Council Finance Committee - meeting_joint_regular

Today is 12/02/2025. This and, this will be a hybrid meeting allowing the public to comment in person and virtually, and instructions for addressing the committee virtually can be found on the agenda. We'll start with roll call, and it looks like all committee members are present. The first item is item 3.1 to approve the to review and approve the minutes of the May. Those are in our packets. And does anyone have any questions or changes for minutes before we ask the public?

No.

Does any member of the online wish to address us on the minutes? Looks like none. Promotions in order to approve the May 2025 CFC meeting minutes. Move.

Second.

We have a motion by committee member Ramirez, seconded by vice mayor Ramos. All in favor, say aye.

Aye.

Aye. That carries unanimously. We'll move on to oral communications from the public on non agenda items. Would any member of the public join us virtually or in person like to write comment on, any item that is not on today's agenda? If so, please click the raise hand button in Zoom. In person attendees can raise their hand to be called upon. We'll take in person speakers first. It looks like we don't have any. Are there any speakers online for this? No.

So we'll close oral communications on non agenda items and move on to our discussion and action items, of which there's one today. Item 5.1 is the annual financial audit results and review of fiscal year twenty twenty fourth and '25 annual comprehensive financial report. So our Chinese administrative services director, Derek will make brief remarks before the presentation by the city auditor who supports us as well.

Thank you, chair Clark. Derek Rampon, your finance and administrative services director. I've got Grace Singh, the assistant finance and administrative services director, and Helen, the the accounting manager with me as well. And so we also have Ahmed Badawi from Badawi and Associates who will speak shortly, kinda walk through a quick presentation with the committee. I really with a successful audit, I would say, the ACRA has been issued in draft form, and so we'll be looking to go to council on the December 16 for acceptance.

We were issued, once again, a unmodified opinion, which is the cleanest opinion and best opinion possible. And so really just wanted to acknowledge that it's a real clean audit, and Akford looks good, and they wanted to thank the accounting team for putting it all together. They do a lot of work between July and now. I'm getting it all together and working with the auditor and answering a lot of questions. So with that, I think Ahmed will kinda take over and has a quick presentation that he'll probably share. I did provide hard copies too so you can follow along.

We're ready, Ahmed, when you are ready when you are.

Alright. Well, thank you. Good morning, and thank you for inviting me to the meeting. I'm gonna get started right away and share my screen here. And and please confirm if you're not able to see my screen.

Yeah. Yeah. We can see it.

Wonderful. Alright. So I'm gonna get started. So thank you again for, inviting me to the meeting. I'm here to present you the results of the, 2025 audit for the city of Mountain View, And, I am gonna just cover, the agenda for today.

I'll give you a very brief overview of our firm and the engagement team, list the deliverables and the scope of our audit, a brief overview of our audit methodology, some of the risks that we identified during our audit process, the type of audit report or opinion we are about to issue, some of the required communication as your independent auditor, and then a brief overview of the new accounting standards. So just a brief overview of of our firm and the engagement team. Here is just our firm by the numbers. We have about twenty five years of experience. We're a very specialized firm.

We only work with government clients. We currently have about 65 government audit clients. 44 of those are cities. We have about 30 employees, and so far, knock on wood, zero lawsuit, legal, or disciplinary actions against the firm. As a matter of fact, we actually just completed our peer review, and we received, basically, the highest grade available, like we did every every peer review.

So that was just completed this last summer. As far as our engagement team, I was the engagement partner. We had a quality control reviewer, an audit manager, an IT specialist, and four professional staff assigned to the audit. In terms of the deliverables and the scope of our audits sorry. It jumps for some reason.

We were mainly engaged to provide an opinion on the city's act for the basic financial statements, the shoreline, also a regional park community, the single audit reports, which is the audit of the federal grants, the agreed upon procedure on the GAM limits, agreed upon procedure on the Silicon Shores corporation lease calculation, and, we have completed two of those during this year. And communication was the governing body, is what I'm doing today. In terms of our audit methodology, just really a very brief overview here that the audit is an ongoing process that is really performed throughout the year. It starts with a planning phase, which is information gathering phase about any changes that happened during the year, any changes in accounting systems, accounting policies, personnel, and so on to help us plan the audit. We do have an interim phase where we come in and interview city staff and focus on processes and controls and design audit procedures bit based on the controls and the risk assessment that we identified.

The year end phase is when we come in and do testing of account balances and obtain audit evidence and so on. And then finally, the reporting phase, which is where where we end right now, is to finalize the reports. In terms of primary audit risk, so I always like to say that there are no risk free audits. So every audit, we do have risks. And the risks that we identified in the city of Mountain View are pretty standard in almost every audit we have.

So I just wanted to clarify that that there's nothing specifically concerning about Mountain View compared to any other city. But the first risk is risk of management override of control. And, this is really a risk that we cannot eliminate completely because management are the one responsible for designing, implementing, and monitoring control. So they are oftentimes in a position to override those controls. So we have to design audit procedures to minimize that risk to an acceptable level.

So these are just some of the procedures that we perform, Obviously, making sure that we have experienced audits staff, incorporating element of unpredictability, evaluate management selection of accounting principle and how consistency consistent they are, test journal entries prepared by management, review accounting estimates, evaluate business rationale for unusual transactions, and evaluate fraud inquiries. And and we have not become of any, aware of any incidents where management has overridden control. So just wanted to highlight that as well. Leases is an area of trust. It's high dollars, so it's an area of risk for us.

We perform testing on lease receivable. We review the lease summary obtained by management. We also test material new leases, review agreements and calculations, and so on. The next area is revenue, and receivables and proper revenue recognition, and this is the auditing standards do require us to consider this area a high risk area. So we rely heavily on confirmations from third party, especially on the governmental revenues, like sales tax, property tax, TOT, franchises.

We confirm most of these revenues. And the proprietary funds, we basically perform ratio analysis and so on. And then finally, the accounting estimates. Trust accounting estimates by nature, they are, just have a high degree of uncertainties, and that makes them higher risk. So I just wanted to also bring to your attention some of the estimates in your financial statements, fair value of investments, the useful life of capital assets, the pension and OPEB actuarial assumptions, the landfill liability estimate, and so on.

If we move on to the auditor's report, as Derek mentioned, it's still in a draft form, we haven't issued our report yet, but we are gonna be issuing it soon. The the report will will list the standards that we followed, and those are the generally accepted auditing standards and also government auditing standard. We anticipate to issue an unmodified opinion, and an unmodified opinion means that we believe the financial statements are fairly presented in all material respects, that all accounting policies have been consistently applied, all estimates are reasonable, and that all disclosure is properly reflected in the financial statements. Wanna move to the last part of my presentation, which is a required communication. On the left side here is our responsibilities as the auditors, and this is to provide an opinion on the city's financial statements, to evaluate internal control over financial reporting, to evaluate compliance, to ensure financial statements are clear and transparent, and to communicate with the governing body.

Management have responsibilities in this process. Management has to take responsibility for the financial statements, establish and maintain internal control, make all financial records available to us, establish internal control that would prevent and detect fraud, inform us of unknown and suspected fraud, comply with laws and regulations, and take corrective action on audit findings. As far as independence, we are responsible for maintaining our independence. We follow the AICPA and the California Board of Accountancy rules, and we normally identify any services that impair could impair independence, like preparing the act for, for example, on behalf of the city and make sure that we have safeguards in place, like having an independent reviewer not involved in the audit, reviewing those financials, and making sure that they adhere to the standards and the requirements. As far as timing of the audit, like Derek mentioned, we believe that the audit was performed timely within the time frame communicated to management in our engagement letter.

In terms of significant accounting policies, there were two new accounting standards that the city implemented during the year, compensated absences and risk disclosure. I'm pleased to say that we encountered no difficulties during the audit, saying the city was prepared, was responsive, provided good audit evidence and documentation. So we felt that the audit went, well with no difficulties. In terms of significant audit adjustment and unadjusted difference, any adjustments that we came up with, management has posted those adjustments. So there is no unadjusted differences.

And and in terms of deficiencies in internal control over financial reporting, there were no material weaknesses identified during our audit. And then finally, just heads up that there are some new accounting standards coming your way in next year, GASB one zero three and GASB one zero four. GASB one zero three is gonna make some changes to how the financial statements look like. Other than that, I wanna say thank you for allowing us the opportunity. I am more than happy to answer any questions. Thank you.

Next question? Yes.

Thank you, chair. And thank you, mister Badawi and and staff for preparing all of these, documents. I've I've had the privilege to serve on this committee for, the higher time I've been on the city council, and I've started, I think, after seven years, that I've grown a little bit more comfortable with with, reviewing these documents, and, and it's always encouraging to see a clean op. So I I don't have, questions about the audit itself. I have shared a few questions in advance of the meeting, and Derek was kind enough to respond to them.

So I don't wanna waste everyone's time, but we didn't have a chance to go through all of the equipment replacement fund reserve questions. So if you could just very quickly touch on those, I'll be able to go to sleep at night.

Yes. So I think the first question you had was that we had budgeted $11,700,000 in this last fiscal year to be spent in the ERF, and you wanted to know, you know, how how much of that did we spend. And and in fact, we spent $12,500,000. 6.2 of that was actual money out the door, and we have POs issued for 6,300,000.0 for about half. So 12,500,000 in total.

And really, the large amount in the PO is due to the timing that it takes to build some of the vehicle, the large vehicle, which has that's why there's POs issued for that. So those will be paid as soon as those equipment is completed, and they'll be delivered once they're ready. You did also ask about the 25% kind of target for to maintain. So currently, the ERF estimates about $60,000,000 for total replacement of all the equipment. So 25% of that is 15,000,000.

At the end of this last fiscal year, a couple months ago, we had 21,200,000.0 in there. So we're about $6,200,000 a little bit over the $15,000,000 funding, the 25% target. I would say that the $60,000,000 does not incorporate the replacement of vehicles at the electric cost, you know, of electric vehicles. And we're really anticipating that to be, you know, I think, 30% more than the the current cost of what we have on the books at the 60,000,000. So we feel like we're in a good spot, hopefully, in taking into consideration the electric vehicles, which will be a high cost.

And then I think for the next fiscal year, we did pause the contribution to the ERF. That was about, I think, 1,400,000.0. And so we're anticipating that that 5 plus million excess that we have at the end of this last fiscal year will be reduced to about $3,500,000 So not much play on $60,000,000 but like, excess over the 25%.

Thank you. And the reason I asked for the nonexistent members of the public is because the the fund balance is always very high, and the annual activity, in my opinion, over the years didn't appear to justify that balance. So I'm happy to hear that we're spending down that balance in in the act for for the next fiscal year. We'll see that number lower, right, and and and ratchet it down further as we, start to bring online the, electric vehicles. So that that's that's sort of the expectation, I guess, for things. Okay.

And I and I would say too, we're already talking as a budget team about what the impact of the electric vehicles was really gonna be financially to us. So the goal to have it ratchet down, we may have to come back to council and reset and just tell the story of what's happening with the cost for the vehicles. Because I think, like Derek said, that it's we are seeing that they're 25 to 30% more expensive than what we pay for everything now. So there may come a time where we do have to plan for it to go back up, basically. Because once we have more vehicles and it's not just trucks.

I mean, these are major, major pieces of equipment. The cost is just going up for everything for obvious reasons. I mean, everything happening with the on the end. Tariffs that just vehicles, they're it's so expensive now. So or we might have to reset, but for now, it's as you say that it is.

Well, I'll be gone by then. I I think I think they can get there's a plan that is transparent. Definitely. That that had not existed previously. It's like, what is this money being used for?

Right.

It was growing pretty substantially, and then it was stagnant at around 30,000,000 for a little while. Mhmm. And I'm glad to hear that there is

a plan for the budget. Definitely.

Those are my questions. Thank you.

Anything vice mayor?

When do we find out if you got awards on this?

Yeah. It takes takes a little while. We, yeah, we found out the last the last budget and the last ACFR we have received the awards for. Usually takes, what, six months ish? Yeah.

Next year.

Yeah. Yeah. Middle of next year. So takes a while for

We're gonna be issuing the next arrears kind of. So we just found out about the act for the budget just a couple few months ago for last year's.

Yeah. So it'll be six plus months. But we fully expect to get it. Yeah. Like, how many reason not to late?

That's it.

There are no other, committee questions? I don't see any members of the public. She looks like not online. Okay. So,

yes. So I was waiting for you to read big ask for public comment. I'm happy to move to recommend that city council accept the audit and related reports. I did have a a quick addition. Not not part of the motion, but there were some other questions that I don't bore you with that I had submitted.

But I think one thing that came out of those questions is, there may maybe there's some value in providing some additional explanation for it. For instance, the use of property and money. There's there there's a lot of helpful information that our staff and and the auditor has that are not necessarily easily accessible that explains some of the numbers that to the public may appear hard to understand. So I think, you know, maybe some gentle guidance for staff and and for the auditor to to provide some additional explanations, and, the finance director has all

of that information.

Yes. That makes sense considering the use of property and money is very unique to not super unique to Mountain View, but that's the level the level of it is super unique to Mountain View.

We have a question by a committee member. From here is to to recommend to the city council that we accept the they they review and accept the reports same as we're doing today, seconded by the vice mayor. And thank you again, Ahmed, and and the team. I reviewed a few audits this year, and this is by far the cleanest and most boring, which

is Boring is good.

Right? Not that this is boring, but in terms of, you know, know, the you've had I'm just really glad this is a very clean audit, and this is the largest organization I ever been famous at. I don't I don't know how you hand I don't know how you all do it in terms of revenue recognition and all all the different funds and and everything. So I know it's it's a well oiled machine at this point, but I really appreciate all the the work and effort that went into this. So motion on the floor. All in favor, say aye. Aye. Aye. Opposed? None.

So that carries unanimously. And that is our only CFC discussion and action item today. Are there any committees, staff comments, questions, or reports? Yes. City management.

I just wanna thank staff too for another great year. I know it's tons of work. Derek mentioned starts really in July. It's about a six month process going through this. So Derek and Grace and Helen, thank you guys so much for you and your teams, everything you do to get us to this point. I know it's a lot of work. And, also, Ahmed, mister Badawi, thank you for your work with Mountain View, and we love hearing that it was easy to work with staff, and and you had no no issues. So I I appreciate all of you. So thank you.

It was a pleasure. Thank you.

Not the case in every sitting town. Congratulations,

everyone.

Any other committee members, staff?

The the council investment review committee, there were some requests by the public. Is there any updates on looking into, essentially, our investment policy on that?

Yes. So we're we've been working with Chandler, and we're expecting to schedule a IRC meeting sometime in 2026, not a year from the last meeting, but probably middle of the year, you know, before that, to bring back some recommendations.

No other business before the committee adjourn the meeting at 08:59.

That's why I

sent it through.

Thank you, everyone.

Have a

good day.

Thank you. Bye bye.