Finding 384055 (2022-001)

The City did not have adequate internal controls for ensuring compliance with revenue diversion special test requirements. Assistance Listing Number and Title: 20.106 Airport Improvement Program, COVID-19 Airports Programs, and Infrastructure Investment and Jobs Act Programs Federal Grantor Name: U.S. Department of Transportation, Federal Aviation Administration Federal Award/Contract Number: 3-53-0095-010-2020, Contract No. DOT-FA20NM-0124 3-53-0095-011-2020, Contract No. DOT-FA20NM-0113 3-53-0095-014-2021, Contract No. DOT-FA21NM-0178 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The City participates in the Airport Improvement Program, COVID-19 Airports Programs, and Infrastructure Investment and Jobs Act Programs. These programs are designed to assist sponsors, owners, or operators of public-use airports in the development of a nationwide system of airports adequate to meet the needs of civil aeronautics. In 2022, the City’s airport generated revenues of $108,568 from fuel sales, facility leases and more. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Special Test: Revenue Diversion All revenues generated by a public airport must be expended for its capital or operating costs, the local airport system, or other local facilities that are owned or operated by the owner or operator of the airport and are directly and substantially related to the actual air transportation of passengers or property. The City must track all revenues the airport generates and use them only for permitted purposes. Further, any payments from airport revenues to the sponsors, related parties, or other governmental entities must be airport-related, properly documented, and commensurate with the services or products the airport receives. Description of Condition Our audit found the City did not have adequate controls for ensuring compliance with revenue diversion requirements. Specifically, the City did not ensure all expenditures and payments from airport revenues were airport-related, properly documented, and commensurate with the services or products the airport received. We consider these deficiencies in internal controls to be a significant deficiency. Cause of Condition City staff incorrectly coded some expenditures to the airport fund that were not airport-related and belonged to another fund. Effect of Condition and Questioned Costs Our audit found the City incorrectly coded $6,917 of expenditures to the airport fund that were not airport-related. These expenditures related to garbage excise taxes and utility payments that belonged to other funds. As a result, the City cannot demonstrate it used all airport revenues only for permitted purposes and that expenditures paid from these revenues were airport-related. Recommendation We recommend the City improve its controls to ensure that all revenues generated by the airport are only expended for the airport’s capital or operating costs.   City’s Response The City’s airport fund balance was overstated due to a coding error by the Clerk/Treasurer in 2022. Every month the city pays the Washington State Department of Revenue excise tax for its utility funds, (Water/Sewer/Garbage funds) plus any revenue generated from the sale of graves at the cemetery, and leasehold tax on the airport hangar leases. The Clerk/Treasurer uses a spreadsheet template to calculate these liabilities. He inadvertently entered the calculated remittance into the airport fund rather than the garbage fund. The resulting error caused the city to overstate the expenditures in the airport fund and understated the expenditures in the garbage fund. The amount of the remittance that was paid to the Washington State Department of Revenue and the dollar amount remitted was correct and expended to the proper corresponding funds. This was also done on three small expenditures on the city’s credit card account. The expenditure amounts were paid but misassigned to the airport fund. All these expenditures were true and paid in a timely fashion. There was no misappropriation of funds. They were simply data entry mistakes to different funds numbers. No airport funds within any of our FAA grants were used to pay the Washington State Department of Revenue or other vendors. Under my direction, the Clerk/Treasurer has amended his calculation worksheet so that it does not include any expenditure to the Airport Fund. Airport Leasehold Tax is now paid to the Special Leasehold account of the Washington Department of Revenue. The City will institute a revised financial policy for credit card use so this doesn’t happen in the future. All credit card expenditures will be reviewed for accuracy in earnest. Auditor’s Remarks We appreciate the City’s commitment to resolve this finding and thank the City for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303 Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Federal Register Notices, Volume 64, Department of Transportation: Federal Aviation Administration 7696, Final FAA Policy and Procedures Concerning the Use of Airport Revenue. Title 49 U.S. Code 46301 Civil Penalties section (a)(5) Penalty for Diversion of Aviation Revenues.