Audit 302138

FS 2023-001 – Improve Internal Control in the Preparation of the Schedule of Expenditures of Federal Awards (SEFA) Criteria: The following sections of the Uniform Guidance provide the following requirements: Section §200.510 (b) Schedule of Expenditures of Federal Awards; The auditee must also prepare a schedule of expenditures of federal awards for the period covered by the auditee's financial statements which must include the total Federal awards expended as determined in accordance with §200.502 - Basis for determining Federal awards expended. While not required, the auditee may choose to provide the information requested by Federal awarding agencies and pass-through entities to make the schedule easier to use. For example, when a Federal program has multiple Federal award years, the auditee may list the amounts of Federal awards expended for each Federal award year separately. At a minimum, the schedule must: • List individual Federal programs by Federal agency. For a cluster of programs, provide the cluster name, list individual Federal programs within the cluster of programs, and provide the applicable Federal agency name. • Provide total Federal awards expended for each individual Federal program and the Assistance Listings number or other identifying number when the Assistance Listings information is not available. For a cluster of programs also provide the total for the cluster. Section 200.303: The non-federal entity should establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal Award. Section 200.1 defines internal control for non-Federal entities as the processes designed and implemented by non-Federal entities to provide reasonable assurance regarding the achievement of the objectives in the following categories: (i) Effectiveness and efficiency of operations; (ii) Reliability of reporting for internal and external use Condition: During our audit of the fiscal year 2023 SEFA submitted by the District, we noted that the schedule includes federal expenditures for the South Santa Clara County Recycled Water Project which was incurred in 2022. The information for these expenditures was included in the fiscal year 2023 SEFA since these were claimed for reimbursement in March 2023. The total amount of expenditures was $980,932 which exceeded the threshold for a single audit. Because of these conditions, the 2022 single audit was not performed. The expenditures were included in the 2023 SEFA and the program was considered a major program in the 2023 single audit. Questioned Costs None Recommendation We recommend that the District update its current internal control processes to ensure all federal awards and expenditures are identified for reporting and compliance in the right reporting period. We also recommend that the District prepare the SEFA in a format that is in accordance with the Uniform Guidance. Views of responsible officials and planned corrective actions Brian Mendenhall, Grants and Claims Unit Manager The planned corrective actions would be as follows: The construction for this project was delayed from FY2015 and there were no contract services expenses incurred until FY2022, fourth quarter. The Grants and Claims Management Unit was not informed until November 2022 (FY2023, second quarter) that the District had incurred construction costs, which led to the reimbursement claim in FY2023 to include both FY2022 and FY2023 expenditures. The District has been monitoring and reporting expenditures accurately and timely on all active grants. It was a one-time issue and the District still has an overall solid internal control process in place. The District has since taken action and corrected the issues related to this finding. The Grants and Claims Management Unit implemented additional controls over the year-end close processes to ensure that all expenditures are accrued for year-end and included in the SEFA. The District is now running a general ledger report quarterly for grants with semi-annual reporting requirements to ensure expenditures are captured within the fiscal year regardless of when construction activity has begun. In addition, the year-end checklist has been updated to ensure that the year-end expenditure review is completed by the project management team for each grant. The Finance department will provide more training and frequent communication with the project management team to ensure that all grant expenditures during the year are accounted for. The department will also continue to proactively enforce the existing policies and procedures requiring departments to complete expenditure reporting.

SA 2023-001 – Noncompliance with the Single Audit Reporting Requirements Criteria: The following sections of the Uniform Guidance provide the following requirements: Section §200.501 Audit Requirements: (a) Audit required: A non-Federal entity that expends $750,000 or more during the non-Federal entity’s fiscal year in Federal awards must have a single or program-specific audit conducted for that year in accordance with the provisions of this part. (b) Single audit: A non-Federal entity that expends $750,000 or more during the non-Federal entity’s fiscal year in Federal awards must have a single audit conducted in accordance with §200.514 except when it elects to have a program-specific audit conducted in accordance with paragraph (c) of this section. Section §200.512 Report Submission: (a) General. (1) The audit must be completed and the data collection form described in paragraph (b) of this section and reporting package described in paragraph (c) of this section must be submitted within the earlier of 30 calendar days after receipt of the auditor's report(s), or nine months after the end of the audit period. If the due date falls on a Saturday, Sunday, or Federal holiday, the reporting package is due the next business day. (2) Unless restricted by Federal statutes or regulations, the auditee must make copies available for public inspection. Auditees and auditors must ensure that their respective parts of the reporting package do not include protected personally identifiable information. Condition: The District failed to report federal expenditures amounting to $980,932 in FY 2022. Since the FY 2022 expenditures exceeded the $750,000 threshold, the District failed to comply with the compliance audit requirements of the Uniform Guidance in FY 2022 and the single audit report submission with the Federal audit Clearinghouse. Questioned Costs None Recommendation: We recommend that the District update its current internal control processes to ensure that reporting requirements and deadlines are complied with. Views of responsible officials and planned corrective actions: Brian Mendenhall, Grants and Claims Unit Manager The planned corrective actions would be as follows: The District has been monitoring and reporting expenditures accurately and timely on all active grants. It was a one-time issue and the District still has an overall solid internal control process in place. The District has since taken action and corrected the issues related to this finding. The Grants and Claims Management Unit implemented additional controls over the year-end close processes to ensure that all expenditures are accrued for year-end and included in the SEFA. The District is now running a general ledger report quarterly for grants with semi-annual reporting requirements to ensure expenditures are captured within the fiscal year regardless of when construction activity has begun. In addition, the year-end checklist has been updated to ensure that the year-end expenditure review is completed by the project management team for each grant. The Finance department will provide more training and frequent communication with the project management team to ensure that all grant expenditures during the year are accounted for. The department will also continue to proactively enforce the existing policies and procedures requiring departments to complete expenditure reporting.

FS 2023-001 – Improve Internal Control in the Preparation of the Schedule of Expenditures of Federal Awards (SEFA) Criteria: The following sections of the Uniform Guidance provide the following requirements: Section §200.510 (b) Schedule of Expenditures of Federal Awards; The auditee must also prepare a schedule of expenditures of federal awards for the period covered by the auditee's financial statements which must include the total Federal awards expended as determined in accordance with §200.502 - Basis for determining Federal awards expended. While not required, the auditee may choose to provide the information requested by Federal awarding agencies and pass-through entities to make the schedule easier to use. For example, when a Federal program has multiple Federal award years, the auditee may list the amounts of Federal awards expended for each Federal award year separately. At a minimum, the schedule must: • List individual Federal programs by Federal agency. For a cluster of programs, provide the cluster name, list individual Federal programs within the cluster of programs, and provide the applicable Federal agency name. • Provide total Federal awards expended for each individual Federal program and the Assistance Listings number or other identifying number when the Assistance Listings information is not available. For a cluster of programs also provide the total for the cluster. Section 200.303: The non-federal entity should establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal Award. Section 200.1 defines internal control for non-Federal entities as the processes designed and implemented by non-Federal entities to provide reasonable assurance regarding the achievement of the objectives in the following categories: (i) Effectiveness and efficiency of operations; (ii) Reliability of reporting for internal and external use Condition: During our audit of the fiscal year 2023 SEFA submitted by the District, we noted that the schedule includes federal expenditures for the South Santa Clara County Recycled Water Project which was incurred in 2022. The information for these expenditures was included in the fiscal year 2023 SEFA since these were claimed for reimbursement in March 2023. The total amount of expenditures was $980,932 which exceeded the threshold for a single audit. Because of these conditions, the 2022 single audit was not performed. The expenditures were included in the 2023 SEFA and the program was considered a major program in the 2023 single audit. Questioned Costs None Recommendation We recommend that the District update its current internal control processes to ensure all federal awards and expenditures are identified for reporting and compliance in the right reporting period. We also recommend that the District prepare the SEFA in a format that is in accordance with the Uniform Guidance. Views of responsible officials and planned corrective actions Brian Mendenhall, Grants and Claims Unit Manager The planned corrective actions would be as follows: The construction for this project was delayed from FY2015 and there were no contract services expenses incurred until FY2022, fourth quarter. The Grants and Claims Management Unit was not informed until November 2022 (FY2023, second quarter) that the District had incurred construction costs, which led to the reimbursement claim in FY2023 to include both FY2022 and FY2023 expenditures. The District has been monitoring and reporting expenditures accurately and timely on all active grants. It was a one-time issue and the District still has an overall solid internal control process in place. The District has since taken action and corrected the issues related to this finding. The Grants and Claims Management Unit implemented additional controls over the year-end close processes to ensure that all expenditures are accrued for year-end and included in the SEFA. The District is now running a general ledger report quarterly for grants with semi-annual reporting requirements to ensure expenditures are captured within the fiscal year regardless of when construction activity has begun. In addition, the year-end checklist has been updated to ensure that the year-end expenditure review is completed by the project management team for each grant. The Finance department will provide more training and frequent communication with the project management team to ensure that all grant expenditures during the year are accounted for. The department will also continue to proactively enforce the existing policies and procedures requiring departments to complete expenditure reporting.

SA 2023-001 – Noncompliance with the Single Audit Reporting Requirements Criteria: The following sections of the Uniform Guidance provide the following requirements: Section §200.501 Audit Requirements: (a) Audit required: A non-Federal entity that expends $750,000 or more during the non-Federal entity’s fiscal year in Federal awards must have a single or program-specific audit conducted for that year in accordance with the provisions of this part. (b) Single audit: A non-Federal entity that expends $750,000 or more during the non-Federal entity’s fiscal year in Federal awards must have a single audit conducted in accordance with §200.514 except when it elects to have a program-specific audit conducted in accordance with paragraph (c) of this section. Section §200.512 Report Submission: (a) General. (1) The audit must be completed and the data collection form described in paragraph (b) of this section and reporting package described in paragraph (c) of this section must be submitted within the earlier of 30 calendar days after receipt of the auditor's report(s), or nine months after the end of the audit period. If the due date falls on a Saturday, Sunday, or Federal holiday, the reporting package is due the next business day. (2) Unless restricted by Federal statutes or regulations, the auditee must make copies available for public inspection. Auditees and auditors must ensure that their respective parts of the reporting package do not include protected personally identifiable information. Condition: The District failed to report federal expenditures amounting to $980,932 in FY 2022. Since the FY 2022 expenditures exceeded the $750,000 threshold, the District failed to comply with the compliance audit requirements of the Uniform Guidance in FY 2022 and the single audit report submission with the Federal audit Clearinghouse. Questioned Costs None Recommendation: We recommend that the District update its current internal control processes to ensure that reporting requirements and deadlines are complied with. Views of responsible officials and planned corrective actions: Brian Mendenhall, Grants and Claims Unit Manager The planned corrective actions would be as follows: The District has been monitoring and reporting expenditures accurately and timely on all active grants. It was a one-time issue and the District still has an overall solid internal control process in place. The District has since taken action and corrected the issues related to this finding. The Grants and Claims Management Unit implemented additional controls over the year-end close processes to ensure that all expenditures are accrued for year-end and included in the SEFA. The District is now running a general ledger report quarterly for grants with semi-annual reporting requirements to ensure expenditures are captured within the fiscal year regardless of when construction activity has begun. In addition, the year-end checklist has been updated to ensure that the year-end expenditure review is completed by the project management team for each grant. The Finance department will provide more training and frequent communication with the project management team to ensure that all grant expenditures during the year are accounted for. The department will also continue to proactively enforce the existing policies and procedures requiring departments to complete expenditure reporting.