City of Ontario,

CITY OF ONTARIO Audit Report SPECIAL GAS TAX STREET FUND July 1, 2020, through June 30, 2021 M M. C ALIA OHEN California State Controller July 2023 M M. C ALIA OHEN California State Controller July 27, 2023 Scott Ochoa, City Manager City of Ontario 303 East B Street Ontario, CA 91764 Dear Mr. Ochoa: The State Controller’s Office audited the City of Ontario’s Special Gas Tax Street Fund to determine whether the city accounted for and expended its Special Gas Tax Street Fund in compliance with requirements for the period of July 1, 2020, through June 30, 2021. Our audit found an instance of non-compliance. The city understated the fund balance by $9,059 as of June 30, 2021, because it under-allocated interest revenue to the Special Gas Tax Street Fund in fiscal year 2020-21. If you have any questions, please contact Efren Loste, Chief, Local Government Audits Bureau, by telephone at (916) 324-7226, or by email at eloste@sco.ca.gov. Sincerely, Original signed by KIMBERLY TARVIN, CPA Chief, Division of Audits KT/rs cc: The Honorable Paul S. Leon, Mayor City of Ontario Armen Harkalyan, Executive Director of Finance City of Ontario City of Ontario Special Gas Tax Street Fund Contents Audit Report Summary ............................................................................................................................ 1 Background ........................................................................................................................ 1 Audit Authority.................................................................................................................. 1 Objective, Scope, and Methodology ................................................................................. 1 Conclusion .......................................................................................................................... 3 Follow-up on Prior Audit Findings .................................................................................. 3 Views of Responsible Officials .......................................................................................... 3 Restricted Use .................................................................................................................... 3 Schedule—Reconciliation of Fund Balance ......................................................................... 4 Finding and Recommendation .............................................................................................. 5 Attachment—City of Ontario’s Response to Draft Audit Report City of Ontario Special Gas Tax Street Fund Audit Report Summary The State Controller’s Office (SCO) audited the City of Ontario’s Special Gas Tax Street Fund to determine whether the city accounted for and expended its Special Gas Tax Street Fund in compliance with requirements for the period of July 1, 2020, through June 30, 2021. Our audit found an instance of non-compliance. The city understated the fund balance by $9,059 as of June 30, 2021, because it under-allocated interest revenue to the Special Gas Tax Street Fund in fiscal year (FY) 2020-21. Background The State apportions funds monthly from the Highway Users Tax Account (HUTA) 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 Streets and Highways Code, cities must establish individual Special Gas Tax Street 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. Audit Authority We conducted this audit of the city’s Special Gas Tax Street Fund under the authority of Government Code section 12410, which provides the SCO with general authority to audit the disbursement of state money for correctness, legality, and sufficient provisions of law for payment. Objective, Scope, Our audit objective was to determine whether the City of Ontario and Methodology accounted for and expended its Special Gas Tax Street Fund in compliance with Article XIX of the California Constitution and Streets and Highways Code. The audit period was July 1, 2020, through June 30, 2021. To achieve our objective, we completed the following procedures:  We interviewed key personnel, completed an internal control questionnaire, and reviewed the city’s organization chart to obtain an understanding of the internal controls to the extent necessary to plan the audit. We deemed all components of internal control significant to our audit objective.  We assessed the reliability of computer-processed data by reviewing existing information about the data and the system that produced it; by interviewing city officials knowledgeable about the data; and by tracing data to source documents, based on auditor judgment and non- statistical sampling. We determined that the data was sufficiently reliable for the purposes of achieving our audit objective. -1- City of Ontario Special Gas Tax Street Fund  We conducted a risk assessment to determine the nature, timing, and extent of substantive testing.  We performed analytical procedures to identify and explain the existence of unusual or unexpected account balances.  We verified the accuracy of fund balances by performing a fund balance reconciliation for the period of July 1, 2014, through June 30, 2020, and by recalculating the trial balance for the period of July 1, 2020, through June 30, 2021.  We 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 Fund account balances.  We reconciled the fund revenue recorded in the city ledger to the balance reported in the SCO’s apportionment schedule for FY 2020-21 to determine whether HUTA apportionments received by the city were completely accounted for.  We reviewed city accruals and adjustments for validity and eligibility.  We analyzed the system used to allocate interest and determined whether the interest revenue allocated to the Special Gas Tax Street Fund was fair and equitable, by interviewing key personnel and recalculating all interest allocations for the audit period.  We 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.  We 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 expenditure transactions that were equal to or greater than the significant item amount (calculated based on materiality threshold), and judgmentally selecting non- statistical samples of other transactions for the following categories: o Services and supplies – We tested $1,617,993 of $3,631,046. o Labor – We tested $143,617 of $1,415,272. o Indirect – We tested $22,567 of $967,931. o Transfers – We tested $2,662,323 of $2,687,843. For the selected samples, errors found were not projected to the intended (total) population. 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 Fund in accordance with the criteria. We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we -2- City of Ontario Special Gas Tax Street Fund 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 an instance of non-compliance for the period of July 1, 2020, through June 30, 2021, as quantified in the Schedule and described in the Finding and Recommendation section. The finding requires an adjustment of $9,059 to the City of Ontario’s accounting records. Follow-up on Prior Our prior audit report for the period of July 1, 2007, through June 30, Audit Findings 2014, issued on November 2, 2015, disclosed no findings. Views of We issued a draft audit report on May 17, 2023. The City of Ontario’s representatives responded by letter dated May 25, 2023, agreeing with the Responsible audit results. This final audit report includes the city’s response as an Officials attachment. Restricted Use This audit report is solely for the information and use of the City of Ontario 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 and is available on the SCO website at www.sco.ca.gov. Original signed by KIMBERLY TARVIN, CPA Chief, Division of Audits July 27, 2023 -3- City of Ontario Special Gas Tax Street Fund Schedule— Reconciliation of Fund Balance July 1, 2020, through June 30, 2021 The following table shows the beginning and ending balances for City of Ontario's Special Gas Tax Street Fund: Special Gas Tax Street Reconciliation of Fund Balance Fund1 Beginning fund balance per city $ 5,033,269 Revenues 4,061,399 Total funds available 9,094,668 Expenditures (6,014,249) Transfers out (2,687,843) Ending fund balance per city $ 392,576 Interest revenue Finding: Under-allocated interest revenue 9,059 Ending fund balance per audit $ 401,635 ___________________________ 1 Cities receive apportionments from the 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 Funds for the deposit of their HUTA apportionments. -4- City of Ontario Special Gas Tax Street Fund Finding and Recommendation FINDING— During our recalculation of interest allocations for the audit period, we Under-allocated found that the City of Ontario had under-allocated the interest income to the Special Gas Tax Street Fund by $9,059. The city allocated a total of interest revenue $33,480 in interest revenue to the fund; however, based on our recalculation, the interest income allocable to the fund was $42,539. Therefore, the city did not allocate fair and equitable interest revenue to the Special Gas Tax Street Fund during FY 2020-21. Streets and Highways Code section 2113(e) requires that interest received by a city from the investment of money in its Special Gas Tax Street Fund be deposited in the fund and be used for street purposes. Recommendation We recommend that the city:  Review its procedures to ensure that interest revenue allocated to the Special Gas Tax Street Fund is fair and equitable; and  Credit an additional $9,059 in interest revenue to the Special Gas Tax Street Fund. SCO Comments The city agreed with the finding and has made a journal entry to credit the Special Gas Tax Street Fund an additional $9,059 in interest revenue. -5- City of Ontario Special Gas Tax Street Fund Attachment— City of Ontario’s Response to Draft Audit Report State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250 www.sco.ca.gov C22-GTA-0006