CITY OF DURANGOLocal Government

Finding 2024-001 Federal Program: Formula Grants for Rural Areas and Tribal Transit Assistance Listing Number: 20.509 Compliance Requirement: Procurement and Suspension and Debarment Type of Finding: Significant Deficiency in Internal Control over Compliance Criteria: Per 2 CFR §200.318(i), non-Federal entities must maintain records sufficient to detail the history of procurement, including the rationale for the method of procurement and the basis for contractor selection. For sole source procurements, 2 CFR §200.320(c) outlines specific conditions under which noncompetitive procurement is allowable and requires written justification. Additionally, 2 CFR §200.303 requires non-Federal entities to establish and maintain effective internal control over federal awards that provides reasonable assurance that the entity is managing the award in compliance with federal statutes, regulations, and the terms and conditions of the award. Condition: During our review of procurement procedures, we noted that the entity selected a sole source vendor but did not maintain documentation supporting the justification for the noncompetitive procurement. While the procurement itself did not violate Uniform Guidance requirements, the absence of supporting documentation indicates a weakness in internal controls over procurement recordkeeping. Cause: Although the entity has established procedures for documenting sole source procurement decisions, those procedures were not followed in this instance. This appears to have been an isolated oversight rather than a systemic issue. Effect: Although the procurement may have met the criteria for a sole source, the lack of documentation limits transparency and may hinder the entity’s ability to demonstrate compliance in future audits. Repeat Finding from Prior Year: No Recommendation: We recommend that management strengthen internal controls over procurement documentation by implementing procedures to ensure that all sole source procurements are supported by written justifications and retained in accordance with Uniform Guidance requirements. Views of Responsible Officials: Management agrees with the finding.

2022-001 Material Audit Adjustments Material Weakness Criteria: The City is required to provide accurate GAAP basis financial data for preparation of the annual financial statements. Additionally, a good system of internal accounting control contemplates an adequate system for recording, processing and reconciling account balances to the financial statements and ensuring cutoff is accurate for accounts receivable, deferred revenue and related revenues. Condition: Based on audit procedures performed as of December 31, 2022, we identified the following material adjustment that was recorded in order to fairly present the financial statements in accordance with GAAP: ? We identified a material audit adjustment related to recognizing intergovernmental revenue and reducing deferred revenue to match the expenditures reported in the State and Local Fiscal Recovery Funds program within the grants fund. Cause: The City?s financial statement reconciliation controls failed to prevent, or detect on a timely basis, material errors in the financial statements that were noted. Effect: Deferred revenues were overstated, and intergovernmental revenues were understated for the Grants Fund. Management has posted a correcting journal entry to correct the error and properly report the balances in the December 31, 2022 Annual Comprehensive Financial Report. Recommendation: We recommend management improve controls related to year-end financial close to ensuring grant revenues are properly reported in line with restrictions noted within grant agreements. Department heads and/or key personnel within the accounting department may also consider performing secondary reviews to ensure accuracy of financial reporting to ensure proper GAAP required cutoff procedures have been followed. Views of Responsible Officials: Agree 2022-002 U.S. Department of Treasury Passed-Through Colorado Department of Local Affairs Federal Financial Assistance Listing 21.027 COVID-19 State and Local Fiscal Recovery Funds Procurement and Suspension and Debarment Significant Deficiency in Internal Control over Compliance Criteria: The OMB Compliance Supplement states that Non-Federal entities are prohibited from contracting with or making subawards under covered transactions to parties that are suspended or debarred. Non-Federal entities may verify that a party is not suspended or debarred by checking the Excluded Parties List System, collecting a certification from the entity, or adding a clause or condition to the covered transaction. Condition: Suspension and debarment verification procedures were not always performed prior to entering into covered transactions. Cause: The City?s controls surrounding the procurement process failed to properly address the potential of suspension and debarment through the performance of System for Award Management (SAM) checks. Effect: Contractors may not be aware of required terms and conditions and payments could be made to recipients who were suspended or debarred. Questioned Costs: None Context/Sampling: A statistical sample of 8 of the 24 unique vendors who were paid with State and Local Fiscal Recovery Funds included 5 contracts subject to the City?s procurement policy. Of those 5 contracts, we noted 4 instances where the City had not retained documentation that a SAM check had occurred. Report Finding from Prior Year(s): No Recommendation: We recommend the City improve controls surrounding the performance of SAM checks and adhere to all aspects of their procurement policy including procurement and suspension and debarment. We recommend that the City retain documentation of all SAM checks performed before entering into contracts where vendors receive federal awards. Views of Responsible Officials: Management agrees with the finding.

Criteria: As a condition of receiving Federal awards, non-Federal entities agree to comply with laws, regulations, and the provisions, of grant agreements and contracts, and to maintain internal controls to provide reasonable assurance of compliance with these requirements. The Recreation Resources Management grant requires that recipients track all program income earned and deduct such income from expenditures incurred prior to calculation of the Federal portion of the program's expenditures. Condition: The City did not deduct $330,819 of program income earned during the year ended December 31, 2020 from the Lake Nighthorse facility which is funded by this grant. This resulted in the City over reporting $165,409 of expenditures to this grant in both their requests for reimbursement and Federal financial reports. Further, we note that this issue was present in each of the prior two periods. Cause: Controls over program income, reporting and cash management were not properly designed to ensure that program income was properly deducted from the program's expenditures, thus resulting in material noncompliance. Effect: The City could over-report Federal expenditures, and as a result be reimbursed for expenditures that are not allowable, under this grant. Questioned Costs: $390,420 ($165,409 from 2020, $127,680 from 2019, and $97,331 from 2018) Context/Sampling: We tested 100% of the program income earned for this grant noting that none of the income was accounted for correctly. Repeat Finding from Prior Year(s): No. Recommendation: We recommend management revisit controls over the program income, reporting and cash management processes to correct this matter and ensure no further findings occur.