203 N. Brea Blvd., Suite 203
Brea, CA 92821 Lance, Soll & Lunghard, LLP Phone: 714.672.0022 INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS
BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE
WITH GOVERNMENT AUDITING STANDARDS
To the Honorable Mayor and Members of the City Council
City of Rialto, California
We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the fin ancial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Rialto, California, (the City) as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise the Ci ty’s basic financial statements, and have issued our report thereon dated March 29, 2022.
Internal Control over Financial Reporting
In planning and performing our audit of the financial statement s, we considered the City’s internal control over financial reporting (internal control) as a basis for desi gning audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control.
Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal contr ol that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, we identified certain deficiencies in internal control that we consider to be material weaknesses and significant deficiencies.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility th at a material misstatement of the entity’s financial statements will not be prevented, or detected and cor rected on a timely basis. We consider the following deficiencies reported on the schedule of findings and questioned costs to be material weaknesses:
2021-001, 2021-002 and 2021-003.
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 following deficiencies, described on the accompany ing schedule of findings and questioned costs, to be significant deficiencies: 2021-004.
To the Honorable Mayor and Members of the City Council
City of Rialto, California
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Cit y’s financial statements are free from material misstatement, we performed tests of its compliance wit h certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on financial statements. However, providing an opinion on complian ce with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are require d to be reported under Government Auditing Standards.
City’s Response to Findings
The City’s response to the findings identified in our audit was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it.
Purpose of this Report
The purpose of this report is solely to describe the scope of o ur testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control or on compliance. This report i s an integral part of an audit p erformed in accordance with Government Auditing Standards in considering the City’s internal control and compliance. Acc ordingly, this communication is not suitable for any other purpose.
Brea, California
March 29, 2022
To the Honorable Mayor and Members of the City Council
City of Rialto, California
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
Accounts Payable Accrual
Reference Number: 2021-001
Evaluation of Finding:
Material Weakness
Condition:
The City did not accrue a material check, totaling $939 thousa nd, relating to services performed in fiscal year 2020-2021 as of June 30, 2021, as it was paid after the closing process.
Criteria: Generally Accepted Accounting Principles
Cause of Condition:
Error due to oversight during the AP review process at year end.
Effect or Potential Effect of Condition:
The misstatement resulted in understated expenditures and accounts payable at year end.
Recommendation:
LSL recommends that the City perform a thorough review over the AP accrual, including beyond the City’s AP cutoff period to ensure any late invoices are properly accrued, if necessary.
Management’s Response and Corrective Action:
The City agrees with LSL’s recommendation and will incorporate the finding into its year end close procedures.
Bank Reconciliations
Reference Number: 2021-002
Evaluation of Finding:
Material Weakness
Condition:
During the Audit we noted that the City’s General checking bank account balance in the general ledger was not reconciled to the bank statements in a timely manner.
Criteria:
Proper internal controls require that bank reconciliations be prepared and reviewed in a timely manner.
Cause of Condition:
Finance Department did not compl ete the bank reconciliations in a timely manner due to turnover in the department.
Effect or Potential Effect of Condition:
When bank reconciliations are not prepared in a timely manner, the risk of fraud, theft or errors going undetected by management increases significantly.
To the Honorable Mayor and Members of the City Council
City of Rialto, California
Recommendation:
We recommend that bank statements be reconciled on a monthly ba sis to the general ledger, and that all unusual reconciling items be promptly identified and adjusted for with adequate explanations.
Management’s Response and Corrective Action:
Management recognizes the importance and risk of not having ban k reconciliations completed in a timely manner. The City agrees with the recommendation and has begun i mplementing reconciliation within 60 days after month end.
Grant Reconciliation of Unavailable Revenues
Reference Number: 2021-003
Evaluation of Finding:
Material Weakness
Condition:
During the Audit we noted that unavailable revenues related to grants receivables, totaling $2.3 million, were not properly reconciled on the grants reconciliation.
Criteria:
The City should perform a review of grant receivable balances and unavailable revenue to ensure that the money due to the City is recorded as grant receivables and unavailable revenue when not received within the revenue recognition period.
Cause of Condition:
Error due to insufficient training related to the grant reconciliation process at year end.
Effect or Potential Effect of Condition:
A journal entry was required to report the grant receivables an d unavailable revenue of $2.3 million that were improperly excluded from the general ledger at June 30, 2021.
Recommendation:
We recommend that the City provide additional training to Finan ce staff over the Grants reconciliation process and perform a thorough review over grants receivables to ensure they are properly recorded.
Management’s Response and Corrective Action:
The City agrees with LSL’s recommendation and will incorporate the finding into its year end close procedures.
Accounting Procedures and Policies Manual
Reference Number: 2021-004
Evaluation of Finding:
Significant Deficiency
Condition:
During the Audit, we noted that the City’s Accounting Procedure s and Policies Manual had not been updated in several years.
To the Honorable Mayor and Members of the City Council
City of Rialto, California
Criteria:
In order to ensure accuracy and consistency, the employees in t he Finance Department should have an updated Accounting Procedures and Policies Manual available for reference.
Cause of Condition:
The Finance Department had not updated the Accounting Procedures and Policies Manual since the 1990s to conform to current practices and procedures.
Effect or Potential Effect of Condition:
The lack of an updated manual resulted in outdated policies and practices within the Finance Department.
Recommendation:
We recommend that the City update its Accounting Procedures and Policies Manual and communicate with all City Departments to ensure consistency and appropriate control procedures.
Management’s Response and Corrective Action:
Management agrees with the recommendation and recognizes the im portance of a consistent message across all City Departments. The finance Department has initiat ed updating its policies and procedures manual. A draft of the updated Policies Manual has been complet ed and is now in the review/revision process. Management intends to have a final draft available for Council Approval by the end of the current fiscal year. In addition, Finance will also host training sessi ons for affected staff in other City departments for all updated policies and procedures. Overall, the City will take these and related steps to improve the lines of communication between departments ensuring that consistent and appropriate control procedures are followed.