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HomeMy WebLinkAbout06. Accept (1) audited financials and (2) auditors' memo on internal control and required communications for FY 2019-20 Page 1 of 111 Item 6. CENTRAL SAN BOARD OF DIRECTORS POSITION PAPER MEETING DATE: DECEMBER 17, 2020 SUBJECT: ACCEPT (1) THE AUDITED COMPARATIVE COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR) FOR THE FISCAL YEARS ENDED JUNE 30, 2020 AND 2019 PERFORMED BY MAZE &ASSOCIATES, AND (2) THE INDEPENDENTAUDITORS' MEMORANDUM ON INTERNAL CONTROL AND REQUIRED COMMUNICATIONS FOR THE FISCAL YEAR ENDED JUNE 30, 2020. SUBMITTED BY: INITIATING DEPARTMENT: KEVIN MIZUNO, FINANCE MANAGER ADMINISTRATION-FINANCE REVIEWED BY: PHILIP LEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION ROGER S. BAILEY, GENERAL MANAGER Roger S. Bailey General Manager ISSUE The comparative audited CAFR of the District for the fiscal years ended June 30, 2020 and 2019, and the independent auditors' memorandum on internal control and required communications for the year ended June 30, 2020 are being submitted to the Board BACKGROUND Independent Audit Results The independent audit firm of Maze &Associates has completed their seventh consecutive audit of Central San's annual financial statements for the fiscal years ended June 30, 2020, and 2019, and has issued their audit opinion thereon. The objective of this annually required independent audit is the expression of an opinion as to whether the basic financial statements are fairly presented, in all material respects, in conformity with United States generally accepted accounting principles (GAAP) and to report December 17, 2020 Regular Board Meeting Agenda Packet- Page 25 of 173 Page 2 of 111 on the fairness of the supplementary information in relation to the financial statements taken as a whole. The audit is conducted in accordance with auditing standards generally accepted in the United States (GAAS). GAAS require the independent auditor to plan and perform the audit to obtain reasonable, but not absolute, assurance about whether the financial statements are free from material misstatement. Procedures performed necessary to gather sufficient audit evidence supporting their opinion are based on a comprehensive assessment of Central San's financial risks, and incorporate an element of both internal control risks and inherent business risks. Management is pleased to announce Central San's independent auditor's report for the fiscal years ending June 30, 2020 and 2019 expresses an unmodified (clean) opinion. As always, the Independent Auditors' Report including the audit opinion is included on page 1 of the attached financial statements (Attachment 1). In accordance with Califomia Govemment Code Section 53891, information from the audit is also used to prepare an annual report filed with the State Controller's Office (SCO). This report is referred to as the Financial Transactions Report(FTR), and is prepared following strict reporting guidelines published by the SCO annually. Now that the annual independent audit has been completed, the FTR for the FY ended June 30, 2020 will be remitted electronically by the January 31, 2021 reporting deadline. The audited financial statements will also be sent to the Contra Costa County County Auditor-Controller's Office, the Contra Costa County Board of Supervisors, the Bond Rating Agencies, and posted to the Electronic Municipal Market Access (EMMA)website as required by the 2018 bond's continuing disclosure requirements. I n accordance with GAAS, in the performance of their audit of the annual financial statements, the independent auditors evaluated Central San's internal controls over financial reporting. Based on their observations during the course of the audit, the independent auditors notify management of any significant deficiencies or material misstatements and any recommendations to improve the system of internal accounting controls. The independent auditors are required to communicate certain matters to those charged with governance at the conclusion of the audit, which is addressed by their"Memorandum on Internal Control and Required Communications" (Attachment 2). In addition to the clean audit opinion, Management is also pleased to report there were no significant deficiencies or material misstatements identified by the auditors as part of this year's audit. Financial Summary Pursuant to GAAP, as a stand-alone business-type governmental entity, the District uses an enterprise fund format to report its activities for financial statement purposes. Under this enterprise fund format, all non-fiduciary sub-funds of the District (i.e. Running Expense, Sewer Construction, Self-Insurance, Debt Service) are consolidated into a single reporting unit and reported in a Statement of Net Position; Statement of Revenues, Expenses and Changes in Net Position; and a Statement of Cash Flows. This consolidated reporting unit is considered an "opinion unit" and is what District's independent auditors have rendered their(clean) opinion on. Accordingly, the emphasis of the annual audited financial statements is at the District-wide level pursuant to GAAP, and not at the sub-fund level. Overall, at the audited entity-wide level, the District's net position improved considerably, increasing by $63.6 million (9.0%)to a total of$767.8 million as of June 30, 2020. By far the largest portion of the District's net position (90.1%) reflects its investment in capital assets (i.e. land, buildings, machinery, equipment, infrastructure, etc.), which are critical in the collection, treatment, disposal, and recycling of wastewater helping to achieve its mission to protect public health and the environment. Of this total net position, $75.6 million (9.9%)was reported as unrestricted, which represents a noteworthy increase of $9.8 million over the prior year's unrestricted net position of$48.8 million. This increase in unrestricted net position resulted primarily from significant reductions to the net OPEB liability following the District's transition to CaIPERS Healthcare for active and retired participants effective July 1, 2019 as well as favorable expenditure and revenue budgetary results for the fiscal year ended June 30, 2020. A more detailed analysis of the financial statements is included in the Management's Discussion and Analysis December 17, 2020 Regular Board Meeting Agenda Packet- Page 26 of 173 Page 3 of 111 beginning on page 3 of the CAFR. GFOA Award Program The Government Finance Officers Association (GFOA) is a professional association of state/provincial and local finance officers in the United States and Canada, and has served the public finance profession since 1906. The GFOA established the Certificate of Achievement for Excellence in Financial Reporting Program in 1945 to encourage and assist state and local governments to go beyond the minimum requirements of generally accepted accounting principles (GAAP) issued by the Government Accounting Standards Board (GASB) and to prepare CAFR that provide transparency and full disclosure, and then recognize individual governments that succeed in achieving that goal. On August 27, 2020, the Central San was awarded a Certificate of Achievement for Excellence in Financial Reporting by the GFOA for the report submitted for the fiscal year ended June 30, 2019, representing the 20th consecutive year Central San has received the award. The Certificate of Achievement is the highest form of recognition for excellence in state and local government financial reporting. In order to be awarded a Certificate of Achievement, a government agency must publish an easily readable report in a prescribed format report that complies with GAAP as well as GFOA program requirements. The CAFR includes ten years of District historical, financial, and statistical data. The CAFR provides a concise document for internal management use, as well as external use with other agencies, and is posted on the District's website for the general public. A Certificate of Achievement is valid for a period of one year. The Finance Division has prepared the District's CAFR as of June 30, 2020. Management is confident that the current CAFR continues to meet the Certificate of Achievement for Excellence in Financial Reporting Program requirements and intends to submit it to the GFOA to determine its eligibility for another certificate. ALTERNATIVES/CONSIDERATIONS The Board could elect not to pursue the GFOA award for the financial report. However, pursuing the award is advised, a best practice, and consistent with Central San's strategic plan to goal to provide exceptional customer service and maintain an excellent reputation in the community. FINANCIAL IMPACTS The acceptance of the audited CAFR for the comparative fiscal years ending June 30, 2020 and 2019 does not have direct fiscal impact on the District. Staff intends to submit the attached CAFR to the GFOA for the Certificate ofAchievement for Excellence in Financial Reporting program, for which there is an application fee for submission of a CAFR for review based on total revenues of the entity applying. Based on this sliding fee schedule, the District's fee is expected to be $560. Funding necessary to cover this cost was included in the adopted budget for the current fiscal year ending June 30, 2021. COMMITTEE RECOMMENDATION On December 15, 2020, the Finance Committee reviewed the draft CAFR for the fiscal year ended June 30, 2020. RECOMMENDED BOARD ACTION Acceptthe audited CAFR for the fiscal years ended June 30, 2020 and 2019, and the auditors' memorandum on internal control and required communications for the fiscal year ended June 30, 2020. December 17, 2020 Regular Board Meeting Agenda Packet- Page 27 of 173 Page 4 of 111 Strategic Plan Tie-In GOAL ONE: Customer and Community Strategy 2—Maintain a positive reputation GOAL THREE:Fiscal Responsibility Strategy 1—Maintain financial stability and sustainability, Strategy 2—Ensure integrity and transparency in financial management ATTACHMENTS: 1. Comprehensive Annual Financial Report for Fiscal Years ended June 30, 2020 and 2019 2. Memorandum on Internal Control and Required Communications December 17, 2020 Regular Board Meeting Agenda Packet- Page 28 of 173