Finding 551113 (2024-002)

Program/Cluster: Disaster Grants – Public Assistance Federal Financial Assistance Listing: 97.036 Federal Agency: U.S. Department of Federal Emergency Management Agency Pass-through: California Governor’s Office of Emergency Services Award No. and Year: FEMA-4683-DR-CA (2024) Compliance Requirement: O – Other Information Type of Finding: Material Weakness in Internal Control Criteria: 2 CFR 200.303(a) establishes that the auditee must establish and maintain effective internal control over the federal award that provides assurance that the entity is managing the federal award in compliance with federal statutes, regulations, and conditions of the federal award. As outlined in the Disaster Grants – Public Assistance section of the Compliance Supplement, section IV, nonfederal entities must record expenditures on the Schedule of Expenditures of Federal Awards (SEFA) when (1) FEMA has approved the nonfederal entity’s Project, and (2) the nonfederal entity has incurred the eligible expenditures. Condition: Our testing over activities allowed and allowable costs identified three expenditures that were not approved under the grant per communications from the Federal Emergency Management Agency (FEMA). The City is currently appealing FEMA’s decision and pending project approval. For purposes of reporting expenditures on the Schedule of Expenditures of Federal Awards (SEFA), the City has removed total costs of $638,418 for the FEMA grant until obligations are approved. Cause: There was a lapse in oversight of the internal control process ensuring only obligated FEMA expenditures are reported on the SEFA. Effect: The City’s control did not detect or correct the errors identified, which resulted in expenditures being allocated to the federal award that were not obligated. Questioned Costs: No questioned costs were identified as a result of our procedures. Context/Sampling: A haphazard sample of six transactions were selected for testing, which accounted for $729,981 of the original $965,040 reported as federal program expenditures. As a result of testing and review of the SEFA, the City revised the SEFA to only include approved obligations in the amount of $326,622. Repeat Finding from Prior Year(s): No. Recommendation: We recommend the City review and strengthen the controls surrounding expenditures being claimed under the grant and ensuring expenditures are obligated before being reported on the SEFA. Views of Responsible Officials: Management’s Response: See separate corrective action plan.