Finding Text
Finding number: 2025-004 (Material Weakness in Internal Control over Compliance and Instance of Noncompliance) AL number: 21.027 AL title: Coronavirus State and Local Fiscal Recovery Funds (SLFRF) Federal award identification number and year: California Department of Housing and Community Development 21-HK-17231, 21-HK-17171, 21-HK-17192, 23-HK-18055, 23-HK-18064, 23-HK-18079, 23- HK-18085, 23-HK-18090, County of Los Angeles ARPA funds awarded in 2022. Name of federal agency: U.S. Department of the Treasury Name of pass-through entity: California Department of Housing and Community Development, and County of Los Angeles Repeat finding: Yes Criteria: Per 2 CFR §200.510(b), the SEFA must include: - A list of individual federal programs by agency, including the Assistance Listing number. - The total federal awards expended for each program, including capital projects funded by federal grants. - Amounts passed through to subrecipients. - Outstanding balances for loan or loan guarantee programs. - Significant accounting policies used in preparing the SEFA. Condition: During our audit of the Schedule of Expenditures of Federal Awards (SEFA), we identified that the schedule prepared by management included the full amount of expenditures related to certain awards that included a mixture of Federal and state funds. This resulted in an overstatement of the Federal awards in the SEFA prepared by management, also resulting in a need for a restatement of the 2024 SEFA. The 2025 SEFA has been corrected and the corrected amounts are included in the accompanying schedule. Cause: Management did not sufficiently review the terms of the award documents nor identify the need to obtain additional information from its funders. Possible effect: An inaccurate SEFA could result in noncompliance with the Uniform Guidance and an incomplete Single Audit. Questioned cost: N/A SECTION III - SUMMARY OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS (continued) Recommendation: We recommend that management: - Implement a reconciliation process to ensure that all federal expenditures are accurately captured in the SEFA. - Provide additional training for accounting personnel on federal reporting requirements. - Review all local government awards to determine whether Federal funds are a component of the contracts. - Review SEFA data for completeness and accuracy before submission. This should include crossreferencing to individual awards documents. Views of responsible officials: Management concurs with the recommendation. The Mission recognizes that accurate SEFA preparation begins with identification of federal funding when an award is received and cannot depend solely on a year-end exercise performed after transactions have already been recorded. Management will establish a federal award identification and reconciliation process connecting contract administration, accounting records, federal award information, and the final SEFA. Management plans to formalize an enhanced SEFA preparation and review process by December 31, 2026. Finance/Accounting will maintain a centralized award inventory identifying the awarding agency and pass-through entity, Assistance Listing number, period of performance, federal and nonfederal funding components, amounts passed through to subrecipients, outstanding loan or loan-guarantee balances when applicable, and the accounting policies used to prepare the SEFA. At least quarterly, Accounting will reconcile the inventory and cumulative federal expenditures to the general ledger, grant billing records, award agreements, and supporting schedules; differences will be investigated, resolved, and documented. Management also plans to complete a preliminary year-to-date SEFA review before year-end. As part of the immediate FY 2025 remediation, management will document the bridge from the prior SEFA to the final revised schedule; retain support for the funding classification of County Operating and Measure H amounts; reconcile the final SEFA to the general ledger and project schedules; and ensure related amounts and disclosures in the audit report are updated consistently. The additional implementation activities are described below: * Reviewing all new grant agreements and contracts to identify funding sources and determine the appropriate federal participation percentage. * Providing targeted training to accounting personnel regarding federal reporting requirements and awards with blended funding sources. * Establishing a secondary management review of the SEFA, including reconciliation of expenditures to underlying award agreements and supporting schedules.