Each year the City of Brea issues an Annual Comprehensive Financial Report (ACFR) (attached), which was previously referred to as the Comprehensive Annual Financial Report (CAFR). The ACFR summarizes the financial transactions of a local government for the year in accordance with the financial presentation requirements prescribed by governmental accounting standards.
The City’s independent auditor, Eide Bailly LLP (Eide Bailly), has completed its audit of the City’s ACFR for Fiscal Year ended June 30, 2022. Eide Bailly has issued an unmodified or “clean” opinion on the City’s ACFR in accordance with Generally Accepted Accounting Principles (GAAP) and fairly presents both the financial position and the results of operations for the year ended June 30, 2022.
Financial Highlights
The City’s net position increased by $61.8 million, from $290.0 million to $351.8 million as of June 30, 2022. The governmental activities portion of the increase is primarily related to pension expense. On July 12, 2021, CalPERS reported preliminary net return on investments of 21.3% for the 12-month period ended June 30, 2021, which was used to determine the City's net pension liability for this fiscal year. CalPERS's net investment earnings of $25.7 million was one of the factors that reduced the total net pension liability for the City from $138.3 million to $97.3 million in the current fiscal year.
The City’s capital assets realized an increase of $6.9 million primarily due to construction in progress for projects such as the 57 Freeway/Lambert Road Interchange and various water projects that are currently in various phases of construction throughout the City. The City’s long-term liabilities include $126.5 million in net pension and other post-employment benefit liabilities and $50.1 million of outstanding bonds and leases.
As of June 30, 2022, the General Fund’s ending fund balance included a reserve of $8.6 million for funds deposited in the City’s pension rate stabilization program with Public Agency Retirement Services (PARS). There were a couple of adjustments to the financial statements that included the restatement of governmental activities for leases in accordance with Governmental Accounting Standards Board (GASB) Statement No. 87. In addition, the correction of amounts related to Development and Capital Improvement Funds.
Related Audit Reports
Audit Communication Letter (Statement on Auditing Standards (SAS) 114 Report)
The Statement on Auditing Standards (SAS) 114 was issued by the American Institute of Certified Public Accountants (AICPA) to establish a two-way communication between the independent auditors and those charged with governance (i.e. City Council). SAS 114 requires that the City’s auditor communicate, either orally or in writing, certain information to an audit committee or another designated party that performs oversight on the financial reporting and auditing process.
The City’s Finance Committee has been identified by the City Council to receive and review the report of the annual audit from the City’s independent auditor and to review and make recommendations to the City Council to receive and file the report. The Audit Communication Letter dated December 29, 2022 (attached), and issued as part of the annual audit, did not identify any significant difficulties or disagreements with management that arose during the course of the audit and any uncorrected misstatements identified. This letter indicates a “clean report” with some corrections made during the audit. There was one uncorrected amount of $157,050 related to grant revenues not received within the 60-day period.
In addition, prior to the start of the audit, the auditors met with the City's Finance Committee on August 9, 2022 to discuss the planning of audit.
Article XIII-B Limit on Appropriations Calculation Report (Appropriations Limit Report)
This report (attached) communicates the results of the audit firm’s testing of the City’s computation of the statutory appropriation limitation. No exceptions were noted in this report and the City is well within the constraints of the statutory limit provided by state law.
Since the City's federal award programs (Single Audit) did not exceed the $750,000 threshold, the audit was not required, so the Single Audit report was not issued for the Fiscal Year Ended June 30, 2022. However, in accordance with Government Auditing Standards, the Auditor issued a report on its consideration of the City's internal control over financial reporting and noted an area of improvement over the review of transactions from the adjustments that were made as the result of the audit. Similarly, to many other municipal agencies, the Accounting, Auditing and Purchasing Division of the City experienced 3.5 full-time employees’ vacancies, which resulted in an increased distribution of duties among the two remaining employees during the preparation of the FY 2021-22 audit. One of those positions included a key accounting staff member who assisted in the year-end process, including the reconciliation of the accounts in question. It has been challenging with staff shortages, required implementation of Government Accounting Standards Board (GASB) Statement No. 87, Leases, and to continue to meet the audit and financial deadlines before calendar year-end. Currently, the Administrative Services Department reassigned purchasing duties and is actively recruiting to fill the division’s vacant positions. Division management will strengthen its review processes for transactions and financial statements. |