Finding 2024-004 (Significant Deficiency) AL# 14.218: CDBG - Entitlement Grants Cluster, U.S. Department of Housing and Urban Development, all open grants and years Condition: During testing of the PR26 - CDBG Financial Summary report, it was identified that one payroll cycle was reported twice, resulting in a duplication of payroll costs and an overstated reimbursement request. Criteria: 2 CFR 200.303(a) states that the City is required to 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. Questions Costs: $23,263 Context: During the year, the City converted ERP systems in the middle of March 2024. At conversion, the data from the old ERP system was converted into a project management database. The payroll cycle ending March 14, 2024, occurred at the time of the system conversion. This payroll cycle was included in the conversion data from the old ERP system and was also included in the project management system as data from the new ERP system. While the general ledger was accurate, the project management system duplicated this payroll. The sample size was determined based upon guidelines provided by the AICPA which is not a statistically valid sample. Cause: The ERP system conversion presented challenges to the City related to report development and in particular, accuracy of the project management system. Effect: The reimbursement request was overstated, resulting in an excess draw of funds. This creates a risk of noncompliance with the grant requirements and potential repayment of funds. Recommendation: We recommend the City work with the U.S. Department of Housing and Urban Development (HUD) to reimburse HUD for the duplicated payroll amount and evaluate the data used in submitting reimbursement requests to ensure the data agrees to general ledger activity. Views of Responsible Officials (Unaudited): The City concurs with the finding. During preparation of the PR26 - CDBG Financial Summary report, one payroll cycle was reported twice, resulting in an overstated reimbursement request. This duplication occurred during the City’s ERP system conversion in March 2024, when payroll data for the pay period ending March 14, 2024, was included in both the converted legacy system data and the new ERP system project management records. While the general ledger accurately reflected payroll costs, the duplication within the project management system was not identified prior to submission of the reimbursement request. The City acknowledges that this represents a deficiency in internal controls over grant reimbursement reporting. The City will coordinate with the U.S. Department of Housing and Urban Development (HUD) to resolve the duplicated payroll amount, including reimbursement or offset of the excess draw, in accordance with HUD guidance. Accounting Services Division, in coordination with the administering department and program management, will perform a reconciliation of payroll-related expenditures and reimbursement draws for all HUD grants for the period January 1, 2024, through June 30, 2024, to ensure amounts claimed agree to general ledger activity. In addition, the City will ensure that recordkeeping and reimbursement preparation practices related to payroll expenses included in grant draw requests are sufficient to support amounts claimed and agree to general ledger activity. The Accounting Services Division will review existing departmental documentation practices and communicate consistent documentation expectations and best practices to promote accurate, complete, and supportable payroll draw requests.
Finding 2024-002 (Significant Deficiency) AL# 21.027: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds, U.S. Department of Treasury Condition: The City’s control procedures for the Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) requires the department personnel to authorize payment and the program manager to certify the expenditures to the CSLFRF program prior to being paid. The program manager did not approve four invoices prior to the expenditure being charged to the grant. Criteria: Per 2 CFR 200.303, the Non-Federal entity must establish and maintain effective internal controls over federal awards to ensure compliance with federal statutes, regulations and the terms and conditions of the awards. Questions Costs: None Context: During testing of grant expenditures, we identified 4 out of 21 items were missing the program manager certification prior to being charged to the grant program. All four invoices were approved at the department level and one of the invoices was subsequently reviewed by the department head. The expenditures were allowable under the CSLFRF program. The sample size was determined based upon guidelines provided by the AICPA which is not a statistically valid sample. Cause: Purchase orders are created that identify projects that are part of the CSLFRF program and expenditures coding is assigned at that time prior to the purchase. Once the invoice was approved by department personnel, the expenditures were applied to the assigned purchase order coding. Effect: Failure to follow established internal controls increases the risk of noncompliance with the grant requirements and processing unallowable costs towards the grant. Recommendation: We recommend the City review the processing of payments applied to the CLSFRF program to ensure program manager certification is complete prior to charging expenditures to the program. Views of Responsible Officials (Unaudited): The City concurs with the finding. Although the expenditures tested were allowable under the CSLFRF program and approved at the department level, the required program manager certification was not consistently documented prior to charging expenditures to the grant. The City acknowledges that this represents a deviation from established internal control procedures. Upon identification of this issue, Internal Audit worked with Accounts Payable and department personnel to address issues and made recommendations to correct the control gap. Additional review steps will be implemented within Accounts Payable to help ensure required approvals are obtained prior to payment processing. In addition, Accounting Services has developed a monitoring report to review CSLFRF expenditures and provide an additional level of oversight to verify that program manager certification is completed prior to charging expenditures to the grant. This monitoring serves as a secondary control to support compliance with grant requirements.
Finding 2024-003 (Significant Deficiency) AL# 21.027: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds, U.S. Department of Treasury Condition: During testing of the quarterly CSLFRF Project and Expenditure Report submitted by the City for the period ending June 30, 2024, we noted that the revenue loss information and certain key line items were not reported accurately. Criteria: Per the U.S. Department of Treasury’s CSLFRF Compliance and Reporting Guidance, recipients are required to report revenue loss and key line item figures correctly in each required periodic Project and Expenditure Report and ensure all submitted information is complete, accurate, and supported by the City’s accounting records. Questions Costs: None Context: During the year, the City performed a re-calculation of their revenue loss amount which slightly changed amounts previously reported. With how the report portal works, the prior year amounts cannot be updated. The City inadvertently dropped in the total of all years into the current year revenue loss. The report then totaled all years, which duplicated the total revenue loss reported. The City’s actual revenue loss is more than funding received and only a portion of funding received was allocated to the revenue loss category. The revenue loss amount used by the City for internal tracking and compliance was correct. During our review of two of the four CSLFRF quarterly reports, we identified variances between amounts reported in certain key line items. These variances were not consistent throughout the report; however, the total discrepancies were not material to the overall CSLFRF financial information presented. The sample size was determined based upon guidelines provided by the AICPA which is not a statistically valid sample. Cause: The inaccurate reporting for revenue loss resulted from a misunderstanding of how the report portal worked. The City believed they were updating the total revenue loss amount to the correct balance. Review controls did not identify that the total revenue loss on the report got duplicated. The inaccurate reporting for key line items could not be fully determined. Effect: Submitting inaccurate reporting information increases the risk of potential noncompliance with Treasury reporting requirements. For key line items, although the variances were not material and did not impact overall compliance with CSLFRF requirements, inconsistent reporting increases the risk of inaccurate reporting in future periods and may reduce the reliability of information submitted to the U.S. Treasury. Recommendation: We recommend the City correct the revenue loss reported value and verify all supporting documentation agrees to the reports prior to submitting required reports. Views of Responsible Officials (Unaudited): The City concurs with the finding. While the City’s internally calculated revenue loss amount used for compliance and funding allocation purposes was accurate, errors occurred in the amounts reported in the CSLFRF Project and Expenditure Report due to a misunderstanding of how the Treasury reporting portal calculated and aggregated revenue loss across reporting periods. In addition, certain key line items reported did not agree to the underlying supporting documentation retained by the City. The City has reviewed its CSLFRF reporting process and implemented additional procedures to ensure that reported amounts agree to supporting documentation and the City’s accounting records prior to submission. Beginning with the 12/31/2025 reporting period, the City will ensure that revenue loss and key line-item amounts reported in the Treasury portal are supported by documentation that reconciles to the portal calculations and reflects the intended reporting period. Additional review controls have been incorporated to verify the accuracy and completeness of reported amounts before submission, including review of portal totals to prevent duplication and confirmation that reported figures align with internal tracking records.