members i will be presenting an overview of the city's investments as a quarter ended december st as i've done in the past i'll give a brief overview of what what the what happened during the quarter and then some of the numbers at the end of december st basically not much has changed since the last quarter treasury rates remain exceptionally low they've fluctuated a little during the quarter but they they ended december st just about where they were at september th these rates though are right now higher than they were a year ago about this time so the five year rates have almost doubled  so we've seen it some improvement not so much in the last quarter but from from the prior year right now fed forecasts don't anticipate much much change i know there's been a lot of talk  with the tapering of of investments but we really haven't seen that much in change in fact at the end of december the five year treasury was at about one hundred and seventy five and as of today that's in the range of one five so we're still going up we're going down and not much has changed and we don't anticipate that much change during the coming quarter portfolio activity for the quarter we did have thirteen million in agency securities calder mature did purchase twenty one million of new investments in our life balance is twenty seven million interest earnings for the quarter with five hundred four hundred seventy three thousand and again our our portfolio is very very slightly up from the september thirty order and at one point two five seven next i'll show you a breakdown of the investment portfolio as you can see laith again twenty seven million we do have some cds of eight million treasury securities securities just over ten million federal agency issues ninety six nine million in corporate term notes of twelve we also have the santa barbara airport promissory note at just over five million and our checking accounts so the total investment portfolio is a hundred and sixty four million dollars at the end of december as well as the airport note most of the percentages are fairly similar in the last about a year ago we did purchase more treasuries so the labor ada's is slightly reduced the late balances are also reduced because the  hovered in that zero point two six range for quite a while now as you can see from the bar and again we don't expect much change during the next quarter but will provide you more information at the end of march and that's it i'm available for any questions ok questions from committee members mister wait i just my memory refreshed on matured lengths of maturities that the portfolio has in it my i think the end of december was about thirty percent or twenty five percent or the that we're trying to avoid going too long you know of course we have to kind of keep a structured maturity ladder so we're not too heavy in one particular year or period of time so there we have constant flow of money coming in through maturities but we're trying to avoid going too far ours we're kind of looking more into two to three maybe four a little bit into five years just because we want to make sure we have a full the true that or yield but locking ourselves that long is really hard to do in this environment but we have to just sort of buy into the market to some extent and we do have a maturity ladder that  it's actually a spreadsheet that will show our maturities for each of those years i can bring that next time and discuss the gossip point that's on here i'm sure your obviously you're not being speculative in the slightest you're just being very very careful and i appreciate it i thought that would be an exciting illustration so do bring that next time if you would okay thank you very much miss wilson great so part that we're not going to get into with council is the piece that mister kikuchi will be talking about in terms of the audit process but this is something we provide to the finance committee in councilor every year this year we're a little late we normally come to to committee and council in december but because of a small little project we're working on which is called fms replacement we've been overworked not overworked but working on a lot of different projects and that's been the priority so this has been pushed back thirty days so that's why we're here a little later but with that i'm going to turn over to june th two thousand and thirteen i'm going to be going through a couple different areas i'll be giving you a little background on the kafir the layout and contents of the report some financial highlights touching on some keeffe but note disclosures that i think are important and then rich  be coming up from our independent audit firm ellison l to talk about the audit requirements and the results or so i'm going to touch on the background what exactly is a capper um every government agency is required to have an annual financial report prepared in accordance with generally accepted accounting principles and this is an annual report that really just talks about the financial condition and results of operations of the city as a whole and individual fund basis now what makes an annual report different from  is that a capper is comprehensive it includes information that's not required specifically statistical information the end is primarily the difference and what this does is that it provides more information for the reader for the public and that's why we choose to prepare a comprehensive annual financial report it also qualifies us for the gfo a award program that's the government finance officers association award program and it's a pretty prestigious award so we do apply for that  so why is a capper prepared i touched on it a little bit city charter does require that we prepare a capper or an annual financial report and that it's audited by an independent cpa which this year was el sol it's also required by state and federal law it's also very important in issuing bonds our bond reporting agencies they do look and read the capper it helps to determine what our credit risk is helps determine interest rates on our long term debt so they do look at the capper it's also as i mentioned before it's important in communicating important information about the city's financial condition to the public now i'm going to talk a little bit about the layout and the content of the report there are three sections of the capper the first is the introductory section this is unaudited and in here is the letter of transmittal that is from the city administrator and the director of finance to the council also in here is other organizational information like the organizational charts members of council the second section is the financial section and this is what is covered by the audit opinion in here is the independent auditors report which is about a two page report that rich kikuchi will touch on also is the management's discussion and analysis if you don't have time to read through the whole you know about a hundred and fifty page report i would recommend really spending time on that md and a section it's a good summary of what happened during the year and where the city ended up at the end of the year it's about you know ten to twelve pages the third part under financial section it are the basic financial statements and this has really been numbers all the fund statement says government wide statements it's all the numbers and lastly are the notes this is these are additional schedules information on the basic financial statements that provide just additional clarification and information the last section i touched on it earlier is the statistical section it is unaudited it really is what kind of defines a comprehensive annual financial report from just an annual report provides a lot of trend information demographic it's it is unaudited but it's some interesting information if you wanted to take a look at it gonna be focusing on there's two sections rich kikuchi will be focusing on the auditor's report and i will be focusing primarily on the basic financial statements and also a few key financial notes so there are two types of statements in our basic financial statements there are the government wide statements these are fairly new in two thousand and one we implemented these government wide statements the governmental accounting standards board decided that they wanted government agencies to start reporting statements for the accrual basis it shows all assets all liabilities very similar to a private sector business and it really just shows the financial condition of the city and this is different from the fund financial statements that have been around for many years that show each individual fund how each individual fund has you know performed over the year and where they stand at the end of the year the fund financials are a modified accrual basis so it's more short term it doesn't include long term debts capital assets and the purpose is really to perspective now i'm going to focus on some financial highlights unless anybody has some questions okay great on page twenty four if you want to follow along with your copies of the kafir i have the statement of net position which is one of the two statements for the government wide statements this is the entity as a whole i wanted to focus on a couple things with this first you'll notice that the government wide statements are broken down between governmental activities and business type activities the governmental are traditionally associated with local government they are funded primarily by taxes and intergovernmental revenues for example the general fund is in here the business type activities are going to be your enterprise funds your water or wastewater downtown parking golf it's all of those activities are primarily funded by program revenues fees service charges so those are the why how it's broken down between those two types of activities and the purpose of this statement is really to identify the financial condition of the city i wanted to focus on first total assets you'll notice that overall about a billion in total assets at the end of the year it has gone up from the prior year but you'll notice also that of that billion dollars over seven hundred and fifty million of them relate to capital assets so that would only be shown on this statement and it is a significant portion of our assets relate to you know capital assets infrastructure the next item i wanted to bring to your attention are total liabilities we have about two hundred million dollars in total liabilities it's it's a large number but it's not significant as compared to your total assets your total in that position but i wanted to point out that the majority of this is in the enterprise funds so one hundred and fifty million out of the are sorry one hundred and sixty million of total liabilities is out of enterprise funds there's one other resources without getting too technical with you this deferred outflow of resources is similar to an asset what this one is specifically is related to the difference between the carrying value of our debt and its react juez ition price so it actually is similar to an different items net investment capital assets you'll notice this is very similar to what our capital asset line is especially in the governmental activity is it's off you know about a million or two but the business type is a little bit more that's because this number is netted with the debt used to acquire or build any of the capital assets so that's why there is a difference there the restricted is made up of external restrictions by creditors laws regulations and you'll notice in the governmental activities of that sixty six million about fifty one million of it relates to the affordable housing fund so the entire affordable housing fund balance is rolled up into that restricted balance yeah sorry the loans outstanding it also is going to have the city council reserve policies the disasters contingencies are going to be in that number and also anything that's been assigned for a capital project okay mister white you had a question thank you so this for example the total net position  twenty one under government metal activities and then four hundred and one under business is there is that then is there then twenty million dollars sitting sum or a that twenty million dollar number is sitting somewhere else that then yes they're independent and then they roll up together for if you're gonna look at the city as a whole you'd combine them any other questions  your business type activity activities or your enterprise funds they're gonna be the funds that are operating more in a business type atmosphere than a governmental so they're they're relying on these charges for services your gulf fund your water fun what exactly waterfront downtown parking so next i'm going to focus on the statement of activities it's the second government wide statement i'm gonna i kind of broke this up into you'll notice on your calf or on page twenty five its combined but i'm going to focus on the governmental activit first and the purpose of this statement is really to see how did the city change over the year what did the change in that position and the other purpose is really to see ok well out of all of these programs all the departments really how much did the general fund revenues how much did revenue subsidize their activities so if you look at the expenses in the program revenues the net on the right side really identifies what the subsidy was so for example if you look at administration for eleven million dollars eleven point eight and expenses and one point two in program revenues as a net of ten point five that's about how much was subsidized subsidized by taxes intergovernmental revenues and the one thing i did want to point out that i think we might change for next year is that the administrative overhead is charged out to the enterprise funds other funds is actually included in other revenues for down there at the bottom that twelve million dollar number i think for next year what we'll do is actually identify that for you so that you can see what the true subsidy is by program because that really is additional revenue that would be used to offset that subsidy is that all of what's under that other no there's some other items in there but there is i would have to look and see i don't have the exact number okay thanks  but overall i wanted to point out that the the total change in that position is almost thirteen million dollars so as for the city as a whole it was a very good year and it was a very positive increase in that position  we can focus on the business type activities as we mentioned before these are the enterprise funds the difference here is that the enterprise funds don't rely on taxes intergovernmental revenues they really rely on their own fees charges for services program revenues to their operations so you'll see with water wastewater you know water has thirty two million dollars in expenses but they brought in thirty eight million in revenues so they actually you know we're to the good of almost six million dollars so if you look at all of the enterprise funds all of them actually had revenues that exceeded expenses except for golf on the golf course has had you know difficult few years with the downturn in the economy so they did have expenses that exceeded revenues by about a hundred fifteen thousand overall the change in that position is about eight million dollars of that the water fund is almost six million of it and i think we mentioned at year end and fourth quarter that the water fund did have a very positive year so this was both on the expenditure side and on the revenue side so that accounted for that big now that we've talked about the city as a whole and government wide i wanted to focus on the general fund balance sheet as i mentioned there's no capital assets or long term debt when it's just a fund individual fund balance sheet so this is really a more of a short term focus you'll see this on page twenty six overall the general fund had about thirty five point nine in total assets about six point six and liabilities and a total fund balance of twenty nine million what i wanted to focus on were the fund balance types they are different from the government wide even though there is some there's one that has a common name they are quite different the first one is the non spendable really what this represents our assets that are in a non spendable form there are things like the loans receivable added non spendable means that they're not currently available because they're long term so they're payable over up to fifteen years so even though they're an asset in this part of our fund balance we can't appropriate those funds until we get them repaid so we have to set them aside so we we defined what's available to spend purchase orders because they are restricted for that purpose and committed these are amounts are actually constrained for use by formal actual action of city council's so these are where you're going to find your disasters reserves your contingencies and that's about twenty one million and i'm approved at year on that the city administrator has authority to approve from one year to another so i did want to kind of go back and just talk really briefly about the committed amount at year end you might recall that we mentioned there was about twenty five million dollars in reserves policy net position category so in that seven eight million on spendable fund balance you'll find that airport promissory note how are we consider it to be in available it is in our asset pool you know we have it we have the cash available so we consider that available at your end and that's why you'll see that difference mister white you in a question thank you mister yeah i don't understand yet how if the end of the committee is where our reserves our policy reserve and that's around twenty five twenty six million dollars and and we have we don't have quite the twenty five twenty six but we have twenty two plus right something like that so i'm just there there's it and yet i'm hearing you project there was a need for the airport to build the quick turnaround facility the rental for the rental cars and rather than waiting for the issuance of the long term bonds we advanced them some money so didn't get that done and so we executed a promissory note and it wasn't between the general fund and the airport it was basically it was an investment that the city as a whole made into the air new municipal airport and originally it was a seven five million dollars i think it's been paid down to about four million dollars now but that's that's in our portfolio so it's like no different than an agency security or a bond we have a promissory note payable by the airport so that's made up in all of our cash and investments got it so what's the interest rate it's actually pretty good we was initially i think around six percent or seven percent we just lowered it down to about three and a half percent because it was since interest rates have gone down we readjusted that in a minute that council approved all that so in terms of the cash we have about twenty four million dollars in cash that we've presented to the council  to what our available reserves are we're supposed to have closer to twenty six million dollars per our policy our budgets about hundred ten million we're supposed to have twenty five percent so we're a couple million dollars short of where we should have but we have about twenty four million dollars that we have now so what julie was saying that misty was the saying is that that twenty four million is this number here plus the four million dollars in outstanding amounts for the promissory note for the airport but the auditors and standard county stands require that we include that is in this category of non spendable rather than in this category it's all money it's all available when we so when we measure it and we tell you what we have available is twenty four million from a reporting perspective we just have to include four million of that related to the primary promissory note in the non spend able row but it's just it's a reporting issue nothing more is four million dollars so it's just so the water fund has a sherbet and we'd have would have a similar sort of issue with in that issue presentation thing with them but therefore the general fund has a large share of it because they have the largest part of the portfolio or a big part of it and then it the that money came out of reserves or at least our the policy reserves were lent to the airport for this not to not directly it basically was part of the soviet think about the cash we have a citywide it's about two hundred fifty million dollars right it's and we invest that money and we happen to invest in the airport that cash is it's essentially in almost akin to what we have in reserve individual funds because it's cash balances are what make up the reserves so we're investing our cash so by definition we're committing some of our reserves so as but but it wasn't appropriate and reserves per se was just when you invest anything any cash you're sort of investing your reserve balances it's one of the same all right and and yet that they reserve the whole we ended up in in an in trouble on our reserves in the last crash because we had them committed we've loaned laugh money had come out of reserves the general the new the e ir for the plan santa barbara had come out of reserve so we didn't have the cash in hand to use in the crash now are yeah we're not doing that i mean i'm gonna what i'm hearing is we do actually have twenty four million in cash in our policy writer we do and that's not counting the linette's that doesn't count amounts we have available you mean not available but part of our asset pool if you will for the outstanding loans whether it be m lap or anything else so i mean and i think the issue you said sort of as the during the crash period were consuming the reserves i mean we never consumed reserves by lending the money out to an employee or freeing it that we just made it unavailable so so you know other thing dynamics were going on in two thousand four or five six that i think caused our reserve available spendable reapers to go down but the use of those reserves for an em lap program that was approved by council a while ago i don't think that was the bigger issue or the biggest issue or issue i should say so i guess that i'm not sure that to respond to your question but the mere fact that we're lending money or did that is not creating a problem for us the money is repaying and it will be repaid over time it's just not currently available to spend today or tomorrow right and i appreciate that and that's at the same time i'm sort of as all would know that i'm we're all together protective about having that that policy reserve which is supplementary information it will provide the budget as well as actual results so this is what i want to focus on this one i wanted to point out on this schedule that where i consolidated some of the rows to make it a little easier to follow the revenues and expenditure lines actually include the transfers that are listed at the bottom normally the transfers are not as significant as they were this year specifically in the expenditure column the transfers were almost eight million dollars a lot of this i think almost all that was related to the one time revenues we received that we then transferred from the general fund to the capital outlay fund so there was a you know close to seven point five eight million dollars that is actually included in that expenditure line and that's why there's a difference there so i want to focus now on the variances first on revenues the four hundred and four four hundred and forty six thousand dollars to the good on the revenues so revenues actually came in higher than budget the one thing i wanted to point out is that every year we do budget about a one two million dollar anticipated variance in the revenues so it's more closer to the one million but the expenditures came in a lot lower than budget overall it was about two six million dollars to the good so that was a pretty big difference between overall between revenues expenditures and budget other number i really want to focus on is at one seven million dollar actual number this looks like we finished the year with an increase in fund balance of one seven million actually it was higher than that it was about double that it was it was double  that per policy reserves we transfer fifty percent of the surplus to from the general fund to the capital outlay fund so we finished the year about three three three point four million dollars to the good and increase and then transferred fifty percent of the surplus to the capital outlay fund so that's where moving on i have one more fund i wanted to draw your attention to specifically because it was a very significant change from prior year they self insurance fund which really helps account for the cost of workers compensation unemployment liability health insurance for employees last year at the end of fiscal year twelve ended with about a five hundred thousand dollar balance this year it's got a net position of negative two eight million there was a couple two years that had some significant claims and that really ended up in actuary about actuarial evaluation increasing our claims rates and created a quite large payable even though it's not anything we actually have to pay out right now they estimate what we may have to pay out so that's that eight two million dollars that really turned the fund upside down so i just wanted to bring this to your attention staff does not feel at this time that any rates need to be changed it we don't feel like the trends going to continue we're going to monitor it there's a chance we may it come to you come to council with a request to increase the allocated cost rate to the different funds slightly for an increase in rates but it would not be anything close to offset this difference that's all i was going to touch on with the basic financial statements unless there's any questions i'll move on to the but note disclosures everyone's satisfied all right thank you so this should look familiar i know that in prior years this is some of this information has been presented to you but i wanted to really touch on the retirement plan with calpers in our kaffir we're required to present a footnote on our calpers retirement plan using the actuary actuarial value of assets so i wanted to kind of go through what this means and and give you some different options for reviewing this data this is based on fiscal year two thousand and thirteen but it does have a valuation date of six thirty two thousand and ten so it does go back three years they do  does evaluation in for fiscal year ten for three years to fiscal year thirteen the accrued liability that next column that the way to look at this is really how much do we need in the bank to pay our  should we have in the bank at six thirty thirteen to fund what we owe on this obligation so at at six how much we how much we should have sorry yes how much we should have in the bank to pay this obligation this is how much we owe three hundred and eighty three if we stopped it at six thirty thirteen this is how much we we should have the actuarial value of assets this is what we actually have but i do want to touch on i will touch on a little bit later what this means actuarial value of assets because this is um not quite the market value so we'll get into that a little bit later and then you move on to the unfunded liability if that's the difference just between the accrued liability and actuarial value of assets which then determines your funded status so using the actuarial value sorry i'm having difficulty with it provides you with a funded status of about seventy eight percent for the miscellaneous plan eighty one percent for the safety fire and about seventy nine percent for the safety police also the annual covered payroll this is just basically what your total payroll is that the rates are based on and then your unfunded or over funded if you were their liability as a percentage of payroll is just a calculation based on your covered payroll and why this is important is because when you look at your covered payroll depending on how large is if you have a small amount stay with the safety fire plan it's a much smaller base for which you can change rates to basically pay your unfunded liability so with fire if you only have ten million dollars for which you could potentially change rates it's going to be a lot harder to pay off that liability whereas with the miscellaneous plan you have fifty to almost fifty two million dollars for which you could change rates so that is it it just kind of helped identify what's maybe a higher risk so this actuarial value of assets i wanted to talk a little bit about that it's it really is an inflated number pers does gives us an actuarial value of assets that is basically smooth the gains and losses over a fifteen year period so that you're never taking a hit in one year a very large loss or a very large gain in any one year but it doesn't really give you the true market value rate so if you move on to the next slide what we did was which is not required in the capper but what we did is provide you with the market value of the assets so that you have a better idea of what the funded status is based on market value so you'll notice that in the prior slide it was between seventy eight and eighty one percent now it drops down to sixty one to sixty three percent so  a pretty significant difference if you really truth look at the true market value it is a smaller funded status and this is using the fiscal year two thousand and thirteen if you move forward one more slide we have we get a evaluation every october so we have some more current data we thought i'd be helpful to present you our most current data so this is for fiscal year fifteen it's with the reports we received in october two thousand and thirteen i did want to point out for the safety fire plan in the last fiscal year it was pooled with other safety fire plans so we weren't able to get individual data just for that plan for fiscal year fifteen so i use the fiscal year fourteen data so it is one year older but this is the most current data that i do have just to give you a more current funded you'll notice it has gone up from the prior slide it went up from about sixty three to sixty one percent to sixty six to seventy one percent so it is it is getting better it is getting more funded there's higher rates of return the other but the other thing i wanted to actuarial value of assets is that is the reason that's higher because it's taking into account possible long term gains or what's the what's the reason behind that they look at the rate of return over a long period and they use a rate i believe it's seven point five seven point five percent and they use that rate and to try to do a smooth rate so that you're not one year twenty percent one year you're negative so that's why they use that rate of return so that's more by fifteen percent they're not going to immediately adjust race accordingly to recover that loss they're going to keep it at a hundred percent over and amortize it over a fifteen year period and get there in fifteen years so you're not seeing volatility that was the whole point of that to minimize vol so right now as we know because we're in a down market the market values are less than what they're using for actual purpose because they're still spreading and amortized in those losses so they provide us this information they give a sparking value in actuarial value of assets we just think is important for use to us to know what is truly funded status and in fact with all the changes that pers is making and starting in sixteen with the new rate changes and it's going to be increasing rates over a five year period one of the things they decided to do is adopt policy they say we're gonna stop using actuarial value  because we want to be actually less ball more balls we want to be able to recover more quickly than spread it over fifteen years because if you have two downturns and in fifteen fifteen year period you're never gonna go to catch up so they want to be more reactive so we're gonna probably see more  y because they're they're realizing those losses or gains that are shorter period of time but they're just doing away with the actual value basket concept they're gonna just say we're gonna recover quickly so one of the one of the numbers that i've seen kicked around in terms of the health of a pension fund is for the the unfunded liability anything lower than eighty percent is dangerous so is that is that the market value or is that the actuarial that i would say based on market value okay that's how i would evaluate okay all right thanks mister white you had a question thank you the i'm wondering whether we would have the is this our chance or would we have one in the future to dig down into the pension situation some more i mean you're we're sort of covering the landscape here and in previous years we've had  couple of i think good educational sessions to to bring more of that information together so rather than ask you know get into the weeds today maybe i could just ask that we have the pension question is a warning signal yeah we're below that we're in that warning well into the warning area and so it's an area where we should be staying abreast and educating ourselves as well as  community about that and we'd be happy doing we do that every year as you know i will tell you that that's exactly why starting in sixteen over a five year period through fisker twenty we're gonna see rates go up dramatically you know between thirty forty percent because they've at this point they said we're never going to get there just by relying on better than expected rate of returns so we're gonna have to do something more dramatic so pers has implemented new policies and and a strategist says that with these rate increases starting in sixteen we will get fully funded over a twenty to thirty year period we will get there but so that's that's the goal that's that's the reason we're gonna see that so as mister francisco said we are kind of in a danger zone or below where we should be and pers is now gonna help us to get fully funded over a longer period of time but ensure that we get there and we're gonna have a discussion about that may we will mister chair thank you okay so we also have other post employment benefits that do represent a potential liability for the cities so i wanted to touch on these other retirement benefits this is footnote seventeen pages seventy two to seventy seven the first one is the retiree medical and subsidy the city does provide a monthly retirement benefit to retired city employees under certain criteria they have to have been with the city for fifteen years there's other criteria this is provided up to age sixty five this also included in this number other than just the actual physical retiree medical benefit is that we allow retirees to participate in the city's plan and by allowing them to participate in the city's plan they really get a discounted rate for their health insurance and we are required to give a value to that and actually record a or identify a liability that's related to this implied subsidy so that's what's included in that thirty six point five million dollar number is both the retiree medical and that implied su that thirty six point five about nine million is attributable to the retiree medical and the rest is all implied subsidy the other item is sick leave we do provide provide retiree sick leave benefits for certain retirees that appl pre affordable care act when people individually had to go out and get health insurance and weren't able to be part of a large group now that there are large groups that are equal to the size of the city's group is that is there even is this relevant anymore is ther question that's a good question we haven't really thought about that i think it's clear i mean not clear it's probably likely that they would still get a preferential rate because they're part of a larger group are they they are because you think about a retiree let's say they're not sixty five but they're sixty one year they retired from the city they would get the same rate they paid out of their own pocket but they would get the same rate as somebody who's twenty six years old just starting with a city who's healthy and even though the claims that may be filed by the sixty one year old well exceed a twenty five year old they're paying the exact same amount so i think that is theirs it's possible that they would still get a preferential rate being part of the city's group plan versus getting their own individual plan through a state program but that's a good question description is that we are required to per county and sanders to disclose the condition of our streets our pavements and we wanted to bring this to your attention because it is a potential liability for the city and we also wanted to bring to your attention the actual pavement condition index the city actually goes out and does a pavement management system to assess the condition of the streets and they actually do this rating that's called a pavement condition index the city established a sixty pci as a minimum rating index with a goal to achieve a seventy and over the last five years where we started in fiscal year eighty nine of a seventy one rating it has fallen to a rating of sixty three at the end of fiscal year thirteen so we wanted to bring this to your attention that due to maybe insufficient funding for the pavement program they haven't been able to keep the level of the streets and pavements to a level of that pci rating of seventy and th is going is the is the number then adding up the the four plus three plus plus three plus two plus four yeah that's how much we're in the hole to get to seventy correct yes oh there but that doesn't show that except it does show it in in the in the multiple lines it just doesn't show it is it kind of like a running tally on the side like at an aggregate number sure we could even look to potentially change that an offended disclosure with a running total is might be and would at least i know where the conversation i hope is gonna expand on on this topic and so that would be a one good tool for people to understand people and we realized that we're not bringing anything new to the committee who you are well aware were this but we wanted to show you that this is actually something we're required to disclose in our capper is just something that we we do and just so you know in a year is disconcerting and it is something that is is it's a heads up for for folks for us and for everybody to just go wow that's a that's a that's a real drop that's not just a nickel and diming down that's a that's a real drop yes alright i had one more item it's it's not actually a footnote but it's it's a gatsby pronouncement at governmental accounting standard boards pronouncement that is coming out that will actually be effective for fiscal year fifteen in two years i believe this was presented to you last year but i wanted to touch on it again because it is a very significant pronouncement basically what it means is all this unfunded liabilities for this pension obligations we discussed earlier that are disclosed in the footnotes are now going to be on the face of the financial statements so it really potentially could take the city upside down their large unfunded liabilities this is going to happen for all governmental agencies it's going to have a very dramatic effect on some some agencies who provide a lot more benefits to their retirees it could be pretty significant so we just wanted to bring this to your attention that this is coming out it's going to be a requirement it will be on our financial statements for fifteen and overtime you know this liability will diminish as market rates improve as we provide more funding but we just wanted to make sure you were aware of this mister white i just see in there that the unfunded the discount rate saying a lower discount rate we don't know what that is at this point no not looking at lowering the discount rate there's been some pressure of course but they feel like it's a still a reasonable measure of what they're earning and gonna earn over the next fifteen twenty years but it doesn't mean down sometime in the future vote that they may lower that it's really gonna depend on what kind of earnings i don't it's been pretty volatile i remember one year a couple years ago was twenty two percent it's great then the next year was two percent so that's just the nature of the beast you know i presented in the past sort of a chart that showed what the returns were over a twenty five year period in and it was you know in no case that they hit seven a half percent every time it was either you know ten percent above below it's very volatile because of the nature what they're investing in but it was another really good year last yea yeah so that concludes my presentation if you have any other questions i can answer them or i can pass it on to rich kikuchi to present the audit requirements okay any questions thank you very much all right thank him his name is present to you your capper but mostly to talk about the audit itself there was a lot of work that went into that audit and we're happy to present it to you today ellis ells been engaged by the city to perform a financial audit there's all kinds of audits out their operational audits internal audits performance audits but we've been engaged to perform a financial audit on your comprehensive annual financial report julie did a great job on going over you know all the details of the financials so you can see it's very complex there's a lot to it a lot of information so the auditors kind of come in as a another set of eyes you know just making sure things are where they should be and that really is in a nutshell what we've been engaged to do in order to do that there's a there's a couple of things that we need to do first of all we need to analyze account balances and also assess the internal controls set in place there at the city internal controls i think i talked about this last year are those policies and procedures that are established by the city in order to safeguard the assets and also to make sure that there are no material errors arising out of the financial system all those numbers that julie was talking about come out of your write or read your financial reporting system and so we do various tests to make sure for instance disbursements from the check that that information goes all the way up to your general ledger making sure if those amounts are correct same way with receipts and such so we spent a lot of time looking at your internal controls we came out basically twice although we are here again this week but we came out twice primarily for the financial audit we were here and me and we were here for about a week i had about five of my staff here and at that time it really was centered upon assessing the internal controls at the city we spent a lot of time planning speaking with city personnel doing inquiry a lot of documentation assessment of the system and really doing a lot of hands on test work making sure the financial system was was reporting information correctly and then we came back out in october and at that time i mentioned the audit is pretty much where we're looking at controls but and then we're also looking at account balances at the year end that's where we really centered upon looking at the account balances so we were talking about cash and investments before we talking about capital assets we're talking about long term debt before my staff goes in and we do a lot of test work in order to make sure that those amounts are correct so when we report those to you you know we can feel comfortable towards that end so cash investments cash investments is probably one of our bigger bigger accounts that we took a look at not only do we do an independent reconciliation similar similar to what you might do at home you know reconciling your checkbook at the end of the month  we looked at that at the end of june thirty two thousand and thirteen and we also did additional types of work sending out confirmations to your banking and investment institutions just verifying that those amounts that are on the statements are on the reconciliations prepared by the city are accurate we did cut off procedures making sure that revenues and expenditures are recorded in the proper accounting period pretty much june thirty before and before or july one moving forward and so that was a lot of test work that in order to prepare this comprehensive annual financial report i do want to say  specializes in the audits of cities we do over i think we do about sixty two cities right now in state of california a very small number of our clients are able to actually have the expertise to prepare their own cafer your staff  actually has an expertise so it's a a testament to them that they really know what they're doing and so julie mentioned there's the three primary sections the introductory section the financial section and in the statistical section and so question yes please can you give a and instance or one for instance of your in testing the internal control i haven't worked in big finance okay i know how to balance my checkbook fairly well but right could you give an example of one test that you would do of just right  the sound at the very heart of sound internal controls is segregation of duties so you know you don't want the person yet you you ideally you have two different people being a part of the process so for instance  on accounts payable and you get a vet you get a invoice from a vendor and a person process is that what we do is we go into that transaction not only making sure that the check was written for the proper amount but also that there was a supervisory person actually approving that transaction so not only so not limited to just one person authorizing that that really is a key  oh the in that instance we would for instance say that invoice was for ten thousand dollars for some type of service for the city we would go to the source document we would see we do arithmetic el test we make sure that was actually approved then we would see that we would trace that that transaction that dollar amount and also the account that it was posted to so it say was for  some type of outside sate for plumbing okay so we we would make sure that that ten thousand dollars was recorded to an expenditure related to that activity in the proper fund and so then as auditors when we come in because we can't look at every transaction if we do a sampling on that and making sure in that transit in that transaction we feel comfortable with the amount because the person who initiated the transaction  was separate from the person who approved it and then that amount flowed all the way through the system finally landing into this account in this fund in that proper amount coded to the right account if we do that we feel comfortable that probably all the other transactions are final yeah but if something something is amiss we didn't see an approval or it was coded to the wrong account we would bring that up to management in a meeting if there was something that was significant that it was you know rampant that would warrant us reporting that to you in a letter which we would report to you which we issued two reports to you every year and that would if based on the magnitude of that we would issue that letter to you thank you i just want to add to this what rich said they do in may one of the things they want to make sure is do we have good procedures in place whether we're following them or not but do we have good procedures because we can hit be following our these procedures but they could be crappy they could not provide for secondary for secondary review for example for transaction so they assess whether we have good systems in place and then later on they test to see that we're following those procedures so they give us kind of two bits of information you are your systems good and where are the weaknesses and are you following those procedures and that's what they rely on good systems and that you're following those procedures and they use that to assess sort of the overall turn a control structure that they can really then rely upon or not rely upon because it does affect how much work they do in terms of verifying account balances since we specialized in the audits of cities we can't have a good perspective on what other similar sized cities do and so we can offer best practice suggestions when warranted yeah so we spent a lot of test work my staff and i working with your staff and that the goal is to render an opinion on the audit now julie mentioned it's a two page document it's a short document for represents a lot of work and in that document it's basically there's an opinion on there stating whether i feel  the firm feels that the amounts that are represented in those financial statements primarily the net payment of net position statement of activities and actually throughout the footnotes that you know i we've done it enough work that is a partner the firm i feel that those numbers are pretty accurate maybe not every single dollar but you know in whole it looks pretty good so when julie's presented then presenting that to you when bob's bringing that up to at a council meeting you know you can feel assured that those numbers are pretty close and so that's what that opinion is all about and so we've issued an unmodified opinion that terminology terminology changed a little bit this year there really is a clean opinion that means without modification we feel that the amounts on those statements are materially correct and so you know a lot of the work that we do well all the work that we do is in order that we would render an opinion on those financial statements and as i mentioned a big part of that is assessing the internal controls set in place at the city if in that situation that i talked about on on the on that particular check or any other aspect of internal controls if there was a weakness in there we would report that letter to we would report that in that letter to you and that would be that sass one hundred and fifteen is the internal control letter so every year along with the every year as a result of the audit there's three products basically it's the capper it's the internal control letter and the auditors communication letter that's as far as a material weakness or a significant deficiency depending on the dollar magnitude or the severity for instance in that in that example i gave if we tested ten items and all ten there was not an approval or all ten that amount went to a wrong account that would be a big problem and and so we would deem that to be a material weakness if we went through that and maybe a couple of them didn't have an approval  process you know maybe that would be a significant deficiency so uh so that's that letter we issued that to you every year and this year i'm happy to say that's basically a standard letter there's nothing really to report to you out of all that test work that we did  feel that the controls here said at the city are sound and strong also that the audit communication letter lists various things such as if we had some significant  audit findings we would report that to you we did we had none we had difficulties or disagreements with management during the course of the audit we would report that to you and so we hadn't known any other audit findings now particularly and this whole the whole spirit of this letter is for trans aaron see because in times past especially i think it was about seven years and past a lot of this lot of this was just dialogue between the auditors in the finance department during our audit we would also always issue the management letter but a lot of the other things will have lesser magnitude or there were some difficulties those in the seat of governance would not you wouldn't know about it you know and so this really is in the spirit of greater transparency also other communications if new standards coming up julie mentioned you know we had the new ga well sixty three and sixty five this year the deferred inflows and outflows you might have noticed on that on that statement it's now called net position rather than net assets so not a huge deal you know some things are now rather than assets or liabilities probably nobody cares but accountants but you know that's that's a standard we follow and so we're letting you know about that also i like julie mentioned the city's required to go through an audit every year but not necessarily a capper but we have prepared a capper just because it's the great it's the best you can do as far far as financial reporting the most comprehensive and also applying for that gfo a award was which is the award of excellence in financial reporting which the city has received quite a few times many for many years and worked we continue to we continue to expect to do that so there's a lot of  eyes to be dotted and t's to be crossed as far as that calf rewards program goes so you know so that's what that's all about so in summary as far as the audit goes ellis l has been engaged by the city to perform a financial audit and a big part of that is the working together with the city and putting the kafir together and issuing an opinion the unmark the unmodified opinion the clean opinion is the tops that's what you want and we've issued those two letters to you and really those led those letters had nothing significant to report but i do want to use this opportunity to thank you for inviting me  share this with you i do have to commend bob julie and jeanne and their staff just an amazing group to work with they really know what they're doing like i mentioned there's a small percentage of my clients that actually prepare their own capper most of them they rely on us to do that but uh you know their joy to work with and they're there on top of things so it's it's good teamwork i think i'm glad to hear that yeah so that's the like all the enterprise funds or is this just general fund or we are kind of on our rotational basis we look at various aspects of the city we definitely don't look at the same thing every year and then also as a part of the planning process we'll w meet with city staff and kind of determine other areas that you know are more concerned actually even before we get here we'll be reading all your council minutes to see what's going on with the city that you know if there's maybe a new fun or some major acquisition well maybe we'll spend more time in that area so we do try to mix it up so and that question is leading up to so we had this significant issue with the  was that operation under some kind of observation what happened there so as rich said we are doing a lot more now particularly with their firm they include within their basic contract a review of different operations around the city not all of them because we do collect money in different locations to varying degrees but it's true in historically we have not done enough audit work in remote locations like the police department or even community development or receives money partial recreation