12 Staff Report.Receive 2023 ACFR
PREPARED BY: Gitta Ungvari
Finance Director
Reviewed by: Town Manager, Assistant Town Manager, and Town Attorney
110 E. Main Street Los Gatos, CA 95030 ● (408) 354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 12/19/2023 ITEM NO: 12
DATE: December 12, 2023
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Annual Comprehensive Financial Report (ACFR):
a. Receive the Annual Comprehensive Financial Report (ACFR) for the Fiscal
Year Ended June 30, 2023, and
b. Adopt a Resolution Confirming June 30, 2023 Fund Balances in
Accordance With Fiscal Year 2022/23 Final Audit and Town Council
General Fund Reserve Policy
RECOMMENDATION:
Annual Comprehensive Financial Report (ACFR):
a. Receive the Annual Comprehensive Financial Report (ACFR) for the Fiscal Year Ended June
30, 2023 as recommended by the Finance Commission (Attachment 1), and
b. Adopt a Resolution Confirming June 30, 2022 Fund Balances in Accordance with Fiscal Year
2022/23 Final Audit and Town Council General Fund Reserve Policy.(Attachment 2)
BACKGROUND:
The Town contracts with an independent certified public accountant to examine the books,
records, inventories, and reports of all officers and employees who receive, handle, or disburse
public funds each fiscal year (FY). The FY 2022/23 audit was performed by Chavan and
Associates, LLP an experienced firm specializing in audit services for California public agencies.
The firm also assisted with the Draft ACFR for the Town of Los Gatos.
The information contained in the ACFR provides detailed financial information which the Los
Gatos community and others can use to better understand the fiscal standing of the Town. In
addition, the financial information contained in the document is one element that the credit
rating agencies review annually to affix a credit rating for the Town’s outstanding debt
obligations.
PAGE 2 OF 5 SUBJECT: Receive 2023 Annual Comprehensive Financial Report DATE: December 12, 2023
BACKGROUND (continued):
With the passage of Measure A, the Finance Commission has been tasked with several
mandated duties as described in the provisions of the adopted Ordinance. Section 2.50.225. –
Duties states that:
(a) The Finance Commission shall:
(3) Review the Town Manager's draft Annual Comprehensive Financial Report (ACFR)
for the preceding fiscal year and provide written comments and recommendations
to the Town Manager.
(A) The Town Manager shall respond in writing to the Finance Commission
providing his or her rationale for accepting or rejecting each of the Finance
Commission's comments and recommendations prior to presenting the ACFR to
the Town Council for formal consideration.
(B) The Town Manager may not present the ACFR to the Town Council for
formal consideration unless or until he or she considers and responds in writing
to all of the Finance Commission's comments and recommendations.
DISCUSSION:
On November 27, 2023, the Draft FY 2022/23 Annual Comprehensive Financial Report (ACFR)
was posted to the Town’s website and the link was provided to the Finance Commission.
Finance Commissioners had an opportunity to submit written questions and comments to staff.
At the Finance Commission special meeting on December 4, 2023, the Town’s independent
auditor and staff addressed the Commissioners’ questions and comments. The Finance
Commission began to formulate its comments and recommendations to the Town Council. The
Commission had a consensus on shortening and streamlining the Management Discussion and
Analysis (MD&A).
Staff requested Commissioners to provide any additional comments before the December 11,
2023 regular Finance Commission meeting.
The Finance Commission concluded its review of the draft ACFR and unanimously
recommended that the Town Council receive the Annual Comprehensive Financial Report
(ACFR) for the Fiscal Year Ended June 30, 2023 with recommended modifications (see
Attachment 3 for redlined version).
The redlined draft ACFR (Attachment 3) includes corrections of typos, clarifying language,
additional details in schedules, summary presentation, graphs, and elimination of text based on
Commissioners’ comments. The redlined ACFR balances requests for more information with
brevity.
PAGE 3 OF 5 SUBJECT: Receive 2023 Annual Comprehensive Financial Report DATE: December 12, 2023
DISCUSSION (continued):
The Town Manager’s responses to Commissioners’ questions and comments are included in
Attachment 4. The questions and comments are organized by the following categories:
• General comments;
• Suggestions for modifying the presentation and correcting typographical errors;
• Requests for additional information regarding Town Finances; and
• Additional detailed questions and comments.
While Commissioners wanted a more simplified presentation, there were additional questions
raised regarding Town finances. In particular, there was an interest to normalize the data and
the auditor suggested that a separate document would be more appropriate than the ACFR.
Detailed information regarding Town Finances, Pension and Other Post-Employment Benefits,
Financial Policies, and the Forecast is available in the Town’s Adopted Budget and other Town
reports.
The Finance Commission recommended to include in its 2024 workplan a discussion of the
format and level of detail in the Management Discussion and Analysis (MD&A) to further
improve the presentation for next ACFR.
The Finance Commission also recommended that the Town should hire a separate accounting
firm to assist the Town with the preparation of financial statements contained in the Annual
Comprehensive Financial Report. Staff will bring forward government best practices and cost
analysis to Council consideration with the Proposed FY 2023/24 operating budget discussion.
Highlights of the draft audited financial results include:
Independent Auditor’s Report
The auditor has given the Town’s financial statements a “clean” audit opinion for the year
ended June 30, 2023 giving reasonable assurance that the financial statements are “free of
material misstatement” (Attachment 1).
Management’s Discussion and Analysis (MD&A)
The MD&A section of the report summaries for the Town on an entity-wide basis and fund type
basis. Information is provided in this section with a year-to-year view, explaining how fund
balances have changed between fiscal years ending June 30, 2022, and June 30, 2023.
Information is also presented on the adopted General Fund budget to actuals and any
significant budget adjustments made during FY2022/23.
PAGE 4 OF 5 SUBJECT: Receive 2023 Annual Comprehensive Financial Report DATE: December 12, 2023
DISCUSSION (continued):
Statement of Net Position
The Statement of Net Position serves as a useful indicator of a government’s financial position.
The Town had net assets of $153.5 million at fiscal year-end as compared to $138.4 million the
prior year, an overall increase of $15.1 million over the prior fiscal year. The increase was a
result of genera revenue collection of 39.4 million and a $1.6 million litigation settlement
combined with governmental activities expense of $25.8 million.
The largest portion of the net assets, $132.7million, represents the Town’s investment in its
capital assets and infrastructure. Restricted assets of $11.1 million are resources that are
subject to external restrictions on how they may be used. As of June 30, 2023, unrestricted net
position is $11.8 million compared to $1.8 million the prior year.
Basic Financial Statements
This section contains basic financial statements, including the “entity-wide” Statement of Net
Position and Statement of Activities, financial statements for the fund types including
Governmental Funds (such as the General Fund), Proprietary Funds, and the Private Purpose
Trust Funds (Redevelopment Successor Agency). The footnotes section provides details on
significant items such as the Town’s cash and investments (Note 2), its long term obligations
(Certificates of Participation) related to bonded debt (Note 7), Note 8 which illustrates the new
implementation of GASB 96 for subscription-based information technology agreements, the net
pension liability for both the Town’s miscellaneous and safety pension plans (Note 11), and a
discussion of the Town’s other post-employment benefit plan (Note 12).
Required Supplementary Information
The Schedules of Pension Plan Contributions are provided in this section.
Supplementary Information
This section provides budget to actual information for “non-major” funds which represent less
than 10% of the Town’s total assets/liabilities/revenues or expenditures.
Statistical Section
This section presents demographic statistics and ten-year historical financial data for the Town,
including information on assessed valuations, fund balances, debt, property tax rates,
personnel (full-time equivalent) history, principal employers, and other financial and
demographic disclosures.
CONCLUSION:
As noted in the auditor’s opinion, the ACFR fairly presents the fiscal year ending June 30, 2023
financial activity for the Town of Los Gatos.
PAGE 5 OF 5 SUBJECT: Receive 2023 Annual Comprehensive Financial Report DATE: December 12, 2023
FISCAL IMPACT:
There is no fiscal impact associated with this item.
Attachments:
1. Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2023
2. Fund Balance Resolution Establishing June 30, 2023 Fund Balances
3. Redlined Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2023
4. Town Manager’s Responses to Commissioners’ Questions and Comments