Audit 304861

Finding Reference Number: SA2022-001 - Suspension and Debarment for Contracts and Subcontracts Assistance Listing Numbers: 21.027 Assistance Listing Title: COVID-19 – Coronavirus State and Local Fiscal Recovery Funds Name of Federal Agency: Department of Treasury Pass Through Entity: California State Water Resources Control Board Federal Award Identification Number: SLFRP4371 266737 Criteria: The Award Terms and Conditions in the City’s Coronavirus Local Fiscal Recovery Funds Agreement with the U.S. Department of the Treasury requires that the City comply with OMB Guidelines to Agencies on Governmentwide Debarment and Suspension (Nonprocurement), 2 CFR Part 180, including the requirement to include a term or condition in all lower tier covered transactions (contracts and subcontracts described in 2 CFR Part 180, subpart B) that the award is subject to 2 CFR Part 180 and Treasury’s implementing regulation at 31 CFR Part 19. In addition, the OMB Compliance Supplement requires that prior to entering into subawards and contracts with award funds, recipients must verify that such contractors and subrecipients are not suspended, debarred, or otherwise excluded pursuant to 31 CFR section 19.300. Condition: We selected 19 transactions for testing that included six different vendors and understand that the City did not verify that the vendors were not suspended, debarred, or otherwise excluded prior to entering into the agreements. We did note that City staff determined that as of April 8, 2024, none of the six vendors were on the exclusions list on SAM.gov. Cause: We understand that staff responsible for performing the suspension and debarment reviews are no longer with the City and City staff cannot find documentation that it was performed. Identification as a repeat finding: Yes, since 2021 Effect: The City is not in compliance with the grant Award Terms and Conditions. Recommendation: The City should develop procedures to ensure compliance with debarment and suspension provisions of the grant agreement prior to making disbursements to vendors and retain documentation in the grant files. View of Responsible Officials and Planned Corrective Actions: Please see Corrective Action Plan separately prepared by the City.

Finding Reference Number: SA2022-002 Compliance with Grant Deadlines Assistance Listing Numbers: 21.027 Assistance Listing Title: COVID-19 – Coronavirus State and Local Fiscal Recovery Funds Name of Federal Agency: Department of Treasury Pass Through Entity: California State Water Resources Control Board Federal Award Identification Number: SLFRP4371 266737 Criteria: California Water and Wastewater Arrearage Payment Program Guidelines Appendix A, Section 6.2.1, Notification of Customer Bill Credits, requires that the City allocate Wastewater Arrearage Program payments as bill credits to customer accounts within 60 days of receiving payment or August 5, 2022. Condition: The City calculated the customer arrearages and credits to be applied as of June 15, 2021, but did not apply the wastewater credits to the customer accounts until November 8, 2022. Cause: We understand that the delay was caused by problems with applying the credits in the City’s new utility billing system and technical assistance was needed from the utility billing system vendor to complete the process. However, City staff could not provide documentation that the delay was communicated to the grantor. Effect: The City is not in compliance with the terms and conditions of payment related to the required program deadlines of the California Arrearage Payment Programs. As a result, the City could have been required to return moneys to the grantor. Recommendation: Although it does not appear that the grantor disallowed any of the program costs, the City must develop procedures to ensure compliance with grant award terms and conditions of payment, including timely use of grant funds. In the event the City encounters delays that affect timely compliance, the City should communicate with the grantor and retain documentation of any such communications to show that they occurred timely and the grantor was aware of the delay. View of Responsible Officials and Planned Corrective Actions: Please see Corrective Action Plan separately prepared by the City.

Finding Reference Number: SA2022-003 - Monitoring CDBG and HOME Program Activities for Compliance with Program Rules and Regulations Assistance Listing Numbers: 14.228, 14.239 Assistance Listing Title: Community Development Block Grants/State's Program HOME Investment Partnerships Program Name of Federal Agency: Department of Housing and Urban Development Federal Award Identification Number: B-19-MC-06-0039, B-20-MC-06-0039 M-18-DC-06-0240. M-20-DC-06-0240 Criteria: The State CDBG program is subject to Title I of the HCDA (42 USC 5301 et seq.) and implementing regulations at 24 CFR Part 570, Subpart I24, while CFR Part 92 details the various rules and regulations of the HOME Investment Partnerships (HOME) Program. These regulations include specific program requirements for timing of activities, eligible and prohibited activities, project and subrecipient monitoring requirements, as well as other provisions. If the City does not adhere to the requirements of the implementing regulations both before disbursement for eligible activities and on an ongoing basis to ensure continued compliance with the requirements of each program, costs incurred may be deemed ineligible and need to be returned to the grantor. Condition: The City underwent a monitoring review by the grantor during fiscal year 2022 related to the fiscal year 2022 CDBG and HOME Programs, the results of which were issued in August 2022. The monitoring review results included two CDBG findings, four HOME findings and one HOME concern as follows: • CDBG Findings: o Incorrect identification of activity in the Integrated Disbursement & Information System (IDIS), which deemed the activity ineligible unless the City provided justification as necessary costs. o Lack of a current Residential Anti-Displacement and Relocation Assistance Plan • HOME o Findings:  Absence of dated signatures of all parties on the beneficiary written agreement for the two IDIS projects and a lack of HOME program policies and procedures to ensure written agreements include dated signatures of all parties.  The absence of many federally required provisions in the City’s loan agreement with a property owner, including five components detailed in the monitoring letter that were missing from the agreement.  The amount of HOME funds invested in one IDIS project was not at or below the applicable maximum per-unit HOME subsidy limit as required under 24 CFR Section 92.250(a). The limit was exceeded by $133,625.  The City does not have comprehensive written policies and procedures as required under HOME regulation 24 CFR Section 92.504(a), including Tenant Selection, Income Determination and Lease Compliance. o Concern  Section 3 Compliance - the City has selected “no” for the question, “Is this Activity Subject to Section 3?” in the IDIS system, although the budgets for many construction and rehabilitation projects exceed the compliance threshold of $200,000. In addition, the monitoring review included follow up on prior outstanding findings (two CDBG findings and five HOME findings) that had not yet been implemented and remain outstanding. Cause: The City lacks or has not updated its CDBG and HOME policies and procedures or did not follow those that do meet the requirements. Effect: The City is not in compliance with the policies and procedures documentation and reporting requirements of the CDBG and HOME programs. As a result, the City is required to return $133,615 to the grant program. Questioned Costs: We question costs in the amount of $133,615, but those costs were incurred prior to fiscal year 2022. Recommendation: The City must develop the required policies and procedures to ensure that all grant program activities are in compliance with the provisions of 24 CFR Part 570 and 24 CFR Part 92. And, the City should ensure that all outstanding findings and concerns are resolved with the grantor. View of Responsible Officials and Planned Corrective Actions: Please see Corrective Action Plan separately prepared by the City.

Finding Reference Number: SA2022-003 - Monitoring CDBG and HOME Program Activities for Compliance with Program Rules and Regulations Assistance Listing Numbers: 14.228, 14.239 Assistance Listing Title: Community Development Block Grants/State's Program HOME Investment Partnerships Program Name of Federal Agency: Department of Housing and Urban Development Federal Award Identification Number: B-19-MC-06-0039, B-20-MC-06-0039 M-18-DC-06-0240. M-20-DC-06-0240 Criteria: The State CDBG program is subject to Title I of the HCDA (42 USC 5301 et seq.) and implementing regulations at 24 CFR Part 570, Subpart I24, while CFR Part 92 details the various rules and regulations of the HOME Investment Partnerships (HOME) Program. These regulations include specific program requirements for timing of activities, eligible and prohibited activities, project and subrecipient monitoring requirements, as well as other provisions. If the City does not adhere to the requirements of the implementing regulations both before disbursement for eligible activities and on an ongoing basis to ensure continued compliance with the requirements of each program, costs incurred may be deemed ineligible and need to be returned to the grantor. Condition: The City underwent a monitoring review by the grantor during fiscal year 2022 related to the fiscal year 2022 CDBG and HOME Programs, the results of which were issued in August 2022. The monitoring review results included two CDBG findings, four HOME findings and one HOME concern as follows: • CDBG Findings: o Incorrect identification of activity in the Integrated Disbursement & Information System (IDIS), which deemed the activity ineligible unless the City provided justification as necessary costs. o Lack of a current Residential Anti-Displacement and Relocation Assistance Plan • HOME o Findings:  Absence of dated signatures of all parties on the beneficiary written agreement for the two IDIS projects and a lack of HOME program policies and procedures to ensure written agreements include dated signatures of all parties.  The absence of many federally required provisions in the City’s loan agreement with a property owner, including five components detailed in the monitoring letter that were missing from the agreement.  The amount of HOME funds invested in one IDIS project was not at or below the applicable maximum per-unit HOME subsidy limit as required under 24 CFR Section 92.250(a). The limit was exceeded by $133,625.  The City does not have comprehensive written policies and procedures as required under HOME regulation 24 CFR Section 92.504(a), including Tenant Selection, Income Determination and Lease Compliance. o Concern  Section 3 Compliance - the City has selected “no” for the question, “Is this Activity Subject to Section 3?” in the IDIS system, although the budgets for many construction and rehabilitation projects exceed the compliance threshold of $200,000. In addition, the monitoring review included follow up on prior outstanding findings (two CDBG findings and five HOME findings) that had not yet been implemented and remain outstanding. Cause: The City lacks or has not updated its CDBG and HOME policies and procedures or did not follow those that do meet the requirements. Effect: The City is not in compliance with the policies and procedures documentation and reporting requirements of the CDBG and HOME programs. As a result, the City is required to return $133,615 to the grant program. Questioned Costs: We question costs in the amount of $133,615, but those costs were incurred prior to fiscal year 2022. Recommendation: The City must develop the required policies and procedures to ensure that all grant program activities are in compliance with the provisions of 24 CFR Part 570 and 24 CFR Part 92. And, the City should ensure that all outstanding findings and concerns are resolved with the grantor. View of Responsible Officials and Planned Corrective Actions: Please see Corrective Action Plan separately prepared by the City.

Finding Reference Number: SA2022-004 Documenting Payroll Costs Charged to Grant Assistance Listing Numbers: 20.507 Assistance Listing Title: COVID-19 – Federal Transit Cluster - Formula Grants (Urbanized Area Formula Program) Name of Federal Agency: Department of Transportation Federal Award Identification Number: CA-2019-111-01, CA-2020-141-00 Criteria: 2 CFR Part 200.430(i), “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards” requires that grantees adhere to the following, “Payroll systems must be based on records that accurately reflect the work performed” and “be supported by a system of internal controls that provides reasonable assurances that charges are accurate, allowable, and properly allocated...” The payroll records must be a part of the official record, reflect the employee’s total activity and show if the specific activity of the person is being paid by more than one federal award. Section 200.430(i)(viii) indicates that budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards, but may be used for interim accounting purposes, provided that the system for establishing the estimates produces reasonable approximations of the activity actually performed, among other requirements. Condition: We noted that the payroll costs for two employees were charged to the program based on a flat rate percentage of the payroll and benefits costs, rather than based on the actual hours worked. Although we understand the City started allocating a portion of those employee payroll costs in fourth quarter of fiscal year 2022 (all other employees are fully charged to the program) and the City reviews the estimates periodically to ensure they were supported and did not need adjustment, there is no formal documentation of the review and conclusions reached. City staff did indicate that the allocations charged are much less than the actual time spent on the program, but again, no documentation was available. Cause: We understand that grant program staff were not aware of the payroll documentation requirement. Effect: The City is not in compliance with the payroll documentation requirements set forth in 2 CFR Part 200.430(i). Questioned Costs: We question costs in the amount of $11,820, representing the total amount of payroll charged to the grant for the two employees during fiscal year 2022. Recommendation: The City should establish procedures to ensure that payroll costs charged to the program are documented in accordance with 2 CFR Part 200.430 for the federal transit program and all federal grant programs. View of Responsible Officials and Planned Corrective Actions: Please see Corrective Action Plan separately prepared by the City.

Finding Reference Number: SA2022-004 Documenting Payroll Costs Charged to Grant Assistance Listing Numbers: 20.507 Assistance Listing Title: COVID-19 – Federal Transit Cluster - Formula Grants (Urbanized Area Formula Program) Name of Federal Agency: Department of Transportation Federal Award Identification Number: CA-2019-111-01, CA-2020-141-00 Criteria: 2 CFR Part 200.430(i), “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards” requires that grantees adhere to the following, “Payroll systems must be based on records that accurately reflect the work performed” and “be supported by a system of internal controls that provides reasonable assurances that charges are accurate, allowable, and properly allocated...” The payroll records must be a part of the official record, reflect the employee’s total activity and show if the specific activity of the person is being paid by more than one federal award. Section 200.430(i)(viii) indicates that budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards, but may be used for interim accounting purposes, provided that the system for establishing the estimates produces reasonable approximations of the activity actually performed, among other requirements. Condition: We noted that the payroll costs for two employees were charged to the program based on a flat rate percentage of the payroll and benefits costs, rather than based on the actual hours worked. Although we understand the City started allocating a portion of those employee payroll costs in fourth quarter of fiscal year 2022 (all other employees are fully charged to the program) and the City reviews the estimates periodically to ensure they were supported and did not need adjustment, there is no formal documentation of the review and conclusions reached. City staff did indicate that the allocations charged are much less than the actual time spent on the program, but again, no documentation was available. Cause: We understand that grant program staff were not aware of the payroll documentation requirement. Effect: The City is not in compliance with the payroll documentation requirements set forth in 2 CFR Part 200.430(i). Questioned Costs: We question costs in the amount of $11,820, representing the total amount of payroll charged to the grant for the two employees during fiscal year 2022. Recommendation: The City should establish procedures to ensure that payroll costs charged to the program are documented in accordance with 2 CFR Part 200.430 for the federal transit program and all federal grant programs. View of Responsible Officials and Planned Corrective Actions: Please see Corrective Action Plan separately prepared by the City.

Finding Reference Number: SA2022-001 - Suspension and Debarment for Contracts and Subcontracts Assistance Listing Numbers: 21.027 Assistance Listing Title: COVID-19 – Coronavirus State and Local Fiscal Recovery Funds Name of Federal Agency: Department of Treasury Pass Through Entity: California State Water Resources Control Board Federal Award Identification Number: SLFRP4371 266737 Criteria: The Award Terms and Conditions in the City’s Coronavirus Local Fiscal Recovery Funds Agreement with the U.S. Department of the Treasury requires that the City comply with OMB Guidelines to Agencies on Governmentwide Debarment and Suspension (Nonprocurement), 2 CFR Part 180, including the requirement to include a term or condition in all lower tier covered transactions (contracts and subcontracts described in 2 CFR Part 180, subpart B) that the award is subject to 2 CFR Part 180 and Treasury’s implementing regulation at 31 CFR Part 19. In addition, the OMB Compliance Supplement requires that prior to entering into subawards and contracts with award funds, recipients must verify that such contractors and subrecipients are not suspended, debarred, or otherwise excluded pursuant to 31 CFR section 19.300. Condition: We selected 19 transactions for testing that included six different vendors and understand that the City did not verify that the vendors were not suspended, debarred, or otherwise excluded prior to entering into the agreements. We did note that City staff determined that as of April 8, 2024, none of the six vendors were on the exclusions list on SAM.gov. Cause: We understand that staff responsible for performing the suspension and debarment reviews are no longer with the City and City staff cannot find documentation that it was performed. Identification as a repeat finding: Yes, since 2021 Effect: The City is not in compliance with the grant Award Terms and Conditions. Recommendation: The City should develop procedures to ensure compliance with debarment and suspension provisions of the grant agreement prior to making disbursements to vendors and retain documentation in the grant files. View of Responsible Officials and Planned Corrective Actions: Please see Corrective Action Plan separately prepared by the City.

Finding Reference Number: SA2022-002 Compliance with Grant Deadlines Assistance Listing Numbers: 21.027 Assistance Listing Title: COVID-19 – Coronavirus State and Local Fiscal Recovery Funds Name of Federal Agency: Department of Treasury Pass Through Entity: California State Water Resources Control Board Federal Award Identification Number: SLFRP4371 266737 Criteria: California Water and Wastewater Arrearage Payment Program Guidelines Appendix A, Section 6.2.1, Notification of Customer Bill Credits, requires that the City allocate Wastewater Arrearage Program payments as bill credits to customer accounts within 60 days of receiving payment or August 5, 2022. Condition: The City calculated the customer arrearages and credits to be applied as of June 15, 2021, but did not apply the wastewater credits to the customer accounts until November 8, 2022. Cause: We understand that the delay was caused by problems with applying the credits in the City’s new utility billing system and technical assistance was needed from the utility billing system vendor to complete the process. However, City staff could not provide documentation that the delay was communicated to the grantor. Effect: The City is not in compliance with the terms and conditions of payment related to the required program deadlines of the California Arrearage Payment Programs. As a result, the City could have been required to return moneys to the grantor. Recommendation: Although it does not appear that the grantor disallowed any of the program costs, the City must develop procedures to ensure compliance with grant award terms and conditions of payment, including timely use of grant funds. In the event the City encounters delays that affect timely compliance, the City should communicate with the grantor and retain documentation of any such communications to show that they occurred timely and the grantor was aware of the delay. View of Responsible Officials and Planned Corrective Actions: Please see Corrective Action Plan separately prepared by the City.

Finding Reference Number: SA2022-003 - Monitoring CDBG and HOME Program Activities for Compliance with Program Rules and Regulations Assistance Listing Numbers: 14.228, 14.239 Assistance Listing Title: Community Development Block Grants/State's Program HOME Investment Partnerships Program Name of Federal Agency: Department of Housing and Urban Development Federal Award Identification Number: B-19-MC-06-0039, B-20-MC-06-0039 M-18-DC-06-0240. M-20-DC-06-0240 Criteria: The State CDBG program is subject to Title I of the HCDA (42 USC 5301 et seq.) and implementing regulations at 24 CFR Part 570, Subpart I24, while CFR Part 92 details the various rules and regulations of the HOME Investment Partnerships (HOME) Program. These regulations include specific program requirements for timing of activities, eligible and prohibited activities, project and subrecipient monitoring requirements, as well as other provisions. If the City does not adhere to the requirements of the implementing regulations both before disbursement for eligible activities and on an ongoing basis to ensure continued compliance with the requirements of each program, costs incurred may be deemed ineligible and need to be returned to the grantor. Condition: The City underwent a monitoring review by the grantor during fiscal year 2022 related to the fiscal year 2022 CDBG and HOME Programs, the results of which were issued in August 2022. The monitoring review results included two CDBG findings, four HOME findings and one HOME concern as follows: • CDBG Findings: o Incorrect identification of activity in the Integrated Disbursement & Information System (IDIS), which deemed the activity ineligible unless the City provided justification as necessary costs. o Lack of a current Residential Anti-Displacement and Relocation Assistance Plan • HOME o Findings:  Absence of dated signatures of all parties on the beneficiary written agreement for the two IDIS projects and a lack of HOME program policies and procedures to ensure written agreements include dated signatures of all parties.  The absence of many federally required provisions in the City’s loan agreement with a property owner, including five components detailed in the monitoring letter that were missing from the agreement.  The amount of HOME funds invested in one IDIS project was not at or below the applicable maximum per-unit HOME subsidy limit as required under 24 CFR Section 92.250(a). The limit was exceeded by $133,625.  The City does not have comprehensive written policies and procedures as required under HOME regulation 24 CFR Section 92.504(a), including Tenant Selection, Income Determination and Lease Compliance. o Concern  Section 3 Compliance - the City has selected “no” for the question, “Is this Activity Subject to Section 3?” in the IDIS system, although the budgets for many construction and rehabilitation projects exceed the compliance threshold of $200,000. In addition, the monitoring review included follow up on prior outstanding findings (two CDBG findings and five HOME findings) that had not yet been implemented and remain outstanding. Cause: The City lacks or has not updated its CDBG and HOME policies and procedures or did not follow those that do meet the requirements. Effect: The City is not in compliance with the policies and procedures documentation and reporting requirements of the CDBG and HOME programs. As a result, the City is required to return $133,615 to the grant program. Questioned Costs: We question costs in the amount of $133,615, but those costs were incurred prior to fiscal year 2022. Recommendation: The City must develop the required policies and procedures to ensure that all grant program activities are in compliance with the provisions of 24 CFR Part 570 and 24 CFR Part 92. And, the City should ensure that all outstanding findings and concerns are resolved with the grantor. View of Responsible Officials and Planned Corrective Actions: Please see Corrective Action Plan separately prepared by the City.

Finding Reference Number: SA2022-003 - Monitoring CDBG and HOME Program Activities for Compliance with Program Rules and Regulations Assistance Listing Numbers: 14.228, 14.239 Assistance Listing Title: Community Development Block Grants/State's Program HOME Investment Partnerships Program Name of Federal Agency: Department of Housing and Urban Development Federal Award Identification Number: B-19-MC-06-0039, B-20-MC-06-0039 M-18-DC-06-0240. M-20-DC-06-0240 Criteria: The State CDBG program is subject to Title I of the HCDA (42 USC 5301 et seq.) and implementing regulations at 24 CFR Part 570, Subpart I24, while CFR Part 92 details the various rules and regulations of the HOME Investment Partnerships (HOME) Program. These regulations include specific program requirements for timing of activities, eligible and prohibited activities, project and subrecipient monitoring requirements, as well as other provisions. If the City does not adhere to the requirements of the implementing regulations both before disbursement for eligible activities and on an ongoing basis to ensure continued compliance with the requirements of each program, costs incurred may be deemed ineligible and need to be returned to the grantor. Condition: The City underwent a monitoring review by the grantor during fiscal year 2022 related to the fiscal year 2022 CDBG and HOME Programs, the results of which were issued in August 2022. The monitoring review results included two CDBG findings, four HOME findings and one HOME concern as follows: • CDBG Findings: o Incorrect identification of activity in the Integrated Disbursement & Information System (IDIS), which deemed the activity ineligible unless the City provided justification as necessary costs. o Lack of a current Residential Anti-Displacement and Relocation Assistance Plan • HOME o Findings:  Absence of dated signatures of all parties on the beneficiary written agreement for the two IDIS projects and a lack of HOME program policies and procedures to ensure written agreements include dated signatures of all parties.  The absence of many federally required provisions in the City’s loan agreement with a property owner, including five components detailed in the monitoring letter that were missing from the agreement.  The amount of HOME funds invested in one IDIS project was not at or below the applicable maximum per-unit HOME subsidy limit as required under 24 CFR Section 92.250(a). The limit was exceeded by $133,625.  The City does not have comprehensive written policies and procedures as required under HOME regulation 24 CFR Section 92.504(a), including Tenant Selection, Income Determination and Lease Compliance. o Concern  Section 3 Compliance - the City has selected “no” for the question, “Is this Activity Subject to Section 3?” in the IDIS system, although the budgets for many construction and rehabilitation projects exceed the compliance threshold of $200,000. In addition, the monitoring review included follow up on prior outstanding findings (two CDBG findings and five HOME findings) that had not yet been implemented and remain outstanding. Cause: The City lacks or has not updated its CDBG and HOME policies and procedures or did not follow those that do meet the requirements. Effect: The City is not in compliance with the policies and procedures documentation and reporting requirements of the CDBG and HOME programs. As a result, the City is required to return $133,615 to the grant program. Questioned Costs: We question costs in the amount of $133,615, but those costs were incurred prior to fiscal year 2022. Recommendation: The City must develop the required policies and procedures to ensure that all grant program activities are in compliance with the provisions of 24 CFR Part 570 and 24 CFR Part 92. And, the City should ensure that all outstanding findings and concerns are resolved with the grantor. View of Responsible Officials and Planned Corrective Actions: Please see Corrective Action Plan separately prepared by the City.

Finding Reference Number: SA2022-004 Documenting Payroll Costs Charged to Grant Assistance Listing Numbers: 20.507 Assistance Listing Title: COVID-19 – Federal Transit Cluster - Formula Grants (Urbanized Area Formula Program) Name of Federal Agency: Department of Transportation Federal Award Identification Number: CA-2019-111-01, CA-2020-141-00 Criteria: 2 CFR Part 200.430(i), “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards” requires that grantees adhere to the following, “Payroll systems must be based on records that accurately reflect the work performed” and “be supported by a system of internal controls that provides reasonable assurances that charges are accurate, allowable, and properly allocated...” The payroll records must be a part of the official record, reflect the employee’s total activity and show if the specific activity of the person is being paid by more than one federal award. Section 200.430(i)(viii) indicates that budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards, but may be used for interim accounting purposes, provided that the system for establishing the estimates produces reasonable approximations of the activity actually performed, among other requirements. Condition: We noted that the payroll costs for two employees were charged to the program based on a flat rate percentage of the payroll and benefits costs, rather than based on the actual hours worked. Although we understand the City started allocating a portion of those employee payroll costs in fourth quarter of fiscal year 2022 (all other employees are fully charged to the program) and the City reviews the estimates periodically to ensure they were supported and did not need adjustment, there is no formal documentation of the review and conclusions reached. City staff did indicate that the allocations charged are much less than the actual time spent on the program, but again, no documentation was available. Cause: We understand that grant program staff were not aware of the payroll documentation requirement. Effect: The City is not in compliance with the payroll documentation requirements set forth in 2 CFR Part 200.430(i). Questioned Costs: We question costs in the amount of $11,820, representing the total amount of payroll charged to the grant for the two employees during fiscal year 2022. Recommendation: The City should establish procedures to ensure that payroll costs charged to the program are documented in accordance with 2 CFR Part 200.430 for the federal transit program and all federal grant programs. View of Responsible Officials and Planned Corrective Actions: Please see Corrective Action Plan separately prepared by the City.

Finding Reference Number: SA2022-004 Documenting Payroll Costs Charged to Grant Assistance Listing Numbers: 20.507 Assistance Listing Title: COVID-19 – Federal Transit Cluster - Formula Grants (Urbanized Area Formula Program) Name of Federal Agency: Department of Transportation Federal Award Identification Number: CA-2019-111-01, CA-2020-141-00 Criteria: 2 CFR Part 200.430(i), “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards” requires that grantees adhere to the following, “Payroll systems must be based on records that accurately reflect the work performed” and “be supported by a system of internal controls that provides reasonable assurances that charges are accurate, allowable, and properly allocated...” The payroll records must be a part of the official record, reflect the employee’s total activity and show if the specific activity of the person is being paid by more than one federal award. Section 200.430(i)(viii) indicates that budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards, but may be used for interim accounting purposes, provided that the system for establishing the estimates produces reasonable approximations of the activity actually performed, among other requirements. Condition: We noted that the payroll costs for two employees were charged to the program based on a flat rate percentage of the payroll and benefits costs, rather than based on the actual hours worked. Although we understand the City started allocating a portion of those employee payroll costs in fourth quarter of fiscal year 2022 (all other employees are fully charged to the program) and the City reviews the estimates periodically to ensure they were supported and did not need adjustment, there is no formal documentation of the review and conclusions reached. City staff did indicate that the allocations charged are much less than the actual time spent on the program, but again, no documentation was available. Cause: We understand that grant program staff were not aware of the payroll documentation requirement. Effect: The City is not in compliance with the payroll documentation requirements set forth in 2 CFR Part 200.430(i). Questioned Costs: We question costs in the amount of $11,820, representing the total amount of payroll charged to the grant for the two employees during fiscal year 2022. Recommendation: The City should establish procedures to ensure that payroll costs charged to the program are documented in accordance with 2 CFR Part 200.430 for the federal transit program and all federal grant programs. View of Responsible Officials and Planned Corrective Actions: Please see Corrective Action Plan separately prepared by the City.