City of LaHabra 09/10

CITY OF LA HABRA Audit Report SPECIAL GAS TAX STREET IMPROVEMENT FUND July 1, 2008, through June 30, 2009 J C OHN HIANG California State Controller September 2010 September 10, 2010 The Honorable G. Steve Simonian Mayor of the City of La Habra 201 E. La Habra Boulevard La Habra, CA 90633-0337 Dear Mayor Simonian: The State Controller’s Office audited the City of La Habra’s Special Gas Tax Street Improvement Fund for the period of July 1, 2008, through June 30, 2009. We also audited the Traffic Congestion Relief Fund allocations recorded in the Special Gas Tax Street Improvement Fund for the period of July 1, 2003, through June 30, 2009. 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 $33,112 as of June 30, 2009. The city understated the fund balance because the expenditures exceeded the available fund balance by $33,112 for the fiscal year ended June 30, 2005. 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: Don Hannah City Manager James Sadro Director of Finance and Administrative Services Gilbert Petrissans, Chief Local Program Accounting Department of Transportation City of La Habra 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 .................................................................................................................... 3 Schedule 1—Reconciliation of Fund Balance ...................................................................... 4 Finding and Recommendation .............................................................................................. 5 Attachment—City’s Response to Draft Audit Report City of La Habra Special Gas Tax Street Improvement Fund Audit Report Summary The State Controller’s Office audited the City of La Habra’s Special Gas Tax Street Improvement Fund for the period of July 1, 2008, through June 30, 2009. We also audited the Traffic Congestion Relief Fund allocations recorded in the Special Gas Tax Street Improvement Fund for the period of July 1, 2003, through June 30, 2009. 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 $33,112 as of June 30, 2009. The city understated the fund balance because the expenditures exceeded the available fund balance by $33,112 for the fiscal year ended June 30, 2005. 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 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 La Habra Special Gas Tax Street Improvement Fund 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 La Habra 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, 2008, through June 30, 2009, except as noted in Schedule 1 and described in the Finding and Recommendation section of this report. The finding required an adjustment of $33,112 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, 2003, through June 30, 2009. Follow-Up on Prior Our prior audit report, issued on March 5, 2004, disclosed no findings. Audit Findings Views of We issued a draft audit report on July 8, 2010. Mel Shannon, Deputy Director of Finance, responded by e-mail dated August 16, 2010, Responsible agreeing with the audit results. The city’s response is included in this Official final audit report as an attachment. -2- City of La Habra Special Gas Tax Street Improvement Fund Restricted Use This report is intended for the information and use of the City of La Habra 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 September 10, 2010 -3- City of La Habra Special Gas Tax Street Improvement Fund Schedule 1— Reconciliation of Fund Balance July 1, 2008, through June 30, 2009 Special Gas Tax Street Improvement Fund Highway Users Tax TCRF Allocation 1 Allocation 2 Totals Beginning fund balance per city $ 2,119,840 $ — $ 2,119,840 Revenues 1,182,628 740,021 1,922,649 Total funds available 3,302,468 740,021 4,042,489 Expenditures (810,115) — (810,115) Ending fund balance per city 2,492,353 740,021 3,232,374 SCO adjustment: 3 Finding—Deficit fund balance 33,112 — 33,112 Ending fund balance per audit $ 2,525,465 $ 740,021 $ 3,265,486 ___________________________ 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, 2003, through June 30, 2009. 3 See the Finding and Recommendation section. -4- City of La Habra Special Gas Tax Street Improvement Fund Finding and Recommendation FINDING— As of June 30, 2005, the recorded fund balance in the gas tax fund was a deficit $33,112. By definition, each fund is a separate fiscal and Deficit fund balance in accounting entity with a self-balancing set of accounts. A fund with a the gas tax fund deficit fund balance would be insolvent. In addition, encumbering future highway apportionments to finance current-year and prior-year expenditures is contrary to generally accepted accounting principles. Recommendation The city should replenish the gas tax fund by $33,112 to eliminate the deficit fund balance. In the future, the city should adopt a balanced budget that limits expenditures to the amount of funds available. City’s Response The city agrees with the finding and will transfer $33,112 from the General Capital Projects Fund to reimburse the Special Gas Tax Street Improvement Fund. -5- City of La Habra Special Gas Tax Street Improvement Fund 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 C10-GTA-016