For City Council Meeting August 12, 2025
TO: Honorable Mayor and City Council
FROM: Tanya Williams, City Manager
AUTHOR: Scott Williams, Director of Finance
Title
Request City Council, Rialto Housing Authority, Rialto Utility Authority, and Successor Agency to Accept, Review, and File the Fiscal Year 2023-2024 Annual Comprehensive Financial Report and Related Documents.
(ACCEPT and FILE)
Body
RECOMMENDATION
Staff recommends that the City Council, Rialto Housing Authority, Rialto Utility Authority, and Successor Agency accept the Fiscal Year 2023-2024 Audit Results and receive and file the Fiscal Year 2023-2024 Annual Comprehensive Financial Report and related documents.
BACKGROUND
City procedures require the completion of an independent audit of the Annual Comprehensive Financial Report (ACFR), which is then formally reviewed by the City Council in a public meeting. The purpose of the City’s ACFR is to provide relevant financial information to the City Council, citizens, current and future employees, grant entities, creditors, bond investors, rating agencies, and other interested parties.
ANALYSIS/DISCUSSION
The annual audit for the year ending June 30, 2024, was completed by LSL in conformity with Generally Accepted Auditing Standards (GAAS). The unmodified, or “clean” opinion given in the Independent Auditor’s Report states that “the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Rialto, California, as of June 30, 2024, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.” Attached to this staff report are the following items:
• Annual Comprehensive Financial Report (Formerly the Comprehensive Annual Financial Report)
• Auditor’s Communication with Those Charged with Governance Letter
• Independent Auditors’ Report on Internal Control over Financial Reporting
Annual Comprehensive Financial Report
The City’s financial condition remains strong, as evidenced by a notable increase in net position. The overall net position rose to $532.5 million, reflecting an increase of $67.3 million from the previous fiscal year.
City finances are categorized into two main activities:
1. Governmental Activities - This includes core services such as Police, Fire, Public Works, Community Development, and general government operations. These are funded primarily through:
o Taxes
o Intergovernmental revenues
o State and federal grants
o Charges for services
For FY2024:
• Governmental revenue increased by $30.5 million compared to FY 2023.
• Governmental expenses increased by $5.8 million.
• This resulted in a surplus of $39.7 million in governmental activities.
2. Business-Type Activities - These are services provided by the City that are funded by customer fees, such as the City’s water, wastewater and cemetery services.
For FY2024:
• Business-Type operating revenue increased by $1.2 million
• Business-Type operating expenses decreased by $1.1 million
• This resulted in a surplus of $14.2 million in FY24
All financial statements and data have been audited by the City’s independent auditors, ensuring their accuracy and integrity.
Auditor’s Communication with Those Charged with Governance Letter
This letter serves to inform the City Council of any significant matters identified during the course of the audit. These matters may include qualitative aspects of the City’s accounting practices, difficulties encountered during the audit process, corrected and uncorrected misstatements, disagreements with management, if any; representations made by management, and any other significant audit findings.
This communication supports the City Council’s governance role by providing transparency into the audit process and its results. The following items are presented in this letter:
• The financial statement disclosures are neutral, consistent, and clear
• No significant unusual transactions have occurred during fiscal year 2023-2024
• No significant difficulties were experienced by the auditors in dealing with management in the performance and completion of the audit.
• No Material misstatements were identified for correction by management.
• No disagreements arose during the audit in reference to financial accounting, reporting, or auditing.
Independent Auditors’ Report on Internal Control over Financial Reporting
This letter communicates to the City Council any significant deficiencies or material weaknesses identified in the City’s internal controls over financial reporting during the audit. A deficiency in internal control exists when the design or operation of a control does not allow management of 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. LSL did identify one Material Weakness and one Significant Deficiency. All the Material Weaknesses and Significant Deficiencies from FY2023 and prior were corrected for the FY2024 audit.
1. 2024-001: Timeliness of Financial Reporting (Material weakness/Noncompliance)
The City did not complete the financial close and reporting process in a timely manner, resulting in a delay in the submission of the audited financial statements and the single audit report to the federal awarding agencies.
The cause of the condition was the lack of management oversight and internal controls over the financial close and reporting process. Turnover at key positions within the Finance Department did not allow for the timely preparation and review of the financial statements.
Management’s Response and Corrective Action:
The City acknowledges that the financial information and documentation, including the trial balance, was not prepared in a timely manner, and timeliness is a top priority under the direction of the new Finance Director.
2. 2024-002: Bank Summary and Reconciling items (Significant Deficiency)
At the time of the audit, the City did not have completed records summarizing cash held by individual banks or details of certain reconciling items. These records had to be developed in order for the audit to be completed.
The cause of the condition was the lack of management oversight and internal controls over the financial close and reporting process. Turnover at key positions within the Finance Department did not allow for the timely preparation and review of the financial statements and the SEFA.
Management’s Response and Corrective Action:
The City acknowledges that the cash by bank listing and reconciling items were not completed in a timely manner. These records were corrected and completed during the audit process.
3. 2024-003: SEFA Preparation (Material Weakness)
The Finance department, over one fiscal year, through training and planning, has put procedures and policies in place to remove the recurring annual significant deficiencies and material weaknesses.
The significant deficiency and material weakness identified in FY2024 will be corrected by implementing additional year-end reviews. The addition of new Finance department team members will allow for the complete closing of the General Ledger before the Annual audit begins.
Management's Response:
The City acknowledges the finding, and a corrective action plan will be developed to enhance internal controls around SEFA preparation for the FY 2024-25 close process and audit. This plan will include staff training initiatives, procedural updates, and a timeline for implementation to ensure compliance with federal guidelines.
ENVIRONMENTAL IMPACT
The action is exempt from California Environmental Quality Act (CEQA) pursuant to Section 15378(b)
(5) of the CEQA Guidelines because of the preparation of the Audited Annual Financial Reports are governmental administrative activity that will not result in indirect physical changes in the environment.
GENERAL PLAN CONSISTENCY
General Plan Guiding Principle 3 - Rialto’s Economic Environment is Healthy and Diverse - specifically our City Government will lead by example, and will operate in an open, transparent, and responsive manner that meets the needs of the citizens is a good place to do business
LEGAL REVIEW
The City Attorney has reviewed and supports this staff report
FINANCIAL IMPACT
Operating Budget Impact
The Fiscal Year 2023-24 Audited Annual Financial Statements are recommended to be accepted and received, and filed into the City records. There is no direct financial impact related to this action.
The balance sheet financial statement in Table 1 below reflects the City’s total assets, liabilities, deferred inflows of resources, and fund balance for general fund, major governmental funds, and nonmajor governmental funds (following statement) for FY2024.
TABLE 1
The statement included in Table 2 provides a snapshot of the City’s financial position as of June 30, 2024, for all governmental funds.
TABLE 2
Capital Improvement Budget Impact
There is no financial impact to the capital improvement budget as a result of the approval of this item.
Licensing
A Business License is not required with the requested action.