City of PlacentiaLocal Government

2023-003: Suspension and Debarment Federal Agency: U.S. Department of Treasury Federal Program Title: Coronavirus State and Local Fiscal Recovery Funds Assistance Listing Number: 21.027 Federal Award Identification Number and Year: SLFRP3788 - 2021 Award Period: July 1, 2022, to June 30, 2023 Type of Finding: Significant Deficiency in Internal Control over Compliance Criteria or Specific Requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award requires compliance with the provisions of procurement, suspension, and debarment. The City should have internal controls designed to ensure compliance with those provisions. Condition: The City was unable to provide evidence that suspension and debarment verification was performed. Questioned Costs: None. Context: There were five vendors selected for suspension and debarment testing. For four of the five vendors tested, the City did not retain evidence that the suspension and debarment verification for these vendors was performed and/or certification from the vendor that they were not suspended or debarred was obtained. Cause: Procedures were not in place to retain evidence of suspension and debarment status check. Effect: The City is unable to prove that internal control procedures over suspension and debarment compliance were performed in a timely manner. Repeat Finding: Yes, this is a repeat finding of finding number 2022-003. Due to the timing of when this prior year finding was identified and communicated, the City did not have sufficient time to implement corrective actions for FY 22-23. Subsequently the City has added a section to its vendor contract templates where vendors will certify that they are not debarred or suspended. Recommendation: We recommend that management use the newly drafted templates for contracts with vendors, which includes a section for the vendor to certify that they are not suspended or debarred. Views of responsible officials and planned corrective actions: Once made aware, the City immediately modified its contract template to include certification by vendors and contractors that they are not suspended or debarred.

2023-004: Procurement Federal Agency: U.S. Department of Treasury Federal Program Title: Coronavirus State and Local Fiscal Recovery Funds Assistance Listing Number: 21.027 Federal Award Identification Number and Year: SLFRP3788 - 2021 Award Period: July 1, 2022, to June 30, 2023 Type of Finding: Material Weakness in Internal Control over Compliance and Other Matter Criteria or Specific Requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award requires compliance with the provisions of procurement, suspension, and debarment. The City should have internal controls designed to ensure compliance with those provisions. Sole Source Purchases The City’s procurement policies indicate that “Commodities and services which can be obtained from only one vendor are exempt from competitive bidding. Sole source purchases may include proprietary items sold directly from the manufacturer, items that have only one distributor authorized to sell in this area, or a certain product has been proven to be the only product that has proven to be acceptable. All sole source purchases requests shall be submitted to the Finance Department using the sole source purchasing approval form. Final determination that an item is a valid sole source purchase will be made by the Purchasing Agent.” Emergency Purchases: The City’s policies for emergency purchases allow for procurement without competitive bidding to take place when time is of the essence, only for the following reasons: (1) To preserve or protect life, health, or property (2) Upon natural disaster (3) To forestall a shutdown of essential public services Additionally, the policy indicates that "A completed purchase requisition shall be submitted to the Finance Department within two working days, or as soon as the information is available." Condition: Sole Source Purchase - City staff indicated that the justification for a sole source purchase was that the electric vehicle purchased was the only option at the time with sufficient mileage range, yet no support could be provided to support the range requirements of the procurement. Additionally, the City's procurement policy specifies that a particular form be used to document single source procurements. The required form was not used. Emergency Purchase The justification documented for an emergency procurement of repair services did not fall within any of the three reasons allowed for by the City’s purchasing policy. Additionally, the purchase requestion was completed 138 days after the procurement took place, which is outside of the “two working days, or as soon as the information is available” requirements of the City’s purchasing policy for emergency purchases. Questioned Costs: None. Context: 2 of 6 non-micro purchases tested were noncompetitive procurements. Both noncompetitive procurements tested were not completed in accordance with the City's procurement policy. Cause: The City's purchasing policy was not followed. Effect: Procurement of goods and services were completed without going through a competitive procurement process, possibly causing costs to be higher than if a competitive procurement process was completed. Repeat Finding: No Recommendation: We recommend that management and governance review the City's controls over noncompetitive procurement procedures to determine how controls should be adjusted to ensure compliance with the City's procurement policy. Views of responsible officials and planned corrective actions: Sole Source Purchase - The City thoroughly explored the possibility of a pilot program incorporating electric vehicles into the Police patrol fleet. After researching the unique needs of the Police department and discussions with other policing agencies, it was determined that the Tesla platform was the only electric vehicle being utilized by policing agencies for patrol purposes throughout the United States. Subsequently, the City selected Tesla as the vehicle of choice for the pilot program based upon size, range, performance and through reference checks with other policing agencies. The program was ultimately put on hold due to a lack of level 3 charging capacity at the Police Department as well as the City was continuing to finalize plans related to the City Hall/Police Station modernization project. When the deposit for the Tesla vehicle was made, it was during the height of the COVID pandemic and there were significant supply chain issues resulting in vehicle deliveries of a year or more. This fact combined with staff turnover resulted in the sole source form being omitted in the purchasing process. Going forward, all vehicle purchases will require proof of competitive bidding and/ or sole source justification and documentation. Emergency Purchase - The City has conducted a citywide budget and procurement training highlighting requirements for competitive bidding and the requirements of the City’s procurement policy including the narrow definition of an emergency purchase and the proper process for making purchases under this clause.

2023-005: Allowable Costs Federal Agency: U.S. Department of Housing and Urban Development Federal Program Title: Community Development Block Grant - Entitlement Grants Cluster Federal Award Identification Number: B-21-UC-06-0504 Pass-Through Agency: County of Orange, California Pass-Through Entity Identifying Number: 22-23-0018-HCD Assistance Listing Number: 14.218 Award Period: July 1, 2022, to June 30, 2023 Type of Finding: Material Weakness in Internal Control over Compliance and Other Matter Criteria or Specific Requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award requires compliance with the provisions of compensation for personal services. The City should have internal controls designed to ensure compliance with those provisions. Specifically, § 200.430, Compensation – personal services, (i)(1)(viii), indicates that budget estimates alone do not qualify as support for charges to Federal awards. Condition: While management believes that actual time spent supporting the grant's program would exceed amounts budgeted for the grant's programs, expenditures for salaries and benefits were charged to the grant based on the grant's budget for personal services. Questioned Costs: None. Context: For the four items tested, expenditures for salaries and benefits were charged to the grant based on the grant's budget. Per inquiry with City staff, all the $90,815 recorded as personal service expenditures for the award period were charged based on the grant’s budget. Cause: While timecards for employees working to support grant programs were kept, the employees' worked programs that were supported by both Federal and non-Federal sources, and the timecards did not differentiate their time spent working on the Federal programs. In addition, City did not have a system for establishing estimates to produce a reasonable approximation of the activity actually performed. Effect: Expenditures for salaries and benefits could be inaccurately charged to Federal grant programs. Repeat Finding: No Recommendation: We recommend that timecards be modified to identify when time worked is spent supporting Federal grant programs or that an alternative time tracking mechanism be implemented whereby a reasonable approximation of the salaries and benefits costs associated with federal grant programs can be determined. Views of responsible officials and planned corrective actions: In FY22/23, the City’s timekeeping system was entirely paper based and lacked capability to accurately capture the difference in hours worked in support of Federal or non-Federal sources. In addition, the lack of any timekeeping reporting capabilities would have made estimating employees time spent on Federal sources too great of an administrative burden, which is why budgeted salaries were used. The City has since implemented a new, online timekeeping system in FY23/24 that enables each employee to select the various programs they work on by the hour, and also features robust reporting capabilities which will enable the City to accurately track and differentiate all hours spent working in support of Federal sources vs. non-Federal sources going forward.

2023-006: Reporting Federal Agency: U.S. Department of Housing and Urban Development Federal Program Title: Community Development Block Grant - Entitlement Grants Cluster Federal Award Identification Number: B-21-UC-06-0504 Pass-Through Agency: County of Orange, California Pass-Through Entity Identifying Numbers: 22-23-0018-HCD & 012-23010698-CV Assistance Listing Number: 14.218 Award Period: July 1, 2022, to June 30, 2023 Type of Finding: Significant Deficiency in Internal Control over Compliance and Other Matter Criteria or Specific Requirement: Contract No. 22-23-0018-HCD with the County of Orange includes a quarterly reporting requirement. Contract No. 012-23010698-CV with the County of Orange includes a monthly reporting requirement. Condition: Reports under both contract No. 22-23-0018-HCD and 012-23010698-CV were only prepared and submitted at the end of the fiscal year ended June 30, 2023. Questioned Costs: None. Context: No discrepancies were noted in the reports submitted at the end of the fiscal year, yet the frequency of reporting required by the contracts was not followed. Cause: City staff indicated that they had a verbal agreement with the County of Orange that only annual reporting would be required. Upon inquiry with the County of Orange during audit procedures, the County staff could not verify this agreement and referred City staff to the award contracts. Effect: Quarterly and monthly reporting required by the respective grant agreements were not completed. Only reporting at the end of the fiscal year took place. Repeat Finding: No Recommendation: We recommend that City staff review award contracts in detail to identify all compliance requirements, and that any direction to deviate from the requirements of an award contract be received in writing from the funding agency and retained as evidence of the deviation. Views of responsible officials and planned corrective actions: For several years, the City has only submitted annual reports based upon guidance from the contracting authority (County of Orange). At no time through administering the contract or via audit did the County notify the City that it was out of compliance with its contract. The City will begin submitting reports quarterly and/ or monthly depending on what is required by the agreements.

2023-007: Wage Rate Requirements Federal Agency: U.S. Department of Housing and Urban Development Federal Program Title: Community Development Block Grant - Entitlement Grants Cluster Federal Award Identification Number: B-21-UC-06-0504 Pass-Through Agency: County of Orange, California Pass-Through Entity Identifying Numbers: 22-23-0018-HCD Assistance Listing Number: 14.218 Award Period: July 1, 2022, to June 30, 2023 Type of Finding: Material Weakness in Internal Control over Compliance and Other Matter Criteria or Specific Requirement: All laborers and mechanics employed by contractors or subcontractors to work on construction contracts in excess of $2,000 financed by federal assistance funds must be paid wages not less than those established for the locality of the project (prevailing wage rates) by the Department of Labor (DOL) (40 USC 3141–3144, 3146, and 3147). Condition: Contractors were paid without wage-rate provisions being considered. Questioned Costs: None. Context: There was $277,239 of expenditures in FY 22-23 paid to contractors that was not related rehabilitation of residential structures. Cause: City staff misinterpreted guidance from HUD that "Davis-Bacon does not apply to the rehabilitation of residential structures containing less than eight units or force account labor" as meaning that wage rate requirements (Davis-Bacon) were not applicable for all construction funded by CDBG. Effect: The City was not in compliance with wage rate requirements. Repeat Finding: No Recommendation: We recommend that, in addition to reviewing award contracts in detail to identify all compliance requirements, City staff annually review the compliance supplement issued by the Office of Management and Budget (OMB) to ensure compliance with grant requirements. In addition, we recommend requesting the payroll information from the vendors supporting their invoices for the year and performing procedures to ensure that wage rate requirements have been met. Finally, we recommend establishing procedures to ensure that monitoring of wage rate requirements is done prior to making payments to contractors working on federally-funded construction projects. Views of responsible officials and planned corrective actions: As a metro city, the City allocates a portion of the funding from CDBG to the County for administration and oversight of the program. The City originally received guidance from the County indicating that Davis-Bacon does not apply to the façade improvements supported by CDBG, with the County later indicating that had been a mistake. The City is now aware of this requirement for non-residential construction and will incorporate a process of verification of contractor’s payroll into its procurement and accounts payable process, specifically for federally funded projects. In addition, review of the Office of Management and Budget’s (OMB) compliance guidelines will be added to the internal Finance calendar so it’s conducted each year.

Criteria or Specific Requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award requires compliance with the provisions of procurement, suspension, and debarment. The City should have internal controls designed to ensure compliance with those provisions. Condition: During our testing, the City was unable to provide evidence that suspension and debarment verification was performed. Questioned Costs: None. Context: There were five vendors subject to suspension and debarment testing for FY 21-22. While the City did not perform the suspension and debarment verification for these vendors tested, the vendors were not on the suspended and debarred listing. Cause: Procedures were not in place to retain evidence of debarment status check. Effect: The city is unable to prove that internal control procedures over suspension and debarment compliance were performed. Recommendation: We recommend that management review is procedures for retaining evidence debarment status being checked prior to entering into purchase agreements.

Criteria or Specific Requirement: 2 CFR Part 200 Uniform Administrative Requirements, Post Federal Award Requirements requires that the financial management system of a non-Federal entity provide for accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with reporting requirements. Condition: During our testing, we noted the City?s submitted Project and Expenditure Report for the quarter ended December 31, 2021, included inaccurate information. Questioned Costs: None. Context: The report indicated that $9,083,054 of expenditures had been incurred during the period, under the revenue loss provisions of the award. This amount was indicated as this was the City?s full award amount and the City had elected the $10 million standard allowance for revenue loss. While the amounts had been obligated, the City had not expended the full award amount. Cause: Reporting parameters were not understood at the time the report was submitted. Effect: The Project and Expenditure Report submitted included inaccurate information. Recommendation: We recommend that the City review its procedures for the preparation and review of reporting for Federal grants, whereby amounts included on reports are reconciled to the City's accounting records.