City of Irwindale September 2019

CITY OF IRWINDALE Audit Report SPECIAL GAS TAX STREET IMPROVEMENT FUND July 1, 2016, through June 30, 2017 BETTY T. YEE California State Controller September 2019 BETTY T. YEE California State Controller September 30, 2019 William Tam, City Manager City of Irwindale 5050 North Irwindale Avenue Irwindale, CA 91706 Dear Mr. Tam: The State Controller’s Office audited the City of Irwindale’s Special Gas Tax Street Improvement Fund to determine whether the city accounted for and expended its Special Gas Tax Street Improvement Fund in compliance with requirements for the period of July 1, 2016, through June 30, 2017. Our audit found 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 deficiency in internal control that is not significant to the audit objective, but warrants the attention of management. If you have any questions, please contact Efren Loste, Chief, Local Government Audits Bureau, by telephone at (916) 324-7226. Sincerely, Original signed by JIM L. SPANO, CPA Chief, Division of Audits JLS/as cc: The Honorable Albert Ambriz, Mayor City of Irwindale Eva Carreon, Finance Director City of Irwindale City of Irwindale 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 .................................................................................. 3 Views of Responsible Officials .......................................................................................... 3 Restricted Use .................................................................................................................... 3 Schedule—Reconciliation of Fund Balance ......................................................................... 4 Observation and Recommendation ...................................................................................... 5 Attachment—City of Irwindale’s Response to Draft Audit Report City of Irwindale Special Gas Tax Street Improvement Fund Audit Report Summary The State Controller’s Office (SCO) audited the City of Irwindale’s Special Gas Tax Street Improvement Fund to determine whether the city accounted for and expended its Special Gas Tax Street Improvement Fund in compliance with requirements for the period of July 1, 2016, through June 30, 2017. Our audit found 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 deficiency in internal control that is not significant to the audit objective, but warrants the attention of management. Background The State apportions funds monthly from the Highway Users Tax Account (HUTA) in the Transportation Tax Fund to cities1 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 Streets and Highways Code, cities must establish individual Special Gas Tax Street Improvement Funds for the deposit of their HUTA fund apportionments. Additionally, cities must expend their HUTA fund apportionments only for street-related purposes in accordance with Article XIX of the California Constitution and Streets and Highways Code. We conducted our audit of the city’s Special Gas Tax Street Improvement Fund under the authority of Government Code (GC) 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 in compliance with Article XIX of the California Constitution and Streets and Highways Code. The audit period was July 1, 2016, through June 30, 2017. To achieve our objective, we:  Gained a limited understanding of internal controls that would have an effect on the reliability of the accounting records of the Special Gas Tax Street Improvement Fund by interviewing key personnel, completing an internal control questionnaire, and reviewing the city’s organization chart;  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; 1Includes towns. -1- City of Irwindale Special Gas Tax Street Improvement Fund  Verified the accuracy of fund balances by performing a fund balance reconciliation for the period of July 1, 2011, through June 30, 2016, and by recalculating the trial balance for the period of July 1, 2016, through June 30, 2017;  Verified that the components of and changes to fund balances were properly computed, described, classified, and disclosed by scheduling and analyzing the Special Gas Tax Street Improvement Fund account balances;  Reconciled the fund revenue recorded in the city ledger to the balance reported in the SCO’s apportionment schedule for fiscal year 2016-17 to determine whether HUTA apportionments received by the city were completely accounted for;  Reviewed city accruals and adjustments for validity and eligibility;  Analyzed the system used to allocate interest and determined whether the interest revenue allocated to the Special Gas Tax Street Improvement Fund was fair and equitable, by interviewing key personnel and recalculating all interest allocations for the audit period;  Reviewed the fund cash and receivables accounts for unauthorized borrowing to determine whether unexpended HUTA funds were available for future street-related expenditures and protected from impairment; and  Verified that the expenditures incurred during the audit period were supported by proper documentation and eligible in accordance with the applicable criteria, by testing all $6,557 in expenditures. We did not audit the city’s financial statements. We limited our audit scope to planning and performing audit procedures necessary to obtain reasonable assurance that the city accounted for and expended its Special Gas Tax Street Improvement Fund in accordance with the criteria. We considered the city’s internal controls only to the extent necessary to plan the audit. 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 objective. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective. Conclusion Our audit found that the City of Irwindale accounted for and expended its Special Gas Tax Street Improvement Fund in compliance with Article XIX of the California Constitution and Streets and Highways Code for the period of July 1, 2016, through June 30, 2017. However, we identified a deficiency in internal control that is not significant to the audit objective, but warrants the attention of management. This deficiency is described in the Observation and Recommendation section of this audit report. -2- City of Irwindale Special Gas Tax Street Improvement Fund Follow-up on Prior Our prior audit report for the period of July 1, 2006, through June 30, Audit Findings 2011, issued on May 9, 2012, disclosed no findings. Views of We issued a draft report on July 26, 2019. William Tam, City Manager, responded by letter dated May 2, 2019, disagreeing with the observation. Responsible The city’s response is included in this final audit report as an attachment. Officials Restricted Use This audit report is solely for the information and use of the City of Irwindale 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 audit report, which is a matter of public record and is available on the SCO website at www.sco.ca.gov. Original signed by JIM L. SPANO, CPA Chief, Division of Audits September 30, 2019 -3- City of Irwindale Special Gas Tax Street Improvement Fund Schedule— Reconciliation of Fund Balance July 1, 2016, through June 30, 2017 Special Gas Tax Street Improvement Fund1 Beginning fund balance per city $ 110,714 Revenues 32,660 Total funds available 143,374 Expenditures (6,557) Ending fund balance per city $ 136,817 Ending fund balance per audit $ 136,817 ___________________________ 1Cities receive apportionments from the State HUTA, 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-related 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. Cities must establish individual Special Gas Tax Street Improvement Funds for the deposit of their HUTA fund apportionments. -4- City of Irwindale Special Gas Tax Street Improvement Fund Observation and Recommendation OBSERVATION— The city did not comply with GC section 41004 for fiscal year 2016-17. Non-compliance This section requires the city treasurer to submit to the city clerk a monthly written report and an accounting of all receipts, disbursements, and fund with Government Code balances. section 41004 Compliance with GC section 41004 increases the accountability of receipts, disbursements, and fund balances. We identified this error when reviewing the city’s cash and fund balance controls. The city did not have internal controls in place to ensure compliance with the above requirement. The city’s non-compliance with this requirement does not affect the Special Gas Tax Street Improvement Fund’s compliance with Article XIX of the California Constitution and the Streets and Highways Code. Recommendation We recommend that the city establish internal controls to ensure compliance with GC section 41004. City’s Response In its response, the city stated, in part: - With respect to disbursements, the City actually provides a report to the legislative body twice per month, at every City Council Meeting. These reports include a detailed listing of all vendor checks, payroll disbursements, and electronic payments. - The City also presents an investment report to the legislative body every three months. This report provides a summary of the City’s receipts and cash balances for all City funds and agencies. A more detailed presentation of the City’s cash and budget positions is presented by the City during its Mid-Year Financial Report to the legislative body. Therefore, in response to the draft audit report observation noted, the City respectfully requests that it be revised to more accurately reflect that the City is at least in partial compliance with GC Section 41004. The City will revise its procedures to provide the report of receipts and cash balances on a monthly basis to be in full compliance. SCO Comment Our observation remains unchanged. The city indicated that it provides to the legislative body, twice per month, a report that includes a detailed listing of all vendor checks, payroll disbursements, and electronic payments; however, the report excludes receipts and fund balances. -5- City of Irwindale Special Gas Tax Street Improvement Fund The city also indicated that it presents to the legislative body, every three months, an investment report summarizing the city’s receipts and cash balances for all city funds and agencies. However, the report, which is intended to meet requirements of GC section 53646(b)(1), excludes disbursement and fund balance information required by GC section 41004. Individually or in combination, the two reports noted by the city in its response do not meet the criteria set forth in GC section 41004, which requires the city treasurer to submit to the city clerk a monthly written report and an accounting of all receipts, disbursements, and fund balances. -6- City of Irwindale Special Gas Tax Street Improvement Fund Attachment— City of Irwindale’s Response to Draft Audit Report State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250 http://www.sco.ca.gov C18-GTA-0012