Independent Auditors Single Audit Reports
Table of Contents Report on Compliance with Requirements Applicable to the Major Program and on Internal Control over Compliance in Accordance with Office of Management and Budget (OMB) Circular A-133 1 Schedule of Expenditures of Federal Awards and State and Local Matching Funds 3 Notes to Schedule of Expenditures of Federal Awards and State and Local Matching Funds 4 Schedule of Findings and Questioned Costs 5 Page
Report on Compliance with Requirements Applicable to the Major Program and on Internal Control over Compliance in Accordance with Office of Management and Budget (OMB) Circular A-133 The Honorable Mayor, Board of Supervisors, and Municipal Transportation Agency Board of Directors City and County of San Francisco, California: Compliance We have audited the compliance of the San Francisco Municipal Railway (Muni), an Enterprise Fund of the City and County of San Francisco, with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to its major federal program for the year ended June 30, 2008. Muni s major federal program is identified in the summary of auditors results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of Muni s management. Our responsibility is to express an opinion on Muni s compliance based on our audit. 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 OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 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 Muni 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. Our audit does not provide a legal determination on Muni s compliance with those requirements. In our opinion, Muni complied, in all material respects, with the requirements referred to above that are applicable to its major federal programs for the year ended June 30, 2008. Internal Control over Compliance The management of Muni is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered Muni s internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance, 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 Muni s internal control over compliance.
A control deficiency in an entity s internal control over compliance 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 noncompliance with a type of compliance requirement of a federal program on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity s ability to administer a federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a federal program that is more than inconsequential will not be prevented or detected by the entity s internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected by the entity s internal control. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in the entity s internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. Schedule of Expenditures of Federal Awards and State and Local Matching Funds We have audited the basic financial statements of the San Francisco Municipal Railway (Muni) and the San Francisco Municipal Railway Improvement Corporation (SFMRIC) as of and for the year ended June 30, 2008, and have issued our report thereon dated December 23, 2008. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying schedule of expenditures of federal awards and state and local matching funds is presented for purposes of additional analysis as required by OMB Circular A-133 and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. This report is intended solely for the information and use of the Mayor, Board of Supervisors, Municipal Transportation Agency Board of Directors, management, Muni s federal awarding agencies, and its pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. January 30, 2009, except for the schedule of expenditures of federal awards and state and local matching funds, which is as of December 23, 2008. 2
Schedule of Expenditures of Federal Awards and State and Local Matching Funds Expenditures Catalog of July 1, 2007 to June 30, 2008 Federal Total federal Federal agency/ Domestic Award awards and pass through entity/ Grant Assistance amount state and local project number Grant title number number (100%) matching funds Federal share Federal Transit Administration Cluster: Federal Transit Administration Capital Improvement Grants: Direct: CPT470 Central Control Facility CA-03-0619 20.500 $ 1,237,536 683,337 546,669 CPT544 Third Street Phase II New Central Subway CA-03-0645 20.500 25,316,232 6,041,793 5,978,545 Various CPTs Metro East Facility CA-03-0673 20.500 44,147,950 2,998,543 2,131,753 Various CPTs Fixed Guideway CA-03-0708 20.500 29,022,954 3,006,950 2,125,327 Various CPTs 3rd St. Phase II New Central Subway CA 03-0767 20.500 30,628,125 6,680,005 5,345,283 Various CPTs Fixed Guideway 2006 CA-05-0200 20.500 36,817,212 6,597,002 5,035,921 Various CPTs Fixed Guideway 2007 CA-05-0215 20.500 58,184,276 10,607,404 7,154,093 CPT58/1 Alternative Fuel Consortium CA-26-7001 20.500 497,050 67,803 67,803 Total Capital Improvement Grants 225,851,335 36,682,837 28,385,394 Federal Transit Administration Capital and Operating Assistance Formula Grants: Various CPTs Section 9 F/Y 98/99 CA-90-X893 20.507 96,574,118 1,403,428 1,298,206 Various CPTs Section 9 F/Y 02/03 CA-90-Y212 20.507 58,311,566 5,633,393 4,272,612 Various CPTs Section 9 F/Y 99/02 CA-90-X957 20.507 130,769,544 1,069,941 899,944 Various CPTs Section 9 F/Y 00/01 CA-90-X040 20.507 68,094,797 (225,870) Various CPTs Section 9-FY 01/02 CA-90-Y124 20.507 98,262,174 (41,695) 140,795 Various CPTs Section 9-FY 03/04 CA-90-Y245 20.507 61,177,139 3,453,442 2,794,312 Various CPTs Section 9-FY 04/05 CA-90-Y348 20.507 80,263,019 4,696,925 2,646,620 Various CPTs Section 9- FY 05/06 CA-90-Y424 20.507 57,118,745 11,496,480 9,385,611 Various CPTs Section 9- FY 06/07 CA-90-Y533 20.507 39,818,104 13,495,245 9,621,673 Various CPTs Section 9- FY 07/08 CA-90-Y624 20.507 47,712,174 4,902,335 3,921,868 Total Capital and Operating Assistance Formula Grants 738,101,380 45,883,624 34,981,641 Pass Through Grants to Subrecipients from the Federal Transit Administration CTJPA2 Transbay Terminal Project CA-90-Y212 20.507 1,193,399 26,947 26,947 Total Pass Through Grants from the Federal Transit Administration 1,193,399 26,947 26,947 Total of Federal Transit Administration Cluster 965,146,114 82,593,408 63,393,982 Short Rage Transit Plan: CPT612 SRTP2008 MTC 81-2003 86,520 96,071 85,052 Homeland Security: State and Local Domestic Preparedness Training Program: CPT586 2005-GBT5-0002- Transit Security Grant-Rail 97.075 1,857,550 1,313,479 1,313,479 OES ID # 075-95001 CPT587 2005-GBT5-00002 Transit Security Grant -Bus 97.075 994,250 541,162 541,162 Total Transit Security Grants 2,851,800 1,854,641 1,854,641 OES ID # 075-95002 CPT590 TSA-K9 97.072 129,500 230,932 230,932 Total Expenditures of Federal Awards Non-FTA 3,067,820 2,181,644 2,170,625 Total Expenditures of Federal Awards and State and Local Matching Funds $ 968,213,934 84,775,052 65,564,607 See accompanying notes to schedule of expenditures of federal awards and state and local matching funds. 3
Notes to Schedule of Expenditures of Federal Awards and State and Local Matching Funds (1) General The accompanying schedule of expenditures of federal awards and state and local matching funds presents activity of the federal award programs of the San Francisco Municipal Railway (Muni). Muni s reporting entity is defined in note 1 to Muni s basic financial statements. This program is a component of the City and County of San Francisco, and the report is issued at the request of management. All federal awards received directly from federal agencies as well as federal awards passed through other government agencies are included in the schedule of expenditures of federal awards and state and local matching funds. (2) Basis of Accounting The accompanying schedule of expenditures of federal awards is presented using the accrual basis of accounting, which is described in note 2 to Muni s basic financial statements. (3) Relationship to Federal Financial Reports Amounts reported in the accompanying schedule of expenditures of federal awards and state and local matching funds agree in all material respects with the amounts reported in the related federal financial reports. (4) Subrecipient Funding In the accompanying Schedule of Expenditures of Federal Awards and State and Local Matching Funds, Muni provided a portion of federal funds received to the following organization: Subrecipient Name Federal Grant No. Federal CFDA No. Subrecipient Expenditures Transbay Joint CA90-Y212 20.507 $26,947 Powers Authority 4
Schedule of Findings and Questioned Costs (1) Summary of Auditors Results (a) The type of report issued on the financial statements: Unqualified Opinion. (b) (c) (d) (e) (f) (g) (h) (i) Significant deficiencies in internal control were disclosed by the audit of the financial statements: Yes. Material weaknesses in internal control were disclosed by the audit of the financial statements: No. Noncompliance which is material to the financial statements: No. Significant deficiencies in internal control over major programs: None Reported. Material weaknesses in internal control over major programs: No. The type of report issued on compliance for major programs: Unqualified Opinion. Any audit findings which are required to be reported under Section 510(a) of OMB Circular A-133: No. Major Program (Federal Transit Cluster): Federal Transit Administration Capital Improvement Grants (CFDA No. 20.500) Federal Transit Administration Capital and Operating Assistance Formula Grants (CFDA No. 20.507) (j) Dollar threshold used to distinguish between Type A and Type B programs: $1,966,900 (k) Auditee qualified as a low-risk auditee under Section.530 of OMB Circular A-133: Yes. (2) Findings Relating to the Financial Statements Reported in Accordance with Government Auditing Standards 2008-1. Lack of controls over inventory count process Criteria A control deficiency 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 misstatements on a timely basis. Condition In performing inventory count at Woods Warehouse on April 5, 2008, the count of stock item 019-00-7055 PCS-BAE was erroneously recorded by the warehouse personnel to be 4 items on hand, when the warehouse had only 2 items in stock at the point of count. 5
Schedule of Findings and Questioned Costs Cause Adequate controls over the inventory count process were not in place at Woods warehouse which potentially caused an error in the inventory count process. Recommendation In performing the inventory count in warehouses, management should implement general controls to prevent errors in recording the count. Management Response SFMTA has established written procedures and instructions on inventory count process to ensure accurate counting. During the cycle count at Woods warehouse, there was a procedural error in accounting for the stock items noted during the physical count observation. The actual quantity in the bin location is the quantity that should have been noted on the count sheets. The counters were accounting for the two units that were not issued in SHOPS system but were physically issued to the warranty repair technicians on the Woods floor for a repair. The counter and supervisor were responding to a legitimate business requirement to capture the issuance of the items to the open work orders. (The Work Order Module is a SHOPS maintenance module that is used to capture labor and materials for each repair.) The items in SHOPS were frozen for inventory purposes, thus the quantity adjustment that would have occurred with noting the quantity in the bin would have precluded that possibility. In future physical inventories, SFMTA Materials Management will implement a procedural change in the SHOPS system controls and procedures to allow issuance to occur in near real time to address the requirement of issuing stock to work orders, while also capturing the actual physical quantity in the bin for inventory purposes. The inventory count instructions have been updated for this procedural change. 6
Schedule of Findings and Questioned Costs 2008-2. Reclassification of completed assets out of the construction-in-progress account Criteria A control deficiency 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 misstatements on a timely basis. Condition Several modules of a project were placed in service over prior years but were not reclassified out of the construction-in-progress account into a fixed asset account. The total balance of the assets that should have been reclassified is approximately $3.5 million. Cause Muni is holding a project in the construction-in-progress account until all of the modules of the project are completed. There is no policy in place to reclassify to a fixed asset account the completed modules of a project that have been placed in service. Recommendation Assets should be reclassified out of the construction-in-progress account into a fixed asset account when they are placed in service. Management Response SFMTA follows the City-wide guidelines, policies and procedures on Capital Asset capitalization. In addition to the City guidelines, SFMTA has additional procedures in place, to ensure and determine whether a project is completed or not. SFMTA Finance Division s Capital Assets Unit uses the completion date from the milestone report submitted by the Construction Division s Project Control Unit to determine if a project is completed or not. In addition, Capital Assets Unit utilizes the Grants Accounting s quarterly projects status report to compare the amount expended to-date with total project budget as supplementary tool in the capitalization analysis. For those projects not included in the milestone report (which is the case of the item questioned), Finance sends communication to project manager to verify and confirm if a project is completed or not. In this case, the project manager informed and communicated to Finance that the Trapeze project is not yet completed. Although some components/modules were put in place, the Time keeping software program is not yet operational. This module is designed to track Muni operators work schedules and actual time of work, as a basis of Payroll Unit s computing operators bi-weekly pay. The objective of the Trapeze project is to install and implement an integrated scheduling, data collection, operator dispatch and timekeeping system. The project manager noted that the Timekeeping system module of this project needs to be fully operational before the entire integration system project can be deemed complete. 7
Schedule of Findings and Questioned Costs 2008-3. Lack of control over the review of cash flow statement presentation Criteria A control deficiency 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 misstatements on a timely basis. Condition In preparing the Statement of Cash Flows for the fiscal year ended June 30, 2008, cash received from passengers and cash paid to suppliers were both understated by $37.6M due to a computer operation malfunction. Cause An adequate review control over the preparation of the Statement of Cash Flows was not in place. Recommendation When preparing the Statement of Cash Flows, management should perform a thorough review of the information to ensure the amounts are properly captured and classified in the financial statements. Management Response While SFMTA has an established quality control review process in place to review the accuracy of the amounts presented in our financial statements, this particular error was due to staff oversight. Changes were made to a particular spreadsheet but were not updated on the linked spreadsheets. Going forward, a senior staff member will prepare the statement of cash flows and a manager will review the information to ensure the figures in all linked spreadsheets reconcile. (3) Findings and Questioned Costs Relating to Federal Awards None. 8