Reference Number 2024-002: Delays in Financial and Single Audit Reporting Repeat Finding: Yes Evaluation of Finding: Material Weakness and Material Noncompliance Condition: The Council experienced delays and issues in its financial reporting and year-end close process, including delays in completing reconciliations, reviewing accounting records, and providing information necessary to support the audit and external financial reporting. As a result, the reporting package associated with the audit was not completed on a timely basis. Criteria: Management is responsible for maintaining complete and accurate accounting records, performing timely year-end closing procedures, and providing the information necessary to support external financial reporting. For entities subject to a Single Audit, federal regulations require submission of the reporting package and data collection form to the Federal Audit Clearinghouse within 30 calendar days after receipt of the auditor’s report or nine months after fiscal year-end, whichever is earlier, in accordance with 2 CFR 200.512(a)(1). Cause of Condition: The delay appears to have resulted from turnover in key finance personnel, limited documented procedures, and insufficient resources to complete year-end reconciliations, review accounting records, and provide timely audit support during the external financial reporting process. Effect or Potential Effect of Condition: Delays in the year-end close and financial reporting support process increase the risk that required regulatory deadlines will not be met and that financial information provided to oversight bodies, grantors, and other users will be delayed. Recommendation: We recommend that the Council implement a formal year-end closing and reporting calendar, assign responsibility for key reconciliations and reporting support deliverables, document review procedures, and monitor progress against deadlines to support timely completion of the year-end close and required regulatory submissions. Management Response and Corrective Action: Management concurs with the finding and acknowledges that this is a repeat finding classified as a material weakness and material noncompliance. The delays identified in the completion of StanCOG's financial statements and Single Audit reporting were the result of significant deficiencies in historical financial reporting processes that developed over multiple fiscal years. During the period under audit, StanCOG experienced complete turnover within its Finance Department, resulting in the loss of institutional knowledge and limited continuity in accounting operations. In addition, documented financial procedures were either incomplete or not consistently followed, resulting in delayed reconciliations, incomplete accounting records, and the inability to provide timely support for the external audit process. These conditions were further compounded by the extensive effort required to reconstruct multiple years of financial records, resolve historical accounting discrepancies, and complete outstanding reconciliations before the audit could proceed. As a result, the financial statement audit and Single Audit reporting package could not be completed within the required regulatory timeframe. Because the audit itself was significantly delayed, this finding is reported as a repeat finding. SECTION II - FINANCIAL STATEMENT FINDINGS (CONTINUED) StanCOG has recently hired a new Finance Director and new Executive Director to lead the organization's financial recovery efforts and strengthen its internal control environment. Management has begun evaluating existing financial processes and is implementing corrective actions designed to improve the timeliness and accuracy of financial reporting and ensure compliance with applicable federal reporting requirements. Management is implementing, or plans to implement, the following corrective actions: • Develop and maintain a formal month-end and year-end financial closing calendar with clearly defined deadlines and assigned responsibilities. • Develop and document standardized financial close procedures and workflows for key accounting and reporting activities. • Perform recurring reconciliations of all significant balance sheet accounts throughout the fiscal year to minimize year-end adjustments and facilitate a timely close. • Establish documented management review procedures to monitor the timely completion of reconciliations, financial reporting, and audit support activities. • Improve coordination and communication with external auditors by identifying required schedules and supporting documentation earlier in the audit process. • Strengthen management oversight of the financial reporting process by regularly monitoring progress toward key reporting deadlines and addressing issues as they arise. • Continue rebuilding the Finance Department by establishing sustainable processes, cross-training staff, and improving documentation to promote continuity and long-term compliance. Management recognizes the importance of timely financial reporting and compliance with federal Single Audit requirements. While this finding reflects historical conditions that developed over multiple fiscal years, StanCOG is committed to implementing sustainable financial management practices and strengthening its internal control environment. Management believes these corrective actions will improve the timeliness, accuracy, and reliability of future financial reporting and help ensure compliance with all applicable regulatory requirements.
Reference Number 2024-007: Reimbursable Expenditures Assistance Listing Number/Program: 20.205 Highway Planning and Construction Agency / Pass-Through: U.S. Department of Transportation, passed through the California Department of Transportation Compliance Requirement: Allowable Costs and Activities Evaluation of Finding: Material Weakness in Internal Control over Compliance and Questioned Cost Repeat Finding: No Condition During our audit of the Highway Planning and Construction program, Assistance Listing Number 20.205, we selected reimbursable grant expenditures for testing. One expenditure charged to the program in the amount of $29,789 was not supported by adequate documentation, such as invoices, receipts, contracts, payroll records, or other records demonstrating that the cost was allowable, allocable, and incurred for the federal program. Because the Council was unable to provide documentation supporting the expenditure, the amount is considered a questioned cost. Criteria Federal awards may be charged only for costs that are necessary, reasonable, allocable, and adequately documented in accordance with 2 CFR 200.403 and 2 CFR 200.405. In addition, 2 CFR 200.302 requires nonfederal entities to maintain financial management systems and records that identify the source and application of federal funds and support the allowability of costs charged to federal awards. Management is responsible for maintaining internal controls over compliance sufficient to ensure expenditures claimed for reimbursement are properly supported and comply with applicable grant requirements. Cause The Council did not maintain adequate grant expenditure documentation or perform a sufficiently detailed review to ensure that costs submitted for reimbursement were supported by records demonstrating allowability, allocability, and compliance with federal program requirements before reimbursement was requested or the expenditure was reported. Effect or Potential Effect Unsupported expenditures increase the risk that costs charged to the federal program may not be allowable or properly allocable to the award. The unsupported reimbursable expenditure of $29,789 is considered a questioned cost. Recommendation We recommend that the Council strengthen its grant expenditure review process to require complete supporting documentation before costs are charged to federal awards or submitted for reimbursement. Documentation should be retained in a manner that clearly supports the nature, amount, timing, allowability, and allocability of each expenditure. The Council should also review the questioned cost and consult with the grantor, as appropriate, regarding resolution. SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS (CONTINUED) Management Response and Corrective Action: Management concurs with the finding and acknowledges that improvements are necessary to strengthen StanCOG's internal controls over grant expenditure documentation, review, and reimbursement processes. The condition identified resulted from deficiencies in historical grant expenditure documentation and review procedures. During the period under audit, StanCOG did not have sufficiently documented processes in place to ensure that all costs charged to federal awards were supported by adequate documentation demonstrating the nature, amount, timing, allowability, and allocability of the expenditure prior to reimbursement submission. The unsupported expenditure identified during testing relates to a reimbursement claimed under the Highway Planning and Construction program. Management recognizes the importance of maintaining complete supporting documentation for all federal award expenditures and will work with the appropriate parties, including the grantor as necessary, to evaluate and resolve the questioned cost in accordance with applicable federal requirements. Since the period under audit, StanCOG has undergone significant changes within its Finance Department and has recently hired new management focused on strengthening financial controls, improving grant compliance practices, and rebuilding sustainable financial processes. Management is currently reviewing existing grant accounting and reimbursement procedures and is implementing enhanced controls to ensure federal expenditures are properly supported and reviewed prior to reimbursement requests. Management is implementing, or plans to implement, the following corrective actions: • Establish standardized grant expenditure review procedures requiring supporting documentation before costs are charged to federal awards or submitted for reimbursement. • Develop documentation requirements for grant-related expenditures, including invoices, contracts, payroll documentation, time records, and other supporting records necessary to demonstrate allowability and allocability. • Implement documented supervisory review procedures to verify that expenditures charged to federal programs are appropriate, supported, and comply with applicable federal requirements. • Improve coordination between Finance and program/project staff to ensure required supporting documentation is collected and retained timely. • Establish consistent grant file organization and retention procedures to ensure documentation supporting federal expenditures is readily available for monitoring and audit purposes. • Provide guidance and training to staff involved in grant administration, project management, and expenditure processing regarding federal cost principles and documentation requirements. • Review the questioned cost identified in the audit and coordinate with the appropriate grantor representatives regarding resolution, as necessary. Management recognizes the importance of strong grant management practices and maintaining adequate documentation to support the use of federal funds. StanCOG is committed to strengthening its internal control environment, improving grant expenditure review procedures, and ensuring that future reimbursement requests are supported by complete and appropriate documentation in accordance with federal requirements.