Attachment 4 - Memorandum on Internal Control — Manteca City Council, August 15, 2023

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

FOR THE YEAR ENDED
JUNE 30, 2021
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ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL
For the Year Ended June 30, 2021
Table of Contents
Page
Memorandum on Internal Control ................................................................................................................... 1 Schedule of Material Weaknesses ........................................................................................................... 3 Schedule of Significant Deficiencies ....................................................................................................... 7 Schedule of Other Matters ..................................................................................................................... 11 Status of Prior Year Material Weakness ................................................................................................ 23 Status of Prior Year Significant Deficiencies ........................................................................................ 29 Status of Prior Year Other Matters ........................................................................................................ 49 ATTACHMENT 4
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MEMORANDUM ON INTERNAL CONTROL
To the City Council of
the City of Manteca, California
In planning and performing our audit of the basic financial statements of the City of Manteca for the year ended June 30, 2021, in accordance with auditing standards generally accepted in the United States of America, we considered the City’s internal control over financial reporting (internal control) as a basis for designing our auditing 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. In addition, because of inherent limitations in internal control, including the possibility of management override of controls, misstatements due to error or fraud may occur and not be detected by such controls. However, as discussed below, we identified certain deficiencies in internal control that we consider to be material weaknesses and other deficiencies that we consider to be 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 City’s financial statements will not be prevented, or detected and corrected, on a timely basis. We consider the deficiencies in internal control included on the Schedule of Material Weaknesses to be material weaknesses.

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 in internal control included on the Schedule of Significant Deficiencies to be significant deficiencies.

Included in the Schedule of Other Matters are recommendations not meeting the above definitions that we believe are opportunities for strengthening internal controls and operating efficiency.

Management’s written responses included in this report have not been subjected to the audit procedures applied in the audit of the financial statements and, accordingly, we express no opinion on them.

This communication is intended solely for the information and use of management, City Council, others within the organization, and agencies and pass-through entities requiring compliance with Government Auditing Standards, and is not intended to be and should not be used by anyone other than these specified parties.

Pleasant Hill, California
August 2, 2023
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CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF MATERIAL WEAKNESSES
2021-001 Timely and Accurate Year-End Close
As we noted in prior year comments 2020-001 and 2019-001, the year-end financial closing and preparation of the general ledger data should be completed timely and accurately. In addition, wellmanaged organizations should develop a plan to ensure that adequate resources will remain available in the event of employee departures. Part of that is ensuring there are resources available to be utilized on short notice to fill gaps in key positions, especially in the Finance Department. These resources need to be in place throughout the fiscal year to ensure accounting processes and procedures continue and allow time for analysis of account balances and activities.

Due to the staff turnover prior to and during the year, there is a significant strain on the City’s ability to maintain a good internal control environment and to produce accurate and timely financial data. As a result, the year-end audit was adversely affected. The City provided an original general ledger for audit and then discovered that a number of closing entries had been omitted and provided a second general ledger for audit after those entries had been posted. However, during the audit, we discovered and/or City staff proposed thirty-two additional post-closing journal entries, including a number of material postclosing adjustment entries. City staff had difficulty completing material closing entries prior to providing the second general ledger for audit for areas including recording the fiscal year 2021 closing entries for interfund activities, accounts and grants receivable, accounts payable, unavailable revenue, capital expenditures and special assessment revenue. These areas affected the year-end closing process and many of the City’s funds.

The above condition delayed the completion of the year-end closing process, which increases the risk that errors or misstatements may go undetected by staff and corrections may not be made in a timely manner.

Audit effort was substantially increased in response to these increased risks.

The City should analyze staff resources to determine what plans can or should be made to ensure that the financial data is processed properly and timely during staffing transitions. In addition, the City must develop procedures to ensure that accounts are analyzed throughout the fiscal year and after the year end close to ensure that additional closing entries are not required prior to providing the general ledger for audit.

Management’s Response:

Staff continues to evaluate processes and procedures to ensure a more timely and accurate close.

Staff turnover has made this difficult; however, additional positions were added to the department which should help alleviate some of these issues. In addition, Finance implemented a more formalized close process and close management software which will be in effect during FY 23.

This software has helped Finance during the review and reconciliations of each balance sheet account. This will take some time to refine as processes and procedures are updated and documented in the close management software and as revenue and expenditure accounts are added. Further plans include a variance analysis and budget-to-actual comparisons to further identify needed areas of attention.

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MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF MATERIAL WEAKNESSES
2021-002 Accurately Adopting and Amending the Annual Budget The annually adopted budget should be developed using historical activities, combined with projections of expected activity each fiscal year. In addition, recurring activities should be included in the annual budget and variances between the prior year budgeted amounts and the current year budget should be reviewed to ensure recurring activities were not omitted in error.

Due to the COVID-19 pandemic, the City adopted a provisional budget for fiscal year 2021 in June 2020 and completed a Mid-Year Budget Update and Amendment in February 2021.

During the year end audit, we noted a number of significant budget variances that were determined to be errors that went unnoticed during the budget process:
• General Fund
o Sales tax budget was reduced $2 million during the Mid-Year Budget Update due to the misinterpretation of a consultant’s revenue report, which resulted in actual sales tax revenues exceeding the budget by $3 million.
o Other taxes budget was decreased $1.5 million during the Mid-Year Budget Update due to the proper removal of revenue that was not expected to occur until fiscal year 2023, but the actual revenues at that time exceeded budget and we understand budget staff did not compare actual revenue before preparing the mid-year budget adjustments. o Public works building maintenance expenditures exceeded the budget by $1.4 million due to the reorganization of the department without moving the associated budget amounts between the new divisions/expenditure categories.
o Capital outlay expenditures were $2.9 million less than budget, after the budget was increased $1.9 million during the Mid-Year Budget Update, but we understand that variance was due to a number of incorrect budget figures and/or duplicated budget amounts that overstated the final budget.
o Transfers out budget was increased $2 million during the Mid-Year Budget Update in error due to the inclusion of the cost allocation costs that are not recorded as transfers. • Low and Moderate Income Housing Assets Special Revenue Fund was not included in the budget, although it did have some activity in both fiscal years 2020 and 2021. • Public Facilities Implementation Plan Capital Projects Fund capital outlay expenditures were $26 million less than budget, but we understand that variance was primarily due to a number of incorrect budget figures and/or duplicated budget amounts that overstated the final budget. • RDA Bonds Project Fund capital outlay expenditures of $2.6 million were not budgeted, although the costs were related to the ongoing McKinley/120 and Union/120 projects. We understand the original (provisional) budget of $4.4 million was removed during the Mid-Year Budget Update due to a misunderstanding of the fund’s purpose.

We understand the budget errors and oversights were primarily due to untrained or inexperienced budget staff, as well as multiple staff turnovers and the use of outside consultants.

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MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF MATERIAL WEAKNESSES
2021-002 Accurately Adopting and Amending the Annual Budget (Continued) The overstatement or understatement of annual appropriations could unintentionally lead to expenditures exceeding appropriations and it unnecessarily complicates analyzing activities to determine the final results and whether they are complete.

Prior to the adoption of the original budget, a review should be completed to ensure that all recurring expenditures have been incorporated into the budget on an annual basis and that the amounts budgeted reflect activity expected for the ensuing fiscal year. In addition, during the mid-year review process, the actual activities to date should be reviewed to ensure they are related to the original budget and not a different source, prior to amending the final budget.

Management’s Response:

Agree. During FY 21, all finance management and department heads had turnover. In addition, multiple consultants, department reorganizations, and turnover created an unstable environment where the understanding of what was done for budget and what was needed was not always transferred to the next person. For FY 22, the budget was prepared before June 30, but was subsequently corrected three times, as well as a mid-year budget update after the new Finance Director was hired. For the FY 23 budget with new management in place, the budget was more stable and complete; however, lacked some basic components such as a comprehensive cost allocation plan. In addition, there was management changes and other turnover leading to the preparation of the FY 24 budget. This was adopted prior to June 30; however, it was noted that there were things missing due to the lack of staff. As of July 1, 2023 with the exception of the Finance Director, all positions in Finance were filled which should help with the needed changes for the mid-year FY 24 budget update.
2021-003 Prior Year Material Weaknesses Not Implemented During the current year audit, we followed up on the status of Material Weaknesses identified on the Status of Prior Year Material Weaknesses. We found that the following deficiencies had either been partially or not mitigated at June 30, 2021. Therefore, they are deemed to be current year Material Weaknesses. Details of these deficiencies and associated management’s responses are listed in the Status of Prior Year Material Weaknesses.
• 2020-001 Timely and Accurate Year End Close
• 2020-002 Timely Preparation and Approval of Bank Reconciliations • 2020-005 Accurate Preparation of the Schedule of Expenditures of Federal Awards Current Status:

See Management’s Response to the Current Year Status for each of the above deficiencies as listed in the Status of Prior Year Material Weaknesses. 5 ATTACHMENT 4
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CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF SIGNIFICANT DEFICIENCIES
2021-004 Purchasing Policy Compliance
The City’s Purchasing Policy contains various thresholds, including those for which City staff is required to obtain informal or formal quotes, contracts, and sole source documentation. Therefore, all applicable disbursements should be supported by documentation such as contracts or bidding documents.

We selected 40 transactions for testing to supporting documentation and compliance with the City’s Purchasing Policy and noted the following:
• The supporting bidding/quote documentation and contract could not be located for one payment for $1,090 for technology maintenance services. City staff indicated they were unable to locate an agreement for the payment, however they are working to obtain an updated agreement for fiscal year 2023.
• The supporting bidding/quote documentation could not be located for one payment for $8,999 for professional services related to a fire station project. City staff indicated the transaction was handled by City staff that is no longer with the City, so the records could not be found. • For one payment of $68,925 for construction management services related to a sewer project that totaled $661 thousand, the City did not go through a bidding process to select a vendor prior to the City Council approving the contract. In addition, we understand City staff did not complete a sole source purchase justification worksheet for the selection of the vendor, because they “had worked with the chosen vendor before and had received cost-effective services for numerous construction projects in the past, they only needed a proposal from that vendor and did not determine it was necessary to follow the City’s formal bid process,” but that decision was not documented in the staff report to Council or in the procurement records. • One payment in the amount of $2,811 for medical testing for employees exposed to asbestos was not accompanied by the sole source purchase justification worksheet to show why the required bidding/quote processes were not completed. We understand that there was only one qualified firm to complete the required medical testing, but City staff overlooked completing the sole source purchase form to comply with the City’s purchasing policy. • The supporting bidding/quote documentation or the sole source purchase justification worksheet could not be located for one payment in the amount of $23,588 for wastewater disposal services.

And, the vendor’s contract was not approved by the City Council even though payments made to the vendor exceed the $75,000 threshold. We understand that the contract was not brought to the City Council, because the estimated cost of the contract was based on a per-ton amount, rather than estimating the total expected tonnage that would be needed. • The supporting bidding/quote documentation for one payment of $2,584 for temporary accountant services could not be located.
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MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF SIGNIFICANT DEFICIENCIES
2021-004 Purchasing Policy Compliance (Continued)
Without supporting written documentation in compliance with the requirements of the Purchasing Policy, the likelihood of error, improper accounting treatment, and unauthorized transactions increases.

The City must develop procedures to ensure that the procurement files contain documentation to demonstrate compliance with the bidding/quote, contract and sole source requirements. The records should be readily available at all times, including after employees leave the City.

Management’s Response:

Agree. With limited staff and the turnover in the department, the documentation has been difficult to obtain. As of July 1, 2023 with the exception of the Finance Director, all positions in Finance were filled which should alleviate some of the issues. In addition, there has been a renewed emphasis on the policy at all levels of the City. Finally, during FY 24 it is anticipated that the purchasing policy will also be thoroughly reviewed and updated as necessary to better meet the change needs of the City while providing strong internal control with less administrative burden. 2021-005 Using Capital Projects Identifiers for All Projects Capital projects activity is normally tracked by the use of a project number, which facilitates the analysis of project activities and the eventual capitalization of completed projects.

The City undertook a renovation project during the end of fiscal year 2020 that was completed during fiscal year 2021 and used City staff for the construction/improvements. The total project costs incurred were approximately $283 thousand, but City staff could not provide the exact cost of the project, because projects constructed by City staff are not assigned a capital projects number. In this case, the project costs were tracked in a spreadsheet and the City labor costs included in the spreadsheet were an estimate.

When reviewing the spreadsheet of project costs, we also noted that the account coding for certain costs was inconsistent. Most of the services and supplies were charged to the “Supplies Special Department” account, but carpet, furniture and blinds totaling $61 thousand were charged to the Self Insurance Internal Service Fund’s claims and insurance damage account.

We understand that internal projects have never been tracked by capital project number.

If projects are not tracked by project number, not only does that mean the project could incur overruns that go unnoticed, but a project that meets the City’s capitalization threshold may be overlooked.

The City should develop procedures to ensure that all capital projects activities are tracked consistently and assigned a project number, regardless of whether they are internally or externally constructed projects, and expenditure account coding should be critically reviewed to ensure it is appropriate for the cost incurred.

Management’s Response:

Agree. The City plans to do a review of the CIP policy and update in FY 24 to include internally constructed items as well as the timekeeping methodology to adequately charge employee costs to a project.
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MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF SIGNIFICANT DEFICIENCIES
2021-006 Prior Year Significant Deficiencies Not Implemented During the current year audit, we followed up on the status of Significant Deficiencies identified on the Status of Prior Year Significant Deficiencies. We found that the following deficiencies had either been partially or not mitigated at June 30, 2021. Therefore, they are deemed to be current year Significant Deficiencies. Details of these deficiencies and associated management’s responses are listed in the Status of Prior Year Significant Deficiencies.
• 2019-004 Finance Personnel Super-User Rights
• 2017-002 Golf Enterprise Fund Working Capital
• 2015-002 Timely Review and Approval of Journal Entries • 2015-003(a) Timely Preparation and Approval of Treasurer’s Reports • 2015-003(b)iii Investment Reporting and Compliance
• 2015-004 Timely Filing of Continuing Disclosure Reports • 2014-002 Timely Preparation and Approval of Bank Reconciliations Current Status:

See Management’s Response to the Current Year Status for each of the above deficiencies as listed in the Status of Prior Year Significant Deficiencies. 9 ATTACHMENT 4
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CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF OTHER MATTERS
2021-007 Capital Assets Inventory
The City should complete a physical inventory of their capital assets once a year to ensure that capital assets records are complete and physical assets are safeguarded. In the event a full inventory is not feasible, the City should cycle through asset categories or departments on an annual basis to ensure that all assets are periodically inventoried.

We understand the City has not completed a physical inventory in at least the last two fiscal years.

We understand the City’s staffing shortage and staff turnover made it difficult to complete a physical inventory of the capital assets.

The City should develop procedures to perform a capital assets inventory once a year, or on a rotational basis, to ensure that capital assets record is accurate.

Management’s Response:

Agree. During FY 24, the City will work on development of an inventory and capital asset policy which will include a physical inventory, procedures for disposal of obsolete assets, a search for additional assets, and compliance with grant/federal requirements. 2021-008 Accounting for Outstanding Checks
The City’s policy for handling outstanding checks is that the City follows up with the payee on a monthly basis after checks have been outstanding for more than 6 months to see if the check needs to be reissued.

If there is no resolution with the payee regarding the outstanding check, the City will void the check and the funds will be returned to the City’s general account using the State’s escheatment procedures.

We reviewed the Open Payment Report that includes the outstanding checks for the March 2021 Bank Reconciliation for the General Account and noted numerous checks that date back to April 2016.

We understand that due to staff turnover and being behind on daily tasks, City staff has not been following up on outstanding checks, which is not in compliance with the City’s policy.

Detailed outstanding checks listings should be periodically reviewed for checks outstanding for more 180 days and City staff should determine whether those checks should be reissued or written off in accordance with the City’s policy.

Management’s Response:

Agree. In FY 22 outstanding checks were reviewed and letters were sent to payees by the Accounting Technician. In addition, an overall review of the outstanding checks was completed by the Accountants. It was noted that some of the checks still listed were paid from the prior banking institution and as such the escheatment process was followed to clear those from the register and return the funds. Finally, during FY 24 staff will implement new procedures in the close management software to review outstanding checks and determine if a replacement is needed or if the escheatment procedures should be followed. 11 ATTACHMENT 4

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SCHEDULE OF OTHER MATTERS

NEW GASB PRONOUNCEMENTS OR PRONOUNCEMENTS NOT YET EFFECTIVE The following comment represents new pronouncements taking affect in the next few years. We cite them here to keep you informed of developments:

EFFECTIVE FISCAL YEAR 2021/22:

GASB 87 – Leases
The objective of this Statement is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. This Statement increases the usefulness of governments’ financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments’ leasing activities.

A lease is defined as a contract that conveys control of the right to use another entity’s nonfinancial asset (the underlying asset) as specified in the contract for a period of time in an exchange or exchange-like transaction. Examples of nonfinancial assets include buildings, land, vehicles, and equipment. Any contract that meets this definition should be accounted for under the leases guidance, unless specifically excluded in this Statement.

GASB 89 – Accounting for Interest Cost Incurred before the End of a Construction Period The objectives of this Statement are (1) to enhance the relevance and comparability of information about capital assets and the cost of borrowing for a reporting period and (2) to simplify accounting for interest cost incurred before the end of a construction period.

This Statement establishes accounting requirements for interest cost incurred before the end of a construction period. Such interest cost includes all interest that previously was accounted for in accordance with the requirements of paragraphs 5–22 of Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, which are superseded by this Statement. This Statement requires that interest cost incurred before the end of a construction period be recognized as an expense in the period in which the cost is incurred for financial statements prepared using the economic resources measurement focus. As a result, interest cost incurred before the end of a construction period will not be included in the historical cost of a capital asset reported in a business-type activity or enterprise fund.

This Statement also reiterates that in financial statements prepared using the current financial resources measurement focus, interest cost incurred before the end of a construction period should be recognized as an expenditure on a basis consistent with governmental fund accounting principles. 12 ATTACHMENT 4

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SCHEDULE OF OTHER MATTERS
GASB 92 – Omnibus 2020
The objectives of this Statement are to enhance comparability in accounting and financial reporting and to improve the consistency of authoritative literature by addressing practice issues that have been identified during implementation and application of certain GASB Statements. This Statement addresses a variety of topics and includes specific provisions about the following:
• The effective date of Statement No. 87, Leases, and Implementation Guide No. 2019-3, Leases, for interim financial reports
• Reporting of intra-entity transfers of assets between a primary government employer and a component unit defined benefit pension plan or defined benefit other postemployment benefit (OPEB) plan
• The applicability of Statements No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68, as amended, and No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, to reporting assets accumulated for postemployment benefits
• The applicability of certain requirements of Statement No. 84, Fiduciary Activities, to postemployment benefit arrangements
• Measurement of liabilities (and assets, if any) related to asset retirement obligations (AROs) in a government acquisition
• Reporting by public entity risk pools for amounts that are recoverable from reinsurers or excess insurers
• Reference to nonrecurring fair value measurements of assets or liabilities in authoritative literature
• Terminology used to refer to derivative instruments.

GASB 93 – Replacement of Interbank Offered Rates
Some governments have entered into agreements in which variable payments made or received depend on an interbank offered rate (IBOR)—most notably, the London Interbank Offered Rate (LIBOR). As a result of global reference rate reform, LIBOR is expected to cease to exist in its current form at the end of 2021, prompting governments to amend or replace financial instruments for the purpose of replacing LIBOR with other reference rates, by either changing the reference rate or adding or changing fallback provisions related to the reference rate.

Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, as amended, requires a government to terminate hedge accounting when it renegotiates or amends a critical term of a hedging derivative instrument, such as the reference rate of a hedging derivative instrument’s variable payment. In addition, in accordance with Statement No. 87, Leases, as amended, replacement of the rate on which variable payments depend in a lease contract would require a government to apply the provisions for lease modifications, including remeasurement of the lease liability or lease receivable.

The objective of this Statement is to address those and other accounting and financial reporting implications that result from the replacement of an IBOR. 13 ATTACHMENT 4

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SCHEDULE OF OTHER MATTERS
GASB 97 – Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans–An Amendment of GASB Statements No. 14 and No. 84, and a Supersession of GASB Statement No. 32 The primary objectives of this Statement are to (1) increase consistency and comparability related to the reporting of fiduciary component units in circumstances in which a potential component unit does not have a governing board and the primary government performs the duties that a governing board typically would perform; (2) mitigate costs associated with the reporting of certain defined contribution pension plans, defined contribution other postemployment benefit (OPEB) plans, and employee benefit plans other than pension plans or OPEB plans (other employee benefit plans) as fiduciary component units in fiduciary fund financial statements; and (3) enhance the relevance, consistency, and comparability of the accounting and financial reporting for Internal Revenue Code (IRC) Section 457 deferred compensation plans (Section 457 plans) that meet the definition of a pension plan and for benefits provided through those plans.

EFFECTIVE FISCAL YEARS 2022, 2023 and 2024:

GASB 99 – Omnibus 2022
The objectives of this Statement are to enhance comparability in accounting and financial reporting and to improve the consistency of authoritative literature by addressing (1) practice issues that have been identified during implementation and application of certain GASB Statements and (2) accounting and financial reporting for financial guarantees. The practice issues addressed by this Statement are as follows:
• Classification and reporting of derivative instruments within the scope of Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, that do not meet the definition of either an investment derivative instrument or a hedging derivative instrument • Clarification of provisions in Statement No. 87, Leases, as amended, related to the determination of the lease term, classification of a lease as a short term lease, recognition and measurement of a lease liability and a lease asset, and identification of lease incentives • Clarification of provisions in Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements, related to (a) the determination of the public-private and public-public partnership (PPP) term and (b) recognition and measurement of installment payments and the transfer of the underlying PPP asset
• Clarification of provisions in Statement No. 96, Subscription-Based Information Technology Arrangements, related to the subscription-based information technology arrangement (SBITA) term, classification of a SBITA as a short term SBITA, and recognition and measurement of a subscription liability
• Extension of the period during which the London Interbank Offered Rate (LIBOR) is considered an appropriate benchmark interest rate for the qualitative evaluation of the effectiveness of an interest rate swap that hedges the interest rate risk of taxable debt 14 ATTACHMENT 4

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SCHEDULE OF OTHER MATTERS
GASB 99 – Omnibus 2022 (Continued)
• Accounting for the distribution of benefits as part of the Supplemental Nutrition Assistance Program (SNAP)
• Disclosures related to nonmonetary transactions
• Pledges of future revenues when resources are not received by the pledging government • Clarification of provisions in Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, as amended, related to the focus of the government-wide financial statements
• Terminology updates related to certain provisions of Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position • Terminology used in Statement 53 to refer to resource flows statements.

The Requirements of this Statement are Effective as Follows:

The requirements in paragraphs 26–32 related to extension of the use of LIBOR, accounting for SNAP distributions, disclosures of nonmonetary transactions, pledges of future revenues by pledging governments, clarification of certain provisions in Statement 34, as amended, and terminology updates related to Statement 53 and Statement 63 are effective upon issuance.

The requirements in paragraphs 11–25 related to leases, PPPs, and SBITAs are effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter.

The requirements in paragraphs 4–10 related to financial guarantees and the classification and reporting of derivative instruments within the scope of Statement 53 are effective for fiscal years beginning after June 15, 2023, and all reporting periods thereafter.

Earlier application is encouraged and is permitted by individual topic.

How the Changes in This Statement Will Improve Financial Reporting The requirements of this Statement will enhance comparability in the application of accounting and financial reporting requirements and will improve the consistency of authoritative literature. Consistent authoritative literature enables governments and other stakeholders to more easily locate and apply the correct accounting and financial reporting provisions, which improves the consistency with which such provisions are applied. The comparability of financial statements also will improve as a result of this Statement. Better consistency and comparability improve the usefulness of information for users of state and local government financial statements.
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SCHEDULE OF OTHER MATTERS
EFFECTIVE FISCAL YEAR 2022/23:

GASB 91 – Conduit Debt Obligations
The primary objectives of this Statement are to provide a single method of reporting conduit debt obligations by issuers and eliminate diversity in practice associated with (1) commitments extended by issuers, (2) arrangements associated with conduit debt obligations, and (3) related note disclosures. This Statement achieves those objectives by clarifying the existing definition of a conduit debt obligation; establishing that a conduit debt obligation is not a liability of the issuer; establishing standards for accounting and financial reporting of additional commitments and voluntary commitments extended by issuers and arrangements associated with conduit debt obligations; and improving required note disclosures.

GASB 94 – Public-Private and Public-Public Partnerships and Availability Payment Arrangements The primary objective of this Statement is to improve financial reporting by addressing issues related to public-private and public-public partnership arrangements (PPPs). As used in this Statement, a PPP is an arrangement in which a government (the transferor) contracts with an operator (a governmental or nongovernmental entity) to provide public services by conveying control of the right to operate or use a nonfinancial asset, such as infrastructure or other capital asset (the underlying PPP asset), for a period of time in an exchange or exchange-like transaction. Some PPPs meet the definition of a service concession arrangement (SCA), which the Board defines in this Statement as a PPP in which (1) the operator collects and is compensated by fees from third parties; (2) the transferor determines or has the ability to modify or approve which services the operator is required to provide, to whom the operator is required to provide the services, and the prices or rates that can be charged for the services; and (3) the transferor is entitled to significant residual interest in the service utility of the underlying PPP asset at the end of the arrangement.

This Statement also provides guidance for accounting and financial reporting for availability payment arrangements (APAs). As defined in this Statement, an APA is an arrangement in which a government compensates an operator for services that may include designing, constructing, financing, maintaining, or operating an underlying nonfinancial asset for a period of time in an exchange or exchange-like transaction.

PPPs - This Statement requires that PPPs that meet the definition of a lease apply the guidance in Statement No. 87, Leases, as amended, if existing assets of the transferor that are not required to be improved by the operator as part of the PPP arrangement are the only underlying PPP assets and the PPP does not meet the definition of an SCA. This Statement provides accounting and financial reporting requirements for all other PPPs: those that either (1) meet the definition of an SCA or (2) are not within the scope of Statement 87, as amended (as clarified by this Statement). The PPP term is defined as the period during which an operator has a noncancellable right to use an underlying PPP asset, plus, if applicable, certain periods if it is reasonably certain, based on all relevant factors, that the transferor or the operator either will exercise an option to extend the PPP or will not exercise an option to terminate the PPP.
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SCHEDULE OF OTHER MATTERS
GASB 94 – Public-Private and Public-Public Partnerships and Availability Payment Arrangements (Continued)
A transferor generally should recognize an underlying PPP asset as an asset in financial statements prepared using the economic resources measurement focus. However, in the case of an underlying PPP asset that is not owned by the transferor or is not the underlying asset of an SCA, a transferor should recognize a receivable measured based on the operator’s estimated carrying value of the underlying PPP asset as of the expected date of the transfer in ownership. In addition, a transferor should recognize a receivable for installment payments, if any, to be received from the operator in relation to the PPP.

Measurement of a receivable for installment payments should be at the present value of the payments expected to be received during the PPP term. A transferor also should recognize a deferred inflow of resources for the consideration received or to be received by the transferor as part of the PPP. Revenue should be recognized by a transferor in a systematic and rational manner over the PPP term.

This Statement requires a transferor to recognize a receivable for installment payments and a deferred inflow of resources to account for a PPP in financial statements prepared using the current financial resources measurement focus. Governmental fund revenue would be recognized in a systematic and rational manner over the PPP term.

This Statement also provides specific guidance in financial statements prepared using the economic resources measurement focus for a government that is an operator in a PPP that either (1) meets the definition of an SCA or (2) is not within the scope of Statement 87, as amended (as clarified in this Statement). An operator should report an intangible right-to-use asset related to an underlying PPP asset that either is owned by the transferor or is the underlying asset of an SCA. Measurement of the right-touse asset should be the amount of consideration to be provided to the transferor, plus any payments made to the transferor at or before the commencement of the PPP term, and certain direct costs. For an underlying PPP asset that is not owned by the transferor and is not the underlying asset of an SCA, an operator should recognize a liability measured based on the estimated carrying value of the underlying PPP asset as of the expected date of the transfer in ownership. In addition, an operator should recognize a liability for installment payments, if any, to be made to the transferor in relation to the PPP. Measurement of a liability for installment payments should be at the present value of the payments expected to be made during the PPP term. An operator also should recognize a deferred outflow of resources for the consideration provided or to be provided to the transferor as part of the PPP. Expense should be recognized by an operator in a systematic and rational manner over the PPP term.

This Statement also requires a government to account for PPP and non-PPP components of a PPP as separate contracts. If a PPP involves multiple underlying assets, a transferor and an operator in certain cases should account for each underlying PPP asset as a separate PPP. To allocate the contract price to different components, a transferor and an operator should use contract prices for individual components as long as they do not appear to be unreasonable based on professional judgment or use professional judgment to determine their best estimate if there are no stated prices or if stated prices appear to be unreasonable. If determining the best estimate is not practicable, multiple components in a PPP should be accounted for as a single PPP.
17 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF OTHER MATTERS
GASB 94 – Public-Private and Public-Public Partnerships and Availability Payment Arrangements (Continued)
This Statement also requires an amendment to a PPP to be considered a PPP modification, unless the operator’s right to use the underlying PPP asset decreases, in which case it should be considered a partial or full PPP termination. A PPP termination should be accounted for by a transferor by reducing, as applicable, any receivable for installment payments or any receivable related to the transfer of ownership of the underlying PPP asset and by reducing the related deferred inflow of resources. An operator should account for a termination by reducing the carrying value of the right-to-use asset and, as applicable, any liability for installment payments or liability to transfer ownership of the underlying PPP asset. A PPP modification that does not qualify as a separate PPP should be accounted for by remeasuring PPP assets and liabilities.

APAs - An APA that is related to designing, constructing, and financing a nonfinancial asset in which ownership of the asset transfers by the end of the contract should be accounted for by a government as a financed purchase of the underlying nonfinancial asset. This Statement requires a government that engaged in an APA that contains multiple components to recognize each component as a separate arrangement. An APA that is related to operating or maintaining a nonfinancial asset should be reported by a government as an outflow of resources in the period to which payments relate.

GASB 96 – Subscription-Based Information Technology Arrangements This Statement provides guidance on the accounting and financial reporting for subscription-based information technology arrangements (SBITAs) for government end users (governments). This Statement (1) defines a SBITA; (2) establishes that a SBITA results in a right-to-use subscription asset—an intangible asset—and a corresponding subscription liability; (3) provides the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA; and (4) requires note disclosures regarding a SBITA. To the extent relevant, the standards for SBITAs are based on the standards established in Statement No. 87, Leases, as amended.

A SBITA is defined as a contract that conveys control of the right to use another party’s (a SBITA vendor’s) information technology (IT) software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange-like transaction.
18 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF OTHER MATTERS
EFFECTIVE FISCAL YEAR 2023/24:

GASB 100 – Accounting for Changes and Error Corrections The primary objective of this Statement is to enhance accounting and financial reporting requirements for accounting changes and error corrections to provide more understandable, reliable, relevant, consistent, and comparable information for making decisions or assessing accountability.

This Statement defines accounting changes as changes in accounting principles, changes in accounting estimates, and changes to or within the financial reporting entity and describes the transactions or other events that constitute those changes. As part of those descriptions, for (1) certain changes in accounting principles and (2) certain changes in accounting estimates that result from a change in measurement methodology, a new principle or methodology should be justified on the basis that it is preferable to the principle or methodology used before the change. That preferability should be based on the qualitative characteristics of financial reporting—understandability, reliability, relevance, timeliness, consistency, and comparability. This Statement also addresses corrections of errors in previously issued financial statements.

This Statement prescribes the accounting and financial reporting for (1) each type of accounting change and (2) error corrections. This Statement requires that (a) changes in accounting principles and error corrections be reported retroactively by restating prior periods, (b) changes to or within the financial reporting entity be reported by adjusting beginning balances of the current period, and (c) changes in accounting estimates be reported prospectively by recognizing the change in the current period. The requirements of this Statement for changes in accounting principles apply to the implementation of a new pronouncement in absence of specific transition provisions in the new pronouncement. This Statement also requires that the aggregate amount of adjustments to and restatements of beginning net position, fund balance, or fund net position, as applicable, be displayed by reporting unit in the financial statements.

This Statement requires disclosure in notes to financial statements of descriptive information about accounting changes and error corrections, such as their nature. In addition, information about the quantitative effects on beginning balances of each accounting change and error correction should be disclosed by reporting unit in a tabular format to reconcile beginning balances as previously reported to beginning balances as restated.

Furthermore, this Statement addresses how information that is affected by a change in accounting principle or error correction should be presented in required supplementary information (RSI) and supplementary information (SI). For periods that are earlier than those included in the basic financial statements, information presented in RSI or SI should be restated for error corrections, if practicable, but not for changes in accounting principles.
19 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF OTHER MATTERS
EFFECTIVE FISCAL YEAR 2024/25:

GASB 101 – Compensated Absences
The objective of this Statement is to better meet the information needs of financial statement users by updating the recognition and measurement guidance for compensated absences. That objective is achieved by aligning the recognition and measurement guidance under a unified model and by amending certain previously required disclosures.

Recognition And Measurement
This Statement requires that liabilities for compensated absences be recognized for (1) leave that has not been used and (2) leave that has been used but not yet paid in cash or settled through noncash means. A liability should be recognized for leave that has not been used if (a) the leave is attributable to services already rendered, (b) the leave accumulates, and (c) the leave is more likely than not to be used for time off or otherwise paid in cash or settled through noncash means. Leave is attributable to services already rendered when an employee has performed the services required to earn the leave. Leave that accumulates is carried forward from the reporting period in which it is earned to a future reporting period during which it may be used for time off or otherwise paid or settled. In estimating the leave that is more likely than not to be used or otherwise paid or settled, a government should consider relevant factors such as employment policies related to compensated absences and historical information about the use or payment of compensated absences. However, leave that is more likely than not to be settled through conversion to defined benefit postemployment benefits should not be included in a liability for compensated absences.

This Statement requires that a liability for certain types of compensated absences—including parental leave, military leave, and jury duty leave—not be recognized until the leave commences. This Statement also requires that a liability for specific types of compensated absences not be recognized until the leave is used.

This Statement also establishes guidance for measuring a liability for leave that has not been used, generally using an employee’s pay rate as of the date of the financial statements. A liability for leave that has been used but not yet paid or settled should be measured at the amount of the cash payment or noncash settlement to be made. Certain salary-related payments that are directly and incrementally associated with payments for leave also should be included in the measurement of the liabilities.

With respect to financial statements prepared using the current financial resources measurement focus, this Statement requires that expenditures be recognized for the amount that normally would be liquidated with expendable available financial resources.
20 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF OTHER MATTERS
GASB 101 – Compensated Absences (Continued)
How the Changes in this Statement Will Improve Financial Reporting The unified recognition and measurement model in this Statement will result in a liability for compensated absences that more appropriately reflects when a government incurs an obligation. In addition, the model can be applied consistently to any type of compensated absence and will eliminate potential comparability issues between governments that offer different types of leave.

The model also will result in a more robust estimate of the amount of compensated absences that a government will pay or settle, which will enhance the relevance and reliability of information about the liability for compensated absences.
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ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

MATERIAL WEAKNESSES
2020-001 Timely and Accurate Year-End Close
As we noted in prior year comment #2019-001, the year-end financial closing and preparation of the general ledger data should be completed timely and accurately. In addition, well-managed organizations should develop a plan to ensure that adequate resources will remain available in the event of employee departures. Part of that is ensuring there are resources available to be utilized on short notice to fill gaps in key positions, especially in the Finance Department. These resources need to be in place throughout the fiscal year to ensure accounting processes and procedures continue and allow time for analysis of account balances and activities.

Due to the staff turnover during the year, there is a significant strain on the City’s ability to maintain a good internal control environment and to produce accurate and timely financial data. As a result, the year-end audit was adversely affected. During the audit, we discovered and/or City staff proposed ninety post-closing journal entries, including a number of material post-closing adjustment entries. City staff had difficulty completing material closing entries prior to providing the general ledger for audit for areas including recording the fiscal year 2020 closing entries for cash and investments, debt service transactions and the issuance of new bonds, interfund activities, accounts and grants receivable, capital assets, the sale of Successor Agency land, contracts payable, compensated absences, unearned revenue, pension liabilities and related deferred outflows/inflows of resources and OPEB liabilities and related deferred outflows/inflows of resources. In addition, the components of fund balance in the General Fund had not been adjusted to reflect the fiscal year 2020 activity. These areas affected the year-end closing process and most of the City’s funds.

Audit effort was substantially increased in response to these increased risks.

Current Status:

See 2021-001.
23 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

MATERIAL WEAKNESSES
2020-002 Timely Preparation of Bank Reconciliations
Bank reconciliations are one of the most important internal controls a city can have, and the bank reconciliation cannot be considered complete until it has been reviewed and approved. To be an effective control, bank reconciliations and the associated review should be completed in their entirety as soon as reasonably possible after each month-end, usually within thirty to forty-five days of bank statement month end.

We reviewed the City’s February 2020 bank reconciliations for the General Checking and Payroll Checking Accounts and noted they were not prepared until August 3, 2020 and were not reviewed until August 13, 2020. The Payroll Section 125, Successor Agency Checking, and Worker’s Compensation Checking Accounts were prepared on March 3, 2020, however, they were not reviewed until August 13, 2020.

We reviewed the City’s June 2020 bank reconciliation for the General Checking Account and noted it was not prepared until March 23, 2021 and it was reviewed on March 24, 2021. The bank reconciliations for the Payroll Checking, Payroll Section 125, and Worker’s Compensation Checking Accounts were not prepared until August 5, 2020 and then were not reviewed until October 20, 2020. The Successor Agency Checking Account reconciliation was not prepared until August 4, 2020 and was not reviewed until October 20, 2020.

In addition, the June 2020 Payroll Checking Account bank reconciliation included an unreconciled variance of $168. Subsequently, we were provided with an updated bank reconciliation for the account that was prepared and reviewed on July 19, 2021 that identified and corrected the variance.

We understand the delays in preparing and reviewing the bank reconciliations were due to the high volume of staffing changes that occurred in the Finance Department during the fiscal year.

Update for June 30, 2021:

We noted the November 2020 bank reconciliations for the Worker’s Compensation Checking, Successor Agency Checking and General Checking Accounts were not prepared and reviewed until March 16, 2021, April 27, 2021 and April 29, 2021, respectively. The Payroll Checking Account was not prepared until May 11, 2021 and reviewed on May 12, 2021, and the Payroll Section 125 Account was not prepared until May 10, 2021 and reviewed on May 12, 2021.

We reviewed the City’s March 2021 bank reconciliations and noted that they were prepared and reviewed within 30-45 days of month end.

We noted the June 2021 bank reconciliation for the Payroll Section 125 Account was not prepared until August 18, 2021 and it was reviewed on August 23, 2021. The bank reconciliation for the Payroll Checking Account was not prepared until April 6, 2022 and it was reviewed on April 12, 2022.

We understand the delays in preparing and reviewing the bank reconciliations were again due to the high volume of staffing changes that occurred in the Finance Department during the fiscal year. 24 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

MATERIAL WEAKNESSES
2020-002 Timely Preparation of Bank Reconciliations (Continued) By not completing and reviewing the bank reconciliations timely, accounting errors, misstatements and/or unauthorized activities may not be identified or corrected in a timely manner.

The City must implement procedures to ensure the timely preparation and review of bank reconciliations throughout the fiscal year, and the completion should be documented/dated in some formal manner. In addition, as unreconciled differences appear, they should be fully researched to identify the cause and ensure they are resolved timely.

Current Status:

During FY 21 and FY 22 staff turnover and lack of cross training caused us to be behind.

Additional staff and cross training has occurred and reconciliations are prepared within 30-45 days of the end of the month, beginning in April 2022.
2020-003 CalPERS Safety Plan Unfunded Accrued Liability (UAL) Budgeting Recurring activities should be included in the annual budget and variances between the prior year budgeted amounts and the current year budget should be reviewed to ensure recurring activities were not omitted in error.

The City’s fiscal year 2020 adopted budget did not include appropriations for the required payment to CalPERS for the UAL for the City’s Safety Pension Plan in the amount of $3.77 million. The payment is a recurring payment that is required to be made to CalPERS each fiscal year.

We understand the exclusion of the appropriation in the adopted budget was an oversight by City staff.

The omission of the payment caused significant expenditures in excess of appropriations in the General Fund in both the Police and Fire departmental expenditure categories and in the Public Safety Sales Tax Special Revenue Fund.

Prior to the adoption of the original budget, a review should be completed to ensure that all recurring expenditures have incorporated into the budget on an annual basis. In addition, procedures should be established to analyze variances between prior year actual results and current year budgeted activities to ensure approved recurring activities are included.

Current Statis:

Implemented, however see current year comment 2021-002
25 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

MATERIAL WEAKNESSES
2020-004 Redevelopment Bonds Projects Fund
Fiscal agent cash from a bond issuance that is being used to fund the costs of a capital project should be drawn down to reimburse the City for costs incurred as soon as it has been determined that the costs are eligible for reimbursement. This process of drawing down the eligible funds should help manage the cash flow demands of the City to complete the project.

The Redevelopment Bond Projects Capital Projects Fund incurred costs in the current and prior years related to projects that were eligible to be reimbursed with funds drawn from fiscal agent accounts in the amount of $31.1 million and the Low and Moderating Income Housing Special Revenue Fund incurred costs in the current and prior year related to fiscal agent cash eligible projects in the amount of $2.8 million. As of June 30, 2020, the City had not drawn down any of the eligible funds from the fiscal agent accounts to reimburse the City for the costs that had been paid.

When funds are not drawn down on a regular basis to reimburse the City for eligible costs that have been paid, it increases the pressure on the City’s ability to meet its overall cash flow demands for its normal operations.

Update for June 30, 2021 Audit:

The City incurred additional project costs of $2.6 million during fiscal year 2021, but still had not drawn down on any of the eligible funds from the fiscal agent accounts as of June 30, 2021.

We understand the funds were not drawn down due to staffing turnover at the City.

The City should develop processes to ensure that when projects that are funded with bond proceeds have expenditures, that those expenditures are reviewed for eligibility and the cash is drawn down from the fiscal agent accounts on a timely basis to help manage the City’s cash flow demands.

Current Status:

Agree. Staff recognizes the need to make timely drawdowns of project funds to match eligible expenses. Due to staff turnover this has not been completed. In addition, cross training on projects and reconciliation of projects in is process and this is expected to be completed during FY 24. 2020-005 Accurate Preparation of the Schedule of Expenditures of Federal Awards In accordance with the requirements of OMB Uniform Administrative Requirements Subpart D Section 200.302(b) (1), the City should report all Federal awards expended in the Schedule of Expenditures of Federal Awards (SEFA) each fiscal year.

During our testing of the fiscal year 2020 SEFA provided for audit we noted that federal expenditures for the Highway Planning and Construction Grant (CFDA #20.205) were overstated for the Yosemite Avenue – Main to Cottage project in the amount of $210,174 and understated for the Main Street – Yosemite to Atherton project in the amount of $95,362. The projects were misstated due to the City including the total general ledger expenditures for the projects in prior years, rather than the federally reimbursable expenditures. And, the SEFA did not include federally reimbursed expenditures for the Main Street: Northgate to Alameda and Yosemite: Walnut to Main projects in the amounts of $640 and $810, respectively.
26 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

MATERIAL WEAKNESSES
2020-005 Accurate Preparation of the Schedule of Expenditures of Federal Awards (Continued)
In addition, the SEFA identified one grant in the amount of $39,719 as being part of the Department of Justice Edward Byrne Memorial Justice Assistance Program (CFDA #16.738), but the grant was actually for the Department of Transportation Office of Traffic State and Community Highway Safety Program (CFDA #s 20.600, 20.616 and 20.608) and the program expenditures should have been reported in the amount of $40,736.

Finally, the SEFA included expenditures in the amount of $73,248 for the Department of Homeland Security Staffing for Adequate Fire and Emergency Responses (SAFER) Program (CFDA #97.083), but City staff later determined that amount included the City’s 25% matching requirement of $18,312 Update for June 30, 2021 Audit:

During our testing of the fiscal year 2021 SEFA provided for audit we noted that federal expenditures for the Highway Planning and Construction Grant (CFDA #20.205) were overstated for the Yosemite Avenue – Main to Cottage project in the amount of $222,205. The project was misstated due to the City including the total general ledger expenditures for the project, but the federal funding had been fully expended in fiscal year 2020.

Incorrect reporting not only misstates the SEFA, it also implies that the City is not in compliance with the reporting requirements of the OMB Uniform Administrative Requirements. As a result, future federal funding could be adversely affected.

The City must develop procedures to ensure that amounts reported on the SEFA are accurate and include all Federal awards expended each fiscal year.

Current Status:

Agree. For the FY 20 and FY 21 SEFA, outside consultants were used who were unaware of the intricacies of prior grants funds and what was reported. In addition, staff will review the procedures related to preparing the schedule of expenditures of federal awards including having an additional staff member designated to confirming expenses are being applied to the correct project and reported appropriately.
2019-001 Timely and Accurate Year-End Close
The year-end financial closing and preparation of the general ledger data should be completed timely and accurately. In addition, well-managed organizations should develop a plan to ensure that adequate resources will remain available in the event of employee departures. Part of that is ensuring there are resources available to be utilized on short notice to fill gaps in key positions, especially in the Finance Department. These resources need to be in place throughout the fiscal year to ensure accounting processes and procedures continue and allow time for analysis of account balances and activities. 27 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

MATERIAL WEAKNESSES
2019-001 Timely and Accurate Year-End Close (Continued) Due to the staff turnover during the year, there is a significant strain on the City’s ability to maintain a good internal control environment and to produce accurate and timely financial data. As a result, the year-end audit was adversely affected. During the audit, we discovered and/or City staff proposed fiftyfour post-closing journal entries, including a number of material post-closing adjustment entries. City staff had difficulty completing material closing entries prior to providing the general ledger for audit for areas including recording the fiscal year 2018 closing entries related to the total OPEB liability and related deferred outflows/inflows of resources and claims payable and the fiscal year 2019 closing entries for debt service transactions, interfund activities, fair value of the swap derivative, accounts receivable, capital assets, contracts payable, pension liabilities and related deferred outflows/inflows of resources and OPEB liabilities and related deferred outflows/inflows of resources. In addition, the components of fund balance in the General Fund had not been adjusted to reflect the revised fund balance policy adopted during the fiscal year. These areas affected the year-end closing process and most of the City’s funds.

Audit effort was substantially increased in response to these increased risks.

Current Status:

See 2021-001.
28 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

SIGNIFICANT DEFICIENCIES
2020-006 Prior Year Significant Deficiencies Not Implemented During the current year audit, we followed up on the status of Significant Deficiencies identified on the Status of Prior Year Significant Deficiencies. We found that the following deficiencies had either been partially or not mitigated at June 30, 2020. Therefore, they are deemed to be current year Significant Deficiencies. Details of these deficiencies and associated management’s responses are listed in the Status of Prior Year Significant Deficiencies.
• 2019-004 Finance Personnel Super-User Rights
• 2019-007 Determine Disposition of Lease Proceeds
• 2017-002 Golf Enterprise Fund Working Capital
• 2015-002 Timely Review and Approval of Journal Entries • 2015-003(a) Timely Preparation and Approval of Treasurer’s Reports • 2015-003(b)iii Investment Reporting and Compliance
• 2015-004 Timely Filing of Continuing Disclosure Reports • 2014-002 Timely Preparation and Approval of Bank Reconciliations Current Status:

See Management’s Response to the Current Year Status for each of the above deficiencies as listed in the Status of Prior Year Significant Deficiencies. 2020-007 Authorization and Communication of New Bank Accounts Bank accounts should not be opened by any City department without prior communication with the Finance Department. In addition, when bank accounts are opened, the account should have more than one authorized signer to ensure operational continuity if an authorized signer is unavailable.

During the fiscal year 2020 audit, we noted that a new bank account was opened by the Development Services Department without the knowledge or prior approval of the Finance Department. In addition, the new account only included one City staff member as an authorized signer.

Bank accounts that are opened without the knowledge of the Finance Department increase the risk that the account and its activity will not be recorded in the general ledger or reconciled timely. By not completing and reviewing the bank reconciliations timely, accounting errors, misstatements and/or unauthorized activities may not be identified or corrected in a timely manner.

City staff stated that the account was opened to provide small business assistance grants in response to the coronavirus pandemic and we understand it was staff oversight that it was not communicated to the Finance Department.
29 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

SIGNIFICANT DEFICIENCIES
2020-007 Authorization and Communication of New Bank Accounts (Continued) The City should develop policies and procedures for the approval of the opening of any new bank accounts and the communication of the opening of the account to the Finance Department. Once policies and procedures have been established, they should be communicated to each of the City’s departments.

In addition, each account should have more than one authorized signer to ensure continuity of operations if one of the signers is unavailable.

Current Status:

The City agrees (1) bank accounts should not be opened by any City department without prior communication with the Finance Department and (2) bank accounts should have more than one authorized signer. Staff has educated departments on the importance of and necessity for this policy. The unauthorized-by-finance bank account was closed in August 2021. 2020-008 Timely Preparation and Approval of Treasurer’s Reports This comment is an update of matters repeated in prior years as discussed in Other Matters 2015-003a, and 2014-007 and 2012-07, the latter two of which are not repeated in this report since they are substantially redundant with our comments below.

To be an effective control, Treasurer’s Reports and the associated review should be completed in their entirety as soon as reasonably possible after each month or quarter-end, typically within thirty to fortyfive days of the bank statement month end. In addition, Section XX, Reporting, of the City’s Investment Policy requires that the City Treasurer review and make available the monthly investment reports to the City Manager and City Council.

During the audit, we noted that Treasurer’s Reports had not been prepared and reviewed since January 2020 and therefore were not made available on a monthly basis to the City Manager and the City Council.

We did note that City staff prepared a Summary of Investments for the quarters ended March 31, 2020 and June 30, 2020; however, the summary reports were not signed by a preparer or a reviewer.

With such delays, any errors, misstatements and/or unauthorized activities may not be identified or corrected in a timely manner.

Update for June 30, 2021 Audit:

We did note that the City amended its Investment Policy to require the submission of a quarterly Treasurer’s Report to the City Manager and City Council, however the March 31, 2021 and June 30, 2021 reports were not submitted until September 21, 2021.

We understand the delay in preparing the Treasurer’s Reports was due to the turnover in staffing in the Finance Department.
30 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

SIGNIFICANT DEFICIENCIES
2020-008 Timely Preparation and Approval of Treasurer’s Reports (Continued) The City should implement procedures to ensure the timely preparation of the monthly Treasurer’s Reports and ensure that preparation and review are documented in a formal manner, including the date on which each takes place.

Current Status:

The City began formal quarterly investment reporting to the City Council and the public in November 2020, for the period ending September 2020. In addition, the investment policy was updated in December 2020 and includes a requirement for quarterly investment reporting. In addition, because of staff turnover, the quarterly reports for March 31 and June 30 were submitted late.
2019-003 Prior Year Recommendations Not Yet Implemented During the current year audit, we followed up on the status of Significant Deficiencies identified on the Status of Prior Year Significant Deficiencies. We found that the following deficiencies had either been partially or not mitigated at June 30, 2019. Therefore, they are deemed to be current year Significant Deficiencies. Details of these deficiencies and associated management’s responses are listed in the Status of Prior Year Significant Deficiencies.
• 2017-002 Golf Enterprise Fund Working Capital
• 2015-002 Timely Review and Approval of Journal Entries • 2015-003(b)iii Investment Reporting and Compliance
• 2015-004 Timely Filing of Continuing Disclosure Reports • 2012-02(a) Internal Controls – Segregation of Duties - Super-User Status in the General Ledger System
Current Status:

See comment 2021-006 and Management’s Response to the Current Year Status for each of the above deficiencies as listed in the Status of Prior Year Significant Deficiencies below. 2019-004 Finance Personnel Super-User Rights
As noted in prior year comment 2012-02, good internal controls are based a segregation of duties, and no one finance employee should have access to an asset and the controlling documentation that supports that asset. Ideally, one employee should retain authorization to use an asset and another employee should maintain the records over that asset. Super-user rights give an individual the potential to obtain both of these functions. Due to the reasons mentioned above, Finance staff should not normally be allowed to have super-user rights in the City’s general ledger system.

We noted that three City employees (the Finance Director, the Accounting Manager, and the Deputy Director of Finance) continue to have super-user rights to the New World general ledger. When accounting staff have super-user rights, there is a potential risk of restricting or allowing access to other user’s abilities to access the different modules in the accounting system (i.e., unauthorized adjustments could be made to the general ledger). In addition, unauthorized transactions could be processed without proper review and approval.
31 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

SIGNIFICANT DEFICIENCIES
2019-004 Finance Personnel Super-User Rights (Continued) While we understand the City has a limited number of staff available to provide system administration functions, the City should consider restricting super user rights to as few employees as possible. Until that is possible, the City should implement mitigating controls such as a review and approval of changes made to the system by the above employees.

Update for June 30, 2020 Audit:

For the year ended June 30, 2020, we noted that three City employees (the Finance Director, the Accounting Manager, and the Budget Manager) continue to have super-user rights to the New World general ledger.

Current Status:

We agree that the security of super users should be reviewed more thoroughly and that a procedure should be established for system changes. Internal controls for super users is currently being reviewed. Because of the nature of the ERP system, other compensating controls will be necessary. We will add an independent review of the log files to the close management software for the super users.
2019-007 Determine Disposition of Lease Proceeds
Proceeds from the issuance of debt should be used for the project or other purchase in a timely manner, usually within one to two years, depending on the purpose of the issuance.

The City issued a lease in 2015 for the purchase of equipment and debt service on the lease began in June 2016. However, as of June 30, 2019, the City had not spent all of the proceeds from the lease and the escrow account balance was $562,263 as of that date.

We understand that the use of these funds for equipment purchases was expected to be considered as part of the funding plan during the preparation of the fiscal year 2020 budget.

If proceeds from the issuance of debt are not spent in a timely manner, the City may continue to make debt service payments on cash that is in the escrow account.

The City should determine if qualifying equipment purchases were made subsequent to the issuance of the lease that could be reimbursed from the escrow account, or determine whether the funds will be used for equipment purchases in the near future. If such purchases are not identified, the City should determine if the balance in the escrow account should instead be used to retire the outstanding lease payable balance, which was $160,253 as of June 30, 2019.

Update for June 30, 2020 Audit:

As of June 30, 2020, the escrow account balance was $564,082.

Current Status:

Implemented - All proceeds from leases have been reviewed and appropriately drawn down by June 2021.
32 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

SIGNIFICANT DEFICIENCIES
2018-001 Prior Year Recommendations Not Yet Implemented During the current year audit, we followed up on the status of Significant Deficiencies identified on the Status of Prior Year Significant Deficiencies. We found that the following deficiencies had either been partially or not mitigated at June 30, 2018. Therefore, they are deemed to be current year Significant Deficiencies. Details of these deficiencies and associated management’s responses are listed in the Status of Prior Year Significant Deficiencies.
• 2017-002 Golf Enterprise Fund Working Capital
• 2015-002 Timely Review and Approval of Journal Entries • 2015-003 Investment Reporting and Compliance
• 2015-004 Timely Filing of Continuing Disclosure Reports • 2014-002 Timely Preparation and Approval of Bank Reconciliation • 2012-02 Internal Controls – Segregation of Duties
Current Status:

See comment 2021-006 and Management’s Response to the Current Year Status for each of the above deficiencies as listed in the Status of Prior Year Significant Deficiencies below. 2017-002 Golf Enterprise Fund Working Capital
The Government Finance Officers Association (GFOA) recommends that local governments adopt a target amount of working capital which indicates the level of funding needed to meet the obligations of the fund. Working capital is defined as the difference between current assets and current liabilities of the fund. In addition, the City’s policy for enterprise funds is that the target for working capital is that a baseline of 90 days of working capital or 25% of operating expenses is maintained.

As of June 30, 2017, the Golf Enterprise Fund had working capital that could only cover 19 days or 3% of the Fund’s operating expenses. In addition, the fund has incurred an operating loss for the past two fiscal years.

The City is not in compliance with the terms of its working capital policy.

The Golf Fund revenue as well as the annual play has declined over the past 10 years combined with the increase in expenditures for capital improvements necessary to keep the course in operating condition.

The City should develop a plan to analyze the operations of the Golf Enterprise Fund and develop a plan to fund the operations in a manner that would bring the fund into compliance with the City’s working capital policy.

Update for June 30, 2018 Audit:

As of June 30, 2018, the Golf Enterprise Fund had working capital that could only cover 23 days or 6% of the Fund’s operating expenses.
33 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

SIGNIFICANT DEFICIENCIES
2017-002 Golf Enterprise Fund Working Capital (Continued) Update for June 30, 2019 Audit: For the year ended June 30, 2019, the Golf Enterprise Fund incurred an operating loss of $152,029 and as of June 30, 2019, the Golf Enterprise Fund had working capital that could only cover 20 days or 5.5% of the Fund’s operating expenses.

Update for June 30, 2020 Audit: For the year ended June 30, 2020, the Golf Enterprise Fund incurred an operating loss of $254,975 and as of June 30, 2020, the Golf Enterprise Fund had working capital that could only cover 37 days or 10.2% of the Fund’s operating expenses.

Update for June 30, 2021 Audit: For the year ended June 30, 2021, the Golf Enterprise Fund results improved and the Fund had operating income of $76,448 and as of June 30, 2021, the Golf Enterprise Fund had working capital that could cover 75 days or 20% of the Fund’s operating expenses.

Current Status:

The revenue for the golf course was evaluated for the FY 22 budget and we believe the subsidy from the General Fund is sufficient to correct the issue with working capital. This was further evaluated during FY 22 as a fee study took place which recommended increasing the overall user fees for the golf course.
2015-002 Timely Review and Approval of Journal Entries
This comment is an update of matters repeated in prior years as discussed in Significant Deficiency 2014- 003, which is not repeated in this report since it is substantially redundant with our comments below.

Journal entries should be prepared and reviewed in a timely manner for the period in which the entry is to be posted, in order to keep accounts up to date with the current information. In addition, to have a complete audit trail of the journal entry process, the dates of preparation and review should be documented for all journal entries.

We selected forty journal entries for testing of controls over the journal entry process and supporting documentation and noted thirteen of the journal entries were reviewed more than a month after the periods the entries were intended to adjust. The journal entries were reviewed from two to nine months after the date of preparation or the period in which they were being posted.

Two of the 40 journal entries tested did not have evidence of the date prepared and the date reviewed, which is typically indicated by date stamps used by the Finance Department. One of the two journal entries without a date stamp did have a date printed on the bottom of the page that reflected when the journal voucher may have been prepared, however, no date of review was noted.

During our testing of investments, we also noted December 2014 and March 2015 journal entries to record investments and interest, indicate they were prepared on April 23, 2015 and reviewed and posted on April 22, 2015 which is prior to when the Treasurer’s Reports themselves were prepared and reviewed.

Finally, we also noted that 5 of the 40 journal entries tested included the date stamp in accordance with City policy, but the date on the review stamp was prior to the date the document was prepared. 34 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

SIGNIFICANT DEFICIENCIES
2015-002 Timely Review and Approval of Journal Entries (Continued) Without the timely preparation, review and approval of journal entries, there is an increased risk of unauthorized entries or an error going undetected, and interim financial reporting may be inaccurate.

We understand the delay in the review process was due to the shortage of staff in the Finance Department, and the date stamp differences were due to staff oversight.

The City should develop procedures to ensure that all journal entries are prepared, reviewed, approved and posted to the general ledger in a timely manner (within 30-45 days of the date of activity). And, the date stamps should be included in that review process to ensure the process is accurately documented.

Update for June 30, 2016 Audit:

We selected forty journal entries for testing of controls over the journal entry process and supporting documentation. We noted eleven of the entries were reviewed from two to six months after the date of preparation or the period to which they were being posted.

One of the forty journal entries tested did not have evidence of the date prepared, which is typically indicated by date stamps used by the Finance Department.

Update for June 30, 2017 Audit:

We selected 40 journal entries for testing of controls over the journal entry process and supporting documentation. We noted four of the forty entries were reviewed and posted more than 45 days after the date they were prepared.

Additionally, it was noted that three of the forty journal entries tested were posted to the general ledger more than 2 to 5 months after the transactions occurred.

Update for June 30, 2018 Audit:

We again selected 40 journal entries for testing of controls over the journal entry process and supporting documentation. We noted that the journal entries were prepared, reviewed, approved and posted to the general ledger in a timely manner. However, we noted two journal entries that had review dates stamped on them that were prior to the preparation date of the entries.

Update for June 30, 2019 Audit:

During this year’s audit, we again selected 40 journal entries for testing of controls over the journal entry process and supporting documentation. We noted that the thirty-nine of the journal entries were prepared, reviewed, approved and posted to the general ledger in a timely manner. However, we noted one of the journal entries was prepared and posted to the general ledger in a timely manner, but the review indication included what appears to be the reviewers date stamp, but not the sign-off of approval by the reviewer. 35 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

SIGNIFICANT DEFICIENCIES
2015-002 Timely Review and Approval of Journal Entries (Continued) Update for June 30, 2020 Audit:

During this year’s audit, we again selected 40 journal entries for testing of controls over the journal entry process and supporting documentation. We noted that thirty-seven of the journal entries were prepared, reviewed, approved and posted to the general ledger in a timely manner. However, we noted three of the journal entries were prepared and posted to the general ledger in a timely manner, but the review of the journal entries did not take place until two to four months later. In addition, one of the journal entries was posted to February 2020 instead of September 2019, when the transaction occurred.

Update for June 30, 2021 Audit:

During this year’s audit, we again selected 40 journal entries for testing of controls over the journal entry process and supporting documentation. We noted that eighteen of the journal entries were prepared, reviewed, approved and posted to the general ledger in a timely manner. However, we noted twelve of the journal entries were prepared, reviewed and posted to the general ledger from two to nine months later.

We understand the delay in the review process continues to be due to the shortage of staff and staff turnover in the Finance Department.

The City should develop procedures to ensure that all journal entries are prepared, reviewed, approved and posted to the general ledger in a timely manner (generally within 30-45 days of the date of activity).

And, the date stamps should be included in that review process to ensure the process is accurately documented.

Current Status:

The City has procedures in place for all journal entries to be reviewed before they are posted to the general ledger, and these entries are initialed by the reviewer. Due to staff turnover, the entries were not entered timely. This is also related to the 2021-001 finding with the timely close.

As the close management system is being refined, procedures for close will be done on a more regular basis. We anticipate the during FY 24 that additional controls will take place with closing each period and using system controls to lock down prior period transactions. 2015-003 Investment Reporting and Compliance
During our review of timely preparation of the Treasurer’s Reports and compliance with the requirements of the City’s Investment Policy, we noted the following:
a. Timely Preparation and Approval of Treasurer’s Reports This comment is an update of matters repeated in prior years as discussed in Other Matters 2014- 007 and 2012-07, which are not repeated in this report since they are substantially redundant with our comments below.
36 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

SIGNIFICANT DEFICIENCIES
2015-003 Investment Reporting and Compliance (Continued) To be an effective control, Treasurer’s Reports and the associated review should be completed in their entirety as soon as reasonably possible after each month or quarter-end, typically within thirty to forty-five days of the bank statement month end. In addition, Section XX, Reporting, of the City’s Investment Policy requires that the City Treasurer review and make available the monthly investment reports to the City Manager and City Council.

We reviewed the City’s December 31, 2014 and March 31, 2015 Treasurer’s Reports and noted that they were not prepared until May 31 and June 1, respectively, and there was no indication of the date when they were reviewed. We reviewed the City’s Treasurer’s Report and Successor Agency Treasurer’s Report for the month of June 2015, and noted that both of the Treasurer’s Reports were reviewed and approved on September 15, 2015.

With such delays, any errors, misstatements and/or unauthorized activities may not be identified or corrected in a timely manner.

We understand the delay in preparing the Treasurer’s Reports was due to the Finance Department being short staffed from July 2014 through March 2015 and that an employee was hired in March 2015 to help alleviate the workload.

The City should implement procedures to ensure the timely preparation of the monthly Treasurer’s Reports and ensure that preparation and review are documented in a formal manner, including the date of which each takes place.
b. Treasurer’s Report Accuracy and Compliance with Government Code During our review of the January 2015 Treasurer’s Report, we noted the following issues:
i. Correct Identification of Investments
The Treasurer’s Report and Investment Reconciliation should accurately identify each investment based on information provided by the trustee/fiscal agent statement.

During our review of the January 2015 Summary of Account Activity in the Treasurer’s Report, we noted CAMP investments were properly classified, however on the Fund Summaries page of the Treasurer’s Report, they were reported as Certificates of Deposit.

We also noted the City’s Certificates of Deposit, which were correctly identified in the Summary of Account Activity page of the Treasurer’s Report, were classified as Commercial Paper in the Investment Schedule page of the Treasurer’s Report. And, the total Certificates of Deposit reported on the Investment Schedule did not agree to the total on the Union Bank Statement as of January 31, 2015.

In addition, this error in reporting the CAMP investments as Certificates of Deposits caused the actual balance of Certificates of Deposit of $25 million to be excluded from the Fund Summaries page of the Treasurer’s Report.
37 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

SIGNIFICANT DEFICIENCIES
2015-003 Investment Reporting and Compliance (Continued) City staff indicated that when they were preparing the Treasurer’s Report, they forgot to update the categories.

Each page of the Treasurer’s Report should be reviewed in detail each month and reconciled to both the investment statements and the general ledger to ensure accurate reporting.
ii. Fiscal Agent Investment Reporting
Treasurer’s Reports should be updated monthly, or they should denote the date of the information reported if it does not correspond with the statements as of the reporting date.

In our review of the January 2015 fiscal agent statements, we noted that there were variances between the January 2015 Treasurer’s Report and the fiscal agent statements.

The Treasurer’s Report did not indicate that the reported balances were accurate as of another date other than the January 2015 statements.

We understand the City only updates the activity for the fiscal agent investments on a semi-annual basis in the Treasurer’s Report, but the Report does not include such an indication.

As a result, the City is incorrectly reporting investments in the Treasurer’s Report on a month to month basis – they are only accurate semi-annually.

City staff should include the actual month-end balances of the fiscal agent statements in the Treasurer’s Report, or include an indication that the information is updated only semiannually. Another option would be to exclude the fiscal agent account balances from the Treasurer’s Report, since the Investment Policy excludes funds subject to bond indentures.
iii. Compliance with Government Code Section 53607 Reporting Requirements The Reporting Section of the City’s Investment Policy indicates that the monthly investment reports are to be made available to the City Council. However, the Resolution adopting the annual Investment Policy and the Budget Policy delegate the authority to invest the funds of the City under California Government Code Section 53607, which requires monthly reporting of transactions to the legislative body.

We understand the monthly reports are not submitted to City Council and the Treasurer’s Reports are only submitted when they are requested by City Councilmembers.

The City should determine whether the current reporting requirement in the Investment and Budget Policies is sufficient under the Government Code, or if the Investment and Budget Policies and reporting method should be revised to conform to the Code requirements.
38 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

SIGNIFICANT DEFICIENCIES
2015-003 Investment Reporting and Compliance (Continued) iv. Compliance with Government Code Section 53646 – Updating Reference to Investment Policy
Government Code Section 53646 requires that the Treasurer’s Report state compliance of the portfolio to the statement of investment policy, or the manner in which the portfolio is not in compliance.

We reviewed the December 2014, January 2015 and March 2015 Treasurer’s Reports and noted that the statement of certification of compliance to the City’s Investment Policy references the Investment Policy adopted by City Council dated September 18, 2006, when the City’s most recent Investment Policy is dated August 6, 2013.

Staff indicated that during the preparation of the Treasurer’s Report, staff copied over the incorrect date of the adoption of the Investment Policy.

The date in the certification should be updated or it could even be removed.

City staff should review and compare the Treasurer’s Report to all investment/trustee statements in detail each month and not just update the balances, to ensure information is being presented correctly. City staff should also ensure that investments are classified correctly by investment type and amount. Finally, the City should determine whether the current reporting requirement in the Investment Policy is sufficient under the Government Code, or if the Investment Policy and reporting method should be revised to conform to the Code requirements.

Update for June 30, 2018 Audit:
a. Timely Preparation and Approval of Treasurer’s Reports We again reviewed the Treasurer’s Reports for timely preparation and proper approval and noted the following:
• The October 31, 2017 Treasurer’s Report was prepared and reviewed on April 17, 2018 almost six months after the end of the period.
• The November 30, 2017 Treasurer’s Report was prepared and reviewed on April 20, 2018 almost five months after end of the period.
• The February 28, 2018 Treasurer’s Report was prepared and reviewed on May 15, 2018 almost three months after the end of the period.
39 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

SIGNIFICANT DEFICIENCIES
2015-003 Investment Reporting and Compliance (Continued) b. Treasurer’s Report Accuracy and Compliance with Government Code i. Correct Identification of Investments
Implemented
ii. Fiscal Agent Investment Reporting
Implemented
iii. Compliance with Government Code Section 53607 Reporting Requirements Not implemented. The City did not submit monthly investment reports to the City Council in fiscal year 2017-2018.
iv. Compliance with Government Code Section 53646 – Updating Reference to Investment Policy
Implemented
Update for June 30, 2019 Audit:
a. Timely Preparation and Approval of Treasurer’s Reports Implemented during fiscal year 2019. However, see current year comment 2020-008. b. Treasurer’s Report Accuracy and Compliance with Government Code iii. Compliance with Government Code Section 53607 Reporting Requirements Not implemented. The City did not submit monthly investment reports to the City Council in fiscal year 2017-2018.

Update for June 30, 2020 Audit:
a. Timely Preparation and Approval of Treasurer’s Reports See 2020-008.
b. Treasurer’s Report Accuracy and Compliance with Government Code iii. Compliance with Government Code Section 53607 Reporting Requirements Not implemented. The City did not submit monthly investment reports to the City Council in fiscal year 2019-2020.

Update for June 30, 2021 Audit:
a. Timely Preparation and Approval of Treasurer’s Reports See 2020-008.
40 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

SIGNIFICANT DEFICIENCIES
2015-003 Investment Reporting and Compliance (Continued) b. Treasurer’s Report Accuracy and Compliance with Government Code iii. Compliance with Government Code Section 53607 Reporting Requirements Not implemented. The City did not submit monthly investment reports to the City Council in fiscal year 2020-2021.

Current Status:

The City began formal quarterly investment reporting in November 2020, for the period ending September 2020. In addition, the investment policy was updated in December 2020, including investment reporting as a quarterly requirement in the policy. We are working towards a monthly report and anticipate this to be completed in FY 24.
2015-004 Timely Filing of Continuing Disclosure Reports The covenants of the City’s 2012 Water Refunding Bonds and 2012 Sewer Refunding Bonds require them to prepare an Annual Report no later than seven months after the end of the City’s fiscal year. The Report should be filed with the Municipal Securities Rule-making Board (MSRB) by either the City or the bond trustee.

During our review of the filing of continuing disclosure, we noted that as of October 21, 2015, the City had not filed any Annual Reports to date for the 2012 Water Refunding Bonds or the 2012 Sewer Refunding Bonds.

The City is not in compliance with the annual reporting requirements of the Bond covenants.

Although the City does make annual filings for other bond issues, we understand the failure to report was due to City staff not being aware of the disclosure requirements for these debt issues.

The City should ensure that the delinquent Annual Reports are filed with MSRB and future Reports are filed timely. If the Trustee is responsible for the filing, the City should make sure that the filing is completed by the deadline.

Update for June 30, 2018 Audit:

During our review of the filing of continuing disclosure reports, we noted that the City did not file the annual reports for the fiscal year ended June 30, 2017 until May 2, 2018 for the 2012 Water Refunding Bonds and the 2012 Sewer Refunding Bonds.

Update for June 30, 2019 Audit:

During our review of the filing of continuing disclosure reports due on December 31, 2018 for the year ended June 30, 2018, we noted that the City did not file the June 30, 2018 annual reports for the 2012 Water Refunding Bonds and the 2012 Sewer Refunding Bonds until July 26, 2019.

41 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

SIGNIFICANT DEFICIENCIES
2015-004 Timely Filing of Continuing Disclosure Reports (Continued) Update for June 30, 2020 Audit:

During our review of the filing of continuing disclosure reports due on December 31, 2019 for the year ended June 30, 2019, we noted that the City did not file the June 30, 2019 notice stating that the annual reports for the 2009 and 2012 Sewer Refunding Bonds would be filed once the fiscal year 2019 financial statements were issued until May 10, 2021, and the 2012 Water Refunding Bonds until May 3, 2021.

Update for June 30, 2021 Audit:

During our review of the filing of continuing disclosure reports due on December 31, 2020 for the year ended June 30, 2020, we noted that the City did not file the reports for the 2012 Water Refunding Bonds and the 2012 Sewer Refunding Bonds until May 3, 2021 and May 10, 2021, respectively. We did note the City filed the fiscal year 2020 financial statements for both Bonds on March 24, 2022, which was shortly after the financial statements were issued on March 11, 2022.

The City is not in compliance with the annual reporting requirements of the Bond covenants.

We understand the failure to report was due to staff turnover.

The City should develop procedures to ensure the Annual Reports are filed timely with MSRB.

Current Status:

The City has contracted out all continuing disclosure reporting. We anticipate this to be a reoccurring issue until such time that the Financial Statements are filed timely and the required information is available for disclosure.
2014-002 Timely Preparation and Approval of Bank Reconciliations Bank reconciliations are one of the most important internal controls a city can have, and the bank reconciliation cannot be considered complete until it has been reviewed and approved. To be an effective control, bank reconciliations and the associated review should be completed in their entirety as soon as reasonably possible after each month-end, usually within thirty to forty-five days of bank statement month end.

We reviewed the City’s December 2013 bank reconciliations and noted they were not completed until late February 2014 as follows: Payroll Account - February 27, Section 125 (Aflac) Account - February 24, Police Account - February 24 and Workers Compensation Account - February 20. We were unable to determine the completion or review date of the General Account, as there was no date noted, however it appears to have been mid-February due to the print date on the paper backup.

We reviewed the City’s January 2014 bank reconciliations for the same accounts and it is also unclear as to when they were completed as the preparer and reviewer sign-offs are not dated, however it appears they were completed in mid-March due to the print dates on the paper backup. 42 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

SIGNIFICANT DEFICIENCIES
2014-002 Timely Preparation and Approval of Bank Reconciliations (Continued) Finally, we noted that the April 2014 bank reconciliations for the accounts were not completed as of June 10, 2014. With such a delay, any errors, misstatements and/or unauthorized activities may not be identified in a timely manner or corrected accordingly.

We understand the delay in preparing the bank reconciliations was due to the implementation of the utility billing module of the New World System on January 1, 2014 impacting all Finance staff. In addition, we understand there was a turnover in staff during the month of February 2014 and the transition period impacted the timely preparation of the bank reconciliations.

The City should implement procedures to ensure the timely preparation of the bank reconciliations and ensure that preparation dates and signatures are visible on the reconciliations.

Update at June 30, 2015: We reviewed the City’s December 2014 bank reconciliations for the following accounts and noted there was no indication of the date they were prepared, and they were not reviewed until March 2015 as follows: Section 125 (Aflac) Account – March 21, Police Account – March 13 and Workers Compensation Account – March 21. The December 2014 General Account and Payroll Account reconciliations were not prepared or reviewed until May 6 and April 16, respectively.

We also reviewed the City’s January 2015 bank reconciliations for the following accounts and noted there was no indication of the date they were prepared, and they were not reviewed until March 2015 as follows: Section 125 (Aflac) Account – March 21, Police Account – March 21 and Workers Compensation Account – March 31. The January 2015 General Account and Payroll Account were not prepared or reviewed until May 12 and May 6, respectively. And, during our review of the General Checking account June 2015 reconciliation, we noted it was not prepared and reviewed until September 10, 2015 and September 15, 2015, respectively.

We understand the delay in preparing the bank reconciliations was due to the Finance Department being short staffed from July 2014 through March 2015 and that an employee was hired in March 2015 and is in training to assume the bank reconciliation duties.

Update for June 30, 2016 Audit:

In June 2016, we reviewed the City’s December 2015 bank reconciliations and noted they were not prepared and reviewed until late February or early March 2016 as follows: General Checking Account - February 29, Section 125 (Aflac) Account – March 1 and Workers Compensation Account - February 29.

We understand the delay in preparing the bank reconciliations was due to the turnover of staff and new employees being trained to complete the process which impacted the timely preparation and review of the bank reconciliations.

In October 2016, we reviewed the City’s June 2016 bank reconciliations for the same accounts. We found that the reconciliation for the General Checking account was prepared and reviewed on a timely basis. As for the Section 125 and Worker’s Compensation Accounts bank reconciliations, they were prepared timely and reviewed by October 2016. However, we could not determine when the preparation or review took place as the preparers and reviewers did not indicate such on the reconciliations. 43 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

SIGNIFICANT DEFICIENCIES
2014-002 Timely Preparation and Approval of Bank Reconciliations (Continued) Update for June 30, 2017 Audit:

We again selected bank reconciliations for testing for timely preparation and proper approval and noted following:
• The City’s November 2016 bank reconciliation for the General Checking Account was not prepared until March 7, 2017 and were not reviewed until March 15, 2017. Additionally, the Payroll Section 125 Reimbursement Account was signed off as prepared and reviewed, although there is no indication of the date it was prepared and reviewed. • The City’s March 2017 bank reconciliations for the General Checking, Payroll Checking, Section 125 Payroll Reimbursement Account, and Workers Compensation Account were not prepared and reviewed until June 2, 2017 and June 5, 2017, respectively. • During our testing of the City’s June 2017 bank reconciliations, it was noted that the City’s reconciliation of the general checking account was not prepared and reviewed until October 1, 2017. Additionally, it was noted that there was no indication of who prepared or reviewed the June 2017 Successor Agency bank reconciliation, or the date that it was prepared or reviewed.

Update for June 30, 2018 Audit:

We again selected bank reconciliations for testing for timely preparation and proper approval and noted following:

The City’s December 2017 bank reconciliations for the General Checking, Payroll Checking, Successor Agency Check, and Workers’ Compensation Checking Accounts were not prepared or reviewed until March 5, 2018. Additionally, the Payroll Section 125 Reimbursement Account December 2017 bank reconciliation was not prepared and reviewed until March 9, 2018.

Furthermore, the City’s February 2018 bank reconciliation for the General Checking Account was not prepared and reviewed until May 14 and 15, 2018, respectively.

According to City staff, the reason for the delay was due to staff changes in the Finance Department during the current year.

Update for June 30, 2019 Audit:

We again selected four months for testing of timely preparation and review and noted the bank reconciliations for August 2018, November 2018, March 2019 and June 2019 were prepared and reviewed within thirty to forty-five days of bank statement month end.

Current Status:

See 2020-002.
44 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

SIGNIFICANT DEFICIENCIES
2012-02 Internal Controls – Segregation of Duties
This comment is an update of matters repeated in prior years as discussed in Significant Deficiency 2010- 03, which is not repeated in this report, since it is substantially redundant with our comments below.

During our review of the City’s internal controls for proper segregation of duties and procedures, we noted areas in which controls need to be improved and employee’s access and/or duties revised. Good internal controls require that employees with access to the City’s assets not have access to the City’s accounting records for the same assets.
a. Super-User Status in the General Ledger System
Accounting staff should not normally be allowed to have Super-User rights in the City’s general ledger system. We noted that three City employees (the Finance Director, the Accounting Manager, and the Deputy Director of Finance) have super-user rights to the HTE SunGard System. When accounting staff have super-user rights, there is a potential risk of restricting or allowing access to other user’s abilities to access the different modules in the accounting system (i.e., unauthorized adjustments could be made to the general ledger). In addition, unauthorized transactions could be processed without proper review and approval. While we understand the City has a limited number of staff available to provide system administration functions, the City should consider restricting super user rights to as few employees as possible. Until that is possible, the City should implement mitigating controls such as a review and approval of changes made to the system by the above employees.
b. Reviewing Changes to Vendor Database
The Accounts Payable Senior Accounting Technician processes accounts payable, mails the checks, and has access to the vendor database. Although the check registers are reviewed, there is no review of the vendor database for additions or modifications. An employee other than the Senior Accounting Technician should review the vendor database periodically and approve all additions and modifications.
c. Reviewing Changes to Employee Database
The Payroll Clerk processes payroll, and although she cannot add new employees to the employee database, she can modify data within the database. Although the payroll registers are reviewed, there is no review of the employee database for modifications. An employee other than the Payroll Clerk should review the employee database periodically and ensure all modifications have been approved.

Update for 2013, 2014 and 2015 Audits –We again noted the lack of segregation of duties associated with super users and reviewing changes to the vendor and employee databases. 45 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

SIGNIFICANT DEFICIENCIES
2012-02 Internal Controls – Segregation of Duties (Continued) With such access to the databases, there is a risk of unapproved changes being made to the vendor or employee databases. Ideally, the access to the various databases should be removed from the employees involved with processing the above transactions. In the event that is not possible, another appropriate employee should review the applicable databases periodically to ensure all additions, deletions and modifications have been approved.

We understand the New World System accounting software does not currently have the capability of producing reports of changes made to the various databases. Again, if the access to the databases cannot be removed from the employees noted, when these database changes reports are available, they should be generated during the review process for each applicable area and reviewed in detail to ensure all modifications were accurate and approved.

Update for June 30, 2018 Audit:
a. Super-User Status in the General Ledger System
Not implemented. We noted that same three City staff positions still have super-user rights to the New World System.
b. Reviewing Changes to Vendor Database
Implemented.
c. Reviewing Changes to Employee Database
Although the payroll registers are now reviewed, if changes to the employee database are completed without backup being provided, the change may go unnoticed. The City should develop a process to ensure that the Accounting Manager is alerted to any changes that are made to the employee database.

Update for June 30, 2019 Audit:
a. Super-User Status in the General Ledger System
Not implemented. We noted that same three City staff positions still have super-user rights to the New World System.
b. Reviewing Changes to Vendor Database
Implemented.
c. Reviewing Changes to Employee Database
Implemented.
46 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

SIGNIFICANT DEFICIENCIES
2012-02 Internal Controls – Segregation of Duties (Continued) Update for June 30, 2020 and 2021 Audits:
a. Super-User Status in the General Ledger System
Not implemented. We noted that three City staff positions still have super-user rights to the New World System.
b. Reviewing Changes to Vendor Database
Implemented.
c. Reviewing Changes to Employee Database
Implemented.

Current Status:
a. See 2019-004
b. Implemented.
c. Implemented
47 ATTACHMENT 4
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ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

OTHER MATTERS
2020-009 Timely Updating of Bank Account Signature Cards Signature cards for the bank and investment accounts should be updated timely when there are changes in authorized signers.

During our review of authorized signers in June 2020 for the Union Bank and Local Agency Investment Fund (LAIF) accounts, we noted that the previous Finance Director and Deputy Finance Director were still listed as authorized signers on the accounts even though they had departed the City in November 2019 and May 2019, respectively. We noted that the authorized signers for those accounts were not updated until August 2020. In addition, the Wells Fargo Bank account included the same signers and the authorized signers were not updated until April 2020.

We understand certain changes were not made timely due to the City experiencing turnover in the upper management positions during the fiscal year.

Keeping terminated employees as authorized signers on the City’s bank and investment accounts exposes the City to the risk of misappropriation of assets.

The City must immediately remove the former employees from the authorized signer lists of all bank and investment accounts. In the future, a step should be added to the employee departure checklist or process to ensure that outside parties (such as banks and investment advisors) are informed that the departed employee no longer represents the City.

Update for June 30, 2021 Audit:

The Local Agency Investment Fund authorized users were updated, but the Union Bank account (now U.S. Bank) was not updated as of August 2022.

Current Status:

Staff agrees with the immediate need to remove former employees from authorized signer lists of all bank and investment accounts. Procedures will be added to ensure prompt removal and additions of authorized signers on all bank and investment accounts. 2020-010 Wire Transfer Authorization
Wire transfers should have processes in place to ensure that it takes more than one person to prepare and complete the wire transfer. In addition, there should be documentation in place to provide support to show which of the authorized employees prepared and approved the transfer.

During the audit, we selected a sample of two wire transfers for testing of separate preparer and reviewer and noted that one of the samples that was related to a debt service payment had no indication of who had approved the transfer. We were able to agree the wire transfer information to the applicable bank statements and to the debt service schedules, however, controls over the wire transfer process should include documentation of who approved the transfer after it was prepared.

Without a segregation of duties related to the preparation and review of wire transfers, it increases the risk that accounting errors or unauthorized transactions may go unnoticed. 49 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

OTHER MATTERS
2020-010 Wire Transfer Authorization (Continued)
We understand that due to turnover in the Finance Department the documentation showing who approved the transfer could not be located.

The City should have processes in place to ensure that each wire transfer has formal documentation surrounding the preparer and the reviewer of the transaction along with the dates the preparation and review took place.

Current Status:

Implemented
2020-011 Consistency of Public Facilities Improvement Program Accounting The City has developed a Public Facilities Implementation Plan (PFIP) to ensure that public facilities are adequate and constructed in accordance with the adopted master plans for water, sewer, storm drainage and traffic as the City grows and develops in accordance with its General Plan. Development Impact Fees are collected at or near the time of development and are used wherever practical to finance the expansion of infrastructure necessary to accommodate the demand for new capacity. In certain cases, developers may construct public improvements that are in the PFIP and enter into reimbursement agreements with the City. Developers are then granted credit against the fees owed or are reimbursed any remaining amounts owed to the developer by the City when sufficient funds are available from future development impact fees paid by subsequent development that benefit from the available improvements.

As of June 30, 2020, the City had outstanding reimbursement commitments totaling $25,619,197, that are reported as contracts payable in the City’s financial statements. Related to those contracts payable, interfund advances between the Public Facilities Improvement Plan, General Fund, Water, and Sewer Funds are recorded in the general ledger that are expected to be repaid out of future developer fees.

The City tracks the activity related to the developer commitments in a spreadsheet, but the spreadsheet does not connect that activity with the balances of the interfund loans and some of the contracts payable are recorded as fund liabilities, while others are considered long-term liabilities.

We understand that due to the staff turnover, the City has not documented when balances should be recorded as a fund liability versus a long-term liability and when the interfund advances should be repaid.

The City should develop policies and procedures around the accounting for the PFIP activities, to ensure that all transactions and balances are recorded consistently and documented for future reference.

Current Status:

A retired annuitant has been hired to assist in reconciling the PFIP programs to ensure accuracy of all balances and timing of payments.
50 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

OTHER MATTERS
2020-012 Timely Payment of Disbursements
Payments to vendors should be made timely, usually within thirty to forty-five days of receiving the related invoice from the vendor.

During the audit we selected 25 disbursements to test for compliance with the City’s Purchasing Policy and timeliness of the payments. We noted one disbursement in the amount of $346,651 that was paid in November 2019 for a lease payment for the period July 1, 2018 through June 30, 2019.

When invoices are not paid timely, it increases the likelihood of late fees from the vendor and increases the risk that errors or misstatements surrounding the invoice may occur.

City staff stated that the invoice was paid late due to the turnover in staffing in the Finance Department during the fiscal year.

The City should develop procedures to ensure that all invoices are paid timely, usually within thirty to forty-five days after being received by the Finance Department.

Update for June 30, 2021 Audit:

During the audit we selected 40 disbursements to test for compliance with the City’s Purchasing Policy and timeliness of the payments. We noted three disbursements that were not paid timely as follows:
• $68,925 that was paid in March 2021 for project construction costs incurred in October and November 2020.
• $449,661 that was paid in March 2021 for project construction costs incurred in December 2020. • $382,652 that was paid in June 2021 for project construction costs incurred in February 2021.

City staff indicated that the invoices were paid late due to an employee working remotely and staff illness.

The City should develop procedures to ensure that all invoices are paid timely, usually within thirty to forty-five days after being received by the Finance Department.

Current Status:

Partially agree. Staff agrees with the need for timely payment of disbursements; however, procedures in Finance and processing times for the Accounts Payable process have remained in place and are being followed. The City’s procedures include the department entering the invoice batch and an electronic approval in the system from the department manager. Batches are brought to Finance where they are reviewed by the Accounting Technician within one week of being received (all batches received by noon on Thursday are reviewed for a check payment by the following Thursday). If there are no issues the Accounting Technician will electronically approve the batch in the system (most issues are related to a delay in the department approval process). 51 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

OTHER MATTERS
2020-012 Timely Payment of Disbursements (Continued)
The batches are then given to an Accountant, Budget Analyst, and/or Accounting Manager for final review and electronic signature in the system as well as posting the AP invoice batch so that a payment can then be generated. Checks are normally issued on Thursdays. Currently, there is no date stamp when the batch is received in Finance; however, in reviewing the approvals in the system, there appears to be a delay between the receipt of the invoice at the department level, entry into the system, approval by the department manager, and when the batch is given to Finance. In the case for the three invoices for FY 21 listed above, the following dates apply:

Invoice
Timeframe
Dept
Entry
Dept
Approval
AP
Review
Accountant
Review
Check Issue
Date
10/2020
and
11/2020
1/27/2021 2/22/2021 2/24/2021 2/25/2021 3/4/2021
12/2020 2/8/2021 3/18/2021 3/22/2021 3/25/2021 3/25/2021 2/2021 4/28/2021
and
5/18/2021
6/4/2021
and
5/23/2021
6/8/2021
and
6/7/2021
6/9/2021 6/10/2021
The City will meet with the management team to review the timeliness of approvals, how the departments can consistently enter invoices into system in a timely manner, and the overall review process once it has been received by Finance and work the strengthen the individual City departmental approval process.
2020-013 Filing Timely Grant Reimbursement Requests
Grant reimbursement requests should be filed shortly after the associated grant expenditures are incurred.

During the audit, we noted that the Fire Grants Special Revenue Fund had actual expenditures of $88 thousand and no revenue.

We understand that the City had incurred expenditures under the Staffing For Adequate Fire and Emergency Response (SAFER) grant, but no drawdowns were completed during fiscal year 2020 or subsequent. We also understand the grant reimbursement requests were not anticipated to be filed until fiscal year 2022.

City staff indicated that due to the turnover of employees in the Finance Department during the fiscal year, the City did not complete the reimbursement requests.

Update for June 30, 2021 Audit:

The grant reimbursements for the SAFER program were not completed during the year ended June 30, 2021. In addition, the filing of reimbursement requests for the federal transit authority program were not completed in fiscal year 2021.
52 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

OTHER MATTERS
2020-013 Filing Timely Grant Reimbursement Requests (Continued) Late grant draws could jeopardize grant funding if the costs are not claimed during the period of performance specified in the grant agreement.

The City should develop procedures to ensure that grant reimbursement requests are filed on a monthly or at least quarterly basis, to ensure that grant funding is not jeopardized and to improve cash flow.

Current Status:

Staff recognizes grant reimbursement requests have not been timely. Staff turnover in key positions have left grant management without proper attention. Staff is working on developing grant management policies and procedures to ensure reimbursement requests occur timely and documented thoroughly.
2020-014 Journal Entry Supporting Documentation
Supporting documentation should be attached to each journal entry that is prepared by City staff to ensure that each line item of the entry can be traced back to the supporting documents and to give the reviewer of the entry the information necessary to ensure the entry is correct.

We selected 40 journal entries for testing of accuracy and documentation of review and approval by an employee other than the preparer. During that testing, we noted the following:
• One journal entry related to investment interest income activity did not readily agree with the backup documentation provided. However, when we requested a copy of the associated bank statement and the supporting excel files, we were able to determine the source of the amounts noted, with the exception of purchased interest. The purchased interest included in the journal entry was $7,003 less than the backup provided due to the exclusion of two amounts in the associated worksheets.
• One journal entry included the support for all of the dollar amounts in the journal entry, but the credit amount of $28,220 did not contain an explanation for the correction. The City was able to provide us with additional information to agree with the amounts included, however the support that was originally provided did not.

If the supporting documentation is not attached to the journal entry, accounting errors, misstatements and/or unauthorized activities may not be identified or corrected in a timely manner.

City staff indicated that the errors or omissions in the supporting documentation for the entries were due to the amount of staff turnover that was experienced in the Finance Department during the fiscal year.

The City should ensure that journal entry support clearly documents and supports the amounts reported in each entry.

Current Status:

Implemented.
53 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

OTHER MATTERS
2020-015 Monitoring Loans Receivable for Collectability The City should have a process in place to monitor the collectability of the City’s loans receivable to ensure payments are collected and recorded timely.

In our conversations with City staff during the audit, we noted that the City does not have procedures in place to monitor outstanding loans receivable balances for collectability, to make sure payments are collected and recorded timely or to monitor compliance with the terms of loan covenants.

Without procedures in place to monitor the activity and compliance of the loans receivable balances, loan activity may not be accurately recorded in the general ledger, loan payments may not be collected timely, and loans may be out of compliance with required covenants.

City staff stated that with the high amount of employee turnover in the Finance Department, the City had not been able to monitor the loans receivable balances.

The City should develop procedures to monitor the balances, activity and covenants associated with outstanding loans receivable balances. The procedures should be communicated to City staff and a process should be put in place for the monitoring to occur.

Current Status:

Staff agrees with the need to develop procedures to monitor balances, activities, and covenants associated with outstanding loans receivable balances. Staff will research best practices, establish a policy, and monitor activity. In addition, Finance is working the City Attorney in regards to collectability on some of the former Redevelopment Agency loans. 2020-016 Accounts Payable Subledger Reconciliation
The City should review the accounts payable subledger and reconcile it to the general ledger on a monthly, or at least quarterly, basis. The review should be prepared by two separate individuals and the preparation and review should be documented in some formal manner.

The City did not reconcile the accounts payable subledger to the general ledger during fiscal year 2020.

If the accounts payable subledger is not reconciled to the general ledger on a monthly basis, then accounting errors, misstatements and/or unauthorized activities may not be identified or corrected in a timely manner.

City staff stated that due to the amount of turnover of staff in the Finance Department the reconciliation was not completed until after the end of the fiscal year.

The City should develop procedures to implement a monthly review and reconciliation of the accounts payable subledger to the general ledger. In addition, the preparation and review of the reconciliation should be documented in some formal manner.

Current Status:

Staff has put procedures in place to review and reconcile accounts payable to the general ledger.

This was completed during the implementation of the close management software for FY 21. 54 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

OTHER MATTERS
2020-017 Tracking and Recording Retentions Payable
The City should track and record the amount of retentions payable for ongoing City projects that have not been deposited into an escrow account.

As project costs are incurred, the City reduces the amount paid to each vendor at the time of invoicing by the applicable retainage amount (usually 5-10% of the gross invoice amount), however, we understand that City staff does not track the individual retentions payable and the retentions payable are not recorded in the general ledger until they are paid to the vendor at the end of the project.

If the City does not track and record the balance of retentions payable for ongoing City projects, the general ledger will be understated for the amount owed to vendors at any given time, which could be significant if many capital projects are in process.

City staff stated that due to the turnover of employees in the Finance Department during the fiscal year, the City did not track and record retentions payable.

The City should develop processes to track retentions payable for all applicable projects and record the balance of retentions payable in the City’s general ledger.

Current Status:

Staff has put procedures in place to track and record retentions payable and recorded retentions starting in FY 22.
2019-008 Treasurer’s Report Investment Categorization
The Treasurer’s Report should accurately identify each investment based on the information provided by the applicable account statement.

During our review of the March 2019 Summary of Cash and Investments in the Treasurer’s Report, we noted that Asset Backed Securities were incorrectly classified as Collateralized Mortgage Obligations.

Investments that are not properly classified in the monthly Treasurer’s Report lead to inaccurate reporting.

City staff must develop procedures to ensure the Summary of Cash and Investments in the Treasurer’s Report accurately identifies each investment based on the information provided by the account statement.

Update for June 30, 2020 Audit:

During the audit, we noted that the Treasurer’s Report had not been prepared and reviewed since January 2020. As a result, we were unable to determine if the above issue had been corrected.

Current Status:

Implemented

55 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

OTHER MATTERS
2016-003 Information Technology Best Practices Recommendations We conducted an Information Systems Review with our audit which encompassed the City’s financial information system and the network environment that houses it. Our work goes beyond simply looking at financial information systems as a result of greater risks of unauthorized access caused by overall industry growth of web-based commerce and internet based financial systems. Internal controls that are present in the overall network environment have become more important and relevant to understanding the internal controls over the financial system. We believe Information System controls must be continuously improved and enhanced to stay ahead of the ever increasing sophistication of hackers and criminals.

Currently, there are no Information Technology standards to which local governments are required to conform. Indeed, there are a wide variety of informal guidelines and suggested controls from many different organizations which local governments can use to implement appropriate controls to ensure adequate security over information technology. Our Information Technology staff have reviewed these informal guidelines and concluded that the certification and accreditation framework developed by the National Institute of Standards and Technology (NIST) for the Federal Information Security Management Act (FISMA) are the most appropriate for local government1 . NIST and FISMA represent the minimum
security requirements for federal government agencies information systems. NIST recommends these for state and local governments. Our procedures included performing an external network scan based on NIST criteria and in determining that internal control provides for:
 Internet access defenses including hacker prevention, detection and deterrent systems  Security of data from physical or network access
 Adequately protecting data from unauthorized internal access  Reasonable measures to ensure continuation of service While the results of our work did not indicate material weaknesses, we noted a few areas which could be improved. A summary of these recommendations which we believe are “best practices” are as follows:

Payment Card Industry Compliance
The City is not in compliance with the Payment Card Industry Data Security Standard (PCI-DSS). Any organization that processes credit cards is required to comply with PCI-DSS, even if the processing is outsourced. Failure to meet compliance requirements results in higher transaction fees and liability if a security breach is found. Because the City accepts credit cards as a form of payment, the City must be compliant with the applicable controls.

Update for June 30, 2017, 2018, 2019, 2020 and 2021 Audits:

We again noted that City is still not in compliance with the Payment Card Industry Data Security Standard.

Current Status:

The City was PCI compliant for part of FY 22, but a subsequent scan revealed additional vulnerabilities that we are working with IT to correct. In addition, the current merchant payment processor is no longer functional as of the end of August 2023. As such, the City is working on a new merchant processor which will be PCI compliant.
1 "State, local, and tribal governments, as well as private sector organizations are encouraged to consider using these guidelines, as appropriate." NIST SP 800-37 Rev 1 pg 11
56 ATTACHMENT 4

CITY OF MANTECA

MEMORANDUM ON INTERNAL CONTROL

STATUS OF PRIOR YEAR

OTHER MATTERS
2015-008 Compliance with Health and Safety Code Reporting Requirements for the Housing Successor
This comment is an update of matters repeated in prior years as discussed in Other Matter 2014-008, which is not repeated in this report, since it is substantially redundant with our comments below.

Senate Bill No. 341 (SB341) was approved on October 13, 2013 and amended and added to the Health and Safety Code (HSC) effective January 1, 2014 to change provisions relating to the functions performed by a Housing Successor. Part of SB341 added HSC Section 34176.1 that imposes annual reporting requirements related to the housing assets of the former Redevelopment Agency held by the Housing Successor.

The City serves as Housing Successor for the housing activities of the former Manteca Redevelopment Agency and the activities of the Housing Successor are reported in the Low and Moderate-Income Housing Assets Special Revenue Fund.

Under the reporting requirements, the Housing Successor is required to include eleven points of information for the previous fiscal year in the City’s annual report of the General Plan Administration due each April 1 (Government Code Section 65400) and post the same eleven points of information on the City’s website. In addition, certain information included in Section 34176.1(a)(3) is to be included in the report every five years.

The reporting information began with fiscal year 2014 reporting that was due to the Department of Housing and Community Development (HCD) and to be posted to the City’s website by April 1, 2015.

However, the City did not prepare the required report for submission to HCD or posting to the City’s website.

The City, as Housing Successor, should file the fiscal year 2014 report as soon as possible and develop procedures to ensure ongoing compliance with the annual reporting requirements of HSC Section 34176.1 Update for June 30, 2016, 2017 and 2018 Audits:

During the audits, we followed up on the status of the above condition. We noted that the deficiency had not been mitigated.

Update for June 30, 2019 Audit:

We noted that the City filed the required report for the year ended June 20, 2018 in April 2019, but we understand the other delinquent reports were not filed. The City should work with HCD to determine if the delinquent reports are required to be prepared and filed.

Update for June 30, 2021 Audit:

It appears that the City did not file the required report for the year ended June 20, 2020 and the report was not posted to the City’s website. The City should file the required report and the City should work with HCD to determine if the delinquent reports are required to be prepared and filed.

Current Status:

Due to staff turnover, current staff was unaware of this requirement and will make an inquiry of HCD as to the next steps.
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Manteca City CouncilAugust 15, 2023

Manteca City Council
August 15, 2023