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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, 2016 <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 lawfidly 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. 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 find 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 />E. Estimates: <br />The preparation of financial statements in accordance with accounting principles generally <br />accepted in the United States of America requires management to make estimates and <br />assumptions that effect certain reported amounts and disclosures. Accordingly, actual results <br />could differ from those estimates. <br />19C -16 <br />