THE CITY OF LLANO, TEXASLocal Government

Finding 2021-008: Federal Agency: United States Environmental Protection Agency Federal Program Title: Capitalization Grants for Clean Water State Revolving Funds ALN: 66.458 Grant Period: Year ended September 30, 2021 Condition: Expenses, including expenditures of federal awards, relating to the current fiscal period are recorded in the subsequent period due to lack of cutoff procedures (repeat finding). Criteria: Expenses should be recorded in the period in which the expenses are incurred. Cause of Condition: Expenses are recorded to the accounting system when invoices are received rather than when the goods were received or services rendered. Effect of Condition: Understatement of expenses and liabilities in the financial statements and also understatement of federal expenditures presented in the Schedule of Expenditures of Federal Awards. Repeat Finding: Yes Recommendation: Record expenses to the accounting system to the period to which they were incurred rather than by invoice date. Additionally, scan disbursements in the two- or three-month period following the end of the fiscal year for expenses that need to be accrued to the previous fiscal year. Corrective Action Plan/Status: Management agrees with the above recommendation and all invoices shall be scrutinized as to when the work was completed. Invoice dates and work in progress dates are to be reviewed during the payment approval process for accuracy and especially at month and year end. Responsible Person: Erica Berry, City Manager

Finding 2021-009: Federal Agency: United States Environmental Protection Agency Federal Program Title: Capitalization Grants for Clean Water State Revolving Funds ALN: 66.458 Grant Period: Year ended September 30, 2021 Condition: Written procedures and policies for the determinations of the allowability of costs, conflicts of interest and procedures for procurement transactions surrounding federal awards is not available. Criteria: 2 CFR 200.302(b)(7), 2 CFR 200.318(c)(l), and 2 CFR 200.319(c) of the Uniform Guidance. Cause of Condition: Unfamiliarity with requirements stated in 2 CFR 200 of the Uniform Guidance. Effect of Condition: Instances of noncompliance with direct and material compliance requirements may occur. Repeat Finding: Yes Recommendation: Management and staff who are involved with federal programs should become familiar with requirements stated in 2 CFR 200 of the Uniform Guidance. Corrective Action Plan/Status: Management agrees with this finding and is currently working toward a Grant Policy and Procedure Manual to be used for existing grants and training personnel. Responsible Person: Erica Berry, City Manager

Finding 2020-001: Condition: Expenses, including expenditures of federal awards, relating to the current fiscal period are recorded in the subsequent period due to lack of cutoff procedures. Criteria: Expenses should be recorded in the period in which the expenses are incurred. Cause of Condition: Expenses are recorded to the accounting system when invoices are received rather than when the goods were received or services rendered. Effect of Condition: Understatement of expenses and liabilities in the financial statements and also understatement of federal expenditures presented in the Schedule of Expenditures of Federal Awards. Recommendation: Record expenses to the accounting system to the period to which they were incurred rather than by invoice date. Additionally, scan disbursements in the two- or three-month period following the end of the fiscal year for expenses that need to be accrued to the previous fiscal year. Corrective Action Plan: Procedures will be developed to identify the period to which expenses and expenditures of federal awards belong and apply the transactions to the proper period.

Finding 2020-002: Condition: Pooled balances are not reconciled to accounts in the governmental and proprietary fund. Specifically, pooled accounts payable are not balanced to accounts payable accounts in the general fund and utility fund. Criteria: Pooled accounts represent activity of actual funds and should balance to the respective accounts in those actual funds. Cause of Condition: Manual journal entries posted many years ago to these accounts appear to have caused the imbalance. Effect of Condition: The liabilities of the general and utility funds may be over- or under-stated by the imbalance. Recommendation: On a monthly basis, management should utilize the reconciliation function in the accounting software to ensure the pooled balances reconcile to the respective accounts in the general and utility funds. Corrective Action Plan: Procedures will be developed to utilize the reconciliation functions within the accounting software to ensure affected accounts are in balance.

Finding 2020-003: Condition: Bank reconciliations or copies of bank statements are not reviewed by anyone outside the accounting department. Criteria: Involvement of personnel outside of the accounting department may be required to achieve control objectives when segregation of duties cannot be achieved with department personnel alone. Cause of Condition: Internal controls over cash, including review of bank statements and bank reconciliations to the general ledger, are performed by accounting department personnel only. This department has access to process transactions including electronic disbursements which may not be reviewed by the City Manager or the governing body. Effect of Condition: The possibility exists that errors or improprieties could be recorded in the accounting system and go undetected without additional review by management. Recommendation: The City Manager and a member of the City Council was given access (read-only) to online bank statements for review but should also be given bank reconciliations for review. Each month, these personnel should review the accuracy of the bank reconciliations and inquire about unusual reconciling items. These personnel should also review the bank statements for suspicious activity. Corrective Action Plan: Online bank statement access has been granted to appropriate personnel however additional procedures will be developed to ensure sufficient oversight of cash accounts is achieved.

Finding 2020-004:Condition: Written procedures and policies for the determinations of the allowability of costs, conflicts of interest and procedures for procurement transactions surrounding federal awards is not available. Criteria: 2 CFR 200.302(b)(7), 2 CFR 200.318(c)(l), and 2 CFR 200.319(c) of the Uniform Guidance. Cause of Condition: Unfamiliarity with requirements stated in 2 CFR 200 of the Uniform Guidance. Effect of Condition: Instances of noncompliance with direct and material compliance requirements may occur. Recommendation: Management and staff who are involved with federal programs should become familiar with requirements stated in 2 CFR 200 of the Uniform Guidance.

Condition: Expenditures of federal awards are not tracked sufficiently to enable management to determine if a single audit is required. Criteria: 2 CFR 200.501(a) and 2 CFR 200.502(a) of the Uniform Guidance. Cause of Condition: Unfamiliarity with the basis for determining federal awards expended. Effect of Condition: Noncompliance with 2 CFR 200.501(a) may occur. Recommendation: Management and staff who are involved with federal awards should become familiar with the basis for determining federal awards expended in order to be in compliance with the Uniform Guidance.

Condition: Written procedures and policies for the determinations of the allowability of costs, conflicts of interest and procedures for procurement transactions surrounding federal awards is not available. Criteria: 2 CFR 200.302(b)(7), 2 CFR 200.318(c)(1), and 2 CFR 200.319(c) of the Uniform Guidance. Cause of Condition: Unfamiliarity with requirements stated in 2 CFR 200 of the Uniform Guidance. Effect of Condition: Instances of noncompliance with direct and material compliance requirements may occur. Recommendation: Management and staff who are involved with federal programs should become familiar with requirements stated in 2 CFR 200 of the Uniform Guidance.