HomeMy WebLinkAboutAzusa Single Audit Report Fiscal Year 2012 -2013_201503310952174386
CITY OF AZUSA, CALIFORNIA
SINGLE AUDIT REPORT
JUNE 30, 2013
CITY OF AZUSA, CALIFORNIA
SINGLE AUDIT REPORT
JUNE 30, 2013
CITY OF AZUSA
JUNE 30, 2013
TABLE OF CONTENTS
Page
Number
Independent Auditors’ Report on Internal Control Over Financial Reporting and on
Compliance and Other Matters Based on an Audit of Financial Statements Performed
in Accordance with Government Auditing Standards ...................................................................... 1
Independent Auditors’ Report on Compliance for Each Major Program and on Internal
Control Over Compliance; and Report on Schedule of Expenditures of Federal
Awards Required by OMB Circular A-133 ........................................................................................... 3
Schedule of Expenditures of Federal Awards for the
Fiscal Year Ended June 30, 2013 ........................................................................................................ 6
Notes to the Schedule of Expenditures of Federal Awards .................................................................... 7
Schedule of Findings and Questioned Costs for the
Fiscal Year Ended June 30, 2013 ........................................................................................................ 8
Schedule of Prior Year Findings and Questioned Costs for the
Fiscal Year Ended June 30, 2012 ...................................................................................................... 11
INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS
BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE
WITH GOVERNMENT AUDITING STANDARDS
To the Honorable Mayor and Members of the City Council
City of Azusa, California
We have audited, in accordance with the auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards
issued by the Comptroller General of the United States, the financial statements of the governmental
activities, the business-type activities, each major fund, and the aggregate remaining fund information of
the City of Azusa, California, (the City) as of and for the year ended June 30, 2013, and the related notes
to the financial statements, which collectively comprise the City’s basic financial statements and have
issued our report thereon dated March 10, 2014.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City’s internal control
over financial reporting (internal control) to determine the audit procedures that are appropriate in the
circumstances for the purpose of expressing our opinions on the financial statements, but not for the
purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do
not express an opinion on the effectiveness of the City’s internal control.
Our consideration of internal control was for the limited purpose described in the preceding paragraph
and was not designed to identify all deficiencies in internal control that might be material weaknesses or
significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were
not identified. However, we identified certain deficiencies in internal control that we consider to be
material weaknesses and significant deficiencies.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent, or
detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a
combination of deficiencies, in internal control such that there is a reasonable possibility that a material
misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a
timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control
that is less severe than a material weakness, yet important enough to merit attention by those charged
with governance. We consider the deficiencies described in the accompanying schedule of findings and
questioned costs as finding 2013-001, 2013-002, 2013-003, and 2013-004 to be material weaknesses in
internal control.
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2
INDEPENDENT AUDITORS’ REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON
INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON SCHEDULE OF EXPENDITURES OF
FEDERAL AWARDS REQUIRED BY OMB CIRCULAR A-133
To the Honorable Mayor and Members of the City Council
City of Azusa, California
Report on Compliance for Each Major Federal Program
We have audited the City of Azusa California (the City)’s compliance with the types of compliance
requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and
material effect on each of the City’s major federal programs for the year ended June 30, 2013. The City’s
major federal programs are identified in the summary of auditor’s results section of the accompanying
schedule of findings and questioned costs.
Management’s Responsibility
Management is responsible for compliance with the requirements of law, regulations, contracts, and
grants applicable to its federal programs.
Auditor’s Responsibility
Our responsibility is to express opinions on compliance for each of the City’s major federal programs
based on our audit of the types of compliance requirements referred to above. We conducted our audit of
compliance in accordance with auditing standards generally accepted in the United States of America; the
standards applicable to financial audits contained in the Government Auditing Standards, issued by the
Comptroller General of the United States, and OMB A-133, Audits of States, Local Governments, and
Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the
audit to obtain reasonable assurance about whether noncompliance with the types of compliance
requirements referred above that could have a direct and material effect on a major federal program
occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those
requirements and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion on compliance for each major
federal program. However, our audit does not provide legal determination of the City’s compliance.
Opinion on Each Major Federal Program
In our opinion, the City complied, in all material respects, with the types of compliance requirements
referred to above that could have a direct and material effect on each of its major federal programs for the
year ended June 30, 2013.
Other Matters
The City’s response to the noncompliance findings identified in the prior year are described in the
schedule of prior year findings and questioned costs. The City’s responses were not subject to the
auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the
response.
To the Honorable Mayor and Members of the City Council
City of Azusa, California
Report on Internal Control over Compliance
Management of the City is responsible for establishing and maintaining effective internal control over
compliance with the type of compliance requirements referred to above. In planning and performing our
audit of compliance, we considered the City’s internal control over compliance with the types of
requirements that could have a direct and material effect on each major federal program to determine the
auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on
compliance for each major federal program and to test and report on internal controls over compliance in
accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the
effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the
effectiveness of the City’s internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control over
compliance does not allow management or employees, in the normal course of performing 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 material weakness in internal control over compliance is a
deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a
reasonable possibility that a material noncompliance with a type of compliance requirement of a federal
program will not be prevented, or detected and corrected on a timely basis. A significant deficiency in
internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over
compliance with a type of compliance requirement of a federal program that is less severe than a material
weakness in internal control over compliance, yet important enough to merit attention by those charged
with governance.
Our consideration of internal control over compliance was for the limited purpose described in the
first paragraph of this section and was not designed to identify all deficiencies in internal control over
compliance that might be material weaknesses or significant deficiencies. We did not identify any
deficiencies in internal control over compliance that we consider to be material weaknesses. However,
material weaknesses may exist that have not been identified.
Report on the Schedule of Expenditures of Federal Awards Required by OMB Circular A-133
We have audited the financial statements of the governmental activities, the business-type activities, each
major fund, and the aggregate remaining fund information of the City of Azusa, California, as of and for
the year ended June 30, 2013, and the related notes to the financial statements, which collectively
comprise the City’s basic financial statements. We issued our report thereon dated March 10, 2014,
which contained an unmodified opinion on those financial statements. Our audit was conducted for the
purpose of forming opinions on the financial statements that collectively comprise the basic financial
statements. The accompanying schedule of expenditures of federal awards is presented for the purposes
of additional analysis as required by OMB Circular A-133 and is not a required part of the basic financial
statements. Such information is the responsibility of management and was derived from and relates
directly to the underlying accounting and other records used to prepare the basic financial statements.
The information has been subjected to the auditing procedures applied in the audit of the financial
statements and certain additional procedures, including comparing and reconciling such information
directly to the underlying accounting and other records used to prepare the basic financial statements or
to the basic financial statements themselves, and other additional procedures in accordance with auditing
standards generally accepted in the United States of America. In our opinion, the schedule of
expenditures of federal awards is fairly stated in all material respects in relation to the basic financial
statements as a whole.
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CITY OF AZUSA
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
FOR THE FISCAL YEAR ENDED JUNE 30, 2013
Federal Pass-Through
CFDA Grantor's
Federal Grantor/Pass-Through Grantor/Program Title Number Number Expenditures
U.S. Department of Housing and Urban Development
Pass through from the County of Los Angeles:
Community Development Block Grant * 14.218 Contract# 70713 394,464$
Total U.S. Department of Housing
and Urban Development 394,464
U.S. Department of Justice
Direct Program:
Bureau of Justice Assistance:
Federal Asset Seizure 16.000 N/A 203,760
Passed through the City of Los Angeles:
ARRA - Edward Byrnes Memorial Justice Assistance Grant 16.804 C-116430 6,439
2012-DJ-BX-1191 17,268
Total U.S. Department of Justice 227,467
U.S. Department of Transportation
Passed through the State of California:
Department of Transportation:
Highway Planning and Construction *20.205 SRTSLNI-5112(015)85,714
HPLUL-5112(013)263,774
Passed through the State of California:
Office of Traffic Safety:
Sobriety Checkpoint 20.600 SC12 026 6,200
SC13 026 17,132
Total U.S. Department of Transportation 372,820
U.S. Department of Health and Human Services
Passed through the County of Los Angeles:
Administration for Community Living
Special Programs for the Aging Title III Part C Nutrition Services 93.045 AAA-ENP2-0809-001 116,828
Center for Disease Control and Prevention
ARRA - Prevention and Wellness - Communities Putting
Prevention to Work Funding Opportunities Announcement 93.724 PH-001128 7,000
Total U.S. Department of Health and Human Services 123,828
U.S. Department of Homeland Security
Passed through the County of Los Angeles:
Homeland Security Grant Program 97.067 2009-0019 249,151
Total U.S. Department of Homeland Security 249,151
Total Federal Expenditures 1,367,730$
*Major Program
Note A:Refer to Note 1 to the schedule of expenditures of federal awards for a description of
significant accounting policies used in preparing this schedule.
Note B:There was no federal awards expended in the form of noncash assistance and insurance in effect
during the year.
Note C:Total amount provided to subrecipients during the year was $19,996.
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CITY OF AZUSA
NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
FOR THE YEAR ENDED JUNE 30, 2013
Note 1: Summary of Significant Accounting Policies Applicable to the Schedule of Expenditures of
Federal Awards
a. Scope of Presentation
The accompanying schedule presents only the expenditures incurred by the City of Azusa,
California, that are reimbursable under federal programs of federal financial assistance. For
the purposes of this schedule, federal awards include both federal financial assistance
received directly from a federal agency, as well as federal funds received indirectly by the
City from a non-federal agency or other organization. Only the portion of program
expenditures reimbursable with such federal funds is reported in the accompanying schedule.
Program expenditures in excess of the maximum federal reimbursement authorized or the
portion of the program expenditures that were funded with state, local or other non-federal
funds are excluded from the accompanying schedule.
b. Basis of Accounting
The expenditures included in the accompanying schedule were reported on the modified
accrual basis of accounting. Under the modified accrual basis of accounting, expenditures are
incurred when the City becomes obligated for payment as a result of the receipt of the related
goods and services. Expenditures reported included any property or equipment acquisitions
incurred under the federal program.
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CITY OF AZUSA
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
FOR THE FISCAL YEAR ENDED JUNE 30, 2013
SECTION I - SUMMARY OF AUDITORS' RESULTS
Financial Statements
Type of auditors' report issued: Unmodified Opinion
Internal control over financial reporting:
• Significant deficiencies identified? yes X no
• Material weaknesses identified? X yes none reported
Noncompliance material to financial
statements noted? yes X no
Federal Awards
Internal control over major programs:
• Significant deficiencies identified? yes X no
• Material weaknesses identified? yes X none reported
Type of auditors' report issued on compliance for major programs: Unmodified Opinion
Any audit findings disclosed that are required to be
reported in accordance with Section 510(a) of
Circular A-133? yes X no
Identification of major programs:
CFDA Number(s) Name of Federal Program or Cluster
14.218 Community Development Block Grant
20.205 Highway Planning and Construction
Dollar threshold used to distinguish
between type A and type B program $300,000
Auditee qualified as low-risk auditee? yes X no
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CITY OF AZUSA
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
FOR THE FISCAL YEAR ENDED JUNE 30, 2013
SECTION II - FINANCIAL STATEMENT FINDINGS
Finding Number 2013-001: Excessive Post Audit Entries
In the prior year it was brought to your attention that many account balances required extensive
reconciliation to finalize financial information. During our audit in the current year this weakness still
existed. The City proposed a large amount of entries that needed to be posted by LSL which has
caused significant delays in producing the financial statements. This lack of planning and preparation
in future years will continue to cause delays in the timeliness of financial statement drafts being
available. We suggest that this situation be corrected as soon as possible, and that all accounts be
properly reconciled and all entries prepared prior to our arrival for field work.
Management’s Response:
Management will closely monitor that entries are recorded timely prior to the commencement of the
annual audit. Staff has been instructed and reassigned responsibilities to ensure that their funds’
financial statements are completed on time.
Finding Number 2013-002: Cash and Investments
During our testwork it was noted that the City’s cash and investment were not properly balanced to
the general ledger in a timely manner. The design of internal control should be improved upon to
include a formalized procedure to properly balance and reconcile all of the City’s cash and
investments as reported in the City’s financial statements.
Management’s Response:
The department lost a staff member to retirement whose main responsibility was to balance our cash
and investment accounts. This caused remaining staff to pick up the responsibility. Currently, there
are two employees who are now aware of the process of the reconciliation and will ensure that it is
completed prior to the audit commencing.
Finding Number 2013-003: Accounting for Grants
During our audit procedures, we reviewed the Schedule of Federal Expenditures and Awards, as well
as the Schedule of Non Federal Expenditures and Awards prepared by management and noted that it
did not properly record the activity related to all grants. The City neglected to include neither deferred
revenue for monies spent but not yet reimbursed, nor unearned revenue for monies received but not
yet earned. Adjusting entries were made by LSL to eradicate these issues.
Management’s Response:
Management and staff will ensure that the activities are recorded appropriately.
Finding Number 2013-004: Due To and From Other Funds
It is noted that the due to and from other funds between the General Fund and the Water Fund has
crossed into multiple years and continues to increase. The due to and from other funds is used as
short-term (less than one year) borrowing between funds. Since these borrowings are required over
multiple years, we recommend a formal advance (long-term loan agreement) be entered into between
the General Fund and the Water Fund. We also recommend a formal fiscal policy to be implemented
to assess the future financial cashflow of the General Fund, which would identify when these loan
agreements need to be entered into in advance.
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CITY OF AZUSA
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
FOR THE FISCAL YEAR ENDED JUNE 30, 2013
SECTION II - FINANCIAL STATEMENT FINDINGS (CONTINUED)
Management’s Response:
A loan agreement will be entered should the need arise next year and a formal fiscal policy will be
created and implemented to provide a system of assessment of the financial status of the General
Fund.
SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
No matters were reported.
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CITY OF AZUSA
SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS
FOR THE FISCAL YEAR ENDED JUNE 30, 2012
SECTION II - FINANCIAL STATEMENT FINDINGS
Finding Number 2012-001: Financial Reporting Software
During our test work it was noted that the Financial Software currently used by the City does not
actually close out the prior fiscal year. This causes difficulties if an erroneous error gets posted into
the system, and there are not adequate safeguards in place to mitigate the risk. Additionally, the City
hadn’t been using a journal entry log prior to our noting this item so it would be difficult to detect if an
error had been posted to the wrong fiscal year.
Finding Number 2012-002: Override of Controls
It was noted in the prior year that the accounts payable account specialist had access to add or
change vendors. A recommendation was made by LSL and implemented by the City to restrict this
employee from having access to add or change vendors because that same employee processes
accounts payable, which increases the risk of error and fraud. During our test work it was noted that
the accounts payable account specialist had access to add or change vendors through the use of
another employee’s username and password. This makes the controls ineffective and we
recommend that employees keep passwords and usernames private.
Finding Number 2012-003: Reconciliation of Cash
During our test work it was noted that the cash with fiscal agent balances were not properly
reconciled. The current format for the bank reconciliations involves many different employees
responsible for different accounts, and makes the overall reconciliation to the General Ledger difficult.
We recommend that the City include all cash on hand in the treasurer’s report and verify the cash
with fiscal agent amounts properly reconcile. The main issue this year was the result of the
defeasance of old debt and the issuance of the 2012 Water and Electric Bonds, resulting in an
overstatement of cash by over $11 million. Adjusting entries were made by LSL to properly reconcile
cash at June 30, 2012.
Finding Number 2012-004: Accounting for Grants
During our audit procedures, we reviewed the Schedule of Federal Expenditures and Awards, as well
as the Schedule of Non Federal Expenditures and Awards prepared by management and noted that it
did not properly record the activity related to all grants. The City neglected to include neither deferred
revenue for monies spent but not yet reimbursed, nor unearned revenue for monies received but not
yet earned. Adjusting entries were made by LSL to eradicate these issues.
Finding Number 2012-005: Accounts Payable Cutoff
During our search for unrecorded liabilities, we noted an exception in which an invoice related to
goods received or services performed prior to the year-end date were not recorded as a payable in
the proper period. Proper cutoffs are critical for the accuracy of the accrual basis of accounting. We
suggest that the City implement proper accounting policies and procedures to ensure the cutoff is
done correctly in future years.
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CITY OF AZUSA
SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS
FOR THE FISCAL YEAR ENDED JUNE 30, 2012
SECTION II - FINANCIAL STATEMENT FINDINGS (CONTINUED)
Finding Number 2012-006: Journal Entry Filing System
During our test work it was noted that Journal Entries for the past six months of the fiscal year had not
been properly filed, making it difficult to find specific entries that hadn’t been filed as of the date of our
test work. At times during the audit process journal entries could not be located and duplicates had to
be printed using the accounting software, but the support for the entry was not available. Supporting
documentation for items recorded in the books of accounts should be readily available within the
organization. We strongly recommend that a better system of document file maintenance be
implemented. A solid system of file maintenance is a basic element of a strong system of accounting
procedures and related controls.
Finding Number 2012-007: Excessive Post Audit Entries
During our audit, we noted many account balances require extensive reconciliation to finalize financial
information that can be relied on. This resulted in a large amount of entries proposed by the City that
needed to be posted by LSL which has caused significant delays in producing the financial
statements. This lack of planning and preparation in future years will continue to cause delays in the
timeliness of financial statement drafts being available. We suggest that this situation be corrected as
soon as possible, and that all accounts be properly reconciled and all entries prepared prior to our
arrival for field work.
Finding Number 2012-008: Negative Cash in the General Fund
We noted that the General Fund had a negative cash balance at June 30, 2012. LSL performed a
reclassifying entry to move cash from the Water Utility Fund to the General Fund and set up a
short-term receivable in the Water Utility Fund. We recommend that this situation be evaluated and if
it is determined that the General Fund will have negative cash for an extended period we recommend
that a formal advance or loan be established between the two funds. Future plans and budgets
should be developed with the knowledge that the City needs to replenish these funds.
SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Finding Number 2012-009:
Federal Program:
CFDA number: 20.205
Title: Department of Transportation – ARRA – Highway Planning and Construction
Federal Grantor: U.S. Department of Transportation
Grant number: ESPL-5112(012)
Criteria or specified requirement:
The U.S. Department of Transportation A-133 compliance requires quarterly reports
(Section 1512) be submitted to within 10 days following the end of the quarter for periods ending
September 30, December 30, March 30, and June 30.
Condition:
The City did not file the required quarterly reports outlined in the A-133 compliance requirement.
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CITY OF AZUSA
SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS
FOR THE FISCAL YEAR ENDED JUNE 30, 2012
SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS (CONTINUED)
Questioned Costs:
None
Context:
The City’s grants are decentralized and the department administering the grant did not properly file the
quarterly reports in a timely manner. We believe this resulted from a systemic issue of internal control.
Effect:
The City is not in compliance with the A-133 requirements.
Recommendation:
We recommend that management designate personnel who will be responsible for the timely submission
of these reports.
Management’s Response:
Management will analyze its staffing resources to determine which staff to assign the monitoring and
analyzing of grants. This employee will ensure the compliance requirements of the grants are met in a
timely manner.
Status:
Reports are now filed timely and no late filing was noted in fiscal year 2012-2013.
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