City of San Fernando June 2017

CITY OF SAN FERNANDO Audit Report SPECIAL GAS TAX STREET IMPROVEMENT FUND July 1, 2009, through June 30, 2013 TRAFFIC CONGESTION RELIEF FUND ALLOCATIONS July 1, 2009, through June 30, 2011 PROPOSITION 1B ALLOCATIONS July 1, 2007, through June 30, 2013 J C OHN HIANG California State Controller October 2014 J C OHN HIANG California State Controller October 29, 2014 The Honorable Sylvia Ballin Mayor of the City of San Fernando 117 Macneil Street San Fernando, CA 91340 Dear Mayor Ballin: The State Controller’s Office audited the City of San Fernando’s Special Gas Tax Street Improvement Fund for the period of July 1, 2009, through June 30, 2013. 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, 2009, through June 30, 2011. In addition, we audited the Proposition 1B allocations recorded in the Special Gas Tax Street Improvement 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 in compliance with requirements, except that it understated the fund balance by $43,954 as of June 30, 2013. The city understated the fund balance because it expended gas tax funds for non-street-related purposes. If you have any questions, please contact Mike Spalj, Acting Chief, Local Government Audits Bureau, at (916) 324-6984. Sincerely, Original signed by JEFFREY V. BROWNFIELD, CPA Chief, Division of Audits JVB/mh Attachment cc: Nick Kimball, Finance Director City of San Fernando Special Gas Tax Street Improvement Fund, City of San Fernando Traffic Congestion Relief Fund Allocations, and Proposition 1B Allocations Contents Audit Report Summary ............................................................................................................................ 1 Background ........................................................................................................................ 1 Objective, Scope, and Methodology ................................................................................. 2 Conclusion .......................................................................................................................... 2 Follow-Up on Prior Audit Findings ................................................................................. 3 Views of Responsible Officials .......................................................................................... 3 Restricted Use .................................................................................................................... 3 Schedule 1—Reconciliation of Fund Balance ...................................................................... 4 Findings and Recommendations ........................................................................................... 5 Attachment—City’s Response to Draft Audit Report Special Gas Tax Street Improvement Fund, City of San Fernando Traffic Congestion Relief Fund Allocations, and Proposition 1B Allocations Audit Report Summary The State Controller’s Office audited the City of San Fernando’s Special Gas Tax Street Improvement Fund for the period of July 1, 2009, through June 30, 2013. 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, 2009, through June 30, 2011; and the Proposition 1B allocations recorded in the Special Gas Tax Street Improvement 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 in compliance with requirements, except that the city understated the fund balance by $43,954 as of June 30, 2013. The city understated the fund balance because it expended gas tax funds for non-street-related purposes. 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. 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 street and roads. The city recorded its Proposition 1B allocations in the Special Gas Tax Street Improvement Fund. A city also is required to expend its allocations within four years following the end of the fiscal year which the allocation was made and to be expended in compliance with Government Code section 8879.23. We conducted our audit of the city’s Proposition 1B allocations under the authority of Government Code section 12410. -1- Special Gas Tax Street Improvement Fund, City of San Fernando Traffic Congestion Relief Fund Allocations, and Proposition 1B Allocations Objective, Scope, Our audit objective was to determine whether the city accounted for and and Methodology expended the Special Gas Tax Street Improvement Fund, Traffic Congestion Relief Fund allocations, and Proposition 1B allocations in compliance with Article XIX of the California Constitution, Government Code section 8879.23, and the Streets and Highways Code. 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. 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 found that the City of San Fernando accounted for and expended its Special Gas Tax Street Improvement Fund, TCRF allocations, and Proposition 1B allocations in compliance with Article XIX of the California Constitution and the Streets and Highways Code for the period of July 1, 2009, through June 30, 2013, except as noted in Schedule 1 and described in the Findings and Recommendations section of this report. The findings required an adjustment of $43,954 to the city’s accounting records. Our audit also found 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, 2009, through June 30, 2011. -2- Special Gas Tax Street Improvement Fund, City of San Fernando Traffic Congestion Relief Fund Allocations, and Proposition 1B Allocations Follow-Up on Prior The city satisfactorily resolved the findings noted in our prior audit Audit Findings report, issued on January 26, 2011. Views of We issued a draft audit report on September 25, 2014. Nick Kimball, Finance Director, responded by letter dated October 7, 2014, agreeing Responsible with the audit results. The city’s response is included in this final audit Officials report as an attachment. Restricted Use This report is intended for the information and use of the City of San Fernando’s 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, CPA Chief, Division of Audits October 29, 2014 -3- Special Gas Tax Street Improvement Fund, City of San Fernando Traffic Congestion Relief Fund Allocations, and Proposition 1B Allocations Schedule 1— Reconciliation of Fund Balance July 1, 2012, through June 30, 2013 Special Gas Tax Street Improvement Fund Highway Users Tax Proposition 1B Allocations 1, 2 Allocations 3 Totals Beginning fund balance per city $ 561,635 $ 373,814 $ 935,449 Revenues 575,883 — 575,883 Total funds available 1,137,518 373,814 1,511,332 Expenditures (838,221) (351,434) (1,189,655) Ending fund balance per city 299,297 22,380 321,677 SCO adjustments: 4 Finding 1—Ineligible expenditure 18,494 — 18,494 Finding 2—Ineligible alley sweeping cost 25,460 — 25,460 — Total SCO adjustments 43,954 43,954 Ending fund balance per audit $ 343,251 $ 22,380 $ 365,631 ___________________________ 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, 2009, 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 Special Gas Tax Street Improvement Fund. The audit period was July 1, 2009, through June 30, 2011. The TCRF allocations were all spent by fiscal year 2010-11. 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. 4 See the Findings and Recommendations section. -4- Special Gas Tax Street Improvement Fund, City of San Fernando Traffic Congestion Relief Fund Allocations, and Proposition 1B Allocations Findings and Recommendations FINDING 1— In fiscal year 2012-13, the city made an $18,494 reimbursement of gas tax monies to the general fund for non-street administrative costs relating Ineligible expenditure to a grant used to purchase buses and related facilities. Streets and Highways Code section 2101 specifies that gas tax monies be expended only for street-related purposes. Recommendation The city should transfer $18,494 in to the Gas Tax Fund and establish policies and procedures to ensure the fund is only charged street-related expenditures. City’s Response The City will prepare and post a general ledger journal entry to transfer $18,494 from the General Fund to the Special Gas Tax Street Improvement Fund. Chapter 2, Section 2-653 of the City’s Code requires the establishment of a Special Gas Tax Street Improvement Fund and explicitly restricts the expenditure of Gas Tax monies exclusively for the purposes authorized by and subject to the provisions of Streets and Highways Code. To ensure proper compliance, a copy of Streets and Highway Code §§ 2106 – 2116 will be distributed to, and reviewed with, the appropriate Finance and Public Works Department staff. SCO’s Comment The city agrees with the finding and recommendation. FINDING 2— From fiscal year (FY) 2009-10 through FY 2012-13, the city made reimbursements totaling $25,460 ($5,534 in FY 2009-10; $6,642 in FY Ineligible alley- 2010-11; $6,642 in FY 2011-12; and, $6,642 in FY 2012-13) of gas tax sweeping cost monies to the general fund for non-street alley sweeping. Per the city’s municipal code a street is defined as a right-of-way open to or intended to be opened to the public primarily for the movement of vehicles and access to adjacent property. This definition does not include an alley or walkway. Streets and Highways Code section 2101 specifies that gas tax monies be expended only for street-related purposes. Recommendation The city should transfer $25,460 in to the Gas Tax Fund and establish policies and procedures to ensure the fund is only charged street-related expenditures. -5- Special Gas Tax Street Improvement Fund, City of San Fernando Traffic Congestion Relief Fund Allocations, and Proposition 1B Allocations City’s Response The City will prepare and post a general ledger journal entry to transfer $25,460 from the General Fund to the Gas Tax fund. Chapter 2, Section 2-653 of the City’s Code requires the establishment of a Special Gas Tax Street Improvement Fund and explicitly restricts the expenditure of Gas Tax monies exclusively for the purposes authorized by and subject to the provisions of Streets and Highway Code. To ensure proper compliance, a copy of Streets and Highways Code §§ 2106 – 2116 will be distributed to, and reviewed with, the appropriate Finance and Public Works Department staff. SCO’s Comment The city agrees with the finding and recommendation. -6- Special Gas Tax Street Improvement Fund, City of San Fernando Traffic Congestion Relief Fund Allocations, and Proposition 1B 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 C14-GTA-032