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CITY OF SAN LEANDRO MEMORANDUM ON INTERNAL CONTROL FOR THE YEAR ENDED JUNE 30, 2014 CURRENT STATUS OF PRIOR YEAR MATERIAL WEAKNESS FS2013-01: Closing of General Ledger and Private Purpose Trust Fund Accounting Criteria: The City had elected to be the Successor Agency to the former Redevelopment Agency. Accordingly, the City has a responsibility to make sure that the financial data recorded in the general ledger for the Successor Agency to the former Redevelopment Agency Private Purpose Trust Fund (PPT Fund) are proper and accurate. Condition: The general ledger for the Successor Agency to the Redevelopment Agency Private Purpose Trust Fund (PPT Fund) required material audit journal entry adjustments. These adjustments required both the auditor and City staff a considerable amount of time to balance the fund and to ensure that the amounts are accurate. For example, the PPT Fund required a $6.76 million audit journal entry adjustment to record the King Properly settlement long-term liability. There was also another $3.98 million audit journal entry adjustment to write down the amount of land held for resale in the PPT Fund. Footnote disclosures for Successor Agency are complex for the City of San Leandro. It also required substantial amount of time during the audit to make sure that they were updated and accurate. Effect. As a result, material audit journal entries adjustments were made to ensure that the financial statements are fairly stated. Substantial amount of time was spent by both the City staff and the auditor in order to assemble the City's Comprehensive Annual Financial Report (CAFR) and to properly record and disclose the transactions and account balances for the PPT Fund. Cause: It appears that Community Development Department and Finance Department did not have sufficient coordination and communication to make sure that PPT Fund financial data are accurately recorded in the general ledger; and footnote disclosures are accurately updated. • City staff was unaware of all the intricate accounting issues associated with properly recording transactions for the PPT Fund. Recommendation: • The Successor Agency has a number of intricate and unusual accounting transactions. In addition, there are several upcoming Governmental Accounting Standards Board Statements that are required to be implemented. As such, Finance should have adequate staffing, knowledge and training to make sure that these transactions are recorded accurately. If needed, the City should consider sending Finance staff to outside training. • Finance Department and Community Development Department should coordinate and have sufficient communications during the year and at year-end closing to make sure that all significant activities are properly and accurately recorded in the general ledger. Footnote disclosure related to Successor Agency activities should be reviewed and revised to make sure that the disclosures are accurately updated. 7