DATE: August 6, 2024
TO: Board of Supervisors
SUBMITTED BY: Oscar J. Garcia, CPA, Auditor-Controller/Treasurer-Tax Collector
SUBJECT: Agreement with Easton Community Services District for the Preparation of Financials Statements and Engagement of an External Auditor
RECOMMENDED ACTION(S):
TITLE
Approve and authorize the Chairman to execute an agreement with Easton Community Services District (the “District”) for the preparation of financial statements and engagement of an external auditor for Fiscal Year 2017-18 through Fiscal Year 2021-22 (Covered Fiscal Years).
REPORT
Approval of the recommended action will allow the County to provide financial and accounting services to the District for the Covered Fiscal Years. It will also authorize the engagement of an accounting firm to audit the financial statements for each of the Covered Fiscal Years. Although the County will incur the costs associated with the audit, these costs will be reimbursed by the District. This measure will help the District catch up with its obligations, so that going forward it will be able to comply with Government Code Section 26909, which mandates that special districts submit an audited financial report to the Auditor-Controller/Treasurer-Tax Collector’s Office within 12 months of the close of the fiscal year or years subject to audit. The Easton Community Services District lies within District One and District Three.
ALTERNATIVE ACTION(S):
There is no other viable option. Failure to approve the contract to provide limited financial and accounting services would impair the District’s ability to come into compliance with Government Code Section 26909 and result in further time delay and significant costs for the District to hire other financial and accounting services provider.
FISCAL IMPACT:
The cost of the agreement for limited financial and accounting services provided by the Auditor-Controller/Treasurer-Tax Collector’s office to the District for the Covered Fiscal Years is estimated at $10,100. These costs will be paid by the District through a transfer of District funds held by the County's Auditor-Controller/Treasurer-Tax Collector.
The County will select and contract with a licensed accounting and auditing firm to audit the financial statements for the Covered Fiscal Years. There is no increase to Net County Cost for FY 2024-25. The recommended Fiscal Year 2024-25 budget will include sufficient appropriations in the Professional & Specialized Services Org 0410 to fund the costs associated with the audit.
The District has set aside $35,000 in its Fiscal Year 2024-25 budget for this project. Should the cost of the selected accounting firm's contract exceed the District’s $35,000 budget, the District will cover the excess amount in subsequent fiscal years by a payment arrangement, reasonably determined by the District, with a minimum payment of $5,000 per year. At this time there is insufficient information to estimate the probability that the project cost will exceed $35,000.
DISCUSSION:
The District is a community services district established under the Community Services District law (CSD Law). The CSD Law provides that the board of directors of the District is required to provide for regular audits of the District’s accounts and records pursuant to Government Code section 26909, and for annual financial reports to the State Controller.
On September 19, 2022, the Auditor-Controller/Treasurer-Tax Collector’s office notified the District of missing audited financial statements for Fiscal Years 2017-18 through 2021-22. Subsequently, the District adopted a resolution, unanimously approved by its Board of Directors, seeking to replace its annual audit with a retroactive five-year financial review. However, it was determined that this request was not permissible under applicable statutes, because District revenues exceed the $5,000 threshold required for such reviews. The Auditor-Controller/Treasurer-Tax Collector’s office informed the District of this statutory limitation on June 6, 2023.
On July 24, 2023, representatives from the Financial Reporting and Audits Division of the Auditor-Controller/Treasurer-Tax Collector’s office met with the District’s General Manager to explore alternative strategies for achieving compliance with applicable statutes. It was proposed during this meeting that the Auditor-Controller/Treasurer-Tax Collector’s office could assist in preparing the District’s financial statements and in facilitating the hiring of an accounting and auditing firm to audit the applicable fiscal years. The District agreed to the proposal and was asked to provide documentation for transactions processed in the first quarter of Fiscal Year 2023 to estimate costs.
Under Government Code section 61052, in the CSD Law, the Auditor-Controller/Treasurer-Tax Collector is the treasurer of the District and the depositary with custody of all the District’s money. The County therefore already provides limited financial or accounting services to the District, and is authorized, under Government Code section 25265, to contract with the District to provide additional types of financial or accounting services that are not currently provided to the District by the County, including the services to be provided under the proposed agreement.
On September 11, 2023, the Auditor-Controller/Treasurer-Tax Collector’s office presented the District with an estimated budget of $10,100 for the fiscal years covered by the agreement, for the services of the Auditor-Controller/Treasurer-Tax Collector’s office, excluding the expenses associated with an accounting and auditing firm. Based on the District’s responsiveness and the adequacy of supporting documentation, the Auditor-Controller/Treasurer-Tax Collector’s office is willing to provide services to the District by agreement.
ATTACHMENTS INCLUDED AND/OR ON FILE:
On file with Clerk - Agreement with Easton Community Services District
CAO ANALYST:
Paige Benavides