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19E - COMP FINANCIAL REPORT FY 17/18
REQUEST FOR COUNCIL ACTION CITY COUNCIL MEETING DATE: 18, 2018 TITLE: RECEIVE AND FILE - FISCAL YEAR 2017-18 COMPREHENSIVE ANNUAL FINANCIAL REPORT, RELATED AUDIT REPORTS, FUND BALANCE REPORT AND GENERAL FUNDS CARRYFORWARD (STRATEGIC PLAN NO. 4, 1) reojIi TY MANAGER RECOMMENDED ACTION CLERK OF COUNCIL USE ONLY: 1:177:t00cs ❑ As Recommended ❑ As Amended ❑ Ordinance on 18' Reading ❑ Ordinance on 2n° Reading ❑ Implementing Resolution ❑ Set Public Hearing For CONTINUED TO FILE NUMBER Receive and file the following items: 1. The Auditor's unmodified "clean" opinion letter for the fiscal year 2017-18 Audited Financial Statements included in the Comprehensive Annual Financial Report (CAFR) 2. Government Auditing Standards (GAS) Letter 3. Audit Committee Letter 4. Air Quality Management District (AQMD) Audited Financial Statements 5. The Auditor's report on the Appropriations Limit (GANN Limit) 6. The Auditor's report on compliance with the Statement of Investment Policy 7. List of all fund balances prepared by staff 8. List of unspent General Fund budget items carried forward from fiscal year 2017-18 to fiscal year 2018-19 DISCUSSION The Finance and Management Services Agency (FMSA) — Accounting Division (Accounting Division) is the lead on various financial audits and separately issued reports compiled and prepared by the City's Independent Auditor, White Nelson Diehl Evans LLP (WNDE). Outlined below is a list of the reports and related status. AUDITED REPORTS: Audited Financial Statements - Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2018 Annually, the Accounting Division prepares a CAFR which includes the city's audited financial statements and statistical information for each fiscal year. The CAFR is prepared in accordance with Generally Accepted Accounting Principles (GAAP) along with the reporting requirements set forth by the Governmental Accounting Standards Board (GASB). The City's independent public accounting firm, WNDE, audits the financial statements, reviews other financial items at the City's request, and issues reports. 19E-1 Fiscal Year 2017-18 Comprehensive Annual Financial Report December 18, 2018 Page 2 The Accounting Division is pleased to report that the City received a clean opinion, which is considered the most favorable conclusion for the Audit. The clean opinion indicates that the City's financial statements present fairly, in all material respects, the financial position of the City, changes in financial position, and cash flows for the fiscal year ended June 30, 2018. The Executive Director of FMSA is also pleased to report that the Accounting Division staff worked diligently to issue the CAFR by December 7th, which is an excellent accomplishment for a large organization. The CAFR, which includes the audited financial statements, for the fiscal year -ended June 30, 2018 is posted and available on the City's website (https://www.santa- ana.org/finance/comprehensive-annual-financial-reports-cafr-and-other-financial-reports) along with prior fiscal years. Furthermore, the report was submitted to the Government Finance Officers Association's Certificates of Achievement for Excellence in Financial Reporting Program. The award is the highest form of recognition in governmental accounting and financial reporting. In addition, the City has received this prestigious award for forty consecutive years. Note: Bound copies of the CAFR were provided to City Council separately. An electronic copy is available on the City website mentioned above. In addition to the CAFR, WNDE issued the following communication letters: Government Auditing Standards (GAS) Letter Auditor's communication of reportable conditions based on their review of the City's internal controls over financial reporting and on compliance. The results of their review disclosed no instances of noncompliance for the fiscal year 2017-18. Audit Committee Letter Formal communication from the auditor to the City Council, which discloses information related to the audit, including but not limited to the City's accounting practices and implementation of new accounting rules and estimates. Audit of the City's Air Quality Management District (AQMD) Financial Statements Under Assembly Bill 2766 Chapter 1705 [California Health and Safety Code (CHSC) Sections 44220 through 44247] cities and counties receiving the AB 2766 funds are required to separately account for the revenue and to expend the revenue for air pollution reduction measures. The AQMD audit report reflects the City's compliance to such measures. • Staff is pleased to report that the City received a clean opinion on the AQMD audit report and no compliance findings were noted. SEPARATELY ISSUED REPORTS: In addition to the CAFR and the AQMD reports, WNDE performed the following Agreed Upon Procedures (AUP) examinations: Appropriation Limit Calculations, also known as GANN Limit 19E-2 Fiscal Year 2017-18 December 18, 2018 Page 3 Comprehensive Annual Financial Report The GANN limit established the appropriations limit on expenditures for publicly funded programs in accordance with Section 1 of Article XIII of the California Constitution. • Staff is pleased to report that no findings were noted as a result of this AUP Review. City's Compliance with the Statement of Investment Policy The report on the City's Investment Policy is elected to be performed by the City to ensure compliance. • Staff is pleased to report that no findings were noted as a result of this AUP review. Single Audit— Not Included Herein The City is also required to have a Single Audit of federal financial assistance by March 31St following each fiscal year. Staff expects the Single Audit will be issued during February 2019 and will be presented to the City Council and the public on an agenda shortly thereafter. List of all Fund Balances The City uses many funds to account for its financial transactions. Due to the number of funds, many are combined into single columns within the audited financial statements. This practice is common amongst cities, accepted by GASB and the auditors, and results in financial statements that are easier for the public to read. In the interest of full disclosure, staff has prepared a list of all individual funds; including the fund name and number, the financial statement column that includes the fund, the fund balance as of June 30, 2018, and a brief description of the purpose, revenue, and/or restriction. This list is a useful tool for the Council and staff to understand what balances may be available for future initiatives, and what balances may signal the need for a change in budgeting or accounting. General Fund Carry Forward Amounts During and after the close of the fiscal year, the Budget Office received requests via memorandums from departments to carry forward unspent funds from fiscal year 2017-18 to fiscal year 2018-19. The carryforward requests are derived largely because of projects or contracts not completed prior to June 30, 2018. These carryforward requests are reviewed and included in the Assigned Fund Balance classification within the audited financial statements. This means the amounts carried over to the FY18-19 budget are not included in the Unassigned/Undesignated or "Spendable" fund balance at June 30, 2018. Below is the current list of the General Fund carry forward requests submitted by Departments FY 17-18 CARRY FORWARDS TO FY 18-19 Total: 529,871 19E-3 Attu DEPT Prore eUProyram11 -tin® ACCOUNT AMOUNT PD Annual Ammo Purchase 01114410 63001 70,000 PD Maintenance of the Police Department'Jail System(1MS) 01114425 62300 55,000 PWA SARTCMaintenance 01117650 01117650 62300 66200 110,867 178,125 SMSA (Safe Transit Stops) 01117620 6620D 19,778 PWA CDA Greater Santa Ana Vitality 01118810 62300 96,101 Total: 529,871 19E-3 Fiscal Year 2017-18 Comprehensive Annual Financial Report December 18, 2018 Page 4 There are carry forwards for many of the restricted funds as well. The fund balances for restricted funds are already classified as such. Beginning with the carry forward requests for FY18-19 to FY19-20, staff will provide a comprehensive list of all requests, including those for restricted funds, for City Council consideration by the close of the books each year. The Executive Director of FMSA will only recommend carry forwards for non-recurring budget items such as construction projects, studies, or one-time initiatives. Carry forwards for recurring budget items to stockpile appropriations will not be recommended, as the City Council considers adoption of a new budget each year. STRATEGIC PLAN ALIGNMENT Approval of this item allows the City to meet Goal #4 - City Financial Stability, Objective #1, (Maintain a stable, efficient and transparent financial environment). FISCAL IMPACT There is no fiscal impact associated with this action. Kathryn Downs, CPA Executive Director Finance and Management Services Agency Exhibits: 1. Audit Opinion Letter 2. Government Auditing Standards (GAS) Letter 3. Audit Committee Letter 4. Air Quality Management District (AQMD) Report 5.GANN Limit Agreed -Upon Procedures Report 6. Investment Policy Agreed -Upon Procedures Report 7. List of all Fund Balances 19E-4 INDEPENDENT AUDITORS' REPORT To the Honorable City Council of the City of Santa Ana Santa Ana, California Report on the Financial Statements EXHIBIT 1 We have audited the accompanying financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of Santa Ana, California (the City), as of and for the year ended June 30, 2018, and the related notes to the basic financial statements, which collectively comprise the City's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the City's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893 Qju-es located in (� ��mrd Sn Diego Counties Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City, as of June 30, 2018 and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note IE to the financial statements, the City adopted Governmental Accounting Standards Board's Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, which required retrospective application resulting in a reduction of previously reported net position. Our opinions are not modified with respect to this matter. Other Matters Report on Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis, Budgetary Comparison Schedules - General and Major Special Revenue Funds, Notes to the Required Supplementary Information, Schedule of Changes in Net Pension Liability and Related Ratios and Schedule of Plan Contributions for the Miscellaneous, Safety, and Supplementary Retirement Plans, and Schedule of Changes in the Total OPEB Liability and Related Ratios, identified as Required Supplementary Information (RSI) in the accompanying table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the RSI in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during the audit of the basic financial statements. We do not express an opinion or provide any assurance on the RSI because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The introductory section, combining and individual non -major fund financial statements and schedules (supplementary information), and statistical section, as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. 19E-6 Other Matters (Continued) Other Information (Continued) The supplementary information, as listed in the table of contents, is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 7, 2018, on our consideration of the City's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City's internal control over financial reporting and compliance. A� "X&� IALIf�l val d) &P Irvine, California December 7, 2018 19E-7 19E-8 INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH G 0 VERMWENT A UDITING STANDARDS To the Honorable City Council of the City of Santa Ana Santa Ana, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of Santa Ana, California (the City), as of and for the year ended June 30, 2018, and the related notes to the basic financial statements, which collectively comprise the City's basic financial statements and have issued our report thereon dated December 7, 2018. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the City's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the City's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. -1- 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893 Officer located in f9L,d gn Diego Counties Compliance and Other Matters As part of obtaining reasonable assurance about whether the City's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Irvine, California December 7 ,2018 -2- 19E-10 To the Honorable City Council of the City of Santa Ana Santa Ana, California EXHIBIT 3 We have audited the financial statements of the governmental activities, business -type activities, each major fund, and aggregate remaining fund information of the City of Santa Ana, California (the City) for the year ended June 30, 2018. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and Government Auditing Standards as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our planning letter to you dated July 23, 2018. Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 to the financial statements. As discussed in Note IE to the financial statements, in fiscal year 2017-2018, the City implemented Governmental Accounting Standards Board (GASB) Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. The adoption of this standard required retrospective application resulting in a reduction of previously reported net position. No other accounting policies were adopted and the application of other existing policies was not changed during the year ended June 30, 2018. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the City's financial statements were as follows: a. Management's estimate of the fair market value of investments is based on quoted prices in an active market. When quoted prices in active markets are not available, fair values are based on evaluated prices received by the City's broker or custodian. -1- 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tet• 714.978.1300 • Fax: 714.978.7893 Offtres located nirDS peadf&I Diego Counties Significant Audit Findings (Continued) Qualitative Aspects of Accounting Practices (Continued) b. Management's estimate of the value of capital assets (infrastructure assets) is based on industry standards. c. The estimated useful lives of capital assets for depreciation purposes are based on industry standards. d. The annual required contributions, pension expense, net pension liability and corresponding deferred outflows of resources and deferred inflows of resources for the City's public defined benefit plans with CalPERS and PARS are based on actuarial valuations provided by CalPERS and an outside consultant, respectively. e. The Other Post -Employment Benefit Plan (OPEB) expense, total OPEB liability, and corresponding deferred outflows of resources and deferred inflows of resources for the City's OPEB plan are based several key assumptions that are set by management with the assistance of an independent third party actuary. These key assumptions include anticipated investment rate of return, health care cost trends, mortality and certain amortization periods. f. Management's estimate of the claims payable liabilities related to general liability and worker's compensation claims are based on actuarial valuations. We evaluated the key factors and assumptions used to develop these estimates in determining that they were reasonable in relation to the financial statements taken as a whole. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the financial statements were reported in Note IE regarding the restatement of net position, Note 4E regarding the CalPERS defined benefit plans, Note 4F regarding the PARS supplementary retirement plan, and Note 4G regarding the City's OPEB plan. The financial statement disclosures are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. As a result of our audit related testwork, we proposed no significant corrections to the financial statements. -2- 19E-12 Significant Audit Findings (Continued) Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditors' report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated December 7, 2018. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the City's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the City's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Matters We applied certain limited procedures to the Management's Discussion and Analysis, Budgetary Comparison Schedules - General and Major Special Revenue Funds, Notes to the Required Supplementary Information, Schedule of Changes in Net Pension Liability and Related Ratios and Schedule of Plan Contributions for the Miscellaneous, Safety, and Supplementary Retirement Plans, and Schedule of Changes in the Total OPEB Liability and Related Ratios, which are required supplementary information (RSI) that supplements the financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. -3- 19E-13 Other Matters (Continued) We were engaged to report on the combining and individual non -major fund financial statements and schedules (supplementary information), which accompany the financial statements but are not RSI. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. We were not engaged to report on the introductory and statistical sections, which accompany the financial statements but are not RSI. We did not audit or perform other procedures on this other information and we do not express an opinion or provide any assurance. Upcoming Changes in Accounting Standards and Regulatory Updates Procurement Rules under Uniform Guidance The Uniform Guidance has different procurement rules than those previously required by the Circular A-133. Due to the work required by nonfederal entities to implement these new rules, a two- year grace period was given. In May 2018, an additional one-year grace period was given. Beginning July 1, 2018, nonfederal entities will be required to comply with all of the Uniform Guidance procurement rules. Included in these new rules is the requirement for written policies and procedures. Commencing with the fiscal year 2018-2019 audits, auditors will request the written policies of the nonfederal entity for all single audits and reviewing the procurement policies and procedures for compliance with the Uniform Guidance procurement rules. Restriction on Use This information is intended solely for the information and use of City Council and management of the City, and is not intended to be, and should not be, used by anyone other than these specified parties. Irvine, California December 7, 2018 -4- 19E-14 EXHIBIT 4 CITY OF SANTAANA, CALIFORNIA AIR QUALITY IMPROVEMENT SPECIAL REVENUE FUND FINANCIAL STATEMENTS WITH REPORT ON AUDIT BYINDEPENDENT PUBLIC ACCOUNTANTS FOR THE YEAR ENDED NNE 30, 2018 19E-15 CITY OF SANTA ANA, CALIFORNIA AIR QUALITY IMPROVEMENT SPECIAL REVENUE FUND TABLE OF CONTENTS For the year ended June 30, 2018 Page Number Independent Auditors' Report Financial Statements: Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Balance Notes to Financial Statements Required Supplementary Information: 10 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual I 1 Independent Auditors' Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 19E-16 12 INDEPENDENT AUDITORS' REPORT The Honorable Mayor and Members of the City Council of the City of Santa Ana Santa Ana, California Report on the Financial Statements We have audited the accompanying financial statements of the Air Quality Improvement Special Revenue Fund (AQMD) of the City of Santa Ana, California (the City), as of and for the year ended June 30, 2018, and the related notes to the financial statements, as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the City's preparation and fair presentation of the AQMD's financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. -1- 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel. 714.978.1300 • Fax: 714.978.7893 Offices located iia.Uf? Diego Counties Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Air Quality Improvement Special Revenue Fund of the City of Santa Ana, California as of June 30, 2018, and the changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 1, the financial statements present only the Air Quality Improvement Special Revenue Fund and do not purport to, and do not present fairly the financial position of the City of Santa Ana, California, as of June 30, 2018, and the changes in its financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual, identified as Required Supplementary Information (RSI) in the accompanying table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the RSI in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during the audit of the basic financial statements. We do not express an opinion or provide any assurance on the RSI because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Management has not presented the management's discussion and analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the AQMD's basic financial statements is not affected by this missing information. -2- 19E-18 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 7, 2018, on our consideration of the internal control over the financial reporting of the AQMD and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the internal control over the financial reporting and compliance of the AQMD. `/&4nj ,;.Vey �o Irvine, California December 7, 2018 -3- 19E-19 CITY OF SANTA ANA, CALIFORNIA AIR QUALITY IMPROVEMENT FUND BALANCE SHEET June 30, 2018 ASSETS: Cash and investments Intergovernmental receivable Interest receivable TOTAL ASSETS LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCE: LIABILITIES: Accounts payable DEFERRED INFLOWS OF RESOURCES: Unavailable revenues FUND BALANCE: Restricted for air quality improvement TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCE See accompanying notes to financial statements. 19E-20 $ 1,103,472 112,379 4,144 $ 1,219,995 $ 6,055 1,741 1,212,199 $ 1,219,995 CITY OF SANTA ANA, CALIFORNIA AIR QUALITY IMPROVEMENT FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE For the year ended June 30, 2018 REVENUES: Motor vehicle fees Investment income Miscellaneous TOTAL REVENUES EXPENDITURES: Direct program Administrative TOTAL EXPENDITURES EXCESS OF REVENUES OVER EXPENDITURES FUND BALANCE, BEGINNING OF YEAR FUND BALANCE, END OF YEAR See accompanying notes to financial statements. -5- 19E-21 $ 436,605 15,516 2,255 454,376 451,905 3,700 455,605 (1,229) 1,213,428 $ 1,212,199 CITY OF SANTA ANA, CALIFORNIA AIR QUALITY IMPROVEMENT SPECIAL REVENUE FUND NOTES TO FINANCIAL STATEMENTS June 30, 2018 1. GENERAL: The financial statements are intended to reflect the financial position and changes in the financial position attributable to the Air Quality Improvement Special Revenue Fund (AQMD) of the City of Santa Ana, California (the City). These financial statements are exclusively for AQMD and do not purport to, and do not present fairly the financial position and changes in the financial position for the City. The South Coast Air Quality Management District (SCAQMD) is authorized under Assembly Bill 2766 (AB 2766) Chapter 1705 [California Health and Safety Code (CHSC) Sections 44220 through 442471 to impose a motor vehicle registration fee to be used by the SCAQMD and local governments specifically for programs to reduce air pollution from mobile sources and related planning, monitoring, enforcement, and technical studies necessary for the implementation of the California Clean Air Act of 1988. The California Department of Motor Vehicles collects the vehicle registration fee and subvenes it to SCAQMD. Upon receipt, the vehicle registration fee is split into segments with 40% of the revenue place in a special revenue fund designated as the Air Quality Improvement Trust Fund for quarterly distribution to local governments. CHSC Section 44243 requires cities and counties receiving the AB 2766 funds to separately account for the revenues and to expend the revenues for air pollution reduction measures pursuant to the California Clean Air Act of 1988 or the SCAQMD's Air Quality Management Plan pursuant to Article 5 of Chapter 5.5 of Part 3 of the CHSC. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: A. Fund Accounting: The financial activity of the City is accounted for on the basis of funds, each of which is considered a separate accounting entity with a self -balancing set of accounts. Monies under AB 2766 are accounted for in the Air Quality Improvement Special Revenue Fund, which is a special revenue fund. B. Measurement Focus and Basis of Accounting: The accounting and financial reporting treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus indicates the type of resources being measured such as current financial resources or economic resources. The basis of accounting indicates the timing of transactions or events for recognition in the financial statements. -6- 19E-22 CITY OF SANTA ANA, CALIFORNIA AIR QUALITY IMPROVEMENT SPECIAL REVENUE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 2018 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): B. Measurement Focus and Basis of Accounting (Continued): AQMD's financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. C. Budgetary Accounting: The City's fiscal year begins on July 1 of each year and ends June 30 the following year. On or before the fifteenth of June of each year, the City Manager recommends and submits to the City Council a proposed budget for the next ensuing fiscal year based on a detailed financial plan prepared by the heads of the various offices, agencies and departments of the City and its component units. Upon receipt of the proposed budget, the Council holds a public hearing wherein the public is given an opportunity to be heard, after which the Council may make any revisions deemed. advisable. After the conclusion of the public hearing,. the Council may make modifications with the affirmative vote of at least a majority of its members. On or before the thirty-first day of July, the City Council adopts the budget as amended by the affirmative vote of at least a majority of its members. Upon final adoption, the budget is in effect for the ensuing fiscal year and becomes the authority for the various offices, agencies, and departments to expend subject to controls established by the City Charter. At any meeting after the adoption of the budget, the City Council may amend or supplement the budget by affirmative vote of at least two-thirds of the members so as to authorize the transfer of unused balances appropriated for one purpose to another purpose, or to appropriate available revenue not included in the budget. Where appropriations are made to offices, departments, or agencies for more than one activity or program, "appropriations" are considered in the aggregate with respect to total expenditures authorized for that office, department or agency within each fund, limited to purposes for which the revenues of such funds are to be spent. The City Manager is authorized to make revisions among the items included in such appropriations if, in his opinion, such revisions are necessary and proper. Budgetary control exists at the department level. Council action is necessary for transfers between departments/agencies or transfers between funds. During the fiscal year, all budget and supplemental amendments were necessary and made in a legally permissible manner. -7- 19E-23 CITY OF SANTA ANA, CALIFORNIA AIR QUALITY IMPROVEMENT SPECIAL REVENUE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 2018 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): C. Budgetary Accounting (Continued): The City legally adopts annual budgets for the Special Revenue Funds including the Air Quality Improvement Special Revenue Fund. The budgetary control for the Special Revenue Funds is under the department in charge. The Air Quality Improvement Special Revenue Fund is managed by the Finance and Management Services Agency. Monthly budgetary reports are prepared to effect control through fiscal management. The City Council approved supplemental appropriations during the year, but they were not considered material. Budgets are prepared on a modified accrual basis. Encumbrances (e.g., purchase orders, contracts) outstanding at year-end are reported as restrictions of fund balances since they do not constitute expenditures or liabilities. All other annual appropriations lapse at fiscal year-end to the extent that they have not been expended or lawfully encumbered. During the fiscal year, the total Fund's expenditures were within the legal prescribed limits as approved by the City Council. D. Deferred inflows of resources: In addition to liabilities, the balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of fund balance that applies to a future period and will not be recognized as an inflow of resources (revenue) until that time. The AQMD fund has one item that qualifies for reporting in this category, which is unavailable revenues from interest receivable. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. E. Fund Balance: AQMD's fund balance is reported based on the extent to which the City is bound to observe constraints on the use of the AQMD's resources. AQMD's fund balance is classified under restricted, which include amounts which are constrained for specific purposes that are 1) externally imposed by creditors, grantors, contributors, or laws or regulations of other governments or 2) imposed by law through enabling legislation. AQMD's fund balance is restricted for programs initiated for the purpose of implementing the California Clean Air Act. Information regarding the fund balance reporting policy adopted by the City is described in Note 1 to the City of Santa Ana's Comprehensive Annual Financial Report. -8- 19E-24 CITY OF SANTAANA, CALIFORNIA AIR QUALITY IMPROVEMENT SPECIAL REVENUE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 2018 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): F. Estimates: The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that effect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 3. CASH AND INVESTMENTS: AQMD's cash and investments balances are pooled with various other City funds for deposit and investment purposes. Each fund's share of the pooled cash account is separately accounted for, and investment income is apportioned to the participating funds based on the relationship of their average daily balances to the total of the pooled cash and investments. Information regarding the credit risk and authorized types of deposits and investments in the City's pooled cash and investments is included in the City's Comprehensive Annual Financial Report. This report can be obtained from the City of Santa Ana. 4. AB 2766 BIENNIAL AUDIT AND QUESTIONED COSTS: Health and Safety Code Section 44244.1 stipulate that each recipient of AB 2766 funds be subject to an audit at least once every two years by an independent auditor selected by the SCAQMD. The most recent AB 2766 audit resulted in no questioned costs. 5. SUBSEQUENT EVENTS: The City has evaluated events subsequent to June 30, 2018 to assess the need for potential recognition or disclosure in the financial statements. Such events were evaluated through December 7, 2018, the date the financial statements were available to be issued. Based upon this evaluation, it was determined that no subsequent events occurred that require recognition or additional disclosure in the notes to financial statements. -9- 19E-25 REQUIRED SUPPLEMENTARY INFORMATION -10- 19E-26 CITY OF SANTA ANA, CALIFORNIA AIR QUALITY IMPROVEMENT FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL For the year ended June 30, 2018 REVENUES: Motor vehicle fees Investment income Miscellaneous TOTAL REVENUES EXPENDITURES: Direct program Administrative WiYY:7As1'440Z11• 1014M EXCESS OF REVENUES OVER EXPENDITURES FUND BALANCE, BEGINNING OF YEAR FUND BALANCE, END OF YEAR $ 285,953 $ 185,981 $ 1,212,199 $ 1,026,218 See accompanying notes to financial statements. -II- 19E-27 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 1,139,500 $ 1,139,500 $ 436,605 $ (702,895) 5,000 5,000 15,516 10,516 1,850 1,850 2,255 405 1,146,350 1,146,350 454,376 (691,974) 2,052,310 2,152,282 451,905 1,700,377 21,515 21,515 3,700 17,815 2,073,825 2,173,797 455,605 1,718,192 (927,475) (1,027,447) (1,229) 1,026,218 1,213,428 1,213,428 1,213,428 $ 285,953 $ 185,981 $ 1,212,199 $ 1,026,218 See accompanying notes to financial statements. -II- 19E-27 INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENTAUDITING STANDARDS The Honorable Mayor and Members of the City Council of the City of Santa Ana Santa Ana, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the Air Quality Improvement Fund (AQMD) of the City of Santa Ana, California (the City), as of and for the year ended June 30, 2018, and the related notes to financial statements, which collectively comprise the AQMD's basic financial statements, and have issued our report thereon dated December 7, 2018. Our report includes an emphasis of matter indicating that the financial statements present only the AQMD, and do not purport to, and do not, present fairly the financial position of the City as of June 30, 2018 and the changes in its financial position for the year then ended, in accordance with accounting principles generally accepted in the United States of America. Internal Control over Financial Reporting In planning and performing our audit, we considered the City's internal control over financial reporting of the AQMD (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the AQMD's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. -12- 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893 Offices located in,0geoSd,flDiego Counties Internal Control over Financial Reporting (Continued) Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Air Quality Improvement Special Revenue Fund of the City of Santa Ana, California's financial statements are free from material misstatement, we performed tests of its compliance with applicable provisions of Assembly Bill 2766 (AB2766), Chapter 1705 (Health and Safety Code Sections 44220 through 44247), and certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of the AQMD's financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Irvine, California December 7, 2018 -13- 19E-29 19E-30 EXHIBIT 5 CITY OF SANTA ANA, CALIFORNIA APPROPRIATIONS LIMIT WORKSHEET NO.6 WITH INDEPENDENT ACCOUNTANTS'REPORT ON AGREED-UPON PROCEDURES APPLIED TO APPROPRIATIONS LIMIT WORKSHEET NO.6 FOR THE YEAR ENDED JUNE 30, 2018 19E-31 INDEPENDENT ACCOUNTANTS'REPORT ON AGREED-UPON PROCEDURES APPLIED TO APPROPRIATIONS LIMIT WORKSHEET NO. 6 To the Honorable Mayor and Members of the City Council of the City of Santa Ana Santa Ana, California We have performed the procedures enumerated below to the accompanying Appropriations Limit Worksheet No. 6 of the City of Santa Ana, California for the year ended June 30, 2018. These procedures, which were agreed to by the City of Santa Ana, California and the League of California Cities (as presented in the League publication entitled "Article XIII -B Appropriations Limit Uniform Guidelines") were performed solely to assist the City of Santa Ana, California in meeting the requirements of Section 1.5 of Article XIIIB of the California Constitution. The City of Santa Ana's management is responsible for the Appropriations Limit Worksheet No. 6. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of the procedures is solely the responsibility of those parties specified in this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. The procedures performed and our findings were as follows: 1. We obtained the completed Worksheet No. 6 for the year ended June 30, 2018, and compared the limit and annual adjustment factors included in that worksheet to the limit and annual adjustment factors that were adopted by resolution of the City Council. We also compared the population and inflation options included in the aforementioned worksheet to those that were selected by a recorded vote of the City Council. No exceptions were noted as a result of our performing this procedure. 2. For the accompanying Appropriations Limit Worksheet No. 6, we added last year's limit to the total adjustments, and compared the resulting amount to this year's limit. We also recalculated the adjustment factor and the adjustment for inflation and population, and compared the results to the amounts on Worksheet No. 6. No exceptions were noted as a result of our performing this procedure. -1- 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893 Officer located '119EF1J;<2Diego Counties 3. We compared the prior year appropriations limit presented in the accompanying Appropriations Limit Worksheet No. 6 to the prior year appropriations limit adopted by the City Council for the prior year. No exceptions were noted as a result of our performing this procedure. We were not engaged to, and did not, perform an audit, the objective of which would be the expression of an opinion on the accompanying Appropriations Limit Worksheet No. 6. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. No procedures have been performed with respect to the determination of the appropriation limit for the base year, as defined by the League publication entitled "Article XIII -B Appropriations Limit Uniform Guidelines." This report is intended solely for the information and use of the City Council and management of the City of Santa Ana, California and is not intended to be, and should not be, used by anyone other than these specified parties. Irvine, California December 7, 2018 A;,I& aJ Z/ -",g -2- 19E-33 CITY OF SANTA ANA APPROPRIATIONS LIMIT WORKSHEET NO. 6 For the year ended June 30, 2018 Appropriations limit for fiscal year ended June 30, 2017 (see Note 2) Adjustment factors for the fiscal year ended June 30, 2018 (see Note 2): Inflation Factor (Note 3) 1.0369 Population Factor (Note 4) 1.0069 Adjustment for inflation and population Other adjustments (Note 5) Total adjustments Appropriations limit for fiscal year ended June 30, 2018 Combined Factor 1.0441 See accompanying notes to Appropriations Limit Worksheet No. 6. -3- 19E-34 $ 997,277,479 x 0.0441 43,979,937 43,979,937 1.041.257.416 CITY OF SANTA ANA NOTES TO APPROPRIATIONS LIMIT WORKSHEET NO. 6 For the year ended June 30, 2018 1. PURPOSE OF LIMITED PROCEDURES REVIEW: Under Article XIIIB of the California Constitution (the Gann Spending Limitation Initiative), California governmental agencies are restricted as to the amount of annual appropriations from proceeds of taxes. Effective for years beginning on or after July 1, 1990, under Section 1.5 of Article XIIIB, the annual calculation of the appropriations limit is subject to a limited procedures review in connection with the annual audit. 2. METHOD OF CALCULATION: Under Section 10.5 of Article XIIIB, for fiscal years beginning on or after July 1, 1990, the appropriations limit is required to be calculated based on the limit for the fiscal year 1986-87, adjusted for the inflation and population factors discussed at Notes 3 and 4 below. 3. INFLATION FACTORS: A California governmental agency may adjust its appropriations limit by either the annual percentage change in the 41h quarter per capita personal income (which percentages are supplied by the State Department of Finance), or the percentage change in the local assessment roll from the preceding year due to the change of local nonresidential construction. The factor adopted by the City of Santa Ana, California (the City) for fiscal year 2017-2018 represents the annual percentage change in the 4'h quarter for per capita personal income. 4. POPULATION FACTORS: A California governmental agency may adjust its appropriations limit by either the annual percentage change of the jurisdiction's own population, or the annual percentage change in population in the County where the jurisdiction is located. The factor adopted by the City for fiscal year 2017-2018 represents the annual percentage change in population in the County in which the City is located. 5. OTHER ADJUSTMENTS: A California government agency may be required to adjust its appropriations limit when certain events occur, such as the transfer of responsibility for municipal services to, or from, another government agency or private entity. The City had no such adjustments for the year ended June 30, 2018. -4- 19E-35 19E-36 INDEPENDENT ACCOUNTANTS'REPORT ON APPLYING AGREED-UPON PROCEDURES To the Honorable City Council of the City of Santa Ana Santa Ana, California EXHIBIT 6 We have performed the procedures enumerated below, which were agreed to by the City of Santa Ana, California (the City), solely to assist the City in determining whether the City's investment activities are in compliance with the City's Statement of Investment Policy (the Policy) and the California Government Code, §53600, et al. (the Code) for the quarter ended June 30, 2018. The City's management is responsible for the compliance with the Policy and the Code and for selecting the criteria and determining that such criteria are appropriate for your purposes. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of the City's management. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. Our procedures and findings were as follows: 1. We obtained a copy of the City's Quarterly Investment Report for the quarter ended June 2018 and compared the investments listed in the report to the types of investments authorized by the Policy for fiscal year 2017/2018. Finding: No exceptions were noted as a result of our performing this procedure. 2. We compared the investments listed on the City's Quarterly Investment Report for the quarter ended June 2018 to the type of investments authorized by the Code. Finding: No exceptions were noted as a result of our performing this procedure. 3. We ensured that the maturities of investments listed in the City's Quarterly Investment Report for the quarter ended June 2018 were in compliance with the Policy. Finding: No exceptions were noted as a result of our performing this procedure. -1- 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Teh 714.978.1300 • Far.: 714.978.7893 Offices located iii() eyV Diego Counties 4. We reviewed the City's Quarterly Investment Report for the quarter ended June 2018 to ascertain it contained the information/data required by Government Code Section 53646 and met the timing requirements of Government Code Section 53646, as follows: a. Included the type of investment, issuer, date of maturity, par and dollar amount invested on all securities, investments and monies held by the City. b. Included those funds under management of contracted parties (fiscal agents, trustees, etc.). c. Included market value (and source) as of the date of the report for all securities held by the City or under management of any outside party that was not also a local agency or the State of California Local Agency Investment Fund. d. Stated compliance of the portfolio to the Policy of the City. e. Included a statement addressing the ability of the City to meet the pool's expenditure requirements for the next six months. Finding: No exceptions were noted as a result of our performing this procedure. 5. We compared the investments listed in the City's Quarterly Investment Report for the quarter ended June 2018 to the prohibited investments listed in the Code. Finding: No exceptions were noted as a result of our performing this procedure. 6. We reviewed the City's Quarterly Investment Report submission evidence documentation for the quarter ended June 2018 and ascertained whether a quarterly basis report was submitted within 30 days following the end of the quarter. Finding: No exceptions were noted as a result of our performing this procedure. We were not engaged to, and did not, conduct an audit, the objective of which would be the expression of an opinion on the compliance with the Policy. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of the City Council and management of the City, and is not intended to be, and should not be, used by anyone other than those specified parties. 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