City of Long Beach 08/08

CITY OF LONG BEACH Audit Report SPECIAL GAS TAX STREET IMPROVEMENT FUND July 1, 2005, through June 30, 2006 TRAFFIC CONGESTION RELIEF FUND ALLOCATIONS July 1, 2000, through June 30, 2006 J C OHN HIANG California State Controller August 2008 J C OHN HIANG California State Controller August 22, 2008 The Honorable Bob Foster Mayor of the City of Long Beach 333 West Ocean Boulevard Long Beach, CA 90802 Dear Mayor Foster: The State Controller’s Office audited the City of Long Beach’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, 2001, 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 it understated the fund balance by $134,000 as of June 30, 2006. The city understated the fund balance because it charged the fund with ineligible parking lot expenditures. 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: Lori Ann Farrell City Manager City of Long Beach City of Long Beach Special Gas Tax Street Improvement Fund and Traffic Congestion Relief Fund Allocations 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 Attachment—City’s Response to Draft Audit Report City of Long Beach Special Gas Tax Street Improvement Fund and Traffic Congestion Relief Fund Allocations Audit Report Summary The State Controller’s Office audited the City of Long Beach’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 (TCRF) 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 in compliance with requirements, except that it understated the fund balance by $134,000 as of June 30, 2006. The city understated the fund balance primarily because it charged the fund with ineligible parking lot expenditures. 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 requirements. 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 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 and Methodology expended 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. 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; • Expended funds exclusively for authorized street-related purposes; and • Made available unexpended funds for future expenditures. -1- City of Long Beach Special Gas Tax Street Improvement Fund and Traffic Congestion Relief Fund Allocations 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 of Long Beach 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 $134,000 to the city’s accounting records. Our audit also disclosed that the city accounted for and expended its Traffic Congestion Relief Fund 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 August 7, 1997, disclosed no findings. Audit Findings Views of We issued a draft audit report on June 20, 2008. Sandra Jong, Accounting Officer, responded by letter dated July 7, 2008, agreeing Responsible with the audit results. The city’s response is included in this final audit Official 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 August 22, 2008 -2- City of Long Beach Special Gas Tax Street Improvement Fund and Traffic Congestion Relief Fund Allocations 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 $ 6,062,950 $ — $ 6,062,950 Revenues 8,977,782 5,064 8,982,846 Total funds available 15,040,732 5,064 15,045,796 Expenditures (8,596,395) — (8,596,395) Ending fund balance per city 6,444,337 5,064 6,449,401 Timing adjustment: Accrual of June 2006 highway users tax apportionment (Governmental Accounting Standards Board Statement No. 34) 780,097 2,196,536 2,976,633 SCO adjustment: 3 Finding—Ineligible expenditures 134,000 — 134,000 Ending fund balance per audit $ 7,358,434 $ 2,201,600 $ 9,560,034 ___________________________ 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 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 Long Beach Special Gas Tax Street Improvement Fund and Traffic Congestion Relief Fund Allocations Finding and Recommendation FINDING— Recorded Special Gas Tax Street Improvement Fund expenditures for the period of July 1, 2005, through June 30, 2006, include $134,000 in non- Ineligible expenditures street-related repairs. The city recorded ineligible expenditures for repairs to the Long Beach Museum parking lot and off-street repairs at 3rd Place and Ocean Bluff. Streets and Highways Code section 2151 restricts the use of highway users tax apportionments to street-related engineering, administration, construction, maintenance, and fixed asset acquisitions. The cited repairs do not represent street-related expenditures. Recommendation The city should reimburse the Special Gas Tax Street Improvement Fund $134,000. City’s Response The Special Gas Tax Audit from July 1, 2005, to June 30, 2006, indicated the City has expended $134,000 of the Gas Tax Fund for non-street related projects. We agreed to this finding and have moved the ineligible out of the Gas Tax Fund in March 2007. The $5,064 expenditures on the “Schedule 1 – Reconciliation of Fund Balance” (see enclosure) draft report are for interest earned and, I believe, is revenue to the fund rather than a negative expenditure. SCO’s Comment Interest income on Schedule 1 has been corrected to reflect interest as a revenue. -4- City of Long Beach Special Gas Tax Street Improvement Fund and Traffic Congestion Relief Fund Allocations 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 C07-GTA-024