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LSL:*: :: To the Board of Directors Santa Ana Police Officers Association Santa Ana, California Excess Fund Balance 12. Per Section 5 of the Agreement, the Association must return to the City any excess fund balance being held in the trust as of December 31. Excess fund balance is defined as any amount that exceeds four-times the total insurance premiums minus the employees' share of the premium contribution paid for the month of December for the year just ended. Once the excess fund balance is determined for the prior calendar year, the City shall reduce its monthly contribution for the next six months by one-sixth of the excess fund balance. The application of these reductions for excess fund balance will begin to occur 30 days after completion of the final audit report. The final Association Trust Fund Calculation of Excess Fund Balance is documented in Attachment 1 B. • We tested the calculation for mathematical accuracy. We compared the trust balance to the Summary of Receipts and Disbursements (Attachment 1A). • We compared the total insurance premiums to copies of insurance invoices and verified that they pertained to insurance coverage for the month of December 2023. • We compared the payroll deductions to documentation provided by the City and verified that amounts pertained to December 2023 insurance coverage (amounts withheld in November 2023, pay periods 22 and 23). • We reconciled the supporting documents used in the calculation to the general ledger, and to the Summary of Receipts and Disbursements. Results: For the fiscal year beginning January 1, 2023, and ending December 31, 2023, there is excess fund balance in the amount of$3,426,054 (see Attachment 1 B). We were engaged by the Association to perform this agreed-upon procedures engagement and conducted our engagement in accordance with attestation standards established by the AICPA. We were not engaged to and did not conduct an examination or review engagement, the objective of which would be the expression of an opinion or conclusion, respectively, on the medical insurance trust fund's excess fund balance calculation for the year ended December 31, 2023. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. We are required to be independent of the Association and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements related to our agreed-upon procedures engagement. Other Matters As an additional matter, we noted that the Trust Fund operated at a deficit for the year ended December 31, 2023, having disbursed $608,894 in excess of the total receipts received for the period. For a health benefits trust fund, sound financial management is essential to ensure long-term sustainability, compliance, and the ability to meet obligations to beneficiaries. The following metrics were considered against industry best practices: 1. Reserve Levels: the generally recommended range of reserve levels is three to six months of average monthly disbursements maintained in reserve. Average monthly disbursements for the Trust are $940,348; based on this calculation, the amount held in reserve by the Trust should range between $2,821,044 and $5,642,088 depending on a number of factors. • Plan size and volatility: larger, more stable plans may need less reserves; • Self-insured vs. fully insured: self-insured plans require higher reserves due to claims volatility; • Industry variability: plans covering industries with fluctuating employment may need higher reserves; and • Collective bargaining timelines: longer contract periods may justify higher reserves early on. 5