The URL can be used to link to this page

Home My WebLink AboutSR - - AUDITED FINANCIAL STATEMENTS & RELATED FINANCIAL REPORTS YEAR ENDED JUNE 30 2013 ATTACHMENTS 2 THROUGH 7 ��'� •David E.Hale,CPA,CFP •Bryan S.Gruber,CPA � �� •Donald G.Slater,CPA •Deborah A Harper,CPA ��r •Richard K.Kikuchi,CPA •Gary 0.Cates,CPA •Susan F.Ma�,CPA •Michael D.Mangold,CPA CEHTIFIED PUBIiC ACCOUNTANiB •ShellyK.Jackley,CPA •DavidS.Myers,CPA A DIWWon of LSL.CPAa vi�mure>pee�er&boucher December 11, 2013 To the Honorable Mayor and Members of the City Council City of Orange, Califomia We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Orange (the City) for the year ended June 30, 2013. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and, Government Auditing Standards and OMB Circular A-133, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated July 1, 2013. Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Findinqs Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in the notes to the financial statements. As described in Note 1 to the financial statements, the City changed its accounting policies related to debt issuance cost by adopting Statement of Governmental Accounting Standards (GASB Statement) No. 65, Items Previously Reported as Assets and Liabilities, in the fiscal year ended June 30, 2013. Accordingly, the cumulative effect of the accounting change as of the beginning of the fiscal year is reported in the Statement of Activities and the Statement of Changes in Net Position. We noted no transactions entered into by the governmental unit during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on managemenYs knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The financial statement disclosures are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. ATTACHMENT 2 Lance,Soll&Lunghard, LLP 203 North Brea Boulevard ° Suite 203 Brea,CA 92821 TEL 714.672.0022 Fax 714.672.0331 www.lslcpas.com Orange Caanty Temecula Valtey Silicon Ua!!ey Los Angeles Cnunty �� . � •� LERTSfiED FitHLii pC69llN1Atl7S � •aivaa�on ar w�u.orwn vi�.inure,ry�eLer S,t�ouche:r To the Honorable Mayor and Members of the City Council City of Orange, California Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. These differences are described below. In addition, none of the misstatements detected as a result of audit procedures by management were material, either individually or in the aggregate, to the financial statements taken as a whole. Current Year Ooer (Under)Re�enues and Expenditures/Expenses and Changes in Fund Unadjusted Audit Differences Balance/Equity Unrecorded Depreciation on Infrastructure $ 102,844 Re�enue not reclassed to Uneamed 65,734 Cumulati�e effect(before effect of prior year differences) 168,578 Effect of unadjusted audit difference-prior year (70,618) Cumulati�e effect(after effect of prior year differences) $ 97,960 Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated December 11, 2013. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the governmental uniYs financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge,there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the governmental uniYs auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. L�I� �� tr,r�r�to rusiic icinu�3es�s Y�w 4:4:wwsa�w tsi.�c+nns vi�.mure,�ee�rs il i�nut�rer To the Honorable Mayor and Members of the City Council City of Orange, California Other Matters With respect to the supplementary information accompanying the financial statements, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and compiete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. The following new Governmental Accounting Standards Board (GASB) pronouncements were effective for fiscal year 2012-2013 audit: GASB Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements. The City was not affected by this pronouncement at this time. GASB Statement No. 61, The Financial Reporting Entity: Omnibus-an amendment of GASB Statement 14 and 34. The City properly imp/emented this pronouncement. GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and A/CPA Pronouncements. The City properly implemented this pronouncement. GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. The City properly implemented this pronouncement. The City elected to early implement GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. The following Governmental Accounting Standards Board (GASB) pronouncements are effective in your next fiscal year 2013-2014 audit and should be reviewed for proper implementation by management: GASB Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees. This information is intended solely for the use of the members of the City Council or individual(s)charged with governance and management of the City and is not intended to be, and should not be, used by anyone other than these specified parties. Very truly yours, � .,�� -� �'�,� , � Brea, California ;�� ;:%o,,; f � CERTIFIED PUBUC ACCOUNTANTS °= David E.Hale,CPA,CFP �Donald G.Slater,CPA ° Richard K.IGkuchi,CPA Susan E Matr,CPA ^Shelly K.Jackley,CPA Bryan S.Gruber,CPA �Deborah A Harper,CPA _. .._._.... Brandon W.Burrows,CPA,Retlred INDEPENDENT ACCOUNTANTS' REPORT ON AGREED-UPON PROCEDURES APPLIED TO APPROPRIATIONS LIMIT WORKSHEETS To the Honorable Mayor and Members of the City Council City of Orange, California We have performed the procedures enumerated below to the accompanying Appropriations Limit Worksheet No. 6(or other alternative computation)of the City of Orange, California,for the year ended June 30, 2013. These procedures,which were agreed to by the City of Orange,California,and the League of California Cities (as presented in the publication entitled Agreed-Upon Procedures Applied to the Appropriations Limitation Prescribed by Article XI II-B of the California Constitution),were performed solely to assist the City of Orange, California,in meeting the requirements of Section 1.5 of Article XIII-B of the California Constitution.The City of Orange's management is responsible for the Appropriations Limit Worksheet No. 6 (or other alternative computation). This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants.The sufficiency of these procedures is solely the responsibility of those parties specified in this report. Consequently, we make no representation regarding the sufficiency of the procedures described below,either for the purpose for which this report has been requested or for any other purpose. The procedures performed and our findings were as foilows: 1. We obtained the completed Worksheets No. 1 through No.7(or other alternative computations)and compared the limit and annual adjustment factors included in those worksheets to the limit and annua� adjustment factors that were adopted by resolution of the City Council. We also compared the population and inflation options included in the aforementioned worksheets to those that were selected by a recorded vote of the City Council. Finding: No exceptions were noted as a result of our procedures. 2. For the accompanying Appropriations Limit Worksheet No.6,we multiplied line A,last year's limit,by line D, ratio of change, and agreed the resulting amount to line E,this year's limit. Finding: No exceptions were noted as a result of our procedures. 3. We compared the current year information presented in the accompanying Appropriations Limit Worksheet No. 6 to the other worksheets described in No. 1 above. Finding: No exceptions were noted as a result of our procedures. 4. We compared the prior year appropriations limit presented in the accompanying Appropriations Limit Worksheet No. 6 to the prior year appropriations limit adopted by the Ciry Council for the prior year. Finding: No exceptions were noted as a result of our procedures. ATTACHMENT 3 Lance,Soll&Lunghard,LLP 203 North Brea Boulevard Suite 203 Brea,CA 92821 TEL 714.672.0022 Fax 714.672.0331 www.islcpas.com Orange County Temecula Yalley Silicon Valtey L�Lz:� _ __ . CERTIFIfD Pll611t ACCDllpTRkTS To the Honorable Mayor and Members of the City Council City of Orange, California Page 2 We were not engaged to and did not perform an audit,the objective of which would be the expression of an opinion on the accompanying Appropriations Limit Worksheet No. 6 (or other alternative computation). Accordingly,we do not express such an opinion.Had we performed additional procedures,other matters might have come to our attention that would have been reported to you. No procedures have been performed with respect to the determination of the appropriation limit for the base year,as defined by the League publication entitled Article XIIIB Appropriations Limitation Uniform Guidelines. This report is intended solely for the use of the City of Orange and should not be used by those who have not agreed to the procedures and taken responsibility for the su�ciency of the procedures for their purposes. However,this report is a matter of public record and its distribution is not limited. �s�, .��-� , �'�'� � Brea, California May 30, 2013 CITY OF ORANGE 2012-2013 APPROPRIATIONS LIMIT CALCULATION A. 2011-2012 APPROPRIATIONS LIMIT: $ 133,820,121 B. 2012-2013 CHANGE IN PER CAPITA PERSONAL INCOME: 3.77% C. 2012-2013 CHANGE IN POPULATION: 0.89% D. RATIO OF CHANGE(1.0377 X 1.0089): X 1.04693553 E. 2012-2013 APPROPRIATIONS LIMIT: ($133,820,121 X 1.04693553) $ 140.101.040 �� ;; •David E.Hale,CPA,CFP •Bryan S.Gruber,CPA �.�� ;; •Donald G.Siater,CPA •Deborah A Harper,CPA y�,.;; •Richard K.Kikuchi,CPA •cary a cat�,CPA •Susan E Matr,CPA •Michael D.Mangold,CPA CER71PIEo PUBUC ACCOUNTaxis •SheItyK.Jackley,CPA •DavidS.Myers,CPA w onr�awn ot�,caa� vi�.mure,pee�er 8.boucher INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING AGREED-UPON PROCEDURES To the Honorable Mayor and Members of the City Councii City of Orange, California We have performed the procedures enumerated below, which were agreed to by the City Council and the management of the City of Orange, California (City), solely to assist the City in evaluating the Treasurer's Monthly Cash Statement for the month ended June 30, 2013, for compliance with the provisions of the California Government Code and with the City's investment policy dated June 26, 2012. The management of the City is responsible for the Treasurer's Report for the month ended June 30, 2013. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The su�ciency of these procedures is solely the responsibility of those parties specified in this report. Consequently, we make no representation regarding the sufficiency of the procedures described below, either for the purpose for which this report has been requested or for any other purpose. Scope of the Procedures Performed and Related Findings The procedures performed and the results obtained from the performance thereof were as follows: 1. We obtained a copy of the City Treasurer's Monthly Cash Statement for June 30, 2013, and reconciled individual investments/deposits to supporting documentation obtained from City staff. Also, we traced total funds reported on the Treasurer's Report to the City's General Ledger at June 30, 2013. Finding: No findings were noted. 2. We compared the investments listed on the City Treasurer's Report for the month of June 30, 2013, to the type of investments authorized by the City's Investment Policy and Government Code Section 53601. Finding: No findings were noted. 3. We compared the market value of the investments listed on the Treasurer's Report for the month of June 30, 2013,to the City's copies of investment statements. Finding: No findings were noted. 4. We read the City Treasurer's Report for the month of June 30, 2013, to ascertain that it contains all the information/data required by Government Code Section 53646 and meets the timing requirements of Government Code Section 53646 as follows: a. Was submitted within 30 days following the end of the quarter. b. Included the type of investment, issuer, date of maturity, par and dollar amount invested on all securities, investments and monies held by the City. ATTACHMENT 4 Lance,Soll&Lunghard, LLP 203 North Brea Boulevard Suite 203 Brea, CA 92821 TEL 714.672.0022 Fax 714.672.0331 www.lslcpas.com Orange County Temeeula Valley Silicon Valley Los Angeies County �� ti£Rttfi3£G PIIH�L3L l�CC#JUNThNkS ��A 4]1+raaue»a!tffif..CfVx VIL333i37'c', ,j�C'tiL7 t�t7C1AC}ItI To the Honorable Mayor and Members of the City Council City of Orange, California Page 2 c. Included those funds under management of contracted parties (fiscal agents, trustee, deferred compensation, plan administrators, etc.). d. Included market value (and source) as of the date of the report for all securities held by the City or under management of any outside party that is not also a local agency or the State of California Local Agency Investment Fund. e. Stated compliance of the portfolio to the investment policy of the City. f. Included a statement addressing the ability of the City to meet the pool's expenditure requirements for the next six months. g. Included the most recent statements from the Local Agency Investment Fund and the County Investment Poois, in lieu of the information required by (b) and (d) above, for City investments that have been placed in those poois. Finding: No findings were noted. 5. We compared the investments listed in the City Treasurer's Report for the month of June 30, 2013, to the prohibited investments listed in the City's Investment Policy and Government Code Section 53601.6. Finding: No findings were noted. 6. We caiculated the totais (cost basis)for the investments listed in the City Treasurer's Report for the month of June 30, 2013, and compared those totals to the limitations imposed by the City's Investment Policy and Government Code Section 53601 for specified investment types. Finding: No findings were noted. 7. We agreed individual investment maturity dates listed on the City Treasurer's Report for the month of June 30, 2013, to the City's copies of the investment statements, to determine if they conformed to the maturity requirements of the City's Investment Policy and Government Code Section 53601. Finding: No findings were noted. �� ..��...�_�__�._------__ c4�„�;f��m��q.<��m,s Q"'�.,,�„��.��..�N.. >�i:mci�.�e�.¢r&b�vc,��r To the Honorable Mayor and Members of the City Council City of Orange, California Page 3 8. We were asked to obtain and read any third-party agreements and broker/dealer agreements in effect at June 30, 2013, to determine if the agreement contained a clause addressing delivery of securities and that the delivery method conformed to Government Code Section 53601. Finding: No findings were noted. 9. We were asked to re-compute and review supporting documentation relevant to any repurchase agreements and any reverse repurchase agreements held by the City at June 30, 2013, to ascertain if these investments conformed to the requirement of Government Code Section 53601(i) and 53635(i). Finding: No findings were noted. We were not engaged to, and did not conduct an audit of the Treasurer's Monthly Cash Statement, the objective of which would be the expression of a certified opinion on the Treasurer's Monthly Cash Statement dated June 30, 2013. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that wouid have been reported to you. This report is intended solely for the information and use of the City Council and management of the City and is not intended to be, and should not be used by anyone other than these specified parties. �� ,��-� � ��/� � Brea, California October 28, 2013 CITY OF ORANGE, CALIFORNIA AIR POLLUTION REDUCTION FUND AUDIT REPORT JUNE 30, 2013 ATTACHMENT 5 CITY OF ORANGE, CALIFORNIA AIR POLLUTION REDUCTION FUND AUDIT REPORT JUNE 30, 2013 CITY OF ORANGE AIR POLLUTION REDUCTION FUND TABLE OF CONTENTS Page Number IndependentAuditors' Report.................................................................................................................1 Financial Statements Balance Sheet/Statement of Net Position......................................................................................3 Statements of Revenues, Expenditures and Changes in Fund Balance/Statement of Activities......................................................................................4 Budgetary Comparison Statement...................................................................................................5 Notesto Financial Statements..........................................................................................................6 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards..................................................................8 Independent Auditors' Report on Compliance with Applicable Requirements and Internal Control OverCompliance...........................................................................................10 °�`' � � � •David E.Hale,CPA,CFP •Bryan S.Gruber,CPA e�� •Donald G.Siater,CPA •Deborah A Harper,CPA _ _ •Richard K.Kikuchi,CPA •Gary A.Cates,CPA •Susan F.Matr,CPA •Michael D.Mangold,CPA CEaiIFlED PUBUC ACCOUNTAxiS •ShellyK.Jackley,CPA •DavidS.Myers,CPA w oiwwon or u�,cPwa vii,mure,peei..er 8,boucher INDEPENDENT AUDITORS' REPORT To the Honorable Mayor and Members of the City Council City of Orange, California Report on the Financial Statements We have audited the accompanying financial statements of the Air Pollution Reduction Fund of the City of Orange as of and for the year ended June 30, 2013, and the notes to the financial statements, which collectively comprise the Air Pollution Reduction Fund of the City of Orange's financiai statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America;this includes the design,implementation,and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit.We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.The procedures selected depend on the auditor'sjudgment,including the assessment of the risks of material misstatement of the financial statements,whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion,the financial statements referred to above present fairly,in all material respects,the respective financial position of the Air Pollution Reduction Fund of the City of Orange at June 30, 2013, and the respective financial position and budgetary comparison information for the year then ended in conformity with accounting principles generally accepted in the United States of America. Lance,Soll&Lunghard, LLP 203 North Brea Boulevard Suite 203 Brea, CA 92821 - TEL 714.672.0022 Fax 714.672.0331 www.lslcpas.com Orange County Temeeula YaEley Siticon Valley Los Angeles County �� # / _.��..�..__..�.�...�.....__...._�_..._�__ G;:F73�3kD Pt8:3i A£LPll%1hNfS ��4 iNrrv�:oe+�M t.34�Cs+4te vii�tture.gxe,��.c��&..i�vclter To the Honorable Mayor and Members of the City Council City of Orange, California Other Matters Required Supplementary Information Management has omitted the managemenYs discussion and analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements.Such missing information,although not a part of the basic financial statements,is required by the Governmental Accounting Standards Board,who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information. Emphasis of Matters As discussed in Note 2e,the financial statements present only the Air Pollution Reduction Fund and do not purport to,and do not,present fairly the financial position of the City of Orange,California as of June 30,2013 and changes in financial position and budgetary comparison for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 11,2013,on our consideration of the Air Pollution Reduction Fund's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations,contracts,and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal controi over financial reporting and compliance and the results of that testing,and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Air Pollution Reduction Fund's internal control over financial reporting and compliance. �� `��-� �'.�'� , � Brea, California December 11, 2013 2 CITY OF ORANGE AIR POLLUTION REDUCTION FUND BALANCE SHEET/STATEMENT OF NET POSITION JUNE 30,2013 Governmental Funds Assets: Cash $ 35,930 Accounts receivable 82,073 Interest receivable 28 Total Assets $ 118,031 Liabilities: Accounts payable $ 24,243 Total Liabilities 24,243 Fund Balance/Net Position: Restricted for special revenue projects 93,788 Total Fund Balance/Net Position 93,788 Total �iabilities and Fund Balance/Net Position $ 118,031 See Notes to Financial Statements 3 CITY OF ORANGE AIR POLLUTION REDUCTION FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE/STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30,2013 Governmental Funds Revenues: Intergovernmental $ 166,484 Interest income �6� Total Revenues 166,478 Expenditures: General government 123,919 Public safety 2�979 Capital outlay 23,169 Total Expenditures 150,067 Excess(Deficiency) Revenue Over(Under)Expenditures 16,411 Fund Balance/Net Position: Beginning of Fiscal Year �7,3�7 End of Fiscal Year $ 93,788 See Notes to Financial Statements 4 CITY OF ORANGE AIR POLLUTION REDUCTION FUND BUDGETARY COMPARISON STATEMENT FOR THE YEAR ENDED JUNE 30,2073 Variance with Final Budget Budget Amounts Actual Positive Original Final Amounts (Negative) Resources(Inflows): Intergovernmental $ 161,000 $ 161,000 $ 166,484 $ 5,484 Investment income 30 30 (6) (36) Amounts Available for Appropriation 161,030 161,030 166,478 5,448 Charges to Appropriation (Outflow): Salaries and benefits 60,665 60,665 57,991 2,674 Capital projects 13,000 36,169 23,169 13,000 Trip reduction program 52,560 52,560 53,789 (1,229) Professionai costs 7,600 7,600 6,569 1,031 Printing costs 2,700 2,700 - 2,700 Bike team usage 5,000 5,000 2,979 2,021 Association dues 700 700 - 700 Training costs 900 900 - 900 Administrative and general overhead 5,570 5,570 5,570 - Total Charges to Appropriations 148,695 171,864 150,067 21,797 Net change in fund balances 12,335 (10,834) 16,411 27,245 Fund balances, beginning of year 77,377 77,377 77,377 - Fund balances,end of year $ 89,712 $ 66,543 $ 93,788 $ 27,245 See Notes to Financial Statements 5 CITY OF ORANGE AIR POLLUTION REDUCTION FUND NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Note 1 General Assembly Bill 2766 authorizes the South Coast Air Quality Management District (SCAQMD) to impose an annual vehicle registration fee and to distribute a portion of the collected revenues to all local jurisdictions within the South Coast Air Basin. These revenues are to be used solely to reduce air poilution from motor vehicles by impiementing new programs and studies necessary for the implementation of the California Clean Air Act. Note 2 Summary of Significant Accounting Policies a. Fund Accounting The accounts of the City of Orange (City) are organized on the basis of funds, each of which is considered a separate accounting entity with a self-balancing set of accounts. Monies received under Assembly Bill 2766 (AB2766) are recorded in a Special Revenue Fund, the Air Pollution Reduction Fund, which is used to account for the proceeds of revenue to be used for the purpose of implementing the Clean Air Act. b. Basis of Accounting Special Revenue Funds are accounted for using the modified accrual basis of accounting. Revenues are recognized when they become"susceptible to accrual", that is, measurable and available to finance expenditures of the current period. Expenditures are recorded when the liability is incurred. c. Measurement Focus Special Revenue Funds are accounted for on a spending or"financial flow" measurement focus. This means that generally only current assets and current liabilities are included on their balance sheets. Statements of revenues, expenditures and changes in fund balances for Special Revenue Funds generally present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. d. Budgetary Accounting The budget for the Air Pollution Reduction Special Revenue Fund is formally adopted annually and is prepared in conformity with accounting principles generally accepted in the United States of America. The budget is monitored to ensure compliance with legal provisions embodied in the appropriated budget as approved or amended by the City Council throughout the year. Department heads are responsible for monitoring their department's appropriated budget. The legal level of budgetary control is at the department and fund level. The City's management may transfer resources between operating line items within a department in the same fund as they see appropriate. Encumbrances (e.g. purchase orders, contracts) outstanding at year-end are reported as restriction of fund balance since they do not constitute expenditures or liabilities. e. Annual Financial Statements The accompanying financial statements are intended to reflect the financial position and results of operations for the Air Pollution Reduction Fund (AB 2766)only. 6 CITY OF ORANGE AIR POLLUTION REDUCTION FUND NOTES TO FINANCIAL STATEMENTS(CONTINUED) JUNE 30,2013 Note 2 Summary of Significant Accounting Policies (Continued) f. Cash and Investments The Air Pollution Reduction Fund's cash and investment balance was pooled with various other City funds for deposit and investment purposes. The net change in fair value and interest earnings were apportioned to the participating funds based on the relationship of their average daily balances to the total of the pooled cash and investments. g. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Note 3 Cash and Investments The City Treasurer maintains a cash and investment pool used by all funds of the City of Orange, including the Air Poliution Reduction Fund. The Air Pollution Reduction Fund does not own specifically identifiable securities of the City's pool. The Air Pollution Reduction Fund's portion of this pool is reported in the accompanying balance sheet as "cash and investments." Investment policies and associated risk factors applicable to the Air Pollution Reduction Fund are those of the City of Orange and are disclosed in the City's comprehensive annual financial report. Cash and investments held by Air Pollution Reduction Fund at June 30, 2013, consisted of the following: Equity in the City of Orange's in�estment portfolio $ 35,930 Total $ 35,930 Note 4 Availability of Other Information Copies of separate progress reports filed with the SCAQMD Board, which detail the accomplishments during the fiscal year ended June 30, 2013, are available at Orange City Hall. 7 �-,�� •Dawd E.Hale,CPA,CFP •Bryan S.Gruber,CPA �?.�� ; •Donald G.Slater,CPA •Deborah A Harper,CPA •Richard K.Kikuchi,CPA •�ary A.Cates,CPA •Susan E Matz,CPA •Michael D.Mangold,CPA CERTIFiEU PUBLIC ACCOUNTANTS •ShEIIyK.J2CkIBy,CPA •D3vidS.MyetS,CPA A Division of LSL�CPAs vi�mure,pee�.er�boucher REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Honorable Mayor and Members of the City Council City of Orange, California We have audited, in accordance with the auditing standards of generaliy accepted in the United States of American and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the Air Pollution Reduction Fund financial statements of the City of Orange,California,(the"City")as of and for the year ended June 30,2013,and the related notes to the financial statements,which collectively comprise the City's basic financial statements,and have issued our report thereon dated December 11, 2013. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements,we considered the City's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements,but not for the purpose of expressing an opinion on the effectiveness of the City's internal control.Accordingly,we do not express an opinion on the effectiveness of the City's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control,such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A signi�cant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be materiai weaknesses or, significant deficiencies.Given these limitations,during our audit we did not identify any deficiencies in internal controi that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City's financial statements are free from material misstatement,we performed tests of its compliance with certain provisions of laws,regulations,contracts,and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However,providing an opinion on compliance with those provisions was not an objective of our audit,and accordingly,we do not express such an opinion.The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under GovernmentAuditing Standards. Lance,Soll&Lunghard,LLP 203 North Brea Boulevard Suite 203 Brea, CA 92821 TEL 714.672.0022 Fax 714.672.0331 www.lslcpas.com Orange County Temecula VaEley Silican Valley Los Angeles County �1�� #� .�_..___._...,._.....a__��.._ L::R7#f3EU P6813t AC�II:ipT.fNtS ��h oeweean W tSL�Cvws Y4�r�3urc:,(,�reuzr 6,b:t�cJr�r - To the Honorable Mayor and Members of the City Council City of Orange, California Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the resutts of that testing,and not to provide an opinion on the effectiveness of the entity's internal control or on compliance.This report is an integral part of an audit performed in accordance with GovernmentAuditing Standards in considering the City's internal control and compliance.Accordingly,this communication is not suitable for any other purpose. � � �� , ��'� �`' , � � Brea California December 11, 2013 9 �M' '.: •David E.Hale,CPA,CFP •Bryan S.Gruber,CPA "`�� ;; •Donald G.Slater,CPA •Deborah A Haryer,CPA •Richard K.Kikuchi,CPA •Gary A.Cates,CPA •Susan F.Matr,CPA •Michael D.Mangold,CPA CEBTIFEEo PUBLIC ACCOUNTANTS •ShellyK.Jackley,CPA •DavidS.Myers,CPA A Diviaion of LS��CPAS vii.mure,peei.er 8,baucher INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH APPLICABLE � REQUIREMENTS AND ON INTERNAL CONTROL OVER COMPLIANCE To the Honorable Mayor and Members of the City Council City of Orange, California Report on Compliance of the Air Pollution Reduction Fund We have audited the compliance of the Air Pollution Reduction Fund of the City of Orange, California (the"City")with the types of compliance requirements described in Assembly Bill 2766,Chapter 1705(44220 through 44247)for the year ended June 30, 2013. Management's Responsibility for the Financial Statements Management is responsible for compliance with the requirements of Assembly Bill 2766,Chapter 1705(44220 through 44247). Auditor's Responsibility Our responsibility is to express an opinion on compliance for the Air Poilution Reduction Fund of the City of Orange, California based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in the Government Auditing Standards, issued by the Comptroller General of the United States, and Assembly Bill 2766, Chapter 1705 (44220 through 44247). Those standards and Assembly Bill 2766, Chapter 1705 (44220 through 44247) require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on the Air Pollution Reduction Fund occurred. An audit includes examining, on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for the Air Pollution Reduction Fund. However,our audit does not provide a legal determination of the City's compliance. Opinion on the Air Pollution Reduction Fund In our opinion,the City complied,in ali material respects,with the types of compliance requirements referred to above that could have a direct and material effect on the Air Pollution Reduction Fund for the year ended June 30, 2013. Report on Internal Control Over Compliance of the Air Pollution Reduction Fund The management of the City is responsible for establishing and maintaining effective internal control over compliance with the type of compliance requirements referred to above. In planning and performing our audit of compliance,we considered the City's internal control over compliance with the types of requirements that could have a direct and materiai effect on the Air Pollution Reduction Fund to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for the Air Pollution Reduction Fund and to test and report on internal control over compliance in accordance Lance,Soll&Lunghard,LLP 203 North Brea Boulevard Suite 203 Brea, CA 92821 TEL 714.672.0022 Fax 714.672.0331 www.lsicpas.com Orange County Temecula Ualley Silicon Valley Los Angeles County ��.�� v CERTFHf�:U PblL3L ACLR':;pTAAFS ��d t.a�a..ewa 'ei:139lli@.�S.Pf�b,bC9tiC�5'�.'7 To the Honorable Mayor and Members of the City Council City of Orange, California with Assembly Bill 2766, Chapter 1705 (44220 through 44247), but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance.Accordingly,we do not express an opinion on the effectiveness of the City's internal control over compliance. � A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirements of Assembly Bill 2766, Chapter 1705(44220 through 44247)on a timely basis.A material weakness in internal control over compliance is a deficiency,or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that a material noncompliance with a type of compliance requirements of Assembly Bill 2766,Chapter 1705(44220 through 44247)will not be prevented,or detected and corrected on a timely basis.A signi�cant deficiency in internal control overcompliance is a deficiency,or a combination of deficiencies, in internal control over compliance with a type of compliance requirements of Assembly Bill 2766, Chapter 1705 (44220 through 44247)that is less severe than a material weakness in internal control over compliance,yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or,significant deficiencies.We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of Assembly Bill 2766, Chapter 1705(44220 through 44247).Accordingly, this report is not suitable for any other purpose. � � �� , ��c � , � �� Brea, California December 11, 2013 11 �k� •David E.Hale,CPA,CFP •Bryan S.6ruber,CPA ':� ""' •Donald G.Slater,CPA •Deborah A Harper,CPA ._. •Richard K.Kikuchi,CPA •Gary A Cates,CPA •Susan F.Matr,CPA •Michael D.Mangold,CPA CEqTIFIEO PUBUC pCCOUNTANTB •ShelryKJacldey,CPA •DavidS.Myers,CPA a ohr�bn or�.si..cPas vf�mure,pee�.er 8,boucher INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Honorable Mayor and Members of the City Council City of Orange, California We have audited, in accordance with the auditing standards generaliy accepted in the United States of America and the standards applicable to financial audits contained in Govemment Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Orange, California, (the City) as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the City's basic financial statements and have issued our report thereon dated December 11, 2013. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, we identified certain deficiencies in internal control that we consider to be material weaknesses and significant deficiencies. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the following deficiencies to be material weaknesses: Deposits Pavable Reconciliation During our test work we noted Deposits Payable accounts relating to capital improvement projects that have not been properly reconciled for an extended period of time. We noted that there is uncertainty whether these are actual deposits that will be returned to developers or if they should be recognized as revenue of the City. We recommend that management properly reconcile the deposits payable accounts each year, and determine whether these amounts need to be returned to developers or need to be written off and recognized as revenue. ATTACHMENT 6 Lance,Soll&Lunghard,LLP 203 North Brea Boulevard Suite 203 Brea,CA 92821 TEL 714.672.0022 Fax 714.672.0331 www.lslcpas.com Orange County Temecula Valley Silican Haliey Los Angeles Caunty �� s��ticn rusiic accuuxuxrs � �A OixNafon uf 49Ln�M v3s.mure,6�.'e�es B..13nvtncr To the Honorable Mayor and Members of the City Council City of Orange, California Management Response: The City is continuing to reconcile deposits payable and identify the proper disposition of the described amounts. We anticipate the account will be reconciled by the end of fiscal year ended June 30, 2014. Restatements to Net Position and Fund Balance Restatements to Net Position were caused by corrections of prior year capitalization of governmental assets, to record deferred promissory notes issued in prior years but not recorded, and to correct the duplicate posting of an invoice in the prior year. Restatements to Fund Balance were caused by corrections to the classification of unavailable revenue in the prior year which should have been posted as revenue, and to correct the duplicate posting on an invoice in the prior year. Management Response: The Restatements to both Net Position and to Fund Balance were due to non-recurring incidents and interpretations of transactions at the time of occurrence. Controls have been strengthened to identify issues and properly classify the accounts on a go-forward basis. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City's financial statements are free from material misstatement, we perFormed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accardingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under GovernmentAuditing Standards. City's Response to Findings The City's response to the findings identified in our audit was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly,this communication is not suitable for any other purpose. � .�� , � Brea, California December 11, 2013 CITY OF ORANGE, CALIFORNIA SINGLE AUDIT REPORT JUNE 30, 2013 ATTACHMENT 7 CITY OF ORANGE, CALIFORNIA SINGLE AUDIT REPORT JUNE 30, 2013 CITY OF ORANGE JUNE 30,2013 TABLE OF CONTENTS Page Number Independent Auditors' Report on Internai Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with GovernmentAuditing Standards....................................................1 Independent Auditors' Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by OMB Circular A-133 ............................................3 Schedule of Expenditures of Federal Awards for the Fiscal Year Ended June 30, 2013........................................................................................................6 Notes to the Schedule of Expenditures of Federal Awards....................................................................8 Schedule of Findings and Questioned Costs for the Fiscal Year Ended June 30, 2013........................................................................................................9 Schedule of Prior Year Findings and Questioned Costs for the Fiscal Year Ended June 30, 2012......................................................................................................12 ,_ r,�k ;,�' •David E.Hale,CPq CFP •Bryan S.Gruber,CPA �`_� "'; •Donald G.Slater,CPA •Deborah A Harper,CPA �� •Rfchard K qkuchi,CPA •Gary A Cates,CPA •Susan F.Matr,CPA •Michael D.Mangdd,CPA BBtTIFIEO PUBUC RCCOUNTANTS •SheityKJackley,CPA •DavidS.Myers,CPA A OMUon ot LSI-.CPAs vu,mure,pee�er 8,boucher INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENTAUDITINGSTANDARDS To the Honorable Mayor and Members of the City Council City of Orange, California We have audited, in accordance with the auditinq standards qenerally accepted in the United States of America and the standards applicable to financial audits contained in GoUernment Auditing Standards issued by the Comptroller Generai of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Orange, California, (the City) as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the City's basic financial statements and have issued our report thereon dated December 11, 2013. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. Our consideration of internal controi was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, materiai weaknesses or significant deficiencies may exist that were not identified. However, we identified certain deficiencies in internal control that we consider to be material weaknesses. A deficiency in internal contro! exists when the design or operation of a control does not allow management ar employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonabie possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the deficiencies described in the accompanying schedule of findings and questioned costs as findings 2013-001 and 2013-002 to be material weaknesses in internal control. Compliance and Other Matters As part of obtaining reasonable assurance about whether City's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on Lance,Soll&Lunghard,LLP 203 North Brea Boulevard Suite 203 Brea,CA 92821 TEL 714.672.0022 Fax 714.672.0331 www.lslcpas.com Urange County Temecufa Valley Silicon Yalley Los Angeles County �� a�.: �� Ft�ii'iies�nuea�c xcsnusi�ars � .nivaroA w�.s�.,w"e b�L3Titi(£,jat'-#.'LCf�..�tlC�3Ef To the Honorable Mayor and Members of the City Council City of Orange, California the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Management's Response to Findings The city's responses to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs. The City's responses were not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly,we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internai control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. � �� , � Brea, California December 11, 2013 2 •David E.Hale,CPq CFP •Bryan S.Gruber,CPA "�`.'; �Donald G.Slater,CPA •Debaah A Harper,CPA �� •RiChard K IGlaichl,CPA •Gary A Cates,CPA •Susan F.Mah,CPA •Michael D.Mangold,CPA CEHTIFIED PUBLIC ACGOUNTANTS •SheltyKJackley,CPA •DavidS.Myers,CPA A DMWon of L84 CPAs vlunure,peei.er 8,boucher INDEPENDENT AUDITORS' REPORT ON COMPLIANCE FOR EAGH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A-133 To the Honorable Mayor and Members of the City Council City of Orange, California Report on Compliance for Each Major Federal Program We have audited the City of Orange's (the City) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the City's major federal programs for the year ended June 30, 2013. The City's major federai programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with the requirements of law, regulations, contracts, and grants applicable to its federal programs. Auditor's Responsibility Our responsibility is to express opinions on compliance for each of the City's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America;the standards applicable to financial audits contained in the Government Auditing Standards, issued by the Comptroller General of the United States, and OMB A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide legal determination of the City's compliance. Opinion on Each Major Federal Program In our opinion, the City of Orange complied, in ail materiai respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2013. Other Matters The results of our auditing procedures disclosed instances of noncompliance, which are required to be reported in accordance with OMB A-133 and which are described in the accompanying schedule of findings and questioned costs as items 2013-003. Our opinion on each major federai program in not modified with respect to these matters. Lance,Soll&Lunphard,LLP 203 North 8rea Boulevard ° Suite 203 Brea,CA 92821 TEL 714.672.0022 a Fax 714.672.0331 www.islcpas.com Qrange County Temecula Yaliey Silicon Valley Los Angefes Coanty �� '\' ___._�.........._....__........�.._�._..�.__.. C£@TIp3t33 P11�i3L hCCi33i87�q75 t��a[kwsav+al S.eL,tXb V1L?'ilUiR'.�1L"SS.�34L�f1L'( To the Honorable Mayor and Members of the City Council City of Orange, California The City's response to the noncompliance findings identified on our audit is described in the accompanying schedule of findings and questioned costs and%or corrective action plan. The City's response was not subjected to the auditing procedures applied in the audit of compliance and, accordingiy, we express no opinion on the response. Report on Internal Control over Compliance Management of the City is responsible for establishing and maintaining effective internal control over compliance with the type of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City's internal control over compliance with the types of requirements that could have a direct and materiai effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal controls over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A materia/ weakness in internal contro/ over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that a material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected on a timely basis. A significant deficiency in internal control over comp/iance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify ali deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and therefore, material weakness or significant deficiencies may exist that were not identified. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, we identified certain deficiencies in internal control over compliance, as described in the accompanying schedule of findings and questioned costs as item 2013-003 that we consider to be a significant deficiency. Report on the Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Orange, California, as of and for the year ended June 30, 2013, and have issued our report thereon dated December 11, 2013, which contained an unmodified opinion on those financial statements. Our audit was performed for the purpose of forming opinions on the financial statements as a whole. The schedule of expenditures of federal awards is presented for the purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133 and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit 4 L�L �� GCAw,Tl5il0 FStYiiG FCL'�SllNtANfi3 ��a o�w.s�on w s.m.,rr�sr v3�.mure<P��ee&.�nnucher To the Honorable Mayor and Members of the City Council City of Orange, California of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, schedule of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole. The City's response to the internal control over compliance findings identified in our audit is described in the accompanying schedule of findings and questioned costs and/or corrective action plan. City's response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133.Accordingly, this communication is not suitable for any other purpose. � .�� '�� Brea, California December 11, 2013 5 CITY OF ORANGE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE FISCAL YEAR ENDED JUNE 30, 2013 Federal Pass-Through CFDA Grantor's Federal Grantor/Pass-Through Grantor/Program Title Number Number Expenditures U.S. Department of Housinq and Urban Development Direct Programs: Community Development Block Grant" 14.218 B-12-MC-06-0507 $ 33,955 B-11-MC-06-0507 1,197,252 B-10-MC-06-0507 54,118 Community Development Block Grant-ARRA* 14.253 B-09-MY-06-0507 10,916 Program Total 1,296,241 Home Investment Partnership Program 14.239 M-10-MC-06-0544 31,760 Self-Help Homeownership Opportunity Program 14.247 S-09-MY-06-0507 62,200 Total U.S. Department of Housing and Urban Development 1,390,201 U.S. Department of Justice Direct Program: Federal Asset Forfeiture Program 16.000 CA0301500 203,979 Bullet Proof Vest Partnership Program 16.607 - 1,952 Passed through the County of Orange Edward Byrne Memorial Justice Assistance Grant 16.738 2012-DJ-BX-0057 11,423 2011-DJ-BX-2532 1,925 Program Total 13,348 Total U.S. Department of Justice 219,279 U.S. Department of Transportation Passed through the State of California Department of Transportation: Highway Planning &Construction 20.205 SR2SL-5073(066) 106,796 HSIP4-12-016 22,197 HSIPL-5073(071) 5,918 HSIPL-5073(070) 7,696 HSIPL-5073(069) 8,905 Program Total 151,512 Passed through the State of California Office of Traffic Safety Minimum Penalties for Repeat Offenders for Driving While Intoxicated 20.608 SC13294 50,150 Total U.S. Department of Transportation 201,662 U.S. Department of Enerpv Direct Program: Energy Efficiency and Conservation Block Grant-ARRA 81.128 SC0002955 8,238 Total U.S. Department of Energy 8,238 6 CITY OF ORANGE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE FISCAL YEAR ENDED JUNE 30, 2013 Federal Pass-Through CFDA Grantor's Federal Grantor/Pass-Through Grantor/Program Title Number Number Expenditures U.S. Department of Homeland Securitv Passed through the City of Santa Ana: Homeland SecurityGrant Program 97.067 2009-0019 1,146 Passed through the City of Anaheim: Homeland Security Grant Program 97.067 G10-UPA-62 20,710 97.067 - 14,781 Total U.S. Department of Homeland Security 36,637 Total Federal Expenditures $ 1,856,017 * Major Program Note a: Refer to Note 1 to the schedule of expenditures of federal awards for a description of significant accounting policies used in preparing this schedule. Note b: There was no federal awards expended in the form of noncash assistance and insurance in effect during the year. Note c: Total amount provided to subrecipients during the year was$75,923. 7 CITY OF ORANGE NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2013 Note 1: Summary of Significant Accounting Policies Applicable to the Schedule of Expenditures of Federal Awards a. Scope of Presentation The accompanying schedule presents only the expenditures incurred by the City of Orange, California,that are reimbursable under federal programs of federal financial assistance. For the purposes of this schedule, federal awards include both federal financiai assistance received directly from a federal agency, as well as federal funds received indirectly by the City from a non-federal agency or other organization. Only the portion of program expenditures reimbursable with such federal funds is reported in the accompanying schedule. Program expenditures in excess of the maximum federal reimbursement authorized or the portion of the program expenditures that were funded with state, local or other non-federal funds are excluded from the accompanying schedule. b. Basis of Accounting The expenditures included in the accompanying schedule were reported on the modified accrual basis of accounting.Under the modified accrual basis of accounting,expenditures are incurred when the City becomes obligated for payment as a result of the receipt of the related goods and services. Expenditures reported included any property or equipment acquisitions incurred under the federal program. 8 CITY OF ORANGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE FISCAL YEAR ENDED JUNE 30, 2013 SECTION I -SUMMARY OF AUDITORS' RESULTS Financial Statements Type of auditors' report issued: Unqualified Opinion Internal control over financial reporting: • Significant deficiencies identified? yes x no • Material weaknesses identified? x yes none reported Noncompliance material to financial statements noted? yes x no Federal Awards Internal control over major programs: • Significant deficiencies identified? x yes no • Material weaknesses identified? _yes x none reported Type of auditors' report issued on compliance for major programs: Unqualified Opinion Any audit findings disclosed that are required to be reported in accordance with Section 510(a)of Circular A-133? x yes no Identification of major programs: CFDA Number(s) Name of Federal Program or Cluster 14.218& 14.253 Community Development Block Grant-ARRA Dollar threshold used to distinguish between type A and type B program $300,000 Auditee qualified as low-risk auditee? yes x no 9 CITY OF ORANGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE FISCAL YEAR ENDED JUNE 30,2013 SECTION II -FINANCIAL STATEMENT FINDINGS Finding 2013-001 —Deposits Payable Reconciliation During our test work we noted a portion of the Deposits Payable accounts relating to asset seizures, and developer permits and deposits that have not been properly reconciled for an extended period of time. We noted that there is uncertainty whether these are actual deposits or if they should be recognized as revenue of the City.We recommend that management properly reconcile the deposits payable accounts each year,and determine whether these amounts need to be written off or recognized as revenue. Management Response:The City believes this item does not affect the balances or financial statements that pertain to this Single Audit report;i.e.,federal grants and awards.Management does not believe this amount is material to the government-wide Statement of Net Position totaling $800,717,461. The City is continuing to reconcile this account and identify the proper disposition of the described amounts. We anticipate that the account will be fully reconciled by the end of fiscal year 2014. Finding 2013-002—Restatements to Net Position and Fund Balance Restatements to Net Position were caused by corrections of prior year capitalization of governmental assets, to record deferred promissory notes issued in prior years but not recorded,and to correct the duplicate posting of an invoice in the prior year.Restatements to Fund Balance were caused by corrections to the classification of unavailable revenue in the prior year which should have been posted as revenue, and to correct the duplicate posting on an invoice in the prior year. Management Response:The city feels that these items do not affect the balances or financial statements that pertain to this Single Audit report;i.e.,federal grants and awards. Additionally while these items affected prior year balances overall the impact of these adjustments was $2,104,154 and therefore immaterial. The Restatements to Net Position of$1,863,154 and to Fund Balance of$141,590 were due to non-recurring financial transactions and staff's interpretations of transactions at the time of occurrence. Controls have been strengthened to identify issues and properly classify the accounts on a go-forward basis. SECTION III -FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Finding 2013-003 Federal Program: CFDA number: 14.218& 14.253 Title: Community Development Block Grant Federal Grantor: U.S. Department of Housing and Urban Development Grant number: B-09-MY-06-0507, B-10-MC-06-0507, B-11-MC-06-0507, B-12-MC-06-0507 Criteria or specified requirement: The U.S. Department of Housing and Urban Development A-133 compliance requires quarterly reports (SF-425)be submitted to within 30 days following the end of the quarter periods ending September 30, December 30, March 30, and June 30. 10 CITY OF ORANGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE FISCAL YEAR ENDED JUNE 30, 2013 Finding 2013-003 (Continued) Condition: The City is required to submit SF-425 reports for all four quarters of the 2013 fiscal year. Questioned Costs: None. Context: Of the four reports examined,we noted that three of them were submitted greater than 30 days after the end of the quarter. The quarters ending September 30, 2012 and December 31, 2012 were submitted April 8, 2013 and the quarter ending June 30, 2013 was submitted October 16, 2013. Effect: Three of the four required reports were not submitted timely. Cause: The City was unaware of the requirement until this was a finding during the 2012 single audit that was conducted in March 2013.This is why the first three reports of the 2013 fiscal year were not submitted till April 8,2013.The final report of the 2013 fiscal year was submitted late because the department has not established procedures to ensure that the reports are completed and timely submitted. Recommendation: The City needs to establish procedures and controls to ensure that the required reports are prepared and submitted timely. ManagemenYs Response: While the SF-425 quarterly reports were not filed in a timely manner,due to staffing shortages,they were eventually filed with the appropriate federal agency. Staff is currently unaware of any federal"penalty"for the late filing of these reports. Additionally the city was unaware of this requirement until last year's audit brought this issue to light. Therefore the reports were filed once staff was made aware of the requirement and when staff had sufficient time to file a thorough and accurate report. Going forward staff has implemented procedures that will be used to notify the reporting department of the deadlines for these reports. 11 CITY OF ORANGE SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS FOR THE FISCAL YEAR ENDED JUNE 30,2012 SECTION II -FINANCIAL STATEMENT FINDINGS Finding 2012-001 -Year End Audit Adjustments During our testwork,we noted exceptions in which invoices relating to services performed prior to the end of the fiscal year were not recorded as payables in the proper accounting period.Proper cutoffs are critical for the accuracy of the accrual basis of accounting. Audit adjusting entries have been provided to accrue these invoices. Current Status: Controls were established to prevent this kind of adjustment form being necessary in the 2013 fiscal year. Finding 2012-002-Fund Balance restatements During our test work we noted instances where fund balance restatements were necessary. These adjustments were needed to correct errors in prior year relating to the capitalization of assets in both the Governmental and Business Type Activities,and to correct prior misclassification of revenue in the Housing In Lieu Fund in the former Redevelopment Housing Fund rather than the Other Governmental Funds. Current Status: Similar adjustments were necessary, see finding 2013-2 Finding 2012-003 -Posting Journal Entries During our test work, it was noted that entries were posted during the year to fund balance accounts,which results in an erroneous fund balance restatement. Journal entries to reverse a$1 million restatement related to the principle payments made from the former Redevelopment Agency to the City regarding the parking lots. We recommend that management implement a procedure to verify fund balance accounts are used only when correcting errors from prior periods. Current Status: Controls were established to prevent this kind of adjustment form being necessary in the 2013 fiscal year. SECTION III -FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Finding 2012-004 Federal Program: CFDA number: 14.218 Title: Community Development Block Grant Federal Grantor: U.S. Department of Housing and Urban Development Grant number: B-10-MC-06-0507 Criteria or specified requirement: The U.S. Department of Housing and Urban Development A-133 compliance requires quarterly reports (SF-425) be submitted to within 30 days following the end of the quarter periods ending September 30, December 30, March 30, and June 30. 12 CITY OF ORANGE SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 Finding 2012-004(Continued) Condition: The City did not file the required quarterly reports outlined in the A-133 compliance requirement. Questioned Costs: None. Current Status: The City submitted the four quarterly reports for the 2012 fiscal year in April 2013 after receiving the finding during the 2012 Single Audit. 13