Audit 411558

Program: COVID19 – Coronavirus State and Local Fiscal Recovery Funds Assistance Listing No.: 21.027 Federal Agency: U.S. Department of Treasury Pass-Through Agency: State of California Federal Award Year: FY2024-25 Compliance Requirement: Reporting Questioned Costs: None Condition: The City did not report accurate expenditures during the year in its Project and Expenditure Quarterly Reports for the uses of ARPA funding. The reports contained incorrect project amounts and expenditure classifications due to internal control deficiencies, including insufficient review and reconciliation by someone other than the preparer. Criteria: Per 2 CFR 200.302(b)(3) and 2 CFR 200.328, recipients of federal funds are required to maintain accurate financial records and report expenditures in accordance with federal award terms. Specifically, recipients of ARPA funding are required to submit accurate quarterly Project and Expenditure Reports to provide transparency and ensure funds are used in compliance with allowable purposes. Cause: The inaccuracies resulted from a lack of sufficient internal controls over the reporting process. Specifically:  No independent review was performed to validate the accuracy and completeness of the quarterly reports.  Documentation of the expenditure allocation process was not consistently maintained to support the reported amounts.  The timing of the prior year audit limited the City’s ability to implement corrective measures before the FY2025 reports were due.  There was no reconciliation performed to tie underlying financial data to the quarterly reports. Effect: The lack of accurate reporting undermines compliance with the reporting requirements of the federal award. Although no unallowable costs were identified, the inaccuracies may necessitate correction of reported amounts in the future. Recommendation: We recommend that the City strengthen its internal controls over the reporting process by: 1. Identifying and correcting previous reporting amounts and balances to ensure the lifetime project is properly reported. 2. Implementing a formal review process where quarterly reports are reviewed and approved by a designated individual other than the preparer. 3. Establishing a documented process for reconciling expenditures reported to the underlying accounting records and federal award guidelines. 4. Providing training to staff responsible for the preparation and review of federal compliance reports to ensure familiarity with reporting requirements. Management’s Response: See Corrective Action Plan.