HomeMy WebLinkAbout11/01/2011 12 State Auditor's Report - City's 2010 Financial Statements and Federal Single Audit BUSINESS OF THE CITY COUNCIL
YAKIMA, WASHINGTON
AGENDA STATEMENT
Item N Jo{
For Meeting of: November 1, 2011
ITEM TITLE: State Auditor's Report — City's 2010 Financial Statements and Federal Single Audit
SUBMITTED BY: Finance Division
CONTACT: Rita M. DeBord, Director Finance and Technology; (# 576 -6771)
Cindy Epperson, Deputy Director Accounting / Budgeting; (# 576 - 6771)
SUMMARY EXPLANATION:
Attached for Council's information is the Washington State Auditor's Office (SAO) report regarding their examination of the
City of Yakima for the period January 1 through December 31, 2010. The Auditor's examination (audit) included three areas
of review, as noted below:
1. Financial Reporting, with respect to:
(a) Evaluation of internal controls
(b) Compliance with laws and regulations
2. Federal Regulations, with respect to:
(a) Compliance with laws and regulations
(b) Evaluation of internal controls
3. Financial Statements (and related disclosures and internal controls)
As stated in the enclosed auditor's reports, the Auditors gave the City's Financial Statements an Unqualified Opinion (i.e.: a
• clean opinion with no qualifications — the highest possible rating). The City has received an Unqualified Opinion from the
State Auditors on our financial statements every year for more than two decades. The Auditor's did identify two "Findings" of
non - compliance in Federal program controls, these findings did not result in any "Questioned Costs" by the auditors. The final
audit by the SAO for the fiscal year ending December 31, 2010 is currently in progress; this is an "Accountability" audit; when
complete, this will conclude the auditor's work regarding fiscal year 2010.
Due to the size and complexity of documents included in the audit report, only the auditors written reports and comments
have been included in the Council packet; however the entire report — including the financial statements themselves and the
related footnotes, Management Discussion and Analysis and supplemental information - may be found on the State Auditor's
website — www. sao. wa. gov/ EN/ Audits /Pages /Search /AuditReportSearch.aspx - then enter "City of Yakima" ; or simply select
"Yakima, City of " in the specific govemment drop down box towards the bottom of the screen.
(Additionally, the Comprehensive Annual Financial Report (CAFR) is posted on the City's website. To access the CAFR on-
line, go to " www. ci. yakima. wa. us "; then go to "Services" and click on "Finance "; then click on "$ ", and then "2010
Comprehensive Annual Financial Report ". )
Continued on next page
Resolution Ordinance Other (Specify) Report - 2010 State Audit
Contract Mail to (name and address): Phone: Funding Source
N/A
APPROVED FOR SUBMITTAL:
City -rimier
STAFF RECOMMENDATION: Accept Report
BOARD /COMMISSION RECOMMENDATION:
COUNCIL ACTION:
Audit Results Summary:
41, 1) Financial Reporting (pg. 15 & 16):
(a) Internal Controls: The auditors reviewed the City's intemal controls over financial reporting to the extent the
Auditor's considered necessary for the purpose of designing their auditing procedure s for the purpose of
expressing their opinion on the financial statements.
The audit states: "... we did not identify any deficiencies in internal controls over financial reporting that we consider to
be material weaknesses... ".
(b) Compliance: As part of their review to obtain reasonable assurance that the City's financial statements are free of
material misstatements, the State Auditors test for compliance with certain provisions of laws and regulations,
contracts and grant agreements. The auditor needs to obtain reasonable assurance that compliance with laws,
regulations, contracts and grants has occurred, but they do not express an opinion on overall compliance.
The audit states: "...the results of our tests disclosed no instances of non - compliance or other matters that are required
to be reported under Government Auditing Standards... ".
2) Major (Federal) Program Regulations (pg. 17 -19):
(a) Compliance: The auditors audited and expressed an opinion on the City of Yakima's compliance with the requirements
of laws, regulations, contracts and grants applicable to each of the City's major federal programs. The nine programs
specifically audited were:
(1) Community Development Block Grants (CDBG)
(2) ARRA — Community Development Block Grant Cluster
(3) ARRA - Community Development Block Grants — State's Program
(4) Public Safety Partnership & Community Policing Grants
(5) ARRA - Public Safety Partnership & Community Policing Grants
(6) ARRA — Edward Byrne Memorial Justice Assistance Grant
(7) Transit Cluster— Federal Transit Formula Grants
(8) ARRA — Transit Cluster — Federal Transit Formula Grants
(9) ARRA — Energy Efficiency & Conservation Block Grant (
The auditors are required to perform audits to obtain reasonable assurance about whether any non - compliance
with laws, regulations, etc. could have a direct and material effect on a major federal program.
The auditor's found that the City did not comply with requirements regarding (1) allowable costs /cost principles and
procurement and (2) suspension and debarment that are applicable to several of the above grants. In this regard,
the City received the following 2 Findings from the auditors (refer to pgs. 3 —13 of the report):
1. Grant #(9) above:
a., Davis Bacon Act - the City included required federal prevailing wage rate information in the project
manual and required general and sub — contractors to submit weekly certified payrolls with each
pay request. However City did not collect the weekly reports.
➢ Result: Since the auditors determined the laborers were paid prevailing wages; there are no
questioned costs.
b. Suspension & Debarment — regulations require that the City must ensure the vendor or sub -
recipient is not suspended or debarred from doing business with the Federal Government. The
City made payments to one vendor prior to verifying the vendor was not suspended or debarred
and did not inform the primary contractor / sub - recipient of the requirement to check the
suspension and debarment status of any covered transactions they enter into.
• ➢ Result: Since the City did verify the general contractor was not suspended or debarred (after a
payment had been made); the auditors are not questioning any costs.
•
2) Major (Federal) Program Regulations - (a).Compliance; Continued...
2. Grants # (5) & # (6), above:
a. Suspension & Debarment — regulations require that the City must ensure the vendor or sub -
recipient is not suspended or debarred from doing business with the Federal Government. The
City paid vendors with COPS grand and Byrne grant funding but did not verify the vendors were
not suspended or debarred.
➢ Result: since the auditors verified the vendors paid with grant funds were not suspended or
debarred; there are no questioned costs.
b. Allowable Costs / Cost Principles — employee salary and benefits charged to federal grants are to
be supported by adequate time and effort documentation. Such documentation may be provided in
• the form of semi - annual or monthly personnel activity report, such a time sheet.
➢ Result: the City setup a separate operating fund so that payroll expenses related to the officers
authorized to charge to the grant would be accounted for separately. The police department
command staff approved time records that charged the officers to this funding source — in addition
to other online quarterly reporting that was submitted. However, this was not technically sufficient
to meet the certification rule. Since the auditors were able to view other documentation to
determine the charges were accurate; there are no questioned costs.
The audit states: (pq. 18) "...In our opinion, except for the non - compliance described "... above, "the City complied,
in all material respects, with the compliance requirements ... that could have a direct and material effect on each of
its major federal programs for the year ended December 31, 2010."
(b) Internal Controls over Compliance: The auditors perform procedures to test internal controls over compliance
requirements that could have a direct and material effect on major federal programs for the purpose of expressing
an opinion on compliance (as noted above) and to test and report on internal control over compliance in
accordance with OMB Circular A -133. The auditors reported instances non - compliance, as discussed above,
and consider them to be material weaknesses and significant deficiencies in internal controls over compliance.
3) Financial Statements (pg. 20 & 21): the State Auditors audited - and expressed an opinion on - the City's Financial
Statements for the period January 1 through December 31, 2010. The auditors gave the City an unqualified
opinion - the highest rating possible.
The auditors stated "...In our opinion, the financial statements...present fairly, in all material respects, the respective .
financial position of the governmental activities, the business -type activities, each major fund, and the aggregate
remaining fund information of the City of Yakima, as of December 31, 2010, and the respective changes in financial
position and, where applicable, cash flows thereof, and the respective budgetary comparisons for the General and
Community Development Fund for the year then ended, in conformity with accounting principles generally accepted in
the United States of America."
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• Washington State Auditor's Office
Financial Statements and Federal. Single Audit Report
City of Yakima
Yakima County
Audit Period
January 1, 2010 through December 31, 2010
Report No. 1006424
„„„
, ° WASHINGTON
Issue Date �..
September 26, 2011 " ' MA ALT
9 ra STATE AUDITOR
,on`OF s
Washington State Auditor
Brian Sonntag
September 26, 2011
Council
City of Yakima
Yakima, Washington
Report on Financial Statements and Federal Single Audit
Please find attached our report on the City of Yakima's financial statements and compliance
with federal laws and regulations.
We are issuing this report in order to provide information on the City's financial condition.
Sincerely,
BRIAN SONNTAG, CGFM
STATE AUDITOR
Insurance Building, P.O. Box 40021 • Olympia, Washington 98504 -0021 • (360) 902 -0370 • TDD Relay (800) 833 -6388
FAX (360) 753 -0646 • http: / /www.sao.wa.gov
• Table. of Contents
City of Yakima
Yakima County
January 1, 2010 through December 31, 2010
Federal Summary 1
Schedule of Federal Audit Findings and Questioned Costs 3
Schedule of Prior Federal Audit Findings 14
Independent Auditor's Report on Internal Control over Financial Reporting and on
Compliance and Other Matters in Accordance with Government Auditing Standards 15
Independent Auditor's Report on Compliance with Requirements That Could Have a Direct
and Material Effect on Each Major Program and on Internal Control over Compliance in
Accordance with OMB Circular A -133 17
Independent Auditor's Report on Financial Statements 20
Financial Section 22
•
•
0
Federal Summary
City of Yakima
Yakima County
January 1, 2010 through December 31, 2010
The results of our audit of the City of Yakima are summarized below in accordance with U.S.
Office of Management and Budget Circular A -133.
FINANCIAL STATEMENTS
An unqualified opinion was issued on the financial statements of the governmental activities, the
business -type activities, each major fund and the aggregate remaining fund information.
Internal Control Over Financial Reporting:
• Significant Deficiencies: We reported no deficiencies in the design or operation of
internal control over financial reporting that we consider to be significant deficiencies.
• Material Weaknesses: We identified no deficiencies that we consider to be material
weaknesses.
We noted no instances of noncompliance that were material to the financial statements of the 4110
City.
FEDERAL AWARDS
Internal Control Over Major Programs:
• Significant Deficiencies: We identified deficiencies in the design or operation of
internal control over major federal programs that we consider to be significant
deficiencies.
• Material Weaknesses: We identified deficiencies that we consider to be material
weaknesses.
We issued an unqualified opinion on the City's compliance with requirements applicable to each
of its major federal programs, with the exception of the Public Safety Partnership and
Community Policing Grants Program, ARRA Edward Byrne Memorial Justice Assistance Grant,
ARRA Energy Efficiency and Conservation Block Grant and ARRA Public Safety Partnership
and Community Policing Grants Program on which we issued a qualified opinion on compliance
with applicable requirements.
We reported findings that are required to be disclosed under section 510(a) of OMB
Circular A -133.
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•
Identification of Major Programs:
The following were major programs during the period under audit:
CFDA No: Program Title
14.218 Community Development Block Grant - Entitlement Grants
14.253 ARRA - Community Development Block Grant Cluster - Entitlement
Grants (Recovery Act)
14.228 ARRA - Community Development Block Grants - State's Program
(Recovery Act)
16.710 Public Safety Partnership and Community Policing Grants
16.710 ARRA - Public Safety Partnership and Community Policing Grants
(Recovery Act
16.804 ARRA - Edward Byrne Memorial Justice Assistance Grant (Recovery
Act)
20.507 Transit Cluster - Federal Transit Formula Grants
20.507 ARRA - Transit Cluster - Federal Transit Formula Grants (Recovery
Act)
81.128 ARRA - Energy Efficiency and Conservation Block Grant (Recovery
Act)
•
The dollar threshold used to distinguish between Type A and Type B programs, as prescribed
by OMB Circular A -133, was $452,802.
111 The City did not qualify as a low -risk auditee under OMB Circular A -133.
•
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•
0
Schedule of Federal Audit Findings and
Questioned Costs
City of Yakima
Yakima County
January 1, 2010 through December 31, 201
1. The City of Yakima does not have adequate internal controls in place to
ensure compliance with the Federal Davis Bacon and Suspension and
Debarment requirements.
CFDA Number and Title: 81.128 ARRA — Energy Efficiency and
Conservation Block Grant
Federal Grantor Name: U.S. Department of Energy
Federal Award /Contract Number: DE- SC0003043
Pass - through Entity Name: NA
Pass - through Award /Contract
Number: NA
Questioned Cost Amount: $0
Description of Condition
During 2010, the City spent $387,011 in Energy Efficiency and Conservation Block Grant
funding it received from the US Department of Energy for building upgrades, purchase of
recycling containers and to replace street lights. Recipients of this grant must have
internal controls in place to ensure compliance with federal requirements. We found the
following control deficiencies and noncompliance:
Davis Bacon Act
•
Laborers working on federally- funded construction projects must be paid prevailing
wages prescribed by the U.S. Department of Labor. The City included the required •
federal prevailing wage rate information in the project manual with a clause that the
general contractor and subcontractors are required to submit weekly certified payrolls
with each pay request. However, we noted the City did not collect weekly certified
payroll reports from contractors and subcontractors as required by federal regulations.
The amount paid to laborers was $34,790, or nine percent, of the grant total of
$387,011.
Suspension and Debarment
Recipients of federal grants are prohibited from contracting with or making subawards to
parties that are suspended or debarred from doing business with the federal
government. For vendor contracts of $25,000 or more and all subawards, the City must
ensure the vendor or subrecipient is not suspended or debarred. This can be
accomplished by obtaining a written certification from the vendor or subrecipient stating
that its organization has not been suspended or debarred. Alternatively, the City may
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3
check for suspended or debarred parties by reviewing the federal Excluded Parties List
issued by the U.S. General Services Administration. This requirement must be met prior
to making the first payment to the vendor.
The City paid one vendor $115,417 with Energy Efficiency and Conservation Block
Grant funding prior to verifying the vendor was not suspended or debarred.
In addition, the grantee must inform the primary contractor or subrecipient of the
requirement to check the suspension and debarment status of any covered transactions
they enter into with subcontractors. or subrecipients. The City did not communicate this
requirement to one of it's general contractors paid $93,752 in federal funds.
Cause of Condition
Davis Bacon Act
The City does not have a process in place to ensure certified weekly payrolls are
submitted for all federally funded projects.
Suspension and Debarment
The City does not have a process to ensure all departments are checking for suspension
and debarment prior to entering into a contract or making purchases.
• Effect of Condition and Questioned Costs
Davis Bacon Act
Without adequate internal controls over Davis Bacon requirements, the City cannot
ensure contractors and subcontractors pay the proper prevailing wages. This could
result in underpayment to laborers working on future projects.
We obtained the certified payroll reports from the contractor and subcontractors for the
period in question. We determined the laborers were paid prevailing wages; therefore
we are not questioning costs.
Suspension and Debarment
Without adequate internal controls in place over suspension and debarment, the City
cannot ensure contractors or subcontractors are not suspended or debarred from
participating in federal programs. This could result in a request from the granting agency
for repayment of federal funds and jeopardize future federal funding.
We found the City did verify the general contractor was not suspended or debarred on
October 15, 2010. Therefore, we are not questioning these costs.
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Recommendation
We recommend the City:
• Establish controls to ensure the City collects weekly certified payroll reports from
all contractors and subcontractors as required by federal regulations.
• Provide training to employees who are responsible for using federal grant funds
to ensure they have adequate knowledge of the grants and their compliance
requirements.
• Establish a process to ensure all departments are checking for suspension and
debarment prior to entering into a contract or making purchases.
City's Response
The City appreciates the partnership we maintain with the Washington State Auditor's
Office. The City believes that it does have adequate systems in place with regards to
the verification of weekly certified payrolls. Our Engineering Contract Specialist
maintains an extensive checklist of compliance requirements for contracts managed by
the Engineering Division, including verification of certified payrolls. In this specific
circumstance, the contract included the requirement, and the external architect verbally
agreed to collect the required documents. . Even though the vendor maintained these
reports in accordance with the contract and federal Davis Bacon regulations, neither the
architect nor the City obtained these required documents. This appears to be an
isolated incident, and not a systemic breakdown of the control. This is being
communicated to the Engineering Division as a reminder to maintain adequate
documentation in accordance with Davis Bacon regulations.
In regards to the suspension and debarment issue, the Divisions that regularly
administer federal grants are fully aware of the suspension and debarment rules. In this
particular instance, the payment was originated in a different City division. We widely
distributed this finding to all operating divisions, and communicated the importance of
adhering to this requirement. Unfortunately, this finding is being repeated for the 2010
audit, again with a City division that does not regularly administer grant funding. Even
though none of these instances of non - compliance resulted in questioned costs, we take
seriously the federal grant requirements, and will continue to educate City staff on
applicable rules.
Auditor's Remarks
We thank the City for its cooperation and assistance during the audit and acknowledge
its commitment to improving the conditions described. We will review the status of these
issues during our next audit.
Applicable laws and Regulations
U.S. Office of Management and Budget Circular A -133, Audits of States, Local
Governments, and Non - Profit Organizations, Section 300, states in part:
The auditee shall:
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•
(b) Maintain internal control over Federal programs that provides
reasonable assurance that the auditee is managing Federal awards in
compliance with laws, regulations, and the provisions of contracts or grant
agreements that could have a material effect on each of its Federal
programs.
(c) Comply with laws, regulations, and the provisions of contracts or grant
agreements related to each of its Federal programs.
Title 29, Code of Federal Regulations, Section 3.3, states in part:
(b) Each contractor or subcontractor engaged in the construction,
prosecution, completion, or repair of any public building or public work, or
building or work financed in whole or in part by loans or grants from the
United States, shall furnish each week a statement with respect to the
wages paid each of its employees engaged on work covered by this part
3 and part 5 of this title during the preceding weekly payroll period. This
statement shall be executed by the contractor or subcontractor or by an
authorized officer or employee of the contractor or subcontractor who
supervises the payment of wages, and shall be on the back of Form WH
347, "Payroll (For Contractors Optional Use)" or on any form with identical
wording. Copies of Form WH 347 may be obtained from the Government
contracting or sponsoring agency or from the Wage and Hour Division
411/ Web site at http: / /www.dol.gov /esa/whd /forms /wh347instr.htm or its
successor site.
Title 2, Code of Federal Regulations, Section 180.200 - What is a covered transaction?
A covered transaction is a nonprocurement or procurement transaction .
that is subject to the prohibitions of this part. It may be a transaction at—
(a) The primary tier, between a Federal agency and a person (see
appendix to this part); or
(b) A lower tier, between a participant in a covered transaction and
another person.
Title 2, Code of Federal Regulations, Section 180.970 _ Nonprocurement transaction,
states:
(a) Nonprocurement transaction means any transaction, regardless of
type (except procurement contracts), including, but not limited to the
following:
(1) Grants.
(2) Cooperative agreements.
(3) Scholarships.
(4) Fellowships.
411 (5) Contracts of assistance.
(6) Loans,.
(7) Loan guarantees.
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(8) Subsidies.
(9) Insurances.
(10) Payments for specified uses.
(11) Donation agreements.
(b) A nonprocurement transaction at any tier does not require the transfer
of Federal funds.
Title 2, Code of Federal Regulations, Section 180.220 - Are any procurement contracts
included as covered transactions?
(b) Specifically, a contract for goods or services is a covered transaction if
any of the following applie
(1) The contract is awarded by a participant in a nonprocurement
transaction that is covered under Sec. 180.210, and the amount of .
the contract is expected to equal or exceed $25,000.
Title 2, Code of Federal Regulations, Section 180.300 — What must I do before I enter
into a covered transaction with another person at the next lower tier?
When you enter into a covered transaction with another person at the
next lower tier, you must verify that the person with whom you intend to
do business is not excluded or disqualified. You do this by:
(a) Checking the EPLS; or
(b) Collecting a certification from that person if allowed by this
rule; or
(c) Adding a clause or condition to the covered transaction with
that person
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•
Schedule of Federal Audit Findin gs and
Questioned Costs
City of Yakima •
Yakima County
January 1, 2010 through December 31, 2010
2. The City of Yakima did not ensure recipients of its federal funding were not
suspended or debarred from participating in federal programs or maintain
appropriate time and effort records to support payroll costs charged to the
programs.
CFDA Number and Title: 16.710 ARRA - Public Safety Partnership and
Community Policing Grants
16.804 ARRA - Edward Byrne Memorial Justice
Assistance Grant
Federal Grantor Name: U.S. Department of Justice
Federal Award /Contract Number: 2009- CKWX0186; 2008- CKWX0543;
2009RKWX0902 and
ARRA 2009 -SB -B9 -1257
Pass - through Entity Name: NA
Pass - through Award /Contract
Number: NA
Questioned Cost Amount: $0
Description of Condition
During 2010, the City spent $735,547 in federal Public Safety Partnership and
Community Policing (COPS) grant funds for community policing and communication
systems. The City also spent $282,233 in federal Edward Byrne Memorial Justice
Assistance Grant funds for regional crime - prevention programs. Recipients of federal
grants must have internal controls to ensure they comply with federal requirements. We
found the following control deficiencies and noncompliance:
Suspension and Debarment
Federal grant recipients are prohibited from contracting with or making sub - awards to
parties that are suspended or debarred from doing business with the federal
government. If a vendor certifies in writing that it has not been suspended or debarred,
• the grantee may rely on that certification. Alternatively, the grantee may check for
suspended or debarred parties by reviewing the federal Excluded Parties List System
issued by the U.S. General Services Administration. Recipients must meet this
requirement prior to the first payment to.the vendor.
The City paid vendors $59,798 with COPS grant funding and $74,000 with Byrne grant
® funding but did not verify the vendors were not suspended or debarred.
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Allowable Costs /Cost Principles
The objective of the COPS Hiring Grant is to pay for training, salaries and benefits for
full -time, entry- level, new or rehired additional, career law enforcement officers for
deployment into community- oriented policing. During 2010 the City spent $293,529 in
federally funded payroll costs under this program.
Employees' salaries and benefits charged to federal grants are to be supported by
adequate time and effort documentation. Depending on the number and type of
activities an employee works on, documentation can be provided in the form of a
semiannual certification or a monthly personnel activity report, such as a time sheet.
We found the City did not have adequate internal controls to ensure time and effort
documentation was maintained for seven officers hired with COPS grant funding.
Cause of Condition
Suspension and Debarment
We issued findings over internal controls weaknesses related to suspension and
debarment requirements in the last two audits. While the City has taken measures at
the departments affected, the City needs to establish monitoring controls to ensure
compliance with the requirement city -wide. The City still does not have a process to
ensure all departments are checking for suspension and debarment prior to entering into
a contract or making purchases. One vendor funded by both grants was procurred
through a state contract. The City did not know it had a responsibility to verify vendors
paid through state contracts were not suspended or debarred.
Allowable Costs /Cost Principles
Some departments of the City do not frequently administer federal grants and are not
familiar with all of the requirements. The City did not monitor all of its departments to
ensure each had adequate internal controls to meet time and effort requirements.
Effect of Condition
Suspension and Debarment
Without adequate internal controls, the City cannot ensure that vendors paid with federal
funding are not suspended or debarred from participating in federal programs. This .
could result in repayment to the grantor agency and could jeopardize future awards.
We verified the vendors paid with grant funds were not suspended or debarred;
therefore, we are not questioning the costs.
Allowable Costs /Cost Principles
Without proper time and effort records, the City was unable to substantiate the accuracy
of payroll costs charged to the grant in the manner required by the federal grantor. We
were able to view other documentation to determine the charges were accurate and are
not questioning these costs.
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• Recommendation
We recommend the City:
• Establish procedures to verify the suspension and debarment status of all
vendors, with contracts that exceed $25,000 prior to payment and retain records
to support this verification.
• Establish adequate internal controls to ensure time and effort records are
maintained in compliance with federal requirements.
• Ensure employees involved in the management of federal programs receive
sufficient training related to the federal requirements.
City's Response
In regards to the suspension and debarment issue, the Divisions that regularly
administer federal grants are fully aware of the suspension and debarment rules. In this
particular instance, the payment was originated in a different City division. We widely
distributed this finding to all operating divisions, and communicated the importance of
adhering to this requirement. Unfortunately, this finding is being repeated for the 2010
audit, again with a City division that does not regularly administer grant funding.
The City understands the requirements of maintaining time and effort records. In the
• particular circumstance of the COPS Hiring Grant, a separate operating fund was
established so that the payroll expenses related to the seven officers authorized by the
grant would be accounted for separately. The Police Department command staff did
approve the time records that charged the officers to this funding source. In addition, the
Department of Justice COPS office requires an online quarterly report of sworn - officer
FTEs, which was certified and submitted within the required timelines. However, it
appears that this approval did not technically meet the certification rule. The City will
ensure that applicable certification procedures are in place for grants with payroll
expenses.
•
Even though none of these instances of non - compliance resulted in questioned costs,
we take seriously the federal grant requirements, and will continue to educate City staff
on applicable rules.
Auditor's Remarks
We thank the City for its cooperation and assistance during the audit and acknowledge
its commitment to improving the conditions described. We will review the status of these
issues during our next audit.
Applicable laws and Regulations
U.S. Office of Management and Budget Circular A -133, Audits of States, Local
Governments, and Non - Profit Organizations, Section 300, states in part:
The auditee shall:
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•
(b) Maintain internal control over Federal programs that provides
reasonable assurance that the auditee is managing Federal awards in
compliance with laws, regulations, and the provisions of contracts or grant
agreements that could have a material effect on each of its Federal
programs.
(c) Comply with laws, regulations, and the provisions of contracts or grant
agreements related to each of its Federal programs.
Title 2, Code of Federal Regulations, Section 180.200 - What is a covered transaction?
A covered transaction is a nonprocurement or procurement transaction
that is subject to the prohibitions of this part. It may be a transaction at—
(a) The primary tier, between a Federal agency and a person (see
appendix to this part); or
(b) A lower tier, between a participant in a covered transaction and
another person.
Title 2, Code of Federal Regulations, Section 180.220 - Are any procurement contracts
included as covered transactions?
(b) Specifically, a contract for goods or services is a covered transaction if
any of the following applies:
410
(1) The contract is awarded by a participant in a nonprocurement
transaction that is covered under Sec. 180.210, and the amount of
the contract is expected to equal or exceed $25,000.
Title 2, Code of Federal Regulations, Section 180.970 - Nonprocurement transaction,
states:
(a) Nonprocurement transaction means any transaction, regardless of
type (except procurement contracts), including, but not limited to the
following:
(1) Grants.
(2) Cooperative agreements.
(3) Scholarships.
(4) Fellowships.
(5) Contracts of assistance.
(6) Loans.
(7) Loan guarantees.
(8) Subsidies.
(9) Insurances.
(10) Payments for specified uses.
(11) Donation agreements.
(b) A nonprocurement transaction at any tier does not require the transfer
of Federal funds.
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Title 2, Code of Federal Regulations, Section 180.300 — What must I do before I enter
into a covered transaction with another person at the next lower tier?
When you enter into a covered transaction with another person at the
next lower tier, you must verify that the person with whom you intend to
do business is not excluded or disqualified. You do this by:
•
(a) Checking the EPLS; or
(b) Collecting a certification from that person if allowed by this
rule; or
• (c) Adding a clause or condition to the covered transaction with
that person
U.S. Office of Management and Budget Circular A -87, Cost Principles for State, Local
and Indian Tribal Governments (2 CFR Part 225), states in part:
Appendix A, Section C(1)
To be allowable under Federal awards, costs must meet the
following general criteria:
b. Be allocable to Federal awards under the provisions of 2
• CFR part 225.
•
d. Conform to any limitations or exclusions set forth in
these principles, Federal laws, terms and conditions of the
Federal award, or other governing regulations as to types
or amounts of cost items.
•
j. Be adequately documented.
Appendix B, Section 8(h)
(1) Charges to Federal awards for salaries and wages, whether
treated as direct or indirect costs, will be based on payrolls
documented in accordance with generally accepted practice of the
governmental unit and approved by a responsible official(s) of the
governmental unit.
(2) No further documentation is required for the salaries and
wages of employees who work in a single indirect cost activity.
(3) Where employees are expected to work solely on a single
Federal award or cost objective, charges for their salaries and
wages will be supported by periodic certifications that the
employees worked solely on that program for the period covered
by the certification. These certifications will be prepared at least
semiannually and will be signed by the employee or supervisory
official having first hand knowledge of the work performed by the
employee.
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0
(4) Where employees work on multiple activities or cost
objectives, a distribution of. their salaries or wages will be
supported by personnel activity reports or equivalent
documentation which meets the standards in subsection 8.h.(5) of
this appendix unless a statistical sampling system (see subsection
8.h.(6) of this appendix) or other substitute system has been
approved by the cognizant Federal agency. Such documentary
support will be required where employees work on
(a) More than one Federal award,
(b) A Federal award and a non - Federal award
(c) An indirect cost activity and a direct cost activity,
(d) Two or more indirect activities which are allocated
using different allocation bases, or
(e) An unallowable activity and a direct or indirect cost
activity.
0
0
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410 Schedule of Prior Federal Audit Findings
City of Yakima
Yakima County
January 1, 2010 through December 31, 2010
This schedule presents the status of federal findings reported in prior audit periods. The status
listed below is the representation of the City of Yakima. The State Auditor's Office has reviewed
the status as presented by. the City.
Audit Period: Report. Reference Finding Reference CFDA Number:
January 1, 2009 No: No: 14.218
through January 31, 1004264 1
2009
Federal Program Name and Granting Pass - Through Agency Name:
Agency: NA
Community Development Block
Grant/Entitlement Grants, U.S. Department of
Housing and Urban Development
Finding Caption:
• The City's internal controls are inadequate to ensure compliance with federal suspension and
10 debarment requirements.
Background:
In 2009, the City spent $1,367,251 in Community Development Block Grant program funds,
$200,000 of which was disbursed to a for - profit agency for economic development purposes.
The City did not ensure the for- profit agency was not suspended or debarred.
Status of Corrective Action: (check one)
❑ Fully Corrected X Partially Corrected ❑ No Corrective Action Taken ❑ Finding is considered no longer valid
Corrective Action Taken:
The Divisions that regularly administer federal grants are fully aware of the suspension and
debarment rules. In this particular instance, the contract was originated in a different City
division. We widely distributed this finding to all operating divisions, and communicated the
importance of adhering to this requirement. Unfortunately, we are of the understanding that
this finding is being repeated for the 2010 audit, again with a City division that does not
regularly administer grant funding. Even though none of these instances of noncompliance
resulted in questioned costs, we take seriously the federal grant requirements, and will
continue to educate City staff on applicable rules.
•
•
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Independent Auditor's Report on Internal
Control over Financial Reporting and on
Compliance and Other Matters in Accordance
with Government Auditing Standards
City of Yakima
Yakima County
January 1, 2010 through December 31, 2010
Council
City of Yakima
Yakima, Washington
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 Yakima,
Yakima County, Washington, as of and for the year ended December 31, 2010, which
collectively comprise the City's basic financial statements, and have issued our report thereon
dated September 13, 2011. The prior year summarized comparative information has been
derived from the City's 2009 basic financial statements that we issued our report thereon dated
September 16, 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.
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
opinions 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 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.
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 deficiencies, significant deficiencies or material weaknesses.
We did not identify any deficiencies in internal control over financial reporting that we consider
to be material weaknesses, as defined above.
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• COMPLIANCE AND OTHER MATTERS
•
As part of obtaining reasonable assurance about whether the City's financial statements are
free of material misstatement, we performed tests of the City's 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.
This report is intended for the information and use of management, the Council, federal
awarding agencies and pass- through entities. However, this report is a matter of public record
and its distribution is not limited. It also serves to disseminate information to the public as a
reporting tool to help citizens assess government operations.
BRIAN SONNTAG, CGFM
• STATE AUDITOR
September 13, 2011
•
411
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Independent Auditor's s Report on Compliance
with Requirements That Could Have a Direct
and Material Effect on Each Major Program and
on Internal Control over Compliance in
Accordance with OMB Circular A -133
City of Yakima
Yakima County
January 1, 2010 through December 31, 2010
Council
City of Yakima •
Yakima, Washington
COMPLIANCE
We have audited the compliance of the City of Yakima, Yakima County, Washington, with the
types of compliance requirements described in the U.S. Office of Management and Budget
(OMB) Circular A -133 Compliance Supplement that could have a direct and material effect on
each of its major federal programs for the year ended December 31, 2010. The City's major
federal programs are identified in the Federal Summary. 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, 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. Our
audit does not provide a legal determination on the City's compliance with those requirements.
As described in Findings 1 and 2 in the accompanying Schedule of Federal Audit Findings and
Questioned Costs, the City did not comply with requirements regarding allowable costs /cost
principles and procurement and suspension and debarment that are applicable to the Public
Safety Partnership and Community Policing Grants Program, ARRA Edward Byrne Memorial
Justice Assistance Grant, ARRA Energy Efficiency and Conservation Block Grant and ARRA
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41, Public Safety Partnership and Community Policing Grants Program programs. Compliance with
such requirements is necessary, in our opinion, for the City to comply with requirements
applicable to the program.
In our opinion, except for the noncompliance described in the preceding paragraph, the City
complied, in all material respects, with the compliance requirements referred to above that could
have a direct and material effect on each of its major federal programs for the year ended
December 31, 2010.
INTERNAL CONTROL OVER COMPLIANCE
The management of the City is responsible for establishing and maintaining effective internal
control over compliance with 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 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.
Our consideration of internal control over compliance was for the limited purpose described in
the preceding paragraph and was not designed to identify all deficiencies in internal control over
compliance that might be significant deficiencies or material weaknesses and therefore, there
4110 can be no assurance that all deficiencies,significant deficiencies, or material weaknesses have
been identified. However, as discussed below, we identified certain deficiencies in internal
control over compliance that we consider to be material weaknesses and other deficiencies that
we consider to be significant deficiencies.
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. We consider the deficiencies in internal control over compliance
described in the accompanying Schedule of Federal Audit Findings and Questioned Costs as
Findings 1 and 2 to be material weaknesses.
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. We
consider the deficiencies in internal control over compliance described in the accompanying
Schedule of Federal Audit Findings and Questioned Costs as Findings 1 and 2 to be significant
deficiencies.
The City's response to the finding identified in our audit is described in the accompanying
Schedule of Federal Audit Findings and Questioned Costs. We did not audit the City's
411) response and, accordingly, we express no opinion on it.
Washington State Auditor's Office
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This report is intended for the information of management, the Council, federal awarding
agencies and pass- through entities. However, this report is a matter of public record and its
distribution is not limited. It also serves to disseminate information to the public as a reporting
tool to help citizens assess government operations.
‘_t d.
BRIAN SONNTAG, CGFM
STATE AUDITOR
September 13, 2011
•
•
0
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• Independent Auditor's Report on Financial
Statements
City of Yakima
Yakima County
January 1, 2010 through December 31, 2010
Council
City of Yakima
Yakima, Washington
We have audited the accompanying financial statements of the governmental activities, the
business -type activities, each major fund and the aggregate remaining fund information of the
City of Yakima, Yakima County, Washington, as of and for the year ended December 31, 2010,
which collectively comprise the City's basic financial statements as listed on page 22. These
financial statements are the responsibility of the City's management. Our responsibility is to
express opinions on these financial statements based on our audit. The prior year summarized
comparative information has been derived from the City of Yakima's 2009 basic financial
statements and, in our report dated September 16, 2010, we expressed unqualified opinions on
® the respective financial statements of the governmental activities, the business -type activities,
each major fund, and the aggregate remaining fund information. •
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. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinions.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the respective financial position of the governmental activities, the business -type activities, each
major fund and the aggregate remaining fund information of the City of Yakima, as of
December 31, 2010, and the respective changes in financial position and, where applicable,
cash flows thereof, and the respective budgetary comparison for the General Fund and
Community Development Fund, for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
In accordance with Government Auditing Standards, we have also issued our report on our
consideration of the City's internal control over financial reporting and on our tests of its
compliance with certain provisions of laws, regulations, contracts and grant agreements and
other matters. The purpose of that report is to describe the scope of our testing of internal
control over financial reporting and compliance and the results of that testing, and not to provide
an opinion on the internal control over financial reporting or on compliance. That report is an
Washington State Auditor's Office
• 20
integral part of an audit performed in accordance with Government Auditing Standards and
should be considered in assessing the results of our audit.
The management's discussion and analysis on pages 23 through 38, pension trust fund on
page 107 and information on postemployment benefits other than pensions on pages 108
through 109 are not a required part of the basic financial statements but are supplementary
information required by the Governmental Accounting Standards Board. We have applied
certain limited procedures, which consisted principally of inquiries of management regarding the
methods of measurement and presentation of the required supplementary information.
However, we did not audit the information and express no opinion on it.
Our audit was performed for the purpose of forming opinions on the financial statements that
collectively comprise the City's basic financial statements. The accompanying Schedule of
Expenditures of Federal Awards is presented for purposes of additional analysis as required by
U.S. Office of Management and Budget Circular A -133, Audits of States, Local Governments,
and Non - Profit Organizations. This schedule 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 basic financial statements and, in our opinion, is fairly stated, in all material
respects, in relation to the basic financial statements taken as a whole.
•
BRIAN SONNTAG, CGFM
STATE AUDITOR
September 13, 2011
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