards in order to conform to Governmental Accounting Standards Board requirements. The independent auditor has issued an unmodified opinion of the City’s financial statements for the fiscal year ended June 30, 2020. An unmodified opinion concludes that the financial statements of the City are presented fairly, in all material respects, in accordance with generally accepted accounting principles.
In addition to reviewing and examining the City’s financial records, the auditors also reviewed the internal control framework of the City. Internal control is a set of activities, rules, and procedures implemented by the City to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud. Internal control mechanism is embedded in the normal operating procedures, designed with the intent of safeguarding assets, minimizing errors, and ensuring that operations are conducted in an approved manner. There were no findings cited by the auditors during their review of the City internal control over its financial reporting. Additionally, there were no internal control related matters identified in the audit that warrant a written communication to the City Council or City Management. This was the first year that the City did not receive a management comment on internal control related matters since 2015 when Davis Farr, LLP became the City’s independent auditor.
The audited financials show that for Fiscal Year 2019-20, the City overall had a positive operating result of $8.9 million. The General Fund is the primary operating fund of the City. For Fiscal Year 2019-20, revenue exceeded expenditures by $15.2 million in the General Fund, largely due to the passage of Measure O which brought in additional revenue of $20.0 million despite the sharp decline in Transient Occupancy Tax revenue due to the pandemic.
The City strives to develop a budget that accurately aligns available resources and operational needs. Therefore, all budget variances are carefully reviewed and analyzed. A budget variance is the difference between the budgeted amount of expense or revenue and the actual amount. The budget variance is favorable when the actual revenue is higher than budgeted or when the actual expense is less than budgeted. Budget variances can occur for a variety of controllable and uncontrollable reasons, such as personnel savings due to vacancies, increases or decreases in development related activities, unspent funding in the current year due to projects crossing over fiscal years, implementation of technology to reduce cost, and the identification of additional revenue sources during the year.
Comparing to the budgeted amounts, the General Fund had a net favorable budget variance of $12.9 million for the fiscal year ended June 30, 2020. Revenue came in slightly lower than budgeted amount by $0.5 million, due to the pandemic. On the expenditure side, there was budget savings of $13.5 million. Of this amount, $6.7 million will be carried over to next year for certain capital improvement projects and economic development related programs. The City implemented several cost containment measures in April in response to the pandemic, including hiring freeze, suspension of all non-essential travel and training, deferral of equipment and capital purchases, and reduction in employee personal equipment needs. Due to the timely and effective implementation of these measures, the City was able to realize budget savings in the General Fund for the year.