City of Big Bear Lake 03/08

CITY OF BIG BEAR LAKE Audit Report SPECIAL GAS TAX STREET IMPROVEMENT FUND July 1, 2005, through June 30, 2006 TRAFFIC CONGESTION RELIEF FUND July 1, 2000, through June 30, 2006 J C OHN HIANG California State Controller March 2008 J C OHN HIANG California State Controller March 28, 2008 Rick Herrick, Mayor City of Big Bear Lake 39707 Big Bear Boulevard P.O. Box 10000 Big Bear Lake, CA 92315-8900 Dear Mr. Herrick: The State Controller’s Office audited the City of Big Bear Lake’s Special Gas Tax Street Improvement Fund for the period of July 1, 2005, through June 30, 2006. We also audited the Traffic Congestion Relief Fund for the period of July 1, 2000, through June 30, 2006. Our audit disclosed that the city accounted for and expended its Special Gas Tax Street Improvement Fund in compliance with requirements, and that no adjustment to the fund is required. Further, our audit disclosed that the city overstated the fund balance in its Traffic Congestion Relief Fund by $1,808 as of June 30, 2006. This overstatement occurred because the city did not expend its fiscal year (FY) 2002-03 Traffic Congestion Relief Fund allocations within the fiscal year following the fiscal year in which the allocations were made. If you have any questions, please contact Steven Mar, Chief, Local Government Audits Bureau, at (916) 324-7226. Sincerely, Original signed by JEFFREY V. BROWNFIELD Chief, Division of Audits JVB/sk cc: Kelly Ent, Director of Administrative Services City of Big Bear Lake City of Big Bear Lake Special Gas Tax Street Improvement 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—City’s Response to Draft Audit Report City of Big Bear Lake Special Gas Tax Street Improvement Fund and Traffic Congestion Relief Fund Audit Report Summary The State Controller’s Office (SCO) audited the City of Big Bear Lake’s Special Gas Tax Street Improvement Fund for the period of July 1, 2005, through June 30, 2006. We also audited the Traffic Congestion Relief Fund for the period of July 1, 2000, through June 30, 2006. Our audit disclosed that the city accounted for and expended its Special Gas Tax Street Improvement Fund in compliance with requirements, and that no adjustment to the fund is required. Our audit also disclosed that the city overstated the fund balance in the Traffic Congestion Relief Fund (TCRF) by $1,808 as of June 30, 2006. This overstatement occurred because the city did not expend its fiscal year (FY) 2002-03 TCRF allocations within the fiscal year following the fiscal year in which the allocations were made. 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 derive 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 Special Gas Tax Street Improvement Fund. A city must expend gas tax funds only for street- related purposes. We conducted our audit of the city’s Special Gas Tax Street Improvement Fund under the authority of Government Code section 12410. Government Code section 14556.5 created 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. The city recorded its TCRF allocations in the Traffic Congestion Relief Fund. We conducted our audit of the city’s TCRF allocations under the authority of Revenue and Taxation Code section 7104. Objective, Scope, Our audit objective was to determine whether the city accounted for and expended the Special Gas Tax Street Improvement Fund and the Traffic and Methodology Congestion Relief Fund in compliance with Article XIX of the California Constitution and the Streets and Highways Code. To meet the audit objective, we determined whether the city: • Properly deposited highway users tax apportionments and other appropriate revenues in the Special Gas Tax Street Improvement Fund; • Properly deposited TCRF allocations into an account designated for the receipt of state funds allocated for transportation purposes; -1- City of Big Bear Lake Special Gas Tax Street Improvement Fund and Traffic Congestion Relief Fund • Expended funds exclusively for authorized street-related purposes; and • Made available unexpended funds for future expenditures. We conducted our audit according to Government Auditing Standards, issued by the Comptroller General of the United States. We did not audit the city’s financial statements. We limited our audit scope to planning and performing the audit procedures necessary to obtain reasonable assurance that the city accounted for and expended the Special Gas Tax Street Improvement Fund and the Traffic Congestion Relief Fund in accordance with the requirements of the Streets and Highways Code and Revenue and Taxation Code section 7104. Accordingly, we examined transactions, on a test basis, to determine whether the city expended funds for street purposes. We considered the city’s internal controls only to the extent necessary to plan the audit. Conclusion Our audit disclosed that the city accounted for and expended its Special Gas Tax Street Improvement Fund in compliance with Article XIX of the California Constitution and the Streets and Highways Code for the period of July 1, 2005, through June 30, 2006. Our audit also disclosed that the city accounted for and expended its Traffic Congestion Relief Fund in compliance with Article XIX of the California Constitution, the Streets and Highways Code, and Revenue and Taxation Code section 7104 for the period of July 1, 2000, through June 30, 2006, except as noted in Schedule 1 and described in the Findings and Recommendations section of this report. The findings require that the city return $1,808 to the SCO. Views of We issued a draft audit report on December 19, 2007. Kelly Ent, Director of Administrative Services, responded by letter dated January 14, 2008, Responsible agreeing with the audit results. The city’s response is included in this Official final audit report as an attachment. Restricted Use This report is intended for the information and use of city 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 March 28, 2008 -2- City of Big Bear Lake Special Gas Tax Street Improvement Fund and Traffic Congestion Relief Fund Schedule 1— Reconciliation of Fund Balance July 1, 2005, through June 30, 2006 Special Gas Tax Street Traffic Improvement Congestion Fund 1 Relief Fund 2 Beginning fund balance per city $ 12,110 $ — Revenues 438,671 27,853 Total funds available 450,781 27,853 Expenditures (438,535) (19,897) Ending fund balance per city 12,246 7,956 SCO adjustment: 3 Finding 1—TCRF expenditure requirement not met — (1,808) Finding 2—Ineligible expenditures — 1,808 Total SCO adjustments (net) — — Ending fund balance per audit $ 12,246 $ 7,956 ___________________________ 1 The city 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 restricts apportionments 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 Government Code section 14556.5 created a Traffic Congestion Relief Fund (TCRF) in the State Treasury for allocating funds quarterly to cities and counties for street and road maintenance, reconstruction, and storm damage repair. The TCRF allocations were recorded in the Traffic Congestion Relief Fund. The audit period was July 1, 2000, through June 30, 2007. 3 See the Findings and Recommendations section. -3- City of Big Bear Lake Special Gas Tax Street Improvement Fund and Traffic Congestion Relief Fund Findings and Recommendations FINDING 1— The city did not expend its fiscal year (FY) 2002-03 Traffic Congestion TCRF expenditure Relief Fund (TCRF) allocations within the fiscal year following the fiscal year in which the allocations were made, as required by Streets and requirement not met Highways Code section 2182. The unexpended allocations and interest earned subject to the spending requirement have accumulated to a total of $1,808 as of June 30, 2006. Section 2182 further states, “. . . any funds not expended within that period shall be returned to the Controller.” Recommendation The city must return the unexpended TCRF allocations and interest earned on these funds, in the amount of $1,808, to the State Controller’s Office, Attention: Bill Byall, P.O. Box 942850, Sacramento, CA 94250. Additionally, the city should review its TCRF expenditure levels to ensure future compliance with program requirements. Additionally, the city should review its TCRF requirements to ensure future compliance with the program. City’s Response We have reviewed the draft Audit Report and recognize the audit findings to be an accurate representation of what has transpired during the period under review. In addition, we agree with the recommendations as described and are sending payment in the amount of $1,808. SCO’s Comment We concur with the city’s response. FINDING 2— The city did not meet its expenditure requirement during FY 2002-03 as Ineligible noted in Finding 1. Consequently, the subsequent expenditure of these funds, totaling $1,808, was not eligible to be funded with TCRF expenditures allocations. Recommendation The city must reimburse the Traffic Congestion Relief Fund by $1,808 to eliminate the ineligible expenditures. City’s Response We have reviewed the draft Audit Report and recognize the audit findings to be an accurate representation of what has transpired during the period under review. In addition, we agree with the recommendations as described and are sending payment in the amount of $1,808. SCO’s Comment We concur with the city’s response. -4- City of Big Bear Lake Special Gas Tax Street Improvement Fund and Traffic Congestion Relief Fund Attachment— City’s Response to Draft Audit Report City of Big Bear Lake Special Gas Tax Street Improvement Fund and Traffic Congestion Relief Fund State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250-5874 http://www.sco.ca.gov C08-GTA-005