Fiscal Year 2013-2015 Special Budget Meeting

CITY OF OAKLAND Required Communications and Recommendations Fiscal Year Ended June 30,2009 STATUS OF PRIOR YEARS' RECOMMENDATIONS 2007-2 Comment: Condition/Effect/ Recommendation: Status: Internal Service Funds The City reports five mteniai service fimds. Equipment Radio. Fadlities, Rqiroduction and Central Stores. Governments often use mtemal service fimds to centralize certafai services and tiien allocate tiie costs of those services witiim Ifae government U.S. generally accepted accounting principles permit the use of mtetnal service fimds to be used to report any activity that provides goods or services to tiie ^emmrat on a cost reimbursement basis. That is, the ^>ai of an internal service fimd should be to measure the full cost (inchiding cost of capital assets) of poviding goods or services for the purpose of fiilly recovering tiiat cost foough f ^ or charges. Therefore, if the City does not intend to recover foe fiiU cost of providing goods or services, tiien foe use of internal service fimds would not be ^ipropriate. As discussed foe last two years, we are becoming increasingly omcemed wifo the growfo in bofo the deficits of certain internal service fiinds and tiie interfimd loans used to support foose services. The City has attempted to cure tiie internal service fimd deficits by increasing the charges to the departments; however, tiiose increases have not kept up wifo the mcreases in actual costs. Tho'efijre, we recommended the City review its current budget rept^ent plan and revise it to cure the deficit over a it^onable period of time, such as three to five years. The City's response was to maintain foe current rebalancing plan for internal service fimds in its adopted the FY 2007-09 policy budget, \^ch cures the deficits by FY 2014-15, The position of foe City's mtemal service fimds continued to worsen, and foe rebalancing plan has been restnictored. See current year finding at 2009-01. 2008-1 Comment: Condition/Eflfect/ Recommendation: Accounting for the City's Sewer Service Revenues We were unable to complete our documentation of internal controls over sewer service revenues, as we were unable to meet wifo Commimity and Economic Development Agency (CEDA) staff While we were able to document certain controls, such as foe development of user rates and recording of receipts from East Bay Municipal Utility District (EBMUD), we were not able to determine whetiier foe City has adequate controls over the monitoring of EBMUD services. Due to a lack of cooperation by CEDA, we assumed that controls and control documentation did not exist Therefore, mtemal controls over the collection of sewer service revenues was considered a matmal weakness, as we were unable to determine foe adequacy of mtemal controls and whefoer or not foey were operating effectively. We were able to mitigate this audit risk by conducting substantive procedures, which included confirming cash receipts wifo EBMUD and q)plication of analytical procedures.