Item Coversheet

Agenda Item - 3.b.


City of Garden Grove


INTER-DEPARTMENT MEMORANDUM

To:Scott C. Stiles

From:Patricia Song
Dept.:City Manager 

Dept.: Finance 
Subject:

Receive and file annual financial reports and auditor’s communication related to the Fiscal Year 2020-21 annual audit.  (Action Item)

Date:2/22/2022

OBJECTIVE

For the City Council to receive and file annual financial reports and auditor’s communication related to the Fiscal Year 2020-21 annual audit.
BACKGROUND

The City’s Municipal Code requires a complete financial statement and report be submitted to the City Council after the close of each fiscal year.  In order to ensure the reliability of the information contained within the financial statements, the City contracted with an independent audit firm, Davis Farr LLP, to perform the annual financial audit.  The goal of the audit is to provide reasonable assurance that the City’s financial statements are free from material misstatement.  Davis Farr LLP issued an unmodified, or clean opinion for the City’s financial statements for the fiscal year ended June 30, 2021.

DISCUSSION

The annual audits of the financial statements of the City and its component units were completed on February 3, 2022. 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, 2021.  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 would warrant a written communication to the City Council or City Management. 

 

The audited financials show that for Fiscal Year 2020-21, the City overall had a positive operating result of $29.2 million, primarily due to the receipt of the State and Local Fiscal Recovery Funds (SLFRF) in the amount of $24.2 million.  This amount represented 50% of the total SLFRF allocated to the City.  The American Rescue Plan Act (ARPA) delivered $350 billion to state, local and tribal governments across the nation to fight the pandemic.  The funds are for supporting local communities and assisting local governments with their fiscal recoveries. The City has programmed the SLFRF money in our fiscal year 2021 to 2023 biennial budget, to fund for essential government services including public safety and other critical services, such as public works and community services.  This much needed one-time funding also enabled the City to plan for two major infrastructure based programs that will support the recovery and long-term growth of the community.  They are the Pavement Management Acceleration Plan, and Public Facilities and Infrastructure Program.  Both programs were included in the adopted Fiscal Years 2021-23 biennial budget.

 

The General Fund is the primary operating fund of the City. For Fiscal Year 2020-21, revenue exceeded expenditures by $29.5 million in the General Fund, largely due to the receipt of $24.2 million in SLFRF in May 2021.  These funds were not spent by end of the fiscal year, and had been carried over to the next year to fund for the City’s Police personnel costs and other essential governmental services.  Property tax revenue continues to be the top revenue source for the City, contributed $55.2 million in Fiscal Year 2020-21, which was an increase of $4.9 million from the previous year.  Sales tax increased by $5.3 million, to $48.4 million.  However, Transient Occupancy Tax (TOT) revenue suffered a significant reduction due to the pandemic.  In Fiscal Year 2020-21, the amount of TOT reported was $7.2 million, which represented a 19.5 million decrease from the pre-pandemic level.

 

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 one-time and unexpected revenue sources during the year.

 

Comparing to the budgeted amounts, the General Fund had a net favorable budget variance of $44.2 million for the fiscal year ended June 30, 2021. This was a combination of one-time revenue not originally expected (such as the SLFRF) and budget savings on expenditures including personnel cost savings due to vacancy.  The majority of the budget variance were due to the timing on spending the funds.  These unspent funds on projects and encumbrances were carried over to the next fiscal year.
FINANCIAL IMPACT

There is no fiscal impact to receive and file the auditor’s reports related to Fiscal Year 2020-21 annual financial audit.  The fees for auditing services were provided for in the annual operating budgets.
RECOMMENDATION

It is recommended that the City Council receive and file the following reports and documentations:

 

  • City of Garden Grove Annual Comprehensive Financial Report (ACFR) for Fiscal Year 2020-21 (Attachment 1)
  •  Report on Agreed-Upon Procedures Applied to Appropriation Limit Worksheets – City of Garden Grove (Attachment 2)
  •  Report on Internal Control and Compliance of the Air Quality Improvement Fund (Attachment 3)
  •  Auditor Communications to the City Council (Attachment 4)



ATTACHMENTS:
DescriptionUpload DateTypeFile Name
Attachment 1 - Comprehensive Annual Financial Report2/7/2022ExhibitGG_ACFR_2021.pdf
Attachment 2 - Report on Appropriation Limit Worksheets2/4/2022ExhibitGG_GANN_Report_2021.pdf
Attachment 3 - Report on AQMD Compliance2/4/2022ExhibitGG_AQMD_2021.pdf
Attachment 4 - Auditor Communication Letter2/4/2022ExhibitCity_Council_Communications_2021.pdf