65B - FINANCIAL REVIEW - Laserfiche WebLink

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Analysis of City of Santa Ana Reserve Funds Page 2 Report Overview The City of Santa Ana has engaged Kelly Associates Management Group ("KAMG"), to conduct a review of the current reserve balances to verify that the financial information presented to the City Council in prior budget adoption processes was accurate and clearly identified. KAMG had two preliminary meetings with City staff to discuss the specific needs of the City. The focus of this engagement was to review the composition of the General Fund reserve balances at June 30, 2016 so that information could be presented to the City Council to enable them to differentiate between reserves that could be used to potentially balance the General Fund budget and/or used for one-time special programs or projects, or, reserves that are restricted, per the City Council's discretion, for safeguards against economic downturns which would require special circumstances to be used. The City of Santa Ana's General Fund reserves increased significantly between 2010-11 and 2015-16. In addition, a new Budget and Fiscal policy was adopted in 2012. New reserve classifications were created to separate monies available for citywide needs and monies available for fiscal emergencies. Six (6) years of audited financial statements were reviewed to determine how the reserve balances were accumulated and if they were classified correctly, per the Fiscal and Budget policy. Our conclusion is that the reserves identified in the June 30, 2016 Comprehensive Annual Financial Report "(CAFR"), accurately reflect the financial activity of the City of Santa Ana through this date. The financial reserves are also correctly identified, per the Fiscal and Budget policy, at June 30, 2016. One area of concern was the "Attrition Savings" process that was used during the 2016-17 budget adoption. This process redirected anticipated personnel savings into other programs and/or projects, but did so without reducing the number of funded personnel positions in the budget. This process should be discontinued as it does not clearly identify the number of funded positions in the budget. In 2016-17 a higher number of positions were authorized by the City Council, but were not funded. Regarding potential changes to the Budget and Fiscal Policy, City staff should closely monitor and project future cost increases that could dramatically affect the required reserve level amounts. Scope of Review KAMG has completed its review of the General Fund Reserves as of June 30, 2016. Our scope of review was focused on the 2010-11 fiscal year through the last completed fiscal year of 2015-16. Fiscal years 2010-11 through 2015-16 have been audited by an independent CPA firm, and each fiscal year's audit has been given an unqualified/unmodified opinion. KAMG has relied on these audit reports for the analysis of the General Fund reserve amounts for each year. Each annual audit produced a financial report called a Comprehensive Annual Financial Report, ("CAFR"), which includes the City of Santa Ana's financial statements, notes to the financial statements, supplementary information, management's discussion and analysis, and the transmittal letter. KAMG relied on this information to form assumptions as to the reasonableness of the General Fund reserves. 65B-2