File #: 23-0487    Version: 1
Type: Consent
In control: City Council/Successor Agency to the Redevelopment Agency/Public Financing Authority/Parking Authority Concurrent
Final action:
Title: ACCEPT THE SINGLE AUDIT AND INDEPENDENT AUDITORS' REPORTS AND THE REPORT ON INTERNAL CONTROLS FOR THE YEAR ENDED JUNE 30, 2022
Attachments: 1. Attachment A - 2022 Single Audit and Independent Auditors Reports

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ACCEPT THE SINGLE AUDIT AND INDEPENDENT AUDITORS’ REPORTS AND THE REPORT ON INTERNAL CONTROLS FOR THE YEAR ENDED JUNE 30, 2022

 

recommended action

RECOMMENDATION

 

It is recommended that the City Council accept by motion the Single Audit and Independent Auditors’ Reports and the Report on Internal Control Related Matters Identified in the Audit for the year ended June 30, 2022.

 

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Summary

 

Presented for the City Council’s review is the City of Stockton’s Single Audit and Independent Auditors’ Reports (Attachment A) for the year ended June 30, 2022.  On May 15, 2023, the Audit Committee received, reviewed, and accepted these audit reports.  The Single Audit report identifies six (6) new findings or questioned costs.  Staff recommends that Council adopt the motion as proposed.

 

DISCUSSION

 

Background

 

The Single Audit and Independent Auditors’ Reports (Attachment A) is an annual audit of federal awards or pass-through of federal awards to the City. 

 

The Report on Internal Controls provides a review of the City’s financial reporting systems and procedures that are used to ensure accurate financial statements.  An internal control is designed to provide reasonable assurance that the City meets its objectives regarding the reliability of financial reporting, effectiveness, and efficiency of operations and compliance with applicable laws and regulations.  The auditor considers the City’s internal control over financial reporting during the design of audit procedures for financial statements.  The auditors do not express any opinion on the effectiveness of the City’s internal controls.

 

This information was presented to the Council Audit Committee on May 15, 2023.

 

Present Situation

 

With an influx of COVID-19 related Federal stimulus funds, the City’s expenditures of federal awards increased by over 306%, or $136.7 million, in Fiscal Year (FY) 2021-22 to $181.3 million.  Program and administrative staff have not increased sufficiently to properly administer the increase in federal awards and the variety of new programs.  Each new program has a separate set of regulations to be followed.  Examples of new programs include American Rescue Plan Act Coronavirus State and Local Fiscal Recovery Funds, Water Infrastructure Finance and Innovation (WIFIA), California Wastewater and Water Arrearage Payment Programs, and Emergency Rental Assistance passed through the State of California.

 

The Single Audit report identifies six (6) new findings or questioned costs summarized below:

 

2022-001 Internal Control Over Financial Reporting - Prior Year Adjustments, Year-End Closing, Reconciliation, and Delay in Issuance of the Single Audit 

 

Condition:

The Successor Agency to the Redevelopment Agency reported a $1,868,468 correction to cash with fiscal agent balance which restated net position from $(59,008,834) to $(60,877,302). In addition, the City has experienced significant challenges in the reconciliation of subsidiary ledgers to the general ledger, along with the preparation and issuance of the Single Audit required under Uniform Guidance.

 

City’s Corrective Actions:

Staff has taken additional measures to develop several reconciliation tools that will enhance their ability to thoroughly review and reconcile each fund and reconcile stale balances.

 

2022-002 Internal Control Over Preparation of Schedule of Expenditures of Federal Awards

 

Condition:

During the audit there were multiple rounds of revisions to the Schedule of Expenditures of Federal Awards.  Included in the revisions were the reporting of state pass-through awards for the Emergency Rental Assistance Program (ERAP) of $18.6 million and American Rescue Plan Act (ARPA) Water/Wastewater Arrearage of $3.6 million.

 

City’s Corrective Actions:

Due to the vacancy in the central grants division, the City has been left with insufficient coverage of the processes and procedures that need to be maintained for grant compliance. Re-evaluation of the needs of both the Finance and Grant departments will assist in the identification and reporting of federal grant information.  Program and fiscal staff working with grant agreements will be provided with language to look for in agreements that identify when the grant is a pass-through from the federal government.  Finance staff can review this as part of the grant master workflow.

 

2022-003 Eligibility - Internal Controls Over Eligibility

 

Condition:

The application reviewer made data entry errors and incorrectly reported actual income reported by applicants in 4 of the 40 samples selected.

 

City’s Corrective Actions:

As part of the review process conducted by El Concilio (Contractor), a number of documents (including income verification) were reviewed to ensure that the household was eligible for funding under the Emergency Rental Assistance Program (ERAP). In all instances, the income was reviewed and determined to be under the eligibility threshold. However, the “Monthly Income Correction” feature in the Intake System was utilized to make an income determination of $0. The “Monthly Income Correction” does not necessarily mean that the income was not accurately verified. There were no instances in which any of the samples had income that was over the established limits.

 

2022-004 Procurement and Suspension, and Debarment - Internal Control over Verification Against the System for Award Management (“SAM”)

 

Condition:

The City did not maintain proof of verification against “SAM” to ensure that vendors were not suspended or debarred from federally funded purchases.

 

City’s Corrective Actions:

The City has always conducted debarment checks but has not maintained proof of verification. The procurement division has been alerted to this requirement and has changed its process to include documentation of the suspension and debarment checks.

 

2022-005 Reporting - Internal Control and Compliance over reporting

 

Condition:

The City was not aware of all reporting requirements for the Water Infrastructure Finance and Innovation (WIFIA) program; only Construction reports were filed in a timely manner.

 

City’s Corrective Actions:

A recent appointment to the Debt and Treasury division has allowed for restructuring of the processes present within the division. Debt and Treasury personnel have been made aware of the previous insufficiencies and will work with funding sources to identify which requirements are fulfilled by external project managers and which requirements need to be fulfilled by City staff.

 

2022-006 Special Tests and Provisions - Internal Control and Compliance Over Obligations, Expenditures, and Payment Requirements

 

Condition:

Subrecipient payment requests for the Emergency Solutions Grant Program (ESG) were not completed within 30 days.

 

City’s Corrective Actions:

When invoices from subrecipients are received, they are reviewed thoroughly by staff. During the review process, it may be determined that the information provided is not sufficient to support the claim/amount for reimbursement. This initiates a back and forth between staff and the subrecipient that could take up to several weeks to resolve. The Economic Development Department continuously holds workshops with all vendors/subrecipients on best practices, and invoicing procedures to reduce the time spent reviewing invoices. The Department spends considerable effort in working with all subrecipients to expedite documentation review and payment process and continues to make improvements in this area. Staff will also maintain records of any delays in processing because of insufficient documentation submitted by the subrecipient.

 

FINANCIAL SUMMARY

 

There is no financial impact associated with accepting this item.

 

Attachment A - 2022 Single Audit and Independent Auditors’ Reports