City of Novato December 2015

CITY OF NOVATO Audit Report SPECIAL GAS TAX STREET IMPROVEMENT FUND July 1, 2007, through June 30, 2013 TRAFFIC CONGESTION RELIEF FUND July 1, 2007, through June 30, 2013 PROPOSITION 1B FUND July 1, 2007, through June 30, 2013 BETTY T. YEE California State Controller December 2015 BETTY T. YEE California State Controller December 16, 2015 The Honorable Eric Lucan Mayor of the City of Novato 922 Machin Avenue Novato, CA 94945 Dear Mayor Lucan: The State Controller’s Office audited the City of Novato’s Special Gas Tax Street Improvement Fund for the period of July 1, 2007, through June 30, 2013. We also audited the Traffic Congestion Relief Fund (TCRF) for the period of July 1, 2007, through June 30, 2013, and the Proposition 1B Fund for the period of July 1, 2007, through June 30, 2013. Our audit found that the city accounted for and expended its Special Gas Tax Street Improvement Fund, Traffic Congestion Relief Fund, and Proposition 1B Fund in compliance with requirements, and that no adjustment to the funds is required. If you have any questions, please contact Mike Spalj, Chief, Local Government Audits Bureau, by telephone at (916) 324-6984. Sincerely, Original signed by JEFFREY V. BROWNFIELD, CPA Chief, Division of Audits JVB/ls cc: Brian Cochran, Finance Manager City of Novato Special Gas Tax Street Improvement Fund, Traffic Congestion City of Novato Relief Fund, and Proposition 1B Fund Contents Audit Report Summary ............................................................................................................................ 1 Background ........................................................................................................................ 1 Objective, Scope, and Methodology ................................................................................. 2 Conclusion .......................................................................................................................... 3 Follow-Up on Prior Audit Findings ................................................................................. 3 Views of Responsible Officials .......................................................................................... 4 Restricted Use .................................................................................................................... 4 Schedule 1—Reconciliation of Fund Balance ...................................................................... 5 Special Gas Tax Street Improvement Fund, Traffic Congestion City of Novato Relief Fund, and Proposition 1B Fund Audit Report Summary The State Controller’s Office audited the City of Novato’s:  Special Gas Tax Street Improvement Fund for the period of July 1, 2007, through June 30, 2013;  Traffic Congestion Relief Fund (TCRF) for the period of July 1, 2007, through June 30, 2013; and  Proposition 1B Fund for the period of July 1, 2007, through June 30, 2013. Our audit found that the city accounted for and expended its Special Gas Tax Street Improvement Fund, Traffic Congestion Relief Fund, and Proposition 1B Fund in compliance with requirements, and that no adjustment to the funds is required. 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. Chapter 91, Statutes of 2000, (Assembly Bill 2928) as amended by Chapter 636, Statutes of 2000, (Senate Bill 1662) and 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 Traffic Congestion Relief Fund. We conducted our audit of the city’s TCRF allocations under the authority of Revenue and Taxation Code section 7104. Senate Bill 1266, Highway Safety, Traffic Reduction, Air Quality, and Port Security Bond Act of 2006, was introduced as Proposition 1B and approved by the voters on November 7, 2006, for a variety of transportation priorities, including the maintenance and improvement of local transportation facilities. Proposition 1B funds transferred to cities and counties shall be deposited into an account that is designated for the receipt of State funds allocated for streets and roads. The city recorded its Proposition 1B Fund allocations in the Proposition 1B Fund. A city also is required to expend its allocations within four years following the end of the fiscal year in which the allocation was made and to expend the funds -1- Special Gas Tax Street Improvement Fund, Traffic Congestion City of Novato Relief Fund, and Proposition 1B Fund in compliance with Government Code section 8879.23. We conducted our audit of the city’s Proposition 1B Fund under the authority of Government Code section 12410. Objective, Scope, Our audit objective was to determine whether the city accounted for and and Methodology expended its Special Gas Tax Street Improvement Fund, Traffic Congestion Relief Fund, and Proposition 1B Fund in compliance with Article XIX of the California Constitution, the Streets and Highways Code, Revenue and Taxation Code section 7104, and Government Code section 8879.23. To meet the audit objective, we performed the following procedures: Special Gas Tax Street Improvement Fund  Reconciled the fund revenue recorded in the city ledger to the balance reported in the SCO’s apportionment schedule to determine whether Highway Users Tax Account (HUTA) funds received by the city were completely accounted for.  Judgmentally selected sample expenditure transactions and verified proper documentation and eligibility to determine whether HUTA funds were expended in accordance with the criteria above.  Analyzed and tested sample transactions to determine whether recoveries of prior HUTA fund expenditures were identified and credited to the Special Gas Tax Street Improvement Fund.  Reviewed the fund cash and liabilities accounts for unauthorized borrowing to determine whether unexpended HUTA funds were available for future street-related expenditures.  Interviewed city employees and reviewed policies and procedures to gain an understanding of the city’s internal controls and accounting systems related to this audit. Traffic Congestion Relief Fund (TCRF)  Reconciled the TCRF revenue recorded in the city ledger to confirm that the TCRF allocations received by the city agreed with the SCO’s apportionment schedule.  Judgmentally selected sample expenditure transactions and verified proper documentation and eligibility to determine the city’s compliance with the criteria above.  Reconciled the city’s “Schedule of Expenditures as Reported in the Streets and Roads Annual Report” with the SCO’s “Average Annual Expenditures Computation of Discretionary Funds” to determine compliance with the maintenance-of-effort (MOE) requirement. -2- Special Gas Tax Street Improvement Fund, Traffic Congestion City of Novato Relief Fund, and Proposition 1B Fund Proposition 1B Fund  Reconciled the Proposition 1B revenue recorded in the city ledger to confirm that the Proposition 1B allocations received by the city agreed with the SCO’s apportionment schedule.  Judgmentally selected sample expenditure transactions and verified proper documentation and eligibility to determine the city’s compliance with the criteria above. 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 its Special Gas Tax Street Improvement Fund, Traffic Congestion Relief Fund, and Proposition 1B Fund in accordance with the requirements of the Streets and Highways Code, Revenue and Taxation Code section 7104, and Government Code section 8879.23. Accordingly, we examined transactions, on a test basis, to determine whether the city expended funds for street-related purposes. We considered the city’s internal controls only to the extent necessary to plan the audit. Conclusion Our audit found that the City of Novato 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, 2013.  Traffic Congestion Relief 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, 2007, through June 30, 2013.  Proposition 1B Fund in compliance with Government Code section 8879.23 for the period of July 1, 2007, through June 30, 2013. Follow-Up on Prior The city satisfactorily resolved the findings noted in our prior audit report, Audit Findings issued on April 19, 2006. -3- Special Gas Tax Street Improvement Fund, Traffic Congestion City of Novato Relief Fund, and Proposition 1B Fund Views of We discussed the audit results with city representatives during an exit conference on January 16, 2015. Brian Cochran, Finance Manager, agreed Responsible with the audit results. Mr. Cochran further agreed that a draft audit report Officials 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 the City of Novato 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, CPA Chief, Division of Audits December 16, 2015 -4- Special Gas Tax Street Improvement Fund, Traffic Congestion City of Novato Relief Fund, and Proposition 1B Fund Schedule 1— Reconciliation of Fund Balance July 1, 2012, through June 30, 2013 Special Gas Tax Street Improvement Fund Highway Users Tax Proposition Allocations 1, 2 1B Fund 3 Beginning fund balance per city $ 895,961 $ 535,528 Revenues 1,286,213 735 Total funds available 2,182,174 536,263 Expenditures (1,462,542) (536,263) Ending fund balance per city 719,632 – Timing adjustment: Accrual of June 2013 Highway Users Tax apportionment (Governmental Accounting Standards Board Statement No. 34) 108,384 – Ending fund balance per audit $ 828,016 $ – ___________________________ 1 The city receives apportionments from the State Highway Users Tax Account, pursuant to Streets and Highways Code sections 2103, 2105, 2106, 2107, and 2107.5. The basis of the apportionments 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. The audit period was July 1, 2007, through June 30, 2013; however, this schedule includes only the period of July 1, 2012, through June 30, 2013. 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 Traffic Congestion Relief Fund. The audit period was July 1, 2007, through June 30, 2013; The city did not receive any TCRF revenues and did not incur any TCRF expenditures during FY 2012-13; therefore, it is not included in this schedule. 3 Senate Bill 1266, Highway Safety, Traffic Reduction, Air Quality, and Port Security Bond Act of 2006, introduced as Proposition 1B, provided funds for a variety of transportation priorities. The audit period was July 1, 2007, through June 30, 2013; however, this schedule includes only the period of July 1, 2012, through June 30, 2013. -5- State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250-5874 http://www.sco.ca.gov S14-GTA-043