FY 2012/13 CAFR�pW N OF
to8-sA�ae TOWN COUNCIL AGENDA REPORT
DATE: February 12, 2014
MEETING DATE: 2/18/2014
ITEM NO: 3
TO: MAYOR AND TOWN COUNCIL
FROM: GREG LARSON, TOWN MANAGER,,
SUBJECT: ACCEPT FY 2012/13 COMPREHENSIVE ANNUAL FINANCIAL REPORT
(CAFR)
RECOMMENDATION:
Accept the FY 2012/13 Comprehensive Annual Financial Report (CAFR).
BACKGROUND:
The attached FY 2012/13 CAFR presents the Town of Los Gatos's financial, operational, and
current economic conditions for the fiscal year ending June 30, 2013. The CAFR received an
unqualified opinion from Chavan & Associates, LLP, the Town's external auditors. An
unqualified opinion indicates the financial data of the Town is fairly presented according to
general accounting principles. New auditing standards require that any "significant deficiency"
or "material weaknesses" discovered in the audit be communicated in writing to management. A
material weakness is a significant deficiency which could lead to a material misstatement of the
financial statements. The auditor's report found the Town's internal control structure to have no
reportable material weaknesses.
DISCUSSION:
Chavan & Associates, LLP, the Town's auditors, conducted an audit in accordance with
Generally Accepted Auditing Standards (GAAS) and the standards for financial audits contained
in the Government Audit Standards (1994 Revision), issued by the Comptroller General of the
United States. These standards require that they plan and perform the audits to obtain reasonable
assurance as to whether the financial statements are free of material misstatement.
Staff and Town's auditors, Chavan & Associates, LLP, met with the Council Finance Committee
on Tuesday, February 11, 2014 for an in -depth review of this year's reports to the Finance
Committee. The Committee was advised by staff that the audited statements for the year ended
PREPARED BY: Stephe , dministrative Services and Finance Director
NAFINANCE\CAFR\FY 2012 -13 \CAFR_ Staff Report 12_13_final.doo
Reviewed by: Assistant Town Manager -'own AttomeyG� Finance
PAGE 2
MAYOR AND TOWN COUNCIL
SUBJECT: ACCEPT THE FY 2011/12 COMPREHENSIVE ANNUAL FINANCIAL
REPORT (CAFR)
March 27, 2013
June 30, 2014 received an unqualified or "clean" opinion for the year, meaning the financial
statements are fairly presented and contain no material misstatements.
The CAFR reported that the Town has positive net assets of $138.0 million at the fiscal year end
compared to $132.7 million the prior year. Of the $138.0 million, $92.6 million represent the
Town's investment in its capital assets and infrastructure. The remaining $45.4 million reflects a
comprehensive accounting of working capital and restricted funds, which ensure responsible
fiscal management, and funds designated for specific purposes.
Also, in accordance with AB 1x26, the Town of Los Gatos Redevelopment Agency (RDA)
dissolved and ceased to operate as a legal entity on February 1, 2012. After February 1, 2012,
the assets and activities of the dissolved Redevelopment Agency are reported in a fiduciary fund
(RDA Successor Agency private - purpose trust fund) in the financial statements of the Town.
CONCLUSION:
As noted in the auditor's opinion, the CAFR fairly presents the fiscal year ending June 30, 2013
financial activity for the Town of Los Gatos.
ENVIRONMENTAL ASSESSMENT:
The recommended action is not a project defined under CEQA, and no further action is required.
Attachments:
Attachment 1 Council Auditor Communications Letter dated January 30, 2014
Attachment 2 Town of Los Gatos Management Letter dated January 30, 2014
Attachment 3 Town of Los Gatos & Redevelopment Agency California Comprehensive Annual
Financial Report for the Fiscal Year Ended June 30, 2013
auaa Associates, LL
Certified Public Accountants
Town Council
The Town of Los Gatos
Los Gatos, California
We have audited the basic financial statements of the Town of Los Gatos (the Town) as of and for the
year ended June 30, 2013, and have issued our report thereon dated December 22, 2013. Professional
standards require that we advise you of the following matters relating to our audit.
Our Responsibility under Generally Accepted Auditing Standards
As communicated in our engagement letter, our responsibility, as described by professional standards,
is to form and express an opinion about whether the financial statements that have been prepared by
management with your oversight are presented fairly, in all material respects, in conformity with
accounting principles generally accepted in the United States of America (and when applicable,
Government Auditing Standards). Our audit of the financial statements does not relieve you or
management of your respective responsibilities.
Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain
reasonable, rather than absolute, assurance about whether the financial statements are free of material
misstatements. An audit of financial statements includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control
over financial reporting. Accordingly, as part of our audit, we considered the internal control of the
Town solely for the purpose of determining our audit procedures and not to provide any assurance
concerning such internal control.
We are also responsible for communicating significant matters related to the audit that are, in our
professional judgment, relevant to your responsibilities in overseeing the financial reporting process.
However, we are not required to design procedures for the purpose of identifying other matters to
communicate to you.
Other Information in Documents Containing Audited Financial Statements
Pursuant to professional standards, our responsibility as auditors for other information in documents
containing the Town's audited financial statements does not extend beyond the financial information
identified in the audit report, and we are not required to perform any procedures to corroborate such
other information.
Our responsibility also includes communicating to you any information which we believe is a
material misstatement of fact. Nothing came to our attention that caused us to believe that such
information, or its manner of presentation, is materially inconsistent with the information, or manner
of its presentation, appearing in the financial statements.
Planned Scope and Timing of the Audit
We conducted our audit consistent with the planned scope and timing as previously communicated
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ATTACHMENT 1
Chavan & Associates, LLP
Certified Public Accountants
Qualitative Aspects of the Entity's Significant Accounting Practices
Significant Accounting Policies
Management has the responsibility to select and use appropriate accounting policies. A summary of
the significant accounting policies adopted by the Town is included in Note 1 to the financial
statements. There have been no changes in significant accounting policies or their application during
2012 -13 other than those required by GASB 63 and 65. No matters have come to our attention that
would require us, under professional standards, to inform you about (1) the methods used to account
for significant unusual transactions and (2) the effect of significant accounting policies in
controversial or emerging areas for which there is a lack of authoritative guidance or consensus.
Significant Accounting Estimates
Accounting estimates are an integral part of the financial statements prepared by management and are
based on management's current judgments. Those judgments are normally based on 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 markedly from management's
current judgments.
The most sensitive accounting estimates affecting the financial statements are accumulated
depreciation on capital assets and unfunded liabilities and expenses based on assumptions in actuarial
studies performed on defined benefit pension plans.
Management's estimates are based on generally accepted accounting principles using a rational basis
for allocation and presentation. We evaluated the key factors and assumptions used to develop these
estimates and determined that they are reasonable in relation to the basic financial statements taken as
a whole.
Financial Statement Disclosures
Certain financial statement disclosures involve significant judgment and are particularly sensitive
because of their significance to financial statement users. The most sensitive disclosures affecting the
Town of Los Gatos's financial statements relate to: cash and investments, capital assets, employee
benefit obligations and long -term obligations related to the Successor Agency.
Significant Difficulties Encountered during the Audit
We encountered no significant difficulties in dealing with management relating to the performance of
the audit.
Uncorrected and Corrected Misstatements
For purposes of this communication, professional standards require us to accumulate all known and
likely misstatements identified during the audit, other than those that we believe are trivial, and
communicate them to the appropriate level of management. There were no known and likely
misstatements identified during the audit.
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t�avae Associates, LLP
Certified Public Accountants
In addition, professional standards require us to communicate to you all material, corrected
misstatements that were brought to the attention of management as a result of our audit procedures.
There were no material, corrected misstatements resulting from the audit procedures performed.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a
matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or
auditing matter, which could be significant to the Town's financial statements or the auditor's report.
No such disagreements arose during the course of the audit.
Representations Requested from Management
We have requested certain written representations from management, which are included in the
attached letter dated December 22, 2013.
Management's Consultations with Other Accountants
In some cases, management may decide to consult with other accountants about auditing and
accounting matters. Management informed us that, and to our knowledge, there were no consultations
with other accountants regarding auditing and accounting matters.
Other Significant Findings or Issues
In the normal course of our professional association with the Town, we generally discuss a variety of
matters, including the application of accounting principles and auditing standards, operating and
regulatory conditions affecting the Town, and operational plans and strategies that may affect the
risks of material misstatement. None of the matters discussed resulted in a condition to our retention
as the Town's auditors.
This report is intended solely for the information and use of the Council, authorized committees and
management of the Town and is not intended to be and should not be used by anyone other than these
specified parties.
C � 04 U/P
San Jose, CA
January 30, 2014
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Chauan i Associates, LLP
Certified Public Accountants
Town of Los Gatos
110 E Main St
Los Gatos, CA 95030
In planning and performing our audit of the basic financial statements of the Town of Los Gatos (the
Town) as of and for the year ended June 30, 2013, 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, we
considered the Town's internal control over financial reporting (internal control) as a basis for
designing our auditing procedures 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 Town's
internal control. Accordingly, we do not express an opinion on the effectiveness of the Town's
internal control over financial reporting.
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.
Our consideration of internal control was for the limited purpose described in the first paragraph and
was not designed to identify all deficiencies in internal control that might be material weaknesses.
Given these limitations, during our audit we did not identify any deficiencies in internal control that
we consider to be material weaknesses. However, material weaknesses may exist that have not been
identified.
The purpose of this communication, which is an integral part of our audit, is to describe, for
management and those charged with governance, the scope of our testing of internal control and the
results of that testing. Accordingly, this communication is not intended to be and should not be used
for any other purpose. �f/
C � l/v U
San Jose, CA
January 30, 2014
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