Subject
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FY 2024 Annual Comprehensive Financial Report (ACFR), Internal Control Letter, and Popular Annual Financial Report (PAFR)
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Department
Finance
Recommendation
Staff recommends the Mayor and Council receive the Fiscal Year 2024 Annual Comprehensive Financial Report (ACFR), Internal Control Letter, and Fiscal Year 2024 Popular Annual Financial Report (PAFR).
Discussion
Annual Comprehensive Financial Report (ACFR)
Overview
The City’s financial policies specify that, on an annual basis, a firm of independent Certified Public Accountants (CPA’s) audit the City’s financial statements, and that the auditor’s opinion be included in the financial statements as is required by Generally Accepted Accounting Principles (GAAP). An independent audit is essential to demonstrate the accountability of government officials’ use of public resources and provides a basis for user acceptance of the audited financial statements.
The ACFR is a very detailed report that goes beyond the requirements of GAAP and beyond any legal reporting requirements. The ACFR covers all funds and financial transactions during the year. It is considered a general-purpose report, as its contents are intended to meet the needs of a broad range of user groups. GAAP encourages, but does not require, a governmental entity to issue an ACFR.
The City’s audit was conducted in conformity with Generally Accepted Auditing Standards (GAAS). These are the standards that a CPA must follow when auditing financial statements. In an independent audit, the CPA expresses an opinion as to whether the financial statements present fairly the financial position and results of operations for the year ended. The fiscal year 2024 audit report contains this unmodified opinion starting on page 13 of the ACFR, at the beginning of the financial section.
There were no significant financial issues of concern with the fiscal year 2024 financial statements. There were no identified material weaknesses in the City's internal controls.
The City was proud to accept, for the 34th year in a row, the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers Association (GFOA) for fiscal year 2023. Staff is confident that the fiscal year 2024 report will again earn this distinction.
The FY 2024 ACFR can be accessed using this link: FY 2024 Annual Comprehensive Financial Report <https://rockvillemd.gov/DocumentCenter/View/57055/Fiscal-Year-2024-Report>.
Management Discussion and Analysis
The Management Discussion and Analysis can be found on pages 17 through 24 of the ACFR. This analysis gives the reader a concise overview of the government’s financial situation. Additional and more detailed information can be obtained by reading the notes to the financial statements that start on page 37 of the ACFR.
Net Position and Fund Balance
The ACFR reflects the reporting format (GASB 34) and classifications of fund balance (GASB 54), which are required for all government entities. The overall goal of the GASB 34 format is to answer the question of whether a government is in better or worse financial condition than the preceding year. To this end, statements called “government-wide financial statements” are presented on pages 25 and 26 of the ACFR. In fiscal year 2024, the City of Rockville's government-wide change in financial position was a net increase of $14.8 million. The City's increase in net position is based on increases in property tax revenue, income tax revenue, and significant investment earnings. Net position is a term that most closely resembles equity in private sector financial statements, and represents the difference between the City's assets, deferred inflows of resources, deferred outflows of resources, and liabilities.
The classifications of fund balance, required in governmental funds in accordance with GASB 54, serve to further clarify the constraints on the uses of funds by the level of authority where such constraints are placed. This can be seen on page 27 of the ACFR, which reflects the categories of non-spendable, restricted, committed, assigned, and unassigned being applied to the fund balance. At June 30, 2024, the City's unassigned General Fund fund balance was $31.2 million or 30.7% of fiscal year 2024 budgeted General Fund adopted revenue, which exceeded the reserve requirement by $10.9 million.
During fiscal year 2024, the City’s General Fund fund balance increased by $5.8 million. This change was primarily a result of increases in income tax revenue and significant investment earnings. The increase is highlighted on page 75 of the ACFR, which shows budget-to-actual results for the General Fund. The General Fund Balance Sheet can be found on page 27 of the ACFR; a ten-year fund balance trend can be found on page 88 of the ACFR in the statistical section.
The City ended the fiscal year in a strong financial position. All governmental funds ended the year with positive fund balances (page 27 of the ACFR). All governmental funds were within the Mayor and Council's adopted policy guidelines.
As shown on page 31 of the ACFR, all of the City's enterprise funds except the Parking Fund, had positive net position balances as of June 30, 2024; this situation will continue until the parking garage debt is repaid in full. All the enterprise funds had positive cash balances.
The Internal Control Letter (Attachment 1) provides a report from the auditors on internal control over financial reporting and on compliance and other matters based on their audit of financial statements performed in accordance with Government Auditing Standards. The purpose of the report is to describe the scope of the auditor’s testing of internal control and compliance and the results of that testing.
Single Audit
There was no single audit performed for fiscal year 2024.
Popular Annual Financial Report (PAFR)
For the 16th consecutive year, the City has produced a report called the Popular Annual Financial Report (PAFR). The PAFR is designed to enhance transparency by making the financial information presented in the City’s audited financial report easier to read and understand. The ACFR is a highly regulated technical document, and due to its technical nature, many people have a difficult time understanding the contents of the ACFR. The PAFR reports on financial matters (i.e., budget, and financial results) without the technical jargon required in the ACFR and shares other helpful information about the City. The PAFR is not a replacement for the ACFR, but a supplementary document that can further assist members of the public in their review of the City government's financial operations.
The FY 2024 PAFR can be accessed using this link: FY 2024 Popular Annual Financial Report <https://rockvillemd.gov/DocumentCenter/View/57056/Fiscal-Year-2024-PAFR->
Mayor and Council History
The City is required to produce basic financial statements annually and to undergo an independent financial audit. The independent auditors work directly for the Mayor and Council. The previous ACFR and PAFR were presented to the Mayor and Council on December 4, 2023.
Boards and Commissions Review
The Financial Advisory Board reviews the ACFR and PAFR as part of their annual work plan. The Board plans to review these reports in the first few months of calendar year 2025.