CITY OF SEADRIFTLocal Government

In the course of the audit, it was determined that the city’s third-party grant administrators submitted signed reimbursement requests in which they certified that the required certified payrolls were on file. However, when requested during the audit, the city and the third-party grant administrators were unable to provide copies of the certified payrolls to support these claims. Additionally, it was found that construction contract for the project did not include the required prevailing wage rate clauses as mandated by the Davia-Bacon Act and related federal regulations. These deficiencies constitute noncompliance with the federal status, regulations, and terms and conditions of the grant award.

Major Program Department of Housing and Urban Development Community Development Block Grants/ State?s Program and Non-Entitlement Grants in Hawaii Pass-through: Texas General Land Office (GLO) Disaster Recovery Program Infrastructure Projects ALN: 14.228 Criteria Per Section 4.4 Release of Funds - 4.4.4 Minimizing the Time Between Draw & Disbursement of the GLO CDBG-DR Implementation Manual, "Subrecipients should submit costs to the GLO for draw within 60 days of receipt of invoices to minimize the volume of individual draws that the GLO must review and approve" and "Subrecipients utilizing the cash advance method must minimize the time elapsing between the transfer of funds from the GLO and the disbursement by the subrecipient for eligible costs. This period must not exceed 3 business days from the date of receipt/deposit of funds, without specific, documented reasons for such a delay in very infrequent circumstances. Subrecipients must maintain written procedures for minimizing this time period." Statement of Condition The City submitted one invoice for reimbursement after the allotted 60 day period, and as such is not in compliance with the requirements documented above. Statement of Cause The GLO typically does not accept requests for payment that are under $2,500. As such, it is the City?s practice to group multiple GLO-eligible invoices together in order to exceed this threshold amount. In the case noted above, the City was attempting to group several small reimbursement requests that were individually less than $2,500 with a larger reimbursement request that was in excess of the $2,500 amount, and in doing so, allowed the larger reimbursement request to exceed the 60 day deadline. Statement of Effect or Potential Effect This significant deficiency in the City?s internal control could result in a compliance issue associated with receiving reimbursements for grant expenditures. Questioned Costs No questioned costs were identified in association with this finding. Perspective Information This finding appears to be an isolated incident and does not appear to be a systemic issue. Identification of Repeat Findings N/A Recommendation The City should continue to work with its Grant Administrators to track required reimbursement deadline dates and ensure that all reimbursement requests are in compliance with these guidelines. The City should avoid grouping smaller reimbursement requests with larger reimbursement requests if doing so will result in those requests exceeding the 60 day time frame.

Major Program Department of Housing and Urban Development Community Development Block Grants/ State?s Program and Non-Entitlement Grants in Hawaii Pass-through: Texas General Land Office (GLO) Mitigation Harvey Round 1 State Most Impacted and Distressed Competition Award ALN: 14.228 Criteria Per Section 3 of the Housing and Urban Development Act of 1968, ?Recipients must document actions taken to comply with the employment, training and contracting requirements of Section 3, the results of actions taken, and impediments encountered (if any). Recipients should maintain records of job vacancies, solicitation of bids or proposals, selection materials and contracting documents (including scope of work and contract amount), in accordance with Federal and State procurement laws and regulations. The documentation should demonstrate efforts taken towards the achievement of the Section 3 numerical goals.? These reports are due 10 days after the end of each quarter. Statement of Condition The City was late in the submission of the quarterly report covering the period of December 2021 through February 2022. Statement of Cause The City had thought that it had submitted the report for the period of December 2021 through February 2022 within the 10 day time frame, but when submitting the March 2022 through May 2022 report it was discovered that the December/February report was not included in the Texas Integrated Grant Reporting System. The City immediately resubmitted the December/February report on June 8, 2022. It is thought that the original report was not retained in the Texas Integrated Grant Reporting System due to a technical error in this system. However, the City did not have sufficient documentation to support the timing of the original submission or the existence of an error in the system. Statement of Effect or Potential Effect This significant deficiency in the City?s internal control could result in a compliance issue associated with receiving reimbursements for grant expenditures. Questioned Costs No questioned costs were identified in association with this finding. Perspective Information This finding appears to be an isolated incident and does not appear to be a systemic issue. Identification of Repeat Findings N/A Recommendation The City should continue to work with its Grant Administrators to manage reporting requirements, and should verify submissions to the Texas Integrated Grant Reporting system to ensure that all submissions go through successfully and are timely in nature.

2021-005 Lack of Controls Over Financial Reporting Major Program U.S. Department of Homeland Security Federal Emergency Management Agency Public Assistance Program Pass-through: Texas Division of Emergency Management Homeland Security Grants Disaster Recovery CFDA: 97.036 Criteria The City is expected to prepare and take responsibility for the Schedule of Expenditures and Federal Awards. The City should have a control structure in place to ensure this Schedule is prepared accurately, completely, and in compliance with regulatory requirements. Statement of Condition The City of Seadrift, Texas has requested that Goldman, Hunt & Notz, L.L.P. (GHN) draft the Schedule of Expenditures and Federal Awards. This was done because, due to its limited resources, the City?s internal personnel did not possess all of the skills and competencies necessary to prepare the Schedule of Expenditures and Federal Awards in accordance with the highly technical requirements for compliance. While GHN has been requested to prepare the Schedule of Expenditures and Federal Awards, GHN cannot be considered to be part of the City?s internal controls ? specifically, GHN cannot be a part of the financial reporting internal control that address the preparation of an accurate Schedule of Expenditures and Federal Awards. This is considered to be a material weakness in the City?s system of internal control. Statement of Cause The City?s lack of controls over financial reporting is primarily driven by the City?s limited resources. The City?s internal personnel did not possess all of the skills and competencies necessary to prepare the Schedule of Expenditures and Federal Awards in accordance with the highly technical requirements for compliance. Statement of Effect or Potential Effect This material weakness in the City?s internal control could result in a compliance issue associated with the preparation of the Schedule of Expenditures and Federal Awards. Questioned Costs No questioned costs were identified in association with this finding. Perspective Information As this finding is associated with the general structure and nature of the City, it is considered to be a systemic issue. Identification of Repeat Findings 2020-005 Recommendation To remedy the control deficiency related to the preparation of the annual financial statements, the City of Seadrift, Texas would need to ensure that sufficient personnel are in place and that they have the appropriate knowledge and tools (i.e., current accounting literature, current disclosure checklist, etc.) to be an effective element of the internal control process over financial reporting. It is understood that this may not be feasible because of the City?s size and limited resources. Management may make a conscious decision to accept the risk in this control deficiency because of cost or other considerations.

2021-006 Lack of Segregation of Duties Major Program U.S. Department of Homeland Security Federal Emergency Management Agency Public Assistance Program Pass-through: Texas Division of Emergency Management Homeland Security Grants Disaster Recovery CFDA: 97.036 Criteria The City is expected to maintain sufficient internal controls as to be able to prevent or detect material instances of non-compliance. The following finding represents a material weakness in the City's internal control. Statement of Condition In the course of preforming the financial statement audit it was determined that the City has a lack of segregation of duties. This is considered to be a material weakness in the City?s system of internal control. As compliance with the requirements of FEMA Public Assistance Disaster Recovery (FEMA PA) Grant requires effective controls and oversight around preparing and maintaining the City?s financial records, this control deficiency impacts the control structure around the FEMA PA grant. It was found that the City does not have sufficient staff that is appropriately cross-trained and experienced to ensure the necessary oversight procedures and separation of key duties. Statement of Cause The City?s lack of segregation of duties is primarily driven by the City?s limited resources. The City has a limited staff that is insufficiently cross-trained to provide the necessary segregation of duties to ensure proper financial reporting and compliance with related grant requirements. Statement of Effect or Potential Effect This material weakness in the City?s internal control could result in a compliance issue associated with financial reporting to not be identified or corrected before the City has fallen out of compliance with the requirements of the FEMA PA Grant. Question Costs No questioned costs were identified in association with this finding. Perspective Information As this finding is associated with the general structure and nature of the City, it is considered to be a systemic issue. Identification of Repeat Findings 2020-006 Recommendation To remedy the control deficiency related to the segregation of duties, the City would need to ensure that sufficient personnel are in place and that they have the appropriate knowledge and tools to be able effectively separate key steps of high risk procedures, and provide sufficient oversight to assist with the identification of errors or possible fraud.

2020-005 Lack of Controls Over Financial Reporting Major Program U.S. Department of Homeland Security Federal Emergency Management Agency Public Assistance Program Pass-through: Texas Division of Emergency Management Homeland Security Grants Disaster Recovery CFDA: 97.036 Criteria The City is expected to prepare and take responsibility for the Schedule of Expenditures and Federal Awards. The City should have a control structure in place to ensure this Schedule is prepared accurately, completely, and in compliance with regulatory requirements. Statement of Condition The City of Seadrift, Texas has requested that Goldman, Hunt & Notz, L.L.P. (GHN) draft the Schedule of Expenditures and Federal Awards. This was done because, due to its limited resources, the City?s internal personnel did not possess all of the skills and competencies necessary to prepare the Schedule of Expenditures and Federal Awards in accordance with the highly technical requirements for compliance. While GHN has been requested to prepare the Schedule of Expenditures and Federal Awards, GHN cannot be considered to be part of the City?s internal controls ? specifically, GHN cannot be a part of the financial reporting internal control that address the preparation of an accurate Schedule of Expenditures and Federal Awards. This is considered to be a material weakness in the City?s system of internal control. Statement of Cause The City?s lack of controls over financial reporting is primarily driven by the City?s limited resources. The City?s internal personnel did not possess all of the skills and competencies necessary to prepare the Schedule of Expenditures and Federal Awards in accordance with the highly technical requirements for compliance. Statement of Effect or Potential Effect This material weakness in the City?s internal control could result in a compliance issue associated with the preparation of the Schedule of Expenditures and Federal Awards. Questioned Costs No questioned costs were identified in association with this finding. Perspective Information As this finding is associated with the general structure and nature of the City, it is considered to be a systemic issue. Identification of Repeat Findings This finding was not identified in prior years. Recommendation To remedy the control deficiency related to the preparation of the annual financial statements, the City of Seadrift, Texas would need to ensure that sufficient personnel are in place and that they have the appropriate knowledge and tools (i.e., current accounting literature, current disclosure checklist, etc.) to be an effective element of the internal control process over financial reporting. It is understood that this may not be feasible because of the City?s size and limited resources. Management may make a conscious decision to accept the risk in this control deficiency because of cost or other considerations. Views of Responsible Officials The City?s small size and limited budget for additional personnel over and above who the City currently employs prohibits adding specialized personnel with the appropriate knowledge and tools for internal annual financial statements. The City utilizes Grant Administrators and various members of State and Federal Agencies (the Grantors) to audit and advise the City on compliance or non-compliance, providing corrective measures and remedies for compliance after the City self-audits. It is the City?s intention to accept this degree of risk because of the increased cost of adding specialized personnel with the knowledge and tools to do so.

2020-006 Lack of Segregation of Duties Major Program U.S. Department of Homeland Security Federal Emergency Management Agency Public Assistance Program Pass-through: Texas Division of Emergency Management Homeland Security Grants Disaster Recovery CFDA: 97.036 Criteria The City is expected to maintain sufficient internal controls as to be able to prevent or detect material instances of non-compliance. The following finding represents a material weakness in the City?s internal control. Statement of Condition In the course of performing the financial statement audit it was determined that the City has a lack of segregation of duties. This is considered to be a material weakness in the City?s system of internal control. As compliance with the requirements of FEMA Public Assistance Disaster Recovery (FEMA PA) Grant requires effective controls and oversight around preparing and maintaining the City?s financial records, this control deficiency impacts the control structure around the FEMA PA grant. It was found that the City does not have sufficient staff that is appropriately cross-trained and experienced to ensure the necessary oversight procedures and separation of key duties. Statement of Cause The City?s lack of segregation of duties is primarily driven by the City?s limited resources. The City has a limited staff that is insufficiently cross-trained to provide the necessary segregation of duties to ensure proper financial reporting and compliance with related grant requirements. Statement of Effect or Potential Effect This material weakness in the City?s internal control could result in a compliance issue associated with financial reporting to not be identified or corrected before the City has fallen out of compliance with the requirements of the FEMA PA Grant. Questioned Costs No questioned costs were identified in association with this finding. Perspective Information As this finding is associated with the general structure and nature of the City, it is considered to be a systemic issue. Identification of Repeat Findings This finding was not identified in prior years. Recommendation To remedy the control deficiency related to the segregation of duties, the City would need to ensure that sufficient personnel are in place and that they have the appropriate knowledge and tools to be able to effectively separate key steps of high risk procedures, and provide sufficient oversight to assist with the identification of errors or possible fraud. Views of Responsible Officials The City?s small size and limited budget for personnel over and above who the City currently employs prohibits the further segregating of duties to separate high risk procedures. However, there is some segregation of duties in that there are financial duties borne by key personnel that are not borne by others. Also the City has in place a two signature requirement on checks. One signature is usually the one that prepares the checks; the second signature must be one of the elected Council members or the elected mayor. Department credit cards are kept secure and then temporarily used by staff and/or employees and promptly returned after use, accompanied by receipts. It is the City?s intention to accept this degree of risk because of the increased cost of adding specialized personnel with the knowledge and tools to do so because the City does not have the funds or resources to add additional, specialized personnel over and above what the City currently has.