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Brea, CA 92821
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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 gene rally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Rialto, California (the “City”), as of and for the year ended June 30, 2023, and the related not es to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated August 8, 2024.
Report on 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 designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allo w management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely b asis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less s evere than a material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. We identified certain deficiencies in internal control, described in the accompanying schedule of findings and responses as items 2023-001 and 2023-002 that we consider to be material weaknesses.
Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and ma terial effect on the financial statements.
However, providing an opinion on compliance with those provisio ns was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed an instance of noncompliance or other matters that is required to be reported under Government Auditing Standards and which is described in the accompanying schedule of findings and responses as item 2023-001.
To the Honorable Mayor and Members of the City Council
City of Rialto, California
City’s Response to Findings
Government Auditing Standards requires the auditor to perform limited procedures on the City ’s response to the findings identified in our audit and described in the accompany ing schedule of findings and responses. The City’s response was not subjected to the other auditing procedures app lied in the audit of the financial statements and, accordingly, we express no opinion on the response.
Purpose of This Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the e ffectiveness of the City’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s inter nal control and compliance. Acco rdingly, this communication is not suitable for any other purpose.
Brea, California
August 8, 2024
To the Honorable Mayor and Members of the City Council
City of Rialto, California
SCHEDULE OF FINDINGS AND RESPONSES
Finding 2023-001 – Timeliness of Financial Reporting (Material Weakness/Material Noncompliance)
Criteria
According to the Uniform Guidance, §200.508, non-federal entities that expend $750,000 or more in a year in federal awards must have a single audit conducted for that year in acco rdance with the provisions of this part. The audit must be completed, and the data collection form and reporting p ackage must be submitted within the earlier of 30 calendar days after receipt of the auditor's report(s), or n ine months after the end of the audit period. The Uniform Guidance also requires non-federal entities to submit t heir audited financial statements to the federal awarding agencies within the same time frame.
Condition
The City did not complete the financial close and reporting pro cess in a timely manner, resulting in a delay in the submission of the audited financia l statements and the single a udit report to the federal awarding agencies. The City’s financial statements and the single audit report were du e on March 31 2024, as required by the Uniform Guidance. However, the information and documentation, including the trial balance, provided to the external auditors required multiple corrections and revisions to balance and audit, and therefore, the audited financial statements and the single audit report were not issued until past the required deadline.
Cause
The cause of the condition was the lack of management oversight and internal controls over the financial close and reporting process. Turnover at key positions within the Finance Department did not allow for the timely preparation and review of the financial statements and the SEFA. Key information required to be audited also needed multiple corrections, revisions, and versions to be suitable for audit p urposes, including the trial balance and bank reconciliations which added to the time necessary to complete the audit.
Effect
The effect of the condition was the noncompliance with the Uniform Guidance and there exists the potential loss of federal funding. The City risks sanctions from the federal awar ding agencies, such as withholding of payments, suspension or termination of awards, or disallowance of costs.
Recommendation
We recommend that the City:
- Review and update its policies and procedures for the financi al close and reporting process to ensure compliance with the GAAP and the Uniform Guidance.
- Assess its staffing and resource needs and allocate sufficien t personnel and funds to perform the financial close and reporting process efficiently and effectively.
- Maintain accurate and complete records and reconciliations of the various general ledger accounts and ensure that they are consistent with the financial statements and the SEFA. - Develop and implement a realistic timeline for the financial close and reporting process and monitor the progress regularly.
- Communicate and coordinate with the external auditors through out the audit process and respond to their requests promptly and accurately.
Response
The City acknowledges that the financial information and docume ntation, including the trial balance, was not prepared in a timely manner. This prevented the auditors from completing the audit, and the Single Audit, by March 31, 2024. The implementation of the new financial softwa re system, which went live on July 1, 2023, necessitated almost all of the Finance Department’s staff hours to be allocated to ensuring the software system was accurate in its financial reporting. This allocation of re sources prevented the City from producing timely financial information.
To the Honorable Mayor and Members of the City Council
City of Rialto, California
SCHEDULE OF FINDINGS AND RESPONSES (CONTINUED)
The Finance Department has corrected all of the financial and r eporting issues that arose in the Summer and Fall of 2023. The Finance staff has reviewed and updated its proced ures for closing the financial records for the 2023-24 fiscal year, and has already begun the process of closing the books for 2023-24. The City expects to have its financial records closed before the auditors are ready for the year-end audit, and the City fully expects to file the financial audit in a timely manner for the 2023-24 fiscal year.
Finding 2023-002 – Allocation of Pooled Cash (Material Weakness)
Criteria
The City should have effective internal controls over the alloc ation of pooled cash among various funds to ensure that the financial statements are fairly presented in accordance with generally accepted accounting principles.
Condition
As part of our audit procedures, we found that the accounting software did not have adequate safeguards to prevent the allocation of pooled cash to funds that should not record a ny cash balances, such as the general fixed asset and general long-term debt account groups.
Cause
The accounting software was not configured properly to restrict the allocation of pooled cash to funds that should not record any cash balances.
Effect
This resulted in the misstatement of cash and other balance she et accounts for several funds in the financial statements, and required post-closing audit adjustments to correct.
Recommendation
We recommend that the entity review and revise the accounting s oftware settings to ensure that the allocation of pooled cash is accurate and consis tent with the fund accounting principles. We also recommend that the entity perform periodic reconciliations of the pooled cash account and the individual fund balances to detect and correct any errors in a timely manner.
Response
The City acknowledges that the new financial software system wa s set up incorrectly to handle the pooled cash allocation for the General Account Group funds. These funds do not account for cash but the system configuration to account for pooled cash did not zero out these cash accounts as it should have. The overall cash balances were never incorrectly stated. The pooled cash accounts for the funds affected were corrected during the audit process.
The Finance Department has corrected the accounting software se ttings to ensure that the allocation of pooled cash is accurate and consistent with the fund accounting princi ples. The Finance Department staff is also set to reconcile the pooled cash with the individual funds on a regula r basis to detect and correct any errors in a timely manner.