Finding 1117161 (2024-002)

Reference Number 2024-002 Federal Program: 21.027 – Coronavirus State and Local Fiscal Recovery Funds Federal Agency U.S. Department of Treasury Pass-Through Entity State of California Evaluation of Finding Significant Deficiency Compliance Area L – Reporting Condition During the allowable cost testing for the 21.027 Coronavirus State and Local Fiscal Recovery Funds program, it was found that an expenditure of $945,041 was recorded in the wrong period. The invoice indicated that the services were rendered as of June 30, 2023, but the expenditure was recorded as July 1, 2023 instead. This misstatement impacts the accuracy of financial reporting and grant compliance. Criteria According to 2 CFR 200.302(b)(3) and 2 CFR 200.303, entities receiving federal funds must maintain effective internal controls over financial reporting to ensure accurate and timely recognition of expenditures in the appropriate period. Cause of Condition The City's internal controls over financial reporting and expenditure recognition were not effectively designed or implemented, leading to recurring errors in the timing of recorded expenditures. Effect or Potential Effect of Condition Improper recording of expenditures can lead to misstatements in financial reports, noncompliance with federal grant requirements, and potential audit findings. Continued recurrence of this issue may impact the entity’s ability to demonstrate sound financial management practices. Recommendation We recommend that management continue to strengthen internal controls over expenditure recognition by implementing enhanced review procedures and periodic reconciliations to ensure expenditures are recorded in the appropriate period. Client Response The City agrees with the recommendation and has implemented new procedures and review processes to ensure expenditures for federal programs are recognized in the appropriate fiscal year's Schedule of Expenditures of Federal Awards (SEFA).