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1998/99 Audited Financial Statements - Section 99234 Transportation FundAudited Financial Statements City of La Quinta, California Section 99234 Transportation Fund Years ended June 30, 1999 and 1998 with Report of Independent Auditors 211 ERNST & YOUNG LLP Audited Financial Statements City of La Quinta, California Section 99234 Transportation Fund Years ended June 30, 1999 and 1998 with Report of Independent Auditors City of La Quinta, California Section 99234 Transportation Fund Audited Financial Statements Years ended June 30, 1999 and 1998 Contents Reportof Independent Auditors...........................................................................................1 Audited Financial Statements BalanceSheets.....................................................................................................................3 Statements of Revenues, Expenditures and Changes in Fund Balance...............................4 Statements of Revenues, Expenditures and Changes in Fund Balance — Budgetand Actual.............................................................................................................5 Notes to Financial Statements..............................................................................................7 Required Supplemental Information Impactof Year 2000............................................................................................................9 ReRort on Compliance and on Internal Control Over Financial Reporting Report of Independent Auditors on Compliance and on Internal Control Over Financial Reporting of the Transportation Fund Based on an Audit of the Transportation Fund Financial Statements in Accordance with Government AuditingStandards.........................................................................................................10 ERNST & YOUNG LLP r Suite 200 ■ Phone: 909 276 7200 3403 Tenth Street Fax: 909 787 8184 P.O. Box 1270, 92502 Riverside, CA 92501 Report of Independent Auditors Honorable City Council City of La Quinta, California We have audited the accompanying financial statements of the Section 99234 Transportation Fund of the City of La Quinta, California, as of and for the years ended June 30, 1999 and 1998 as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described more fully in Note 1, the financial statements present only the Section 99234 Transportation Fund and are not intended to present fairly the financial position and results of operations of the City of La Quinta, California, in conformity with generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Section 99234 Transportation Fund of the City of La Quinta, California, as of June 30, 1999 and 1998 and the results of its operations for the years then ended in conformity with generally accepted accounting principles. The Year 2000 issue supplementary information on page 9 is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board (GASB), and we did not audit and do not express an opinion on such information. Further, we were unable to apply to the information certain procedures prescribed by professional standards because disclosure criteria specified by GASB Technical Bulletin No. 98-1 as amended are not sufficiently Ernst & Young Lip is a member of Ernst &Young International, Ltd. JERNST&YOUNG LLP specific to permit us to perform procedures that would provide meaningful results. In addition, we do not provide assurance that the City of La Quinta, California, is or will become Year 2000 compliant, that the City of La Quinta, California's remediation efforts will be successful in whole or in part, or that parties with which the City of La Quinta, California, does business are or will become Year 2000 compliant. In accordance with Government Auditing Standards, we have also issued our report as of and for the year ended June 30, 1999 dated August 24, 1999 on our consideration of the Section 99234 Transportation Fund of the City of La Quinta, California's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. 19� * t"l LLP August 24, 1999 2 City of La Quinta, California Section 99234 Transportation Fund Assets Cash Total assets Fund balance Unreserved fund balance Total fund balance See accompanying notes. 3 Balance Sheets June 30 1999 1995 City of La Quinta, California Section 99234 Transportation Fund Statements of Revenues, Expenditures and Changes in Fund Balance Revenues: Intergovernmental allocations: Article 3 Total revenues Expenditures: Construction Total expenditures Deficiency of revenues under expenditures Other financing sources: Operating transfers in Excess of revenues and other financing sources over expenditures Fund balance at beginning of year Fund balance at end of year See accompanying notes. Year ended June 30 1999 1998 $ 15,396 $ 25,000 15,396 25,000 21,870 120,963 21,870 120,963 (6,474) (95,963) 6,474 95,963 El City of La Quinta, California Section 99234 Transportation Fund Statements of Revenues, Expenditures and Changes in Fund Balance — Budget and Actual Revenues: Intergovernmental allocations: Article 3 Total revenues Expenditures: Maintenance and construction Total expenditures Deficiency of revenues under expenditures Other financing sources Operating transfers in Excess of revenues and other financing sources over expenditures Fund balance at beginning of year Fund balance at end of year See accompanying notes. 5 Year ended June 30, 1999 Variance Favorable Budget Actual (Unfavorable) $ 23,734 $ 15,396 $ (8,338) 23,734 15,396 (8,338) 45,551 21,870 23,681 45,551 21,870 23,681 (21,817) (6,474) 15,343 21,817 6,474 (15,343) $ — - $ — Year ended June 30, 1998 Variance Favorable Budget Actual (Unfavorable) $ 25.000 $ 25,000 $ - 25,000 25,000 - 76,780 120,963 (44,183) 76,780 120,963 (44,183) (51,780) (95,963) (44,183) 51,780 95,963 44,183 City of La Quinta, California Section 99234 Transportation Fund Notes to Financial Statements June 30, 1999 1. Summary of Significant Accounting Policies The accounting policies of the Section 99234 Transportation Fund (Transportation Fund) of the City of La Quinta, California (City), are in conformity with generally accepted accounting principles applicable to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing accounting and financial reporting principles. The following is a summary of the more significant accounting policies: General The Transportation Fund is a capital projects fund of the City. The financial statements of the Transportation Fund are included in the comprehensive annual financial report of the City. Fund Accounting The Transportation Fund is included in the City's capital projects fund and is accounted for in a separate set of self -balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures. The Section 99234 Fund accounts for the City's share of Transportation Development Act Article 3 allocations. The fund is legally restricted for specific purposes. Basis of Accounting The Transportation Fund is accounted for in a capital projects fund using the modified accrual basis of accounting. Under this basis of accounting, revenues are recorded when susceptible to accrual (i.e., measurable and available). Measurable means the amount of the transaction can be determined, and available means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Revenues considered susceptible to accrual include Section 99234. Expenditures are recorded when the related fund liability is incurred. 7 City of La Quinta Transportation Fund Notes to Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) Budgetary Control and Encumbrances The City adopts an annual budget on a basis consistent with generally accepted accounting principles and utilizes an encumbrance system as a management control technique to assist in controlling expenditures and enforcing revenue provisions. Under this system, the current year expenditures are charged against the budgeted appropriation. Reserves for encumbrances are not recorded by the City. Prior year appropriations lapse unless they are approved for carryover into the following fiscal year. 2. Cash and Investments Transportation Fund cash is deposited in the City's internal investment pool, which is reported at fair value. Interest income is allocated on the basis of average cash balances. Investment policies and associated risk factors applicable to the Transportation Fund are those of the City and are included in the City's general purpose financial statements. The City has invested 25% of its pooled cash and investments in the State of California Local Agency Investment Fund (LAIF), which is reported at fair value. LAIF invests in structured notes, which have cash flow characteristics that are dependent on one or more indices and may have embedded forwards or options, and asset-backed securities, which are entitled to a share of the cash flows from a pool of assets such as principal and interest repayments. Accordingly, these investments are affected by changes in interest rates. These LAIF securities comprise approximately 5% of the LAIF investment portfolio at June 30, 1999. 3. Compliance Requirements Funds received pursuant to Section 99234 of the Public Utilities Code may only be used for facilities provided for exclusive use by pedestrians and bicycles. 8 Required Supplementary Information City of La Quinta, California Section 99234 Transportation Fund Required Supplementary Information Impact of Year 2000 As a fund of the City, the Section 99234 Transportation Fund is subject to the impact of the Year 2000 issue. The Year 2000 issue is the result of shortcomings in many electronic data processing systems and other electronic equipment that may adversely affect the City's operations. The City has developed a plan to modify its information technology to be ready for the Year 2000. City management has given top priority to the plan to ensure that its systems will remain operational in light of Year 2000 concerns. In addition, the City has developed contingency plans that will be put into effect if unforeseen problems arise. The City has completed the awareness stage and is currently in the assessment, remediation and validation/testing stages. The City currently expects the assessment, remediation and validation/testing stages to be completed by October 31, 1999. The City is aware, however, that the completion of these stages is not a guarantee that systems and equipment will be Year 2000 compliant. The City's committed costs are immaterial to the City as a whole. At this time, the City is not aware of any circumstances that would impede achievement of its Year 2000 remediation plan, nor does it anticipate that the cost of addressing the Year 2000 issue will have a material adverse impact on its financial condition, results of operations or cash flows. The City recognizes, however, its limitations in influencing third parties (e.g. vendors, financial institutions, other governments). The City cannot ensure that such third parties will cause their systems to be Year 2000 compliant in a timely manner or that any failure of third parties to do so will not have a material adverse effect on the City's financial conditions, results of operations, or cash flows. G] Report on Compliance and on Internal Control Over Financial Reporting =� ERNST & YOUNG LLP ri Suite 200 s Phone: 909 276 7200 3403 Tenth Street Fax: 909 787 81 84 P.O. Box 1270, 92502 Riverside, CA 92501 Report of Independent Auditors on Compliance and on Internal Control Over Financial Reporting of the Transportation Fund Based on an Audit of the Transportation Fund Financial Statements in Accordance with Government Auditing Standards Honorable City Council City of La Quinta, California We have audited the financial statements of the Section 99234 Transportation Fund (Transportation Fund) of the City of La Quinta, California, as of and for the year ended June 30, 1999 and have issued our report thereon dated August 24, 1999. We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Compliance As part of obtaining reasonable assurance about whether the Transportation Fund financial statements are free of material misstatement, we performed tests of the City of La Quinta, California's compliance with certain provisions of laws, regulations, contracts and grants, including the Transportation Development Act, as summarized in the "Guidelines on Auditing for Conformance" published by the Southern California Association of Governments, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit of the Transportation Fund, and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. Internal Control Qver Financial Reporting In planning and performing our audit of the Transportation Fund, we considered the City of La Quinta, California's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the Transportation Fund financial statements and not to provide assurance on the internal control over financial Ernst &Young LLP is a member of Ernst &Young International, Ltd. 10 JERNST&YOUNG LLP reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the Transportation Fund financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving internal control over financial reporting and its operation that we consider to be material weaknesses. This report is intended solely for the information and use of management, the City Council, the Riverside County Transportation Commission, and the California State Controller's office and is not intended to be and should not be used by anyone other than those specified parties. e"I UP August 24, 1999 11 :W1 ERNST & 1'10UNG LLP September 24, 1999 John Falkoner Director of Finance City of La Quinta 78-495 Calle Tampico La Quinta, California 92253 Dear Mr. Falkoner: Suite 200 3403 Tenth Street P.O. Box 1270, 92502 Riverside, CA 92501 40&- 0.3 n Phone: 909 276 7200 Fax: 909 787 8184 Enclosed are 5 copies of the Transportation Development Act financial statements for the fiscal year ended June 30, 1999. The appropriate number of copies have been sent to the following agencies on the City's behalf. Riverside County Transportation Commission State Controller's Office If you should have any questions, please feel free to call me at (909) 276-7200. Sincerely, Julia Cox Audit Manager Ernst &Young PrP is a member of Ernst &Young International, Ltd.