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HomeMy WebLinkAboutSingle Audit ReportCITY OF NATIONAL CITY NATIONAL CITY, CALIFORNIA Single Audit Report on Expenditures of Federal Awards Year ended June 30, 2010 CITY OF NATIONAL CITY Single Audit Report on Expenditures of Federal Awards Year ended June 30, 2010 TABLE OF CONTENTS Page Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 1 Report on Compliance with Requirements that could have a Direct and Material Effect on each Major Program, Internal Control over Compliance and on the Schedule of Expenditures of Federal Awards in Accordance with OMB Circular A-133 3 Schedule of Expenditures of Federal Awards 5 Notes to the Schedule of Expenditures of Federal Awards 6 Supplementary Information: U.S. Department of Housing and Urban Development: Financial Data Schedule (CA116) 7 Schedule of Findings and Questioned Costs 12 Summary Schedule of Prior Audit Findings 17 MHM Myer Hruffman McCann RC. An Independent CPA Firm 2301 Dupont Drive, Suite 200 Irvine, California 92612 949-474-2020 ph 949-263-5520 fx www.mhm-pc.com Honorable Members of the City Council City of National City, California REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS We have audited the financial statements of the City of National City, California (the City) as of and for the year ended June 30, 2010, and have issued our report thereon dated December 23, 2010. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of National City' financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Internal Control Over Financial Reporting In planning and performing our audit, we considered the City's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider items 2010-01 through 2010-05 as described in the accompanying Schedule of Findings and Questioned costs to be significant deficiencies in internal control. Honorable Members of the City Council City of National City, California Page Two Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weakness. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. We noted certain matters we reported to the management of the City of National City in a separate letter dated December 23, 2010. The City's written responses to the significant deficiencies identified in our audit have not been subjected to the audit procedures applied in the audit of the financial statements and, accordingly, we express no opinion on them. This report is intended solely for the information and use of the City's management and City Council and is not intended to be and should not be used by anyone other than these specified parties. Irvine, California December 23, 2010 2 MHMe. Mayer Hoffman McCann RC. An Independent CPA Firm 2301 Dupont Drive, Suite 200 Irvine, California 92612 949-474-2020 ph 949-263-5520 fx www.mhm-pc.com Honorable Members of the City Council City of National City, California REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM, INTERNAL CONTROL OVER COMPLIANCE AND ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS IN ACCORDANCE WITH OMB CIRCULAR A-133 Compliance We have audited the compliance of the City of National City, California (the City) with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30, 2010. The City's major federal programs are identified in the summary of auditors' results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the City's management. Our responsibility is to express an opinion on the City's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the City's compliance with those requirements. In our opinion, the City complied, in all material respects, with the requirements referred to above that could have a direct and material effect on its major federal programs for the year ended June 30, 2010. Internal Control Over Compliance The management of the City is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the City's internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over compliance. 3 Honorable Members of the City Council City of National City, California Page Two A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is more than a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. Schedule of Expenditures of Federal Awards We have audited the financial statements of the governmental activities, the business -type activities, each major fund and the aggregate remaining fund information of the City of National City as of and for the year ended June 30, 2010, and have issued our report thereon dated December 23, 2010. Our audit was performed for the purpose of forming an oinion on the basic financial statements taken as a whole. The accompanying Schedule of Expenditures of Federal Awards and the supplementary information (the Financial Data Schedule) are presented for purposes of additional analysis as required by OMB Circular A-133 and the U.S. Department of Housing and Urban Development and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the financial statements taken as a whole. This report is intended for the information of the City's management, federal awarding agencies and pass -through entities and is not intended to be and should not be used by anyone other than those specified parties. /42-.�. Irvine, California December 23, 2010 4 CITY OF NATIONAL CITY Schedule of Expenditures of Federal Awards Year ended June 30, 2010 Federal Grantor/ Pass -through Grantor/ Program Title U.S. Department of Health and Human Services Passed through the County of San Diego: Special Programs for the Aging, Title III, Part C Aging Congregate Nutrition Services for States - ARRA Aging Home - Delivered Nutrition Services for States - ARRA Centers for Disease Control and Prevention Total U.S. Department of Health and Human Services U.S. Department of Housing and Urban Development Direct assistance: Community Development Block Grant - Entitlement Program Community Development Block Grant R - ARRA HOME Investment Partnerships Program Section 8 Housing Choice Vouchers Section 8 Housing Choice Vouchers - Morgan Towers** Supportive Housing for the Elderly - Morgan Towers Healthy Homes Demonstration Grants Total U.S. Department of Housing and Urban Development U.S. Department of Justice Direct assistance: Edward Byrne Justice Assistance Grant Program Edward Byrne Justice Assistance Grant Program Passed through the City of Chula Vista: Border Violence Project - ARRA Total U.S. Department of Justice U.S. Department of Transportation Direct assistance: Click It or Ticket - State and Community Highway Safety OTS DUI Enforcement - State and Community Highway Safety Sobriety Checkpoint Grant-OTS Sobriety Checkpoint Grant-OTS DUI Prosecution & Enforcement Grant Street Racing Grant AVOID DUI Grant Traffic Collision System-OTS Subtotal Passed through the California Department of Transportation:. Highway Planning and Construction Total U.S. Department of Transportation Corporation for National and Community Service Passed through the California Service Corps: AmeriCorps U.S. Department of Homeland Security Direct assistance: Assistance to Firefighters Grant Program FY07 Assistance to Firefighters Grant Program FY08 Homeland Security Grant Program (equipment and training) FY08 Homeland Security Grant Program (equipment and training) FY09 Homeland Security Grant Program (equipment and training) FY10 Total U.S. Department of Homeland Security U. S. Department of Environmental Protection Agency Direct assistance: Brownfields Assessment and Cleanup Cooperative Agreements Total Federal Financial Assistance Expenditures Federal Program Domestic Identification Assistance Number Number 388636 93.045 $ 513857 93.707 513857 93.705 N/A 93.283 B-08-MC-06-0560 B-09-MY-06-0560 M-06-MC-06-0522 CA116V0 CA6000601I CA60006011 CALHH0145-05 14.218 I4.253 14.239 14.871 14.871 14.157 14.901 2008-DJBX-0360 16.738 2009-DJBX-0247 16.738 2009-SS-B-0051 16.809 CT09279 AL0817 SC09279 SC 10279 AL0948 PT-0901 AL0939 RS0901 20.600 20.600 20.600 20.600 20.600 20.600 20.600 20.600 STPL 5066 (011) 20.205 03ACHY12-C65 94.006 n/a n/a n/a n/a n/a 97.044 97.044 97.067 97.067 97.067 R09.07.a.017 66.818 n/a- Not Available * - Major Program ** - See Note 1(d) in the Notes to the Schedule of Federal Awards for HUD required information. The accompanying notes are an integral part of this schedule. 5 Federal Financial Assistance Expenditures 274,622 * I6,337 9,309 * 8,046 308,314 681,136 152,204 * 170,102 9,469,871 * 663,850 * 2,481,662 * 123,398 13,742,223 7,333 26,245 93,305 126,883 21,318 20,842 8,009 26,428 13,612 10,209 7,177 37 107,632 500,596 608,228 264,550 608 280,070 1,894 53,216 8,830 344,618 75,683 5,470,499 Amount Provided to Subrecipients 218,991 218,991 218,991 CITY OF NATIONAL CITY Notes to the Schedule of Expenditures of Federal Awards Year ended June 30, 2010 (1) Summary of Significant Accounting Policies Applicable to the Schedule of Expenditures of Federal Awards (a) Scope of Presentation The accompanying schedule presents only the expenditures incurred (and related awards received) by the City of National City, California (the City) which are reimbursable under federal programs of federal financial assistance. For purposes of this schedule, federal awards include both federal financial assistance received directly from a federal agency, as well as federal funds received indirectly by the City from non-federal organizations. Only the portion of program expenditures reimbursable with such federal funds are reported in the accompanying schedule. Program expenditures in excess of the maximum federal reimbursement authorized and the portion of program expenditures that were funded with state, local or other non-federal funds are excluded from the accompanying schedule. (b) Basis of Accounting The expenditures included in the accompanying schedule were reported on the modified accrual basis of accounting. Under the modified accrual basis of accounting, expenditures are recognized when the City becomes obligated for payment as a result of the receipt of the related goods and services. Expenditures reported include any property or equipment acquisitions incurred under the Federal program. (c) Subrecipients During the fiscal year ended June 30, 2010, the City disbursed $218,991 to subrecipients to be used for federally allowable expenditures in accordance with the grant agreements. (d) Supplementary Information Required by HUD — Financial Data Schedule The financial data schedule supplementary information required by the U.S. Department of Housing and Urban Development (HUD) for the Morgan Towers Section 8 Housing Choice Voucher program is reported in a separate report entitled "Morgan Towers Financial Statements and Single Audit Report for the year ended June 30, 2010", dated September 17, 2010. These financial statements may be obtained from the Community Development Commission of the City of National City located at 1243 National City Boulevard, National City, CA 91950. 6 CITY OF NATIONAL CITY Financial Data Schedule Year ended June 30, 2010 Entity Wide Balance Sheet Summary PHA: CA116 FYED: 06/30/2010 Line Item No. Account Description 14.871 COCC Subtotal Elim Total 111 Cash - Unrestricted 112 Cash - Restricted - Modernization and Development 113 Cash - Other Restricted 114 Cash - Tenant Security Deposits 115 Cash - Restricted for Payment of Current Liabilities 100 Total Cash 121 Accounts Receivable - PHA Projects 122 Accounts Receivable - HUD Other Projects 124 Accounts Receivable - Other Government 125 Accounts Receivable - Miscellaneous 126 Accounts Receivable - Tenants 126.1 Allowance for Doubtful Accounts - Tenants 126.2 Allowance for Doubtful Accounts - Other 108,684 425,613 534,297 8,738 608,258 108,684 425,613 108,684 425,613 534,297 534,297 8,738 608,258 8,738 608,258 127 Notes, Loans, & Mortgage Receivable - Current - - - - 128 Fraud Recovery 65,559 - 65,559 65,559 128.1 Allowance for Doubtful Accounts - Fraud (28,681) (28,681) (28,681) 129 Accrued Interest Receivable - - - 120 Total Receivables, Net of Allowances for Doubtful Accounts 653,874 653,874 653,874 131 Investments - Unrestricted 132 Investments - Restricted 135 Investments - Restricted for Payment of Current Liability 142 Prepaid Expenses and Other Assets 143 Inventories 143.1 Allowance for Obsolete Inventories 144 Inter Program Due From 145 Assets Held for Sale 150 Total Current Assets 161 Land 162 Buildings 163 Furniture, Equipment & Machinery - Dwellings 164 Furniture, Equipment & Machinery - Administration 165 Leasehold Imporvements 166 Accumulated Depreciation 167 Contruction in Progress 168 Infrastructure 160 Total Capital Assets, net of Accumulated Depreciation 171 Notes, Loans and Mortgages Receivable - Non -Current 172 Notes, Loans and Mortgages Receivable - Non -Current - Past Due 173 Grants Receivable - Non -Current 174 Other Assets 176 Investments in Joint Ventures 180 Total Non -Current Assets 190 Total Assets 1,188,171 1,188,171 - 1,188,171 1,188,171 1,188,171 1,188,171 (Continued) 7 CITY OF NATIONAL CITY Financial Data Schedule Year ended June 30, 2010 Entity Wide Balance Sheet Summary PI -TA: CA116 FYED: 06/30/2010 Line Item No. Account Description 14.871 COCC Subtotal Elim Total 311 Bank Overdraft 312 Accounts Payable <= 90 Days 313 Accounts Payable > 90 Days Past Due 321 Accrued Wage/Payroll Taxes Payable 322 Accrued Compensated Abseneces - Current Portion 324 Accrued Contingency Liability 352 Accrued Interest Payable 331 Accounts Payable - HUD PHA Programs 332 Accounts Payable - PHA Projects 333 Accounts Payable - Other Government 341 Tenant Security Deposits 342 Deferred Revenues 343 Current Portion of Long-term Debt - Capital Projects/Mortgage Revenue Bonds 344 Current Portion of Long-term Debt - Operating Borrowings 345 Other Current Liabilities 346 Accrued Liabilities - Other 347 Inter Program - Due To 348 Loan Liability - Current 310 Total Current Liabilities 351 Long-term Debt, Net of Current - Capital Projects/Mortgage Revenue 352 Long-term Debt, Net of Current - Operating Borrowings 353 Non -current Liabilities - Other 354 Accrued Compensated Absences - Non Current 355 Loan Liability - Non Current 356 FASB 5 Liabilities 357 Accrued Pension and OPEB Liabilities 350 Total Non -Current Liabilities 44,315 21,615 65,930 41,720 44,315 21,615 44,315 21,615 65,930 - 65,930 41,720 41,720 41,720 41,720 41,720 300 Total Liabilities 107,650 - 107,650 107,650 508.1 Invested in Capital Assets, Net of Related Debt 509.2 Fund Balance Reserved 511.2 Unreserved, Designated Fund Balance 511.1 Restricted Net Assets 512.1 Unrestricted Net Assets 512.2 Unreserved, Undesignated Fund Balance 513 Total Equity/ Net Assets 1,080,521 1,080,521 1,080,521 600 Total Liabilities and Equity/Net Assets 1,188,171 1,080,521 1,188,171 1,080,521 1,080,521 1,188,171 (Continued) 8 CITY OF NATIONAL CITY Financial Data Schedule Year ended June 30, 2010 Entity Wide Revenue and Expense Summary PHA: CA116 FYED: 06/30/2010 Line Item No. Account Description 14.871 COCC Subtotal Elim Total 70300 Net Tenant Rental Revenue 70400 Tenant Revenue - Other 70500 Total Tenant Revenue 70600 HUD PHA Operating Grants 70610 Capital Grants 70710 Management Fee 70720 Asset Management Fee 70730 Book Keeping Fee 70740 Front Line Serviec Fee 70750 Other Fees 70700 Total Fee Revenue 70800 Other Government Grants 71100 Investment income - Unrestricted 71200 Mortgage Interest Income 71300 Proceeds from Disposition of Assets Held for Sale 9,469,871 9,469,871 9,469,871 9,469,871 9,469,871 9,469,871 71310 Cost of Sale of Assets - - 71400 Fraud Recovery 110,283 110,283 110,283 71500 Other Revenue 124,361 124,361 - 124,361 71600 Gain or Loss on Sale of Capital Assets - - 72000 Investment Income - Restricted 70000 Total Revenue 9,704,515 9,704,515 9,704,515 91100 Administrative Salaries 614,580 614,580 614,580 91200 Auditing Fees 6,000 6,000 6,000 91300 Management Fee - - 91310 Book-keeping Fee 91400 Advertising and Marketing - - 91500 Employee Benefit Contributions - Administrative 247,300 247,300 - 247,300 91600 Office Expenses 112,810 112,810 112,810 91700 Legal Expense - - 91800 Travel 847 847 847 91810 Allocated Overhead - 91900 Other 91000 Total Operating - Administrative 981,537 981,537 981,537 92000 Asset Management Fee 92100 Tenant Serviecs - Salaries 92200 Relocation Costs 92300 Employee Benefits Contributions - Tenant Services 92400 Tenant Services - Other 92500 Total Tenant Services 93100 Water 93200 Electricity 93300 Gas 93400 Fuel 93500 Labor 93600 Sewer 93700 Employee Benefit Contributions - Utilities 93800 Other Utilities Expense 93000 Total Utilities (Continued) 9 CITY OF NATIONAL CITY Financial Data Schedule Year ended June 30, 2010 Entity Wide Revenue and Expense Summary PIIA: CA116 FYED: 06/30/2010 Line Item No. Account Description 14.871 COCC Subtotal Elim Total 94100 Ordinary Maintenance and Operations - Labor 94200 Ordinary Maintenance and Operations - Materials and Other 94300 Ordinary Maintenance and Operations Contracts 94500 Employee Benefit Contributions - Ordinary Maintenance 94000 Total Maintenance 95100 Protective Services - Labor 95200 Protective Services - Other Contract Costs 95300 Protective Services - Other 95500 Employee Benefit Contribution - Protective Services 95000 Total Protective Services 96110 Property Insurance 96120 Liability Insureance 96130 Workmen's Compensation 96140 All Other Insurance 96100 Total Insurance Premiums 96200 Other General Expenses 96210 Comensated Absences 96300 Payments in Lieu of Taxes 96400 Bad Debt - Tenant Rents 96500 Bad Debt - Mortgages 96600 Bad Debt- Other 96800 Severance Expense 96000 Total Other General Expenses 7,693 7,693 7,693 28,681 36,374 28,681 28,681 36,374 36,374 96710 Interest of Mortgage (or Bonds) Payable 96720 Interest on Notes Payable (Short and Long Term) - 96730 Amortization of Bond Issue Costs - - - 96700 Total Interest Expense and Amortization Cost 96900 Total Operating Expenses 1,017,911 1,017,911 1,017,911 97000 Excess of Operating Revenue over Operating Expenses 8,686,604 8,686,604 8,686,604 97100 Extraordinary Maintenance - - 97200 Casualty Losses - Non -capitalized - - - 97300 Housing Assistance Payments 8,283,250 - 8,283,250 - 8,283,250 97350 HAP Portability -In 115,498 115,498 115,498 97400 Depreciation Expense - 97500 Fraud Losses 97600 Capital Outlays - Governmental Funds 97700 Debt Principal Payment - Government Funds 97800 Dwelling Units Rent Expense 90000 Total Expenses 9,416,659 - 9,416,659 9,416,659 (Continued) 10 CITY OF NATIONAL CITY Financial Data Schedule Year ended June 30, 2010 Entity Wide Revenue and Expense Summary PHA: CA116 FYED: 06/30/2010 Line Item No. Account Description 14.871 COCC Subtotal Elim Total 10010 Operating Transfer In 10020 Operating Transfer Out 10030 Operating Transfer from/to Primary Government 10040 Operating Transfer from/to Component Unit 10050 Proceeds from Notes, Loans and Bonds 10060 Proceeds from Property Sales 10070 Extraordinary Items, net Gain/Loss 10080 Special Items (Net Gain/Loss) 10091 Inter Project Excess Cash Transfer In 10092 Inter Project Excess Cash Transfer Out 10093 Transfers between Program and Project - In 10094 Transfers between Program and Project - Out 10100 Total Other Financing Sources (Uses) 608,152 608,152 608,152 608,152 608,152 608,152 10000 Excess (Deficiency) of Total Revenue Over (Under) Total Expenses 896,008 896,008 896,008 11020 Required Annual Debt Principal Payments - - - 11030 Beginning Equity 184,513 184,513 184,513 11040 Prior Period Adjustment, Equity Transfers and Correction of Errors - - - 11050 Changes in Compensated Absence Balance - 1 1060 Changes in Contingent Liability Balance - - 11070 Changes in Unrecognized Pension Transition Liability 108,684 108,684 - 108,684 11080 Changes in Special Term/Severance Benefits Liability 971,837 971,837 971,837 11090 Changes in Allowance for Doubtful Accounts - Dwelling Rents 12,528 12,528 12,528 11100 Changes in Allowance for Doubtful Accounts - Other 28,681 28,681 28,681 11170 Adminstrative Fee Equity 108,684 108,684 108,684 11180 Housing Assistance Payments Equity 971,837 971,837 971,837 11190 Unit Months Available 12,528 12,528 12,528 11210 Number of Unit Monts Leased 12,449 12,449 - 12,449 11270 Excess Cash - - - 11610 Land Purchases - 11620 Building Purchases - - 11630 Furniture & Equipment - Dwelling Purchases 11640 Furniture & Equipment - Administrative Purchases - 11650 Leasehold Improvements Purchases - 11660 Infrastructure Purchases - 13510 CFFP Debt Service Payments 13901 Replacement Housing Factor Funds - - 11 CITY OF NATIONAL CITY Schedule of Findings and Questioned Costs Year ended June 30, 2010 (A) Summary of Auditors' Results 1. An unqualified report was issued by the auditors on the financial statements of the auditee. 2. The audit disclosed 5 significant deficiencies, of which none were considered to be material weaknesses for the period under audit. 3. The audit disclosed no instances of noncompliance that were material to the financial statements of the auditee. 4. There were no material weaknesses in internal control over the major programs of the auditee. 5. An unqualified report was issued by the auditors on compliance for major programs. 6. The results of our auditing procedures disclosed no findings required to be reported under paragraph .510(a) of OMB Circular A-133. 7. The major programs of the auditee were as follows: • U.S. Department of Housing and Urban Development - Section 8 Housing Choice Vouchers Program - CFDA #14.871 • U.S. Department of Housing and Urban Development - Supportive Housing for the Elderly - CFDA #14.157 • U.S. Department of Housing and Urban Development (Cluster) - Community Development Block Grant - CFDA # 14.218 and Community Development Block Grant R (ARRA) - CFDA # 14.253 • U.S. Department of Health and Human Services (Cluster) - Special Programs for the Aging, Title III, Part C - CFDA # 93.045, Aging Home - Delivered nutrition Services for States, ARRA - CFDA # 93.705, and Aging Congregate Nutrition Services for States - ARRA - CFDA # 93.707 • U.S. Department of Transportation - Highway Planning and Construction - CFDA # 20.205 8. The dollar threshold used to distinguish Type A and Type B programs was $464,115. 9. The auditee did not qualify as a low risk auditee, as defined by OMB Circular A-133, paragraph .530, for the year ended June 30, 2010 for the purpose of determining major programs. 12 CITY OF NATIONAL CITY Schedule of Findings and Questioned Costs (Continued) (B) Findings Related to the Financial Statements which are Required to be Reported in Accordance with GAGAS (2010-01) Reporting of Notes Receivable During the audit, Finance Department staff identified 6 different loans, which in the aggregate totaled approximately $9.5 million dollars, which were issued by the Community Development Commission (CDC) in previous years dating back to 1995. These agreements were entered into for appropriate Commission activities; however, these transactions were not reported in the accounting system as receivables of the CDC. These unreported transactions resulted in restatement of fund balance and net assets in the City and CDC's financial statements. The proper recording of receivables allow the City and CDC to monitor these funds and projects to insure that funds will be repaid in accordance with the terms of the agreement. Recommendation We recommend that Community Development Commission and City Finance Department staff develop policies and procedures for communicating, documenting, and recording of significant loan transactions to insure that activities of the Commission are properly reflected in the accounting records. These policies and procedures should also include enhanced monitoring controls over the loans issued to ensure repayment is appropriately recorded and that the monies are being used in accordance with the agreements terms and conditions. Managements Corrective Action Planned or Taken We concur with the recommendation and Finance staff will develop policies and procedures on recording Notes Receivables. It should be noted that the six different loans totaling $9.5 million were entered into as early as 1995 and pre -dates existing management. (2010-02) Internal Service Fund Charges During our audit, we noted that the method for determining and allocating internal service fund charges to other departments and funds of the City had not been appropriately updated. During the 2010 fiscal year, the revenues received by the City's internal service funds were unchanged from 2009. Proper charges from internal service plans should be determined during the budgeting process and should reflect the actual cost incurred to provide the services rendered by the internal service fund. This process should be updated, reviewed, and approved on an annual basis. 13 CITY OF NATIONAL CITY Schedule of Findings and Questioned Costs (Continued) (B) Findings Related to the Financial Statements which are Required to be Reported in Accordance with GAGAS, (Continued) (2010-02) Internal Service Fund Charges, (Continued) Recommendation We recommend that the City perform a reconciliation of estimated expenses versus actual expenses, and to make the appropriate journal entries so that internal services funds are fully reimbursed for actual costs incurred or to insure user departments are not over charged should actual expenses be less than budget. Managements Corrective Action Planned or Taken We concur with the recommendation. Management is in the process of contracting services to perform a full review of the internal fund charge formula. With the merger of the Community Development Commission's operations with the City of National City as well as the other City organizational changes, the internal charge methodology requires a more detailed review to ensure all departments are being charged appropriately. Once the methodology has been approved, the finance staff will reconcile estimated expenses vs actual expenses and adjust the charges accordingly. The internal services charges will be updated on an annual basis. (2010-03) Interfund Transactions The proper use of short term interfund transactions (due to/from other funds) are used to eliminate deficits of cash in particular funds or to report short terms loans between funds that are due and payable within 12 months. Long-term loans between funds of the City are generally due within more than one year (advances to/from other funds), and they may accrue interest to the lending fund and should be approved by City Council. During the June 30, 2010 audit, we noted that the interfund accounts are not being used by the City in the aforementioned situations. This has resulted in numerous funds of the City having both receivables and payables to other funds, and in many cases, the funds that are receiving these loans have adequate cash balances to support thier operations. Recommendation We recommend the interfund accounts that are a result long term borrowing need to be formally approved by Council and document these interfund loans as long-term advances between the borrowing funds and funds from which an advance was made. We also recommend that the City implement and document monitoring controls to insure that interfund borrowing does not affect restricted funds and to implement procedures to insure that the interfund accounts are not used to record routine or monthly transactions. 14 CITY OF NATIONAL CITY Schedule of Findings and Questioned Costs (Continued) (B) Findings Related to the Financial Statements which are Required to be Reported in Accordance with GAGAS, (Continued) (2010-03) Interfund Transactions, (Continued) Managements Corrective Action Planned or Taken We concur with the recommendation. The financial accounting system has been programmed to record entries as short term interfund transactions (due to/due from). The Finance Director will work closely with the city's accounting software programmers to correct the system generated entry and use the short term interfund transactions only as needed. (2010-04) Adjustments Detected During the Audit Process The Auditing Standards requires that the auditor include in the report of significant deficiencies any material adjustments detected by the audit process. For the year in June 30, 2010, material adjustments detected by the audit process were as follows. • Accrual payroll adjusted by $187,202 to reflect additional liabilities associated with payroll incurred as of June 30, 2010. • Increased capital assets, cash with fiscal agent and recorded long-term capital lease in the amount of $507,000, $1,248,323, and $1,755,160, respectively, relating to a transaction entered into by the City, but not recorded in the City's general ledger. • Recorded interest receivable as of June 30, 2010 in certain restricted funds to properly reflect those funds income and pooled cash balances at year end. • Reduced interfund loans reported in restricted funds due to the fact that the borrowing funds had adequate pooled cash balances and to reduce the interfund loans in restricted funds of the City. Recommendation Paragraph 15 of the Statement on Auditing Standards No. 115 specifies that material adjustments identified through the audit process are an indication of weaknesses in an entity's internal control structure. Efforts should be made to enhance the City's year end closing procedures to include areas that resulted in audit adjustments in 2010. 15 CITY OF NATIONAL CITY Schedule of Findings and Questioned Costs (Continued) (B) Findings Related to the Financial Statements which are Required to be Reported in Accordance with GAGAS, (Continued) (2010-04) Adjustments Detected During the Audit Process, (Continued) Management's Responses Regarding Corrective Action Taken or Planned We concur with the recommendation. The finance staff will update the year end closing procedures to ensure that all material adjustments are detected and recorded. (2010-05) Consolidation of Funds in the Accounting System Currently, the City has over one hundred funds in their accounting system. Although some funds are required to be reported separately, the majority of the City fiends may be combined into the same fund if they are similar in nature (i.e. certain grants). Different revenue and expenditure accounts may be used to segregate those funds that are combined into one in order to continue to account for them separately. Furthermore, during the fiscal year ended June 30, 2011, they City will have to implement Governmental Accounting Standards Board Statement 54, Fund Balance Reporting and Governmental Fund Type Definitions, which will further require the City to potentially consolidate certain funds for financial reporting purposes; having such a significant number of funds to analyze will require considerable efforts from City and Finance Department staff Recommendation We recommend that the City evaluate each fund of the City and determine if there is an appropriate need to have a separate fund for the identified activities. Funds that are determined to not meet those criteria should be closed and reported with the General Fund. Through this process, the City used consider the impacts of GASB 54 to ensure that the accounting records will be appropriate for these new reporting standards. Management's Responses Regarding Corrective Action Taken or Planned We concur with the recommendation. Finance staff have begun review of the funds in the accounting system and will recommend consolidation of funds to the City Manager. In addition, the city will consider contracting services for the implementation of GASB 54 to ensure compliance with the new reporting standard. (C) Findings and questioned costs for Federal Awards as defined in Paragraph .510(a) of OMB Circular A-133 There were no findings or questioned costs for Federal Awards as defined in Paragraph .510(a) of OMB Circular A-133. 16 CITY OF NATIONAL CITY Summary Schedule of Prior Audit Findings Year ended June 30, 2010 There were no audit findings for the year ended June 30, 2009 that required follow-up during the year ended June 30, 2010. 17