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Single Audit for year ended June 30, 2023CITY OF ENCINITAS ENCINITAS, CALIFORNIA SINGLE AUDIT REPORT ON EXPENDITURES OF FEDERAL AWARDS Year Ended June 30, 2023 CITY OF ENCINITAS SINGLE AUDIT REPORT ON EXPENDITURES OF FEDERAL AWARDS Year Ended June 30, 2023 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 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, 2023 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 15, 2023.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, San Elijo Joint Powers Authority, and Encina Wastewater Authority, as described in our report on the City’s financial statements.This report does not include the results of the other auditors’ testing of internal control over financial reporting or compliance and other matters that are reported on separately by those auditors. Report on 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) as a basis for designing 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. However, material weaknesses or significant deficiencies may exist that have not been identified. 1 Report on 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 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. 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 15, 2023 2 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 Opinion on 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 programs for the year ended June 30, 2023. The City’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. In our opinion, the City complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2023. Basis for Opinion on Each Major Federal Program We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America (GAAS); the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States (Government Auditing Standards); and the audit 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). Our responsibilities under those standards and the Uniform Guidance are further described in the Auditor’s Responsibilities for the Audit of Compliance section of our report. We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on compliance for each major federal program. Our audit does not provide a legal determination of the City’s compliance with the compliance requirements referred to above. Responsibilities of Management for Compliance Management is responsible for compliance with the requirements referred to above and for the design, implementation, and maintenance of effective internal control over compliance with the requirements of laws, statutes, regulations, rules and provisions of contracts or grant agreements applicable to the City’s federal programs. 3 Auditor’s Responsibilities for the Audit of Compliance Our objectives are to obtain reasonable assurance about whether material noncompliance with the compliance requirements referred to above occurred, whether due to fraud or error, and express an opinion on the City’s compliance based on our audit. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS, Government Auditing Standards, and the Uniform Guidance will always detect material noncompliance when it exists. The risk of not detecting material noncompliance resulting from fraud is higher than for that resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Noncompliance with the compliance requirements referred to above is considered material, if there is a substantial likelihood that, individually or in the aggregate, it would influence the judgment made by a reasonable user of the report on compliance about the City’s compliance with the requirements of each major federal program as a whole. In performing an audit in accordance with GAAS, Government Auditing Standards, and the Uniform Guidance, we: Exercise professional judgment and maintain professional skepticism throughout the audit. Identify and assess the risks of material noncompliance, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding City’s compliance with the compliance requirements referred to above and performing such other procedures as we considered necessary in the circumstances. Obtain an understanding of the City’s internal control over compliance relevant to the audit in order to design audit procedures that are appropriate in the circumstances 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 the City’s internal control over compliance. Accordingly, no such opinion is expressed. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and any significant deficiencies and material weaknesses in internal control over compliance that we identified during the audit. Report on 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 a 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. 4 Our consideration of internal control over compliance was for the limited purpose described in the Auditor’s Responsibilities for the Audit of Compliance section above and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies in internal control over compliance. Given these limitations, during our audit we did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. However, material weaknesses or significant deficiencies in internal control over compliance may exist that were not identified. Our audit was not designed for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, no such opinion is expressed. 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 the Uniform Guidance We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of and for the year ended June 30, 2023, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements. We issued our report thereon, dated December 15, 2023, which contained unmodified opinions on those financial statements. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. 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 basic 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 basic financial statements and certain additional procedures including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic 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 expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole. Irvine, California March 4, 2024, except for the Schedule of Expenditures of Federal Awards, as to which the date is December 15, 2023 5 As sistance Grant Amount Listing 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-23-MC-06-0574 111,075$ 248,944$ COVID-19 Community Development Block Grant 14.218 B-22-MC-06-0574 791 - Community Development Block Grant 14.218 B-20-MW-06-0574 188,134 - Subtotal CDBG Entitlement Grants Cluster 300,000 248,944 Housing Voucher Cluster: Section 8 Housing Choice Vouchers 14.871 CA155VO 1,621,204 - Subtotal Housing Voucher Cluster 1,621,204 - Total U.S. Department of Housing and Urban Development 1,921,204 248,944 U.S. Department of Health and Human Services Passed through the County of San Diego: Aging Cluster: Title III-B Transportation 93.044 561722 13,218 - Title III-NSIP C1 Incentive 93.053 561722 3,660 - Title III-C1 Congregate Meals 93.045 561722 30,297 - Subtotal Aging Cluster 47,175 - Total U.S. Department of Health and Human Services 47,175 - U.S. Department of Homeland Security Passed through the California Office of Emergency Services: Homeland Security Grant Program (HSGP)97.067 073-00000 58,640 - Total U.S. Department of Homeland Security 58,640 - U.S. Department of Transportation Passed through the State of California: Highway Planning and Construction Cluster: Highway Safety Improvement Program 20.205 HSIPL-5446(021-030)753,636 - Active Transportation Program 20.205 ATPL-5446 (021)31,234 - Subtotal Highway Planning and Construction Cluster 784,870 - Total U.S. Department of Transportation 784,870 - U.S. Department of the Treasury Passed through the State of California: COVID-19 Coronavirus State and Local Fiscal Recovery Funds 21.027 1505-0271 4,071,172 - Total U.S. Department of the Treasury 4,071,172 - Total Expenditures of Federal Awards 6,883,061$ 248,944$ Year Ended June 30, 2023 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 CITY OF ENCINITAS NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year ended June 30, 2023 (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 under programs of the federal government for the year ended June 30, 2023. The information in this 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 $248,944 for the Community Development Block Grant for the fiscal year ended June 30, 2023. Meals on Wheels $ 7,826 CRC Homeless Programs 22,821 McAlister ITE Inc.182,500 Fair Housing Services 17,971 Interfaith Community Services 17,826 Total $ 248,944 7 Financial Statements 1. Type of auditor's report issued on whether the financial statements audited were prepared in accordance with GAAP:Unmodified 2. Internal control over financial reporting: a. Material weakness(es) identified?No b. Significant deficiency(ies) identified?None Reported 3. Noncompliance material to the financial statements noted?No Federal Awards 1. Internal control over major programs: a. Material weakness(es) identified?No b. Significant deficiency(ies) identified?None Reported 2.Type of auditor's report issued on compliance for major programs:Unmodified 3.Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516 (a)?No 4. Identification of major programs: CFDA Number Name of Federal Program or Cluster 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery 20.205 Highway Planning and Construction Cluster 5. Dollar threshold used to distinguish between Type A and Type B programs: $750,000 6. Auditee qualified as a low-risk auditee?Yes CITY OF ENCINITAS SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year Ended June 30, 2023 Section I - Summary of Auditor's Results 8 There were no financial statement findings for the year ended June 30, 2023. There were no federal award findings or questioned costs for the year ended June 30, 2023. CITY OF ENCINITAS SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year Ended June 30, 2023 Section II - Financial Statement Findings Section III - Federal Award Findings and Questioned Costs 9 CITY OF ENCINITAS STATUS OF PRIOR YEAR AUDIT FINDINGS Year Ended June 30, 2023 There were no audit findings noted in the Single Audit Report for the year ended June 30, 2022. 10