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Staff Report with attachments PREPARED BY: Gitta Ungvari Interim Finance Director Reviewed by: Town Manager, Town Attorney, and Assistant Town Manager 110 E. Main Street Los Gatos, CA 95030 ● (408)354-6832 www.losgatosca.gov TOWN OF LOS GATOS FINANCE COMMISSION REPORT MEETING DATE: 10/18/2022 ITEM NO: 8 DATE: October 11, 2022 TO: Mayor and Town Council FROM: Laurel Prevetti, Town Manager SUBJECT: Receive Independent Accountants’ Report on Agreed-Upon Procedures on Measure G Revenues and Expenditures for the Period March 1, 2019 to June 30, 2021 RECOMMENDATION: Staff recommends that Town Council receive the Independent Accountants’ Report on Agreed- Upon Procedures (AUP) on Measure G Revenues and Expenditures for the period March 1, 2019 to June 30, 2021. BACKGROUND: On June 19, 2018, the Los Gatos Town Council adopted Ordinance No. 2274 establishing a General Transaction and Use Tax (“Ordinance 2274”) for a period of twenty years and put forth the required ballot measure for voter consideration. On November 6, 2018, the voters of the Town approved the 1/8 Sales Tax dedicated to Los Gatos (Measure G). Among other items, Ordinance 2274 and Measure G required Citizens Oversight to ensure funds are spent according to the Measure’s stated intent. On November 3, 2020, voters of Los Gatos approved the Measure A ballot initiative establishing a new Finance Commission and disbanding both the Finance Committee and Sales Tax Oversight Committee. Among other responsibilities, the Finance Commission is charged with: (7) Issue an annual public report of the expenditures and appropriations of sales tax revenues approved by the Town Council during each fiscal year. PAGE 2 OF 2 SUBJECT: Receive Measure G AUP Report DATE: October 11, 2022 DISCUSSION: On September 16, 2022, Badawi & Associates finished the review process and provided the Independent Accountants’ Report on Agreed-Upon Procedures on Measure G Revenues and Expenditures for the Period March 1, 2019 to June 30, 2021 as presented in Attachment 1 of this staff report. During this period, there were ten expenditures that utilized Measure G funds consistent with the Town Council’s adopted FY 2019/20 and FY 2020/21 Budgets: “State Admin Fees Withheld” is the administration fee imposed by the State Department of Tax Fee Administration to Los Gatos that is deducted from collected Measure G sales tax. Badawi & Associates found that the expenditures were consistent with the voter approved Measure G. The Finance Commission received this report on October 10, 2022 and had no comments. CONCLUSION AND NEXT STEPS: Staff recommends that the Town Council to receive the Independent Accountants’ Report. During the budget process, the Council approves the expenditures and appropriations of the sales tax revenues with consideration of the Finance Commission’s recommendation(s). Attachment: 1. Independent Accountants’ Report on Agreed-Upon Procedures for Measure G Revenues and Expenditures For the period March 1, 2019 to June 30, 2021. FY 2019/20 State Admin Fees Withheld April - June 2019 9,330$ FY 2019/20 State Admin Fees Withheld July -Sept 2019 9,330 FY 2019/20 State Admin Fees Withheld Oct - Dec 2019 9,330 FY 2019/20 State Admin Fees Withheld Jan - Mar 2020 5,060 FY 2020/21 State Admin Fees Withheld April - June 2020 10,310 FY 2020/21 State Admin Fees Withheld July -Sept 2020 10,310 FY 2020/21 State Admin Fees Withheld Oct - Dec 2020 10,310 FY 2020/21 State Admin Fees Withheld Jan - Mar 2021 7,440 FY 2020/21 State Admin Fees Withheld April - June 2021 12,670 Total Collection Fees 84,090 FY 2020/21 50% to Police Safety 549,328 Total Expenditures 633,418 Los Gatos, California Independent Accountants’ Report On Agreed-Upon Procedures on Measure G Revenues and Expenditures For the period March 1, 2019 to June 30, 2021 ATTACHMENT 1 2 INDEPENDENT ACCOUNTANTS’ REPORT To the Honorable Mayor and Town Council of the Town of Los Gatos Los Gatos, California We have performed the procedures enumerated below on the accompanying Schedule of Measure G Revenues and Expenditures of the Town of Los Gatos (Town) for the period from March 1, 2019, to June 30, 2021. The Town’s management is responsible for the Measure G revenues and expenditures. The Town has agreed to and acknowledged that the procedures performed are appropriate to meet the intended purpose of determining whether Measure G sales taxes were used and accounted for in accordance with specified laws, regulations, and recommendations of the Finance Commission for the period from March 1, 2019, to June 30, 2021. This report may not be suitable for any other purpose. The procedures performed may not address all the items of interest to a user of this report and may not meet the needs of all users of this report and, as such, users are responsible for determining whether the procedures performed are appropriate for their purposes. The procedures performed and our findings are described below: 1. We obtained and reviewed Town Ordinance 2274, Amending Chapter 2.60 of the Town's Municipal Code, "'Transactions and Use Tax' to Extend the One-Eighth Cent Transactions and Use Tax Term for Twenty Years". Finding: No exceptions were noted as a result of our procedures. 2.We obtained and reviewed Town Ordinance 2314, adding Article 5 to Chapter Two and amending Chapter 25.60.140 of the Town's Municipal Code. Finding: No exceptions were noted as a result of our procedures. 3.We obtained a schedule of Measure G revenues and expenditures for the period from March 1, 2019 to June 30, 2021 and agreed totals reported on the schedule to the Town's audited trial balance. Finding: No exceptions were noted as a result of our procedures. 4.We compared Measure G revenues reported to monthly sales tax reports from the California Department of Tax and Fee Administration (CDTFA). Finding: No exceptions were noted as a result of our procedures. 3 To the Honorable Mayor and Members of Town Council of the Town of Los Gatos Los Gatos, California 5. Inquired if the Finance Commission reviewed and recommended use of Measure G revenues to the Town Council to meet the following objectives. a. Maintaining and enhancing neighborhood police patrols and local crime prevention programs; b.Improving Traffic Flow to Reduce Congestion; c.Repairing potholes and maintaining the Town's streets, roads, and sidewalks; and d.Maintaining the Town's long-term financial stability. Finding: No exceptions were noted as a result of our procedures. 6. Inquired if the Town Council received the Finance Commission's recommendation and adopted a Council authorized expenditure plan directing the use of Measure G revenues for the period under reported thereupon. Finding: No exceptions were noted as a result of our procedures. 7.Selected a sample of 25 Measure G expenditures to verify if they were for allowable purposes. Per Measure A Ordinance 2314 eligible expenditures include: a.Maintaining and enhancing neighborhood police patrols and local crime prevention programs; b.Improving traffic flow to reduce congestion; c.Repairing potholes and maintaining the Town's streets, roads. and sidewalks; and d.Maintaining the Town's long-term financial stability. Finding: Measure G had only 10 expenditures during the period from March 1, 2019 to June 30, 2021. We tested all 10 expenditures and found no exceptions. 8. Agreed amounts held in the General Fund Reserve sub-fund for Measure G agree to Measure G sales tax collections from first receipt of revenues to report date less any amounts reduced for Town Council authorized uses as reported on the auditor's review of tests of expenditures. Finding: No exceptions were noted as a result of our procedures. We were engaged by the Town to perform this agreed-upon procedures engagement and conducted our engagement in accordance with attestation standards established by the AICPA. We were not engaged to and did not conduct an examination or review, the objective of which would be the expression of an opinion or conclusion, respectively, on the accompanying Schedule of Measure G Revenues and Expenditures. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. 4 To the Honorable Mayor and Members of Town Council of the Town of Los Gatos Los Gatos, California We are required to be independent of the Town and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements related to our agreed-upon procedures engagement. This report is intended solely for the information and use of the Town Council and management of the Town and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record and its distribution is not limited. Badawi & Associates, CPAs Berkeley, California September 16, 2022 Measure G REVENUES Sales Taxes ­ Measure G 2,363,908$ Total Revenues 2,363,908 EXPENDITURES Public Safety 549,328 Collection Fees 84,090 Total Expenditures 633,418 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 1,730,490 NET CHANGES IN UNSPENT PROCEEDS 1,730,490 BEGINNING BALANCE OF UNSPENT PROCEEDS ­ ENDING BALANCE OF UNSPENT PROCEEDS 1,730,490$ TOWN OF LOS GATOS MEASURE G SCHEDULE OF REVENUES AND EXPENDITURES FOR THE PERIOD MARCH 1, 2019 TO JUNE 30, 2021 5 Town of Los Gatos Notes to Schedule of Measure G Revenues and Expenditures For the period from March 1, 2019, to June 30, 2021 6 1. MEASURE G Measure G is a 1/8 percent transaction and use tax approved by voters in November 2018 for a twenty­year period. The Town of Los Gatos (Town) received the first taxes in May 2019 which represented sales in March 2019. In November 2020, voters approved a second measure which codified Measure G’s objectives: a. Maintaining and enhancing neighborhood police patrols and local crime prevention programs b. Improve traffic flow to reduce traffic congestion c. Repairing potholes and maintaining the Town’s streets, roads, and sidewalks d. Maintaining the Town’s long­term financial stability 2. COLLECTION FEES Collection fees are fees imposed by the State for collecting the Measure G sales tax and distributing it to the Town. Cash received by the Town is net of these fees. The Town has elected to record the gross sales taxes as revenue and the collection fees as expenditures.