To: Sonoma County Board of Supervisors, Board of Directors of the Sonoma County Water Agency, Board of Commissioners of the Community Development Commission
Department or Agency Name(s): Auditor-Controller-Treasurer-Tax Collector (ACTTC)
Staff Name and Phone Number: Levi Ehrlich 707-565-3289
Vote Requirement: Majority
Supervisorial District(s): Countywide
Title:
Title
County of Sonoma’s Annual Audited Financial Reports and Post Audit Budget Adjustments for the Fiscal Year Ended June 30, 2020.
End
Recommended Action:
Recommended action
A) Accept the County of Sonoma Comprehensive Annual Financial Report (CAFR) for the Fiscal Year ended June 30, 2020. The CAFR presents the County’s financial activities and balances for the year, and includes an opinion from the County’s independent auditor stating internal controls were considered in the audit and the financial statements are fairly presented.
B) Accept the Single Audit Reports (aka Federal Awards Reports or Schedule of Expenditures of Federal Awards) for the year ended June 30, 2020 for the County of Sonoma, Sonoma County Water Agency, Sonoma County Transit, and Sonoma County Community Development Commission. The objective of a single audit is to determine compliance with the requirements of federal grants received.
C) Accept the Sonoma County Employees’ Retirement Association (SCERA) Schedule of Employer Allocations and Schedule of Pension Amounts by Employer for Employer Reporting as of June 30, 2020.
D) Accept the County of Sonoma Other Postemployment Benefit (OPEB) Plan Schedule of Employer Allocations and Schedule of Other Postemployment Benefit Plan Amounts by Employer for Employer Reporting as of June 30, 2020.
E) Ratify the Fiscal Year 2019-20 Post Audit Budget Adjustments required to close books in compliance with Generally Accepted Accounting Principles.
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Executive Summary:
The financial reports are compiled by County/entity staff and audited by external independent auditors. Together, these reports provide detailed information about the financial condition of the County, confirm that the County is in compliance with federal grant requirements, and maintains internal controls over compliance and financial reporting.
The schedules of Employer Allocations for Pension and OPEB are actuarially calculated and independently audited reports that allocate liabilities and related activities of those benefit plans to the participating entities to meet their stand-alone reporting requirements.
In addition, this item also contains a summary of the Fiscal Year 2019-20 Post Audit Budget Adjustments, which were required for financial statement compliance with Generally Accepted Accounting Principles.
These items are presented to the governing Board for acceptance due to the Board’s oversight role in financial reporting and budgeting.
Discussion:
Comprehensive Annual Financial Report (CAFR):
The CAFR is a broad context report of the County’s financial activities and condition for the Fiscal Year Ended June 30, 2020. It was prepared by the ACTTC and audited by Eide Bailly, LLP (an Independent Audit firm).
The CAFR provides information useful to County management and the public about the overall financial health of the County. This information includes:
• Introductory information that offers a background on the structure of the County, the environment which the County operates, and the types of services it provides;
• Directory of elected and appointed County officials as well as an organizational chart outlining reporting relationships;
• Management’s discussion and analysis which provides an objective and easily readable analysis of the County’s financial activities;
• Consolidated financial statements showing the financial condition and activities of the County;
• Financial information on individual major and non-major funds of the County;
• Summary of significant accounting policies;
• Detailed notes that present information on the County’s cash and investments, receivables, interfund transactions, capital assets, payables and long-term liabilities, fund balance, employee retirement plans, OPEB, risk management, commitments and contingencies; and
• Statistical data that offers multi-year trend information along with relevant economic and demographic information.
The Independent Auditor’s Report expresses an unmodified opinion indicating the County’s financial statements in the CAFR “present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of County, as of June 30, 2020”.
The County has received the Government Finance Officers Association (GFOA) Certificate of Achievement for Excellence in Financial Reporting award continuously since 1992 and the CAFR for the Fiscal Year Ended June 30, 2020, has been submitted to the GFOA award program. The CAFR can be accessed on the Sonoma County Auditor-Controller-Treasurer-Tax Collector website at: <https://sonomacounty.ca.gov/ACTTC/General-Accounting/Financial-Reports>.
Government-wide highlights:
• The County’s government-wide net position was $1.2 billion at June 30, 2020, an increase of $137.2 million from prior year.
• The County’s government-wide net position included $1.4 billion in net investment in capital assets, $298.6 million in restricted net position and offset by a $514.1 million deficit in unrestricted net position. The unrestricted net position deficit is primarily the result of the County’s unfunded pension and other postemployment benefits (OPEB) liabilities.
Governmental fund highlights:
• The County’s governmental funds reported combined ending fund balance of $534.2 million, an increase of $7.8 million over the prior year. Amounts available for spending include restricted, committed, assigned, and unassigned fund balances and total 97.2% of ending fund balance. Of the total ending fund balance, $289.2 million is restricted by law or externally imposed requirements, $6.8 million is committed for specific purposes, $185.6 million is assigned to specific purposes determined by the Board of Supervisors and County Administrator’s Office, $37.9 million is unassigned, and $14.7 million is not in a spendable form or is legally or contractually required to be maintained intact.
• The General Fund unassigned fund balance was $37.9 million, or 8.9% of total General Fund expenditures. The General Fund, as presented in the CAFR, includes both the general-purpose fund that is considered the “General Fund” in the County’s budget, as well as funds such as disaster funds and the Reinvestment and Revitalization fund that are considered separately in the budget process.
Additional information and analysis on the financial highlights is available within the CAFR for the fiscal year ended June 30, 2020, on file with the Clerk of the Board.
In addition to the County’s CAFR, the ACTTC has placed on file with the Clerk of the Board the:
• Audited financial statements for 14 entities which represent individual funds or component units of the County.
• Audited Sonoma County Employees’ Retirement Association Schedule of Employer Allocations and Schedule of Pension Amounts by Employer.
• Audited County of Sonoma Other Postemployment Benefit Plan Schedule of Employer Allocations and Schedule of Other Postemployment Benefit Plan Amounts by Employer.
These separate financial statements are compiled by County/entity staff and audited by independent auditors separate from the County’s CAFR audit. Relevant information contained in these separate audited financial statements is included in the County CAFR, as the CAFR presents financial information for the entire County.
Single Audit Reports:
The County receives a significant amount of assistance from the federal government. Entities that expend $750,000 or more of federal assistance are required to undergo a Single Audit in accordance with federal award audit requirements. The Single Audit Reports are compiled annually by County/entity staff and audited by independent auditors.
For fiscal year ending on June 30, 2020 the county reported $133.4 million in expenditures of federal awards to finance county services, programs, and projects.
The County’s Single Audit Report can be accessed on the Sonoma County Auditor-Controller-Treasurer-Tax Collector website at:
<http://sonomacounty.ca.gov/ACTTC/General-Accounting/Financial-Reports/>.
Other Audited Financial Statements for County Entities:
Several County entities issue annual financial statements that are independently audited and separate from the CAFR. These entities are either classified as component units of the County or are major funds of the County, and include but are not limited to the Sonoma County Water Agency, Community Development Commission, Agricultural and Open Space District, Refuse Enterprise Fund, Sonoma County Transit, and several sanitation districts.
Separate independent audits are performed for these County entities because they are legally separate entities from the County or have other stand-alone reporting requirements. Attachment C provides a list of independent auditors for these entities.
Sonoma County CAFR and Single Audit - Audit Recommendations and Findings:
Sonoma County CAFR - Recommendations
Fraud Hotline - the Independent Auditor noted that the County does not maintain a formalized fraud prevention program. Further, based on inquiry of personnel, there is no formalized mechanism to report suspected incidents or allegations of improper acts. Given the size of the County and complexity of its operations the Independent Auditor recommends that the County develop and appropriately staff a formalized fraud prevention program. This program could include formal procedures/policies for the reporting of all allegations, a fraud hotline and/or contracted assistance for the intake of information.
Management has finalized a contract with an independent contractor to provide the Sonoma County Hotline infrastructure scheduled to go live in 2021. The County’s Internal Audit team will be responsible for responding to calls and the respective reporting protocols. Management believes the Sonoma County Fraud hotline will provide an appropriate mechanism for reporting suspected incidents or allegations of improper acts. The County’s Administrative Policy (8-1) for Investigations of Alleged Inappropriate Activities by Employees including Fraud, Theft, and Misuse of County Property Policy Manual, available at <https://sonomacounty.ca.gov/CAO/Administrative-Policy-Manual>, will be updated as necessary.
Sonoma County Single Audit - Findings
2020-1. The Independent Auditor noted the County has not established written procedures to implement the cash management requirements of Title 2 of the Code of Federal Regulations (CFR) related to the Child Support Enforcement Program.
Sonoma County has implemented written procedures to ensure compliance with the Cash Management requirements of 2 CFR 200.305 (payment) and 2 CFR 200.305(b)(6).
Other Entity Audited Financial Statements and Single Audits - Audit Recommendations and Findings:
Sonoma County Transit
2020-1. Transit’s fare revenue to operating cost did not meet the minimum ratio in accordance with the Transportation Development ACT California Code of Regulations 6633.2. The cause is likely due to the global COVID-19 pandemic and the shelter in place orders issued by the County of Sonoma. The effect or potential effect is not determinable. Auditors do not have current recommendation due to the structural challenges imposed by current economic conditions.
Management agrees with the assessment that Transit did not meet the minimum fare to operating cost ratio due to the impact of COVID-19.
Fiscal Year 2019-20 Post Audit Budget Adjustments:
Fiscal Year 2019-20 Post Audit Budget Adjustment enclosed as Attachment B increased expenses and net cost in the Access Management Resources Employee Retirement Internal Service Fund by $72,009, in the Sonoma County Water Agency by $74,984 and in the Debt Service Rate Normalization Fund expenses by $1,652,000 and net cost zero. These adjustments were necessary to report financial information in accordance with Generally Accepted Accounting Principles (GAAP) and recorded under authority delegated to CAO/ACTTC to close the County’s books in accordance with GAAP.
Prior Board Actions:
05/19/2020 the Board accepted the Sonoma Annual Audit Reports and Fiscal Year budgetary adjustments for Fiscal Year 2018-19.
Fiscal Summary
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Narrative Explanation of Fiscal Impacts:
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Staffing Impacts: |
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Narrative Explanation of Staffing Impacts (If Required):
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Attachments:
Attachment A: Letter to the Board of Supervisors for the Year Ended June 30, 2020
Attachment B: Fiscal Year 2019-20 Post Audit Budget Adjustments
Attachment C: List of External Auditors by Entity
Related Items “On File” with the Clerk of the Board:
Fiscal Year Ended June 30, 2020 Annual Audited Financial Reports for:
1. County of Sonoma Comprehensive Annual Financial Report
2. County of Sonoma, Human Services Department California Department of Education Child Development Program
3. County of Sonoma Local Transportation Fund
4. Occidental County Sanitation District
5. Russian River County Sanitation District
6. Sonoma County Agricultural and Open Space District including as separate attachments:
• Sonoma County Agricultural and Open Space District Memorandum on Internal Control and Required Communications
• Sonoma County Open Space Fiscal Oversight Commission Eighth Annual Report
• Sonoma County Measure F Government Code Section 50075.3 Reporting
7. Sonoma County Airport Enterprise Fund (Includes Schedule of Passenger Facility Charges)
8. Sonoma County Community Development Commission(includes Single Audit Report) including as a separate attachment:
• Village Green II (A Project of Sonoma County Community Development Commission)
9. Sonoma County Energy Independence Program Enterprise Fund
10. Sonoma County Fair and Exposition, Inc. (for year ended December 31, 2019)
11. Sonoma County Refuse Enterprise Fund
12. Sonoma County Transit (includes Single Audit Report)
13. Sonoma County Water Agency CAFR
14. Sonoma Valley County Sanitation District
15. South Park County Sanitation District
Other Documents:
16. County of Sonoma Management Letter
17. County of Sonoma Single Audit
18. Sonoma County Water Agency Schedule of Expenditures of Federal Awards and Auditor’s Report
19. Sonoma County Employees’ Retirement Association Employer Allocations and Schedule of Pension Amounts by Employer
20. County of Sonoma Other Postemployment Benefit Plan Schedule of Employer Allocations and Schedule of Other Postemployment Benefit Plan Amounts by Employer