City of Petaluma 03/08

CITY OF PETALUMA Audit Report SPECIAL GAS TAX STREET IMPROVEMENT FUND July 1, 2005, through June 30, 2006 J C OHN HIANG California State Controller March 2008 J C OHN HIANG California State Controller March 12, 2008 Pamela Torliatt, Mayor City of Petaluma 27 Townview Lane Petaluma, CA 94952 Dear Ms. Torliatt: The State Controller’s Office audited the City of Petaluma’s Special Gas Tax Street Improvement Fund—highway users tax and Traffic Congestion Relief Fund allocations—for the period of July 1, 2005, 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, except that the city understated the fund balance by $200,000 as of June 30, 2006. This understatement resulted from an unsupported gas tax transfer. 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:vb cc: Cinde Rebaloff Accounting Manager City of Petaluma City of Petaluma Special Gas Tax Street Improvement Fund Contents Audit Report Summary ............................................................................................................................ 1 Background ........................................................................................................................ 1 Objective, Scope, and Methodology ................................................................................. 1 Conclusion .......................................................................................................................... 2 Follow-Up on Prior Audit Findings ................................................................................. 2 Views of Responsible Official ........................................................................................... 2 Restricted Use .................................................................................................................... 2 Schedule 1—Reconciliation of Fund Balance ...................................................................... 3 Finding and Recommendation .............................................................................................. 4 City of Petaluma Special Gas Tax Street Improvement Fund Audit Report Summary The State Controller’s Office audited the City of Petaluma’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 allocations recorded in the Special Gas Tax Street Improvement 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—highway users tax and Traffic Congestion Relief Fund allocations—in compliance with requirements, except that the city understated the fund balance by $200,000 as of June 30, 2006. This understatement resulted from an unsupported gas tax transfer. 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 Article XIX of the California Constitution and Streets and Highways Code section 2101, 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 (TCRF) 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 Special Gas Tax Street Improvement 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 in compliance and Methodology with Article XIX of the California Constitution, the Streets and Highways Code, and Revenue and Taxation Code section 7104. To meet the audit objective, we determined whether the city: • Properly deposited highway users tax apportionments TCRF allocations and other appropriate revenues in the Special Gas Tax Street Improvement Fund; • Expended funds exclusively for authorized street-related purposes; and • Made available unexpended funds for future expenditures. -1- City of Petaluma Special Gas Tax Street Improvement Fund 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 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, except as noted in Schedule 1 and described in the Finding and Recommendation section of this report. The finding required an adjustment of $200,000 to the city’s accounting records. Our audit also disclosed that the city accounted for and expended its TCRF allocations recorded in the Special Gas Tax Street Improvement 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. Follow-Up on Prior Our prior audit report, issued on February 23, 1996, disclosed no Audit Findings findings. Views of We discussed the audit results with city representatives during an exit conference on June 6, 2007. Cinde Rubaloff, Accounting Manager, Responsible agreed with the audit results. Ms. Rubaloff further agreed that a draft Official audit report was not necessary and that the audit report could be issued as final. 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 12, 2008 -2- City of Petaluma Special Gas Tax Street Improvement Fund Schedule 1— Reconciliation of Fund Balance July 1, 2005, through June 30, 2006 Special Gas Tax Street Improvement Fund Highway Users Tax TCRF Allocation 1 Allocation 2 Totals Beginning fund balance per city $ 130,810 $ — $ 130,810 Revenues 1,060,719 181,576 1,242,295 Total funds available 1,191,529 181,576 1,373,105 Expenditures (770,004) (181,576) (951,580) Ending fund balance per city 421,525 — 421,525 Timing adjustment: Accrual of June 2006 highway users tax apportionment (Governmental Accounting Standards Board Statement No. 34) — 71,029 71,029 SCO adjustment: 3 Finding—Unsupported gas tax transfers 200,000 — 200,000 Total adjustments 200,000 71,029 271,029 Ending fund balance per audit $ 621,525 $ 71,029 $ 692,554 ___________________________ 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 in the State Treasury for allocating funds quarterly to cities and counties for street and road maintenance, reconstruction, and storm damage repair. The Traffic Congestion Relief Fund (TCRF) allocations were recorded in the Special Gas Tax Street Improvement Fund. The audit period was July 1, 2000, through June 30, 2006. 3 See the Finding and Recommendation section. -3- City of Petaluma Special Gas Tax Street Improvement Fund Finding and Recommendation FINDING— The city transferred $200,000 from the Special Gas Tax Street Improvement Fund #2410 to the Capital Improvement Fund based on the Unsupported gas tax budgeted amount for a project and not on the actual costs. The city did transfer not incur any expenditures on that project during the fiscal year 2005-06. Gas tax funds must be expended in accordance with Streets and Highways Code section 2101, and transfers of gas tax funds should be matched with actual street-related expenditures. Recommendation The city should reimburse the Special Gas Tax Street Improvement Fund $200,000. Additionally, the city should ensure that future transfers of gas tax funds be matched with actual street-related expenditures. City’s Response The city agreed with our finding and transferred $200,000 to the Special Gas Tax Street Improvement Fund, by journal entry #13700306, dated June 30, 2007. -4- State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250-5874 http://www.sco.ca.gov S07-GTA-013