Audit 394051

Conditions: The expenses and awards originally reported on the Schedule of Expenditures of Federal Awards (SEFA) provided for the financial statement audit were subsequently revised. A corrected SEFA was submitted prior to the completion of the Single Audit. Criteria: Internal controls should be implemented to provide reasonable assurance that the SEFA is complete and accurate before the audit begins. Cause: The City did not accrue certain federal expenditures, which resulted in an inaccurate SEFA. This omission could lead to incomplete reporting of federal program activity and noncompliance with Uniform Guidance requirements. Accurate accrual of federal expenditures is essential to ensure the SEFA reflects all applicable costs and supports proper audit testing. Effect: The expenses reported on the SEFA were updated after the audit began. This may have caused the auditor to select the wrong program for testing during the Single Audit, which could result in the audit not meeting the requirements of the Uniform Guidance. Using outdated information may also have led the auditor to test the wrong compliance requirements. Context: The City initially excluded $43,137 in Section 8 Housing Choice Voucher funds from the SEFA and did not accrue HOME program administrative fees and related expenses for FY 2024–25. These costs were excluded because the City had not been billed by Napa County and was uncertain whether estimated amounts should be accrued or recorded upon billing. Recommendation: We recommend that Finance reconcile the SEFA to the general ledger on a routine basis and include a subsequent review at the end of the year to ensure completeness. We also recommend that Finance compare the SEFA to grants documents and coordinate with other departments, pass through entities and oversight agencies as needed. The objective is to ensure the SEFA includes all grants with a federal funding source and the correct assistance listing numbers for each grant. The City should ensure that grant revenue is properly classified as federal or state in the general ledger during the year. Corrective Action Plan: All errors in the SEFA, including incorrect pass-through grants and outdated grant numbers, have been corrected. A review process is now in place before the audit, with an additional accuracy check. The Senior Accountant will prepare the SEFA, and the Finance Director will review it for completeness and accuracy. We will confirm grant details with the granting agencies to verify federal status and use a checklist to ensure proper classification. Going forward, federal and state grants will be recorded accurately, grants will be properly classified in the general ledger, and annual training on SEFA preparation and Uniform Guidance compliance will be provided.