Audit 353160

Internal Control over Compliance - Timing of Expenditures Reported in the Schedule of Expenditure of Federal Awards (SEFA) Requires Alignment with Federal Guidelines Federal Program Information: Federal Assistance Listing Number: 16.753 Federal Program Name: Byrne Discretionary Community Project Funding /Byrne Discretionary Grants Program Federal Agency: U.S. Department of Justice Pass-through Agency: State of California Bureau of Justice Assistance Federal Award Number: 15PBJA-22-GG-00264-BRND Federal Award Year: March 15, 2022 to September 30, 2023 Criteria: Per 2 CFR 200.510(b), Financial Statements: Schedule of Expenditures of Federal Awards (SEFA), the SEFA must include the total federal awards expended, as determined in accordance with 2 CFR 200.502, Basis for Determining Federal Awards Expended, and must align with the same reporting period as the auditee's financial statements. 2 CFR 200.502(a) specifies that the timing of when a federal award is expended is based on the occurrence of the activity related to the award. Additionally, 2 CFR 200.328, Financial Reporting, emphasizes the importance of submitting performance and financial reports that are complete, accurate, and consistent with the accounting records. Specifically: • Financial data must be derived from and consistent with the recipient's accounting records. • Reports must include all financial information in accordance with federal requirements. Condition: During our audit, we identified a discrepancy involving the federal expenditures for the Byrne Discretionary Community Project Funding/Byrne Discretionary Grants Program, totaling $1,000,000. These expenditures were incurred in FY 2023 but were reported in the SEFA for FY 2024. Additionally, we noted that the reports submitted to the federal agency lacked evident review controls to verify their completeness, accuracy, and consistency with accounting records. Cause and Effect: The City inadvertently excluded the federal expenditure for this grant from the FY2023 SEFA due to an unintentional oversight. This error was later identified and addressed by including the expenditure in the FY2024 SEFA. The oversight occurred because the equipment expenditure tied to this grant was recorded with an effective date of June 2023, while the corresponding grant funds were received and recorded in November 2023. This misalignment in timing created confusion regarding the proper fiscal year in which the expenditure should be reported. Additionally, this was a one-time funding and expenditure, and the City lacked prior experience in both receiving and reporting such grants. The absence of established procedures or review controls specific to this type of funding further contributed to the oversight. Collectively, these factors led to the omission of the expenditure from the FY 2023 SEFA, highlighting the need for improved processes to prevent similar issues in the future. Recommendation: We recommend that the City implement enhanced procedures for reviewing and reconciling grant-related expenditures and receipts to ensure accurate and timely reporting in the SEFA. Specifically, the City should: • Establish a process to track one-time or unique grants separately to ensure their proper inclusion in the correct fiscal year. • Conduct cross-departmental reviews to align the timing of expenditure recording with grant fund receipts. • Provide training to staff on federal reporting requirements, including the accurate preparation of the SEFA in compliance with 2 CFR 200.510(b) and 2 CFR 200.502(a). • Periodically audit SEFA preparation processes to identify and address any potential discrepancies promptly. • Implement thorough pre-submission reviews to ensure reports are accurate, complete, and consistent with accounting records, using checklists or tools if necessary. Views of Responsible Officials and Planned Corrective Action: The City internally identify improvement opportunities in managing grants. As a part of the City’s grant oversight improvement efforts, the City began implementing various processes and internal controls surrounding grant monitoring, which improves the SEFA drafting process and mitigates risks of future inaccuracies. These efforts began in early 2024 and include the following: • Creation of a grant policy that provides City staff with guidance, information, and expectations surrounding grants. • Creation of a master grants database that lists the general ledger fund, applicable project ledger references, status, grant type, start/end dates, granting agency, pass-through agency, grant name, assistance listing numbers, grant amounts, and the grant manager for each grant. This database is now used to verify the completeness and accuracy of the SEFA (beginning FY24). • Formal quarterly monitoring. Each quarter, the City will formally review the grants database with department contacts and grant managers to verify the completeness and accuracy of the database. The City is formalizing this process and plans to include department signoffs evidencing the review process. If any items are missing, the missing component will be identified and added to the database on a timely basis. The City will also utilize this quarterly process to review the grants policy to ensure grant managers are aware of the requirements related to their grants. • The City is in the process of formalizing the SEFA drafting process utilized during the FY24 SEFA preparation, which includes additional mitigating procedures such as reviewing all next FY federal receipts to ensure none of them relate to the SEFA year federal expenditures. Personnel Responsible for Implementation: Marvin Lopez Position of Responsible Personnel: Deputy Administrative Services Director (Fiscal Services) Expected Date of Implementation: June 30, 2025

Internal Control over Compliance - Timing of Expenditures Reported in the Schedule of Expenditure of Federal Awards (SEFA) Requires Alignment with Federal Guidelines Federal Program Information: Federal Assistance Listing Number: 16.753 Federal Program Name: Byrne Discretionary Community Project Funding /Byrne Discretionary Grants Program Federal Agency: U.S. Department of Justice Pass-through Agency: State of California Bureau of Justice Assistance Federal Award Number: 15PBJA-22-GG-00264-BRND Federal Award Year: March 15, 2022 to September 30, 2023 Criteria: Per 2 CFR 200.510(b), Financial Statements: Schedule of Expenditures of Federal Awards (SEFA), the SEFA must include the total federal awards expended, as determined in accordance with 2 CFR 200.502, Basis for Determining Federal Awards Expended, and must align with the same reporting period as the auditee's financial statements. 2 CFR 200.502(a) specifies that the timing of when a federal award is expended is based on the occurrence of the activity related to the award. Additionally, 2 CFR 200.328, Financial Reporting, emphasizes the importance of submitting performance and financial reports that are complete, accurate, and consistent with the accounting records. Specifically: • Financial data must be derived from and consistent with the recipient's accounting records. • Reports must include all financial information in accordance with federal requirements. Condition: During our audit, we identified a discrepancy involving the federal expenditures for the Byrne Discretionary Community Project Funding/Byrne Discretionary Grants Program, totaling $1,000,000. These expenditures were incurred in FY 2023 but were reported in the SEFA for FY 2024. Additionally, we noted that the reports submitted to the federal agency lacked evident review controls to verify their completeness, accuracy, and consistency with accounting records. Cause and Effect: The City inadvertently excluded the federal expenditure for this grant from the FY2023 SEFA due to an unintentional oversight. This error was later identified and addressed by including the expenditure in the FY2024 SEFA. The oversight occurred because the equipment expenditure tied to this grant was recorded with an effective date of June 2023, while the corresponding grant funds were received and recorded in November 2023. This misalignment in timing created confusion regarding the proper fiscal year in which the expenditure should be reported. Additionally, this was a one-time funding and expenditure, and the City lacked prior experience in both receiving and reporting such grants. The absence of established procedures or review controls specific to this type of funding further contributed to the oversight. Collectively, these factors led to the omission of the expenditure from the FY 2023 SEFA, highlighting the need for improved processes to prevent similar issues in the future. Recommendation: We recommend that the City implement enhanced procedures for reviewing and reconciling grant-related expenditures and receipts to ensure accurate and timely reporting in the SEFA. Specifically, the City should: • Establish a process to track one-time or unique grants separately to ensure their proper inclusion in the correct fiscal year. • Conduct cross-departmental reviews to align the timing of expenditure recording with grant fund receipts. • Provide training to staff on federal reporting requirements, including the accurate preparation of the SEFA in compliance with 2 CFR 200.510(b) and 2 CFR 200.502(a). • Periodically audit SEFA preparation processes to identify and address any potential discrepancies promptly. • Implement thorough pre-submission reviews to ensure reports are accurate, complete, and consistent with accounting records, using checklists or tools if necessary. Views of Responsible Officials and Planned Corrective Action: The City internally identify improvement opportunities in managing grants. As a part of the City’s grant oversight improvement efforts, the City began implementing various processes and internal controls surrounding grant monitoring, which improves the SEFA drafting process and mitigates risks of future inaccuracies. These efforts began in early 2024 and include the following: • Creation of a grant policy that provides City staff with guidance, information, and expectations surrounding grants. • Creation of a master grants database that lists the general ledger fund, applicable project ledger references, status, grant type, start/end dates, granting agency, pass-through agency, grant name, assistance listing numbers, grant amounts, and the grant manager for each grant. This database is now used to verify the completeness and accuracy of the SEFA (beginning FY24). • Formal quarterly monitoring. Each quarter, the City will formally review the grants database with department contacts and grant managers to verify the completeness and accuracy of the database. The City is formalizing this process and plans to include department signoffs evidencing the review process. If any items are missing, the missing component will be identified and added to the database on a timely basis. The City will also utilize this quarterly process to review the grants policy to ensure grant managers are aware of the requirements related to their grants. • The City is in the process of formalizing the SEFA drafting process utilized during the FY24 SEFA preparation, which includes additional mitigating procedures such as reviewing all next FY federal receipts to ensure none of them relate to the SEFA year federal expenditures. Personnel Responsible for Implementation: Marvin Lopez Position of Responsible Personnel: Deputy Administrative Services Director (Fiscal Services) Expected Date of Implementation: June 30, 2025