CITY OF DANVILLE, VALocal Government

CORRECTIVE ACTION PLAN February 18, 2022 The City of Danville, Virginia, respectfully submits the following corrective action plan for the year ended June 30, 2021. Name and address of independent public accounting firm: Brown, Edwards & Company, L.L.P. 828 Main Street; Suite 1401 Lynchburg, Virginia 24504 Audit period: June 30, 2021 The findings from the June 30, 2021, Schedule of Findings and Questioned Costs (the "Schedule") are discussed below. The findings are numbered consistently with the number assigned in the Schedule. FINDINGS- FINANCIAL STATEMENT AUDIT 2021-001: Capital Assets and Related Party Amounts- Material Weakness Condition: We proposed, and the City recorded a material journal entry as the result of our audit, for approximately $3.1 million. This entry was deemed material to the financial statements. The City had contributed funds to the Danville Pittsylvania County Regional Industrial Authority (RIFA) and had reported these as construction in progress, when they should have been reported as expenses of the Water Fund and Wastewater Fund. Criteria: Each material account should be reviewed and reconciled and an understanding of the accounting treatment of transactions with related parties should be reached by all parties involved. Cause: The departments involved with the capital assets in question did not communicate with each other about the appropriate accounting for the assets. Effect: The City's capital assets were overstated. Recommendation: Management should perform reconciliations to other related parties to ensure the City has captured the information correctly. In addition, communication between departments and employees is key to ensuring amounts are properly recorded and reported. Views of Responsible Officials and Planned Corrective Action: The City will immediately implement improved communication and coordination of capital asset accounting with the City's related agencies to prevent such future errors. 2021-005: Accounting for Grants (Material Weakness) Condition: During the current audit , we noted that certain grant revenue related to the American Rescue Plan Act had been reported as $14.5 million of revenue. This money had not been spent or earned at year-end and should have been reported as unearned grant revenue. This entry was deemed material to the financial statements. Criteria: Internal controls should be in place to provide reasonable assurance that grant receivables are properly recorded. In addition, each material account should be reviewed and reconciled to ensure they are properly reflected in the correct accounts. Cause: We noted that there was not an overall process to appropriately monitor the recording of revenue associated with this grant. Effect: Absent appropriate controls, errors such as those described above could occur and not be detected along with materially misstating the City's revenue. Recommendation: We recommend that the City perform reconciliations of grant revenue and grant expenditures. In addition, communication between departments and employees is key to ensuring amounts are properly recorded and reported. Note that this is a repeat finding from the immediate previous audit, 2020-001. Views of Responsible Officials and Planned Corrective Action: The City had accounted for all grant revenues and expenditures but failed to recognize that funds from the American Rescue Plan Act needed to be classified as deferred revenues rather than realized revenues until expended. This oversight has been communicated to staff for future reporting. 2021-002: Credit Card Review - Significant Deficiency Condition: Three of the four credit card purchases selected for testing were not reviewed and approved prior to payment. It was noted that these three credit cards were for managers and directors of the City. Criteria: All credit card purchases should be reviewed and approved by someone knowledgeable and who has the authority to question purchases that appear to be out of the norm for the City. Cause: The City currently does not have a policy for managers and directors to have their credit cards reviewed by someone who has the authority to question transactions. Effect: The lack of these reviews could cause unauthorized purchases and could attract fraud and abuse within the City. Recommendation: Management should implement policies that all employees, managers and above, have their credit card transactions reviewed and approved. Views of Responsible Officials and Planned Corrective Action: Following the discovery of deficiencies in the approval process for credit card purchases, management immediately reemphasized with departments the existing policy regarding the approval of purchases. Management immediately added additional controls regarding purchases made by credit card. 2021-006: Cafeteria Adjustment (Material Weakness)- Schools Condition: During the current year audit, we noted the May State reimbursement for meals was not recorded as a receivable or revenue in the cafeteria fund. This entry was deemed material to the financial statements. Criteria: Internal controls should be in place to provide reasonable assurance that receivables are properly recorded. In addition, each material account should be reviewed and reconciled to ensure they are properly reflected in the correct accounts. Cause: We noted there is not an overall process to appropriately monitor the School Nutrition recording of revenue associated with the State reimbursement. Effect: Absent appropriate controls, errors such as those described above could occur and not be detected along with materially misstating the School's revenue. Recommendation: We recommend controls be implemented to ensure that all receivables and revenue are appropriately recorded at the end of the period. This should include monitoring of reimbursements be made by parties outside of School Nutrition. Management's Response: To address this School Nutrition sends copies of the monthly reimbursements filed to the Finance Department. Finance is tracking the amounts to make sure we receive the reimbursement information from School Nutrition in a timely manner. Finance is also tracking that payments are received from the VDOE in a timely manner. FINDINGS - COMMONWEALTH OF VIRGINIA 2021-004: Commonwealth of Virginia Disclosure Statements Condition: One City official filed a statement of economic interest as required by the Code of Virginia after the February 1, 2021, deadline and one City official did not file their statement of economic interest during fiscal year 2021. Recommendation: Steps should be taken to ensure that these statements are filed and in a timely manner. Management's Response: The auditee concurs with the recommendation FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAM AUDIT 2021-003: Coronavirus Relief Fund-ALN #21.019, Subrecipient Monitoring, Material Noncompliance and Material Weakness Condition: The City did not have any formal agreements with subrecipients regarding use of funds and regulations on funds. Additionally, the City did not document any formal subrecipient monitoring Criteria: Under the requirements in the Uniform Guidance, all entities are required perform monitoring and have written agreements with all subrecipients. Cause: The City does not have a process in place to prepare forum! agreements nor policies in place to monitor subrecipient monitoring. Effect: The lack of written agreements and monitoring of subrecipients could cause improper Federal funds being allocated. Recommendation: Management should draft and implement agreements with subrecipients that details the expectations and criteria of each subrecipient. In addition, policies should be in place to monitor these subrecipients to ensure they are meeting the required criteria and no repayment is necessary. Views of Responsible Officials and Planned Corrective Action: The City did have written communication with subrecipients regarding the source and approved use of federal funds but failed to execute a formal agreement. Subrecipient monitoring did occur at the end of the grant period, which included a submission of audited financial statements and a report of grant expenditures from subrecipients to the City. The City will prepare formal agreements for subrecipient awards in the future and immediately establish documented policies for monitoring. If the Federal Audit Clearinghouse has questions regarding this plan, please call Michael Adkins, Chief Financial Officer at 434.799.5185. Sincerely yours, Michael L. Adkins Chief Financial Officer