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CITY OF COACHELLA
Audit Report
SPECIAL GAS TAX STREET IMPROVEMENT FUND July 1, 2011, through June 30, 2013
PROPOSITION 1B FUND July 1, 2007, through June 30, 2013
JOHN CHIANG California State Controller
April 2014
JOHN CHIANG
California State Controller
April 22, 2014
The Honorable Eduardo Garcia
Mayor of the City of Coachella
1515 Sixth Street
Coachella, CA 92236
Dear Mr. Garcia:
The State Controller’s Office audited the City of Coachella’s Special Gas Tax Street
Improvement Fund for the period of July 1, 2011, through June 30, 2013. We also audited the
Proposition 1B Fund for the period of July 1, 2007, through June 30, 2013.
Our audit disclosed that the city accounted for and expended its Special Gas Tax Street
Improvement Fund and Proposition 1B Fund in compliance with requirements, except that the
city understated the fund balance in the Special Gas Tax Street Improvement Fund by $392,785
as of June 30, 2013, because it charged ineligible debt service payments of $39,324 to holders of
the Gas Tax Revenue Certificates of Participation in fiscal year (FY) 2011-12, and transferred
money from the Special Gas Tax Street Improvement Fund to the General Fund to reimburse
general street maintenance expenditures based on budgeted amounts. The budgeted amounts
exceeded the actual amount by $271,252 in FY 2011-12 and by $82,209 in FY 2012-13, totaling
$353,461. In addition, we identified a procedural finding.
If you have any questions, please contact Steven Mar, Chief, Local Government Audits Bureau,
at (916) 324-7226.
Sincerely,
Original signed by
JEFFREY V. BROWNFIELD, CPA
Chief, Division of Audits
JVB/sk
cc: David Garcia, City Manager
City of Coachella
William Pattison, Finance Director
City of Coachella
City of Coachella Special Gas Tax Street Improvement Fund and Proposition 1B Fund
Contents
Audit Report
Summary ............................................................................................................................ 1
Background ........................................................................................................................ 1
Objective, Scope, and Methodology ................................................................................. 2
Conclusion .......................................................................................................................... 2
Follow-Up on Prior Audit Findings ................................................................................. 3
Views of Responsible Official ........................................................................................... 3
Restricted Use .................................................................................................................... 3
Schedule 1—Reconciliation of Fund Balance ...................................................................... 4
Findings and Recommendations ........................................................................................... 5
Attachment—City’s Response to Draft Audit Report
City of Coachella Special Gas Tax Street Improvement Fund and Proposition 1B Fund
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Audit Report
The State Controller’s Office audited the City of Coachella’s Special Gas
Tax Street Improvement Fund for the period of July 1, 2011, through
June 30, 2013. We also audited the Proposition 1B Fund for the period of
July 1, 2007, through June 30, 2013.
Our audit disclosed that the city accounted for and expended its Special
Gas Tax Street Improvement Fund and Proposition 1B Fund in
compliance with requirements, except that the city understated the fund
balance in the Special Gas Tax Street Improvement Fund by $392,785 as
of June 30, 2013, because it charged ineligible debt service payments of
$39,324 to holders of the Gas Tax Revenue Certificates of Participation
in fiscal year (FY) 2011-12, and transferred money from the Special Gas
Tax Street Improvement Fund to the General Fund to reimburse general
street maintenance expenditures based on budgeted amounts. The
budgeted amounts exceeded the actual amount by $271,252 in FY 2011-
12 and by $82,209 in FY 2012-13, totaling $353,461. In addition, we
identified a procedural finding.
The State apportions funds monthly from the highway users tax account
in the transportation tax fund to cities and counties for the construction,
maintenance, and operation of local streets and roads. The highway users
taxes derive from state taxes on the sale of motor vehicle fuels. In
accordance with Article XIX of the California Constitution and Streets
and Highways Code section 2101, a city must deposit all apportionments
of highway users taxes in its Special Gas Tax Street Improvement Fund.
A city must expend gas tax funds only for street-related purposes. We
conducted our audit of the city’s Special Gas Tax Street Improvement
Fund under the authority of Government Code section 12410.
Senate Bill 1266, Highway Safety, Traffic Reduction, Air Quality, and
Port Security Bond Act of 2006, was introduced as Proposition 1B and
approved by the voters on November 7, 2006, for a variety of
transportation priorities, including the maintenance and improvement of
local transportation facilities. Proposition 1B funds transferred to cities
and counties shall be deposited into an account that is designated for the
receipt of state funds allocated for street and roads. The city recorded its
Proposition 1B allocations in the Proposition 1B Fund. A city is also
required to expend its allocations within three years following the end of
the fiscal year which the allocation was made and to be expended in
compliance with Government Code section 8879.23. We conducted our
audit of the city’s Proposition 1B allocations under the authority of
Government Code section 12410.
Summary
Background
City of Coachella Special Gas Tax Street Improvement Fund and Proposition 1B Fund
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Our audit objective was to determine whether the city accounted for and
expended the Special Gas Tax Street Improvement Fund and the
Proposition 1B Fund in compliance with Article XIX of the California
Constitution and the Streets and Highways Code. To meet the audit
objective, we determined whether the city:
Properly deposited highway users tax apportionments and other
appropriate revenues in the Special Gas Tax Street Improvement
Fund;
Properly deposited Prop 1B allocations into an account designated for
the receipt of state funds allocated for transportation purposes;
Expended funds exclusively for authorized street-related purposes;
and
Made available unexpended funds for future expenditures.
We conducted this performance audit in accordance with generally
accepted government auditing standards. Those standards require that we
plan and perform the audit to obtain sufficient, appropriate evidence to
provide a reasonable basis for our findings and conclusions based on our
audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit
objectives.
We did not audit the city’s financial statements. We limited our audit
scope to planning and performing the audit procedures necessary to
obtain reasonable assurance that the city accounted for and expended the
Special Gas Tax Street Improvement Fund and the Proposition 1B Fund
in accordance with the requirements of the Streets and Highways Code
and Government Code 8879.23. Accordingly, we examined transactions,
on a test basis, to determine whether the city expended funds for street
purposes. We considered the city’s internal controls only to the extent
necessary to plan the audit.
Our audit disclosed that the City of Coachella accounted for and
expended its Special Gas Tax Street Improvement Fund in compliance
with Article XIX of the California Constitution and the Streets and
Highways Code for the period of July 1, 2011, through June 30, 2013,
except as noted in Schedule 1 and described in the Findings and
Recommendations section of this report. The findings required an
adjustment of $392,785 to the city’s accounting records.
Furthermore, the audit also disclosed that the city accounted for and
expended its Proposition 1B allocations recorded in the Proposition 1B
Fund in compliance with Government Code section 8879.23 for the
period of July 1, 2007, through June 30, 2013.
Objective, Scope,
and Methodology
Conclusion
City of Coachella Special Gas Tax Street Improvement Fund and Proposition 1B Fund
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Our prior audit report, issued on March 28, 2013, disclosed no findings.
We issued a draft audit report on January 31, 2014. William B. Pattison,
Finance Director, responded by letter dated February 19, 2014, agreeing
with the audit results with the exception of Finding 1. The city’s
response is included in this final audit report as an attachment.
This report is intended for the information and use of the City of
Coachella’s management and the SCO; it is not intended to be and
should not be used by anyone other than these specified parties. This
restriction is not intended to limit distribution of this report, which is a
matter of public record.
Original signed by
JEFFREY V. BROWNFIELD, CPA
Chief, Division of Audits
April 22, 2014
Restricted Use
Views of
Responsible
Official
Follow-Up on Prior Audit Findings
City of Coachella Special Gas Tax Street Improvement Fund and Proposition 1B Fund
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Schedule 1—
Reconciliation of Fund Balance
July 1, 2012, through June 30, 2013
Special Gas Tax Street Improvement Fund
Highway Users Tax
Allocation 1
Proposition 1B
Fund 2
Beginning fund balance per city $ 1,516,789 $ 483,035
Revenues 994,727 749
Total funds available 2,511,516 483,784
Expenditures (1,121,562) (483,784)
Ending fund balance per city 1,389,954 —
Timing adjustment:
Accrual of June 2013 highway users tax apportionment
(Governmental Accounting Standards Board Statement
No. 34) (35,316) —
SCO adjustments: 3
Finding 1—Ineligible charges for debt service payments 39,324 —
Finding 2—Transfer in excess of actual expenditures 353,461 —
Ending fund balance per audit $ 1,747,423 $ —
___________________________ 1 The city receives apportionments from the State highway users tax account, pursuant to Streets and Highways
Code sections 2103, 2105, 2106, 2107, and 2107.5. The basis of the apportionments varies, but the money may be
used for any street purpose. Streets and Highways Code section 2107.5 restricts apportionments to administration
and engineering expenditures, except for cities with populations of fewer than 10,000 inhabitants. Those cities
may use the funds for rights-of-way and for the construction of street systems. The audit period was July 1, 2011,
through June 30, 2013; however, this schedule includes only the period of July 1, 2012, through June 30, 2013. 2 Senate Bill 1266, Highway Safety, Traffic Reduction, Air Quality, and Port Security Bond of 2006, introduced as
Proposition 1B, provided funds for a variety of transportation priorities. The audit period was July 1, 2007,
through June 30, 2012. 3 See the Findings and Recommendations section.
City of Coachella Special Gas Tax Street Improvement Fund and Proposition 1B Fund
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Findings and Recommendations In fiscal year (FY) 2011-12, the city charged the Special Gas Tax Street
Improvement Fund $39,324 ($12,190 in principal and $27,134 in
interest) for debt service payments. The principal and interest relates to
the $7,205,000 in Certificates of Participation (COPS) with a 30-year
term in a joint issue with the City of Indio, which simultaneously issued
$7,450,000, for a total issue of $14,655,000, on April 15, 2008. The
proceeds from the sale of these COPS were used to finance the design,
acquisition, and construction of various street projects. The COPS are
solely secured by future gas tax revenues to be received from the State of
California.
There is no provision in the Streets and Highways Code for the payment
of principal and interest of COPS. The Streets and Highways Code
allows for gas tax funding of principal and interest on bonds that are
voter-approved, when the terms of the bonds do not exceed 25 years, and
when the principal and interest are limited to 25% of the annual gas tax
allocation.
Streets and Highway Code section 2107.4 states:
No more than one-quarter of the funds allocated to a city or county
from the Highway Users Tax Account in the Transportation Tax Fund
for the construction of the streets therein may be used to make principal
and interest payments on bonds issued for such construction, if the
issuance of such bonds is authorized by a proposition approved by a
majority of the votes cast thereon. The term of any such bonds shall not
exceed 25 years.
Recommendation
The city should reimburse the Special Gas Tax Street Improvement Fund
for the ineligible debt service payments, totaling $39,324, for FY 2011-
12. In the future, the city should ensure that all debt service payments
charged to the Special Gas tax Street Improvement Fund are voter-
approved bonds and not COPs. Additionally, the city should ensure that
the proceeds from the bonds are used for street work and debt service
payments and do not exceed one-quarter of the annual gas tax
allocations, and that the terms of the bonds do not exceed 25 years.
City’s Response
City of Coachella does not concur with this finding based upon
information provided by the Bond Underwriter. City of Coachella will
consult with its Bond Counsel.
SCO’s Comment
The city’s response does not provide any new information; therefore, our
finding and recommendation stand.
FINDING 1—
Ineligible charges for
debt service payments
City of Coachella Special Gas Tax Street Improvement Fund and Proposition 1B Fund
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The city transferred money from the Special Gas Tax Street
Improvement Fund to the General Fund to reimburse general street
maintenance expenditures based on budgeted amounts. The budgeted
amounts exceeded the actual amount by $271,252 in FY 2011-12 and by
$82,209 in FY 2012-13, totaling $353,461.
Streets and Highways Code section 2101 requires that gas tax money be
spent on allowable and verifiable expenditures.
The city should transfer back to the Special Gas Tax Street Improvement
Fund $353,461 for expenditures that the city did not incur.
Recommendation
We recommend that the city ensure that funds being transferred out of
the Special Gas Tax Street Improvement Fund are for actual costs
incurred in accordance with the Street and Highways Code section 2101.
City’s Response
The city agreed with the finding and recommendation.
SCO’s Comment
The city agreed with the finding and recommendation.
During our audit, we found that the city’s General Fund cash account
reported month-end negative balances in August 2012 through
September 2013. A negative General Fund cash balance may be an
indication that cash from other funds in the investment pool—including
restricted funds such as cash in the Special Gas Tax Street Improvement
Fund—is being used to pay for General Fund-related expenditures. Thus,
any of these other funds that have a positive cash balance are potentially
impaired and may be unable to make timely payments of required
expenditures. The city has not demonstrated that it has restored the
financial health of the General Fund and, thus, it is inadvertently
affecting the integrity of the Gas Tax Fund.
Streets and Highways Code section 2118 states:
When the State Controller determines it to be necessary, he may require
a county or city to deposit money received from the Highway Users
Tax Fund in a separate bank account.
Recommendation
The city should establish a separate bank account for the state gas tax
fund money. This account should be used to record all deposits and
expenditures against the money. The city has 30 days to provide the State
Controller’s Office with proof that it has established a separate bank
account. The bank account shall remain open until the city provides
FINDING 2—
Transfer in excess of
actual expenditures
FINDING 3—
General Fund cash
impairment
City of Coachella Special Gas Tax Street Improvement Fund and Proposition 1B Fund
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evidence that, over a reasonable period of time, it has restored the
financial health of the General Fund.
City’s Response
The city agreed with the finding and recommendation.
SCO’s Comment
The city agreed with the finding and recommendation.
City of Coachella Special Gas Tax Street Improvement Fund and Proposition 1B Fund
Attachment—
City’s Response to
Draft Audit Report
State Controller’s Office
Division of Audits
Post Office Box 942850
Sacramento, CA 94250-5874
http://www.sco.ca.gov
C14-GTA-014