AGENDA ITEM NO.8
AGENDA STAFF REPORT
City of West Covina I Office of the City Manager
DATE: June 21, 2022
TO: Mayor and City Council
FROM: David Carmany
City Manager
SUBJECT: CONSIDERATION OF SINGLE AUDIT REPORT FOR THE YEAR ENDED JUNE 30, 2021 RECOMMENDATION:
It is recommended that City Council receive and file the Single Audit Report on Federal Award Programs for the year ended June 30, 2021.
BACKGROUND:
The City's Single Audit, previously known as the OMB Circular A-133 audit, is an organization -wide financial statement and federal awards' audit which is required when the City expends $750,000 or more in federal funds in one year. It is intended to provide assurance to the Federal Government that the City has adequate internal controls in place, and is generally in compliance with program requirements.
The purpose of this report is solely to describe the scope of audit testing of internal control and compliance and the results of that testing. This report does not provide an auditor's opinion on the effectiveness 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 organization's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
DISCUSSION:
Single Audit Report on Federal Awards
As a recipient of Federal grant funds in excess of $750,000, the City's Single Audit Report on Federal Awards is required to be submitted in compliance with the financial reporting requirement in accordance with Title 2, Code of Federal Regulations (CFR), Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). The Single Audit Report (Attachment No. 1) includes the following:
Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards;
Independent Auditor's Report on Compliance for Each Major Program; Report on Internal Control Over Compliance; and Report on the Schedule of Expenditures of Federal Awards Required by Uniform Guidance;
Schedule of Expenditures of Federal Awards;
Notes to the Schedule of Expenditures of Federal Awards;
5. Schedule of Findings and Questioned Costs; and
6. Summary Schedule of Prior Audit Findings.
Internal Control Over Financial Reoortin
As part of the Single Audit, the City's auditors considered the City's internal control over financial reporting to determine audit procedures that are appropriate in the circumstances for the purpose of expressing their opinions on the City's financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the City's financial statements will not be prevented or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
The auditors identified one deficiency in internal control over financial reporting that they considered to be a material weakness for the year ended June 30, 2021. Finding Number 2021-001 is related to the Housing Loans Receivable Administration (page 10 of Attachment No. 1). In response to this finding, the City submitted a Corrective Action Plan (Attachment No. 2). Additionally, staff is working to address this issue for fiscal year ending June 30, 2022. There were not any auditor findings to be reported in accordance with Uniform Guidance. Additionally, corrective action has been taken on all prior audit findings (five total).
This report was also reviewed, received and filed by the Audit Committee June 9, 2022 Prepared by: Stephanie Sikkema, Finance Director
Fiscal Impact
FISCAL IMPACT:
This agenda item is to receive and file, therefore; there is no fiscal impact associated with this action.
Attachments
Attachment No. 1 - Single Audit Report FYE 2021
Attachment No. 2 - Corrective Action Plan
CITY COUNCIL GOALS & OBJECTIVES: Achieve Fiscal Sustainability and Financial Stability
ATTACHMENT NO. 1
CITY OF WEST COVINA
Single Audit Report on
Federal Award Programs
June 30, 2021
CITY OF WEST COVINA
SINGLE AUDIT REPORT ON FEDERAL AWARD PROGRAMS
Year Ended June 30, 2021
TABLE OF CONTENTS
Page
Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor's Report on Compliance for Each Major Program; Report on Internal Control Over Compliance; and Report on the Schedule of Expenditures of Federal Awards Required by Uniform Guidance
Schedule of Expenditures of Federal Awards
Notes to the Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs
Summary Schedule of Prior Audit Findings 12
VLVan Lank
Fankhanel, LLP
Ce f,ed 1'ubhc A¢ou nta A d
Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards City Council
City of West Covina
West Covina, California
We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, business -type activities, each major fund and the aggregate remaining fund information of the City of West Covina (City), as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise the City's basic financial statements, and have issued our report thereon dated February 22, 2022.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the preceding 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 have not been identified. We did identify a deficiency in internal control, described in the accompanying schedule of findings and responses as item 2021-001 that we consider to be a material weakness.
Van Lant & Fankhanel, LLP
29970 Technology Drive, Suite 105 A
Murrieta. CA 92563
909.856.6879 1
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion.
The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
City of West Covina's Responses to Findings
The City's responses to the findings identified in our audit are described in the accompanying schedule of findings and responses. The City's responses were not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on them.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the 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 organization's internal control and compliance.
Accordingly, this communication is not suitable for any other purpose. z% r am, ilf
February 22, 2022
2 Van Lant &
VLF Fankhanel, LLP
Cer❑Nl d Public Accountants
Independent Auditor's Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance; and Report on the Schedule of Expenditures of Federal Awards Required by Uniform Guidance City Council
City of West Covina
West Covina, California
Report on Compliance for Each Major Federal Program
We have audited the City of West Covina's compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the City's major federal programs for the year ended June 30, 2021. The City's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs.
Management's Responsibility
Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs.
Auditor's Responsibility
Our responsibility is to express an opinion on compliance for each of the City's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for FederalAwards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the City's compliance.
Van Lant & Fankhanel, LLP
29970 Technology Drive, Suite 105 A
Murrieta. CA 92563
909.856.6879
91 Opinion on Each Major Federal Program
In our opinion, the City of West Covina, complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2021.
Report on Internal Control Over Compliance
Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.
Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. 4 Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of the governmental activities, business -type activities, each major fund, and the aggregate remaining fund information, of the City of West Covina, as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise the City's basic financial statements. We issued our report thereon dated February 22, 2022, which contained unmodified opinions on those financial statements. Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the basic financial statements.
The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance and is not a required part of the basic financial statements.
Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole.
May 6, 2022
5 CITY OF WEST COVINA
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
Year Ended June 30, 2021
Federal Grantor/Pass-Through
Grantor/Program or Cluster Title
Federal
CFDA
Number
Program
Identification
Number
Program
E)pend-
itures
Provided
to Sub-
Recipients
U.S. Department of Housing and Urban Development
Passed Throug� the County of Kern
CDBG - Entitlement Grants Cluster
Community Development Block Grant
14.218
B-17-MC-06-0532
$ 194,592
$ -
Community Development Block Grant
14.218
B-18-MC-06-0532
134,576
10,581
Community Development Block Grant
14.218
B-20-MC-06-0532
129,061
-
COVID-19 - Community Development Block Grant
14.218
B-20-MW-06-0532
80,190
16,767
Total - CDBG Entitlement Grants Cluster
538,419
27,348
Total Department of Housing and Urban Development
538,419
27,348
U.S Department of Justice
Direct Assistance:
COVID-19 - Coronavirus Emergency Supplemental Funds
16.034
2020-VD-BX-1284
23,769
-
Bulletproof Vest Partnership Program
16.738
2020-VD-BX-0264
17,856
-
Equitable Sharing Program
16.922
CA1975
1,460,051
-
TotalDepartmentofJustice
1,501,676
-
U.S Department of Transportation
Passed through the California Department of Transportation:
Office of Traffic Safety:
Highway Safety Cluster
Selective Traffic Enforcement Program
20.600
402PT-20
14,525
-
Selectve Traffic Enforcement Program
20.600
402PT-21
14,015
-
Total Highway Safety Cluster
28,540
-
Passed through the California Department of Transportation:
Office of Traffic Safety:
Minimum Penalties for Repeat Offenders for Driving
While l ntobcated
20.608
164 AL-20
10,548
-
Minimum Penalties for Repeat Offenders for Driving
While l ntobcated
20.608
164 AL-21
18,318
-
Total Department of Transportation
57,406
-
U.S Department of Treasury
Direct Assistance:
Equitable Sharing Program
21.016
WA
657,512
-
Passed through the County of Los Angeles
COVID-19 - Coronavirus Relief Fund
21.019
WA
311,457
-
Total Department of Treasury
968,969
-
11 CITY OF WEST COVINA
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS - Continued
Year Ended June 30, 2021
Federal Program Program Provided
Federal Grantor/Pass-Through CFDA Identification E)pend- to Sub- Grantor/Program or Cluster Tide Number Number itures Recipients U.S Department of Health and Human Services
Passed Through the County of Los Angeles
Aging Cluster
Special Programs for the Aging, Title III, Part C 93.045 ENP202111 176,439 Nutrition Services Incentives Program 93.053 ENP202111 7,245 Total Aging Cluster 183,684
Direct Assistance:
Provider Relief Fund General and Targeted Distribution Payments
93.498
3d8fl f41 c444
45,376
Total Department of Health and Human Services
229,060
U.S Department of Homeland Security
Direct Assistance:
Assistance to Firefighters
97.044
MW-2019-FG-05857
131,585
Passed Through the State of California, Office of Emergency Services Homeland Security Grant
97.067
EMW-2018-SS-00054
98,448
Homeland Security Grant
97.067
EMW-2019-SS-00054
43,501
Total Department of Health and Human Services
273,534
Total E)penditures of Federal Awards
= Major Program
$ 3,569,064 $ 27,348
7 CITY OF WEST COVINA
NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year Ended June 30, 2021
1) Basis of Presentation
The accompanying Schedule of Expenditures of Federal Awards (the Schedule) includes the federal award activity of the City of West Covina (the City) under programs of the federal government as well as federal financial assistance passed through other government agencies for the year ended June 30, 2021. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the City, it is not intended to and does not present the financial statements of the City. The City's reporting entity is defined in Note 1 of the notes to the City's financial statements.
2) Summary of Significant Accounting Policies
Expenditures reported on the Schedule are reported using the modified accrual basis of accounting for governmental funds and the accrual basis for proprietary funds, which is described in Note 1 of the notes to the City's financial statements. Such expenditures are recognized following the cost principles contained in the Uniform Guidance and OMB CircularA-87, Cost Principles for State, Local, and Indian Tribal Governments, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Pass through entity identifying numbers are presented when available. The City has elected to use the 10% de minimis indirect cost rate as allowed under the Uniform Guidance. 3) Outstanding Loans
The City has made several housing rehabilitation loans to qualified applicants using Community Development Block Grants/Entitlement Grants (CFDA No. 14.218) funding. These loans bear interest up to 5% and are repaid when title to the property changes. There was one new loan funded in the current year. The outstanding balance of these loans at June 30, 2021 is $3,372,210. 4) Subrecipient Expenditures
During the fiscal year ended June 30, 2021, the City made payments to subrecipients which consisted of the following:
Assistance Leage of Covina Valley $ 6,000
ESGV Coalition for the Homeless 10,000
Housing fights Center 10,000
YWCA - Senior Citizen Assistance Program 1,348
Total Subrecipients $ 27,348
5) Major Programs
The City had one major program for the year ended June 30, 2021, consisting of the Equitable Sharing Fund, which had total disbursements of $1,460,051. This amount calculates to 40.9% of the total disbursements from federal awards.
W
CITY OF WEST COVINA
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
Year Ended June 30, 2021
SECTION I — SUMMARY OF AUDITOR'S RESULTS
Financial Statements
Type of Auditor's Report Issued:
Internal Control Over Financial Reporting:
Material Weakness(es) Identified?
Significant Deficiencies Identified not Considered
to be Material Weaknesses?
Noncompliance Material to Financial Statements Noted?
Federal Awards
Internal Control Over Major Programs:
Material Weakness(es) Identified?
Significant Deficiencies Identified not Considered
to be Material Weaknesses?
Type of Auditor's Report Issued on Compliance for Major Programs:
Any Audit Findings Disclosed that are Required to be Reported in Accordance With Uniform Guidance?
Identification of Major Programs:
CFDA Numbers
16.922
Name of Federal
Dollar Threshold used to Distinguish Between Type A
And Type B Programs:
Auditee Qualified as Low -Risk Auditee?
Unmodified
Yes
None reported
No
No
None reported
Unmodified
No
or Cluster
Equitable Sharing Program
$ 750,000
No
CITY OF WEST COVINA
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
Year Ended June 30, 2021
SECTION II — FINANCIAL STATEMENT FINDINGS
2021-001 Housing Loans Receivable Administration
Condition:
The City and Housing Authority have issued loans in prior years for first-time homebuyers and home improvement loans. The terms of these loans vary depending on the loan type and the period when it was issued. As part of our audit procedures, we selected various loans listed on the loans receivable schedule provided and reviewed the related promissory notes. Based on this review, we found that certain loans required periodic payments to be made throughout the year, however, it does not appear that the City has been receiving payments in accordance with the terms of the loan. In another instance, City staff were unable to provide the promissory note for the loan selected. In addition, one of the promissory notes reviewed indicates a 5% interest rate, charged annually, on the outstanding balance of the loan, however, through discussions with City staff, the City is not calculating and charging 5% per year.
Criteria:
In a strong internal control environment, procedures should be established to ensure the loans receivable schedule is properly maintained throughout the year, payments are collected and recorded in accordance with the applicable promissory notes, and proper records are maintained for all loans receivable balances.
Cause of Condition:
A large number of the first-time homebuyer and housing improvement loans were issued many years ago, in some cases 30+ years or more, and it does not appear that detailed administration and tracking of these loans has been done annually to ensure the loan balances are sufficiently tracked and accounted for each year.
Potential Effect of Condition:
The City may not be collecting the full value of the amounts due in accordance with the terms of the promissory note agreements.
Recommendation:
We recommend the City perform a detailed review of the loan balances and perform test recalculations of the interest balances on the loans to ensure the interest calculations are in accordance with the executed loan agreements and that payments are being collected in accordance with these agreements.
Views of Responsible Officials:
The City concurs. Refer to Separate Corrective Action Plan for management's response. 10 CITY OF WEST COVINA
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
Year Ended June 30, 2021
SECTION III — FEDERAL AWARD FINDINGS AND QUESTIONED COSTS There were no auditor's findings to be reported in accordance with Uniform Guidance. 11 CITY OF WEST COVINA
SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS
Year Ended June 30, 2021
SECTION II — FINANCIAL STATEMENT FINDINGS
Finding No. 2020-001— Internal Control Environment
Current Status — Corrective action has been taken.
Finding No. 2020-002 — Errors in Pension Census Data
Current Status — Corrective action has been taken.
Finding No. 2020-003 — Internal Control over Federal Grant Reporting Current Status — Corrective action has been taken.
Finding No. 2020-004 — Purchasing Approvals
Current Status — Corrective action has been taken.
Finding No. 2020-005 — Bank Reconciliation Review
Current Status — Corrective action has been taken.
SECTION III — FEDERAL AWARD FINDINGS AND QUESTIONED COSTS There were no auditor's findings to be reported in accordance with the Uniform Guidance. 12 ATTACHMENT NO. 2
Corrective Action Plan
Year Ended June 30, 2021
CITY OF WEST COVINA
CORRECTIVE ACTION PLAN
Year Ended June 30, 2021
Below is the City's Corrective Action Plan as it relates to the Findings and Questioned Costs identified during the audit for the fiscal year ended June 30, 2021.
SECTION I — FINANCIAL STATEMENT FINDINGS
2021-001: Housing Loans Receivable Administration
Management's or Departments Response:
We concur.
View of Responsible Officials and Planned Corrective Actions:
The City will perform a detailed review of the loans to ensure the interest calculations and collections are done in accordance with the executed loan agreements. Additionally, the City will establish a process for updating loan balances moving forward.
Name of Responsible Person: Stephanie Sikkema, Finance Director Implementation Date: June 30, 2022
Stephanie Sikkema
Finance Director
CITY OF WEST COVINA
CORRECTIVE ACTION PLAN
Year Ended June 30, 2021
SECTION II — FEDERAL AWARD FINDINGS AND QUESTIONED COSTS There were no auditor's findings to be reported in accordance with Uniform Guidance.