City of Vallejo

CITY OF VALLEJO Audit Report SPECIAL GAS TAX STREET FUND AND ROAD MAINTENANCE AND REHABILITATION PROGRAM July 1, 2022, through June 30, 2023 M M. C ALIA OHEN C ALIFORNIA S TATE C ONTROLLER November 2024 MALIA M. COHEN CALIFORNIA STATE CONTROLLER November 7, 2024 Ms. Rekha Nayar, Finance Director City of Vallejo 555 Santa Clara Street Vallejo, CA 94590 Dear Ms. Nayar: The State Controller’s Office audited the City of Vallejo’s Special Gas Tax Street Fund and the city’s Road Maintenance and Rehabilitation Program (RMRP) for the period of July 1, 2022, through June 30, 2023. Our audit found that the City of Vallejo accounted for and expended its Special Gas Tax Street Fund and its RMRP funds in compliance with requirements. Additionally, the city complied with its RMRP maintenance-of-effort requirements. If you have any questions regarding this report, please contact Efren Loste, Chief, Local Government Audits Bureau, by telephone at 916-324-7226, or email at eloste@sco.ca.gov. Thank you. Sincerely, Original signed by Kimberly A. Tarvin, CPA Chief, Division of Audits KAT/rs Copy: The Honorable Robert McConnell, Mayor City of Vallejo Andrew Murray, City Manager City of Vallejo MAILING ADDRESS P.O. Box 942850, Sacramento, CA 94250 SACRAMENTO 3301 C Street, Suite 700, Sacramento, CA 95816 | 916.324.8907 LOS ANGELES 901 Corporate Center Drive, Suite 200, Monterey Park, CA 91754 | 323.981.6802 City of Vallejo Special Gas Tax Street Fund and Road Maintenance and Rehabilitation Program Contents Audit Report Summary ............................................................................................................................ 1 Background ........................................................................................................................ 1 Audit Authority.................................................................................................................. 1 Objectives, Scope, and Methodology ............................................................................... 1 Conclusion .......................................................................................................................... 3 Follow-up on Prior Audit Findings .................................................................................. 3 Views of Responsible Officials .......................................................................................... 3 Restricted Use .................................................................................................................... 4 Schedule—Reconciliation of Fund Balance ......................................................................... 5 City of Vallejo Special Gas Tax Street Fund and Road Maintenance and Rehabilitation Program Audit Report Summary The State Controller’s Office (SCO) audited the City of Vallejo’s (the city) Special Gas Tax Street Fund and the city’s Road Maintenance and Rehabilitation Program (RMRP) for the period of July 1, 2022, through June 30, 2023. Our audit found that the city accounted for and expended its Special Gas Tax Street Fund and RMRP funds in compliance with requirements. Additionally, the city complied with its RMRP maintenance-of-effort requirements. 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. Senate Bill 1 (Chapter 5, Statutes of 2017), known as the Road Repair and Accountability Act of 2017, created the RMRP to address deferred maintenance on the state highway system and the local street and road systems. Program funds are apportioned by formula to eligible cities and counties pursuant to Streets and Highways Code (SHC) section 2032. Article XIX of the California Constitution and SHC sections 2030 through 2038 provide the requirements for RMRP funding. Audit Authority We conducted this audit in accordance with 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. Objectives, Scope, Our audit objectives were to determine whether the city: and Methodology • Accounted for and expended the Special Gas Tax Street Fund and RMRP funds in compliance with Article XIX of the California Constitution, the Streets and Highways Code, and the Government Code; and • Was in compliance with the RMRP maintenance-of-effort (MOE) requirements. The audit period was July 1, 2022, through June 30, 2023. -1- City of Vallejo Special Gas Tax Street Fund and Road Maintenance and Rehabilitation Program To achieve our objectives, we completed the following procedures: • We obtained an understanding and evaluated the effectiveness of the city’s internal controls that are significant to the audit objective by reviewing policies and procedures, interviewing key personnel, completing an internal control questionnaire, reviewing the city’s organization chart, and inspecting documents and records. • 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 objectives. • 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, 2005, through June 30, 2022; by recalculating the Special Gas Tax Street Fund trial balance for the period of July 1, 2022, through June 30, 2023; and by recalculating the RMRP trial balance for the period of July 1, 2017, through June 30, 2023. • We verified that the components of and changes to fund balances were properly computed, described, classified, and disclosed by scheduling and analyzing account balances. • We reconciled the revenues recorded in the city’s ledger to the balance reported in the SCO’s apportionment schedule for the period of July 1, 2022, through June 30, 2023, to determine whether the city completely accounted for HUTA and RMRP fund apportionments that it received. • We reviewed the city’s Special Gas Tax Street Fund and RMRP assets to ensure that they were properly recorded and identified. • We analyzed the system used to allocate interest and determined whether the interest revenue allocated to the Special Gas Tax Street Fund and the RMRP 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 funds were available for future street-related expenditures and protected from impairment. • We compared the city’s RMRP project list with the list submitted to the California Transportation Commission to ensure that actual RMRP expenditures were for program projects approved by the California Transportation Commission. • We recalculated the city’s MOE contributions to verify that the city is in compliance with RMRP MOE requirements. -2- City of Vallejo Special Gas Tax Street Fund and Road Maintenance and Rehabilitation Program • 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 Special Gas Tax Street Fund ▪ Services and supplies – We tested $508,562 of $991.638. ▪ Indirect – We tested $1,734,709 of $3,385,419. o RMRP ▪ Services and supplies – We tested $292,434 of $447,924. ▪ Indirect – We tested $300,000 of $304,500. No errors were found. 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 and its RMRP funds in accordance with the criteria. 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. Our audit found that the city accounted for and expended its Special Gas Conclusion Tax Street Fund and its RMRP funds in compliance with Article XIX of the California Constitution, the Streets and Highways Code, and Government Code for the period of July 1, 2022, through June 30, 2023. Additionally, the city complied with its RMRP MOE requirements. Follow-up on Our prior audit report on the city for the period of July 1, 2004, through Prior Audit June 30, 2005, issued on October 12, 2006, disclosed no findings. Findings Views of We discussed the audit results with the city’s representative during an exit conference conducted on September 19, 2024. At the exit conference, the Responsible city’s representative agreed with the audit results. Officials -3- City of Vallejo Special Gas Tax Street Fund and Road Maintenance and Rehabilitation Program Restricted Use This report is solely for the information and use of the city 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 A. Tarvin, CPA Chief, Division of Audits November 7, 2024 -4- City of Vallejo Special Gas Tax Street Fund and Road Maintenance and Rehabilitation Program Schedule— Reconciliation of Fund Balance July 1, 2022, through June 30, 2023 Cities receive apportionments from the State HUTA, pursuant to SHC sections 2103, 2105, 2106, 2107, and 2107.5. The basis of the apportionments varies, but the funds may be used for any street-related purpose. SHC 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 fund apportionments. Cities also receive apportionments from the Road Maintenance and Rehabilitation Account of the State Transportation Fund, pursuant to SHC section 2032(h). These funds may be used for basic road maintenance, rehabilitation, and critical safety projects on local streets and roads systems. Furthermore, SHC section 2036 establishes the MOE requirements, which cities must meet annually in order to remain eligible for an allocation or apportionment of funds. The city’s required MOE is $905,103. The following table shows the beginning and ending balances for the city’s Special Gas Tax Street Fund and RMRP: Road Special Gas Tax Maintenance Street Fund and Highway Users Rehabilitation Tax Account Fund Total Reconciliation of Fund Balance Amount Amount Amount Beginning fund balance, per city $ 2,989,049 $ 5,155,876 $ 8,144,925 Revenues 4,864,973 2,871,284 7 ,736,257 Total funds available 7,854,022 8,027,160 15,881,182 Less: Expenditures 4,377,057 7 52,424 5 ,129,481 Ending fund balance, per city 3,476,965 7,274,736 10,751,701 Audit adjustment - - - Ending fund balance, per audit $ 3,476,965 $ 7,274,736 $ 10,751,701 -5- State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250 www.sco.ca.gov S25-GTA-0002