For City Council Meeting November 15, 2022
TO: Honorable Mayor and City Council
APPROVAL: Marcus Fuller, City Manager
FROM: Katherine Stevens, Finance Director
Title
Request City Council to Receive and File the Fiscal Year 2020-2021 Single Audit Report.
Body
BACKGROUND
September 29, 2022, the City of Rialto’s Single Audit was completed and released by Lance, Soll & Lunghard, LLP (LSL). The City was found to have complied, in all material respects, with the compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2021.
ANALYSIS/DISCUSSION
September 29, 2022, the City of Rialto’s Single Audit was completed and released by LSL. Part of the annual audit was LSL testing the City’s internal controls and completing an additional review of the City’s Federal funding. The final Single Audit report is in Attachment A.
The Single Audit includes the prior findings contained in the LSL’s Annual Audit report that included the following deficiencies:
1. Material Weakness - The City did not accrue a material check, totaling $939,000. This was a second quarter sales tax payment to Medline that was corrected.
2. Material Weakness - The City’s General checking bank account balance in the general ledger was not reconciled to the bank statements in a timely manner. This has been rectified with implementation of standard operating procedures requiring timely bank reconciliation by Finance staff.
3. Material Weakness - Unavailable revenues related to grants receivables, totaling $2.3 million, were not properly reconciled on the grant’s reconciliation. This has been rectified with implementation of standard operating procedures requiring timely grant expenditures and billing reconciliation by Finance staff.
4. Significant Deficiency - The City’s Accounting Procedures and Policies Manual had not been updated in several years. This has been rectified with implementation of standard operating procedures for the Finance Department.
The Single Audit provides an additional review of the City’s federal funding procedures, and LSL has identified three additional findings:
1. Significant Deficiency and Compliance - Accounting Procedures and Policies do not conform to Uniform Guidance under 2 CFR 200. This item has been rectified in that the Uniform Guidance under 2 CFR 200 has been updated and the updates did not previously exist in written form for the Finance Department.
2. Significant Deficiency and Compliance - Timeliness of Grant Reporting - HUD requires the Cash on Hand quarterly report to be submitted within 30 days after the reporting period end date. This has been rectified with implementation of standard operating procedures for the Finance Department.
3. Material Weakness and Compliance - Accuracy of Financial Reporting - The HUD cash on Hand Report and CAPER were completed with inaccurate expenses. Expenses reported as CDBG-CV expenses were not drawn down from HUD or deemed eligible as a CDBG-CV expense. This relates to the City’s former Deputy City Manager approving certain CDBG-CV financial assistance applications without the required HUD documentation, and has been rectified with the City’s reprogramming of funds for these applications with Rialto Cares Program funds. Additionally, the City engaged with the City’s CDBG consultant (Avante Garde) to administer and review every CDBG-CV application to ensure only those that have full compliance with required HUD documentation are approved for funding.
It should be noted that this audit relates to the July 1, 2020, through June 30, 2021, fiscal year. With my appointment on June 21, 2021, and subsequently the appointments of Arron Brown as the current Deputy City Manager and Katherine Stevens as the Director of Finance, as well as the full staffing of the Finance Department, all appropriate steps have been taken to ensure that these findings do not repeat in the future.
ENVIRONMENTAL IMPACT
This action is exempt from California Environmental Quality Act (CEQA) pursuant to Section 15378(b)(5) of the CEQA Guidelines because the preparation of a budget plan is a governmental administrative activity that will not result in direct or indirect physical changes in the environment.
GENERAL PLAN CONSISTENCY
General Plan Guiding Principle 3 - Rialto’s Economic Environment is Healthy and Diverse - specifically our City Government will lead by example, and will operate in an open, transparent, and responsive manner that meets the needs of the citizens is a good place to do business
LEGAL REVIEW
The City Attorney has reviewed and supports this staff report
FINANCIAL IMPACT
Operating Budget Impact
There is no impact to the Operating Budget.
Capital Improvement Budget Impact
There is no impact to the Capital Improvement Budget.
RECOMMENDATION
Request City Council to Receive and File Fiscal Year 2021 Single Audit Report.