City of Arvin 10/09

CITY OF ARVIN Audit Report SPECIAL GAS TAX STREET IMPROVEMENT FUND July 1, 2007, through June 30, 2008 TRAFFIC CONGESTION RELIEF FUND ALLOCATIONS July 1, 2000, through June 30, 2008 J C OHN HIANG California State Controller October 2009 October 16, 2009 The Honorable Tim Tarver Mayor of the City of Arvin 200 Campus Drive, P.O. Box 548 Arvin, CA 93203 Dear Mayor Tarver: The State Controller’s Office audited the City of Arvin’s Special Gas Tax Street Improvement Fund for the period of July 1, 2007, through June 30, 2008. 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, 2008. 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; 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/sk cc: David Powell, Director of Finance City of Arvin City of Arvin 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 City of Arvin Special Gas Tax Street Improvement Fund and Traffic Congestion Relief Fund Allocations Audit Report Summary The State Controller’s Office audited the City of Arvin’s Special Gas Tax Street Improvement Fund for the period of July 1, 2007, through June 30, 2008. 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, 2008. 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; however, we identified a procedural finding. 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 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 Arvin Special Gas Tax Street Improvement Fund and Traffic Congestion Relief Fund Allocations We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. 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 Arvin 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, 2007, through June 30, 2008. 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, 2008. Follow-Up on Prior Our prior audit report, issued on February 19, 1998, disclosed no Audit Findings findings. Views of We issued a draft audit report on March 27, 2009. David Powell, Director of Finance, responded by telephone on September 14, 2009, Responsible agreeing with the audit results. Official 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 October 16, 2009 -2- City of Arvin Special Gas Tax Street Improvement Fund and Traffic Congestion Relief Fund Allocations Schedule 1— Reconciliation of Fund Balance July 1, 2007, through June 30, 2008 Special Gas Tax Street Improvement Fund Highway Users Tax TCRF Allocation 1 Allocation 2 Totals Beginning fund balance per city $ 429,645 $ 76,412 $ 506,057 Revenues 269,916 — 269,916 Total funds available 699,561 76,412 775,973 Expenditures (432,190) (76,412) (508,602) Ending fund balance per city 267,371 — 267,371 SCO adjustment: 3 Finding—Inaccurate street report fund balances — — — Ending fund balance per audit $ 267,371 $ — $ 267,371 ___________________________ 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, 2008. 3 See the Finding and Recommendation section. -3- City of Arvin Special Gas Tax Street Improvement Fund and Traffic Congestion Relief Fund Allocations Finding and Recommendation FINDING— The Special Gas Tax Street Improvement Fund balances in the city’s annual street reports for fiscal year (FY) 2002-03 through FY 2007-08 Inaccurate street did not reflect the balances in the city’s general ledgers. Also, the city report fund balances inaccurately reported Traffic Congestion Relief Fund (TCRF) balances in the annual street reports for FY 2000-01 through FY 2007-08. Streets and Highways Code section 2152(b) specifies that all annual street reports filed with the Controller should contain a detailed and complete statement of street expenditures. Street and Highways Code section 2153 imposes a mandatory duty on the Controller to ensure that the annual street and road reports are adequate and accurate. The Special Gas Tax Street Improvement Fund balances in the annual street reports for FY 2002-03 through FY 2007-08 were consistently understated. Fiscal Year 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Gas tax fund balance in: Annual street report $ 87,007 $ 79,698 $(261,252) $ 102,328 $ 277,283 $ 32,597 General ledger 179,006 227,255 279,190 446,570 506,057 267,371 Difference $(91,999) $(147,557) $(540,442) $(344,242) $(228,774) $(234,774) The Traffic Congestion Relief Fund (TCRF) balances were incorrectly reported in the annual street reports for FY 2000-01 through FY 2007-08. Fiscal Year 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 TCRF balance in: Annual street report $ 20,408 $ 54,112 $ 71,873 $ 71,873 $(310,127) $ 66,800 $ 172,536 $ 172,536 General ledger 13,600 — 4,479 — — 36,182 76,412 — Difference $ 6,808 $ 54,112 $ 67,394 $ 71,873 $(310,127) $ 30,618 $ 96,124 $ 172,536 The annual street reports prepared by the city and filed with the State Controller’s Office (SCO) included errors and omissions in reporting street expenditures. Recommendation The city should review carefully the SCO’s Instructions to Cities for Preparing the Annual Street Report when preparing its annual street reports. Additionally, the reported balances should reflect the amounts recorded on the city’s general ledgers. City’s Response The city concurs with our finding and recommendation and will take steps to minimize reporting errors. -4- State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250-5874 http://www.sco.ca.gov C09-GTA-024