CITY OF PROSPECT HEIGHTS

FINDING NUMBER: 2025-001 Criteria or specific requirement: Management is responsible for the accuracy and completeness of all financial records. This includes having controls over grant-funded capital projects process which serve to prevent and detect errors in grant expenditure reporting that ensure that the financial statements and grant reports are free of material misstatements. Condition: During the audit, we noted that communication between the City’s finance department and engineers or other City staff responsible for managing grants and capital projects is not consistently formalized. Context: Some engineering and other project-related costs associated with construction-in-progress (CIP) projects were not consistently accumulated as part of the total project cost. Also, this has, at times, resulted in delays in obtaining complete project and grant information, the need for corrections to grant tracking documentation, and challenges reconciling grant expenditures to the City’s accounting records. Effect: There is an increase risk that: 1.) capital assets and construction in progress are understated due to incomplete accumulation of project related costs, 2.) grant expenditures reported to granting agencies do not reconcile to the City’s accounting records, and 3.) errors or omissions related to grant compliance and financial reporting may not be identified timely. Cause: These issues appear to stem from reliance on invoice-level capitalization thresholds rather than a project-based review of capital activity, as well as the absence of a formal process for ongoing communication and reconciliation between the finance department and personnel responsible for managing capital and grant-funded projects. Recommendation: The City should enhance its project‑level oversight by encouraging periodic coordination between the finance department, engineers, and other City staff involved in grant‑funded projects. At year end, we recommend meeting with project and grant administrators to identify reimbursable expenditures incurred but not yet received, so that grant receivables and related revenues are accurately reflected in the City’s financial statements. Management’s response: Management is committed to strengthening coordination and oversight of the City’s grant-funded capital projects through centralizing project tracking via grant/project management software, implementing rigorous compliance monitoring, and improving intradepartmental communication. By centralizing our grants through the course of their lifespans, we intend to better track the progress of our grant projects and budgets and with the inclusion of grant document storage, to enhance compliance across departments. We will also designate coordination teams consisting of liaisons across administration, finance, engineering, public works, and grant writers to ensure internal alignment.

FINDING NUMBER: 2025-001 Criteria or specific requirement: Management is responsible for the accuracy and completeness of all financial records. This includes having controls over grant-funded capital projects process which serve to prevent and detect errors in grant expenditure reporting that ensure that the financial statements and grant reports are free of material misstatements. Condition: During the audit, we noted that communication between the City’s finance department and engineers or other City staff responsible for managing grants and capital projects is not consistently formalized. Context: Some engineering and other project-related costs associated with construction-in-progress (CIP) projects were not consistently accumulated as part of the total project cost. Also, this has, at times, resulted in delays in obtaining complete project and grant information, the need for corrections to grant tracking documentation, and challenges reconciling grant expenditures to the City’s accounting records. Effect: There is an increase risk that: 1.) capital assets and construction in progress are understated due to incomplete accumulation of project related costs, 2.) grant expenditures reported to granting agencies do not reconcile to the City’s accounting records, and 3.) errors or omissions related to grant compliance and financial reporting may not be identified timely. Cause: These issues appear to stem from reliance on invoice-level capitalization thresholds rather than a project-based review of capital activity, as well as the absence of a formal process for ongoing communication and reconciliation between the finance department and personnel responsible for managing capital and grant-funded projects. Recommendation: The City should enhance its project‑level oversight by encouraging periodic coordination between the finance department, engineers, and other City staff involved in grant‑funded projects. At year end, we recommend meeting with project and grant administrators to identify reimbursable expenditures incurred but not yet received, so that grant receivables and related revenues are accurately reflected in the City’s financial statements. Management’s response: Management is committed to strengthening coordination and oversight of the City’s grant-funded capital projects through centralizing project tracking via grant/project management software, implementing rigorous compliance monitoring, and improving intradepartmental communication. By centralizing our grants through the course of their lifespans, we intend to better track the progress of our grant projects and budgets and with the inclusion of grant document storage, to enhance compliance across departments. We will also designate coordination teams consisting of liaisons across administration, finance, engineering, public works, and grant writers to ensure internal alignment.

FINDING NUMBER: 2025-002 Criteria or specific requirement: Management is responsible for ensuring compliance with wage rate requirements for contractors and subcontractors. Condition: During the audit, the City did not verify that the contractor or subcontractor submitted the required certified payrolls for work performed under the federally assisted construction contract. As a result, the City did not maintain or review sufficient documentation to demonstrate compliance with wage rate requirements for all applicable weeks during the audit period. Context: Certified payrolls were not obtained and reviewed to ensure compliance with wage rate requirements for all contractors and subcontractors. Effect: The City could not demonstrate compliance with wage rate requirements, increasing the risk that prevailing wage violations could occur and not be detected. Cause: Controls were not in place or were not operating effectively, to ensure required certified payrolls were obtained, reviewed, and retained. Recommendation: We recommend the City implement procedures to ensure compliance with wage rate requirements for all applicable federally assisted construction contracts. At a minimum, the City should: 1.) Require the contractor or subcontractor to submit certified payrolls for each week in which covered work is performed, 2.) Designate responsible personnel to verify receipt of certified payrolls before processing or approving related payment requests, 3.) Document the review performed, including evidence that weekly certified payrolls were received and examined for completeness, 4.) Retain certified payroll documentation and related review evidence in the grant or contract file, and 5.) Establish a monitoring control to confirm that all applicable weeks and all contractors/subcontractors are covered. Management’s response: The City recognizes the need to improve internal controls related to grant disbursements for labor provided by our contractors. The project this past year included participation from multiple federal funding agencies and payments by the City as well as direct payments to contractors by the funding agencies. We have already added additional procedures and checkpoints to provide for adequate documentation related to certified payrolls. In addition, the City is planning to procure a grant tracking system to automate tracking the details for every project.

FINDING NUMBER: 2025-002 Criteria or specific requirement: Management is responsible for ensuring compliance with wage rate requirements for contractors and subcontractors. Condition: During the audit, the City did not verify that the contractor or subcontractor submitted the required certified payrolls for work performed under the federally assisted construction contract. As a result, the City did not maintain or review sufficient documentation to demonstrate compliance with wage rate requirements for all applicable weeks during the audit period. Context: Certified payrolls were not obtained and reviewed to ensure compliance with wage rate requirements for all contractors and subcontractors. Effect: The City could not demonstrate compliance with wage rate requirements, increasing the risk that prevailing wage violations could occur and not be detected. Cause: Controls were not in place or were not operating effectively, to ensure required certified payrolls were obtained, reviewed, and retained. Recommendation: We recommend the City implement procedures to ensure compliance with wage rate requirements for all applicable federally assisted construction contracts. At a minimum, the City should: 1.) Require the contractor or subcontractor to submit certified payrolls for each week in which covered work is performed, 2.) Designate responsible personnel to verify receipt of certified payrolls before processing or approving related payment requests, 3.) Document the review performed, including evidence that weekly certified payrolls were received and examined for completeness, 4.) Retain certified payroll documentation and related review evidence in the grant or contract file, and 5.) Establish a monitoring control to confirm that all applicable weeks and all contractors/subcontractors are covered. Management’s response: The City recognizes the need to improve internal controls related to grant disbursements for labor provided by our contractors. The project this past year included participation from multiple federal funding agencies and payments by the City as well as direct payments to contractors by the funding agencies. We have already added additional procedures and checkpoints to provide for adequate documentation related to certified payrolls. In addition, the City is planning to procure a grant tracking system to automate tracking the details for every project.