San Diego County August 2016

SAN DIEGO COUNTY Audit Report ROAD FUND July 1, 2010, through June 30, 2015 BETTY T. YEE California State Controller August 2016 BETTY T. YEE California State Controller August 3, 2016 The Honorable Ron Roberts, Chair Board of Supervisors San Diego County 1600 Pacific Highway, Room 335 San Diego, CA 92101 Dear Mr. Roberts: The State Controller’s Office (SCO) audited San Diego County’s Road Fund for the period of July 1, 2010, through June 30, 2015. The county accounted for and expended its Road Fund money in compliance with Article XIX of the California Constitution, the Streets and Highways Code, and the SCO’s Accounting Standards and Procedures for Counties manual. If you have any questions, please contact Christopher Lek, Interim Chief, Local Government Audits Bureau, at (916) 284-0120. Sincerely, Original signed by JEFFREY V. BROWNFIELD, CPA Chief, Division of Audits JVB/rg cc: Richard Crompton, Director of Public Works San Diego County Tracy Sandoval, Auditor-Controller San Diego County San Diego County Road Fund Contents Audit Report Summary ........................................................................................................................... 1 Background ....................................................................................................................... 1 Objectives, Scope, and Methodology .............................................................................. 1 Conclusion ......................................................................................................................... 3 Follow-Up on Prior Audit Findings ................................................................................ 3 Views of Responsible Officials ........................................................................................ 3 Restricted Use ................................................................................................................... 3 Schedule 1—Reconciliation of Road Fund Balance ............................................................ 4 San Diego County Road Fund Audit Report Summary The State Controller’s Office (SCO) audited San Diego County’s Road Fund for the period of July 1, 2010, through June 30, 2015 (fiscal year (FY) 2010-11 through FY 2014-15). Our audit found that the county accounted for and expended its Road Fund money in compliance with Article XIX of the California Constitution, the Streets and Highways Code, and the SCO’s Accounting Standards and Procedures for Counties manual. Background We conducted an audit of the county’s Road Fund in accordance with Government Code section 12410. The Road Fund was established by the county boards of supervisors in 1935, in accordance with Streets and Highways Code section 1622, for all amounts apportioned to the county out of money from the Highway Users Tax Account (HUTA) in the Transportation Tax Fund. The highway users taxes derive from state taxes on the sale of motor vehicle fuels. A portion of the Federal Forest Reserve revenue received by the county also is required to be deposited into the Road Fund (Government Code section 29484). In addition, the county board of supervisors may authorize the deposit of other sources of revenue into the Road Fund. Once money are deposited into the Road Fund, it is restricted to expenditures made in compliance with Article XIX of the California Constitution and Streets and Highways Code sections 2101 and 2150. Objectives, Scope, Our audit objectives were to determine whether: and Methodology  HUTA apportionments received by the county were accounted for in the Road Fund, a special revenue fund;  Expenditures were made exclusively for authorized purposes or safeguarded for future expenditure;  Reimbursements of prior Road Fund expenditures were identified and properly credited to the Road Fund;  Non-road-related expenditures were reimbursed in a timely manner;  The Road Fund cost accounting is in conformance with the SCO’s Accounting Standards and Procedures for Counties manual, Chapter 9, Appendix A; and  Expenditures for indirect overhead support service costs were within the limits formally approved in the Countywide Cost Allocation Plan. We audited the county’s Road Fund for the period of July 1, 2010, through June 30, 2015. -1- San Diego County Road Fund To meet the objectives, we performed the following:  Gained a limited understanding of internal controls that would have an effect on the reliability of the accounting records of the Road Fund, by interviewing key personnel, completing the internal control questionnaire, reviewing the county’s organization chart, noting the controls over various transactions through narratives and/or flowcharts, testing the operating effectiveness of these controls, and assessing the reliability of computer-processed data;  Conducted a risk assessment to determine the nature, timing, and extent of substantive testing;  Performed analytical procedures to determine and explain the existence of unusual or unexpected account balances;  Analyzed the cost accounting system to determine proper project costing and the use of clearing accounts for labor, equipment, shop overhead, general overhead and inventory;  Reviewed county accruals and adjustments for validity and eligibility;  Verified whether all HUTA apportionments received by the county were properly accounted for in the Road Fund, by reconciling the county’s records to the SCO’s payment records;  Analyzed the system used to allocate interest and determined whether the interest revenue allocated to the Road Fund was fair and equitable, by interviewing key personnel and recalculating a haphazard sample of interest allocations;  Verified that unauthorized borrowing of Road Fund cash did not occur by interviewing key personnel and examining the cash account entries for the audit period;  Verified whether the expenditures incurred during the audit period were supported by proper documentation and eligible in accordance with the criteria above by testing 100% of the expenditure transactions equal to or greater than the significant item amount (calculated based on materiality threshold), and selecting samples of other transactions based on our judgment;  Selected and tested 100% of reimbursable non-road expenditure transactions during the audit period to verify that all amounts were reimbursed to the Road Fund in a timely manner; and  Analyzed the A-87 Cost Allocation Plan charges to the Road Fund by individual fiscal year. We did not audit the county’s financial statements. We limited our audit scope to planning and performing audit procedures necessary to obtain reasonable assurance that the county accounted for and expended its Road Fund in accordance with the requirements of Article XIX of the California Constitution and the Streets and Highways Code. We considered the county’s internal controls only to the extent necessary to plan the audit. -2- San Diego County Road 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. Conclusion Our audit found that the county accounted for and expended Road Fund money in compliance with Article XIX of the California Constitution, the Streets and Highways Code, and the SCO’s Accounting Standards and Procedures for Counties manual. Follow-up on Prior Findings noted in our prior audit report, issued on April 29, 2014, have Audit Findings been satisfactorily resolved by the county. Views of We discussed the audit results with county representatives during an exit conference on May 27, 2016. Blanca Miller, Auditor-Controller Office’s Responsible Accounting Manager, agreed with the audit results. Ms. Miller further Officials agreed that a draft audit report was not necessary and that the audit report could be issued as final. Restricted Use This report is solely for the information and use of San Diego County 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 August 3, 2016 -3- San Diego County Road Fund Schedule 1— Reconciliation of Road Fund Balance 1 July 1, 2014, through June 30, 2015 Amount Beginning fund balance per county $ 110,673,141 Revenues 108,199,323 Total funds available 218,872,464 Expenditures (103,657,680) Ending fund balance per county 115,214,784 Ending fund balance per audit $ 115,214,784 ____________________ 1 The audit period was July 1, 2010, through June 30, 2015; however, this schedule includes only the period of July 1, 2014, through June 30, 2015. -4- State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250-5874 http://www.sco.ca.gov S16-RFA-0005