Hub Cities Consortium Joint Powers AuthorityLocal Government

Finding No. SA 2024-001 – Preparation of Schedule of Expenditures of Federal Awards Criteria or specific requirement Title 2: Grant and Agreements, Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Guidance”), Subpart F Audit Requirements, specifically 200.510 (b) Schedule of expenditures of Federal Awards: The auditee must prepare a schedule of expenditures of Federal awards (SEFA) for the period covered by the auditee's financial statements which must include the total Federal awards expended as determined in accordance with 200.502 - Basis for determining Federal awards expended. While not required, the auditee may choose to provide information requested by Federal awarding agencies and pass-through entities to make the schedule easier to use. For example, when a Federal program has multiple Federal award years, the auditee may list the amount of Federal awards expended for each Federal award year separately. At a minimum, the schedule must include:  List of individual Federal programs by Federal agency. For a cluster of programs, provide the cluster name, list individual Federal programs within the cluster of programs, and provide the applicable Federal agency name.  Total Federal awards expended for each individual Federal program and the CFDA number or other identifying number when the CFDA information is not available. For a cluster of programs, the total award expended for the cluster must also be provided.  For Federal awards received as a subrecipient, the name of the pass-through entity and identifying number assigned by the pass-through entity must be included. Condition In performing procedures over the completeness and accuracy of Consortium’s SEFA for the year ended June 30, 2024, we noted that the SEFA prepared by management contained incomplete information, such as contract number, grant period, program award amount and federal expenditure amount. The Consortium misclassified the System Involved Youth (SIY) and Temporary Assistance for Needy Families (TANF) as a federal and non-federal program, respectively. This resulted in a revision in the SEFA to exclude the SIY program and add the TANF program. As such, the SEFA was not prepared accurately and required revisions identified by the auditors. Cause The Consortium’s procedures and controls were not properly implemented to ensure compliance with federal requirements in the preparation of the SEFA. The misstatement in the federal expenditures reported in the SEFA was significant. We noted that the Consortium has a formal process in place for SEFA preparation and reporting; however, we noted that it does not include (1) a formal in-depth review of the required elements of the SEFA, and (2) supplemental procedures for those grants or federal funding received where there is a lack of readily available guidance, in order to help ensure that the SEFA is complete and accurate. Effect An inaccurate or incomplete SEFA may result in an inefficient audit approach and incorrect program risk assessment process. It also increases the risk of incorrect major program determination. Additionally, an incorrect allocation of costs to federal programs can lead to expenditures being paid with the incorrect funding source. Questioned Costs None. Repeat Finding Yes, see Summary Schedule of Prior Year Audit Finding (SA 2023-001) Recommendation The SEFA, which is prepared by the auditee and considered supplementary information to the financial statements, is a key part of the reporting package required by the Uniform Guidance. The SEFA also serves as the primary basis that auditors use to determine which programs will be audited as part of the single audit. Therefore, the auditee’s responsibility for preparing an accurate and complete SEFA is critical. We recommend the Consortium to review its existing process for preparation and review of the SEFA and incorporate additional procedures as necessary to the current review checklist, inquiry with the federal granting agency or pass-through entity, when necessary, and other research procedures to help ensure the accuracy and completeness of the SEFA and that errors are identified and corrected prior to submission. In addition, we recommend that the grant tracking sheets are appropriately reconciled to the accounting records to ensure payments do not exceed budgeted amounts, especially for contracts that include multiple federal fiscal years of funding. Views of Responsible Officials and Planned Corrective Action This item was not identified due to an internal oversight. Moving forward, we will implement the recommended procedures and incorporate additional verification steps into our workflow. Staff will receive guidance on the updated process, and a secondary review will be conducted to ensure accuracy and compliance. These actions will prevent similar oversights from occurring in the future. Personnel responsible for implementation: Dante Real Position of responsible personnel: Accounting Manager Expected date of implementation: December 31, 2025

Finding No. SA 2024-002 – Allowability of Expenditures - Lack of Invoice Supports for the Outstanding Balance of Accrued Expenses at Year-end Federal Program Information Assistance Listing Number: 17.258 Federal Program Name: WIOA Adult Program Federal Agency: U.S. Department of Labor Pass-through Entities: Los Angeles County Workforce Development, Aging and Community Services, Los Angeles County One Stop Operator for the America Job Centers of California Contract Number and Name: 2223-AJCC-GC Compliance Requirement: Allowable costs and cost principles Assistance Listing Number: 17.278 Federal Program Name: WIOA Dislocated Worker Formula Grants Federal Agency: U.S. Department of Labor Pass-through Entities: Los Angeles County Workforce Development, Aging and Community Services, Los Angeles County One Stop Operator for the America Job Centers of California Contract Number and Name: 2223-AJCC-GC Compliance Requirement: Allowable costs and cost principles Criteria or specific requirement One of the core criteria for allowable costs under the Uniform Guidance is that the costs should be supported by sufficient documentation to justify the expense. Condition Based on our testing of accrued expenses, we noted that the accrued expenses as of June 30, 2024 amounting to $29,106, lacked adequate supporting documentation for audit review. Furthermore, we were informed that for certain items in the remaining outstanding balance of accrued expenses, the Consortium has not yet received the invoice, or the accruals was partially paid but subsequently dropped by the participant and further vendor billings were no longer received. As a result, per the auditor’s recommendation, management recorded an adjusting entry to reverse these accrued expenses, which are not supported by invoices. Cause The management does not reverse the Consortium’s accrued expenses after year-end and no review of long outstanding accrued expenses is being performed. No adjustment was also made to the previously claimed expenditures under the program. Effect Inadequate supporting documentation makes it challenging to verify the legitimacy and business purpose of these transactions. This situation not only increases the risk of errors in the financial statements but also exposes the Consortium to questionable costs being reimbursed by the County. Questioned Costs $29,106 Recommendations We strongly recommend that management implement a robust system for documenting invoice support for all outstanding balance of accrued expenses at year-end. The key is to have a clear, auditable trail showing that each transaction has been reviewed and approved by the appropriate personnel. Views of Responsible Officials and Planned Corrective Action Management acknowledges that certain accrued expenses as of June 30, 2024, lacked adequate invoice support or appropriate year-end review. This was an oversight within our year-end closing procedures, and we recognize the need for strengthened internal controls surrounding the accrual and reconciliation process. A formal review process will be added to the year-end closing checklist. All outstanding accruals older than 180 days will be reviewed for validity and continued need. No accrual will be recorded unless adequate document support, vendor communication, or other verifiable documentation is provided. These corrective actions will ensure all accrued expenses are appropriately documented, reviewed, and supported before reporting or claiming costs. This will establish a clear, auditable trail and reduce the risk of unsupported expenditures or questioned costs in future audits. Personnel responsible for implementation: Alejandra Duarte and Dante Real Position of responsible personnel: Management Analyst and Accounting Manager Expected date of implementation: December 31, 2025

Finding No. SA 2023-001 – Preparation of Schedule of Expenditures of Federal Awards Criteria or specific requirement Title 2: Grant and Agreements, Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Guidance”), Subpart F Audit Requirements, specifically 200.510 (b) Schedule of expenditures of Federal Awards: The auditee must prepare a schedule of expenditures of Federal awards for the period covered by the auditee's financial statements which must include the total Federal awards expended as determined in accordance with 200.502 - Basis for determining Federal awards expended. While not required, the auditee may choose to provide information requested by Federal awarding agencies and pass-through entities to make the schedule easier to use. For example, when a Federal program has multiple Federal award years, the auditee may list the amount of Federal awards expended for each Federal award year separately. At a minimum, the schedule must include: • List of individual Federal programs by Federal agency. For a cluster of programs, provide the cluster name, list individual Federal programs within the cluster of programs, and provide the applicable Federal agency name. • Total Federal awards expended for each individual Federal program and the CFDA number or other identifying number when the CFDA information is not available. For a cluster of programs, the total award expended for the cluster must also be provided. • For Federal awards received as a subrecipient, the name of the pass-through entity and identifying number assigned by the pass-through entity must be included. Condition In performing procedures over the completeness and accuracy of Consortium’s schedule of expenditures of federal awards (SEFA) for the year ended June 30, 2023, we noted that the SEFA prepared by management contained incomplete information such as contract number, grant period, program award amount and federal expenditure amount. The item below was omitted from the draft SEFA: • COVID-19 Coronavirus State and Local Recovery Funds Not available ALN 21.027 $300,000 As such, the SEFA was not prepared accurately and required revisions identified by the auditors. Cause The Consortium’s procedures and controls were not properly implemented to ensure compliance with federal requirements in the preparation of the SEFA. The misstatement in the federal expenditures reported in the SEFA was significant. We noted that the Consortium has a formal process in place for SEFA preparation and reporting; however, we noted that it does not include (1) a formal in-depth review of the required elements of the SEFA, and (2) supplemental procedures for those grants or federal funding received where there is a lack of readily available guidance, in order to help ensure that the SEFA is complete and accurate. Effect An inaccurate or incomplete SEFA may result in an inefficient audit approach and incorrect program risk assessment process. It also increases the risk of incorrect major program determination. Additionally, an incorrect allocation of costs to federal programs can lead to expenditures being paid with the incorrect funding source. Questioned Costs None. Recommendation The SEFA, which is prepared by the auditee and considered supplementary information to the financial statements, is a key part of the reporting package required by the Uniform Guidance. The SEFA also serves as the primary basis that auditors use to determine which programs will be audited as part of the single audit. Therefore, the auditee’s responsibility for preparing an accurate and complete SEFA is critical. We recommend the Consortium to review its existing process for preparation and review of the SEFA and incorporate additional procedures as necessary to the current review checklist, inquiry with the federal granting agency or pass-through entity, when necessary, and other research procedures to help ensure the accuracy and completeness of the SEFA and that errors are identified and corrected prior to submission. In addition, we recommend that the grant tracking sheets are appropriately reconciled to the accounting records to ensure payments do not exceed budgeted amounts, especially for contracts that include multiple federal fiscal years of funding. Views of Responsible Officials and Planned Corrective Action Dante Real, Accounting Manager, reviewed the processes for preparation of the SEFA and incorporated additional procedures to ensure errors are identified and corrected prior to submission, including multiple levels of review for the prepared SEFA to ensure the information reported in the SEFA reconciles to the contract, amendment(s), payment confirmation, and underlying accounting records. In addition, management will adopt the said recommendations above. Personnel responsible for implementation: Dante Real Position of responsible personnel: Accounting Manager Expected date of implementation: April 30, 2024

Finding No. SA 2023-002 – Procurement and Suspension and Debarment Federal Program Information Assistance Listing Number: 21.027 Federal Program Name: Coronavirus State and Local Recovery Funds Federal Agency: U.S. Department of Treasury Pass-through Entities: County of Los Angeles Contract Number and Name: 13-159-2813 Compliance Requirement: Procurement and Suspension and Debarment Assistance Listing Number: 21.027 Federal Program Name: Coronavirus State and Local Recovery Funds Federal Agency: U.S. Department of Treasury Pass-through Entities: City of Lynwood and City of Maywood Contract Number and Name: Not Available Compliance Requirement: Procurement and Suspension and Debarment Criteria or specific requirement Title 2: Grant and Agreements, Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Guidance”), Subpart D Audit Requirements, specifically 200.320: (a) Informal procurement methods (2) Small purchases: (i) Small purchase procedures. The acquisition of property or services, the aggregate dollar amount of which is higher than the micro-purchase threshold but does not exceed the simplified acquisition threshold. If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources as determined appropriate by the non-federal entity. (c) Noncompetitive procurement: There are specific circumstances in which noncompetitive procurement can be used. Noncompetitive procurement can only be awarded if one or more of the following circumstances apply: (1) The acquisition of property or services, the aggregate dollar amount of which does not exceed the micro-purchase threshold, (2) The item is available only from a single source, (3) The public exigency or emergency for the requirement will not permit a delay resulting from publicizing a competitive solicitation, (4) The Federal awarding agency or pass-through entity expressly authorizes a noncompetitive procurement in response to a written request from the non-Federal entity; or (5) After solicitation of a number of sources, competition is determined inadequate. Condition We noted that the total payments to three (3) vendors during the fiscal year exceeded the threshold of $5,000 that requires the Consortium to obtain three (3) documented verbal quotes via the use of the “vendor quote form” with relevant information attached to it. Two (2) of the vendors for moving expenses were paid through the Executive Director’s expense reimbursement form. The Consortium failed to comply with the procurement policy. Furthermore, the vendor does not meet any of the exceptions that the procurement policy and Uniform Guidance allowed. Cause The Consortium only considered the monthly payment made to the vendor in applying the procedures which are below the threshold and not on the total contracted amount for the same service performed on a monthly basis. The Consortium’s procurement policy is silent on the type of purchase amount (i.e. aggregate or transactional) that should be considered in applying the procedure. The policy is also silent on acceptable exceptions other than sole source justification. Effect Applying procurement procedures on a per transaction level could make it easier for a purchasing agent to collude with vendors by providing instruction to bill the total contracted amount in amounts lower than the threshold to deviate from the procurement policy. Without going through the formal procurement process could result to inferior quality and overpriced goods or services. Questioned Costs $37,700 Recommendation The Consortium should revisit the procurement policy and update, if necessary. The policy should be clear and provide complete guidance in performing the procedures. It should also address ways to detect potential fraud, collusion and misappropriation of Consortium’s resources. The policy should also be aligned with Uniform Guidance and to include its major components applicable to the Consortium. Views of Responsible Officials and Planned Corrective Action The current procurement policy will be updated to reflect the recommendations described above. It will include a clearer explanation for documenting vendor quotes obtained. The policy will also now describe the type of purchase amount. The policy will be expanded to include all acceptable exceptions to procurement. Personnel responsible for implementation: Alejandra Duarte Position of responsible personnel: Management Analyst Expected date of implementation: April 30, 2024