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HomeMy Public PortalAboutFY 2013 City of Rancho Mirage Single Audit - Final (2)CITY OF RANCHO MIRAGE, CALIFORNIA SINGLE AUDIT REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2013 CITY OF RANCHO MIRAGE, CALIFORNIA FOR THE FISCAL YEAR ENDED JUNE 30, 2013 TABLE OF CONTENTS PAGE Independent Auditors' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Governmental Auditing Standards 1 Independent Auditors' Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance; and Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 3 Schedule of Expenditures of Federal Awards 5 Note to Schedule of Expenditures of Federal Awards 6 Schedule of Findings and Questioned Costs L Summary of Auditors' Results 7 II. Financial Statement Findings 8 III. Federal Award Findings and Questioned Costs 12 Schedule of Prior Audit Findings 13 urig1601 1W Vavrinek, Trine, Day & Co., LLP Certified Public Accountants INDEPENDENT AUDITORS' 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 A UDITING STANDARDS To the Honorable Mayor and Members of the Citi- Council City of Rancho Mirage, California We have audited, in accordance with the 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, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the City of Rancho Mirage, California (City), as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the City's basic financial statements, and have issued our report thereon dated June 3, 2014. Our report included an emphasis of matter paragraph regarding the City's adoption of Governmental Accounting Standards Board (GASB) Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position as of July 1, 2012. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as described in the accompanying schedule of findings and questioned costs, we identified certain deficiencies in internal control that we consider to be material weaknesses and significant deficiencies 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 a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the City's financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiency described in the accompanying schedule of findings and questioned costs as item 2013-01 to be a material weakness. 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 the deficiencies described in the accompanying schedule of findings and questioned costs as items 2013-02 through 20 13 -04 to be significant deficiencies. Mailing Address: P. 0. Box 20439 Riverside, CA 92516 6370 Magnolia Avenue, Suite 330 Riverside, CA 92506 Tel 951.367.3000 Fax 951.367.3010 www.vtdcpa.com FRESNO • LAGUNA HILLS • PALO ALTO • PLEASANTON • RANCHO CUCAMONGA • RIVERSIDE • SACRAMENTO Compliance and Other Matters As part of obtaining reasonable assurance about whether the City's financial statements are free from 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. City's Response to Findings The City's responses to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs. The City's responses were not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on them. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Riverside, California June 3, 2014 uri/ Vavrinek, Trine, Day & Co., LLP Certified Public Accountants INDEPENDENT AUDITORS' REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY OMB CIRCULAR A-133 To the Honorable Mayor and Members of the City Council City of Rancho Mirage, California Report on Compliance for Each Major Federal Program We have audited the City of Rancho Mirage, California's (City) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the City's major federal programs for the year ended June 30, 2013. The City's major federal programs are identified in the summary of auditors' results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditors' Responsibility Our responsibility is to express an opinion on compliance for each of the City's major federal programs based on our audit of the types of compliance requirements referred to above. 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, Audits of States, Local Governments, and Non -Profit Organizations. 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 on compliance for each major federal program. However, our audit does not provide a legal determination of the City's compliance. Opinion on Each Major Federal Program In our opinion, the City complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2013. Mailing Address: P. 0. Box 20439 Riverside, CA 92516 6370 Magnolia Avenue, Suite 330 Riverside, CA 92506 Tel 951.367.3000 Fax 951.367.3010 www.vtdcpa.com FRESNO • LAGUNA HILLS • PALO ALTO • PLEASANTON • RANCHO CUCAMONGA • RIVERSIDE • SACRAMENTO Report on Internal Control Over Compliance Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on 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. 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 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. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the City, as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the City's basic financial statements. We issued our report thereon dated June 3, 2014, which contained unmodified opinions on those financial statements. Our report included an emphasis of matter paragraph regarding the City's adoption of Governmental Accounting Standards Board (GASB) Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position as of July 1, 2012. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by OMB Circular A-133 and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole. 7� Riverside, California June 16, 2014 4 CITY OF RANCHO MIRAGE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2013 Name of Agency, Pass -Through Entity, Grant or Program Federal Catalog Number Pass-through Entity or Grant Identifying Number Federal Expenditures U.S. Dept. of Transportation Passed -through State of California Department of Transportation Highway Planning and Construction: Highway Bridge Program 20.205 08-5412R $ 210,629 Safe Routes to School 20.205 003265 898,031 Total Expenditures of Federal Awards $ 1,108,660 See accompanying notes to the Schedule of Expenditure of Federal Awards. CITY OF RANCHO MIRAGE NOTE TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2013 NOTE #1— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. General The accompany schedule of expenditures of federal awards presents the activity of all federal awards programs of the City of Rancho Mirage (City). The City's reporting entity is defined in Note 1 of the City's basic financial statements. All federal awards received directly from federal agencies, as well as federal awards passed through other governmental agencies to the City are included in the accompanying schedule. B. Basis of Accounting The accompanying schedule of expenditures of federal awards is presented using the modified -accrual basis of accounting, which is described in Note 1 of the City's basic financial statements. C. Relationship to the Basic Financial Statements Federal awards revenues are generally reported within the City's basic financial statements under the financial statement caption Intergovernmental Revenues. D. Relationship to Federal Financial Reports Amounts reported in the accompanying schedule of expenditures of federal awards agree with the amounts reported in the related federal financial reports. However, certain federal financial reports are filed based on cash expenditures. As such, certain timing differences may exist in the recognition of revenues and expenditures between the schedule of expenditures of federal awards and the federal financial reports. E. Amounts provided to subrecipients The City provided $898,031 to the Palm Springs Unified School District for Safe Routes to School under CFDA No. 20.205. 6 CITY OF RANCHO MIRAGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2013 I. SUMMARY OF AUDITORS' RESULTS FINANCIAL STATEMENTS Type of auditors' report issued: Unmodified Internal control over financial reporting: Material weaknesses identified? Yes Significant deficiencies identified? Yes Noncompliance material to financial statements noted? No FEDERAL AWARDS Internal control over maj or programs: Material weaknesses identified? No Significant deficiencies identified? None reported Type of auditors' report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with Circular A-133, Section .510(a) No Identification of major programs: CFDA Number Name of Federal Program or Cluster 20.205 Highway Planning and Construction Dollar threshold used to distinguish between Type A and Type B programs: $ 300,000 Auditee qualified as low-risk auditee? No 7 CITY OF RANCHO MIRAGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2013 II. FINANCIAL STATEMENT FINDINGS FINDING 2013-01 CASH MANAGEMENT Criteria: The City should have controls in place to ensure all bank reconciliations are completed and reviewed on a timely basis. Reconciling items should be investigated in a timely manner. Also, the City should implement procedures to ensure the monthly investment reports are issued within 90 days of the end of the monthly reporting period as required by the City's investment policy. Condition: As of August 2013, monthly cash reconciliations had not been performed for the 12-13 fiscal year. Also, monthly investment reports for the 12-13 fiscal year had not been issued. Context: The condition noted above was identified during our test work of the City's cash and investment balances. Effect: As a result of the above, the timing of the audit was modified to allow the City to perform the reconciliations. Timely reconciliations of cash accounts and the issuance of monthly investment reports are key internal controls for the safeguarding of City assets. As a result of the condition, the internal control environment is weakened. Cause: The City did not maintain procedures to ensure that cash accounts were reconciled on a timely basis and that monthly investment reports were issued timely. Recommendation: We recommend strengthening procedures to ensure that cash reconciliations and monthly investment reports are completed timely. View of Responsible Officials and Planned Corrective Action: Management agrees with the finding. The City updated its Investment Policy in January of 2014. As part of the updated Policy, Quarterly Investment Reports are now required instead of monthly reports. The Quarterly Investment Reports will be provided to City Council no later than 30 days after the end of the reporting quarter. The City is currently up to date on reporting of the Quarterly Investments Reports to City Council. Management has also implemented a process to ensure bank reconciliations are performed timely. CITY OF RANCHO MIRAGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2013 II. FINANCIAL STATEMENT FINDINGS FINDING 2013-02 FRAUD POLICY Criteria: The City should establish an anti fraud policy to enforce controls and to aid in the prevention and detection of fraud, theft, waste, or abuse against the City. Condition: A formal anti fraud policy had not been implemented by the City during the 12-13 fiscal year. However, it was noted that during the 13-14 fiscal year the City's anti fraud policy was formalized. Context: The condition noted above was identified during our inquiries with management and staff. Effect: Formalized policies and procedures for the identification and reporting of fraud by City employees were not implemented during the year. Cause: The Citv did not have a formal policy for anti fraud during the year. Recommendation: As noted in the condition above, a formal anti fraud policy was adopted subsequent to year end. View of Responsible Officials and Planned Corrective Action: Management agrees with the finding. Management implemented a formal fraud policy in September 2013. W CITY OF RANCHO MIRAGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2013 II. FINANCIAL STATEMENT FINDINGS FINDING 2013-03 YEAR-END CLOSING PROCEDURES Criteria: The City should have policies and procedures in place to ensure the year-end closing is performed completely, accurately, and in a timely manner to allow for the preparation of the financial statements and other management reports. Condition: Various accounts were not reconciled in a timely manner to allow for the preparation of the financial statements and other management reports. City staff performed the reconciliations and provided closing entries for the following accounts subsequent to a delay in fieldwork: • Revenue and expenditure activity in the City's affordable housing projects • Reclassification of expenditures between the General Fund and the Measure A fund • Fair value of the City's pooled investments • Land held for resale • Assessment Districts Additionally, certain accounts reported in the Redevelopment Successor Agency Private -purpose Trust required adjustment including amortization of deferred costs of issuance (understated by $150 thousand) and interest payable (overstated by $62 thousand). Context: The condition noted above was identified during testing of various accounts and presentation related to the City's financial statements. Effect: Based on the condition above, the timing of audit was delayed. Cause: The City's closing process did not ensure a complete and timely close. Recommendation: We recommend strengthening procedures to ensure that the year-end close is complete and timely. This can be achieved through an enhanced comprehensive closing checklist. View of Responsible Officials and Planned Corrective Action: Management agrees with the finding. We have implemented procedures to insure a timely close. 10 CITY OF RANCHO MIRAGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2013 II. FINANCIAL STATEMENT FINDINGS FINDING 2013-04 PAYROLL - PERSONNEL ACTION FORMS Criteria: Changes in employee pay rates are documented through the use of a Personnel Action Form (PAF). The current practice is to have the PAF approved, however the approvals required on each PAF has not been formalized. Condition: The City does not have a policy on the PAF approval process. Context: The condition noted above was identified during our inquiries with management and staff and testing of payroll transactions. Effect: Based on the condition above, the required approvals of the PAF are unclear. Cause: The City does not have a policy on the PAF approval process. Recommendation: We recommend the City formalize a policy on PAF approval. View of Responsible Officials and Planned Corrective Action: Management agrees with the finding. Management will formalize a policy over PAF approval. 11 CITY OF RANCHO MIRAGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2013 III. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS None noted. 12 CITY OF RANCHO MIRAGE SCHEDULE OF PRIOR AUDIT FINDINGS YEAR ENDED JUNE 30, 2013 Summarized below is the current status of corrective action of prior audit findings: Financial Statement Findings Finding No. Area Status of Corrective Action 2012-01 Fraud/Ethics Policy Not Implemented - See CY Finding 2013-02 2012-02 Cash Management Not Implemented - See CY Finding 2013-01 2012-03 Payroll Not Implemented - See CY Finding 2013-03 Federal Award Findings 13 Status of Finding No. Program CFDA No. Compliance Requirement Corrective Action 2011-03 ARRA—State Energy Program 81.041 Reporting Implemented 2011-04 Highway Planning and Construction 20.205 Allowable activities and allowable costs Implemented 2011-05 ARRA—State Energy Program; 81.041 & Procurement Implemented Highway Planning & Construction 20.205 13