HomeMy WebLinkAboutCity Management Ltr Final 6-30-10 2-16-11DIEHL, EVANS & COMPANY, LLP
CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS
MICHAEL R LUDIN, CPA
A PARTNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS CRAIG W. SPRAKER, CPA
NITIN P. PATEL, CPA
ROBERT J. CALLANAN, CPA
5 CORPORATE PARK SUITE 100 *PHILIP H. HOLTKAMP, CPA
*THOMAS M PERLOWSKI, CPA
IRVINE, CALIFORNIA 92606 -5165 *HARVEY J. SCHROEDER, CPA
(949) 399 -0600 • FAX (949) 399 -0610 KENNETH R. AMES, CPA
www.diehlevans.com WILLIAM C. PENTZ, CPA
February 7, 2011 *A PROFESSIONAL CORPORATION
INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS
BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED
IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
To the Honorable Mayor and
Members of the City Council
of the City of Lake Elsinore
Lake Elsinore, California
We have audited the financial statements of the governmental activities, each major fund and the
aggregate remaining fund information of the City of Lake Elsinore (the City), as of and for the year
ended June 30, 2010, which collectively comprise the City's basic financial statements, and have
issued our report thereon dated February 7, 2011. We conducted our audit 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.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the City's internal control over financial reporting
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 City's
internal control over financial reporting. Accordingly, we do not express an opinion on the
effectiveness of the City'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 City's financial statements will not be prevented, or detected and corrected on a
timely basis.
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Internal Control Over Financial Reporting (Continued)
Our consideration of internal control over financial reporting was for the limited purpose described in
the first paragraph of this section and would not necessarily identify all deficiencies in internal control
that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any
deficiencies in internal control over financial reporting that we consider to be material weaknesses, as
defined above. However, we identified certain deficiencies in internal control over financial reporting,
described in the accompanying Schedule of Comments and Responses that we consider to be
significant deficiencies in internal control over financial reporting. A significant deficiency is a
deficiency, or a combination of deficiencies, in internal control that is less severe than a material
weakness, yet important enough to merit attention by those charged with governance.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City's financial statements are free of
material misstatement, we performed tests of its compliance with certain provisions of laws,
regulations, contracts and grant agreements, noncompliance with which could have a direct and
material effect on the determination of financial statement amounts. However, providing an opinion on
compliance with those provisions was not an objective of our audit and, accordingly, we do not express
such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that
are required to be reported under Government Auditing Standards.
The City's responses to the findings identified in our audit are described in the Schedule of Comments
and Responses. We did not audit the City's responses and, accordingly, we express no opinion on them.
This communication is intended solely for the information and use of the City Council, management
and others within the City and is not intended to be, and should not be, used by anyone other than these
specified parties. of public record and its distribution is not limited.
C,� , ALP
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SCHEDULE OF COMMENTS AND RESPONSES
Implementing Year -End Closing Schedule
During the audit process, City staff continued to post journal entries to adjust and to reclassify certain
account balances for fiscal year 2009 -2010 resulting in a time consuming and challenging audit
process. In prior year, we encountered similar issues. We had recommended that the City established
a more formal year -end closing schedule. City has implemented some year -end closing procedures.
However, as a result of our audit procedures, we have proposed several significant audit adjustments
related to bond issuance, bond retirement, interfund loan balance, due to /from and transfers.
We recommend that the City provide additional training to staff to assist with year -end closing process,
preparation of account analysis and schedules for the audit. We further recommend that the City
continues to review its year -end closing procedures and adhere to the established time schedule. This
will improve efficiency in year -end work and allows the audit process to stay on schedule.
Management's Response:
The City will provide additional training to staff and is considering contracting seasonal accounting
assistance in preparation for the annual audit. This should allow the audit process to stay on schedule.
Redevelopment Agency Fund Balances and Interfund Loans
At June 30, 2010, the Redevelopment Agency's Rancho Laguna and Rancho Laguna III Debt Service
Funds have fund deficits of $8,719,546 and $14,686,308 respectively. These fund balance deficits are
being financed by interfund loans from the Rancho Laguna II Debt Service Fund and the Rancho
Laguna Special Revenue Fund. The Redevelopment Agency should review the long term financial
plans for these project areas and develop a plan to remove the fund deficits.
The Rancho Laguna Special Revenue Fund has made advances of $33,651,756 to the Rancho
Laguna I, II and III Debt Service Funds from the 1995 Series A and 1999 Series C bond proceeds
deposited in the Rancho Laguna Special Revenue Fund. The 1995 Series A and 1999 Series C bonds
were refunded in fiscal year 2010 with the issuance of the 2010 Series A and 2010 Series B bonds. The
advances payable include an original loan amount of $18,040,439 and accrued interest of $15,611,317.
The initial advance of bond proceeds (1995 Series A and 1999 Series C Bonds) was formalized through
a loan agreement. The Redevelopment Agency should update the loan agreement to reflect the
refunding of the 1995 Series A and 1999 Series C Bonds. As part of updating the loan agreement, the
Agency should specify repayment terms of the loan.
Management's Response:
The Redevelopment Agency Finance Team is in the process of reviewing the loan and debt activity of
the Agency. The update of the loan agreement and repayment terms will be resolved as part of this
process.
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