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Single Audit 2019CITY OF ENCINITAS ENCINITAS, CALIFORNIA SINGLE AUDIT REPORT ON EXPENDITURES OF FEDERAL AWARDS Year ended June 30, 2019 CITY OF ENCINITAS SINGLE AUDIT REPORT ON EXPENDITURES OF FEDERAL AWARDS Year ended June 30, 2019 TABLE OF CONTENTS Page Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 1 Report on Compliance for Each Major Federal Program; Report on Internal Control over Compliance; and Report on the Schedule of Expenditures of Federal Awards Required by the Uniform Guidance 3 Schedule of Expenditures of Federal Awards 6 Notes to the Schedule of Expenditures of Federal Awards 7 Summary of Findings and Questioned Costs 8 Status of Prior Audit Findings 10 1 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Independent Auditor’s Report City Council City of Encinitas Encinitas, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Encinitas, California (City), as of and for the year ended June 30, 2019 and the related notes to the financial statements, which collectively comprise the City of Encinitas’ basic financial statements, and have issued our report thereon dated December 9, 2019.Our report includes a reference to other auditors who audited the financial statements of R.E. Badger Joint Powers Authority, R.E. Badger Financing Authority, and Encina Wastewater Authority, as described in our report on the City’s financial statements. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the City’s financial statements will not be prevented or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. We did identify a deficiency in internal control, described in the accompanying Summary of Findings and Questioned Costs that we consider to be a significant deficiency. See finding 2019-001. 2 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. City’s Response to Findings The City’s response to the findings identified in our audit are described in the accompanying Summary of Findings and Questioned Costs. The City’s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Encinitas’ internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Irvine, California December 9, 2019 3 Report on Compliance for Each Major Federal Program;Report on Internal Control Over Compliance;and Report on the Schedule of Expenditures of Federal Awards Required by the Uniform Guidance Independent Auditor’s Report City Council City of Encinitas Encinitas, California Report on Compliance for Each Major Federal Program We have audited the City of Encinitas’(City)compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on the City’s major federal program for the year ended June 30, 2019. The City’s major federal program is identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal program. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for the City’s major federal program based on our audit of the types of compliance requirements referred to above.We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirement of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles,and Audit Requirements for Federal Awards (“Uniform Guidance”). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for the major federal program. However, our audit does not provide a legal determination of the City’s compliance. 4 Opinion on Each Major Federal Program In our opinion, the City of Encinitas complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended June 30, 2019. Report on Internal Control Over Compliance Management of the City of Encinitas is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City’s internal control over compliance with the types of requirements that could have a direct and material effect on the major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for the major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Report on Schedule of Expenditures of Federal Awards Required by Uniform Guidance We have audited the financial statements of the City of Encinitas as of and for the year ended June 30, 2019, and have issued our report thereon dated December 9, 2019,which contained an unmodified opinion on those financial statements. Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. 5 The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditure of federal awards is fairly stated in all material respects in relation to the financial statements as a whole. Irvine, California December 9, 2019 Federal Grant Amount CFDA Identification Federal Provided to Number Number Expenditures Subrecipients U.S. Department of Housing and Urban Development Direct Programs: CDBG Cluster: Community Development Block Grant 14.218 B-18-MC-06-0574 203,567$ 66,439$ B-17-MC-06-0574 68,476 - B-16-MC-06-0574 50,097 - B-15-MC-06-0574 1,020 - B-14-MC-06-0574 8,964 - Total CDBG Cluster 332,124 66,439 Housing Voucher Cluster: Section 8 Housing Choice Vouchers 14.871 CA155VO 1,326,921 - Total Housing Voucher Cluster 1,326,921 - Total U.S. Department of Housing and Urban Development 1,659,045 66,439 U.S. Department of Health and Human Services Passed through the County of San Diego: Aging Cluster: Title III-C1 Congregate Meals 93.045 547764 44,166 - Title III-B Transportation 93.044 547764 9,403 - Title III-NSIP C1 Incentive 93.053 547764 7,152 - Total Aging Cluster 60,721 - Total U.S. Department of Health and Human Services 60,721 - U.S. Department of Homeland Security Passed through the California Office of Emergency Services: Homeland Security Grant Program (HSGP)97.044 EMW-2012-FF 48,112 - Urban Area Security Initiative (UASI)97.044 EMW-2012-FF 8,721 - Total U.S. Department of Homeland Security 56,833 - U.S. Department of Transportation Passed through the State of California: Highway Planning and Construction Cluster: Storm Drain and Slope Repairs 20.205 ER 32L0(334)282,562 - Hazard Elimination Safety 20.205 HSIP-5446(018-20)334,228 - Total Highway Planning and Construction Cluster 616,790 - Total U.S. Department of Transportation 616,790 - Total Expenditures of Federal Awards 2,393,389$ 66,439$ Year Ended June 30, 2019 CITY OF ENCINITAS SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Federal Grantor/Pass - Through Grantor/Program Title See accompanying Notes to the Schedule of Expenditures of Federal Awards. 6 7 CITY OF ENCINITAS NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year ended June 30, 2019 (1)Summary of Significant Accounting Policies Applicable to the Schedule of Expenditures of Federal Awards a)Scope of Presentation The accompanying Schedule of Expenditures of Federal Awards (the “Schedule”) includes the federal grant activity of the City of Encinitas’major program of the federal government for the year ended June 30, 2019. The information in the schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Guidance”). Because the Schedule presents only a selected portion of the operations of the City of Encinitas, it is not intended to and does not present the financial position, changes in net position or cash flows of the City of Encinitas.The City did not use the 10% de minimis indirect cost rate as covered in section 200.414 of the Uniform Guidance. b)Basis of Accounting Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards wherein certain types of expenditures are not allowable or are limited as to reimbursement. c)Subrecipient Expenditures Payments to subrecipients totaled $66,439 for the Community Development Block Grant for the fiscal year ended June 30, 2019. Meals on Wheels $ 9,704 San Dieguito for a Drug Free Youth 6,707 CRC Homeless Programs 13,407 Catholic Charities 6,707 Fair Housing Services 16,500 Interfaith Shelter 6,707 Interfaith Community Services 6,707 Total $ 66,439 8 CITY OF ENCINITAS SUMMARY OF FINDINGS AND QUESTIONED COSTS Year ended June 30, 2019 (1)Summary of Auditor’s Results a)An unmodified report was issued by the auditors on the financial statements of the auditee. b)No material weaknesses in internal control over financial reporting were reported. c)There was one significant deficiency in internal control over financial reporting reported as Finding 2019-001. d)The audit disclosed no instances of noncompliance material to the financial statements of the auditee. e)No material weaknesses or significant deficiencies in internal control over major programs of the auditee were reported. f)An unmodified report was issued by the auditors on compliance for major programs. g)The audit disclosed no audit findings required by the auditors to be reported under 2CFR 200.516(a) of Uniform Guidance. h)The program tested as major program of the auditee was: U.S. Department of Housing and Urban Development, Section 8 Housing Choice Voucher, CFDA No. 14.871. i)The dollar threshold used to distinguish Type A and Type B programs was $750,000. j)The auditee met the criteria to be classified as a low risk auditee for the year ended June 30, 2019, for purposes of major program determination. (2)Financial Statement Findings There was one audit finding required to be reported in accordance with GAGAS. (2019-001)Material Audit Adjustments Auditing standards require the auditors to include an internal control recommendation when audit adjustments are detected during the audit process. During our audit, we noted errors in recording grant receivables for allowable expenditures incurred through June 30, 2019. As these expenditures were incurred, the City had earned the revenue and thus should have a receivable recorded. We also noted the City had certain projects classified as construction in progress that should have been moved to depreciable classifications as they were substantially complete or already in service. 9 Recommendation We recommend management review grant expenditures to ensure they are billed in a timely manner. In addition, we recommend management review construction in progress at the end of every year and move completed projects out of construction in progress when they are substantially complete and begin accounting for depreciation. Management’s Response Regarding Corrective Action Plan The city has put additional procedures in place requiring that grant expenditures are billed monthly. Management will review grant expenditures and billings every month to ensure that this new procedure is in place. Additionally, management will review construction in progress at the end of every year and will move completed projects out of construction in progress when projects are substantially complete. (3)Federal Award Findings and Questioned Costs None noted. 10 CITY OF ENCINITAS STATUS OF PRIOR AUDIT FINDINGS Year ended June 30, 2019 There were no findings noted in the Single Audit Report for the year ended June 30,2018.