Audit 301160

Finding 2022-002: Significant Deficiency – Schedule of Expenditures of Federal Awards (SEFA). Assistance Listing: 20.507 and 20.526, Federal Transit Cluster Federal Grantor: U.S. Department of Transportation, Federal Transit Formula Grants Passed-through: The City of Davis Pass-through Grantor’s No.: CA-2019-107 Compliance Requirement: Reporting Condition: Expenditures reported on the Schedule of Expenditures of Federal Awards (SEFA) were revised during the single audit. Criteria: Internal controls should be in place that provide reasonable assurance that the SEFA is complete and accurate. Cause: The SEFA was not finalized until after the single audit began. This is an ongoing issue from prior years as we noted changes to amounts previously reported on SEFAs as well. Most of the revisions in the current year were due to Finding 2022-001, as there were additional eligible expenses found during the audit due to lack of internal control over closing procedures. Effect: The expenses included on the SEFA were revised during the single audit, which could have resulted in the auditor not selecting the correct expenses for testing and could have resulted in the single audit not satisfying the requirements of the Uniform Guidance. Amounts reported to the Federal Clearinghouse each year may not be accurate. Context: $237,177 of expenses were added to the SEFA after the single audit began. Recommendation: We recommend additional review procedures be implemented to ensure the expenditures reported on the SEFA are complete and accurate when the single audit begins. View of Responsible Official and Planned Corrective Action: See the Corrective Action Plan attached.

Finding 2022-001: Material Weakness – Internal Control Over Financial Reporting Condition: A number of adjustments were required to report Unitrans’ financial statements in accordance with generally accepted accounting principles (GAAP). The books were not in balance at the start of the audit, and fieldwork was delayed as a result. Criteria: Internal controls over financial reporting should be in place that provide reasonable assurance that the financial statements are complete and accurate. Cause: Unitrans’ accounting is performed by the Associated Students of the University of California at Davis (ASUCD), which coordinates with the University of California at Davis (UCD) for a number of transactions. Unitrans’ has not been assigned a full chart of accounts by ASUCD to report its financial activity consistently with Unitrans’ audited financial statements. This results in numerous reclassifying entries being needed to facilitate financial reporting. In addition, UCD performs purchasing and grant accounting functions for Unitrans along with the accounting for UCD and ASUCD, which results in Unitrans’ transactions being obscured by the volume of transactions processed by ASUCD and UCD. Effect: The trial balance was not in balance at the start of the audit. This was due to the import of balances from ASUCD reports not being done correctly. As a result, the trial balance had to be redone and re-imported, causing the audit to be delayed. Context: Numerous accounts are either missing from Unitrans’ chart of accounts or were not fully updated, including due from other governments, restricted cash and investments, capital assets, accumulated depreciation, due to ASUCD, unearned revenue, restrictions of net position, investment in capital assets and a number of revenue and expense accounts (capital contributions, depreciation, student fees, etc.). The 2018 “Yellow Book” (Government Auditing Standards) was effective during the year ended June 30, 2020, which has increased scrutiny over auditor independence. Assistance with adjusting entries during the audit is considered a nonaudit service that must be evaluated to determine whether the services provided may impair independence. The level of assistance provided to properly record and classify transactions makes us uncomfortable when considering the independence requirements of the 2018 Yellow Book. Recommendation: For the year ended June 30, 2021 and 2022, Unitrans put together its own trial balance in accordance with GAAP but some assistance was still required during the audit to ensure completeness of financial reporting. We had recommended in prior audits that Unitrans’ management work with ASUCD and UCD finance staff to develop and update a more thorough self-balancing chart of accounts with names that are consistent with the audited financial statements that captures all of Unitrans’ financial activity. We noted some progress made in this area as separate Unitrans funds have been created by ASUCD for recording student fee revenue. However, there is still work needed to ensure all accounts balance. Prior to the audit, reconciliations should be done to ensure all activity have been properly recorded and included in the trial balance. We also recommend Unitrans’ management work with ASUCD and UCD finance staff to develop a process to ensure all of Unitrans’ operating and capital transactions are identified, recorded and correctly classified as required by generally accepted accounting principles prior to the start of the audit. View of Responsible Official and Planned Corrective Action: See Corrective Action Plan attached.

Finding 2022-002: Significant Deficiency – Schedule of Expenditures of Federal Awards (SEFA). Assistance Listing: 20.507 and 20.526, Federal Transit Cluster Federal Grantor: U.S. Department of Transportation, Federal Transit Formula Grants Passed-through: The City of Davis Pass-through Grantor’s No.: CA-2019-107 Compliance Requirement: Reporting Condition: Expenditures reported on the Schedule of Expenditures of Federal Awards (SEFA) were revised during the single audit. Criteria: Internal controls should be in place that provide reasonable assurance that the SEFA is complete and accurate. Cause: The SEFA was not finalized until after the single audit began. This is an ongoing issue from prior years as we noted changes to amounts previously reported on SEFAs as well. Most of the revisions in the current year were due to Finding 2022-001, as there were additional eligible expenses found during the audit due to lack of internal control over closing procedures. Effect: The expenses included on the SEFA were revised during the single audit, which could have resulted in the auditor not selecting the correct expenses for testing and could have resulted in the single audit not satisfying the requirements of the Uniform Guidance. Amounts reported to the Federal Clearinghouse each year may not be accurate. Context: $237,177 of expenses were added to the SEFA after the single audit began. Recommendation: We recommend additional review procedures be implemented to ensure the expenditures reported on the SEFA are complete and accurate when the single audit begins. View of Responsible Official and Planned Corrective Action: See the Corrective Action Plan attached.

Finding 2022-001: Material Weakness – Internal Control Over Financial Reporting Condition: A number of adjustments were required to report Unitrans’ financial statements in accordance with generally accepted accounting principles (GAAP). The books were not in balance at the start of the audit, and fieldwork was delayed as a result. Criteria: Internal controls over financial reporting should be in place that provide reasonable assurance that the financial statements are complete and accurate. Cause: Unitrans’ accounting is performed by the Associated Students of the University of California at Davis (ASUCD), which coordinates with the University of California at Davis (UCD) for a number of transactions. Unitrans’ has not been assigned a full chart of accounts by ASUCD to report its financial activity consistently with Unitrans’ audited financial statements. This results in numerous reclassifying entries being needed to facilitate financial reporting. In addition, UCD performs purchasing and grant accounting functions for Unitrans along with the accounting for UCD and ASUCD, which results in Unitrans’ transactions being obscured by the volume of transactions processed by ASUCD and UCD. Effect: The trial balance was not in balance at the start of the audit. This was due to the import of balances from ASUCD reports not being done correctly. As a result, the trial balance had to be redone and re-imported, causing the audit to be delayed. Context: Numerous accounts are either missing from Unitrans’ chart of accounts or were not fully updated, including due from other governments, restricted cash and investments, capital assets, accumulated depreciation, due to ASUCD, unearned revenue, restrictions of net position, investment in capital assets and a number of revenue and expense accounts (capital contributions, depreciation, student fees, etc.). The 2018 “Yellow Book” (Government Auditing Standards) was effective during the year ended June 30, 2020, which has increased scrutiny over auditor independence. Assistance with adjusting entries during the audit is considered a nonaudit service that must be evaluated to determine whether the services provided may impair independence. The level of assistance provided to properly record and classify transactions makes us uncomfortable when considering the independence requirements of the 2018 Yellow Book. Recommendation: For the year ended June 30, 2021 and 2022, Unitrans put together its own trial balance in accordance with GAAP but some assistance was still required during the audit to ensure completeness of financial reporting. We had recommended in prior audits that Unitrans’ management work with ASUCD and UCD finance staff to develop and update a more thorough self-balancing chart of accounts with names that are consistent with the audited financial statements that captures all of Unitrans’ financial activity. We noted some progress made in this area as separate Unitrans funds have been created by ASUCD for recording student fee revenue. However, there is still work needed to ensure all accounts balance. Prior to the audit, reconciliations should be done to ensure all activity have been properly recorded and included in the trial balance. We also recommend Unitrans’ management work with ASUCD and UCD finance staff to develop a process to ensure all of Unitrans’ operating and capital transactions are identified, recorded and correctly classified as required by generally accepted accounting principles prior to the start of the audit. View of Responsible Official and Planned Corrective Action: See Corrective Action Plan attached.