Single Audit Report (OMB Circular A-133) For the Fiscal Year Ended June 30, 2013
SINGLE AUDIT REPORT (OMB CIRCULAR A-133) FOR THE FISCAL YEAR ENDED JUNE 30, 2013 TABLE OF CONTENTS Independent Auditors 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 PAGE Independent Auditors Report on Compliance for Each Major Program; Report on Internal Control Over Compliance; and Report on the Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 3 Schedule of Expenditures of Federal Awards 6 Notes to Schedule of Expenditures of Federal Awards 7 Schedule of Findings and Questioned Costs I. Summary of Auditors Results 9 II. Financial Statement Findings 10 III. Federal Award Findings and Questioned Costs 11 Schedule of Prior Year Findings 15
Vavrinek, Trine, Day & Co., LLP Certified Public Accountants VALUE THE DIFFERENCE INDEPENDENT AUDITORS 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 To the Board of Commissioners First 5 Sacramento Commission Sacramento, 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 and the general fund of the First 5 Sacramento Commission (Commission) as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the Commission s basic financial statements, and have issued our report thereon dated September 20, 2013. Our report included an emphasis of a matter paragraph regarding the Commission s adoption of GASB Statement No. 63 Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Commission 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 Commission s internal control. Accordingly, we do not express an opinion on the effectiveness of the Commission 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. 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 may exist that have not been identified. We did identify certain deficiencies in internal control, described as item 2013-001 in the accompanying schedule of findings and questioned costs that we consider to be a significant deficiency. 1 2151 River Plaza Drive, Suite 308 Sacramento, CA 95833 Tel: 916.570.1880 Fax: 916.570.1875 www.vtdcpa.com FRESNO LAGUNA HILLS PALO ALTO PLEASANTON RANCHO CUCAMONGA riverside Sacramento
Compliance and Other Matters As part of obtaining reasonable assurance about whether the Commission 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. 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. Sacramento, California September 20, 2013 2
Vavrinek, Trine, Day & Co., LLP Certified Public Accountants VALUE THE DIFFERENCE INDEPENDENT AUDITORS REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY OMB CIRCULAR A-133 To the Board of Commissioners First 5 Sacramento Commission Sacramento, California Report on Compliance for Each Major Federal Program We have audited the First 5 Sacramento Commission s (Commission) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the Commission s major federal programs for the year ended June 30, 2013. The Commission 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 the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of the Commission 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 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 the Commission 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 each major federal program. However, our audit does not provide a legal determination of the Commission s compliance. Opinion on Each Major Federal Program In our opinion, the Commission 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 major federal programs for the year ended June 30, 2013. 3 2151 River Plaza Drive, Suite 308 Sacramento, CA 95833 Tel: 916.570.1880 Fax: 916.570.1875 www.vtdcpa.com FRESNO LAGUNA HILLS PALO ALTO PLEASANTON RANCHO CUCAMONGA riverside Sacramento
Other Matters The results of our auditing procedures disclosed instances of noncompliance, which are required to be reported in accordance with OMB Circular A-133 and which are described in the accompanying schedule of findings and questioned costs as items 2013-002, 2013-003, and 2013-004. Our opinion on each major federal program is not modified with respect to these matters. The Commission s responses to the noncompliance findings identified in our audit are described in the accompanying schedule of findings and questioned costs. The Commission s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. Report on Internal Control Over Compliance Management of the Commission 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 Commission 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 OMB Circular A-133, 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 Commission 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. We consider the deficiencies in internal control over compliance described in the accompanying schedule of findings and questioned costs as items 2013-002, 2013-003, and 2013-004 to be significant deficiencies. 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 OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. 4
Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 We have audited the financial statements of the governmental activities and the general fund of the First 5 Sacramento Commission (Commission), a component unit of the County of Sacramento, California, as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the Commission s basic financial statements. Our report included an emphasis of a matter paragraph regarding the Commission s adoption of GASB Statement No. 63 Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. We issued our report thereon dated September 20, 2013, 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 OMB Circular A-133 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. Sacramento, California September 20, 2013 5
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FEDERAL CFDA GRANT FEDERAL FEDERAL GRANTOR/PROGRAM TITLE NUMBER NUMBER EXPENDITURES U.S. Department of Health & Human Services Passed through the County of Sacramento: Medical Assistance Program [1] 93.778 7200100-12/13-311 $ 1,457,699 Community Based Child Abuse Prevention Grants 93.590 7205000-11/13-345 61,641 Total - U.S. Department of Health & Human Services 1,519,340 TOTAL EXPENDITURES OF FEDERAL AWARDS $ 1,519,340 [1] Denotes a major Federal Financial Assistance Program See accompanying notes to Schedule of Expenditures of Federal Awards. 6
NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. General The accompanying Schedule of Expenditures of Federal Awards presents the activity of all federal award programs of the First 5 Sacramento Commission (Commission). The Commission's reporting entity is defined in Note 1 of the Commission's basic financial statements. All federal awards received directly from federal agencies as well as federal awards passed through from other government agencies are included on the Schedule of Expenditures of Federal Awards. B. Basis of Accounting The accompanying Schedule of Expenditures of Federal Awards is presented using the modified accrual basis of accounting, which is described in Note 1 of the Commission's Financial Statements. C. Relationship to Basic Financial Statements Federal award revenues are reported principally in the Commission s financial statements as program revenues in the General fund. D. Federal Catalog of Federal Domestic Assistance (CFDA) Numbers The CFDA numbers included in this report were determined based on the program name, review of grant contract information, and the Office of Management and Budget's Catalog of Federal Domestic Assistance. E. Pass-Through Entities Identifying Number When federal awards were received from a pass-through entity, the Schedule of Expenditures of Federal Awards shows, if available, the identifying number assigned by the pass-through entity. When no identifying number is shown, the Commission has determined that no identifying number is assigned for the program or the Commission was unable to obtain an identifying number from the pass-through entity. F. Medi-Cal Administrative Activities The Single Audit Act defines major federal award programs based upon total federal expenditures of the grantee during the period reported. The Schedule of Expenditures of Federal Awards includes expenditures incurred for Medi-Cal Administrative Activities (CFDA No. 93.778) in the fiscal year 2011-2012, which were approved for reimbursement by the grantor agency in the fiscal year 2012-2013. 7
NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (CONTINUED) NOTE 2 AMOUNT PROVIDED TO SUBRECIPIENTS Federal assistance provided to subrecipients is treated as an expenditure when it is paid to the subrecipient and is summarized as follows: FEDERAL PASS- CFDA THROUGH PROGRAM TITLE NUMBER PROJECT NAME AMOUNT Medical Assistance Program 93.778 Medi-Cal Administrative Activities (MAA) $ 1,148,521 Community Based Child Abuse Prevention 93.590 Community Based Child Abuse Prevention 61,641 Total Provided To Subrecipients $ 1,210,162 8
I. SUMMARY OF AUDITORS RESULTS FIRST 5 SACRAMENTO COMMISSION SCHEDULE OF FINDINGS AND QUESTIONED COSTS FINANCIAL STATEMENTS Type of auditors' report issued: Internal control over financial reporting: Material weakness(es) identified? Significant deficiency(ies) identified? Noncompliance material to financial statements noted? FEDERAL AWARDS Internal control over major programs: Material weakness(es) identified? Significant deficiency(ies) identified? Type of auditors' report issued on compliance for major programs: Unmodified No Yes No No Yes Unmodified Any audit findings disclosed that are required to be reported in accordance with Circular A-133, Section.510(a) Yes Identification of major program CFDA Number(s) Name of Federal Program or Cluster 93.778 Medical Assistance Program (Medicaid Cluster) Dollar threshold used to distinguish between Type A and Type B programs: Auditee qualified as low-risk auditee? $ 300,000 No 9
SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) II. FINANCIAL STATEMENT FINDINGS FINDING 2013-001 OFFLINE JOURNAL ENTRIES Criteria or Specific Requirement: Management is responsible to implement sound internal controls to prevent, detect and correct misstatements within the entity and to minimize the risk of management override of internal controls. The Commission is also responsible for maintaining appropriate journal entry controls and segregation of duties throughout the process. Condition: Significant Deficiency It was noted that the Commission does not utilize a standardized form to document the preparation and review of the offline journal entries (entries posted outside the financial system). Offline journal entries present additional risk as they are not prepared and performed through the normal financial and accounting systems and create differences between the financial statements and the balances posted in the financial system. It was also noted that there were no policies or procedures to document the preparation, review and approval process to ensure that only appropriate offline entries are completed. Context: All of the 13 offline entries used for the fiscal year 2013 financial statements were subject to the above noted condition. Effect: There is the risk that inappropriate journal entries could be posted to the financial statements and normal journal entry controls in the accounting and financial systems could be overridden through the use of Offline Journal Entries. Cause: The Commission lacks a standardized form and policies and procedures for the use of offline entries to ensure that an appropriate review and approval process is followed and that all supporting documentation is retained. Recommendation: The Commission should implement policies and procedures and consider utilizing a standardized form for all offline entries, as well as attach all required supporting documentation to the form. This will ensure proper evidence of review and appropriate backup are documented and available. View of Responsible Official and Planned Corrective Actions: Management concurs that there is no documentation of management oversight. Management oversight does occur and the Chief of Administration reviews the work papers and journals for accuracy. The Commission will take steps to create documentation forms and procedures to assure future auditors of our due diligence by December 31, 2013. 10
SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) III. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FINDING 2013-002 Program: Medical Assistance Program (Medicaid Cluster) CFDA No.: 93.778 Federal Grantor: Department of Health and Human Services Passed-through: County of Sacramento Award Year: FY 2012-2013 Compliance Requirement: Procurement, Suspension and Debarment Criteria or Specific Requirement: The March 2013 Office of Management and Budget (OMB) Circular A-133 Compliance Supplement states that: When a non-federal entity enters into a covered transaction with an entity at a lower tier, the nonfederal entity must verify that the entity and its principals, as defined in 2 CFR section 180.995 and agency adopting regulations, are not suspended or debarred or otherwise excluded from participating in the transaction. This verification may be accomplished by (1) checking the Excluded Parties List System (EPLS) maintained by the General Services Administration (GSA) (2) collecting a certification from the entity, or (3) adding a clause or condition to the covered transaction with that entity (2 CFR section 180.300). Condition: Significant Deficiency, Instance of Non-Compliance - While testing the vendor and subrecipient contracts under the program, we noted that no check with the EPLS was performed nor verification clause included in the contracts to ensure the vendor or subrecipient was not a suspended and debarred party. Questioned Costs: We identified no questioned costs in our tests of compliance with this requirement. Context: The condition noted above was identified during testing of the procurement, suspension and debarment requirements and noted for one contract of the program. Effect: Contracts of federal funds could be awarded to suspended and debarred parties. Cause: The Commission did not establish suspension and debarment policies and procedures to incorporate Federal requirements or obtain verification of the suspended and debarred status of contracted vendors and subrecipients. 11
SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) III. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS (CONTINUED) Recommendation: We recommend the Commission strengthen its policies and procedures to include Federal requirements when entering into procurement transactions with federal funds. We further recommend the Commission implement procedures to ensure that procurements and subawards of federally funded projects are verified against the EPLS, a certification is obtained or the required clauses are added to the contract for suspension or debarment. View of Responsible Official and Planned Corrective Actions: The Commission acknowledges that the appropriate procedures were not in place to verify the potential suspension or debarment of contractors. The plan is to amend the contracts for those entities receiving Federal funds by October 31, 2013 to include the appropriate suspension and debarment language. In addition, by December 31, 2013 the Commission will develop and implement policies and procedures to insure inclusion of the appropriate language in all future contracts involving Federal Funds. The procedure will also include the requirement to check the appropriate list (EPLS or SAM) and to retain documentation of the results of the records check. FINDING 2013-003 Program: Medical Assistance Program (Medicaid Cluster) CFDA No.: 93.778 Federal Grantor: Department of Health and Human Services Passed-through: County of Sacramento Award Year: FY 2012-2013 Compliance Requirement: Subrecipient Monitoring Criteria or Specific Requirement: The March 2013 Office of Budget and Management (OMB) OMB Circular A-133 Compliance Supplement states that a pass-through entity is responsible for Award Identification at the time of the award, identifying to the subrecipient the Federal award information (e.g., CFDA title and number, award name and number; if the award is research and development; and name of Federal agency) and applicable compliance requirements. Condition Found: Significant Deficiency, Instance of Non-Compliance - It was noted that the agreement between the Commission and the subrecipient did not include the CFDA title and number, award name, and name of Federal agency. Questioned Costs: We identified no questioned costs in our tests of compliance with this requirement. Context: The condition noted above was identified during our testing of the Commission s contract with its one subrecipient. 12
SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) III. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS (CONTINUED) Effect: The subrecipient agreement does not specifically identify the CFDA title and number, award name and Federal agency. Accordingly, subrecipients may not be aware that they have received Federal funding, which might require the subrecipient to have a Single Audit performed. Cause: The Commission did not maintain procedures to ensure that the CFDA title and number, award name and number, and Federal agency are identified in formalized contracts executed with subrecipients. Recommendation: We recommend the Commission implement policies and procedures to ensure that information required by OMB Circular A-133 are included in subrecipient agreements. View of Responsible Official and Planned Corrective Actions: The Commission acknowledges that the correct information with regards to Federal funding was not included in the contracts of those receiving Federal funds. The plan is to amend the contracts for those entities receiving Federal funds by October 31, 2013 to include the CFDA title and number, award name and number, and the responsible Federal agency. In addition, by December 31, 2013 the Commission will develop and implement policies and procedures to insure inclusion of the appropriate language in all contracts involving Federal Funds. FINDING 2013-004 Program: Medical Assistance Program (Medicaid Cluster) CFDA No.: 93.778 Federal Agency: Department of Health and Human Services Passed-through: County of Sacramento Award Year: FY 2012-2013 Compliance Requirement: Allowable Costs and Activities Criteria or Specific Requirement: The Commission s grant agreement requires the Commission to comply with 2 CFR Part 225 (OMB Circular A-87), "Cost Principles for State, Local, and Indian Tribal Governments". In accordance with OMB Circular A-87, Attachment B, Section 8h, the following requirements apply to the Commission s federal grants: Per subsection (1): Charges to Federal awards for salaries and wages, whether treated as direct or indirect costs, will be based on payrolls documented in accordance with generally accepted practice of the governmental unit and approved by a responsible official(s) of the governmental unit. A fundamental element of an effective system of internal controls is the proper segregation of duties. Proper segregation of duties provides for a system of checks and balances such that the functions of one employee are subject to review through the performance of the interrelated functions of another employee. 13
SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) III. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS (CONTINUED) Condition Found: Significant Deficiency, Instance of Noncompliance Of the twenty four employee timesheets selected for testing, we noted that seven of the employee timesheets did not contain evidence of an independent review and approval by a supervisor. Questioned Costs: We identified no questioned costs in our tests of compliance with this requirement. Context: The condition noted above was identified during our testing procedures over the allowable costs/cost principles for federal expenses charged to the program. Effect: A lack of review of timesheets creates the risk of inaccurate reporting of time and payroll costs. Cause: The appropriate level of monitoring over timecards was not performed by the Commission to ensure that all timecards are reviewed and approved. Recommendation: We recommend that the Commission implement formal review procedures of the payroll records in order to ensure the accuracy of the time sheets submitted. This preventive control will help ensure that the amounts reported and the related expense allocation to the program for reimbursement of the federal funds is accurate. View of Responsible Official and Planned Corrective Actions: The Commission concurs that a number of timesheets were not signed by the supervisor. This was primarily as a result of offsite supervision and a lack of follow through to make sure the timesheets were signed. Proper procedures over the approval of timesheets as to provide evidence of management approval and oversight are now in place since the implementation of My Sac County, the County automated timesheet application, in November of 2012. 14
SCHEDULE OF PRIOR YEAR FINDINGS Summarized below is the current status of all audit findings reported in the prior year audit s schedule of audit findings and questioned costs. None noted. 15