City Earns ‘Clean’ Rating in Financial Statements Audit

Finance took center stage at Monday evening as the Pasadena City Council received and filed the City’s seven annual financial statements and five compliance-related reports for the fiscal year ended June 30, 2016.

In one of the shortest meetings in memory, the Council cruised through its consent agenda and two ordinance readings before and after receiving the financial presentation from Lance, Soli & Lunghard, LLP (LSL), the City’s auditors.

The audit was the second of three from LSL, which was hired in 2015 to a three-year contract. According to the presentation by Engagement Partner Richard Kikuchi, all of the City’s financial statements received an “unqualified” or “clean” opinion.

Among the statements reviewed were statements from the Pasadena Center Operating Company, the Rose Bowl Operating Company, the Pasadena Community Access Corporation, and the Pasadena Fire and Police Retirement System.

Kikuchi identified one material weakness in internal controls and two significant deficiencies in the total of seven reports prepared.

According to a staff report presented earlier to the Finance Committee, the auditing firm’s Single Audit Report “repeats the above three financial statement findings and reports an additional material weakness and six additional significant deficiencies related to federal awards.”

The report also found that in all of those cases, “Corrective action has already occurred or an action plan to address the finding has been
established.”

According to the staff report, the LSL contract calls for an expanded scope audit with samples from every City fund , and all seven financial statements received unqualified opinions from the outside auditors.

“This is the highest or cleanest attestation report given by independent auditors,” the report added. The five remaining reports presented dealt with compliance information, specifically requested test work, and provide comment on internal controls, errors, lack of errors, or suggestions for future improvements.

The report went on to add that, for the year ending June 30, 2016, the City received an unqualified opinion, which means that the statements are “free of material misstatement and are presented in conformity with generally accepted accounting principles, in relation to testing of, and reporting on, internal control and compliance with laws and regulations.”

As Kikuchi presented, the Single Audit Report for the fiscal year endingJune 30, 2016 contains two reports. The first one reports on internal control over financial reporting and reports “one material weaknesses in internal control over financial reporting,” “two instances of significant deficiency, and no instances of noncompliance or other matters requiring
disclosure.”

The second reports on compliance with major federal programs and found that the City complied in all material respects with the requirements that have a direct and material effect on each of the City’s major federal programs. There was, however, there was one finding identified as a “material weakness” and six findings of “significant deficiency in internal controls related to federal programs.”

The LSL audit contained a management response and corrective action plan is provided, and staff either have or will fully address all findings.

The auditors also said that the schedule of expenditures of federal awards (SEFA) is “fairly stated” in all material respects.

The Single Audit Report also provided a status update on all prior year findings. Of the 32 findings from 2015, 30 were identified as “resolved.” Two of the findings were reported as “not resolved” and were repeated as a finding in FY 2016.

While the contracted audit procedures, according to the staff report, do not include review of 100 percent of transactions, the City did contract to have every fund examined and for sample sizes to be “greater than required under generally accepted audit procedures.”