09 Attachment 3 - Independent Auditor PresentationTown of Los Gatos
Presentation to The Finance Committee
December 7, 2020
Presented by:Ahmed Badawi, CPAPartner
ATTACHMENT 3
Badawi & Associates
Audit of the
Town of Los Gatos
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Agenda
Engagement Team
Deliverables and Scope of the Audit
Areas of Primary Emphasis
Auditors Report and Financial Statements
Required Communications
New Accounting Standards
Conclusion & Discussion/Questions
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Engagement Team
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Engagement Team
Engagement
Partner
Ahmed Badawi,
CPA
Quality Control Reviewer
Mitesh DesaiCPA
Staff
Connor Robbins
Senior
Samantha Michel
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Staff
Yifan Wu
Deliverables and Scope of the Audit
Report of Independent Auditors on Town of Los Gatos Basic Financial
Statements (BFS).
Report on Internal Control Over Financial Reporting and on
Compliance and Other Matters.
Agreed-Upon Procedures Report on Appropriation Limit Schedule.
Communications With Those Charged With Governance.
Letter used to summarize communication of various significant matters to those charged with governance.
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Areas of Primary Audit Emphasis
The risk of management override of controls is addressed by the following procedures:
Assignment of audit staff based on consideration of audit risk.
Procedures to incorporate an element of unpredictability in the audit from period to period.
Consideration of the selection and application of significant accounting principles.
Examination of journal entries.
Review of accounting estimates for bias.
Evaluation of business rationale for unusual transactions.
Evaluation of the appropriateness of fraud-related inquiries performed
Revenues &Receivables (Tax,Grants,Notes and Others):Improper revenuerecognitions
Confirm/validate property taxes,sales taxes,district taxes,franchise taxes &other significantrevenues/receivables.
Performed testing of licenses,permits and fees revenues
Pension and OPEB:Complex accounting
Reviewed management’s journal entries for pension and OPEB
Agreed amounts recorded to reports provided by CalPERS and Town’s Actuary
Tested the census data used by CalPERS and Town’s Actuary
Obtained reports from CalPERS auditors regarding plan assets and census data
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Auditors Report
Unmodified opinion
Audit performed in accordance with Generally
Accepted Auditing Standards, and Government Auditing Standards
Financial statements are fairly presented in all material respects
Significant accounting policies have been consistently applied
Estimates are reasonable
Disclosures are properly reflected in the financial
statements
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Government-Wide Financial Statements
Cash &
Investments Receivables Other Assets Capital
Assets
Deferred
Outflow of
Resources
2018 $73,975,308 $3,523,990 $28,011 $102,098,729 $19,177,172
2019 $74,997,176 $4,444,872 $22,821 $107,542,588 $13,521,349
2020 $72,394,160 $3,570,041 $30,960 $111,700,225 $17,441,310
$-
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
Assets and Deferred Outflows of Resources
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Government-Wide Financial Statements
Accounts
Payable and
Accrued
Expenses
Deposits and
Unearned
Revenues
Net Pension
Liability
Claims Payable
and
Compensated
Absences
Net OPEB
Obligation
Deferred Inflow
of Resources
2018 $5,885,240 $11,313,174 $53,204,508 $4,049,304 $11,165,000 $3,923,918
2019 $4,843,182 $11,051,557 $53,627,829 $3,946,167 $10,055,468 $2,185,494
2020 $5,511,432 $11,333,356 $57,230,935 $4,356,114 $9,126,387 $2,727,441
$-
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000 Liabilities and Deferred Inflows of Resources
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Government-Wide Financial Statements
Net Investment in
Capital Assets Restricted Unrestricted
2018 $102,098,729 $6,992,747 $170,590
2019 $107,542,588 $11,918,688 $(4,642,167)
2020 $111,700,225 $7,117,984 $(3,967,178)
$(20,000,000)
$-
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
Net Position
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Government-Wide Financial Statements
$735,857
$4,350,192
$31,922 $-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$5,000,000
2018 2019 2020
Changes in Net Position
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Government-Wide Financial Statements
2018 2019 2020
Net Cost of Service $28,803,164 $30,563,623 $33,014,431
Tax Revenue $28,567,313 $30,682,158 $30,269,417
$26,000,000
$27,000,000
$28,000,000
$29,000,000
$30,000,000
$31,000,000
$32,000,000
$33,000,000
$34,000,000
Net Cost of Service to Tax Revenue
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General Fund
Expenditure Coverage
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2018 2019 2020
Unrestricted Fund Balance 30,428,684$ 32,955,211$ 28,665,519$
Total Expenditures 37,014,345$ 37,993,949$ 44,270,043$
Unrestricted Fund Balance as
a % of Total Expenditures 82.21%86.74%64.75%
Number of months 10 10 8
GFOA recommendation 2 - 4
Measure of Town's ability to operate with no revenues using available fund balance.
Other Financial Information
Town’s Annual Pension Contributions
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2018 2019 2020
Miscellaneous $2,669,133 $3,008,079 $8,188,460
Safety $1,951,711 $2,325,357 $2,565,205
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
Pension Plan
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Plan Assets Pension Liability Net Pension Liability
6/30/2018
(2017 Measurement Date)$69,680,823 $100,469,377 $30,788,554
6/30/2019
(2018 Measurement Date)$73,232,175 $104,134,737 $30,902,562
6/30/2020
(2019 Measurement Date)$76,114,760 $108,650,008 $32,535,248
$-
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
Town’s CalPERS Miscellaneous Pension Plan Funded Status
Pension Plan
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Plan Assets Pension Liability Net Pension Liability
6/30/2018
(2017 Measurement Date)$63,355,816 $85,771,770 $22,415,954
6/30/2019
(2018 Measurement Date)$66,479,753 $89,205,020 $22,725,267
6/30/2020
(2019 Measurement Date)$68,869,426 $93,565,113 $24,695,687
$-
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
Town’s CalPERS Safety Pension Plan Funded Status
Pension Plan
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Miscellaneous Safety Total Net Pension Liability
6.15%$14,183,262 $37,518,167 $78,345,966
7.15%$32,535,248 $24,695,687 $57,230,935
8.15%$21,037,757 $14,183,262 $35,221,019
$-
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
$80,000,000
$90,000,000
Town’s CalPERS Total Pensions Plan Sensitivity to
Discount Rate (2019 Measurement Date)
Other Postemployment Benefits
Town’s Annual OPEB Contributions
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2018 2019 2020
AOC $2,935,313 $2,406,636 $2,508,306
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
Other Postemployment Benefits
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Plan Assets Actuarial Liability Unfunded Liability
as of 6/30/18 $13,608,000 $24,773,000 $11,165,000
as of 6/30/19 $16,265,716 $26,321,184 $10,055,468
as of 6/30/2020 $18,371,542 $27,497,929 $9,126,387
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
Town’s OPEB Funded Status
Other Postemployment Benefits
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5.75%6.75%7.75%
NOL $12,620,092 $9,126,387 $6,231,928
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
Town’s OPEB Plan Sensitivity to Discount Rate
(2019 Measurement Date)
Other Postemployment Benefits
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6.5% - 3.0%7.5% - 4.0%8.5% - 5.0%
NOL $6,581,769 $9,126,387 $11,778,962
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
Town’s OPEB Plan Sensitivity to Healthcare Trend Rate
(2019 Measurement Date)
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Required Communications
Our Responsibility Under U.S GAAS
•Opinion on whether financial
statements are fairly stated in
accordance with U.S GAAP
•Evaluate internal control over
financial reporting including tone
at the top
•Evaluate compliance with laws,
contract and grants
•Ensure financial statements are
clear and transparent
•Communicate with the governing
body
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Management Responsibility
•Management is responsible for the
financial statements
•Establish and maintain internal control
over financial reporting
•Making all financial records available to
us
•Adjust the financial statements to
correct material misstatements
•Establish internal control to prevent
and detect fraud
•Inform us of all known and suspected
fraud
•Comply with laws and regulations
•Take corrective action on audit findings
Required Communications
Independence
Timing of the Audit
•It is our responsibility to maintain
independence
•We will maintain our
independence by strict adherence
to the AICPA and the Board of
Accountancy rules and regulations
•No other services performed that
could affect our independence
•Audit was performed in the time
frame communicated to the Town
in our engagement letters
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Required Communications
Management Judgment
and Accounting
Estimates
Sensitive Disclosures
Significant management estimates impacting the
financial statements include the following:
•Useful lives of Capital Assets
•Pension Plans
•Accrued Compensation
•OPEB Obligation
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The most sensitive disclosures affecting the
Town’s financial statements are as follow:
•Summary of Significant Accounting
Policies
•Cash and Investments
•Capital Assets
•Net Position/Fund Balance
•Defined Benefit Pension Plan
•Other Post Employment Benefits
Required Communications
Difficulties Encountered in Performing the Audit
No difficulties were encountered
during our audit
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Significant Audit Adjustments and Unadjusted Differences Considered by Management to be Immaterial
There were adjustments and
reclassifying entries during the
course of the audit. Management
has posted all proposed audit
adjustments .
Required Communications
Potential Effect on the Financial Statements of Any Significant Risks and Exposures
No significant risks or exposures
were identified. Legal matters and
potential liabilities are disclosed in
the financial statements
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Disagreement with Management We are pleased to report that there
were no disagreements with
management
Required Communications
Deficiencies in Internal
Control over Financial
Reporting
No material weaknesses
identified during our audits
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Representations Requested of Management
We will be requesting
certain representations
from management that will
be included in the
management
representation letter.
Required Communications
Management
Consultation with Other
Accountants
We are not aware of any
significant accounting or
auditing matters for which
management consulted with
other accountants
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Other Material Written Communications
Other than the engagement
letters and management
representation letters,
there have been no other
significant communications
Required Communications
Material Uncertainties Related to Events and
Conditions
Fraud and Illegal Acts
There were no material
uncertainties relating to
events and conditions
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We have not become aware
of any instances of fraud or
illegal acts, which were not
disclosed by the Town
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New Accounting Standards
•GASB Statement No. 91 –Conduit debt
•GASB Statement No. 94 –Public-private partnerships
•GASB Statement No. 96 -Subscription-Based Information Technology Arrangements
2021
•GASB Statement No. 90 –Majority Equity Interests
•GASB Statement No. 93 –Interbank offered rates (except LIBOR removal and lease modifications)
2022
2023
•GASB Statement No. 87 –Leases
•GASB Statement No. 89 –Construction-period interest
•GASB Statement No. 92–Omnibus (multiple effective date)
•GASB Statement No. 93 –LIBOR removal and lease modifications
•GASB Statement No. 97 -Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans
Thank You
For Allowing Us to Provide Audit Services
to the Town of Los Gatos
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