City of West Hollywood 06/08

CITY OF WEST HOLLYWOOD Audit Report SPECIAL GAS TAX STREET IMPROVEMENT FUND July 1, 2006, through June 30, 2007 TRAFFIC CONGESTION RELIEF FUND ALLOCATIONS July 1, 2001, through June 30, 2007 J C OHN HIANG California State Controller June 2008 J C OHN HIANG California State Controller June 13, 2008 The Honorable Jeffrey Prang Mayor of the City of West Hollywood 8300 Santa Monica Boulevard West Hollywood, CA 90069 Dear Mayor Prang: The State Controller’s Office audited the City of West Hollywood’s Special Gas Tax Street Improvement Fund for the period of July 1, 2006, through June 30, 2007. We also audited the Traffic Congestion Relief Fund (TCRF) allocations recorded in the Miscellaneous Grants Fund for the period of July 1, 2001, through June 30, 2007. Our audit disclosed that the city accounted for and expended its Special Gas Tax Street Improvement Fund and TCRF allocations recorded in the Miscellaneous Grants Fund in compliance with requirements, and that no adjustment to the funds is required. However, we identified a procedural finding. 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/vb cc: Gina Schuchard, Accounting Service Manager City of West Hollywood Anil Gandhy, Finance Director City of West Hollywood City of West Hollywood 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 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 West Hollywood Special Gas Tax Street Improvement Fund and Traffic Congestion Relief Fund Audit Report Summary The State Controller’s Office audited the City of West Hollywood’s Special Gas Tax Street Improvement Fund for the period of July 1, 2006, through June 30, 2007. We also audited the Traffic Congestion Relief Fund (TCRF) allocations recorded in the Miscellaneous Grants Fund for the period of July 1, 2001, through June 30, 2007. Our audit disclosed that the city accounted for and expended its Special Gas Tax Street Improvement Fund and TCRF allocations recorded in the Miscellaneous Grants Fund in compliance with requirements, and that no adjustment to the funds is required. However, we identified a procedural finding. The city did not record the TCRF allocations in a local account that is designated for street purposes as required by Streets and Highway Code section 2182.2(b). 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 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 Miscellaneous Grants 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 and Methodology allocations recorded in the Miscellaneous Grants 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 West Hollywood 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 TCRF allocations 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 of West Hollywood 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. Our audit also disclosed that the city accounted for and expended its TCRF allocations recorded in the Miscellaneous Grants 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, 2006, through June 30, 2007, except for a procedural finding described in the Finding and Recommendation section of this report. Follow-Up on Prior Our prior audit report, issued on July 31, 2002, disclosed no findings. Audit Findings Views of We discussed the audit results with city representatives during an exit conference on April 9, 2008. Anil Gandhy, Finance Director, agreed with Responsible the audit results. Mr. Gandhy further agreed that a draft audit report was Official 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 June 13, 2008 -2- City of West Hollywood Special Gas Tax Street Improvement Fund and Traffic Congestion Relief Fund Schedule 1— Reconciliation of Fund Balance July 1, 2006, through June 30, 2007 Special Gas Traffic Tax Street Congestion Improvement Relief Fund Fund 1 Allocation 2 Beginning fund balance per city $ 610,209 $ 121,953 Revenues 709,036 325,501 Total funds available 1,319,245 447,454 Expenditures (988,464) (169,578) Ending fund balance per city 330,781 277,876 SCO adjustment — — Ending fund balance per audit $ 330,781 $ 277,876 ___________________________ 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 Miscellaneous Grants Fund. The audit period was July 1, 2001, through June 30, 2007. -3- City of West Hollywood Special Gas Tax Street Improvement Fund and Traffic Congestion Relief Fund Finding and Recommendation FINDING— The city recorded the Traffic Congestion Relief Fund (TCRF) allocations in a Miscellaneous Grants Fund. Streets and Highways Code TCRF not recorded in section 2182.2(b) states that funds received under this section shall be a proper account deposited into a local account that is designated for the receipt of state funds allocated for transportation purposes. Recommendation We recommend the city record the TCRF allocations either in a separate fund or in a transportation fund designated for street purposes only. -4- State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250-5874 http://www.sco.ca.gov C08-GTA-034