CITY OF MODESTO, CALIFORNIA. Single Audit Reports. For the Fiscal Year Ended June 30, 2017

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1 CITY OF MODESTO, CALIFORNIA Single Audit Reports

2 CITY OF MODESTO, CALIFORNIA Single Audit Reports Table of Contents Independent Auditor's 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 Independent Auditor's Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance; and Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance... 3 Schedule of Expenditures of Federal Awards... 6 Notes to Schedule of Expenditures of Federal Awards... 9 Schedule of Findings and Questioned Costs Corrective Action Plan and Status of Prior Year Findings and Questioned Costs Page

3 Independent Auditor s 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 City Council of the City of Modesto Modesto, 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 Modesto, California (City), as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the City s basic financial statements, and have issued our report thereon dated December 18, 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 the 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 entity 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 and therefore, material weaknesses or significant deficiencies may exist that have not been identified. 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 certain deficiencies in internal control, described in the accompanying schedule of findings and questioned costs as items and that we consider to be significant deficiencies. 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. Macias Gini & O Connell LLP 2121 N. California Boulevard, Suite 750 Walnut Creek, CA

4 The City s Responses to the Findings The City s responses to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs. The City s responses were not subjected to the auditing procedures applied in the audit of the financial statements and accordingly, we express no opinion on them. 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 entity 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 entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Walnut Creek, California December 18,

5 Independent Auditor s Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance; and Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance City Council of the City of Modesto Modesto, California Report on Compliance for Each Major Federal Program We have audited the City of Modesto, California s (City) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the City s major federal programs for the year ended June 30, 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. 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 programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of the City s major federal programs 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 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). 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 qualified and unmodified opinions on compliance for major federal programs. However, our audit does not provide a legal determination of the City s compliance. Basis for Qualified Opinion on CFDA No Home Investment Partnerships Program As described in the accompanying schedule of findings and questioned costs, the City did not comply with requirements regarding Housing Quality Standards for CFDA No Home Investment Partnerships Program as described in finding number Compliance with such requirements is necessary, in our opinion, for the City to comply with the requirements applicable to that program. Macias Gini & O Connell LLP 2121 N. California Boulevard, Suite 750 Walnut Creek, CA

6 Qualified Opinion on CFDA No Home Investment Partnerships Program In our opinion, except for the noncompliance described in the Basis for Qualified Opinion paragraph, the City complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on CFDA No Home Investment Partnerships Program for the year ended June 30, Unmodified Opinion on Each of the Other Major Federal Programs In our opinion, the City complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its other major federal programs identified in the summary of auditor s result section of the accompanying schedule of findings and questioned costs for the year ended June 30, Other Matters The results of our auditing procedures disclosed another instance of noncompliance which is required to be reported in accordance with the Uniform Guidance and which is described in the accompanying schedule of findings and questioned costs as item Our opinion on each major federal program is not modified with respect to this matter. The City s responses to the noncompliance findings identified in our audit are described in the accompanying schedule of findings and questioned costs. The City s responses were not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the responses. Report on Internal Control Over Compliance Management of the City 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 each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each 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 City s internal control over compliance. Our consideration of internal control over compliance was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that have not been identified. However, as discussed below, we identified certain deficiencies in internal control over compliance that we consider to be material weaknesses and significant deficiencies. 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. We consider the deficiency in internal control over compliance described in the accompanying schedule of findings and questioned costs as item to be a material weakness. 4

7 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. We consider the deficiency in internal control over compliance described in the accompanying schedule of findings and questioned costs as item to be a significant deficiency. The City s response to the internal control over compliance findings identified in our audit is described in the accompanying schedule of findings and questioned costs. The City s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. 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, 2017, and the related notes to the financial statements, which collectively comprise the City s basic financial statements. We issued our report thereon dated December 18, 2017, 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 City s 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. 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 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. Walnut Creek, California January 11,

8 CITY OF MODESTO, CALIFORNIA SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Federal Grantor Direct or Pass-through Grantor CFDA Total Federal Amount Passed Federal Program Title Number Grant/Project Number Expenditures to Subrecipients U.S. Department of Housing and Urban Development Direct Community Development Block Grants/Entitlement Grants B-10-MC $ 169,314 $ - Community Development Block Grants/Entitlement Grants B-13-MC ,148 8,953 Community Development Block Grants/Entitlement Grants B-14-MC ,840 - Community Development Block Grants/Entitlement Grants B-15-MC , ,000 Community Development Block Grants/Entitlement Grants B-11-MC ,566 - Community Development Block Grants/Entitlement Grants B-16-MC ,748, ,500 Total Community Development Block Grants/Entitlement Grants 3,065,811 1,263,453 Emergency Solutions Grant Program E-15-MC ,263 56,768 Emergency Solutions Grant Program E-16-MC , ,660 Total Emergency Solutions Grant Program 210, ,428 Home Investment Partnerships Program M-13-MC ,892 - Home Investment Partnerships Program M-15-MC ,858 - Home Investment Partnerships Program M-16-MC ,502 - Home Investment Partnerships Program M-09-MC ,704 - Home Investment Partnerships Program M-10-MC ,628 - Home Investment Partnerships Program M-11-MC ,105 - Home Investment Partnerships Program M-12-MC ,297 - Total Home Investment Partnerships Program 924,986 - ARRA - Neighborhood Stabilization Program (Recovery Act Funded) B-09-LN-CA ,047 - Total U.S. Department of Housing and Urban Development 4,293,247 1,460,881 U.S. Department of Justice Direct Public Safety Partnership and Community Policing Grants ULWX ,789 - Edward Byrne Memorial Justice Assistance Grant Program CK WX Total U.S. Department of Justice 60,790 - U.S. Department of Transportation Direct Airport Improvement Program ,351 - Airport Improvement Program ,664,844 - Airport Improvement Program ,615 - Total Airport Improvement Program 1,775,810 - Federal Transit - Capital Investment Grants CA ,415 - Federal Transit - Capital Investment Grants CA-90-Y Total Federal Transit - Capital Investment Grants 230,805 - Federal Transit - Formula Grants CA ,838,360 - Federal Transit - Formula Grants CA-95-X174 64,086 64,086 Federal Transit - Formula Grants CA-95-X248 17,101 - Federal Transit - Formula Grants CA-37-X ,108 6,108 Federal Transit - Formula Grants CA-90-Z230 2,154, ,310 Federal Transit - Formula Grants CA-95-X ,882 - Federal Transit - Formula Grants CA-90-Y ,109 - Total Federal Transit - Formula Grants 6,143, ,504 Total Federal Transit Cluster 6,373, ,504 See accompanying notes to schedule of expenditures of federal awards. 6

9 CITY OF MODESTO, CALIFORNIA SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (Continued) FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Federal Grantor Direct or Pass-through Grantor CFDA Total Amount Passed Federal Program Title Number Grant/Project Number Expenditures to Subrecipients U.S. Department of Transportation (continued) Passed through the California Department of Transportation Highway Planning and Construction L $ 19,863 $ - Highway Planning and Construction L 2,878 - Highway Planning and Construction l 14,191 - Highway Planning and Construction L-N 122,646 - Highway Planning and Construction ,378 - Highway Planning and Construction L-N 36,921 - Highway Planning and Construction ,368 - Highway Planning and Construction L 1,701 - Highway Planning and Construction L-N 33,284 - Highway Planning and Construction L-N 22 - Highway Planning and Construction L-N 740,474 - Highway Planning and Construction L-N 21,630 - Highway Planning and Construction L-N 4,364 - Highway Planning and Construction L-N 20,519 - Highway Planning and Construction L 99,102 - Highway Planning and Construction L-N 15,552 - Highway Planning and Construction L-N 21,418 - Highway Planning and Construction L-N 26,425 - Highway Planning and Construction L-N 9,603 - Highway Planning and Construction ,529 - Highway Planning and Construction L-N 38,276 - Highway Planning and Construction L-N 130,158 - Highway Planning and Construction L-N 48,489 - Highway Planning and Construction ,176 - Highway Planning and Construction ,319 - Highway Planning and Construction ,886 - Highway Planning and Construction ,703 - Highway Planning and Construction ,074 - Highway Planning and Construction ,550 - Highway Planning and Construction L-O 13,366 - Highway Planning and Construction ,717 - Highway Planning and Construction ,221 - Highway Planning and Construction ,534 - Highway Planning and Construction ,529 - Highway Planning and Construction ,769 - Highway Planning and Construction ,448 - Highway Planning and Construction ,793 - Highway Planning and Construction L-N 23,161 - Total Highway Planning and Construction 2,115,037 - See accompanying notes to schedule of expenditures of federal awards. 7

10 CITY OF MODESTO, CALIFORNIA SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (Continued) FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Federal Grantor Direct or Pass-through Grantor CFDA Total Amount Passed Federal Program Title Number Grant/Project Number Expenditures to Subrecipients Passed through the California Office of Traffic Safety State and Community Highway Safety PT1685 $ 32,647 $ - State and Community Highway Safety PT ,484 - Total State and Community Highway Safety 145,131 - Minimum Penalties for Repeat Offenders for Driving While Intoxicated PT ,202 - Minimum Penalties for Repeat Offenders for Driving While Intoxicated PT ,924 - Total Minimum Penalties for Repeat Offenders for Driving While Intoxicated 203,126 - Total U.S. Department of Transportation 10,613, ,504 U.S. Environmental Protection Agency Passed through the California State Water Resources Control Board Capitalization Grants for Clean Water State Revolving Funds C ,174 - Total U.S. Environmental Protection Agency 618,174 - U.S. Department of Homeland Security Direct Assistance to Firefighters Grant EMW-2014-FR ,395 - Staffing for Adequate Fire and Emergency Response (SAFER) EMW-2015-FH ,681 - Total U.S. Department of Homeland Security 446,076 - Total Expenditures of Federal Awards $ 16,031,289 $ 2,334,385 See accompanying notes to schedule of expenditures of federal awards. 8

11 CITY OF MODESTO, CALIFORNIA Notes to Schedule of Expenditures of Federal Awards NOTE 1 GENERAL The accompanying Schedule of Expenditures of Federal Awards (Schedule) presents the activity of all federal award programs of the City of Modesto, California (City). The City reporting entity is defined in Note I.A. to the City s basic financial statements. All federal awards received directly from federal agencies, as well as federal awards passed through other government agencies, are included in the Schedule. NOTE 2 BASIS OF ACCOUNTING Expenditures of federal awards reported in the Schedule are recognized when incurred, which is consistent with the modified accrual basis of accounting used by the City s governmental funds and the accrual basis of accounting used by the City s proprietary funds, which are described in Note I.C. to the City s basic financial statements. NOTE 3 RELATIONSHIP TO FEDERAL FINANCIAL REPORTS Amounts reported in the schedule agree to or can be reconciled with the amounts reported in the related financial reports. NOTE 4 INDIRECT COSTS The City did not elect to use the 10% de minimis cost rate as covered in 2 CFR section Indirect (F&A) costs. 9

12 Section I Summary of Auditor s Results Financial Statements: CITY OF MODESTO, CALIFORNIA Schedule of Findings and Questioned Costs Type of auditor s report issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? No Significant deficiency(ies) identified? Yes Noncompliance material to financial statements noted? No Federal Awards: Internal control over major federal programs: Material weakness(es) identified? Yes Significant deficiency(ies) identified? Yes Type of auditor s report issued on compliance for major federal programs: Qualified for Home Investment Partnerships Program (CFDA No ) and Unmodified for Community Development Block Grants/Entitlement Grants (CFDA No ) and Federal Transit Cluster (CFDA Nos and ) Any audit findings required to be reported in accordance with 2 CFR (a)? Yes Identification of major federal programs: CFDA Number Name of Major Federal Program or Cluster Community Development Block Grants/Entitlement Grants , Home Investment Partnerships Program Federal Transit Cluster Dollar threshold used to distinguish between type A and type B programs: $750,000 Auditee qualified as low-risk auditee No 10

13 Section II Financial Statement Findings Finding Significant Deficiency Procurement Card CITY OF MODESTO, CALIFORNIA Schedule of Findings and Questioned Costs Per the City of Modesto procurement card policy, a competitive quotation is required for all transactions over a $1,500 threshold. The policy also establishes the following spending limits - $1,500 for single transactions and a monthly limit of $4,500. Spending above these limits are allowed with pre-approval. During our audit, out of a sample of 27 monthly employee procurement activity, we noted the following: Two cases over $1,500 that did not have competitive quotation. Two cases where an employee spent over their preapproved single transaction limit. One case where an employee spent over their preapproved monthly transaction limit. We recommend the City strengthen internal controls over the procurement card process for collection of competitive quotations and the monitoring of employee procurement card limits. The City may improve the monitoring of spending limits by comparing a listing of each employee and their standard single transaction limit and standard monthly transaction limit to their monthly procurement card statement. Management Response: The City Program Administrators have developed an internal form to document the authorization for onetime limit authorization increases due to emergency purchase situations or business reasons for the departments which are reviewed and evaluated by the department manager and Director of Finance. This will document any increases which exceeded the standard spending limits. In addition, one of the City Program Administrators identified an error in the setup of the standard spending limit which has been corrected. The Finance Department performs monthly audits on all procurement card statements and will continue to monitor the compliance of the policy. Finding Significant Deficiency Procurement Administration and Approval During the audit, it has come to our attention that certain purchasing policies and procedures were not being followed. The purchasing policies and procedures are essential to meeting the City s objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies. Some of the initial findings relate to a lack of clarity regarding administering contracts and purchasing procedures, inadequate policies and oversight, inadequate training, lack of communication among departments, staffing constraints, and unauthorized extensions and contract adjustments. The City has proactively engaged professional assistance in investigating these discrepancies in order to identify the causes of breakdown in internal controls. The next step is to take the necessary corrective actions in order to cure any deficiencies that need action and strengthen the existing internal controls to ensure compliance with the City s purchasing policies and procedures. We recommend the City continue its investigation of past contracts and make the appropriate changes to its purchasing policies and procedures in order to strengthen the internal controls over this area. Also, the City should implement a monitoring and oversight process to ensure adherence to purchasing policies and procedures as designed. 11

14 CITY OF MODESTO, CALIFORNIA Schedule of Findings and Questioned Costs Management Response: All City departments completed an inventory review of all active purchasing documents in late 2017 and identified several situations of not complying with the City Purchasing Policy and Municipal Code. The Finance Department have implemented better controls in the system to enforce additional levels of approval and uploading all relevant documents authorizing the approval for all agreements created in the procurement system. The Finance Department is producing monthly reports to all departments to monitor all active purchasing documents to review expiration dates and the balance remaining on these agreements. The Finance Department will be presenting monthly Purchasing updates to Council to provide transparency of all active Purchasing documents to reinforce the monitoring being implemented by all departments. The Finance Department will be providing training in February 2018 to provide clarity on the interpretation of the City Purchasing Policy and Municipal Code and assist departments on the resources available in the system to provide better monitoring and oversight for their responsible purchasing documents. 12

15 CITY OF MODESTO, CALIFORNIA Schedule of Findings and Questioned Costs Section III Federal Award Findings and Questioned Costs Reference Number: Type of Finding: Significant Deficiency Category of Finding: Subrecipient Monitoring and Procurement Federal Program Title: Federal Transit Formula Grants (Urbanized Area Formula Program) Federal Catalog Number: Federal Agency: U.S. Department of Transportation Federal Award Numbers and Years: CA-95-X and CA-90-Z230 Criteria: 2 CFR sections and : (a) An agency may not make an award to an entity until the entity has complied with the requirements described in to provide a valid unique entity identifier and maintain an active System for Award Management (SAM) registration with current information (other than any requirement that is not applicable because the entity is exempted under ). (b) At the time an agency is ready to make an award, if the intended recipient has not complied with an applicable requirement to provide a unique entity identifier or maintain an active SAM registration with current information, the agency: (1) May determine that the applicant is not qualified to receive an award; and (2) May use that determination as a basis for making an award to another applicant. Condition: We reviewed 2 out of 3 subrecipient files and noted that 1 subrecipient did not have the universal identifier and SAM requirements in accordance with 2 CFR Additionally, the City did not retain documentation to indicate whether it collected the subrecipients unique entity identifier prior to awarding funds in accordance with 2 CFR Cause: The City did not have a process in place to ensure the required information is communicated and collected, nor did the City ensure its subrecipient maintain active SAM registration. Effect: The City is at risk for awarding federal funds to entities that have not properly registered with the SAM. Questioned Costs: There are no questioned costs. Recommendation: We recommend that the City should review all federal statutes, regulations, and the terms and conditions of the federal award and determine whether or not policies and procedures exist and are operating effectively to ensure compliance with all requirements. Further, the City should maintain adequate documentation that the unique entity identifier has been obtained. 13

16 CITY OF MODESTO, CALIFORNIA Schedule of Findings and Questioned Costs Management Response and Corrective Action: The City recognizes the current state of sub-recipient oversight of transit systems operated by the City of Ripon and Stanislaus County. It is apparent that current staff resources and expertise in sub-recipient oversight is inadequate to properly oversee grantees. The City should consider future separation from these obligations or develop a comprehensive oversight plan, which will include methods to fully understand, track, monitor, take action and comply with all oversight responsibilities. This oversight plan will require a review of staffing and training requirements to better understand the staffing needs of the department to adequately comply with this requirement. Reference Number: Type of Finding: Material Weakness and Material Instance of Noncompliance Category of Finding: Special Tests & Provisions - Housing Quality Standards Federal Program Title: Home Investment Partnership Program (HOME) Federal Catalog Number: Federal Agency: U.S. Department of Housing and Urban Development Federal Award Numbers and Years: All awards Criteria: 24 CFR Sections (i), (f), and (d): During the period of affordability (i.e., the period for which the non-federal entity must maintain subsidized housing) for HOME assisted rental housing, the participating jurisdiction must perform on-site inspections to determine compliance with property standards and verify the information submitted by the owners no less than (a) every 3 years for projects containing 1 to 4 units, (b) every 2 years for projects containing 5 to 25 units, and (c) every year for projects containing 26 or more units. Condition: The City did not perform inspections for the year ended June 30, However, the City has developed controls and procedures to identify those units on which housing quality inspections are due to ensure the required inspections are performed. City staff developed a monitoring schedule and HOME units are scheduled to be inspected starting January This is a repeat finding since the single audit for the year ended June 30, Cause: Due to management changes and reorganization, staff was unable to perform inspections. Effect: The City is at risk of being in violation of property standards. Noncompliance and needed repairs may not be detected and corrected timely. Questioned Costs: There are no questioned costs. 14

17 CITY OF MODESTO, CALIFORNIA Schedule of Findings and Questioned Costs Recommendation: During the fiscal year, the City s Citizens Housing and Community Development Committee approved HOME policies and procedures, which were also subsequently approved by the City Council. These policies and procedures require the City to perform required on-site inspections of HOME-assisted properties periodically, consistent with the Criteria noted above. We recommend that the City continue to evaluate the effectiveness of its current internal control policies to ensure that the required inspections of units are performed as housing quality inspections are due. Management Response and Corrective Action: The City has developed a monitoring schedule that began with the monitoring of Neighborhood Stabilization Program and Community Development Block Grants funded units first, and will continue to conduct on-site inspections, for HOME-funded units beginning January In the interim, HOME recipients have been conducting inspections on their units to ensure needed repairs are being completed to comply with current health and safety standards. These inspections include City of Modesto fire inspections, inspections conducted by the State of California (when state affordable housing funds are utilized), and Housing Authority of the County of Stanislaus (HACS), Housing Quality Standards (HQS) inspections on an annual basis, when Section 8/HCV Vouchers are being utilized in conjunction with the HOME funded units. 15

18 City of Modesto Finance Department Accounting Division P. O. Box 642 Modesto, CA Corrective Action Plan Reference Number: Type of Finding: Significant Deficiency Category of Finding: Subrecipient Monitoring and Procurement Federal Program Title: Federal Transit Formula Grants (Urbanized Area Formula Program) Federal Catalog Number: Federal Agency: U.S. Department of Transportation Federal Award Numbers and Years: CA-95-X and CA-90-Z230 The City recognizes the current state of sub-recipient oversight of transit systems operated by the City of Ripon and Stanislaus County. It is apparent that current staff resources and expertise in sub-recipient oversight is inadequate to properly oversee grantees. The City should consider future separation from these obligations or develop a comprehensive oversight plan, which will include methods to fully understand, track, monitor, take action and comply with all oversight responsibilities. This oversight plan will require a review of staffing and training requirements to better understand the staffing needs of the department to adequately comply with this requirement. Corrective Action Plan The Public Works Department will review the staffing and training requirements to properly administer a sub-recipient oversight program and review the possibilities of separating from this responsibility. These reviews will provide a proposed a solution for approval by June 30, Contact Adam Barth, Transit Manager , abarth@modestogov.com 16

19 City of Modesto Finance Department Accounting Division P. O. Box 642 Modesto, CA Reference Number: Type of Finding: Material Weakness and Material Instance of Noncompliance Category of Finding: Special Tests & Provisions - Housing Quality Standards Federal Program Title: Home Investment Partnership Program (HOME) Federal Catalog Number: Federal Agency: U.S. Department of Housing and Urban Development Federal Award Numbers and Years: All awards The City has developed a monitoring schedule that began with the monitoring of NSP and CDBG funded units first, and will continue to conduct on-site inspections, beginning with HOME funded units beginning January In the interim, HOME recipients have been conducting inspections on their units to ensure needed repairs are being completed to comply with current health and safety standards. These inspections include City of Modesto fire inspections, inspections conducted by the State of California (when state affordable housing funds are utilized), and Housing Authority of the County of Stanislaus (HACS), Housing Quality Standards (HQS) inspections on an annual basis, when Section 8/HCV Vouchers are being utilized in conjunction with the HOME funded units. Corrective Action Plan The City s Community Development Division (CDD) has developed a monitoring schedule for on-site inspections of the HOME funded units. Beginning January 2018 through October 2018, the on-site inspections for these HOME units will be completed to comply with current health and safety standards (HQS). Contact Marjorie Blom, Interim Community Development Manager mablom@modestogov.com 17

20 City of Modesto Finance Department Accounting Division P. O. Box 642 Modesto, CA Status of Prior Year Findings and Questioned Costs Reference Number: Type of Finding: Condition: Cause: Effect: Recommendation: Current Year Status: Material Weakness and Material Instance of Noncompliance - Reporting The City did not submit the required HUD information for fiscal years 2014, 2015 and Due to management changes, reorganization and staff shortage, the City fell behind on filing the HUD The City had turnover within the Community Development Department during the prior fiscal year and did not appropriately transfer all of the position responsibilities to the remaining personnel. In addition, HUD required the report to be filed in a new webbased system. Key line items containing critical information of Form HUD are not submitted to HUD on a timely basis. We recommend that the City develop procedures to transition key duties to personnel in place to ensure that it meets all mandated reporting deadlines. In addition, the City should evaluate its internal control procedures on grant reporting requirements to ensure that procedures are properly documented and updated so that reporting requirements are completed during staff absence or turnover. Corrected. 18

21 City of Modesto Finance Department Accounting Division P. O. Box 642 Modesto, CA Reference Number: Type of Finding: Condition: Cause: Effect: Recommendation: Material Weakness and Material Instance of Noncompliance Special Test and Provisions The City did not perform housing quality inspections for the fiscal years 2015 and Due to management changes and reorganization, staff did not perform inspections. Property standards might not be met and/or needed repairs might not be completed timely. We recommend that the City develop controls and procedures to identify those units on which housing quality inspections are due and to ensure that the required inspections of units are performed as outlined above. Current Year Status: In progress. See Finding