Finding 504921 (2020-001)

Finding 2020-001 Federal Program: Highway Planning and Construction CFDA Number: 20.205 Federal Agency: U.S. Department of Transportation Federal Award Year: 2020 Grant numbers: ACNH 7101 (807), BRLS-5108 (137) Pass-Through Entity: State of California Department of Transportation Compliance Requirement: Other – Inaccurate reporting of the Schedule of Expenditures of Federal Awards Criteria: According to 2 CFR 200.510(b), a recipient of federal awards is required to prepare a schedule of expenditures of Federal awards (SEFA) for the period covered by the entity’s financial statements which must include the total Federal awards expended as determined in accordance with 2 CFR 200.502. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure federal expenditures are accurately and completely reported on the SEFA. Conditions Found: The City did not have adequate internal controls related to the reporting of expenditures on the SEFA for the Highway Planning and Construction program. The Gerald Desmond Bridge (Harbor Bridge) reconstruction was a $1.6 billion design, development, and construction project that included multiple funding sources, including federal, state, and private funds. As part of the completeness and accuracy of the SEFA control, the City needed to timely prepare and review a reconciliation of all of the federal, state, and private funding sources received for the overall Harbor Bridge project year-to-date, and determine at a proper level of precision, which expenditures were being reimbursed with federal funding sources to determine what amounts to report on the SEFA for the year ended September 30, 2020. This overall year-to-date reconciliation was not timely performed and as a result, an additional $21,383,260 of federal expenditures related to the Highway Planning and Construction program should have been reported on the SEFA for the year ended September 30, 2020. Cause and Effect: In discussing these conditions with the City, they stated the error was primarily due to the control over the completeness and accuracy of the SEFA was not timely performed and designed at the appropriate precision level for multi-year and multi-funded construction projects. Failure to establish effective internal controls regarding financial reporting for the preparation of the Schedule may prevent the City from completing an audit in accordance with the timelines of Uniform Guidance. Questioned Costs: Not applicable. Statistical sampling: Not applicable. Repeat Finding: A similar finding was not reported in the prior year. Recommendation: We recommend the City implement a system of internal control that is designed and operating at a level of precision to ensure the Schedule is complete and accurate. View of Responsible Official: The Harbor Department acknowledges the finding. The Harbor Department believes this omission was the result of an internal miscommunication.