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HomeMy WebLinkAboutAzusa Single Audit Report, June 30, 2016CITY OF AZUSA, CALIFORNIA SINGLE AUDIT REPORT JUNE 30, 2016 CITY OF AZUSA, CALIFORNIA SINGLE AUDIT REPORT JUNE 30, 2016 CITY OF AZUSA, CALIFORNIA SINGLE AUDIT REPORT JUNE 30, 2016 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 the Uniform Guidance ........................................................................................ 3 Schedule of Expenditures of Federal Awards for Fiscal Year Ended June 30, 2016 .................................................................................................. 6 Notes to Schedule of Expenditures of Federal Awards .......................................................................... 7 Schedule of Findings and Questioned Costs for Fiscal Year Ended June 30, 2016 .................................................................................................. 8 Schedule of Prior Year Findings and Questioned Costs for Fiscal Year Ended June 30, 2015 ................................................................................................ 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, 2016, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated December 28, 2016. 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. As described in the accompanying schedule of findings and questioned costs, we identified certain deficiencies in internal control that we consider to be material weaknesses as items 2016-001 through 2016-003 and 2016-004 to be a significant deficiency. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the 203 N. Brea Blvd., Suite 203 Brea, CA 92821 Phone: 714.672.0022 An Association of Independent Accounting Firms To the Honorable Mayor and Members of the City Council City of Azusa, California determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. City’s Response to Findings The City’s response to the findings identified in our audit was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Brea, California December 28, 2016 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 THE UNIFORM GUIDANCE 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 compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the major federal programs of the City of Azusa, California (the City), for the year ended June 30, 2016. 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 laws, regulations, contracts, and grants applicable to its federal programs. Auditor’s Responsibility Our responsibility is to express an opinion 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 Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to 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 a 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, 2016. 203 N. Brea Blvd., Suite 203 Brea, CA 92821 Phone: 714.672.0022 An Association of Independent Accounting Firms 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 types 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 control over compliance in accordance with the Uniform Guidance, 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 combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that 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 the Uniform Guidance 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, 2016, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements. We issued our report thereon dated December 28, 2016, which contained a qualified 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 the Uniform Guidance 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. 4 To the Honorable Mayor and Members of the City Council City of Azusa, California The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Brea, California March 20, 2017 (except for the except for the Schedule of Expenditures of Federal Awards which is as of December 28, 2016) 5 CITY OF AZUSA SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE FISCAL YEAR ENDED JUNE 30, 2016 Catalog of Federal Passed Domestic Assistance Grantor's Federal Through to Federal Grantor/Pass-Through Grantor/Program Title (CFDA) Number Number Expenditures Subrecipients U.S. Department of Housing and Urban Development Passed through the County of Los Angeles: Community Development Block Grant / Entitlement Grants*14.218 Contract# 70713 530,671$ 19,892$ Total U.S. Department of Housing and Urban Development 530,671 19,892 U.S. Department of Justice Direct Program: Law Enforcement Assistance - Narcotics and Dangerous Drugs Training 16.004 SW-CAC-1274 52,515 - Passed through the City of Los Angeles: Edward Byrnes Memorial Justice Assistance Grant 16.738 2014-DJ-BX-0277 5,467 - Edward Byrnes Memorial Justice Assistance Grant 16.738 2015-DJ-BX-0132 17,289 - Direct Program: Bureau of Justice Assistance: Equitable Sharing Program 16.922 CA0190500 351,344 - Total U.S. Department of Justice 426,615 - U.S. Department of Transportation Passed through the State of California, Department of Transportation: Highway Planning and Construction* 20.205 HPLUL-5112(013) 3,672,454 - Passed through the State of California, Office of Traffic Safety: State and Community Highway Safety 20.600 PT1658 48,392 - State and Community Highway Safety 20.600 PT15102 19,639 - Subtotal State and Community Highway Safety 68,031 - Total U.S. Department of Transportation 3,740,485 - Institute of Museum and Library Services Passed through the State of California: Grants to States 45.310 40-8503 29,238 - Total Institute of Museum and Library Services 29,238 - U.S. Department of Education Passed through the State of California, Department of Education: Adult Education - Basic Grants to States 84.002 V002A150005 26,717 - Total U.S. Department of Education 26,717 - U.S. Department of Health and Human Services Passed through the County of Los Angeles: Department of Community and Senior Services Special Programs for Aging-Title III, Part C-Nutrition Services 93.045 AAA-ENP-1216-02 127,407 - Total U.S. Department of Health and Human Services 127,407 - Total Federal Expenditures 4,881,133$ 19,892$ * Major Program Note A: Note B:There were no federal awards expended in the form of noncash assistance and insurance in effect during the year. Refer to Note 1 to the schedule of expenditures of federal awards for a description of significant accounting policies used in preparing this schedule. 6 CITY OF AZUSA NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR FISCAL YEAR ENDED JUNE 30, 2016 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. c. Indirect Cost Rate The City has elected not to use the 10-percent de minimus indirect cost rate allowed under the Uniform Guidance. Note 2: Loan Programs with Continuing Compliance Requirements The City participates in certain federal award programs that sponsor revolving loan programs, which are administered by the City. These programs required servicing arrangements with the City. The funds are returned to the programs upon repayment of the principal and interest. Current year transactions relating to these programs are included in the Schedule of Expenditures of Federal Awards. In accordance with 2 CFR section 200.502(b), the balance of loan program outstanding June 30, 2016 are as follows: CFDA Number Program Name Outstanding Balance at June 30, 2016 14.218 CDBG Loans 57,237$ Total Loans Outstanding 57,237$ 7 CITY OF AZUSA SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR FISCAL YEAR ENDED JUNE 30, 2016 SECTION I - SUMMARY OF AUDITORS' RESULTS Financial Statements Type of auditors' report issued: Unmodified Opinion Internal control over financial reporting:  Significant deficiencies identified? X yes 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 Title 2 U.S. Code of Federal Regulations Part 200? 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 $750,000 Auditee qualified as low-risk auditee? yes X no 8 CITY OF AZUSA SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) FOR FISCAL YEAR ENDED JUNE 30, 2016 SECTION II - FINANCIAL STATEMENT FINDINGS Finding 2016-001: Cash and Investments Reconciliation Material Weakness In performing our audit procedures, it was noted that the City’s cash and investments were not properly reconciled to the general ledger. During the course of the audit, cash and investments balances were adjusted to reduce the City’s recorded amounts by $23,001,509 in order to properly reconcile. The adjustments were primarily caused due to errors surrounding the recorded cash balances of various debt service accounts following the issuances of refunding bonds. Recommendation: 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. We recommend that the City ensure all items included on the bank statements also be included in the cash balance and maintain the appropriate oversight of the bank reconciliation and journal entry processes. While the city may have certain accounts reconciled, the reconciliation should include all accounts. Management’s Response: We acknowledge reconciliation of cash has been an ongoing concern of the City’s auditors. In 2015, the City refinanced bonds that necessitated the establishment of escrow accounts to fund future debt service payments for the portion(s) of the bonds ineligible for early defeasance. Due to the complexity of the refinancing’s, the City recorded the funds held in escrow in its general ledger when posting the refinancing entries in error. City Finance Staff has worked with LSL to correct the refinance postings in the general ledger and is now aware of how to calculate the various entries needed to properly record similar future refinancing’s in the general ledger. Finding 2016-002: Long-Term Debt Reconciliation Material Weakness In performing our audit procedures, it was noted that the City did not properly defease the 2007 Series A Taxable Tax Allocation Bonds and the 2008 Series B Housing Tax Allocation Bonds resulting from the issuance of the 2015 A& B Subordinate Tax Allocation Refunding Bonds. We noted the City also did not set up a deferred charge in relation to the issuance of the refunding bonds. In performing our audit procedures, we noted the City did not properly calculate the deferred charge in relation to the issuance of the 2015 Water System Refunding Revenue Bonds. Recommendation: The design of internal control should be improved upon to include a formalized procedure to properly record and calculate all applicable items related to the issuance of refunding bonds. Management’s Response: This finding directly impacted the findings related to reconciliation of cash and investments. City Finance Staff has worked with LSL to correct the refinance postings in the general ledger and is now aware of how to calculate the various entries needed to properly record similar future refinancing’s in the general ledger. 2016-003: Capital Assets Reconciliation Material Weakness In performing our audit procedures, it was noted the City did not properly capitalize $432,630 related to prior period capital costs. This resulted in a prior period restatement recorded in the governmental activities of the government-wide statements. 9 CITY OF AZUSA SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) FOR FISCAL YEAR ENDED JUNE 30, 2016 SECTION II - FINANCIAL STATEMENT FINDINGS (Continued) In performing our audit procedures, it was noted the City did not properly capitalize $983,299 related to current year capital costs. Recommendation: The design of internal control should be improved upon to ensure the Finance Department is adequately communicating with other departments in regards to the status of various capital projects and capital purchases. The Finance Department should be communicating with various departments, and tracking and properly recording this activity on an ongoing basis. Management’s Response: We agree with this finding. Reconciliation of Capital Assets needs to be refined. Some capital related costs were recorded to non-capital accounts and therefore not picked up in the capital assets reconciliation process. City Finance Staff will incorporate into its capital asset reconciliation a review of non-capital accounts to ensure all capital related items are properly and timely capitalized. 2016-004: Inventory Reconciliation Significant Deficiency In performing our audit procedures, it was noted the City did not properly update its inventory listing with two of three discrepancies noted and communicated during our inventory observation on June 30, 2016. The discrepancies were not significant, however, the failure to record the adjustments suggests a lack of oversight on the maintenance of the inventory listing. Recommendation: The design of internal control should be improved upon to ensure management is properly noting and adjusting inventory accounts for any discrepancies noted during the inventory counts. Management’s Response: We agree with this finding; however, City Finance Management was unaware such requests were made. While the fiscal impact is less than $100, adjustments requested by the auditors should have been recorded. City Finance Management has discussed this finding with applicable staff and has stressed the importance of communication of audit request with management and the importance of following through with such requests. 10 CITY OF AZUSA SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS FOR FISCAL YEAR ENDED JUNE 30, 2015 SECTION II - FINANCIAL STATEMENT FINDINGS Finding 2015-001: LA County Cities Excess Funding Grant Material Weakness In performing our audit procedures, it was noted that the LA County Cities Excess Funding Grant is a cost-reimbursement grant, however, there have not been any reimbursement requests sent from the Recreation Center. The Finance Department has not received the request nor the support to book the entry. There have been expenditures of $263,359 incurred but no request for reimbursement has been submitted nor accrued for in the financial statements. Recommendation: We recommend the City develop and implement a comprehensive policy and procedures to create list of grants to track all expenditures and revenues and account for each appropriately in the general ledger, and timely submit reimbursement requests. Management’s Response: We agree that a reimbursement was not requested by the Recreation and Family Services Department nor was an accrual recorded. The Los Angeles County Regional Parks and Open Space District’s Cities and Specified Excess Funds Grant Program requires a Youth Employment Plan to be adopted before the District reimburses any costs incurred by the Grantee. On December 7, 2015, the City Council adopted Resolution 2015-C64 approving the adoption of a Youth Employment Plan. The Recreation Department is compiling the respective costs for each of the four projects covered under the Grant and will submit to the County. Copies of respective billings were not presented to Finance thus an entry was not prepared. Finance staff will ensure that departments provide a reconciliation of the grant program expenditures by year-end. 2016 Update: The City has properly reconciled all major grants for the fiscal year ended June 30, 2016. Finding 2015-002: Capital Asset Reconciliation Material Weakness In performing our audit procedures, it was noted that the City recorded additions in the amount of $353,738 to the Water Fund Infrastructure and also double recorded these same additions as Construction in progress in the capital assets reconciliation. Additionally, there was a correction to capital asset classification from internal service funds to the City’s capital assets in the amount of $992,955 shown as a restatement in the internal service fund. Recommendation: We recommend the City reconcile general ledger fixed asset accounts to the detailed records on a monthly basis. Management’s Response: We agree with the auditors that the general ledger fixed asset accounts need to be reconciled with the detailed records on a monthly basis. However, due to staffing reduction, such reconciliation is done semi-annually. With large number capital asset transactions from the Utility and Public Works departments, maintaining the City’s fixed asset subledger is a huge task involving Bitech and multiple spreadsheets. However, an analysis of the department staffing needs is being developed to determine whether a reorganization of personnel responsibilities is required or if additional personnel resources are needed. 2016 Update: Refer to Finding No. 2016-003 and correction action plan. 11 CITY OF AZUSA SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS (CONTINUED) FOR FISCAL YEAR ENDED JUNE 30, 2015 SECTION II - FINANCIAL STATEMENT FINDINGS (Continued) Finding 2015-003: Long-Term Debt Reconciliation Material Weakness It was noted that the City did not record all necessary entries to record all payments on principal for the 2003 PFA COP Bond, discounts/premiums or the unamortized loss on defeasance for the Business-Type bonds. Recommendation: We recommend the City review debt transactions and properly track and record in the general ledger at least semi-annually. Management’s Response: We agree with the finding. The 2003 PFA COP bond principal and interest installment due August 2014 was inadvertently paid by the Successor Agency directly to the Trustee. The City should have paid the installment and the Successor Agency reimburses the City for this outflow. The City has setup a schedule to define where and when payments are due to the respective parties. Entries to record the defeasance of business-type bonds will be recorded timely into the City’s general ledger. This includes the amortization of bond discounts and premiums associated with business-type bond installment payments. 2016 Update: Refer to Finding No. 2016-002 and correction action plan. Finding 2015-004: GASB 68 Reports Material Weakness During the year-end audit fieldwork, it was noted that the City had not ordered the proper valuation reports for GASB 68 for PERS or PARS net pension liability. Recommendation: We recommend the City staff attend training for new accounting pronouncements that affect the City reporting to be more properly prepared for new guidance implementation. Management’s Response: We agree with the finding that the reports were not ordered in a timely manner. The Finance Department will provide training for appropriate staff to determine what new pronouncements will affect City reporting. We will utilize resources such as the Government Finance Officers Association to be better informed. 2016 Update: City properly ordered the valuation reports for GASB 68 for the fiscal year ended June 30, 2016. Finding 2015-005: Cash and Investments Reconciliation Significant Deficiency In performing our audit procedures, it was noted that the City’s cash and investments were not properly balanced to the general ledger in a timely manner. The City made adjustments of $109,683 in order to properly reconcile. 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. 12 CITY OF AZUSA SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS (CONTINUED) FOR FISCAL YEAR ENDED JUNE 30, 2015 SECTION II - FINANCIAL STATEMENT FINDINGS (Continued) Recommendation: We recommend that the City ensure all items included on the bank statements also be included in the cash balance and maintain the appropriate oversight of the bank reconciliation and journal entry processes. While the city may have certain accounts reconciled, the reconciliation should include all accounts. Management’s Response: We agree with the finding. The entries made were due to market value adjustments and not due to unrecognized cash and investments. Because of staff reductions, only the City’s general account is reconciled monthly. Transactions on all other trustee accounts are recorded quarterly or semi-annually. In years past with adequate staffing, we have been able to reconcile monthly. Nevertheless, an analysis of the department staffing needs is being developed to determine whether a reorganization of personnel responsibilities is required or if additional personnel resources are needed. 2016 Update: Refer to Finding No. 2016-001 and correction action plan. Finding 2015-006: Journal Entry Posting Significant Deficiency During our internal control review, it was noted that the computer system does not prohibit a preparer to be different from the employee who posts or reviews the entry. Management has the capability of preparing and posting journal entries to override existing transactions. Journal entries is an area most susceptible to management override of controls and manipulation of financial measures. Recommendation: We recommend the design of internal control be improved upon to include a formalized segregation of duties and correlating computer controls. Management’s Response: We agree with the finding. We have been working with the Information Technology department to restrict the same staff from preparing and posting a journal entry. The duties have been segregated so that staff is not able of prepare and post transactions. 2016 Update: City has implemented compensating controls in relation to the journal entry internal control process. This finding was removed for the June 30, 2016 audit. Finding 2015-007: Insurance Claims and Judgment Significant Deficiency In performing our audit procedures, there were adjusting entries recorded by the auditing staff to report account balances accurately for the insurance liability. Additionally, entries were not posted to adjust the liability from the prior year so the general ledger was adjusted materially to reconcile the insurance liability. Recommendation: We recommend quarterly and annually reconciliations of complex accounting areas such as insurance reserves to the supporting documentation and general ledger prior to the audit. Management’s Response: We agree with the finding. The Finance department will work quarterly with the Human Resources department to account for the insurance liability to ensure timely entries. 13 CITY OF AZUSA SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS (CONTINUED) FOR FISCAL YEAR ENDED JUNE 30, 2015 SECTION II - FINANCIAL STATEMENT FINDINGS (Continued) 2016 Update: City has properly implemented and adjusted for the insurance liability as of June 30, 2016 audit. SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters noted. 14 Corrective Action Plan 6-30-16 Continued 1 | Page City of Azusa Corrective Action Plan Independent Auditors’ Report on Internal Control Report June 30, 2016 Finding No. 2016-001: Cash and Investments Reconciliation Corrective Action Plan We acknowledge reconciliation of cash has been an ongoing concern of the City’s auditors. In 2015, the City refinanced bonds that necessitated the establishment of escrow accounts to fund future debt service payments for the portion(s) of the bonds ineligible for early defeasance. Due to the complexity of the refinancings, the City recorded the funds held in escrow in its general ledger when posting the refinancing entries in error. City Finance Staff has worked with LSL to correct the refinance postings in the general ledger and is now aware of how to calculate the various entries needed to properly record similar future refinancings in the general ledger. Finding No. 2016-002: Long-Term Debt Reconciliation Corrective Action Plan This finding directly impacted the findings related to reconciliation of cash and investments. City Finance Staff has worked with LSL to correct the refinance postings in the general ledger and is now aware of how to calculate the various entries needed to properly record similar future refinancings in the general ledger. Finding No. 2016-003: Capital Assets Reconciliation Corrective Action Plan We agree with this finding. Reconciliation of Capital Assets needs to be refined. Some capital related costs were recorded to non-capital accounts and therefore not picked up in the capital Corrective Action Plan 6-30-16 Continued 2 | Page assets reconciliation process. City Finance Staff will incorporate into its capital asset reconciliation a review of non-capital accounts to ensure all capital related items are properly and timely capitalized. Finding No. 2016-004: Inventory Reconciliation Corrective Action Plan We agree with this finding; however, City Finance Management was unaware such requests were made. While the fiscal impact is less than $100, adjustments requested by the auditors should have been recorded. City Finance Management has discussed this finding with applicable staff and has stressed the importance of communication of audit request with management and the importance of following through with such requests.