Finding 2025-002 – Significant Deficiency AL Nos: 20.507 and 20.526, 20.205 Federal Grantor: U.S. Department of Transportation, Federal Transit Administration, Federal Transit Cluster - Direct Award Compliance Requirement: Other Compliance Requirements Award Nos: All awards under Assistance Listing (AL) Numbers 20.507, 20.526, and 20.205 Condition: Several changes were made to the schedule of expenditures of federal awards (SEFA) after the single audit began, including: - The periods of performance had to be updated on several grants. - Missing criteria, such as the award date, had to be added for new grants. - The assistance listing number was corrected for two grants. - A grant amount immaterial to the major program was removed from the SEFA after the single audit began. - Adjustments were made to the SEFA after the audit began to claim current year expenses for disallowed 2024 costs to fully implement the recommendation made in the 2024 single audit. - Qualified expenses were shifted between eligible routes for one grant on the SEFA. Criteria: 2 CFR Part 200, Subpart E (Uniform Guidance) Section 200.303 states that “The nonfederal entity must: (a) 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.” Cause: Grant management procedures are not documented, a complete schedule of all available grants to use when reconciling expenses for inclusion on the SEFA and accruing grant revenue was a work in progress and not all necessary changes were identified by the District’s review procedures. Effect: Expenses were omitted from the SEFA and other expenses were included on the SEFA that were already reported in the prior year. The SEFA had to be revised, which delayed the audit testing and major program determination process. Context: The number of grants has increased since the pandemic due to new pandemic related grants becoming available that delayed the use of the District’s regular federal grants. This caused grants to be combined by grantors with different allowable expenses, areas of service, and periods of performance and caused grants to be extended, causing significant complexity. The dollar amount of auditor changes made to the SEFA were immaterial and the SEFA was not relied upon by the District to ensure compliance with compliance requirements so the changes to the SEFA did not result in noncompliance with other compliance requirements. The District staff made a significant effort to bill all qualifying expenses during the audit, which will help reduce the complexity of remaining grants in future years. Recommendation: We recommend the District develop written procedures to allocate expenses to routes and purposes under federal grants that document the timing of the preparation and review of the allocation schedule. A summary tab should be added to the allocation schedule to reconcile amounts for each route/purpose to total operating expenses, preventive maintenance, insurance, communications and other expenses allocated to the population of expenses in the general ledger. We also recommend the District develop a schedule to summarize all approved and pending grants that includes the amounts available under each grant, each route/purpose within each grant, periods of performance for each amount available, the last date to submit invoices, and amounts claimed and still available for each grant by route/purpose. The District should re-evaluate budgets if changes or delays occur to federal grants and ensure a new federal or local funding source is identified and claimed for the expenses. The SEFA should be prepared after expenses are reconciled to the general ledger at the invoice/paycheck level by route/purpose and the allocation schedule is thoroughly reviewed. The SEFA should be reviewed by a knowledgeable member of management to ensure completeness and accuracy. We also recommend the District claim expenses more quickly to allow the granting agency time to review and approve the claims before the audit begins. We recommend the District reconcile expenses within 30 days of quarter end and prepare claims within 45 days of quarter end. If the District is unsure about the period of performance dates or other restrictions on a grant, staff should contact the granting agency for clarification. Finally, we recommend the District request the grants be made available for general operating expenses rather than for individual routes, times etc. to reduce complexity wherever possible. 2025-002 Views of Responsible Officials and Planned Corrective Actions: Management agrees with the recommendation and recognizes the importance of maintaining strong procedures for the monitoring, allocation and claiming of federal grant expenses. Over the past year, the District has made significant progress addressing the complexity created by the increase in federal grants following the pandemic, including reviewing prior year grant activity, resolving overclaims, coordinating closely with Federal Transit Administration (FTA), and amending grants where necessary. During this process, the District delayed certain claims while prior year matters were being resolved to ensure that expenses were claimed appropriately and in accordance with grant requirements. Staff also developed improved internal worksheets and summary schedules to track grant activity and allocations across funding sources. As the District moves beyond the review and resolution of older grant issues, management expects continued improvement in the monitoring, management, and reconciliation of federal funding sources. The District will continue strengthening internal procedures, including developing more formal written documentation of allocation methodologies, reconciliation schedules, and review procedures. These efforts are expected to further improve timeliness, accuracy, and oversight of grant reporting and claiming activities. Responsible Party: Director of Finance & Administration Implementation Date: Ongoing; full implementation expected by December 31, 2026 YCTD Contact Person Responsible for the Correction Actions; Chas Ann Fadrigo.