Town of Moraga 01/07

TOWN OF MORAGA Audit Report GAS TAX FUND AND TRAFFIC CONGESTION RELIEF FUND July 1, 2004, through June 30, 2005 J C OHN HIANG California State Controller January 2007 J C OHN HIANG California State Controller January 31, 2007 Philip A. Vince Town Manager Town of Moraga P.O. Box 188 Moraga, CA 94456 Dear Mr. Vince: The State Controller’s Office audited the Town of Moraga’s Gas Tax Fund for the period of July 1, 2004, through June 30, 2005. We also audited the Town’s Traffic Congestion Relief Fund (TCRF) for the period of July 1, 2000, through June 30, 2005. The town accounted for and expended its Gas Tax Fund and TCRF in compliance with requirements except for our adjustment to the TCRF. The town overstated the fund balance in the TCRF by $212,042 as of June 30, 2005, because the town did not meet the maintenance-of-effort requirement during fiscal year (FY) 2000-01 through FY 2002-03. This resulted in a deficit fund balance in the TCRF. If you have any questions, please contact Paul R. Criss, Chief, Financial-Related Audits Bureau, at (916) 322-4941. Sincerely, Original signed by JEFFREY V. BROWNFIELD Chief, Division of Audits JVB/vb Town of Moraga Gas Tax Fund and Traffic Congestion Relief Fund Contents Audit Report Summary .................................................................................................................................... 1 Background ................................................................................................................................ 1 Objective, Scope, and Methodology ........................................................................................ 1 Conclusion .................................................................................................................................. 2 Views of Responsible Official ................................................................................................... 2 Restricted Use ............................................................................................................................ 2 Schedule 1—Reconciliation of Fund Balance ............................................................................ 3 Findings and Recommendations .................................................................................................. 4 Attachment—Auditee’s Response to Draft Audit Report Town of Moraga Gas Tax Fund and Traffic Congestion Relief Fund Audit Report Summary The State Controller’s Office (SCO) audited the Town of Moraga’s Gas Tax Fund for the period of July 1, 2004, through June 30, 2005. We also audited the Traffic Congestion Relief Fund (TCRF) for the period of July 1, 2000, through June 30, 2005. The last day of fieldwork was March 9, 2006. Our audit disclosed that the town overstated the fund balance in the TCRF by $212,042 as of June 30, 2005. This overstatement occurred because the town did not meet the maintenance-of-effort level required during fiscal year (FY) 2000-01, FY 2001-02, and FY 2002-03. This resulted in a deficit balance in the TCRF. Background The State apportions funds monthly from the highway users tax account in the transportation tax fund to cities and counties for the construction, maintenance, and operation of local streets and roads. The highway users taxes are derived from state taxes on the sale of motor vehicle fuels. In accordance with Streets and Highways Code Section 2101 and Article XIX of the California Constitution, a city must deposit all apportionments of highway users taxes in its Gas Tax Fund (also known as the Special Gas Tax Street Improvement Fund). A city must expend gas tax funds only for street-related purposes. We conducted our audit of the town’s Gas Tax Fund under the authority of Government Code Section 12410. Chapter 91, Statutes of 2000 (Assembly Bill 2928), as amended by Chapter 656, Statutes of 2000 (Senate Bill 1662), established a Traffic Congestion Relief Fund in the State Treasury for allocating funds quarterly to cities and counties for street or road maintenance, reconstruction, and storm damage repair. Cities must deposit funds received into the city account designated for the receipt of state funds allocated for transportation purposes. We conducted our audit of the town’s TCRF under the authority of Streets and Highways Code Sections 2182 and 2182.1. Objective, Our audit objective was to determine whether the town accounted for and expended the Gas Tax Fund and the TCRF in compliance with Scope, and Article XIX of the California Constitution and the Streets and Highways Methodology Code. To meet the audit objective, we determined whether the town: • Properly deposited highway users tax apportionments and other appropriate revenues in the Gas Tax Fund; • Properly deposited TCRF allocations into an account designated for the receipt of State funds allocated for transportation purposes; • Expended funds exclusively for authorized street-related purposes; and • Made available unexpended funds for future expenditures. -1- Town of Moraga Gas Tax Fund and Traffic Congestion Relief Fund We conducted our audit according to Government Auditing Standards, issued by the Comptroller General of the United States. We did not audit the town’s financial statements. We limited our audit scope to planning and performing the audit procedures necessary to obtain reasonable assurance that the town accounted for and expended the Gas Tax Fund and the TCRF in accordance with the requirements of the Streets and Highways Code. Accordingly, we examined transactions, on a test basis, to determine whether the town expended funds for street purposes. We considered the town’s internal controls only to the extent necessary to plan the audit. Conclusion Our audit disclosed that the town accounted for and expended its Gas Tax Fund in compliance with Article XIX of the California Constitution and the Streets and Highways Code for the period of July 1, 2004, through June 30, 2005. Our audit also disclosed that the town accounted for and expended its TCRF in compliance with Article XIX of the California Constitution and the Streets and Highways Code for the period of July 1, 2000, through June 30, 2005, except as noted in Schedule 1 and described in the Findings and Recommendations section of this report. The findings require that the town return $212,042 to the State Controller. Views of We issued a draft audit report dated September 7, 2006. Philip Vince, Town Manager, responded by letter dated October 4, 2006, requesting Responsible that we revise our audit finding based on information provided. The Official town’s response is included in this final audit report as an attachment. Restricted Use This report is intended for the information and use of town management and the SCO; it is not intended to be and should not be used by anyone other than these specified parties. This restriction is not intended to limit distribution of this report, which is a matter of public record. Original signed by JEFFREY V. BROWNFIELD Chief, Division of Audits -2- Town of Moraga Gas Tax Fund and Traffic Congestion Relief Fund Schedule 1— Reconciliation of Fund Balance July 1, 2004, through June 30, 2005 Gas Tax Fund 1 TCRF 2 Beginning fund balance per town $ 333,635 $ 52,315 Revenues 327,707 437 Total funds available 661,342 52,752 Expenditures (205,448) (52,752) Ending fund balance per town 455,894 — SCO adjustments: 3 Finding 1—MOE requirement not met — (212,042) Finding 2—Negative fund balance — 212,042 Total SCO adjustment — — Ending fund balance per audit $ 455,894 $ — ___________________________ 1 The town receives apportionments from the state highway users tax account, pursuant to Streets and Highways Code Sections 2105, 2106, 2107, and 2107.5. The basis of the apportionments for Sections 2105, 2106, and 2107 varies, but the money may be used for any street purpose. Streets and Highways Code Section 2107.5 apportionments are restricted to administration and engineering expenditures, except for cities with populations of fewer than 10,000 inhabitants. Those cities may use the funds for rights-of-way and for the construction of street systems. 2 Chapter 91, Statutes of 2000 (Assembly Bill 2928), as amended by Chapter 656, Statutes of 2000 (Senate Bill 1662), established the State Traffic Congestion Relief Fund (TCRF), which allocates funds to cities and counties for street or road maintenance and reconstruction. 3 See the Findings and Recommendations section. -3- Town of Moraga Gas Tax Fund and Traffic Congestion Relief Fund Findings and Recommendations FINDING 1— The town’s expenditures of discretionary funds for street maintenance, Maintenance-of-effort rehabilitation, reconstruction, and storm damage repair did not satisfy the requirement not met maintenance-of-effort (MOE) requirement of Streets and Highways Code Section 2182.1(b) in fiscal year (FY) 2000-01 through FY 2002-03. The town agreed to the annual MOE requirement of $419,118; however, actual discretionary expenditures were $25,345 for FY 2000-01, $30,437 for FY 2001-02, and $0 for FY 2002-03. Quality Fiscal Discretionary MOE MOE Year Expenditures Requirement Shortfall 2000-01 $ 25,345 $ 419,118 $ (393,773) 2001-02 30,437 419,118 (388,681) 2002-03 — 419,118 (419,118) Streets and Highways Code Section 2182.1(b) states: In order to receive any allocation pursuant to Section 2182, the city or county shall annually expend from its general fund for street, road, and highway purposes an amount not less than the annual average of its expenditures from its general fund during the 1996-97, 1997-98, and 1998-99 fiscal years, as reported to the Controller pursuant to Section 2151. If a city fails to comply with the Three-Year Average requirement, it may elect the Two-Year Option, which requires it to expend in the following fiscal year an amount that is not less than twice the Three- Year Average, less the previous year’s expenditures combined, to meet the MOE requirement. However, the town did not expend enough discretionary funds for street work to meet this option, either. Streets and Highways Code Section 2182.1(e) states: Any city or county that has not complied with subdivision (b) shall reimburse the state for the funds it received during that fiscal year. The town received TCRF allocations totaling $204,994 pursuant to Streets and Highways Code Section 2182 in the amounts of $121,215 for FY 2000-01, $41,143 for FY 2001-02, and $42,636 for FY 2002-03. Additionally, the total investment earnings from these funds were $7,048. Recommendation The town must return $212,042 to the State Controller’s Office, Attention: Bill Byall, P.O. Box 942850, Sacramento, California 94250. Additionally, the town should review all future TCRF expenditure levels to ensure compliance with program requirements. -4- Town of Moraga Gas Tax Fund and Traffic Congestion Relief Fund Town’s Response The Town is in concurrence with the State auditor’s letter dated September 7, 2006 regarding the finding that based on the initial Maintenance of Effort calculation the Town appears to have been non- compliant with its funding. However, upon review of the Maintenance of Effort calculations it was found that the amounts used were erroneous. Based on past documentation, the Town’s Maintenance of Effort should be set at $124,805. If this amount is acceptable, then the Town has been in compliance, and would not owe the State the $212,042 cited in the September letter. SCO’s Comment The town submitted schedules of street expenditures categorized by non-discretionary and discretionary for FY 1996-97 through FY 2004-05. Based on the schedules provided, the town has recalculated and requested that its MOE be restated to $124,805. In order for the SCO to make any revisions to the established MOE as agreed to by the town and SCO for FY 1996-97 through FY 1998-99, the town would need to reconstruct the initial MOE amount of $212,042. Additionally, the town would make available for audit (FY 1996-97 through FY 1998-99) the following items: • CPA reports • Town budgets • Expenditure ledgers • Chart of accounts • Town working papers reconciling discretionary and nondiscretionary street expenditures At this time, the town has not been able to provide the above documentation to support its revised MOE amount. Therefore, our audit finding stands. FINDING 2— As of June 30, 2005, the town’s recorded fund balance in the TCRF was $0. However, as the town did not meet the MOE level and must return Negative fund balance $212,042 (see Finding 1) from the TCRF to the SCO, the TCRF will have a $212,042 negative fund balance. Pursuant to California Government Code Section 12440, warrants may only be drawn from an unexhausted specific appropriation provided by law. As the town’s TCRF was exhausted, no funds were available to meet those warrants. Additionally, the town may not carry forward a deficit fund balance to the subsequent fiscal year. Recommendation The town should reimburse the TCRF $212,042 to eliminate the deficit fund balance. In the future, the town should adopt a balanced budget that limits expenditures to the amount of funds available. -5- Town of Moraga Gas Tax Fund and Traffic Congestion Relief Fund Town’s Response See the town’s response to Finding 1. SCO’s Comment See the SCO’s comment to Finding 1. -6- Town of Moraga Gas Tax Fund and Traffic Congestion Relief Fund Attachment— City’s Response to Draft Audit Report State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250-5874 http://www.sco.ca.gov S06-GTA-015