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C-2636 - Auditing Services for 86-87, 87-88, 88-89
r .0 CITY OF N WR)P.T_ BRACH SMILE AUDii FM-M —T JUNE 30, 10-88 KHeJ King, Henslee & Jackson Certified Public Accountants A Professional Corporation • 1• !• Is Ir I• i C CITY OF NEWPORT BEACH SINGLE AUDIT REPORT JUNE 30, 1988 4 �0 13 I* le 141 1• f41 I• CITY OF NEWPORT BEACH SINGLE AUDIT REPORT TABLE OF CONTENTS JUNE 30, 1988 Financial Section: Report of Certified Public Accountants General Purpose Financial Statements: Combined Balance Sheet - All Fund Types and Account Groups Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - All Governmental Fund Types Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - General and Special Revenue Fund Types Combining Balance Sheet - All Enterprise Funds Combining Statement of Revenues, Expenses and Changes in Retained Earnings - All Enterprise Funds Combining Statement of Changes in Financial Position - All Enterprise Funds Notes to Financial Statements Single Audit Section: Report on Schedule of Federal Financial Assistance Schedule of Federal Financial Assistance Notes to the Schedule of Federal Financial Assistance Report on Compliance with Laws and regulations Related to Major and Nonmajor Federal Financial Assistance Programs Compliance Report Based on an Examination of General Purpose Financial Statements Schedule of Findings Report on Internal Accounting Controls Based Solely on a Study and Evaluation Made as a Part of the Examination of the General Purpose Financial Statements Report on Internal Controls (Accounting and Administrative) Used in Administering Federal Assistance Programs Schedule of Internal Control Finding Page Number 1 2 5 6 8 9 10 11 17 19 21 23 25 26 27 29 32 0 U 10 King, Henslee 6t Jackson Certified Pubfic Accountants A Proteasione/ Corporation To the Honorable City Council of the City of Newport Beach 5000 Birch Street Suite 440 Newport Beach, CA 92660 (714) 833 -8900 We have examined the general purpose financial statements of the City of ! Newport Beach for the year ended June 30, 1988, as listed in the table of contents. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. The carrying value of certain assets in the general fixed assets account group acquired prior to July 1, 1966 are included in the accompanying combined financial statements at appraised value as described in note 2 of the financial statements, rather than historical cost as required by generally accepted accounting principles. The effect of recording assets at appraisal value is to overstate the assets basis. We are unable to determine the amount of the overstatement. In our opinion, except for the effect of recording certain assets at appraisal rather than historical cost, the general purpose financial statements present fairly the financial position of the City of Newport Beach at June 30, 1988 and the results of its operations and changes in financial position of its enterprise funds for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. KING, HENSLEE & JACKSON Certified Public Accountants A Professional Corporation gy Stanley C. enslee Newport Beach, California October 14, 1988 .• 7 lA O0 MO a O Nn M co In q O M �--i l0 .� CO M M t� "I cl O N N M .- i r\ n O • q lD O ^� O m N ll'1 O M 1� 1D N t!1 In t0 t0 lP CD M 1p C V lc co O Q .rte N Y C � FO- i O m cc kc q q O T l0 l.(] O N N O lD M q m 01 In O q l0 M l0 O • w co X: q C M N M ll M C 1: O M l0 t0 1� m CO 1 N M .--i m .r O Ct 1 m m co q 117 O C rks-1 l0 to V E 10 Ql Y �O lD i I In C mm Of O O C07 O O: G C cz O Y n n d C 01 O� U' O N M M OV L N N 1c l0 Z U N X 0 01 T C) L' C •� N rl .--I . 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ILL N • Is It Is is s • `] I• N C 3 Lt_ d C d d C N d•n an .rMntD q 'C O�OCN ^ q .--� 0 Y I� O t t n t O g N t n in 4 ONr- -iN qu'� O N c N g � M tD r Vi n O M 0 0 0 N N y w ccw Ci w Cw n w I f M g M C O t t D 0 N m N c N c b4 NM0001t q Cl Mt l MI q O Ol q C I� 0 m m Nr- N4:C q rn OC tD t.7^ q M CCN cl m n lD N I 1 C q t17 ll.7 • .--r Cli O tD f� q tD N .--r N N C O n .--r g m N M O O n-I N O I T L O '+ClO gtDOM p CO O�q CC) q O O p N 1p M M rC O> M .•+ .--I .--I OI M O N q to u'f .r In to N � Ci ^ �i W M 01 c M M O\ Lli"� C N M M ALL? g O t I n •-� c n m N I .N .r M �vrr •-+ �O C � N 6M4 • Is It Is is s • `] I• N C 3 Lt_ d C d d C N d•n an .rMntD q 'C O�OCN ^ q .--� 0 Y I� O t t n t O g N t n in 4 ONr- -iN qu'� O N c N g � M tD r Vi n O M 0 0 0 N N y w ccw Ci w Cw n w I f M g M C O t t D 0 N m N c N c b4 NM0001t q Cl Mt l MI l O Ol q C I� 0 m m O I' I m n lD N I 1 C q t17 ll.7 M .--r .--r O O tD f� q tD N .--r N N C O n .--r O N N O to N C O n-I N O I O kc� � co n O M cpMCNOV q q N t� O N O C. qc M M 01 c r--r M O q 211 Lf) M to O l q ^' Ol q C I� 0 m m O I' I m n lD N I 1 C q t17 ll.7 M .--r .--r O O tD f� q tD N .--r N N C O n .--r O N N O to N C O n-I N O I O O � q n O M q q N t� O N O C. qc M M 01 c O t M O\ Lli"� C N M M N g O t I n M c n m N O .N .r M q •-+ �O C � N .�-i d OtO.+Ml�Mq T CPOtD uY b nm t0 O I' O m n lD N I 1 C q t17 ll.7 � M c to � M .--r .--r O O tD f� N .--r N N C O n .--r O N N O to N C O n-I N O I O N C N q n O M q M t0 N C eD L M O MO cc N O C. qc l!1 to u'r ll.7 M M O\ tD N g O t I n M c n m N O rn C N O �O C .--I lD N .--r M !� t1� v v N .-� M m q m Cm q d\ m Qt L> vvv v c a N c Oi N M Ot to M In N .--r O > LL C ."r y v N bA yy OO tot OON N Y Mq�tn OOp M d M t D t n N O l! 1 01 M V v Ot al O to a, t� M I l!l N q l0 O+ O+ n+ M O N c to .-r N C:5 -:t com O M c Ot�rnl O n qC tD Ot d` O m n lD N I 1 C q t17 ll.7 � M c to � M .--r .--r O q tD f� N .--r N N C O n .--r O N N O to N C 1p C M a t\ M N C N q n O M q M t0 N 3 O to N M .--r O .-r N O lD q q l!1 to u'r ll.7 M M O\ tD N g O t I n M c n m N O N q N N O q C ct0 Inn qu: M q q c.-+O M m m qm N N c a N c Oi N M Ot to M In N .--r O Ot ."r y v N bA yy OO tot OON N Y Mq�tn OOp M d M t D t n N O l! 1 01 M V v Ot al O to a, t� M I l!l N q l0 O+ O+ n+ M O N c to .-r N O Ot 01 O r-+ O Ot O\ N M Ot m n q wy O O M tD tD N lD CC, N N Ot tD d\ N co q M M N n-t m w q O� C N q n O M q M t0 N 6f) M .-r t0 C 1� O M N N v .ti I fR C CO U1 W C N M W O OryII O N 10 O A O> O co co co C lD 0 NI O� O OII m N b� O C> CO M C ^+�+ 1��1 ll �I C N C J OI N MI N G9 p N N I I pll H O 0\ 111 b O> CD C b N I� C b M CO A N Cn .r M A 41 �+'+ tl> b .--� .r M et A� Ct1. 117 Ol 10 10 • -� Cl •-+ 1i1 b n 01 b CO b b f� f\ Ln N ti M C M N A CO O r` m M �O p 10 O M Ol CO Cp 1D a N 0 M 1D O b 10 N O> N CO M .r M .r O> O •� O 01 N N .r •"� N O O co ltt .•-i .� .y N ti w .b-1 I , 64 • M O O O U'f a-1 C Q O Cn O> 01 O O 10 IA 111 d' Y b N r1 O C C b N M 117 P C C O tD N CO N M L a �+ •� O> C b t� M O O> CO M N N O tD O 10 10 O> A _ M C r•1 n N M M .+ .-+ N A O N N M 1n Cn CO r�•1 l0 l0 A Cp N L Y, ..' 111 111 01 O O b O N d• V' .+ C A to A 10 M .-+ M A l0 bA 01 O O 1n nAlO Il> ..+ A N N b M O LN C 010b M C p1N M M 10 l0 pi 0\N N M N A .� lf> A C 1D y ^0 NDO CN0CMC O 0 N CAA N O M .r AA O 01 A N O> ti b N O O 01 M .r M N U, O O M Q 3 a.+ C `� b O 01 co 10 N m O •r •� O ai • M N b 1n 1n U W N p "'•1 N rr Np p r1 N N N C 2 O p w nZ b =cc WLLCJ C2 W.r 0 O C 1n 1e b 111 A M ... v .+ W 111 r1 u1 b O •+ O .� O O O .--1 W m G PO'9 .r C 111 01 Cl O O> CO CD CO .r ON C C CT O A N N N 111 0• O O> A A A N u W W Y 01 .-1 M d' M 47 O> C A CO W Z 1- Z J1 L .-1 r-1 M O O F- OJ, W C b4 p p V O < V U Y N yA 0 U d N N N d e • a > d n y .0 ++ G U J H O C cr T � W O w V' A 1a C N C N R C •r d V- < O �J W Y d Nli A 1p i�1 0 7 d•d d Q y w R d d _ LL d A 'O ro L d VI VI d O S- a+ C 10 O >= U R X < •.Y- d 0 W, C U J L �.r L Y A Y N d GO L v 4> .• u Y y A.... d ++ �+ a+ >1 ~ Z ~ O O d O d dL > O O O C E v+ L N d L C 10 JT a R L JY � a+N d > d d L 1n R d d RE S- cW _.. 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T w^ L m L O C •� G V •r +•' C N N U W a tq W o m C 0 C y • f L E C N m H m Y Y G O N v' i N MY N C t t U t to •O C:D C G L m G > Ill .ti 1 1 00 1 < O >l U C r m O O O C C O m h r ? :..+ 0 1 0 •N ON C In U m C G 1- •fi 64 O U m L> d G N >1 >, Ian m 0.D F-• i O += n U Y •--1 CO N t11 l0 0 Z O U N m O l =u m t O Ill 1 N M M q C En m In Oq mto CID C m L N r N Y N C C m y Y U IJ ply �t NYIp O In N L C MqN C m G d O r+ O m M C LL'f C Y lJQ r N T L LY TN Y C E CLL MM. --tMON C O ✓: r` C n C C N �- N to > V O •--I C lfl Ol O Ol m a1 •r N O O Y O WW C m N T .~. N L U w N t N N a b4 W L` C °U a_ Y~ m a C SN.. i uZ C Z C N m t N O N U •� w q q 'o N y _ •V L..- - Z a.+ ^•.- C N >= Ol Ol N a-` O LL O L I L Y .r . --i i to "> CD 3 3 N U N i N N j • > O o m Ol iT mot\ w N > t O E— > Y U a0 C •� N O L Ol MO N r U N C Ol In 'O E n o •-' .. •N I' q C C) A y GO 7 D m Ol U Z 0.N G O W••- U W N In O N B dN °cYOV >1 E warn O C N n N L C O O •� M O N L) > > > 4- • E O g N dr N S- T N y Y E L C .NC Y IN/1 C o N N L I N N• O C N N Y N C O Y >l 0 -M N > N O m m caw vl Er`nr 0,0 Y o E, m 0 U m •m C 7 Y O n N +1 d m .G T i In N •� C N ' • m N .D O O O O N 1� N m Y T m t V U N •� ; r i T E 1 L T m C 0 r Y V R U RGf'r r •�Nr EOr .-�R •m N N YHCmv N U n•.- r N N •� •.- n m N N r N m a+ N ut mu m W N N1-t XY E > r U U nU S- V) N N N - w C D r E N h Y m r G r _ r G•.- N N TtJ L C •r L N sr-•.- In Inr x G L ° o•� m ro N1�.. E n L 00+ c mNmoma.+o mr> m � LE ooi m a> O _ m N L C N E G•- N >> V- C i N N L m N d 3e 3 >l >l G O Gr to • Il? d r O O i V m r C m N r In W C N m •• C p C O O C N V G LL W N W Q C> O Y C d � C C N T W L TOrn N J-t O .n T V T c E In � m IV N w N w N R G G s o E N m U i ' N N L a+•� N4-U E U 6O� L L C C> N In I/i r C N N N N R m C Y a� d d D C C N L N N G N m V1 N 0 O O m C N O O •� O Wt o L t E m N N J J U L •r C h d a.1 w L F-• Y-• F- a+ N 3 C C '� 1- C Ill -16- • is King, Henslee & Jackson Certified Public Accountants APrtifie Pu Corporation Acc 5000 Birch Street Suite 440 Newport Beach, CA 92660 (714) 833 -8900 REPORT ON SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE To the Honorable City Council of the City of Newport Beach: We have examined the general purpose financial statements of the City of Newport Beach, California, for the year ended June 30, 1988, and have issued our report thereon dated October 14, 1988. Our examination of such general purpose financial statements was made in accordance with generally accepted auditing standards and the standards for financial and compliance audits contained in the Standards for Audits of Governmental Organizations, Programs, Activities, and Functions, issued by the U.S. General Accounting Office, and accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. Our examination was made for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The accompanying Schedule of Federal Financial Assistance is presented for purposes of additional analysis and is not a required part of the general purpose financial statements. The information in that schedule has been subjected to the auditing procedures applied in the examination of the general purpose financial statements and, in our opinion, is fairly stated in all material respects in relation to the general purpose financial statements taken as a whole. King, Henslee & Jackson Certified Public Accountants A Professional Corporation By M� Stanley C. Henslee Newport Beach, California November 21, 1988 • I• -17- I* 00 �00 ca a) H a) o GU Cl) ctl GQG) to 7 m h N LQ) 1 •rl D G N X W Q) 7 G a! > Ql x oo co p rorn Q) U N co V W " .b L + ro bo 6 O L L a o .G bO N 7^ L O L W L O A A ++ N�z a cc 4 W L 6 Q7 ZU Q) q A d N U F W W z y W co H ca 6 x o U a M W d a H W U a z h O `••I q p. W Wq 33z`dW v U (� O O q Wd C� F C7 H U 0 O bbO W 7 ax o 5 O L (q[� W C x AI U N N N ro a L O Q) w L F v cd ro L L ro o v L a� a O] LO (O r W II O O d O O II .-1 N co O O II d' ^ II In II Lo LCI I I 11 z it � II [1' co v It M O ro d' rl bo L ct .••� ^ II M II V7 (O L V' O r--1 (� 11 M ^ II M I I m m � II O I •. C:, I cn co d07 ' IIi I I C^ l F Q) N IIII I O 1n I I I M ^ I I G ro v 'A 11 E Q) bo rn n n tl ,,r o II N co (O II O a t0 II L to Q O WM N II N co +E N ro L L L v� II O c}' F O Cl) V O W C N N t i Q) M M q 4 IT O7 N 0. q O] LO O H O O N N M d O r1 .-1 N N LO z o z O] LO O H O O N N M d O r1 .-1 N N G Q) W r-I •rl G W L ro L x U 0 Aw W .. > o w G bo >1 N O + a r L �EE ro u 6 w Q) O q L U . q rn 5 W z d E- E- 0 F m 0 r+ A ro U L N Q) 'l7 N Ql •.•1 w A W O W 0 N � 7 L Q) ro Q) a U n m x v G 0 N N 0 N z m bo Q) G U N 9 N U 6 N Q) H A U F G G N G QI 4 v ro bo Q) >> L m m w •. cn co O A F Q) G ro v O E Q) bo L •H tl > C O a G bLOa L to Q O F N co +E 0. ro L L L L N F V ro u C N W Q) Q N Q) N O W q 4 0 0. q W z d E- E- 0 F m 0 r+ A ro U L N Q) 'l7 N Ql •.•1 w A W O W 0 N � 7 L Q) ro Q) a U n m x v G 0 N N 0 N z m bo Q) G U N 9 N U 6 N Q) H A U F G G N • :7 CITY OF NEWPORT BEACH NOTES TO THE SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE JUNE 30, 1988 • 1) Summary of Significant Accounting Policies Basis of Accounting Revenues received under the various federal financial assistance programs have been recorded within special revenue funds of the City of • Newport Beach. The City utilizes the modified accrual basis of accounting for the aforementioned funds, and the accompanying Schedule of federal financial assistance has been prepared accordingly. Presentation • The schedule of federal financial assistance programs is prepared from only the accounts of the various programs and, therefore, do not present the financial position or results of operation of the City of Newport Beach. 2) Program Descriptions 14D Revenue Sharing The Revenue Sharing Program was authorized under the Revenue Sharing Act of 1972, as amended in 1976, 1980 and 1983. The primary objective of the Revenue Sharing Program is to provide local governments with federal • fiscal assistance with minimum federal involvement and maximum flexibility for local officials. The City uses Revenue Sharing funds to finance capital outlay expenditures. Community Development Block Grant (CDBG) • The Community Development Block Grant (CDBG) Program was authorized under Title I of the Housing and Community Development Act of 1974. The primary objective of the CDBG Program is the development of viable urban communities, including decent housing and suitable living environment and expanding economic opportunities, principally for persons of low and moderate income. 0 Under this .n.r� ... the 'Dcpart.^...^.�t of Uausin and Urban Development p_ ., r _. g P (MUD) distributes Cubu 'funds to the City. The City uses the CDBG funds to finance land acquisition for the development of rental housing affordable to low and moderate income households, to provide financial assistance for temporary shelter for the homeless and needy, and to finance fair housing activities and program administration. -21- I• A 61 Federal -Aid Urban System The Federal -Aid Urban System (FADS) Program was authorized under the Federal -Aid Highway Acts of 1970 and 1973. The primary objective of the FAUS Program is to provide financial assistance for the improvement of • streets, highways and transportation facilities within urban areas. Under this program, the City of Newport Beach entered into an agreement in October, 1975 with the State of California, Division of Highways of the Department of Transportation (the State) , in which the State possesses the authority to approve and monitor any proposed and . subsequent activities undertaken by the City utilizing FAUS funds in accordance with requisite rules and regulations imposed by the federal government. The state acts as a representative of the federal government in its authority position over federal aid that is passed through the State Department to the City. During the previous year, the City obtained authorization to begin two projects under its FAUS program, a construction project and a right of- way project. -22- 0 r 41 *I •. 0 .• King, Henslee & Jackson Certified Public Accountants A P ofmlonel Cwp afion 5000 Birch Street Suite 440 Newport Beach, CA 92660 (714) 833 -8900 REPORT ON COMPLIANCE WITH LAWS AND REGULATIONS RELATED TO MAJOR AND NONMAJOR FEDERAL FINANCIAL ASSISTANCE PROGRAMS To the Honorable City Council of the City of Newport Beach: We have examined the general purpose financial statements of the City of Newport Beach, California, for the year ended June 30, 1988, and have issued our report thereon dated October 14, 1988. Our examination was made in accordance with generally accepted auditing standards and the standards for financial and compliance audits contained in the Standards for Audit of Governmental Organizations, Programs, Activities, and Functions, issued by the U.S. General Accounting Office, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. The management of the City of Newport Beach is responsible for the City's compliance with laws and regulations. In connection with our examination referred to above, we selected and tested transactions and records from each major federal financial assistance program and certain nonmajor federal financial assistance programs. The purpose of our testing of transactions and records from those federal financial assistance programs was to obtain reasonable assurance that the City of Newport Beach, California, had, in all material respects, administered major programs, and executed the tested nonmajor program transactions, in compliance with laws and regulations, including those pertaining to financial reports and claims for advances and reimbursements, noncompliance with which we believe could have a material effect on the allowability of program expenditures. Our testing of transactions and records selected from major federal financial assistance programs disclosed instances of noncompliance with those laws and regulations. All instances of noncompliance that we found and the programs to which they relate are identified in the accompanying schedule of findings and questioned costs. In our opinion, subject to the effect of the ultimate resolution of those instances of noncompliance referred to in the preceding paragraph, for the year ended June 30, 1988, the City of Newport Beach, administered each of 0 its major federal financial assistance programs in compliance, in all material respects, with laws and regulations, including those pertaining to financial reports and claims for advances and reimbursements, noncompliance with which we believe could have a material effect on the allowabil.ity of program expenditures. 0 The results of our testing of transactions and records selected from nonmajor federal financial assistance programs indicate that for the -23- I* C •I transactions and records tested the City of Newport Beach, California, complied with the laws and regulations referred to in the second paragraph of our report, except as noted in the accompanying schedule of findings and questioned costs. Our testing was more limited than would be necessary to express an opinion on whether the City of Newport Beach, California, administered those programs in compliance in all material respects with •' those laws and regulations noncompliance with which we believe could have a material effect on the allowability of program expenditures; however, with respect to the transactions and records that were not tested by us, nothing came to our attention to indicate that the City of Newport Beach, California, had not complied with laws and regulations other than those laws and regulations for which we noted violations in our testing referred to above. King, Henslee & .Jackson Certified Public Accountants A Professional Corporation By'.'�4 Stanley C. Henslee Newport Beach, California November 21, 1988 • -24- •I 7� •1 W • * 0 • • 7 0 J • King, Henslee & Jackson Certified Public Accountants A PrplwSSionel Corporefi0n 5000 Birch Street Suite 440 Newport Beach, CA 92660 (714) 833 -8900 COMPLIANCE REPORT BASED ON AN EXAMINATION OF GENERAL PURPOSE. FINANCIAL STATEMENTS To the Honorable City Council of the City of Newport Beach: We have examined the general purpose financial statements of the City of Newport Beach, California, for the year ended June 30, 1988, and have issued our report thereon dated October 14,1988. Our examination was made in accordance with generally accepted auditing standards and the standards for financial and compliance audits contained in the Standards for Audit of Governmental Organizations, Programs, Activities, and Functions, issued by the U.S. General Accounting Office, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. The management of the City of Newport Beach is responsible for the City's compliance with laws and regulations. In connection with our examination referred to above, we selected and tested transactions and records to determine the City's compliance with laws and regulations noncompliance with which could have a material effect on the general purpose financial statements of the City. The results of our tests indicate that for the items tested, the City of Newport Beach, complied with those provisions of laws and regulations • noncompliance with which could have a material effect on the general. purpose financial statements. Nothing came to our attention that caused us to believe that for the items not tested the City of Newport Beach, California, was not in compliance with laws or regulations noncompliance with which could have a material effect on the City's general purpose financial statements. 1* I• 16 King, Henslee & Jackson Certified Public Accountants A Professional Corporation By, , � Stanley C. Henslee Newport Beach, California November 21, 1988 -25- • • CITY OF NEWPORT BEACH, CALIFORNIA SCHEDULE OF FINDINGS YEAR ENDED JUNE 30, 1988 Finding (1) (a) A "use" Report was not prepared and, accordingly, no notice was published that such a report was available for public inspection. (b) The City was unable to locate proof that a notice was published that the previous year's audit report was available for public inspection. (c) The self evaluation of policies, practices, programs and activities to determine if the City discriminates against the handicapped was not prepared. Managements' Response All of the above refer to the Federal Revenue Sharing Program which has been discontinued. We did not realize that such requirements continued until brought to our attention in May 1988 in connection with the prior years audit. The various documents will be prepared in the future. Findin The City houses it's planning, building and public works department in a two story building which has no elevator, thus limiting access to, and employment of, Handicapped individuals. Managements' Response We will begin the process of adding a project to the capital expenditure budget to reconstruct an elevator in that building. -26- 01 0 • 0 0 0 0 0 0 • 10 10 1• I• 10 10 King, Hendee & Jackson Certified Public Accountants A Prolaadionai Corporation 5000 Birch Street Suite 440 Newport Beach, CA 92660 (714) 833 -8900 REPORT ON INTERNAL ACCOUNTING CONTROLS BASED SOLELY ON A STUDY AND EVALUATION MADE AS A PART OF AN EXAMINATION OF THE GENERAL PURPOSE FINANCIAL STATEMENTS To the Honorable City Council of the City of Newport Beach: We have examined the general purpose financial statements of City of Newport Beach, California, for the year ended June 30, 1988, and have issued our report thereon dated October 14, 1988. As part of our examination, we made a study and evaluation of the system of internal accounting control of the City of Newport Beach, California, to the extent we considered necessary to evaluate the system as required by generally accepted auditing standards and the standards for financial compliance audits contained in the U.S. General Accounting Office Standards for Audits of Governmental Organizations, Programs, Activities, and Functions. For the purpose of this report, we have classified the significant internal accounting controls in the following categories: Budgets and planning Cash receipts Procurement and cash disbursements Payroll Revenues and receivables Capital assets Data processing After a preliminary review of the above significant accounting controls, we concluded that, with the exception of cash receipts, procurement and cash disbursements and payroll, the examination of the general purpose financial statements could be performed more efficiently by using substantive audit tests rather than by further testing, evaluating and placing greater reliance on the internal accounting controls. The purpose of our study and evaluation was to determine the nature, timing and extent of the auditing procedures necessary for expressing an opinion on the entity's financial statements. Our study and evaluation was more limited than would be necessary to express an opinion on the system of internal accounting control taken as a whole or on any of the categories of controls identified above. The management of the City of Newport Beach, California, is responsible for establishing and maintaining a system of internal accounting control. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of a system are to provide management with -27- • •I reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. Because of inherent limitations in any system of internal accounting control, errors or irregularities may • nevertheless occur and not be detected. Also, projection of any evaluation of the system to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the degree of compliance with the procedures may deteriorate. Our study and evaluation made for the limited purpose described in the first • paragraph would not necessarily disclose all material weaknesses in the system. Accordingly, we do not express an opinion on the system of internal accounting control of the City of Newport Beach, California, taken as a whole or on any of the categories of controls identified in the first paragraph. Our study and evaluation disclosed no condition that we believe to be a material weakness. • These conditions were considered in determining the nature, timing, and extent of the audit tests to be applied in our examination of the 1988 financial statements, and this report does not affect our report on the financial statements dated October 14, 1988. • This report is intended solely for the use of management and should not be used for any other purpose. This restriction is not intended to limit the distribution of this report which, upon acceptance by the City of Newport Beach, is a matter of public record. King, Henslee & Jackson • Certified Public Accountants A Professional Corporation By • (� • Stanley C. Henslee Newport Beach, California November 21, 1988 own •i •I J .• 0 0 King, Henslee & Jackson Certified Public Accountants A Professional Corporation 9 5000 Birch Street Suite 440 Newport Beach, CA 92660 (714) 833 -8900 REPORT ON INTERNAL CONTROLS (ACCOUNTING AND ADMINISTRATIVE) USED IN ADMINISTERING FEDERAL FINANCIAL ASSISTANCE PROGRAMS To the Honorable City Council of the City of Newport Beach: We have examined the general purpose financial statements of the City of Newport Beach, California, for the year ended June 30, 1988, and have issued our report thereon dated October 14, 1988. As part of our examination, we made a study and evaluation of the internal control systems, including applicable internal administrative controls, used in administering federal financial assistance programs to the extent we considered necessary to evaluate the systems as required by generally accepted auditing standards, the standards for financial and compliance audits contained in the Standards for Audits of Governmental Organizations, Programs Activities, and Functions, issued by the U.S. General Accounting Office, the Single Audit Act of 1984, and the provisions of OMB Circular A -128, Audits of State and Local Governments. For the purpose of this report, we have classified the significant internal accounting and administrative controls used in administering federal financial assistance programs in the following categories: Accounting Controls Revenue receipts Purchases /disbursements Payroll General ledger Administrative Controls - General Requirements • Political activity • Davis -Bacon Act • . Civil Rights • Cash management • Relocation assistance and real property acquisition • Federal financial reports Administrative Controls - Specific Requirements Types of services Eligibility Matching level of effort Reporting Cost allocation Special requirements, if any Monitoring subrecipients -29- 10 • • •I The management of the City of Newport Beach, California, is responsible for establishing and maintaining internal control systems used in administrating federal financial assistance programs. In fulfilling that responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control systems used in administering federal financial assistance programs are to provide management with reasonable, but not absolute, assurance that with respect to federal financial assistance programs, resource use is consistent with laws, regulations, and policies; resources are safeguarded against waste, loss, and misuse; and reliable data are obtained, maintained, and fairly disclosed in reports. �I Because of inherent limitations in any system of internal accounting and administrative controls used in administering federal financial assistance programs, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the systems to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the degree of compliance with the procedures may deteriorate. Our study included all of the applicable control categories listed above. During the year ended June 30, 1988, the City of Newport Beach, California, expended 95.02% of its total federal financial assistance under major federal financial assistance programs. With respect to internal control systems used in administering major federal assistance programs, our study and evaluation included considering the types of errors and irregularities that could occur, determining the internal control procedures that should prevent or detect such errors and irregularities, determining whether the necessary procedures are prescribed and are being followed satisfactorily, and evaluating any weaknesses. With respect to the internal control systems used solely in administering the nonmajor federal financial assistance programs of the City of Newport Beach, California, our study and evaluation was limited to a preliminary review of the systems to obtain an understanding of the control environment and the flow of transactions through the accounting system. Our study and evaluation of the internal control systems used solely in administering the nonmajor federal financial assistance programs of the City of Newport Beach, California, did not extend beyond this preliminary review phase. Our study and evaluation was more limited than would be necessary to express an opinion on the internal control systems used in administering the federal financial assistance programs of the City of Newport Beach, California. Accordingly, we do not express an opinion on the internal control systems used in administering the federal financial assistance programs of the City of Newport Beach, California. Further, we do not express an opinion on the internal control systems used in administering the major federal financial assistance programs of the City of Newport Beach, California. Also our -30- 0 1 • • examination, made in accordance with the standards mentioned above, would not necessarily disclose material weaknesses in the internal control systems used solely in administering nonmajor federal financial assistance programs. • However, our study and evaluation and our examination disclosed no condition that we believe to be a material weakness in relation to a federal financial assistance program of the City of Newport Beach, California except an, item of less significance as explained on the following page. This report is intended solely for the use of management and its cognizant audit agency and other agencies granting funds to the City, of Newport Beach, California and should not be used for any other purpose. This restriction is not intended to limit the distribution of this report, which, upon acceptance by the City of Newport Beach, California is a matter of public record. King, Henslee & Jackson Certified Public Accountants A Professional Corporation ByVc!� =! ID Stanley C. Henslee Newport Beach, California November 21, 1988 U I* 10 I* -31- 10 0 • •. CITY OF NEWPORT BEACH SCHEDULE OF INTERNAL CONTROL FINDING JUNE 30, 1988 Findin •1 The City maintains a decentralized system of administering the Federal financial assistance programs. The system is not formally documented. . Recommendation We recommend, at a minimum, that a formal written document be prepared to attest to this system to ensure that all parties are aware of their responsibilities. We further recommend that the City consider implementing • a centralized system for the administration of all the federal financial assistance programs and that one employee be designated with the responsibility to administer and monitor compliance with federal financial assistance programs on an on -going basis. Response • The City will develop the recommended written documentation identifying areas of responsibility for administering the Federal financial assistance programs. -32- • • • • • CITY160F NEWPORT BIACH OFFICE OF THE CITY CLERK P.O. BOX 1768, NEWPORT BEACH, CA 92658 -8915 TO: FINANCE DIRECTOR FROM: CITY CLERK DATE: February 23, 1987 (714) 644 -3005 SUBJECT: Contract No. C -2636 Z - z'3 -" 9 Description of Contract Agreement for Independent Audit Effective date of Contract February 23, 1987 Authorized by Minute Action, approved on February 9, 1987 Contract with King, Henslee & Jackson Address 5000 Birch St., Suite 4400 Beach. CA 92660 Amount of Contract (See Agreement) "W� �f 4 Wanda E. Raggio City Clerk WER:pm Attachment 3300 Newport Boulevard, Newport Beach 0 AGREEMENT FOR INDEPENDENT AUDIT C - Z -e43,5 THIS AGREEMENT is made and entered into thisc;k3iteL day of �, 1987, by and between THE CITY OF NEWPORT BEACH, a Municipal orporation and Charter City, hereinafter referred to as "City" and KING, HENSLEE & JACKSON, INC., Certified Public Accountants, hereinafter "Accountant" with respect to the following facts, the materiality and existence of which are agreed to between the parties: 1. Accountant hereby agrees, at such time or times as it shall determine, to make an audit and examination of the books, records, inventories and reports of all officers and employees of the City who receive, handle or disburse public funds, for fiscal year 1986 -87, commencing July 1, 1986; for fiscal year 1987 -88 commencing July 1, 1987; and for fiscal year 1988 -89, commencing July 1, 1988, pursuant to Section 1117 of the City Charter, in order to express an opinion on City's financial statements. The audit shall embrace all funds of the City, including the 1911 Act Improvement Bond Funds. The audit shall be conducted in accordance with generally accepted auditing standards and shall include, among other things, such tests of City's accounting records and other auditing procedures which will enable Accountant to express an opinion on City's financial statements. Should circumstances be encountered which, in the -1- 0 0 judgment of Accountant, prevent the expression of an unqualified opinion on City's financial statements taken as a whole, such opinion shall be qualified or omitted; however, Accountant's report shall contain a statement of the reasons for the qualification or omission. To the extent applicable, the audit shall include the audit procedures recommended in the booklet entitled "Checklist for the Audit of Financial Records of a California City," published by The League of California Cities and The California Society of Certified Public Accountants. 2. Accountant agrees to render a report, on the results of its audit of City's financial statements for the fiscal years to which this contract applies, together with condensed financial statements. Accountant shall also present a short form report which shall accompany the completed financial statements submitted by the Finance Director. Accountant's reports shall include a qualified or unqualified opinion, or disclaimer of opinion, on the status of City's financial statements, according to the circumstances encountered and described in paragraph 1 hereof. A total of 12 copies of said report shall be submitted as follows: Six copies to the City Council, one copy to the City Manager, one copy to the Finance Director, one copy to the City Attorney, and 3 additional copies which shall be placed on file in the Office of the City Clerk for -2- public inspection. In addition to the final report, Accountant shall advise the City Council, not later than May 13th of each respective fiscal year, as to the conditions found to exist. This interim report shall consist of a short discussion on the performance of the accounting procedures, and any other matters, Accountant believes should be called to the attention of the City Council. Accountant agrees to render a Management Letter at the close of each respective fiscal year, setting forth the problems and recommended solutions to those problems as they relate to the internal controls of City's accounting system, as well as any other matters which, in Accountant's opinion, should be brought to the attention of City. 3. Compensation to be paid Accountant for auditing services for fiscal years 1986 -87, 1987 -88, and 1988 -89 shall be in the amount of Fourteen Thousand Dollars ($14,000.00), payable one half on May 1st, and the balance upon delivery of Accountant's report, following the close of the fiscal year. 4. The audit and examination referred to herein and the fees agreed to contemplate that conditions satisfactory to normal progress and completion of said audit and examination will be encountered. In the event that actual conditions encountered are not compatible with usual and expected progress, and, in -3- 0 0 order to discharge the contractual obligations herein, in the opinion of Accountant, it is necessary to perform additional work, or to expend additional amounts of time not contemplated by this contract, due from but not limited to: (a) Incompleteness of records; (b) Abnormal errors; (c) Misappropriation of funds; (d) Lack of cooperation from City employees; or (e) Any other justifiable reasons then and in that event Accountant, after reasonable demonstration of the existence of such conditions, shall be entitled to reapply to the City Council for supplemental compensation for such additional services payable at the prevailing rates per hour for respective grades of staff members and partners used in the performance of such work or services. 5. The audit and examination specified in Paragraph 1 hereof shall be based on tests and samples of the accounting records and transactions of City, sufficient to satisfy Accountant of the fairness of the presentation of the financial condition and operating results of City and is not intended to comprise a detailed examination of all City transactions. It is further understood that owing to the test of character of the examination, reliance must be placed on the adequacy of the system of internal "checks and controls" as the principal safeguard against defalcations and other irregularities of the same general nature. Further, Accountant will attempt to detect -4- any defalcations, or similar irregularities, however, Accountant does not assume any responsibility therefor. 6. It is contemplated that Accountant may be requested to perform additional services over the usual audit services referred to herein, such as advising City of changes in accounting methods used or in personnel required to assist: in accomplishing any changes of the method of recording or reporting used; the investigation of lease compliance by lessees within terms of City leases; performing special examinations of audits at the request of the City Council at times not otherwise scheduled for audits, or of officers, employees or departments who do not receive, handle or disburse public funds and other similar services. In such circumstances, the City Council, City Manager, or his designated representative may authorize Accountant to perform such work, or render services, in addition to those which are usual and customary in making an audit and examination of the accounts and records of City, and Accountant shall receive payment at the prevailing rates, per hour, for respective grades of staff members and partners used in performing such work or services. 7. Termination: City reserves the right to terminate this Agreement in the event Accountant fails to perform any of -5- • the duties required by this Agreement. City shall give Accountant written notice of its intent to terminate at least thirty (30) days prior to the effective date of termination. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ATTE City Clerk APPROVED AS TO FORM: Cijty Attbr`ney C a L KING, HENSLEE & JACKSON, INC. Certified/Public Accountants -6- Or 001 -6- i 0 CITY OF NEWPORT BEACH February 12, 1987 OFFICE OF THE CITY CLERK P.O. BOX 1768, NEWPORT BEACH, CA 92658 -8915 King, Henslee & Jackson 5000 Birch St., Suite 4400 Newport Beach, CA 92660 (714) 644 -3005 Attn: Mr. Stanley C. Henslee, CPA On February 9, 1987, the City Council of Newport Beach approved the Auditing Services Agreement with King, Henslee & Jackson, Inc., CPA's for the fiscal year 1986 -87, 1987 -88 and 1988 -89. Please have the said agreement signed and return to this office for further processing. After the execution by the Mayor of the City of Newport Beach, we will send you a copy for your files. Sincerely, Wanda E. Raggio City Clerk WER:pm Enclosure 3300 Newport Boulevard, Newport Beach King, Henslee & Jackson February 18, 1987 Certified Public Accountants A Professional Corporation Wanda S. Reggio City Clerk City of Newport Beach P.O. Box 1768 Newport Beach, CA 92658 -8915 Dear Ms. Raggio: 40 5000 Birch Street Suite 4400 Newport Beach, CA 92660 (714) 833 -8900 Enclosed is the agreement for independent audit for the City of Newport Beach which has been signed by both the President and Chief Financial Officer of King, Henslee & Jackson. We look forward to starting our services to the City of Newport Beach. Veery�y`� truly yours, Carol Lynn Jake( Office Manager d COUNCIL AGENDA j CITY OF NEWPORT BEACH NO"" L- (/) FINANCE DEPARTMENT February 9, 1987 TO: City Council FROM: Finance Director SUBJECT: AWARD BID FOR INDEPENDENT AUDITING SERVICES Recommendation: 1. That the City Council award the bid for auditing services to King, Henslee & Jackson, Inc., CPA's. 2. Adopt a resolution authorizing the Mayor and City Clerk to execute the agreement with King, Henslee & & Jackson, Inc., CPA's. Discussion: Commencing in 1980 the City Council required the staff to obtain written proposals every three years from interested auditors to conduct auditing services. The present agreement expired following the 1985 -86 fiscal year. Requests for bids were solicited from three Certified Public Accounting firms located in Newport Beach to provide auditing services for fiscal years 1986 -87, 1987 -88 and 1988 -89. The results of the bids are as follows: Bidder King, Henslee & Jackson Moreland & Associates Coopers & Lybrand BID 1986 -87 1987 -88 1988 -89 $14,000 $17,000 $24,250 $14,000 $18,000 $25,500 $14,000 $19,000 $26,750 Based on the above, King, Henslee and Jackson is the low bidder and therefore, the staff recommends the City Council approve the resolution authorizing the Mayor and City -- to enter into the agreement for audi fig services with King, He slee & Jackson. ` BY THE CIT; OUNCIL CITY 0r tZRa BEAN Finance FEB 9 198 APPROVED 1 RESOLUTION NO. 87 -26 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH AUTHORIZING THE MAYOR AND CITY CLERK TO EXECUTE AN AGREEMENT BETWEEN THE CITY AND KING, HENSLEE do JACKSON, INC. CONCERNING AUDITING SERVICES FOR FISCAL YEARS 1986 -87, 1987 -88, AND 1988 -89 WHEREAS, there has been presented to the City Council of the City of Newport Beach a certain agreement between the City and King, Henslee do Jackson, Inc., Certified Public Accountants, in connection with auditing services for the City for fiscal years 1986 -87, 1987 -88, 1988 -89; and WHEREAS, the City Council has reviewed the terms and conditions of said Agreement and found them to be fair and equitable. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Newport Beach that the Agreement described above, a copy of which is attached hereto as Exhibit "A," be and hereby is approved; and BE IT FURTHER RESOLVED, that the Mayor and City Clerk be and hereby are authorized and directed to execute same on behalf of the City of Newport Beach. ADOPTED this 9th day of February, 1987.