City of LodiState Government

Reference Number 2024-005 – Incomplete Schedule of Expenditures of Federal Awards Evaluation of Finding Material Weakness and Noncompliance – Various Federal Programs Criteria According to the Government Auditing Standards (Yellow Book) and the Uniform Guidance, 2 CFR Part 200, Subpart F—Audit Requirements, sections 200.508 and 200.510, entities receiving federal awards must prepare and submit a complete and accurate Schedule of Expenditures of Federal Awards (SEFA) as part of their annual financial reporting. This schedule is crucial for auditors to determine major programs and conduct the necessary audits in compliance with federal regulations. Condition The City failed to provide a complete SEFA for the fiscal year, leading to inaccuracies pertaining to the ARPA program. This omission resulted in a direct impact on the determination of major programs. Cause The incomplete SEFA was caused by a lack of oversight and insufficient internal controls within the City's financial management department. Effect or Potential Effect The failure to provide a complete SEFA has significant implications, including: • Inaccurate determination of major programs, which can affect the scope and quality of the audit process. • Increased risk of non-compliance with federal regulations, potentially leading to financial penalties and loss of federal funding. Context The City did not submit a complete SEFA for the year ended June 30, 2024, as required by federal guidelines. This incomplete reporting could compromise transparency, affect audit procedures, and hinder compliance with federal regulations. Repeat Finding Yes, in relation to reconciliation of grant activity. Recommendation To address this material weakness, the following actions are recommended: • Develop detailed procedures and timelines: Establish and enforce comprehensive procedures and timelines for the preparation and submission of the SEFA to ensure completeness and accuracy. • Enhance staffing and resources: Allocate adequate staffing and resources to the financial management department to support the accurate compilation and timely submission of the SEFA. • Provide comprehensive training: Offer training to financial management staff on the requirements and importance of the SEFA, including techniques for ensuring its accuracy and completeness.. • Regularly audit the SEFA preparation process: Conduct regular audits of the SEFA preparation process to ensure compliance with established policies and procedures and address any deficiencies promptly. This should be completed monthly and at a minimum quarterly. By implementing these recommendations, the City can strengthen its internal controls, improve the accuracy of its financial reporting, and ensure compliance with Government Auditing Standards and other regulatory requirements. Management Response Management agrees with the finding and recommendations. The City will begin to implement policies and procedures to assist with monthly reconciliations and review processes to mitigate these errors in the future. Reference Number 2024-005 – Incomplete Schedule of Expenditures of Federal Awards Material Weakness and Noncompliance Assistance Listing Number: All Federal Programs reported on the SEFA Criteria Refer to finding 2024-005 in section II above. Condition Refer to finding 2024-005 in section II above. Cause of Condition Refer to finding 2024-005 in section II above. Effect or Potential Effect of Condition Refer to finding 2024-005 in section II above. Questioned costs None. Context Refer to finding 2024-005 in section II above. Repeat Finding Refer to finding 2024-005 in section II above. Recommendation Refer to finding 2024-005 in section II above. Management Response Refer to finding 2024-005 in section II above.

Reference Number 2024-007 – Delays in Financial Reporting Evaluation of Finding Material Weakness and Noncompliance Criteria Management is responsible for providing timely and accurate financial information. Because the City has expended over $750,000 in federal awards, Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (Uniform Guidance), requires non-federal entities to submit their financial statements and single audit reports to the Federal Audit Clearinghouse (FAC) within the earlier of 30 calendar days after receipt of the auditor's report(s), or nine months after the end of the audit period. Condition The City did not submit its financial statements and single audit reports to the FAC within the required timeframe for the fiscal year ended June 30, 2024. The financial statements and single audit reports were submitted after the deadline of March 31, 2025. Cause of Condition The City has experienced turnover in key personnel in the City’s finance department in the past year. Absent robust accounting policies and procedures, when vacancies occur, information can be lost and as individuals are getting up to speed, some processes may not be fully executed if they are manual and not fully embedded into an automated system. This turnover has resulted in delayed audit completion. Effect or Potential Effect of Condition The late submission of the financial statements and single audit reports impairs the ability of the federal awarding agencies and pass-through entities to monitor the City’s compliance with federal requirements and to make informed decisions regarding the continuation or modification of federal awards. The late submission also results in noncompliance with the Uniform Guidance, and increases the risk of fraud, waste, and abuse of federal funds. Context The City’s financial statements and single audit reports are used by the federal awarding agencies and pass-through entities to assess the non-federal entity's financial condition, internal controls, and compliance with federal requirements. Before the 2024 fiscal year, the City regularly presented the Single Audit Reporting Package on time as mandated. Repeat Finding No. Recommendation The Finance Department should look at increasing the amount of experienced finance staff to help facilitate year-end closing procedures and the preparation of its basic financial statements. Because the basic financial statements are the responsibility of the City, it is in its best interest to closely monitor the accounting process to ensure that financial position and operating results are accurately and timely reported. Management Response Management agrees with the finding. The City has filled all of its vacant positions in Accounting and anticipates a timely completion of the 2024/25 Audit. Reference Number 2024-007 – Delays in Financial Reporting Material Weakness and Noncompliance Assistance Listing Number: All Federal Programs reported on the SEFA Criteria Refer to finding 2024-007 in section II above. Condition Refer to finding 2024-007 in section II above. Cause of Condition Refer to finding 2024-007 in section II above. Effect or Potential Effect of Condition Refer to finding 2024-007 in section II above. Questioned costs None. Context Refer to finding 2024-007 in section II above. Repeat Finding Refer to finding 2024-007 in section II above. Recommendation Refer to finding 2024-007 in section II above. Management Response Refer to finding 2024-007 in section II above.

Finding 2019-006 Procurement, Suspension, and Debarment Program: Federal Transit - Formula Grants (CFDA Number 20.507, U.S. Department of Transportation) Criteria: Suspension and Debarment - Non-Federal entities are prohibited from contracting with or making subawards under covered transactions to parties that are suspended or debarred. ?Covered transactions? include those procurement contracts for goods and services awarded under a non-procurement transaction (e.g., grant or cooperative agreement) that are expected to equal or exceed $25,000 or meet certain other criteria as specified in 2 CFR section 180.220. All non-procurement transactions entered into by a recipient (i.e., subawards to subrecipients), irrespective of award amount, are considered covered transactions, unless they are exempt as provided in 2 CFR section 180.215. When a non-Federal entity enters into a covered transaction with an entity at a lower tier, the non-Federal entity must verify that the entity, as defined in 2 CFR section 180.995 and agency adopting regulations, is not suspended or debarred or otherwise excluded from participating in the transaction. This verification may be accomplished by (1) checking the System for Award Management (?SAM?) Exclusions maintained by the General Services Administration (GSA) and available at https://www.sam.gov/portal/public/SAM/ (Note: The OMB guidance at 2 CFR part 180 and agency implementing regulations still refer to the SAM Exclusions as the Excluded Parties List System (EPLS)), (2) collecting a certification from the entity, or (3) adding a clause or condition to the covered transaction with that entity (2 CFR section 180.300). Condition: During our testing of the Federal Transit - Formula Grants, the City could not provide the supporting documents demonstrating the department verified the project contractor selected for testing was not debarred from receiving federal funding prior to awarding the vendor the contract. Though the vendor was licensed in California, their registration had been inactive in SAM for more than a year. Therefore, information was not available within the system. Questioned Costs: Total expenditures paid to the vendor for the contract was $402,202. Context: See condition above for context of the finding. Effect: Without verifying whether vendors are suspended or debarred from working on federally-funded projects prior to the contract awarded, the City could be contracting with vendors that are prohibited from working on federally funded projects.

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