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CITY OF SANTA ANA, CALIFORNIA <br />AIR QUALITY IMPROVEMENT SPECIAL REVENUE FUND <br />NOTES TO FINANCIAL STATEMENTS (CONTINUED) <br />June 30, 2018 <br />2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): <br />C. Budgetary Accounting (Continued): <br />The City legally adopts annual budgets for the Special Revenue Funds including the Air <br />Quality Improvement Special Revenue Fund. The budgetary control for the Special Revenue <br />Funds is under the department in charge. The Air Quality Improvement Special Revenue Fund <br />is managed by the Finance and Management Services Agency. Monthly budgetary reports are <br />prepared to effect control through fiscal management. The City Council approved supplemental <br />appropriations during the year, but they were not considered material. <br />Budgets are prepared on a modified accrual basis. Encumbrances (e.g., purchase orders, <br />contracts) outstanding at year-end are reported as restrictions of fund balances since they do not <br />constitute expenditures or liabilities. All other annual appropriations lapse at fiscal year-end to <br />the extent that they have not been expended or lawfully encumbered. During the fiscal year, the <br />total Fund's expenditures were within the legal prescribed limits as approved by the City <br />Council. <br />D. Deferred inflows of resources: <br />In addition to liabilities, the balance sheet will sometimes report a separate section for deferred <br />inflows of resources. This separate financial statement element, deferred inflows of resources, <br />represents an acquisition of fund balance that applies to a future period and will not be <br />recognized as an inflow of resources (revenue) until that time. The AQMD fund has one item <br />that qualifies for reporting in this category, which is unavailable revenues from interest <br />receivable. These amounts are deferred and recognized as an inflow of resources in the period <br />that the amounts become available. <br />E. Fund Balance: <br />AQMD's fund balance is reported based on the extent to which the City is bound to observe <br />constraints on the use of the AQMD's resources. AQMD's fund balance is classified under <br />restricted, which include amounts which are constrained for specific purposes that are <br />1) externally imposed by creditors, grantors, contributors, or laws or regulations of other <br />governments or 2) imposed by law through enabling legislation. AQMD's fund balance is <br />restricted for programs initiated for the purpose of implementing the California Clean Air Act. <br />Information regarding the fund balance reporting policy adopted by the City is described in <br />Note 1 to the City of Santa Ana's Comprehensive Annual Financial Report. <br />-8- <br />19E-24 <br />