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HomeMy WebLinkAboutSINGLE AUDIT FINAL REPORT FY 16-17      City of Azusa Azusa, California Single Audit Report For the year ended June 30, 2017 City of Azusa Single Audit Report For the year ended June 30, 2017 Table of Contents       Page Independent Auditor’s 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 Auditor’s Report on Compliance for Each Major Program and on Internal Control over Compliance Required by the Uniform Guidance .............................................. 3 Schedule of Expenditures of Federal Awards ................................................................................................... 7 Notes to the Schedule of Expenditures of Federal Awards ............................................................................ 8 Schedule of Findings and Questioned Costs .................................................................................................... 9 Address: 180 Grand Avenue, Suite 1500 Oakland, CA 94612 • Phone: 510.768.8251 • Fax: 510.768.8249     INDEPENDENT AUDITOR’S 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 of the City of Azusa 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 (City), as of and for the year ended June 30, 2017, 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 30, 2018. 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. 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. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. We did identify one deficiency in internal control, described in the accompanying schedule of findings and questioned costs as 2017-001 that we consider to be a significant deficiency.   2  To the Honorable Mayor and Members of the City Council of the City of Azusa Azusa, California Page 2 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 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 Response to Findings The City’s response to the findings identified in our audit is described in the accompanying schedule of findings and questioned costs. The City’s response 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 entity’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 entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Badawi & Associates, CPAs Oakland, California March 30, 2018 Address: 180 Grand Avenue, Suite 1500 Oakland, CA 94612 • Phone: 510.768.8251 • Fax: 510.768.8249     INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To the Honorable Mayor and Members of the City Council of the City of Azusa Azusa, California Report on Compliance for Each Major Federal Program We have audited the City of Azusa, California (City)’s 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 City’s major federal programs for the year ended June 30, 2017. 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 federal statutes, regulations, and the terms and conditions of its federal awards 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.   4 To the Honorable Mayor and Members of the City Council of the City of Azusa Azusa, California Page 2 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, 2017. 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 and therefore, material weaknesses or significant deficiencies may exist that were not identified. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. 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.   5 To the Honorable Mayor and Members of the City Council of the City of Azusa Azusa, California Page 3 Report on 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, as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements. We issued our report thereon dated March 30, 2018, which contained unmodified opinions 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 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.   Badawi & Associates, CPAs Oakland, California March 30, 2018   6 This page intentionally left blank City of Azusa Schedule of Expenditures of Federal Awards For the year ended June 30, 2017 Federal Grantor/ Catalog Pass-through Program Subrecipient Grantor Agency and Grant Title Number Number Expenditures Expenditures U.S. Department of Housing and Urban Development: Passed through County of Los Angeles Community Development Block Grant 14.218 Contract 108578 395,323$ -$ Total U.S. Department of Housing and Urban Development 395,323 - U.S. Department of Justice: Passed through State of California 2015 JAG Grant 16.738 2015-DJ-BX-0132 80 - 2016 JAG Grant 16.738 2016-DJ-BX-0245 16,834 Subtotal CFDA 16.738 16,914 - Direct Program Federal Asset Seizure 16.922 CA0190500 204,401 Organized Crime Drug Enforcement Task Force 16.004 SW-CAC-1274 10,532 - Total U.S. Department of Justice 231,847 - U.S. Department of Health and Human Services: Passed through County of Los Angeles Special Program for Aging Title III 93.045 AAA-ENP162001 127,861 - Total U.S. Department of Health and Human Services 127,861 - U.S. Department of Transportation: Highway Safety Cluster Passed through State of California Selective Traffic Enforcement Program 20.600 PT1658 13,362 - Selective Traffic Enforcement Program 20.600 PT1703 56,712 - Subtotal Highway Safety Cluster 70,074 - Total U.S. Department of Transportation 70,074 - U.S. Department of Homeland Security Passed through State of California Pre-Disaster Mitigation Grant 97.047 Not available 35,970 - Total U.S. Department of Homeland Security 35,970 - U.S. Department of Education Passed through State of California Adult Education - Basic Grants to States 84.002 V002A15005 28,433 - Total U.S. Department of Education 28,433 - Institute of Museum and Library Services Passed through State of California Neighborhood Connections 45.310 40-8503 762 - SPARKS 45.312 SP-02-16-0027-16 21,362 - Total Institute of Museum and Library Services 22,124 - Total Expenditures of Federal Awards 911,632$ -$ See accompanying Notes to Schedule of Expenditures of Federal Awards. 7 City of Azusa Notes to the Schedule of Expenditures of Federal Awards For the year ended June 30, 2017 8 A. Reporting Entity 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 Funds received under the various grant programs have been recorded within the general, special revenue, and capital projects funds of the City. The City utilizes the modified accrual basis of accounting for the general, special revenue, and capital projects funds. Expenditures of federal awards reported on the Schedule of Expenditures of Federal Awards (Schedule) are recognized when incurred. C. Relationship of Schedule of Expenditures of Federal Awards to Financial Statements The accompanying Schedule presents the activity of all federal financial assistance programs of the City. Federal financial assistance received directly from federal agencies as well as federal financial assistance passed through the State of California is included in the Schedule. The Schedule was prepared only from the accounts of various grant programs and, therefore, does not present the financial position or results of operations of the City. D. Pass-Through Entities’ Identifying Number When federal awards were received from a pass-through entity, the Schedule shows, if available, the identifying number assigned by the pass-through entity. When no identifying number is shown, the City determined that no identifying number is assigned for the program or the City was unable to obtain an identifying number from the pass-through entity. E. Indirect Costs The City did not elect to use the 10% de minimus indirect cost rate as allowed under the Uniform Guidance. City of Azusa Schedule of Findings and Questioned Costs For the year ended June 30, 2017   9 Section I – Summary of Auditor’s Results Financial Statements Types of auditors’ report issued on whether financial statements audited were prepared in accordance with GAAP: Unmodified Internal control over financial reporting:  Material weakness(es) identified? No  Significant deficiency(ies) identified? Yes Any noncompliance material to the financial statements noted No Federal Awards Internal control over major programs:  Material weakness(es) identified? No  Significant deficiency(ies) identified? None noted Type of auditor’s report issued on compliance for major programs Unmodified Any audit findings disclosed that are required to be reported in accordance with section 200.516(a) No Identification of major programs: CFDA Number(s)Name of Federal Program or Cluster Expenditures 14.218 Community Development Block Grants/Entitlement Grants 395,323$ Total Expenditures of All Major Federal Programs 395,323$ Total Expenditures of Federal Awards 911,632$ Percentage of Total Expenditures of Federal Awards 43% Dollar threshold used to distinguish between type A and type B program $750,000 Auditee qualified as low-risk auditee under section 200.520? No City of Azusa Schedule of Findings and Questioned Costs, Continued For the year ended June 30, 2017   10 Section II – Current Year Findings A. Current Year Findings – Financial Statement Audit 2017-001. Restatement of Previously Issued Financial Statements Criteria: The City is responsible for the fair presentation of the financial statements in conformity with accounting principles generally accepted in the United States of America. Condition: The City recorded a prior period adjustments to correct allocation of expenditures, to eliminate a loan receivable balance that represented a lease receivable due to the Azusa Public Financing Authority from the City of Azusa that should have been eliminated during consolidation of governmental activities, and to correctly capture the value of an asset placed in service in fiscal year 2014 to agree with the City’s capital asset inventory schedules. Cause: The City’s internal controls over financial reporting did not identify the misstatements in a timely manner resulting in the restatement. Context and Effect: The City’s previously issued financial statements were not fairly stated in conformity with accounting principles generally accepted in the United States of America. Recommendation: We recommend that the City enhance its internal control over financial reporting to ensure complete and accurate financial reporting. The City can accomplish this by expanding its year-end closing procedures to ensure that all non-routine and nonsystematic transactions are accounted for, the appropriate accounting standards are applied, and transactions are accounted for in the proper period. Management Response: The City will take steps to implement this recommendation. B. Current Year Findings and Questioned Costs – Major Federal Award Program Audit No current year findings or questioned costs. City of Azusa Schedule of Findings and Questioned Costs, Continued For the year ended June 30, 2017   11 Section III- Prior Year Findings A. Prior Year Findings – Financial Statement Audit 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. 2017 Update: Implemented. 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. City of Azusa Schedule of Findings and Questioned Costs, Continued For the year ended June 30, 2017   12 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. 2017 Update: Implemented. 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. 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. 2017 Update: Implemented, the City reconciled capital asset activity; however the City recorded a prior period adjustment as part of addressing this finding. 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. City of Azusa Schedule of Findings and Questioned Costs, Continued For the year ended June 30, 2017   13 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. 2017 Update: Implemented. No significant matters noted. 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. 2017 Update: Implemented, the City reconciled capital asset activity; however the City recorded a prior period adjustment as part of addressing this finding. 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. 2017 Update: Implemented. B. Prior Year Findings and Questioned Costs – Major Federal Award Program Audit No prior year findings or questioned costs.