City of Rio Dell 2011AU

CITY OF RIO DELLANNUAL FINANCIAL REPORT

AS OF JUNE 30, 2011WITH

INDEPENDENT AUDITOR'S REPORT

MANN, URRUTIA, NELSON, CPAS & ASSOCIATES, LLP2515 VENTURE OAKS WAY, SUITE 135

SACRAMENTO, CA 95833


JUNE 30, 2011

TABLE OF CONTENTS

Page

Independent Auditor's Report 1 - 2

Management's Discussion and Analysis 3 - 10

Basic Financial Statements:

Government-wide Financial Statements

Statement of Net Assets 11

Statement of Activities 12

Fund Financial Statements

Balance Sheet - Governmental Funds 13

Reconciliation of the Governmental Balance Sheet to the Statement of Net Assets - GovernmentalFunds

14

Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 15

Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances to theStatement of Activities - Governmental Funds

16

Statement of Net Assets - Proprietary Funds 17

Statement of Revenues, Expenses and Changes in Net Assets - Proprietary Funds 18

Statement of Cash Flows - Proprietary Funds 19 - 20

Statement of Net Assets - Fiduciary Funds 21

Notes to Basic Financial Statements 22 - 37

Required Supplementary Information:

Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - GeneralFund

38

Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - CDBGFund

39

Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - Street &Transportation Improvement Program

40


JUNE 30, 2011

TABLE OF CONTENTS (Continued)

Page

Supplementary Information:

Combining Fund Statements

Combining Balance Sheets - Non-Major Governmental Funds 41 - 46

Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Non-MajorGovernmental Funds

47 - 52

Other Reports:

Schedule of Expenditures of Federal Awards 53

Notes to the Schedule of Expenditures of Federal Awards 54

Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on anAudit of Financial Statements Performed in Accordance with Government Auditing Standards

55

Independent Auditor's Report on Compliance with Requirements that Could Have a Direct and MaterialEffect on each Major Program and on Internal Control over Compliance in Accordance with OMBCircular A-133

56

Schedule of Findings and Questioned Costs 57 - 58

Schedule of Prior Year Findings and Questioned Costs 59

G LEN DA LE • ROSE VILLE • S';CR'; I.\ENTO · SO UTH L~KE TA HO E ' K ; U':' I . H A·.v .~ 11

MANN . UR RUT I A · N ELSON CPAs & ASSOCIATES , LLP

INDEPENDENT AUDITOR'S REPORT

To The Honorable Mayor and Members of the City CouncilCity of Rio DellRio Dell, Cali fornia

We have audited the accompanying basic financial statements of the governmental activities. the business-type activities, eachmajor fund. and the aggregate remaining fund inform ation of the City of Rio Dell (the "City") as of and for the year ended June 30.2011. which collectively comprise the City's basic financial statements as listed in the Table of Contents. These basic financialstatements are the responsibility of the City's management. Our responsibility is to express an opinion on these financialstatements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America, and thestandards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of theUnited States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includes examining, on a test basis , evidence supporting theamounts and disclosure in the financial statements. An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditprovides a reasonable basis for our opinion.

In our opinion, the basic financial statements referred to above present fairly, in all material respects, the respective financialposition of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund informationof the City of Rio Dell as of June 3D, 2011, and the respective changes in the financial position and cash flows, where applicable,for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued our report dated April 13, 2012 on our consideration ofthe City of Rio Dell's internal control over financial reporting and 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 ofinternal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internalcontrol over financial reporting or on compliance. That report is an integral part of an audit performed in accordance withGovernment Aud;fing Standards and should be considered in assessing the results of our audit.

Accounting principles generally accepted in the United States of America require that the management's discussion and analysisand budgetary comparison information on pages 3 through 10 and 38 to 40 be presented to supplement the basic financialstatements. Such information, although not a part of the basic financial statements, is required by the Governmental AccountingStandards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in anappropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementaryinformation in accordance with audit ing standards generally accepted in the United States of America , which consisted of inquiriesof management about the methods of preparing the information and comparing the information for consistency with management 'sresponses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financialstatements . We do not express an opinion or provide any assurance on the information because the limited procedures do notprovide us with sufficient evidence to express an opinion or provide any assurance.

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Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of RioDell's basic financial statements as a whole. The combining and individual nonmajor fund financial statements are presented forpurposes of additional analysis and are not a required part of the basic financial statements. The accompanying schedule ofexpenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management andBudget Circular A~133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of thefinancial statements. The combining and individual nonmajor fund financial statements and the schedule of expenditures of federalawards are the responsibility of management and were derived from and relate directly to the underlying accounting and otherrecords used to prepare the financial statements. The information has been SUbjected to the auditing procedures applied in theaudit of the financial statements and certain additional procedures, including comparing and reconciling such information directly tothe underlying accounting and other records used to prepare the financial statements or to the financial statements themselves,and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In ouropinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.

Sacramento, CAApril 13, 2012

CITY OF RIO DELLMANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE YEAR ENDED JUNE 30, 2011

This section of the City of Rio Dell Annual Financial Statements presents management's analysis of the City's financial performanceduring the fiscal year ending June 30, 2011. This information is presented in conjunction with the audited basic financial statements,which follow this section.

Fiscal Year Ending June 30, 2011 Financial Highlights

The Financial highlights for the Fiscal Year Ending June 30, 2011 demonstrate the City’s continued efforts to provide essentialpublic services to the community, and to replace and repair aging infrastructure.

The City completed the Wildwood Avenue Street Rehabilitation Project totaling over $600,000, as well as the Fireman’s ParkBathroom Project worth just over $215,000. The planning and design phase of the Sewer Effluent and Disposal Project alsocontinued, and the expected upgrade is estimated to cost approximately $13.8 million at the time of completion. The City alsocontinued the Former Eel River Sawmill Brownfield’s Project, and closed the CDBG and HOME low income Housing RehabilitationPrograms.

The City’s continuous infrastructure improvements have resulted in increased expenditures of 29%, and increased Net Assets of$1,223,979. The City also underwent a significant organizational restructuring designed to allow the City to continue to provide corepublic services within the confines of the City’s shrinking revenue budget as related to the State’s budget crisis.

Citywide:

• At June 30, 2011, the City’s net assets totaled $16,994,880, an increase of $1,223,979, from the prior year.

• Combined citywide revenues totaled $4,606,323, including charges for services of $1,679,159, operating grants andcontributions of $428,906, capital grants and contributions of $1,465,079, and general revenues in the amount of$1,033,179.

• Citywide expenses totaled $3,382,344, a 29% increase in comparison to the prior year.

• Long-Term Liabilities decreased by 2%.

Overview of the Annual Financial Report

This Annual Financial Report is in five parts:

1) Management’s Discussion and Analysis (this part)

2) The Basic Financial Statements, which include the government-wide and the fund financial statements

3) Required Supplemental Information

4) Combining Statements for Non-Major Governmental Funds

5) Other Reports

The Basic Financial Statements

The basic financial statements are comprised of (1) the citywide financial statements and (2) the fund financial statements.These two sets of financial statements provide two different views of the City’s financial activities and financial position,long-term and short-term.

The citywide financial statements provide a long-term view of the City’s activities as a whole, and comprise the statementof net assets and the statement of activities. The statement of net assets provides information about the financial positionof the City as a whole, including all its capital assets and long-term liabilities on the full accrual basis, similar to that usedby corporations. The statement of activities provides information about all the City’s revenues and expenses, with theemphasis on measuring net revenues and expenses of each of the City’s programs. The statement of activities explains indetail the change in net assets for the year.

The citywide financial statements group all of the City’s activities into governmental activities and business-type activities,as explained below. All of the amounts in the statement of net assets and the statement of activities are separated intogovernmental activities and business-type activities in order to provide a summary of the activities as a whole.

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The fund financial statements report the City’s operations in more detail than the citywide statements and focus primarilyon the short-term activities of the general fund and other major funds. The fund financial statements measure only currentrevenues and expenditures, current assets, liabilities and fund balances; they exclude capital assets, long-term liabilitiesand other long term amounts.

Major funds account for the major financial activities of the City and are presented individually, while the activities of non-major funds are presented in summary with subordinate schedules presenting the details for each of the other funds.

The City acts solely as a depository agent for various community functions. The fiduciary statements provide informationabout the cash balances and activities of these functions. These statements are separate from, and therefore are areexcluded from the City's financial statements.

Together, these statements are called the basic financial statements.

Citywide Financial Statements

• Governmental activities: All of the City’s basic services are considered to be governmental activities, including generalgovernment, streets and highways, public improvements, planning and zoning, and general administrative and fiscalservices. These services are supported by general City revenues such as taxes, and specific program revenues such asdeveloper fees.

• Business-type Activities: The City’s enterprise activities are reported in the water and sewer funds. These services aresupported by consumption charges paid by users.

• Citywide financial statements are prepared using the full accrual basis.


• Governmental fund financial statements are prepared using the modified accrual basis, recognizing revenues when“measurable and available”. Capital assets and long-term assets and liabilities are presented in the citywide financialstatements only.

• The fund financial statements provide detailed information about each of the City’s most significant funds called majorfunds. The concept of major funds, and the determination of which funds are major funds, was established by GASBStatement 34 and replaces the concept of combining like funds and presenting them in total. Instead, each major fund ispresented individually, with all non-major funds summarized and totaled in a single column. Major funds present the majoractivities of the City for the year. The general fund is always a major fund, but other funds may change from year to yearas a result of changes in the pattern of the City's activities.

• The City has three major funds in 2011: the General Fund, CDBG, and the Street & Transportation Improvement Program.

Fiduciary Financial Statements

The City is the agent for certain community activities for which it collects and disperses cash, and maintains separate cashaccounts. These fiduciary activities are reported in the separate statement of fiduciary net assets. These activities areexcluded from the City’s other financial statements because the City cannot utilize them to finance its own operations.

4



GOVERNMENT-WIDE FINANCIAL ANALYSIS

The comparison of net assets from year to year serves to measure a government’s financial position. As of June 30, 2011,assets exceeded liabilities by $16,994,880 (net assets).

Net AssetsFiscal Year 2010-2011

Governmental Activities Business-Type Activities Total 2011 2010 2011 2010 2011 2010

Current and other assets $ 3,208,338 $ 3,250,475 $ 874,259 $ 1,833,045 $ 4,082,597 $ 5,083,520Capital assets 3,826,240 3,074,245 13,363,878 11,909,183 17,190,118 14,983,428

Total assets 7,034,578 6,324,720 14,238,137 13,742,228 21,272,715 20,066,948

Long-term debt - 30,354 2,582,093 2,952,491 2,582,093 2,982,845Other liabilities 204,185 95,323 1,491,557 1,324,321 1,695,742 1,419,644

Total liabilities 204,185 125,677 4,073,650 4,276,812 4,277,835 4,402,489

Net assets:Invested in capital

assets, net of relateddebt 3,826,240 3,074,245 10,462,703 8,983,667 14,288,943 12,057,912

Restricted for:Community

development 213,037 791,669 - - 213,037 791,669Capital projects 73,160 24,784 - - 73,160 24,784Public safety 75,439 25,914 - - 75,439 25,914Waste reduction 28,118 9,602 - - 28,118 9,602Roads 234,051 79,930 - - 234,051 79,930

Unrestricted 2,380,348 2,192,899 (298,216) 481,749 2,082,132 2,674,648

Total net assets $ 6,830,393 $ 6,199,043 $ 10,164,487 $ 9,465,416 $ 16,994,880 $ 15,664,459

The City's total net assets increased by $1,223,979, or 7% over the prior year primarily resulting from the City’s continuous infrastructure investments.

Governmental activities reported a $631,350 increase in net assets from the prior year. Cash and assets increased by11%, coupled with a 72% increase in accounts payable as compared to the prior year. The City completed the GRANTfunded ARRA Wildwood Avenue Paving Project, and 2002 Park Bond Funded Fireman’s Park Bathroom, which largelyresulted in the increase in assets during the year.

Net assets of the City’s business-type activities increased by $699,071 from the prior year, resulting from continuousinvestments in wastewater infrastructure repairs. The City has continued the planning and design for the upcomingWastewater Treatment and Disposal Project estimated to cost $13.8 million by the time it’s completed in 2013.

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Changes in Net Assets Fiscal Year 2010-2011

Governmental Activities Business-Type Activities Total 2011 2010 2011 2010 2011 2010

Total revenues $ 2,220,287 $ 1,534,422 $ 2,386,036 $ 3,101,959 $ 4,606,323 $ 4,636,381Total expenses 1,695,379 1,367,622 1,686,965 1,256,302 3,382,344 2,623,924

Excess (deficiency) beforetransfers 524,908 166,800 699,071 1,845,657 1,223,979 2,012,457

Change in net assets 524,908 166,800 699,071 1,845,657 1,223,979 2,012,457

Net assets, beginning 6,199,043 6,032,243 9,465,416 7,619,759 15,664,459 13,652,002

Prior period restatement 106,442 - - - 106,442 -

Net assets, restated 6,305,485 6,032,243 9,465,416 7,619,759 15,770,901 13,652,002

Net assets, ending $ 6,830,393 $ 6,199,043 $ 10,164,487 $ 9,465,416 $ 16,994,880 $ 15,664,459

Primary Government Sources of Revenue Fiscal Year 2010-2011Prior Year Comparison

Revenue2011

Revenue2010 Variance % Change

Governmental Activities

Program revenues:Charges for services $ 159,225 $ 179,611 $ (20,386) %(13)Grants - operating 428,906 240,022 188,884 %44Grants - capital 800,865 389,108 411,757 %51

General revenues:Taxes 808,601 705,373 103,228 %13Interest and use of property 19,988 18,768 1,220 %6Miscellaneous 2,702 1,540 1,162 %43

Total governmental revenues 2,220,287 1,534,422 685,865 %31

Business-type Activities

Charges for services 1,519,934 1,423,948 95,986 %6Grants - operating - 925 (925) %-Grants - capital 664,214 1,508,001 (843,787) %(127)Interest and use of property 236 - 236 %100Miscellaneous 201,652 169,085 32,567 %16

Total business-type revenues 2,386,036 3,101,959 (715,923) %(30)

Total Citywide revenues $ 4,606,323 $ 4,636,381 $ (30,058) %(1)

As the statement of activities shows, the three primary revenue sources for the 2011 fiscal year are Grants Capital (32%),Charges for Service (37%), and Taxes (18%). Significant variances are common when comparing revenues from year toyear as a result of fluctuating grant and special program revenues.

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Total Governmental revenues increased by 31% overall. Operating grants increased by 44% primarily resulting fromadditional US EPA Brownfield’s funding to continue testing on the Former Eel River Sawmill Site. Similarly Capital grantsincreased by 51% with the receipt of California Department of Transportation Funds made available for the rehabilitationof Wildwood Avenue, as well as receipt of the City’s Park Bond 2002 Funds for the construction of the Fireman’s ParkBathroom. Taxes also increased from rising sales taxes collected from new business within the City.

Business-type revenues decreased by 30% in comparison to the prior year. Charges for service increased by 6% with thenew rate structure which included new income for capital investments as well as increased operating expenses. CapitalGrants decreased by 127% in conjunction with the completion of the Sewer Solids and Disinfection Management Projectfunded by the State Water Resources Control Board. Overall Citywide revenues declined by 1%.

Primary Government ExpensesFiscal Year 2010-2011Prior Year Comparison

Expenses2011

Expenses2010 Variance % Change

Governmental ActivitiesGeneral government $ 330,646 $ 365,997 $ (35,351) %(11)Public safety 650,547 639,631 10,916 %2Highways and streets 173,073 208,336 (35,263) %(20)Housing and community

development 21,727 114,500 (92,773) %(427)Public services 519,386 39,158 480,228 %92

Total 1,695,379 1,367,622 327,757 %19

Business-type ActivitiesSewer 998,146 763,009 235,137 %24Water 688,819 493,293 195,526 %28

Total 1,686,965 1,256,302 430,663 %26

Total City-wide expenses $ 3,382,344 $ 2,623,924 $ 758,420 %22

Citywide expenditures increased by 22% during the 2010-2011 year. Governmental Expenditures increased by 19%overall. Operational staffing reductions resulted in decreased expenditures in General government, and reduced specialproject grant funding for streets and community development also resulted in expenditure reductions. Public Serviceshowever, reported increased expenditures resulting from the Former Eel River Sawmills Bromfield’s Project as well as theFireman’s Bathroom Project

Business-type Activities reported a 26% increase in expenditures when comparing to the prior year. The City’s continuedplanning and design on the upcoming Sewer Facility and Effluent Disposal Project resulted in increased sewerexpenditures by 24%. The City’s Water funds also experienced expenditure increases of 28% which is resulting fromadditional debt service payments on the Water Infiltration Gallery Project Loan.

7



Financial Analysis of the City’s Funds

The City's governmental funds reported a combined fund balance of $1,681,422 a 7% reduction in comparison to theprior year resulting from the investment of Proposition 1b funds into infrastructure improvements.

The General Fund’s fund balance increased by 132% to $1,059,033 as a result of the transfer of miscellaneous CDBGfunds

The CDBG Fund balance has decreased by 74% leaving a closing balance of $204,341. The reduction in fund balancecan be attributed to the close out of the current CDBG Grant Program, the final expenditure of grant funds, and the finaltransfer of miscellaneous funds to the General Fund.

The City’s Street Transportation Improvement Fund reflects a 72% fund balance reduction resulting from capitalinfrastructure investments in the Safe Routes to School and Wildwood Paving Project.

Other Governmental Funds reported an increased fund balance of 12% in comparison to the prior year

The City’s Sewer Fund Net Assets total $3,226,373, a 20% increase. The Fund’s Net Assets have increased as a resultof the construction in progress on the Wastewater Facility and Effluent Disposal Project. Total Liabilities have increasedby 2% and total $1,554,304 as an additional infrastructure loan was added to the balance sheet during the year.

General Fund Budgetary Highlights

General Fund revenues received totaled $867,929 and were within 11% of annual budget projections for the year.Property taxes increased by 1%, and many of the other revenue types exceeded anticipated funding. Sales Taxesincreased by 70%, TOT Occupancy Taxes increased by 21%, Intergovernmental increased by 238%, and Licenses,Permits, and Franchise Fees also increased by 5%. General Fund Expenditures for the year totaled $834,907; 12% lessthan projected.

Capital Assets

Capital AssetsFiscal Year 2010-2011Prior Year Comparison

Capital Assets2011

Capital Assets2010 Variance % Change

Governmental Activities(Less accumulated depreciation)

Land $ 613,051 $ 378,885 $ 234,166 %38Construction in progress 970 69,212 (68,242) %(7,035)Buildings and improvements 1,344 1,613 (269) %-Equipment 26,416 44,248 (17,832) %(68)Vehicles 20,703 32,294 (11,591) %(56)Streets and roads 953,251 923,173 30,078 %3Infrastructure 2,210,505 1,624,820 585,685 %26

Total $ 3,826,240 $ 3,074,245 $ 751,995 %20

Business-type Activities(Less accumulated depreciation)

Land $ 493,274 $ 252,715 $ 240,559 %49Construction in progress 956,642 11,224,789 (10,268,147) %(1,073)Buildings and improvements 41,652 47,918 (6,266) %(15)Equipment 47,483 106,668 (59,185) %(125)Vehicles 23,015 14,416 8,599 %37Infrastructure 11,801,812 262,677 11,539,135 %98

Total $ 13,363,878 $ 11,909,183 $ 1,454,695 %11

8



The City experienced the following changes within its capital assets during the 2010-2011 fiscal-year:

Governmental Activities:

• Completed the Fireman’s Park Project which resulted in increased land Assets of 38%.

• Construction in Progress was reduced as a result of the transfer of Assets into the Streets andRoads.

• The City added nearly $20k to total vehicle capital assets; two service vehicles for the Public WorksDepartment and two patrol vehicles for the Police Department.

Business-Type Activities:

• Equipment decreased by 125% primarily due to depreciation expense.

• Improvements were made at the Corporation Yard including new fencing that reflects a 15% changein Buildings and Improvements.

• Infrastructure Capital Assets increased by 98% from the transfer of assets from construction inprogress.

Long-Term Liabilities

Long-Term LiabilitiesFiscal Year 2010-2011Prior Year Comparison

Long-TermLiabilities

2011

Long-TermLiabilities

2010 Variance % ChangeGovernmental Activities

Compensated absences $ 15,334 $ 30,354 $ (15,020) %(98)

Total $ 15,334 $ 30,354 $ (15,020) %(98)

Business-type ActivitiesDHS Infiltration Gallery Loan $ 2,448,000 $ 2,652,000 $ (204,000) %-FMHA Sewer Assessment Bonds 180,000 200,000 (20,000) %(11)RCAC Sewer Planning Loan 214,879 - 214,879 %100Capital leases 58,296 73,516 (15,220) %-Compensated absences 16,051 26,975 (10,924) %(68)

Total $ 2,917,226 $ 2,952,491 $ (35,265) %(1)

Governmental Activities:

• Compensated absences decreased by 98% as the result of a contact change reducing the maximumamount of paid time off accruals which triggered a one-time payout to reduce liabilities.

9



Business-Type Activities:

• Activity within the business type activity long term liabilities was relatively insignificant with theexception of the addition of the RCAC Sewer Planning Loan acquired to continue the planning anddesign of the Sewer Facility and Effluent Disposal Project. All other activity was related to regularlyscheduled debt service payments.

• Compensated absences decreased by 87% and like the governmental activities are the result of acontract change reducing the maximum amount of paid time off accruals which resulted in a one-timepayout to reduce liabilities. .

Significant Economic Factors and Next Years Budget and Rates

The California State budget crisis and slow economic recovery continue to have an effect on the City’s ability to operate inthe black each year. Many of the City’s State subventions are subject to potential elimination each year during the State’sBudget Development Process, so the City has made several significant operational changes to ensure the City cancontinue to operate in their absence.

The City has evaluated core services and adopted an organizational structure that will streamline costs and continue toprovide essential public services without the use of reserves. Utility rates have been increased to continue much neededinfrastructure improvements in the community, and evaluation of revenue enhancing ballot measures will also be fundedduring the next budget cycle.

Contacting the City’s Financial Management

This financial report is designed to provide our citizens, taxpayers, customers, investors and creditors with a generaloverview of the City’s finances and to demonstrate the City’s accountability for the money it receives. If you havequestions about this report or need additional financial information, contact the City of Rio Dell Finance Department at675 Wildwood Ave, Rio Dell, California 95562, (707)764-3532, or [email protected].

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CITY OF RIO DELLSTATEMENT OF NET ASSETS

JUNE 30, 2011

GovernmentalActivities

Business-TypeActivities Totals

ASSETS

Cash and investments (Note 2) $ 538,141 $ 312,259 $ 850,400Accounts receivable 108,570 181,436 290,006Grants receivable 174,148 200,564 374,712Internal balances 1,044,571 (1,044,571) -Notes receivable (Note 4) 1,342,908 - 1,342,908Assessments receivable - 180,000 180,000Capital assets, net (Note 3) 3,826,240 13,363,878 17,190,118

TOTAL ASSETS 7,034,578 13,193,566 20,228,144

LIABILITIES

Accounts payable 144,718 84,236 228,954Accrued expenses 43,490 1,424 44,914Customer deposits 643 26,193 26,836Accrued compensated absences (Note 6):

Due within one year 15,334 16,051 31,385Long-term liabilities (Note 6):

Due within one year - 387,082 387,082Due in more than one year - 2,514,093 2,514,093

TOTAL LIABILITIES 204,185 3,029,079 3,233,264

NET ASSETS

Invested in capital assets, net of related debt 3,826,240 10,462,703 14,288,943Restricted for:

Community development 213,037 - 213,037Capital projects 73,160 - 73,160Public safety 75,439 - 75,439Waste reduction 28,118 - 28,118Roads 234,051 - 234,051

Unrestricted 2,380,348 (298,216) 2,082,132

TOTAL NET ASSETS $ 6,830,393 $ 10,164,487 $ 16,994,880

See accompanying notes to the basic financial statements.11

CITY OF RIO DELLSTATEMENT OF ACTIVITIES


Program RevenuesNet (Expense) Revenue and

Changes in Net Assets

Primary Government

Functions/Programs ExpensesCharges for

Services

OperatingGrants and

Contributions

Capital Grants and

ContributionsGovernmental

ActivitiesBusiness-type

Activities Total

PRIMARY GOVERNMENTGovernmental activities:

General government $ 330,646 $ 16,400 $ - $ - $ (314,246) $ - $ (314,246)Public safety 650,547 2,242 144,078 - (504,227) - (504,227)Highways and streets 173,073 27,437 - 593,528 447,892 - 447,892Housing and community development 21,727 24,426 5,111 - 7,810 - 7,810Public services 519,386 88,720 279,717 207,337 56,388 - 56,388

Total government activities 1,695,379 159,225 428,906 800,865 (306,383) - (306,383)

Business-type activities:Sewer 998,146 943,618 - 664,214 - 609,686 609,686Water 688,819 576,316 - - - (112,503) (112,503)

Total business-type activities 1,686,965 1,519,934 - 664,214 - 497,183 497,183

Total primary government $ 3,382,344 $ 1,679,159 $ 428,906 $ 1,465,079 $ (306,383) $ 497,183 $ 190,800

General revenues:Taxes:

Property $ 437,386 $ - $ 437,386Sales 177,634 - 177,634Occupancy 11,951 - 11,951Gas 181,630 - 181,630

Interest and use of property 19,988 236 20,224Miscellaneous 2,702 201,652 204,354

Total General Revenues 831,291 201,888 1,033,179

Change in Net Assets 524,908 699,071 1,223,979

NET ASSETS, JULY 1, 2010 6,199,043 9,465,416 15,664,459

Prior period restatement (Note 12) 106,442 - 106,442

NET ASSETS, RESTATED JULY 1, 2010 6,305,485 9,465,416 15,770,901

NET ASSETS, JUNE 30, 2011 $ 6,830,393 $ 10,164,487 $ 16,994,880


CITY OF RIO DELLBALANCE SHEET

GOVERNMENTAL FUNDSJUNE 30, 2011

General Fund CDBG

Street &TransportationImprovement

Program

OtherGovernmental

Funds TotalsASSETS

Cash and investments $ 22,736 $ 217,631 $ - $ 297,774 $ 538,141Accounts receivable 81,574 - - 26,996 108,570Grants receivable 24,978 - 106,442 42,728 174,148Due from other funds 1,098,104 - - 33,876 1,131,980Notes receivable - 1,342,908 - - 1,342,908

TOTAL ASSETS $ 1,227,392 $ 1,560,539 $ 106,442 $ 401,374 $ 3,295,747

LIABILITIES AND FUND BALANCES

LIABILITIES

Accounts payable $ 124,226 $ - $ 2,951 $ 17,541 $ 144,718Due to other funds - 18,133 31,747 37,529 87,409Accrued expenses 43,490 - - - 43,490Deferred revenue - 1,338,065 - - 1,338,065Notes payable 643 - - - 643

TOTAL LIABILITIES 168,359 1,356,198 34,698 55,070 1,614,325

FUND BALANCES (DEFICITS)

Restricted - 204,341 71,744 346,304 622,389Commited 25,000 - - - 25,000Unassigned 1,034,033 - - - 1,034,033

TOTAL FUND BALANCES 1,059,033 204,341 71,744 346,304 1,681,422

TOTAL LIABILITIES ANDFUND BALANCES $ 1,227,392 $ 1,560,539 $ 106,442 $ 401,374 $ 3,295,747


CITY OF RIO DELLRECONCILIATION OF THE GOVERNMENTAL BALANCE SHEET

TO THE STATEMENT OF NET ASSETS - GOVERNMENTAL FUNDS JUNE 30, 2011

Fund balance - total governmental funds $ 1,681,422

Capital assets used in governmental activities are not financial resources and therefore are not reportedin the funds, net of accumulated depreciation of $848,071. 3,826,240

Revenues which are deferred on the Governmental Funds Balance Sheet because they are not availablecurrently are taken into revenue in the Statement of Activities. 1,338,065

Long term liabilities are not due and payable in the current period and therefore are not reported in thefunds

Compensated Absences (15,334)

NET ASSETS OF GOVERNMENTAL ACTIVITIES $ 6,830,393


CITY OF RIO DELLSTATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES

GOVERNMENTAL FUNDSFOR THE YEAR ENDED JUNE 30, 2011

GeneralFund CDBG

Street &Tran-

sportationImprove-

mentProgram

OtherGovern-mentalFunds Totals

REVENUESTaxes:

Property $ 437,386 $ - $ - $ - $ 437,386Sales 177,634 - - - 177,634Occupancy 11,951 - - - 11,951Gas 5,813 - - 175,817 181,630

Intergovernmental 58,545 7,949 577,026 586,251 1,229,771Licenses, permits, and franchise fees 156,566 - - 12,001 168,567Interest and use of property 18,464 1,389 8 112 19,973Miscellaneous 1,570 - - 1,132 2,702

Total Revenues 867,929 9,338 577,034 775,313 2,229,614

EXPENDITURESCurrent operations:

General government 240,403 - - - 240,403Public safety 536,084 - - 111,181 647,265Highways and streets - - 27,191 134,105 161,296Housing and community development - 4,047 - 17,680 21,727Public services - - - 277,011 277,011

Capital outlay 58,420 - 836,933 219,339 1,114,692

Total Expenditures 834,907 4,047 864,124 759,316 2,462,394

Excess (Deficiency) of Revenuesover (under) Expenditures 33,022 5,291 (287,090) 15,997 (232,780)

OTHER FINANCING SOURCES (USES)Operating transfers in 593,066 - - 22,711 615,777Operating transfers out (22,650) (592,619) - (508) (615,777)

Total Other Financing Sources (Uses) 570,416 (592,619) - 22,203 -

Net Change in Fund Balance 603,438 (587,328) (287,090) 38,200 (232,780)

FUND BALANCE, JULY 1, 2010 455,595 791,669 252,392 308,104 1,807,760

PRIOR PERIOD RESTATEMENT (NOTE 12) - - 106,442 - 106,442

FUND BALANCE, JULY 1, 2010 (RESTATED) 455,595 791,669 358,834 308,104 1,914,202

FUND BALANCE, JUNE 30, 2011 $ 1,059,033 $ 204,341 $ 71,744 $ 346,304 $ 1,681,422


CITY OF RIO DELLRECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES

TO THE STATEMENT OF ACTIVITIESGOVERNMENTAL FUNDS


Reconciliation of the change in fund balances - total governmental funds to the change in net assets ofgovernmental activities:

Net change in fund balances - total governmental funds $ (232,780)

Governmental funds report capital outlays as expenditures while governmental activities reportdepreciation as expense to allocate those expenditures over the life of the assets:

Capital asset purchases 849,600Depreciation expense (97,605)

Revenues in the Statement of Activities that do not provide current financial resources are not reported asrevenues in the funds:

Change in deferred revenue (9,327)

Some expenses reported in the Statement of Activities do not require the use of current financial resourcesand therefore are not reported as expenditures in governmental funds:

Change in compensated absences 15,020

CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES $ 524,908



PROPRIETARY FUNDSJUNE 30, 2011

Sewer Fund Water Fund Totals

ASSETS

Current assets:Cash and cash equivalents $ 123,290 $ 188,969 $ 312,259Accounts receivable 117,602 63,834 181,436Grants receivable 200,564 - 200,564Assessments receivable, current portion 20,000 - 20,000

Total Current Assets 461,456 252,803 714,259

Long-term assets:Assessments receivable, net of current portion 160,000 - 160,000

Capital assets:Construction in progress 956,642 - 956,642Land 493,274 - 493,274Buildings & improvements 8,310 134,520 142,830Infrastructure 2,750,571 9,495,525 12,246,096Machinery, vehicles & equipment 284,358 696,345 980,703Less: accumulated depreciation (333,934) (1,121,733) (1,455,667)

Capital assets, net 4,159,221 9,204,657 13,363,878

Total Long-Term Assets 4,319,221 9,204,657 13,523,878

TOTAL ASSETS $ 4,780,677 $ 9,457,460 $ 14,238,137

LIABILITIES

Current liabilities:Accounts payable $ 63,526 $ 20,710 $ 84,236Accrued interest 712 712 1,424Due to other funds 1,044,571 - 1,044,571Customer deposits 12,341 13,852 26,193Accrued compensated absences 9,127 6,924 16,051Current portion of long-term liabilities 242,980 144,102 387,082

Total Current Liabilities 1,373,257 186,300 1,559,557

Long-term liabilities:Notes and bonds payable 181,047 2,333,046 2,514,093

TOTAL LIABILITIES 1,554,304 2,519,346 4,073,650

NET ASSETS

Invested in capital assets, net of related debt 3,735,194 6,727,509 10,462,703Unrestricted (508,821) 210,605 (298,216)

TOTAL NET ASSETS 3,226,373 6,938,114 10,164,487

TOTAL LIABILITIES AND NET ASSETS $ 4,780,677 $ 9,457,460 $ 14,238,137


CITY OF RIO DELLSTATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS


Sewer Fund Water Fund Totals

OPERATING REVENUES

Sale of water $ - $ 550,651 $ 550,651Service fees 926,286 3,833 930,119Grant revenue 664,214 - 664,214Connection fees 3,250 5,225 8,475Late fees 14,082 16,607 30,689Other revenue 128,149 72,912 201,061

Total Operating Revenues 1,735,981 649,228 2,385,209

OPERATING EXPENSES

Personnel 424,783 273,417 698,200Insurance 12,750 9,626 22,376Utilities 57,532 53,235 110,767Maintenance and operations 350,472 136,929 487,401Depreciation 129,054 214,736 343,790

Total Operating Expenses 974,591 687,943 1,662,534

Operating Income/(Loss) 761,390 (38,715) 722,675

NON-OPERATING REVENUES (EXPENSES)

Miscellaneous 591 - 591Interest income 190 46 236Interest expense (23,555) (876) (24,431)

Total Non-Operating Revenues (Expenses) (22,774) (830) (23,604)

Change in Net Assets 738,616 (39,545) 699,071

NET ASSETS, JULY 1, 2010 2,487,757 6,977,659 9,465,416

NET ASSETS, JUNE 30, 2011 $ 3,226,373 $ 6,938,114 $ 10,164,487


CITY OF RIO DELLSTATEMENT OF CASH FLOWS


Sewer Water Totals

CASH FLOWS FROM OPERATING ACTIVITIES

Cash received from customers $ 1,076,539 $ 660,735 $ 1,737,274Cash received from governments 1,566,001 243,789 1,809,790Cash paid to suppliers (1,020,527) (214,003) (1,234,530)Cash paid to employees (429,996) (279,128) (709,124)

Net Cash Provided by Operating Activities 1,192,017 411,393 1,603,410

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES

Cash received from other funds 883,552 - 883,552Cash paid to other funds (436,130) - (436,130)

Net Cash Provided by Noncapital Financing Activities 447,422 - 447,422

CASH FLOWS FROM CAPITAL AND RELATED FINANCINGACTIVITIES

Acquisition of fixed assets (1,785,790) (12,695) (1,798,485)Proceeds from sale of capital assets 591 - 591Proceeds from debt issuance 255,013 - 255,013Principal paid on debt (67,744) (211,610) (279,354)Interest payments on debt (23,850) (711) (24,561)

Net Cash Used for Capital and Related FinancingActivities (1,621,780) (225,016) (1,846,796)

CASH FLOWS FROM INVESTING ACTIVITIES

Interest on cash and investments 237 - 237

Net Cash Provided by Investing Activities 237 - 237

Net Increase in Cash and Cash Equivalents 17,896 186,377 204,273

CASH AND CASH EQUIVALENTS, JULY 1, 2010 105,394 2,592 107,986

CASH AND CASH EQUIVALENTS, JUNE 30, 2011 $ 123,290 $ 188,969 $ 312,259


CITY OF RIO DELLSTATEMENT OF CASH FLOWS (Continued)


RECONCILIATION OF OPERATING INCOME (LOSS) TO NETCASH PROVIDED BY OPERATING ACTIVITIES

Sewer Water Totals

Operating Income (loss) $ 761,390 $ (38,715) $ 722,675

Adjustment to reconcile operating income (loss) to net cash providedby operating activities:

Depreciation expense 129,054 214,736 343,790

Changes in assets and liabilities(Increase) decrease in accounts receivable (15,186) 12,095 (3,091)(Increase) decrease in grants receivable 901,787 243,789 1,145,576(Increase) decrease in assessments receivable 20,000 - 20,000(Increase) decrease in prepaid expenses 320 (207) 113Increase (decrease) in accounts payable and accrued expenses (600,093) (14,006) (614,099)Increase (decrease) in compensated absences (5,213) (5,711) (10,924)Increase (decrease) in deposits payable (42) (588) (630)

Net Cash Provided by Operating Activities $ 1,192,017 $ 411,393 $ 1,603,410



FIDUCIARY FUNDSJUNE 30, 2011

AgencyFunds

ASSETS

Current assets

Cash (Note 2) $ 4,425

Total Assets $ 4,425

LIABILITIES

Current liabilities

Deposits in trust $ 4,425

Total Liabilities $ 4,425


CITY OF RIO DELLNOTES TO FINANCIAL STATEMENTS

JUNE 30, 2011

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. The Reporting Entity

The City of Rio Dell was incorporated under the laws of the State of California on February 26, 1965. The City operates under aCouncil-Manager form of government and is governed by five elected city council members. The City provides the following servicesas authorized by its charter: public safety (police), streets and highways, public improvements, land use, building and housingstandards, utilities (water and sewer), and administrative and fiscal services.

The financial statements of the City have been prepared in conformity with general accepted accounting principles (GAAP). TheGovernmental Accounting Standards Board (GASB) is responsible for establishing GAAP for state and local governments throughits pronouncements (Statements and Interpretations). Governments are also required to follow the pronouncements of the FinancialAccounting Standards Board (FASB) issued through November 30, 1989 (when applicable) that do not conflict with or contradictGASB pronouncements. Although the City has the option to apply FASB pronouncements issued after that date to its business-typeactivities and enterprise funds, the City has chosen not to do so. The accounting and reporting framework and the more significantaccounting policies are discussed in subsequent subsections of this note.

The accounting methods and procedures adopted by the City conform to generally accepted accounting principles as applied togovernment entities. These financial statements present the government and its component units, entities for which the governmentis considered to be financially accountable under the criteria set by Governmental Accounting Standards Board (GASB) StatementNo. 14. No component units were determined to exist and therefore are not included in the financial statements.

Joint Powers Authorities

Excluded from the reporting entity were the following joint powers authorities in which the City of Rio Dell participates:

Humboldt Transit Authority

Humboldt Transit Authority (HTA) was created as a separate legal entity by a joint powers agreement between Humboldt Countyand the Cities of Fortuna, Eureka, Arcata, Trinidad, and Rio Dell. The governing board consists of a city council member and analternate member appointed from each participating city, as well as two board members and up to two alternate members appointedby the Humboldt County Board of Supervisors. HTA is responsible for adopting its own budget and has the power to incur debts,liabilities, or other obligations. On commencement of operations of HTA, the County contributed 50 percent of the initial equity, andthe participating cities jointly contributed 50 percent based upon population data. The participants do not have an ongoing equityinterest in HTA. However, the participants do share operating costs of HTA, and the current share of the City of Rio Dell is 2.8percent. During the year ended June 30, 2011, the City paid HTA $30,229. At termination of the agreement, all surplus monies willbe returned to the participants in proportion to the amounts received and property shall be divided in a manner agreed upon by theparties. Complete financial statements for Humboldt Transit Authority may be obtained at the offices of the Authority at 133 V Street,Eureka, California 95501.

Hazardous Materials Response Authority

Hazardous Materials Response Authority (HMRA) was created as a separate legal entity by a joint powers agreement between theCounty of Humboldt, the County of Del Norte, and Cities of Eureka, Crescent City, Arcata, Blue Lake, Fortuna, Trinidad, and RioDell. (The City of Ferndale withdrew from the agreement during 1994-1995). The purpose of this joint venture is to pool resources ofthe participants to provide a united, coordinated, orderly, positive, and more effective means of aiding and assisting in theformulation, administration, implementation and maintenance of an area-wide hazardous materials response team.

HMRA is governed by a board of directors comprised of one member and an alternate appointed by each participant. It adopts itsown budget and has the powers to incur debts, liabilities, or obligations. The City of Eureka is responsible for directing theoperations of Hazardous Materials Response Teams and for the accounting of HMRA, and in return HMRA reimburses the City ofEureka for the costs of operation and accounting services. Upon commencement of HMRA, the participants agreed to contribute aproportionate share of the cost of operations based on population. The participants do not have an ongoing equity interest in HMRA.However, the participants do share the operating costs on HMRA, and the current share of the City of Rio Dell is 1.9 percent, basedon population. During the year ended June 30, 2011, the City paid HMRA $1,298. At termination of the agreement, all surplusmonies will be returned to the participants in proportion of the amounts received by HMRA; property shall be divided in a manneragreed upon by the participants. Complete financial statements of HMRA are on file at the offices of the City of Eureka at 531 KStreet, Eureka, California 95501.

Redwood Region Economic Development Commission

Redwood Region Economic Development Commission (RREDC) was established on November 1, 1977, under a Joint Exercise ofPowers Agreement among the nineteen public agencies within Humboldt County, including the City of Rio Dell. RREDC is aseparate public entity created to aid, assist, and coordinate the formulation, administration, and the implementation of the Economic

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JUNE 30, 2011

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Development Action Plan and Strategy for Humboldt County, and to assist in the implementation of economic development projectsand programs to improve the quality of life in the area. RREDC is governed by one member and an alternate appointed by eachparticipant. Complete financial statements for RREDC are on file at the offices of RREDC at 520 E Street, Eureka, California 95001.

B. Basis of Presentation The City's basic financial statements include both government-wide and fund financial statements. Both the government-wide andfund financial statements categorize primary activities as either governmental or business type. The City's police, recreation, andgeneral and administrative services are classified as governmental activities. The City's sewer and water services are classified asbusiness-type activities.

Government-wide Financial Statements:

The statement of net assets and statement of activities display information about the reporting government as a whole. They includeall funds of the reporting entity except for fiduciary funds. The statements distinguish between governmental and business-typeactivities. The City's net assets are reported in three parts - invested in capital assets, net of related debt; restricted net assets; andunrestricted net assets. The City first utilizes restricted resources to finance qualifying activities. Governmental activities generallyare financed through taxes, intergovernmental revenues, and other nonexchange revenues. Business-type activities are financed inwhole or in part by fees charged to external parties for goods or services. Program revenues must be directly associated with thefunction (police, public works, etc.) or a business type activity. Operating grants include operating-specific and discretionary (eitheroperating or capital) grants while the capital grants column reflects capital-specific grants.

The statement of activities presents a comparison between direct expenses and program revenues for each segment of thebusiness-type activities of the City and for each function of the City's governmental activities. Direct expenses are those that arespecifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Program revenuesinclude (a) charges paid by the recipients of goods or services offered by the programs, (b) grants and contributions that arerestricted to meeting the operational needs of a particular program and (c) fees, grants and contributions that are restricted tofinancing the acquisition or construction of capital assets. Revenues that are not classified as program revenues, including all taxes,are presented as general revenues.

Certain eliminations have been made as prescribed by GASB Statement No. 34 in regards to interfund activities, payables andreceivables. All internal balances in the Statement of Net Assets have been eliminated except those representing balances betweenthe governmental activities and the business-type activities, which are presented as internal balances and eliminated in the totalprimary government column.

Fund Financial Statements:

Fund financial statements of the reporting entity are organized into funds, each of which is considered to be a separate accountingentity. Each fund is accounted for by providing a separate set of self-balancing accounts that constitute its assets, liabilities, fundequity, revenues and expenditure/expenses. Funds are organized into three major categories: governmental, proprietary, andfiduciary. An emphasis is placed on major funds within the governmental and proprietary categories. A fund is considered major if itis the primary operating fund of the City or meets the following criteria:

a. Total assets, liabilities, revenues or expenditures/expenses of that individual governmental or enterprise fund are at least 10percent of the corresponding total for all funds of that category or type; and

b. Total assets, liabilities, revenues, or expenditures/expenses of the individual governmental fund or enterprise fund are at least5 percent of the corresponding total for all governmental and enterprise funds combined.

Nonmajor funds are combined in a single column in the fund financial statements.

The City reported the following major governmental funds in the accompanying financial statements:

General Fund - The General Fund is the general operating fund of the City and is always classified as a major fund. It is used toaccount for all activities except those legally or administratively required to be accounted for in other funds.

CDBG - The CDBG Fund is used to account for the transactions involving the Community Development Block Grant funding.

Street & Transportation Improvement Program (STIP) - The STIP Fund is used to account for the Street & TransportationImprovement Program grant funding.

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JUNE 30, 2011


The City reported the following major proprietary funds in the accompanying financial statements:

Sewer - The Sewer fund is used to account for the operation and maintenance of the City's wastewater collection system andtreatment facility.

Water - The Water fund is used to account for the operation and maintenance of the City's water distribution system.

The funds of the financial reporting entity are described below:

Governmental Funds

General Fund - The General Fund is the general operating fund of the City and is always classified as a major fund. It is used toaccount for all activities except those legally or administratively required to be accounted for in other funds.

Special Revenue Funds - Special Revenue Funds are used to account for and report the proceeds of specific revenue sources thatare restricted or committed to expenditures for specified purposes other than debt service or capital projects.

Proprietary Funds

Enterprise Funds - Enterprise Funds are used to account for business-like activities provided to the general public. These activitiesare financed primarily by user charges and the measurement of financial activity focuses on net income measurement similar to theprivate sector.

Fiduciary Funds (not included in government-wide statements)

Agency Fund - Agency Funds are clearing type funds for the collection of taxes or deposits held in trust, on behalf of individuals,private organizations and other governments. The funds are custodial in nature (assets equal liabilities) and do not involvemeasurement of results of operations.

C. Measurement Focus and Basis of Accounting

Measurement focus is a term used to describe "which" transactions are recorded within the various financial statements. Basis ofaccounting refers to "when" revenues and expenditures or expenses are recognized in the accounts and reported in the financialstatements regardless of the measurement focus applied.

Measurement Focus

On the government-wide Statement of Net Assets and the Statement of Activities, both governmental and business-like activities arepresented using the economic resources measurement focus as defined in item b. below.

In the fund financial statements, the "current financial resources" measurement focus or the "economic resources" measurementfocus is used as appropriate:

a. All Governmental Funds are accounted for using a "current financial resources" measurement focus. With this measurementfocus, only current assets and current liabilities generally are included on their balance sheets. Their operating statementspresent sources and uses of available expendable financial resources during a given period. These funds use fund balance astheir measure of available expendable financial resources at the end of the period.

b. All Proprietary Funds utilize an "economic resources" measurement focus. The accounting objectives of this measurementfocus are the determination of operating income, changes in net assets (or cost recovery), financial position, and cash flows.All assets and all liabilities (whether current or noncurrent) associated with the operation of these funds are reported.Proprietary fund equity is classified as net assets.

c. Agency funds are not involved in the measurement of results of operations; therefore, measurement focus is not applicable tothem.

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JUNE 30, 2011


Basis of Accounting

In the government-wide Statement of Net Assets and Statement of Activities, both governmental and business-type activities arepresented using the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned andexpenses are recorded when the liability is incurred or economic asset used. Revenues, expenses, gains, losses, assets andliabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place.

In the fund financial statements, governmental funds are presented on the modified accrual basis of accounting. Under this modifiedaccrual basis of accounting, revenues are recognized when "measurable and available". Measurable means knowing or being ableto reasonably estimate the amount. Available means collectible within the current period or soon enough thereafter to pay currentliabilities. The City defines available to be within 60 days of year-end. Expenditures (including capital outlay) are recorded when therelated fund liability is incurred, except for general obligation bond principal and interest which are reported when due. Governmentalcapital asset acquisitions are reported as expenditures in the governmental funds. Proceeds from governmental long-term liabilitiesand acquisitions under capital leases are reported as other financing sources.

All proprietary funds utilize the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized whenearned and expenses are recorded when the liability is incurred or economic asset used.

D. Cash and Investments

The City maintains a cash and investment pool that is available for use by all funds. Each fund type's portion of this pool is displayedon the combined balance sheet as cash and investments.

Interest income earned on pooled cash and investments is allocated monthly to the various funds based on month-end balancesand is adjusted at fiscal year-end.

For purposes of the statement of cash flows, the proprietary funds consider all highly liquid investments with a maturity of threemonths or less and pooled cash when purchased to be cash equivalents.

E. Inventory

The City does not record an inventory of expendable supplies. The cost is recorded as an expenditure at the time individualinventory items are purchased. Any amounts on hand at June 30, 2011 were not material.

F. Receivables

In the government-wide statements, receivables consist of all revenues earned at year-end and not yet received. Receivables arerecorded in the financial statements net of any allowance for doubtful accounts. Any doubtful accounts at June 30, 2011, were notconsidered material. Major receivable balances for the governmental activities include sales and use taxes, franchise taxes, grants,police fines and other fees. Business-type activities report utilities and interest earnings as their major receivables.

In the fund financial statements, material receivables in governmental funds include revenue accruals such as sales tax, franchisetax, grants and other similar intergovernmental revenues since they are usually both measurable and available. Nonexchangetransactions collectible but not available are deferred in the fund financial statements in accordance with modified accrual, but notdeferred in the government-wide financial statements in accordance with the accrual basis. Interest and investment earnings arerecorded when earned only if paid within 60 days since they would be considered both measurable and available. Proprietary fundmaterial receivables consist of all revenues earned at year-end and not yet received. Utility accounts receivable and interestearnings compose the majority of proprietary fund receivables. Any doubtful accounts at June 30, 2011, were not consideredmaterial.

G. Capital Assets

The accounting treatment over property, plant and equipment depends on whether the assets are used in governmental fundoperations or proprietary fund operations and whether they are reported in the government-wide or fund financial statements.

Government-wide Statements

In the government-wide financial statements, capital assets with a historical cost over $5,000 are accounted for as capital assets. Allcapital assets are valued at historical cost, or estimated historical cost if actual is unavailable, except for donated fixed assets whichare recorded at their estimated fair value at the date of donation. Estimated historical cost was used to value the majority of theassets.

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JUNE 30, 2011


Depreciation of all exhaustible capital assets is recorded as an allocated expense in the Statement of Activities, with accumulateddepreciation reflected in the Statement of Net Assets. Depreciation is provided over the assets' estimated useful lives using thestraight-line method of depreciation. The range of estimated useful lives by type of asset is as follows:

Buildings 30 yearsImprovements 30 yearsEquipment 7 yearsVehicles 7 yearsInfrastructure 50 yearsRoads 50 years


In the fund financial statements, capital assets used in governmental fund operations are accounted for as capital outlayexpenditures of the governmental fund upon acquisition. Capital assets used in proprietary fund operations are accounted for thesame as in the government-wide statements.

H. Accumulated Compensated Absences

It is the City's policy to permit employees to accrue earned but unused vacation, which will be paid to employees upon separationfrom the City. Sick leave is accrued and paid out upon separation from the City to those employees with at least 5 years of service.Sick leave accrues based on a percentage of the employee's term. The liability for these compensated absences is recorded aslong-term debt in the government-wide statements. In governmental funds, the cost of vacation and sick leave is recognized whenpayments are made to employees, while proprietary funds report the liability as it is incurred.

I. Long Term Liabilities

In the government-wide financial statements and the proprietary fund financial statements, long-term liabilities, and other long termobligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund typestatement of net assets. Initial issue bond premiums and discounts, as well as issuance costs, are deferred and amortized over thelife of the bonds using the straight-line method. The difference between the reacquisition price of refunding bonds and the netcarrying amount of refunded debt (deferred amount on refunding) is amortized over the shorter of the lives of the refunding debt orremaining life of the refunded debt. Bond issuance costs, including deferred refunding amounts and underwriters' discounts, arereported as deferred bond issuance costs. Amortization of bond premiums or discounts, issuance costs, and deferred amounts onrefunding is included in interest expense.

In the fund financial statements, governmental fund types recognize bond premiums, discounts, and issuance costs during theperiod issued. The face amount of debt issued is reported as other financing sources. Premiums received are reported as otherfinancing sources, while discounts are reported as other financing uses. Issuance costs, whether or not withheld from the actualdebt proceeds received, are reported as debt service expenditures.

J. Interfund Transactions

Following is a description of the three basic types of interfund transactions made during the year and the related accounting policies:

1. Interfund services provided and used - transactions for services rendered or facilities provided. These transactions arerecorded as revenues in the receiving fund and expenditures in the disbursing fund.

2. Reimbursements (expenditure transfers) - transactions to reimburse a fund for specific expenditures incurred for the benefit ofanother fund. These transactions are recorded as expenditures in the disbursing fund and a reduction of expenditures in thereceiving fund.

3. Operating transfers - all other interfund transactions which allocate resources from one fund to another fund. Thesetransactions are recorded as operating transfers in and out.

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JUNE 30, 2011


K. Equity Classifications

Government-wide Statements

Equity is classified as net assets and displayed in three components:

a. Invested in capital assets, net of related debt - Consists of capital assets including restricted capital assets, net ofaccumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes or other borrowings thatare attributable to the acquisition, construction, or improvement of those assets.

b. Restricted net assets - Consists of net assets with constraints place on the use either by (1) external groups such ascreditors, grantors, contributors, or laws or regulations of other governments; or (2) law through constitutional provisions orenabling legislation.

c. Unrestricted net assets - All other net assets that do not meet the definition of "restricted" or "invested in capital assets, net ofrelated debt".

Fund Statements

Governmental fund equity is classified as fund balance. The governmental fund financial statements present fund balances basedon classifications that comprise a hierarchy that is based primarily on the extent to which the City is bound to honor constraints onthe specific purposes for which amounts in the respective governmental funds can be spent. The classifications used in thegovernmental fund financial statements are as follows:

• Nonspendable - Amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractuallyrequired to be maintained intact.

• Restricted - Amounts that are restricted for specific purposes when constraints placed on the use of resources are either (a)externally imposed by creditors, grantors, contributors, laws, or regulations of other governments; or (b) imposed by law throughconstitutional provisions or enabling legislation.

• Committed - Amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of thegovernment's highest level of decision-making authority.

• Assigned - Amounts that are constrained by the government's intent to be used for specific purposes, but are neither restrictedor committed.

• Unassigned - Amounts representing the residual classification for the general fund.

Further detail about the City's fund balance classification is described in Note 11.

L. Property Tax Revenues

The lien date for secured property taxes is March 1 of each year. Taxes are levied as of July 1 on all secured real property and aredue and payable on November 1 and February 1 of the following fiscal year. Humboldt County is responsible for assessing,collecting, and distributing property taxes in accordance with enabling legislation.

Since the passage of California Proposition 13, beginning with fiscal year 1978-79, taxes are based either on a 1% rate applied tothe 1975-76 assessed value of the property, or on 1% of the sales price of the property on sales transactions and construction whichoccur after the 1975-76 assessment. Assessed values on properties (exclusive of increases related to sales transactions andimprovements) can rise at a maximum of 2% per year. The amount collected by the County is distributed in accordance with Statelaw to the various public agencies. Therefore, the City does not levy a specific tax rate but receives a share of the property taxrevenue based on a State formula. The City's tax rate is $1.00/$100 of assessed value, the maximum allowable under Proposition13.

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JUNE 30, 2011


During fiscal year 1993-94, the State passed legislation which permanently shifted an additional amount of property taxes from citiesto schools. This amount was partially offset by one-time payments by the State to cities from the State "Transportation Planning andDevelopment" amount. Also during 1993-94, an alternate method of property tax allocation ( the "Teeter Plan") was adopted. Underthis plan, the City receives 100 percent of the secured property tax levied to which it is entitled, whether or not collected. Unsecureddelinquent taxes are considered fully collectible and no allowance for uncollectible taxes is provided. Property tax revenues arerecognized when they become available. "Available" means due, or past due, and receivable within the current period and collectedor expected to be collected soon enough thereafter to be used to pay liabilities for the current period. This period is 60 days from theend of the fiscal year.

M. Grant Revenues

Certain grant revenues are recognized when specific related expenditures have been incurred. In other grant programs, monies arevirtually unrestricted as to purpose of expenditure and are only revocable for failure to comply with prescribed compliancerequirements. These revenues are recognized at the time of receipt, or earlier if susceptible to accrual criteria is met.

N. Operating Revenues

Operating revenues for proprietary funds are those that result from providing services and producing and delivering goods and/orservices. It also includes all revenue not related to capital and related financing, noncapital financing or investing activities.

O. Expenditures/Expenses

In the government-wide financial statements, expenses are classified by function for both governmental and business-type activities.

In the fund financial statements, governmental fund expenditures are classified by character, proprietary fund expenditures areclassified by operating and non-operating.

In the fund financial statements, governmental funds report expenditures of financial resources. Proprietary funds report expensesrelating to use of economic resources.

P. Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires management to makeestimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from thoseestimates.

NOTE 2: CASH AND INVESTMENTS

Cash and investments as of June 30, 2011 are classified in the accompanying financial statements as follows:

Governmental activities $ 538,141Business-type activities 312,259Fiduciary activities 4,425

Total cash and investments $ 854,825

Cash and investments were carried at fair value as of June 30, 2011 and consisted of the following:

Investments $ 194,007Cash with county 2,278Deposits with financial institutions 657,890Cash on hand 650

Total cash and investments $ 854,825

28


JUNE 30, 2011

NOTE 2: CASH AND INVESTMENTS (Continued)

Authorized Investments of the City

The City does not have a formal investment policy but elects to follow the general provisions of the California Government Code.The table below identifies the investment types that are authorized by the general provisions of the California Government Code.This table does not address investments of debt issuances held by bond trustees that are governed by the provisions of debtagreements of the City, rather than the general provisions of the California Government Code.

Authorized Investment TypeMaximumMaturity

MaximumPercentage of

Portfolio

MaximumInvestment in

one Issuer

U.S. Treasury Obligations 5 years None NoneU.S. Agency Securities 5 years None NoneRepurchase Agreements 1 year None NoneBanker's Acceptances 180 days 40% 30%Commercial Paper (Minimum rating of "A" or higher) 270 days 25% 10%Medium-term Corporate Notes (Minimum rating of "AA" or higher) 5 years 30% NoneNegotiable Certificates of Deposit issued in California 5 years 30% NoneNegotiable Certificates of Deposit 5 years 30% NoneLocal Agency Investment Fund (LAIF) N/A None NoneInsured savings account or money market account N/A None NoneMutual Funds N/A 20% 10%

Disclosure Relating to Interest Rate Risk

Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, thelonger the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the waysthat the City's interest rate risk is mitigated is by purchasing a combination of shorter term and longer term investments and bytiming cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time asnecessary to provide the cash flow and liquidity needed for operations.

Information about the sensitivity of the fair values of the City's investments to market rate fluctuations is provided by the followingtable that shows the distribution of the City's investments by maturity as of June 30, 2011:

Remaining Maturity 12 months or less 1-5 years Fair Value

Cash in investment pools $ 4,728 $ - $ 4,728Money market funds 189,279 - 189,279

$ 194,007 $ - $ 194,007

Investments with Fair Values Highly Sensitive to Interest Rate Fluctuations

The City has no investments that are highly sensitive to interest rate fluctuations.

29


JUNE 30, 2011

NOTE 2: CASH AND INVESTMENTS (Continued)

Disclosures Relating to Credit Risk

Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This ismeasured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimumrating required by (where applicable) the California Government Code or debt agreements, and the actual rating as of the fiscal yearfor each investment type.

Minimum Legal Rating as of Fiscal Year EndTotal Rating S&P Moody's N/A

State Investment Pool (LAIF) $ 4,728 N/A Not ratedMoney Market Funds $ 189,279 N/A Not rated

Concentration of Credit Risk

The City complies with the limitations on the amount that can be invested in any one issuer as stipulated by the CaliforniaGovernment Code. The City holds no investments in any one issuer (other than U.S. Treasury securities, external investment poolsand mutual funds) that represent 5% or more of total City investment.

Custodial Credit Risk

Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will notbe able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. Thecustodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g. broker-dealer) to a transaction,a government will not be able to recover the value of its investment or collateral securities that are in the possession of anotherparty. The California Government Code does not contain legal or policy requirements that would limit the exposure to custodial creditrisk for deposits or investments, other than the following provision for deposits: The California Government Code requires that afinancial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral poolheld by a depository regulated under state law (unless so waived by the government unit). The market value of the pledgedsecurities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law alsoallows financial institutions to secure City's deposits by pledging first trust deed mortgage notes having a value of 150% of thesecured public deposits. As of June 30, 2011, the carrying amount of the City's deposits was $657,890 and bank balances were$746,843, all of which was insured. As of June 30, 2011, amounts deposited with financial institutions are fully insured under theFDIC Transaction Account Guarantee Program. The program states that all non-interest bearing accounts are guaranteed in full untilDecember 31, 2012.

Investment in State Investment Pool

The City is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the California Government Codeunder the oversight of the Treasurer of the State of California. The fair value of the City's investment in these pools are reported inthe accompanying financial statements at amounts based upon the City's pro-rata share of the fair value provided by LAIF for theentire portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accountingrecords maintained by LAIF, which are recorded on an amortized cost basis.

Reverse Repurchase Agreements

State statutes permit the City to enter into reverse repurchase agreements, that is, a sale of securities with a simultaneousagreement to repurchase them in the future at the same price plus a contract rate of interest. However, at no time during the fiscalyear did the City borrow funds through the use of reverse repurchase agreements.

30


JUNE 30, 2011

NOTE 3: CAPITAL ASSETS

BalanceJuly 1, 2010 Additions Retirements Transfers

BalanceJune 30, 2011

Governmental activities:

Capital assets not being depreciated

Land $ 378,885 $ 216,101 $ - $ 18,065 $ 613,051Construction-in-progress 69,212 970 - (69,212) 970

Total capital assets not beingdepreciated 448,097 217,071 - (51,147) 614,021

Capital assets being depreciated

Buildings and improvements 1,882 - - - 1,882Equipment 501,921 - - - 501,921Vehicles 160,842 - - - 160,842Streets and roads 1,002,295 - - 51,147 1,053,442Infrastructure 1,709,674 632,529 - - 2,342,203

Total assets being depreciated 3,376,614 632,529 - 51,147 4,060,290

Less accumulated depreciation

Buildings and improvements (269) (269) - - (538)Equipment (457,673) (17,832) - - (475,505)Vehicles (128,548) (11,591) - - (140,139)Streets and roads (79,122) (21,069) - - (100,191)Infrastructure (84,854) (46,844) - - (131,698)

Total accumulated depreciation (750,466) (97,605) - - (848,071)

Governmental activities capital assets, net $ 3,074,245 $ 751,995 $ - $ - $ 3,826,240

Depreciation was charged to functions based on their usage of the related assets as follows:

Governmental Activities:General government $ 46,843Public safety 3,282Highways and streets 21,069Public Services 26,411

Total governmental activities depreciation expense $ 97,605

31


JUNE 30, 2011

NOTE 3: CAPITAL ASSETS (Continued)

Balance at July 1, 2010 Additions Retirements

Transfers and Reclass-ifications

Balance at June 30, 2011

Business-type activities:

Capital assets not being depreciated

Land $ 252,715 $ 240,559 $ - $ - $ 493,274Construction in progress 11,224,789 739,942 - (11,008,089) 956,642

Total capital assets not beingdepreciated 11,477,504 980,501 - (11,008,089) 1,449,916

Capital assets being depreciated

Infrastructure 420,023 817,984 - 11,008,089 12,246,096Buildings and improvements 142,830 - - - 142,830Equipment 922,261 - - - 922,261Vehicles 58,442 - - - 58,442

Total assets being depreciated 1,543,556 817,984 - 11,008,089 13,369,629

Less accumulated depreciation

Infrastructure (157,346) (286,938) - - (444,284)Buildings and improvements (94,912) (6,266) - - (101,178)Equipment (815,593) (43,181) - (16,004) (874,778)Vehicles (44,026) (7,405) - 16,004 (35,427)

Total accumulated depreciation (1,111,877) (343,790) - - (1,455,667)

Business-type capital assets, net $ 11,909,183 $ 1,454,695 $ - $ - $ 13,363,878

NOTE 4: NOTES RECEIVABLE

The City has received a number of Community Development Block Grants, portions of which have been used for housingrehabilitation and economic development (small business) loans. The City has two basic types of housing rehabilitations loans:Deferred Rehabilitation Loans (DRL) and Full Assurance Loans (FAL).

The Deferred Rehabilitation Loans are non interest-bearing loans that are due and payable to the City when the property is eithersold or title of the property is transferred. As of June 30, 2011, there was $1,297,444 in outstanding DRL loans.

Full Assurance Loans bear interest from 1 to 5 percent, are generally amortized over 15 years, and require the borrowers to makemonthly payments. As of June 30, 2011, there was $45,464 in outstanding FAL loans.

Governmental funds report deferred revenue in connection with receivables for revenues that are not considered to be available toliquidate liabilities of the current period.

32


JUNE 30, 2011

NOTE 5: INTERFUND TRANSACTIONS

Due to/from other funds

The composition of interfund balances as of June 30, 2011 were as follows:

Receivable Fund Payable Fund Amount

General Fund CDBG HRLF $ 18,132General Fund Sewer Capital 1,044,571General Fund Brownfield Grant EPA 35,401Gax Tax TDA 2,128Gax Tax STIP 31,748

$ 1,131,980

Balances recorded as Due to/from other funds resulted from loans made to cover operating cash deficits.

Interfund transfers

The following schedule briefly summarizes the City’s transfer activity:

Transfer from Transfer to Purpose Amount

CDBG General Fund To close to general fund $ 592,619General Fund HOME To close to general fund 22,650COPS General Fund To close to general fund 4CLETEP General Fund To close to general fund 443State Park Bond Downtown Plaza Development To close to State Park Bond 61

Total Interfund Transfers $ 615,777

NOTE 6: LONG TERM LIABILITIES

Governmental Activities

The following is a summary of long-term liabilities transactions related to governmental activities of the City for the year endedJune 30, 2011:

BalanceJuly 1, 2010 Additions Retirement


CurrentPortion

Compensated Absences $ 30,354 $ - $ (15,020) $ 15,334 $ 15,334

Governmental Activities Long-Term Liabilities $ 30,354 $ - $ (15,020) $ 15,334 $ 15,334

Compensated absences

The liability for compensated absences is the accrued liability for earned but unused vacation which will be paid to employees uponseparation from the City's service. For governmental activities, compensated absences are liquidated by the general fund.

33


JUNE 30, 2011

NOTE 6: LONG TERM LIABILITIES (Continued)

Business-type Activities

The following is a summary of long-term liability transactions related to business-type activities of the City for the year endedJune 30, 2011:

BalanceJuly 1, 2010 Additions Reductions


CurrentPortion

Notes payable:DHS Infiltration Gallery Loan $ 2,652,000 $ - $ (204,000) $ 2,448,000 $ 136,000FMHA Special Assessment Bonds 200,000 - (20,000) 180,000 20,000RCAC - Sewer Planning and Design - 255,013 (40,134) 214,879 214,879

Total notes payable 2,852,000 255,013 (264,134) 2,842,879 370,879

Capital leases:Ford F-350 16,560 - (5,150) 11,410 5,512John Deere 56,956 - (10,070) 46,886 10,691

Total capital leases 73,516 - (15,220) 58,296 16,203

Other liabilities:

Compensated Absences 29,975 - (13,924) 16,051 16,051

Business-type Activities Long-termLiabilities $ 2,955,491 $ 255,013 $ (293,278) $ 2,917,226 $ 403,133

Notes Payable

DHS Infiltration Gallery Loan

In August 2005, the City entered into a loan agreement with the California Department of Health Services, Drinking Water andEnvironmental Services Division, for a loan in an amount up to $2,720,000. The proceeds from the loan were used to assist infinancing construction of a project which will enable the City to meet safe drinking water standards established under the Health andSafety Code and California Code of Regulations. The non-interest bearing loan calls for 50 equal semiannual payments due in Julyand January of each year, beginning in July 2009. At June 30, 2011 the balance of the note was $2,448,000.

Based on the maximum balance of the loan the annual requirements to amortize the note are as follows:

Year EndingJune 30 Principal

2012 $ 136,0002013 136,0002014 136,0002015 136,000

2016 - 2020 680,0002021 - 2025 680,0002026 - 2030 544,000

Total $ 2,448,000

34


JUNE 30, 2011


FMHA Special Assessment Bonds

In November 1978, the City borrowed $535,800 through the issuance of bonds to finance improvements to the City's sewagecollection system. The terms of an agreement with FMHA require semiannual payments of interest at 5 percent and annualpayments of principal that increase from $10,000 in the early years of the agreement to $30,000 in the later years. Currently, theprincipal payments are $20,000. The bonds mature in 2018.

The annual requirements to amortize the note are as follows:

Year EndingJune 30 Principal Interest Total

2012 $ 20,000 $ 5,000 $ 25,0002013 25,000 4,000 29,0002014 25,000 2,750 27,7502015 25,000 1,500 26,5002016 25,000 250 25,250

2017 - 2018 60,000 (3,500) 56,500

Total $ 180,000 $ 10,000 $ 190,000

RCAC Sewer Planning and Design

In September 2010, the City borrowed $400,000 through execution of a promissory note and loan agreement to finance theimprovements to the City's wastewater treatment and disposal system. The terms of an agreement with RCAC require monthlypayments of principal and interest at 5.5 percent. Currently, the principal payments are $6,076. The loan was modified in December2010, increasing the amount by $700,000. The loan matures in October 2012 at which time all principal and accrued and unpaidinterest is due and payable.

Capital Leases

The City has entered into certain capital lease agreements under which the related equipment will become the property of the Citywhen all terms of the lease agreements are met. Amortization of leased assets is included with depreciation expense.

The assets acquired through capital leases are as follows:

Asset:Vehicles $ 114,794Less: accumulated depreciation (69,828)

Net $ 44,966

The following schedule presents future minimum lease payments as of June 30, 2011.

Year ending June 30,

2012 $ 19,7362013 19,7362014 13,5832015 13,583

Total requirements 66,638

Less Interest (8,342)

Present value of remaining payments $ 58,296

35


JUNE 30, 2011


Compensated absences

The liability for compensated absences is the accrued liability for earned but unused vacation and qualifying sick leave which will bepaid to employees upon separation from City service.

NOTE 7: DEFERRED COMPENSATION PLAN

The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Service Code Section457. The plan, available to all full-time, non-seasonal City employees, allows them to defer a portion of their salary until future years.The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency.

The City adopted a revised deferred compensation plan in August 1997. The assets of the retirement plan are held in a trust for theexclusive benefit of the participants and their beneficiaries and are not accessible by the government or its creditors. Theparticipants or beneficiaries assume the risk of loss from declines in the value of plan assets. The plan is administered by anindependent plan administrator, International City/County Managers' Association, through an administrative service agreement withthe City.

Effective June 30, 1998, the City adopted GASB 32 which provides accounting and reporting guidance for deferred compensationplans under the revised provisions of Internal Revenue Code Section 457. Under GASB 32, the assets and liabilities of the plan arenot reported in the financial statements of the City.

For the fiscal year ended June 30, 2011, the City made contributions totaling $93,793 to the plan.

NOTE 8: RISK MANAGEMENT

The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions;injuries to employees; and natural disasters. The City is a member of the Small Cities Organized Risk Effort Joint Powers Authority(SCORE). SCORE provides insurance coverage for general liability, property, and workers' compensation claims under the terms ofa joint-powers agreement with the City and several other governmental municipalities.

SCORE is insured up to $500,000 per general liability and $1,000,000 per property claim and has purchased excess of lossinsurance policies providing coverage above the self-insurance limit to a maximum of $25,000,000. The City has a $2,500 - $50,000deductible per claim for general liability, property and workers' compensation cases. When the deductible is met, the SCOREbecomes responsible for payment of the excess claim.

Payment for insurance claims are recorded as expenditures in the funds in which the liabilities were incurred. In accordance withGovernmental Accounting Standards Board Statement No. 10, if the third party administrator, SCORE, does not insure the lossoccurrence then the City shall accrue a loss, if probably and reasonably estimable. As of June 30, 2011, the City has no uninsuredoccurrences. The City has not used an actuary in determining the liability reserve if needed. Because the actual claim liabilitiesdepend on such complex factors and inflation and changes in legal doctrines and damage awards, the process used in computingclaim liabilities does not necessarily result in an exact amount. Claims are evaluated periodically to take into account recently settledclaims, the frequency of claims and other economic and social factors.

NOTE 9: CONTINGENCIES

The City has received state and federal grants for specific purposes that are subject to review and audit by the grantor agencies.Although such audits could result in expenditure disallowances under grant terms, any required reimbursements are not expected tobe material.

NOTE 10: DEFICIT FUND BALANCE

At June 30, 2011 the HOME Program Fund had a deficit balance of $3,209. The deficit will be funded through future revenues of thefund.

36


JUNE 30, 2011

NOTE 11: FUND BALANCE

Beginning with fiscal year 2011, the City implemented GASB Statement No. 54, Fund Balance Reporting and Governmental FundType Definitions. This statement provide more clearly defined fund balance categories to make the nature and extent of theconstraints placed on a government's fund balance more transparent.

The City established the following fund balance procedures:

Committed Fund Balance: The City Council, as the City's highest level of decision-making authority, may commit fund balance forspecific purposes pursuant to constraints imposed by formal action taken, such as an ordinance or resolution. These committedamounts cannot be used for any other purpose unless the City Council removes or changes the specified use through the same typeof formal action taken to establish the commitment. City Council action to commit fund balance needs to occur within the fiscalreporting period; however the amount can be determined subsequently.

Assigned Fund Balance: Amounts that are constrained by the City's intent to be used for specific purposes, but are neitherrestricted nor committed, should be reported as assigned fund balance. The policy hereby delegates the authority to assignamounts to be used for specific purposes to the City Manager and the Finance Director for the purpose of reporting these amountsin the annual financial statements.

The accounting policies of the City consider restricted fund balance to have been spent first when an expenditure is incurred for thepurposes for which both restricted and unrestricted fund balance is available. Similarly, when an expenditure is incurred forpurposes for which amounts in any of the unrestricted classifications of fund balance could be used, the City considers committedamounts to be reduced first, followed by assigned amounts, and unassigned amounts.

As of June 30, 2011, fund balances consisted of the following:

General Fund CDBG STIP

Non-MajorGovernmental

Funds TotalRestricted:

Community development $ - $ 204,341 $ - $ 8,696 $ 213,037Capital projects - - 73,160 - 73,160Public safety - - - 75,439 75,439Waste reduction - - - 28,118 28,118Roads - - - 234,051 234,051

Total Restricted - 204,341 73,160 346,304 623,805

Committed:Contingencies 25,000 - - - 25,000

Unassigned 1,034,033 - - - 1,034,033

Total Fund Balance $ 1,059,033 $ 204,341 $ 73,160 $ 346,304 $ 1,682,838

NOTE 12: PRIOR PERIOD RESTATEMENT

Management determined that certain grant revenues should have been recorded in the prior year were incorrectly recorded;therefore, they have adjusted beginning fund balance of the Street & Transportation Improvement Program Fund and government-wide net assets by $106,442.

37

REQUIRED SUPPLEMENTARY INFORMATION

CITY OF RIO DELLSCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE

BUDGET AND ACTUALGENERAL FUND


Budgeted Amounts

Original Final Actual Amounts

Variance withFinal Budget

Positive(Negative)

REVENUES

Taxes:Property $ 442,245 $ 442,245 $ 437,386 $ (4,859)Sales 98,800 98,800 177,634 78,834Occupancy 10,000 10,000 11,951 1,951Gas - - 5,813 5,813

Intergovernmental 26,628 68,110 58,545 (9,565)Licenses, permits, and franchise fees 143,250 143,250 156,566 13,316Interest and use of property 17,100 17,100 18,464 1,364Miscellaneous 300 300 1,570 1,270

Total Revenues 738,323 779,805 867,929 88,124

EXPENDITURES

Current operations:General government 899,440 940,922 240,403 700,519Public safety - - 536,084 (536,084)

Capital outlay 8,845 8,845 58,420 (49,575)

Total Expenditures 908,285 949,767 834,907 114,860

Excess (deficiency) of revenues overexpenditures 169,962 169,962 33,022 (136,940)

OTHER FINANCING SOURCES (USES)

Operating transfers in - - 570,416 (570,416)

Total Other Financing Sources (Uses) - - 570,416 (570,416)

Net Change in Fund Balance $ 169,962 $ 169,962 603,438 $ 433,476

FUND BALANCE, JULY 1, 2010 455,595

FUND BALANCE, JUNE 30, 2011 $ 1,059,033

38


BUDGET AND ACTUALCDBG FUND


Budgeted Amounts



Positive(Negative)

REVENUES

Intergovernmental $ - $ - $ 7,949 $ 7,949Interest and use of property - - 1,389 1,389

Total Revenues - - 9,338 9,338

EXPENDITURES

Current operations:Housing and community development 4,805 8,851 4,047 4,804


Excess (deficiency) of revenues overexpenditures (4,805) (8,851) 5,291 14,142


Operating transfers out - - (592,619) 592,619

Total Other Financing Sources (Uses) - - (592,619) 592,619

Net Change in Fund Balance $ (4,805) $ (8,851) (587,328) $ 578,477


FUND BALANCE, JUNE 30, 2011 $ 204,341

39


BUDGET AND ACTUALSTREET & TRANSPORTATION IMPROVEMENT PROGRAM


Budgeted Amounts



Positive(Negative)

REVENUES

Intergovernmental $ 576,000 $ 576,000 $ 577,026 $ 1,026Interest and use of property - - 8 8

Total Revenues 576,000 576,000 577,034 1,034

EXPENDITURES

Current operations:Highways and streets 3,450 35,527 27,191 8,336

Capital outlay 691,000 832,044 836,933 (4,889)


Net Change in Fund Balance $ (118,450) $ (291,571) (287,090) $ 4,481


PRIOR PERIOD RESTATEMENT 106,442

FUND BALANCE, JULY 1, 2010 (RESTATED) 358,834

FUND BALANCE, JUNE 30, 2011 $ 71,744

40

SUPPLEMENTARY INFORMATION

CITY OF RIO DELLCOMBINING BALANCE SHEETS

NON-MAJOR GOVERNMENTAL FUNDSJUNE 30, 2011

Gas Tax TDAState Park

BondASSETS

Cash and investments $ 149,462 $ - $ -Accounts receivable - 12,042 -Grants receivable - - -Due from other funds 33,876 - -

TOTAL ASSETS $ 183,338 $ 12,042 $ -

LIABILITIES AND FUND BALANCES (DEFICITS)

LIABILITIES:Accounts payable $ 1,307 $ 2,054 $ -Due to other funds - 2,128 -

TOTAL LIABILITIES 1,307 4,182 -

FUND BALANCES (DEFICITS):Restricted 182,031 7,860 -

TOTAL FUND BALANCES (DEFICITS) 182,031 7,860 -

TOTAL LIABILITIES AND FUND BALANCES (DEFICITS) $ 183,338 $ 12,042 $ -

41



ISTEA Solid Waste

Special LawEnforcement

ServiceASSETS

Cash and investments $ 44,479 $ 21,865 $ 57,555Accounts receivable - 2,319 11,641Grants receivable - - -Due from other funds - - -

TOTAL ASSETS $ 44,479 $ 24,184 $ 69,196


LIABILITIES:Accounts payable $ 319 $ 1,023 $ 13Due to other funds - - -

TOTAL LIABILITIES 319 1,023 13

FUND BALANCES (DEFICITS):Restricted 44,160 23,161 69,183

TOTAL FUND BALANCES (DEFICITS) 44,160 23,161 69,183

TOTAL LIABILITIES AND FUND BALANCES (DEFICITS) $ 44,479 $ 24,184 $ 69,196

42



COPSVehicle

Abatement

California LawEnforcementTechnology &

EquipmentProgram

ASSETS

Cash and investments $ - $ 6,256 $ -Accounts receivable - - -Grants receivable - - -Due from other funds - - -

TOTAL ASSETS $ - $ 6,256 $ -


LIABILITIES:Accounts payable $ - $ - $ -Due to other funds - - -

TOTAL LIABILITIES - - -

FUND BALANCES (DEFICITS):Restricted - 6,256 -

TOTAL FUND BALANCES (DEFICITS) - 6,256 -

TOTAL LIABILITIES AND FUND BALANCES (DEFICITS) $ - $ 6,256 $ -

43



RecyclingBrownfieldGrant EPA

DowntownPlaza

DevelopmentASSETS

Cash and investments $ 4,443 $ - $ 2,244Accounts receivable 994 - -Grants receivable - 35,401 -Due from other funds - - -

TOTAL ASSETS $ 5,437 $ 35,401 $ 2,244


LIABILITIES:Accounts payable $ 480 $ - $ 1,809Due to other funds - 35,401 -

TOTAL LIABILITIES 480 35,401 1,809

FUND BALANCES (DEFICITS):Restricted 4,957 - 435

TOTAL FUND BALANCES (DEFICITS) 4,957 - 435

TOTAL LIABILITIES AND FUND BALANCES (DEFICITS) $ 5,437 $ 35,401 $ 2,244

44



PlannedDevelopment

Park Fees HOME ProgramParks and Rec

FundraisingASSETS

Cash and investments $ 8,005 $ 3,209 $ 256Accounts receivable - - -Grants receivable - 7,327 -Due from other funds - - -

TOTAL ASSETS $ 8,005 $ 10,536 $ 256


LIABILITIES:Accounts payable $ - $ 10,536 $ -Due to other funds - - -

TOTAL LIABILITIES - 10,536 -

FUND BALANCES (DEFICITS):Restricted 8,005 - 256

TOTAL FUND BALANCES (DEFICITS) 8,005 - 256

TOTAL LIABILITIES AND FUND BALANCES (DEFICITS) $ 8,005 $ 10,536 $ 256

45



TotalsASSETS

Cash and investments $ 297,774Accounts receivable 26,996Grants receivable 42,728Due from other funds 33,876

TOTAL ASSETS $ 401,374


LIABILITIES:Accounts payable $ 17,541Due to other funds 37,529

TOTAL LIABILITIES 55,070

FUND BALANCES (DEFICITS):Restricted 346,304

TOTAL FUND BALANCES (DEFICITS) 346,304

TOTAL LIABILITIES AND FUND BALANCES (DEFICITS) $ 401,374

46

CITY OF RIO DELLCOMBINING STATEMENTS OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCESNON-MAJOR GOVERNMENTAL FUNDSFOR THE YEAR ENDED JUNE 30, 2011

Gas Tax TDAState Park

BondREVENUES

Taxes:Gas $ 79,645 $ 96,172 $ -

Intergovernmental - - 207,337Licenses, permits, and franchise fees - - -Interest and use of property 43 5 -Miscellaneous 65 108 -

Total Revenues 79,753 96,285 207,337

EXPENDITURES

Current:Public safety - - -Highways and streets 36,093 91,325 -Housing and community development - - -Public services - - -

Capital outlay 1,103 1,529 207,387

Total Expenditures 37,196 92,854 207,387

Excess (Deficiency) of Revenues overExpenditures 42,557 3,431 (50)


Transfers in - - -Transfers out - - (61)

Total Other Financing Sources (Uses) - - (61)

Net Change in Fund Balance 42,557 3,431 (111)

FUND BALANCES (DEFICIT), JULY 1, 2010 139,474 4,429 111

FUND BALANCES (DEFICIT), JUNE 30, 2011 $ 182,031 $ 7,860 $ -

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ISTEA Solid Waste

Special LawEnforcement

ServiceREVENUES

Taxes:Gas $ - $ - $ -

Intergovernmental 16,502 - 100,326Licenses, permits, and franchise fees - 9,001 -Interest and use of property 16 7 28Miscellaneous 11 736 -

Total Revenues 16,529 9,744 100,354

EXPENDITURES

Current:Public safety - - 108,587Highways and streets 6,687 - -Housing and community development - - -Public services - 8,058 -

Capital outlay 743 - -


Excess (Deficiency) of Revenues overExpenditures 9,099 1,686 (8,233)


Transfers in - - -Transfers out - - -

Total Other Financing Sources (Uses) - - -

Net Change in Fund Balance 9,099 1,686 (8,233)

FUND BALANCES (DEFICIT), JULY 1, 2010 35,061 21,475 77,416

FUND BALANCES (DEFICIT), JUNE 30, 2011 $ 44,160 $ 23,161 $ 69,183

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COPSVehicle

Abatement

California LawEnforcementTechnology &

EquipmentProgram

REVENUES

Taxes:Gas $ - $ - $ -

Intergovernmental - - -Licenses, permits, and franchise fees - - -Interest and use of property 4 2 -Miscellaneous - - -

Total Revenues 4 2 -

EXPENDITURES

Current:Public safety - 2,594 -Highways and streets - - -Housing and community development - - -Public services - - -

Capital outlay - - -

Total Expenditures - 2,594 -

Excess (Deficiency) of Revenues overExpenditures 4 (2,592) -


Transfers in - - -Transfers out (4) - (443)

Total Other Financing Sources (Uses) (4) - (443)

Net Change in Fund Balance - (2,592) (443)

FUND BALANCES (DEFICIT), JULY 1, 2010 - 8,848 443

FUND BALANCES (DEFICIT), JUNE 30, 2011 $ - $ 6,256 $ -

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RecyclingBrownfieldGrant EPA

DowntownPlaza

DevelopmentREVENUES

Taxes:Gas $ - $ - $ -

Intergovernmental - 264,924 -Licenses, permits, and franchise fees - - -Interest and use of property 2 - 3Miscellaneous - - -

Total Revenues 2 264,924 3

EXPENDITURES

Current:Public safety - - -Highways and streets - - -Housing and community development - - -Public services 4,176 264,777 -

Capital outlay - - 8,577


Excess (Deficiency) of Revenues overExpenditures (4,174) 147 (8,574)


Transfers in - - 61Transfers out - - -

Total Other Financing Sources (Uses) - - 61

Net Change in Fund Balance (4,174) 147 (8,513)

FUND BALANCES (DEFICIT), JULY 1, 2010 9,131 (147) 8,948

FUND BALANCES (DEFICIT), JUNE 30, 2011 $ 4,957 $ - $ 435

50



PlannedDevelopment

Park Fees HOME ProgramParks and Rec

FundraisingREVENUES

Taxes:Gas $ - $ - $ -

Intergovernmental - (2,838) -Licenses, permits, and franchise fees 3,000 - -Interest and use of property 2 - -Miscellaneous - - 212

Total Revenues 3,002 (2,838) 212

EXPENDITURES

Current:Public safety - - -Highways and streets - - -Housing and community development - 17,680 -Public services - - -

Capital outlay - - -

Total Expenditures - 17,680 -

Excess (Deficiency) of Revenues overExpenditures 3,002 (20,518) 212


Transfers in - 22,650 -Transfers out - - -

Total Other Financing Sources (Uses) - 22,650 -

Net Change in Fund Balance 3,002 2,132 212

FUND BALANCES (DEFICIT), JULY 1, 2010 5,003 (2,132) 44

FUND BALANCES (DEFICIT), JUNE 30, 2011 $ 8,005 $ - $ 256

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TotalsREVENUES

Taxes:Gas $ 175,817

Intergovernmental 586,251Licenses, permits, and franchise fees 12,001Interest and use of property 112Miscellaneous 1,132

Total Revenues 775,313

EXPENDITURES

Current:Public safety 111,181Highways and streets 134,105Housing and community development 17,680Public services 277,011

Capital outlay 219,339

Total Expenditures 759,316

Excess (Deficiency) of Revenues overExpenditures 15,997


Transfers in 22,711Transfers out (508)

Total Other Financing Sources (Uses) 22,203

Net Change in Fund Balance 38,200

FUND BALANCES (DEFICIT), JULY 1, 2010 308,104

FUND BALANCES (DEFICIT), JUNE 30, 2011 $ 346,304

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OTHER REPORTS

CITY OF RIO DELLSCHEDULE OF EXPENDITURES OF FEDERAL AWARDS


Federal Grantor/Program TitleFederal CFDA

Number Expenditures

Environmental Protection Agency

Pass-Through State of California Department of Water ResourcesARRA - Capitalization Grants for Clean Water State Revolving Funds 66.458 $ 664,214

Direct Programs:Brownfield Assessment and Cooperative Grant 66.818 264,924

Department of Transportation

Direct Programs:ARRA- Highway Planning and Construction 20.205 577,026

Department of Justice

Direct Programs:Public Safety Partnership and Community Policing Grants 16.710 43,752

$ 1,549,916

See accompanying notes to schedule of expenditures of federal awards.53

CITY OF RIO DELLNOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS


NOTE A—BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying schedule of expenditures of federal awards includes the federal grant activity of the City of Rio Dell and ispresented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements ofOMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented inthis schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements.

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MAN N · U RRUTI A · N El SON CP A s & ASSOCIA TES , l lPGLENDAL E • ROS E','I LIE • S;' C RAf\ EN TO . SO UTH l A KE T;'HO E · K;'U ;' I . H;'''\ ';, II

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCEAND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED

IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

To The Honorable Mayor and Members of the City CouncilCity of Rio DellRio Dell , California

We have audited the accompanying basic financial statements of the govemmental activities, the business-type activities, eachmajor fund . and the aggregate rem aining fund information of the City of Rio Dell (the City ) as of and for the year ended June 30.2011, which coll ectively comp rise the City's bas ic fina ncia l sta tem ents and have issued our report thereon dated April 13. 2012. Wecond ucted our audit in accordance with auditing standards generally accepted in the United States of Am erica and the standardsapplicable to financial audits contained in Governmen t Audit ing Standards. issued by the Comptroller General of the United States.

Internal Contro l Over Financial Reporting

In planni ng and performing our audit. we considered the City of Rio Dell's internal control over fina ncial reporting as a basis fordesigning our auditing procedures for the purpos e of expressing our opinion on the financial sta tem ents, but not for the purpose ofexpress ing an opinion on the effectiveness of the City of Rio Dell's internal cont rol over financial report ing. Accord ingly, we do notexpress an opinion on the effectiveness of the City of Rio Dell's internal con trol over finan cial reporting.

A deficiency in internal control exists when the design or operation of a con trol does not allow managem ent or employees . in thenormal course of perform ing their assigned functions. to prevent or detect, and correct misstatements on a timely basi s. A materialweakness is a deficiency, or com bination of deficiencies, in interna l cont rol such that there is reasonable possibility that a materialmissta tement of the entity's financial statements will not be prevented, or detected and corrected on a timely bas is.

Our consideration of internal control over financia l reporting was for the limited purpose described in the firs t paragraph of thissection and was not designed to ident ify all deficiencies in internal control over financial reporting that might be deficiencies,sign ifica nt deficiencies, or material weak nesses. We did not identify any deficiencies in internal control over financial reporting thatwe cons ider to be materia l weaknesses. as defined above. However, we identified certain deficiencies in internal control overfinancia l reporting, described in the acco mpanying schedule of findings and questioned costs that we consider to be significa ntdeficiencies in internal con trol over financial reporting, as reported in finding 2011-0 1. A significant deficiency is a deficiency, or acombination of deficiencies, in interna l control that is less severe than a mater ial weakness, yet important enough to merit attentionby those charged with governance.

Compl iance and Other Matters

As part of obtaining reason able assurance about whether the City of Rio Dell's fina ncial statements are free of materialmisstatement, we performed tests of its com pliance with certa in 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 expresssuch an opinion. The results of ou r test s disclosed no instances of noncompliance or other matters that are required to be reportedunder Govemment Auditing Standards.

We noted certain other matters that we reported to management of the City of Rio Dell in a separate lette r dated April 13, 2012.

This report is intended solely for the information and use of management , City Coun cil, othe rs within the City and federal award ingagenc ies and pass-through entities and is not intended to be and sho uld not be used by anyone other than these specified parties.

Sacramento, californiaApril 13,201 2

S,; C'AI ·.ENTO O f fi CE · 25 15 VENTURE O'K. W " Y, SUITE 135 • SACR''' ,\ENTO. Ct-; 95833 • o. 9 16,92 9 .05 40 • f . 916.9 29 .05 41

WWW.MUNCPAS.COM

G LE N DALE • ROSE "'IlL E • SA CRAf,\ EN TO ' J O UTH LAK E TAH O E · KA Un l , H AW .' .I I

MANN . URRUT IA . N ELSON CPA s & ASSOCIATES , LLP

INDEPEN DENT AUDITOR'S REPORT ON COMPLIANC E WITH REQUIREMENTSTHAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM

AND ON INTE RNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133

The Honorable Mayor and Members of the City CouncilCity of Rio DellRio Dell , californ ia

Compliance

We have audited the compliance of the City of Rio Dell with the types of compliance requirements described in the U.S. Office ofMana gement and Budget (OMS) Circular A-133 Compliance Supplement that are app licab le to each of its major federa l prog ramsfor the year ended June 30, 2011. The City of Rio Dell 's major federal programs are identified in the summary of auditor's resultssection of the accompanying schedule of finding s and questioned costs . Compliance with the requirements of laws, regulations,contracts, and grants applicable to each of its major federa l programs is the responsib ility of the City of Rio Dell's managem ent.Our responsibility is to express an opinion on the City of Rio Dell's compliance based on our audit.

We conducted our aud it of compliance in accordance with auditing standards generally accepted in the United States of America;the standards applicable to financial audits contained in Government Auditing Standards. issued by the Comptroller General of theUnited States; and OMS Circular A-133. Audits of States. Local Govemments, and Non-Profit Organizations. Those standards andOMS A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncom pliance with thetypes of compliance requirements referred to above that could have a direct and material effect on a major federal programoccurred. An audit includes examining, on a test basis. evidence about the City of Rio Dell's compliance with those requirementsand performing such other procedures as we considered neces sary in the circumstances . We believe that our audit provides areasonable basis for our opinion. Our audit does not provide a legal determination of the City of Rio Dell's complian ce with thoserequirements.

In our opinion. the City of Rio Dell complied. in all material respects , with the requirements referred to above that are applicable toeach of its major federal programs for the year ended June 30. 2011.

Internal Control Over Compli ance

The managemen t of City of Rio Dell is responsible for establishing and maintaining effective internal control over compliance withthe requirements of laws , regulation s, contracts, and grants applicable to federal programs . In planning and performing our audit,we considered the City of Rio Dell's internal control over compliance with the requirements that could have a direct and materialeffect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion oncompliance and to tes t and report on internal control over comp liance in accordance with OMS Circular A-133, but not for thepurpose of expressing an opinion on the effectiveness of internal control over compliance . Accord ingly, we do not express anopinion on the effectiveness of the City of Rio Dell's internal control over compliance.

A deficiency in interna l control over compliance exists when the design or opera tion of a control over compliance does not allowmanagement or employees, in the normal course of perlorming their assigned functions, to prevent, or detect and correct,noncompliance with a type of compliance requirement of a federal program on a timely basis. A materia l weakness in internalcontrol over compliance is a deficiency, or combination of deficiencies , in internal control over compliance. such that there is areasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not beprevented, or detected and corrected, on a timely basis.

Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section andwas not designed to identify all deficiencies in internal control over compliance that might be deficiencies . significant deficiencies. ormaterial weaknesses. We did not identify any deficiencies in internal control over compl iance that we consider to be materialweaknesses. as defined above

This report is intended solely for the informati on and use of management, City Council , others within the City, and federal awardingagencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.

Sacramento. CaliforniaApril 13, 2012

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WWW.MUNCPAS.COM

CITY OF RIO DELLSCHEDULE OF FINDINGS AND QUESTIONED COSTS


SECTION I - SUMMARY OF AUDITOR'S RESULTS

Financial Statements

Type of auditor's report issued: Unqualified

Internal control over financial reporting:

Material weaknesses identified? No

Significant deficiencies identified? Yes

Noncompliance material to financial statements noted? No

Federal Awards

Internal control over major programs:

Material weaknesses identified? No

Significant deficiencies identified? None reported

Type of auditor's report issued on compliance for major programs: Unqualified

Any audit findings disclosed that are required to be reported in accordance withsection 510(a) of Circular A-133? No

Major programs are as follows:

66.458 ARRA - Capitalization Grants for Clean Water State Revolving Funds

Dollar threshold used to distinguish between type A and type B programs: $300,000

Auditee qualified as low-risk auditee? No

SECTION II - FINANCIAL STATEMENT FINDINGS

Findings relating to the financial statements which are required to be reported inaccordance with Generally Accepted Government Auditing Standards. Yes

SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

Findings and questioned costs for Federal Awards, which includes audit findings anddefined in Section 510(a). None

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CITY OF RIO DELLSCHEDULE OF FINDINGS AND QUESTIONED COSTS

JUNE 30, 2011

Finding 2011-01: Grant Revenue and Receivable

Criteria

According to generally accepted accounting principles revenue recognition of grants, grants recorded in the general or specialrevenue funds should be recognized as revenue in the accounting period in which they become susceptible to accrual. Thekey accounting component is when eligibility requirements are met, which determine when it is appropriate for the City torecognize the grant as revenue. If the eligibility requirements have been met and the cash has not yet been received, the Citywould record a receivable and revenue for the grant revenue that is owed.

Condition

During our audit we noted prior year unrecorded grant revenues and receivables related to grant expenditures and activitiesthat were incurred the prior year.

Cause

At the completion of the grant program, management was unaware of grant funds not yet claimed for reimbursement.

Recommendation

We recommend management perform periodic reviews of grant expenditures and claims to ensure all grant expenditures wereclaimed for reimbursement from the granting agency in the year the expenditures were incurred.

Management's Response

Management concurs with finding and made necessary changes to periodically review grant expenditures and claims toensure all grant expenditures were claimed for reimbursement from the granting agency in the year the expenditures wereincurred. In addition, the City has augmented finance department staffing to ensure more than one employee is capable ofmaking accrual entries.

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CITY OF RIO DELLSCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS

JUNE 30, 2011

None reported.

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City of Rio Dell 2011AU

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