OMB CIRCULAR A-133, SINGLE AUDIT REPORT YEAR ENDED DECEMBER 31, 2010 WITH INDEPENDENT AUDITORS REPORT
OMB CIRCULAR A-133, SINGLE AUDIT REPORT YEAR ENDED DECEMBER 31, 2010 WITH INDEPENDENT AUDITORS REPORT
OMB CIRCULAR A-133, SINGLE AUDIT REPORT TABLE OF CONTENTS A copy of the Unified Government of Wyandotte County / Kansas City, Kansas Comprehensive Annual Financial Report, year ended December 31, 2010, accompanies this report. The independent auditors report and the basic financial statements are hereby incorporated by reference. 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 Independent Auditors Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 Independent Auditors Report on Supplementary Information Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs Schedule of Expenditures of Federal Awards Page 1-2 3-5 6 7-29 30-32 Notes to Schedule of Expenditures of Federal Awards 33-35 This is a copy of the Unified Government s single audit report reproduced from an electronic file. An original copy of this document is available at the Unified Government s office.
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 Board of Commissioners Unified Government of Wyandotte County / Kansas City, Kansas 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 Unified Government of Wyandotte County / Kansas City, Kansas (Unified Government), as of and for the year ended December 31, 2010, which collectively comprise the Unified Government s basic financial statements, and have issued our report thereon dated July 6, 2011. Our report includes a reference to other auditors. We conducted our audit in accordance with 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. Other auditors audited the financial statements of the Board of Public Utilities, as described in our report on the Unified Government 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. Internal Control over Financial Reporting In planning and performing our audit, we considered the Unified Government s internal control over financial reporting as a basis for designing our auditing procedures 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 Unified Government s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Unified Government s internal control over financial reporting. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as described in the accompanying schedule of findings and questioned costs, we identified certain deficiencies in internal control over financial reporting that we consider to be material weaknesses and other deficiencies that we consider to be significant deficiencies. 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 301 N. Main, Suite 1700 Wichita, Kansas 67202-4868 (316) 267-7231 (316) 267-0339 fax www.aghlc.com
material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiencies described in the accompanying schedule of findings and questioned costs as items 2010-1, 2010-2 and 2010-3 to be material weaknesses. 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. We consider the deficiencies described in the accompanying schedule of findings and questioned costs as items 2010-4, 2010-5, and 2010-6 to be significant deficiencies. Compliance and Other Matters As part of obtaining reasonable assurance about whether the financial statements of the Unified Government are free of 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. The Unified Government s responses to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs. We did not audit the Unified Government s responses, and, accordingly, we express no opinion on them. This report is intended solely for the information and use of the Board of Commissioners, management, others within the entity, federal awarding agencies and pass-through entities and is not intended to be, and should not be, used by anyone other than these specified parties. July 6, 2011 Wichita, Kansas Allen, Gibbs & Houlik, L.C. CERTIFIED PUBLIC ACCOUNTANTS 2
INDEPENDENT AUDITORS REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Board of Commissioners Unified Government of Wyandotte County / Kansas City, Kansas Compliance We have audited the compliance of the Unified Government of Wyandotte County / Kansas City, Kansas (Unified Government), 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 Unified Government s major federal programs for the year ended December 31, 2010. The Unified Government s major federal programs are 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 the Unified Government s management. Our responsibility is to express an opinion on the Unified Government s compliance, based on our audit. The Unified Government s basic financial statements include the operations of the Board of Public Utilities, a major fund, whose federal awards are not included in the Schedule of Expenditures of Federal Awards for the year ended December 31, 2010. Our audit, described below, did not include the operations of the Board of Public Utilities, which engaged other auditors to perform an audit in accordance with OMB Circular A-133. 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 Unified Government 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 of the Unified Government s compliance with those requirements. As described in items 2010-7, 2010-9, and 2010-15 in the accompanying schedule of findings and questioned costs, the Unified Government did not comply with requirements regarding equipment and suspension / debarment that are applicable to its Homeland Security Grant Program Cluster (#97.067) and its Aging Cluster (#93.044, 93.045, 93.053, 93.705, 93.707), and requirements regarding certain special tests and provisions and reporting applicable to its Economic Adjustment Assistance program (#11.307). Compliance with such requirements is necessary, in our opinion, for the Unified Government to comply with the requirements applicable to those programs. 301 N. Main, Suite 1700 Wichita, Kansas 67202-4868 (316) 267-7231 (316) 267-0339 fax www.aghlc.com
In our opinion, except for the noncompliance described in the preceding paragraph, the Unified Government 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 December 31, 2010. The results of our auditing procedures also disclosed other instances of noncompliance with those requirements, 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 2010-6, 2010-8, 2010-10, 2010-11, 2010-12, 2010-13, and 2010-14. Internal Control Over Compliance Management of the Unified Government 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 the Unified Government s internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine the auditing procedures for the purpose of expressing our opinion on compliance 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 Unified Government 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 significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as discussed below, we identified certain deficiencies in internal control over compliance that we consider to be material weaknesses and other deficiencies that we consider to be 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 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 deficiencies in internal control over compliance described in the accompanying schedule of findings and questioned costs as items 2010-7 and 2010-9 to be material weaknesses. 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 2010-6, 2010-8, 2010-10, and 2010-11 to be significant deficiencies. The Unified Government s responses to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs. We did not audit the Unified Government s responses, and, accordingly, we express no opinion on them. 4
This report is intended solely for the information and use of the Board of Commissioners, management, others within the entity, federal awarding agencies and pass-through entities and is not intended to be, and should not be, used by anyone other than these specified parties. December 5, 2011 Wichita, Kansas Allen, Gibbs & Houlik, L.C. CERTIFIED PUBLIC ACCOUNTANTS 5
INDEPENDENT AUDITORS REPORT ON SUPPLEMENTARY INFORMATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Board of Commissioners Unified Government of Wyandotte County / Kansas City, Kansas Schedule of Expenditures of Federal Awards 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 Unified Government of Wyandotte County / Kansas City, Kansas (Unified Government) as of and for the year ended December 31, 2010, and have issued our report thereon dated July 6, 2011. We did not audit the financial statements of the Board of Public Utilities, which is both a major fund and 85%, 84%, and 90%, respectively, of the assets, net assets, and revenues of the business-type activities. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Board of Public Utilities, is based solely on the report of the other auditors. Our audit was performed for the purpose of forming our opinions on the financial statements that collectively comprise the Unified Government s 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 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 Board of Commissioners, management, others within the entity, federal awarding agencies and pass-through entities and is not intended to be, and should not be, used by anyone other than these specified parties. July 6, 2011 Allen, Gibbs & Houlik, L.C. 301 N. Main, Suite 1700 Wichita, Kansas 67202-4868 (316) 267-7231 (316) 267-0339 fax www.aghlc.com
SECTION I SUMMARY OF AUDITORS RESULTS FINANCIAL STATEMENTS Type of auditors report issued: Unqualified Internal control over financial reporting: Material weaknesses identified? X yes no Significant deficiencies identified that are not considered to be material weaknesses? X yes none reported Noncompliance material to financial statements noted? yes X no FEDERAL AWARDS Internal control over major programs: Material weaknesses identified? X yes no Significant deficiencies identified that are not considered to be material weaknesses? X yes none reported Any audit findings disclosed that are required to be reported in accordance with section 510(a) of OMB Circular A-133? X yes no 7
SECTION I SUMMARY OF AUDITORS RESULTS (Continued) Identification of major programs and type of auditors report issued on compliance for major programs: See Below CFDA NUMBER NAME OF FEDERAL PROGRAM OPINION 10.557 Special supplemental Nutrition Program for Women, Infants and Unqualified Children (WIC) 11.307 Economic Adjustment Assistance (Revolving Loan Fund) Qualified 14.218 / 14.253 Community Development Block Grants Cluster Unqualified 14.239 HOME Investment Partnerships Program Unqualified 14.257 Homelessness Prevention and Rapid Re-housing Program Unqualified (HPRP)(Recovery Act Funded) 93.044 / 93.045 / 93.053 / Aging Cluster: Special Programs for the Aging Title III Part B, Title Qualified 93.705 / 93.707 III, Part C and Nutrition Services Incentive Program 97.067 Homeland Security Grant Program Cluster Qualified 97.083 Staffing for Adequate Fire and Emergency Response (SAFER) Unqualified Dollar threshold used to distinguish between type A and type B programs: $ 531,375 Auditee qualified as low-risk auditee? yes X no 8
SECTION II FINANCIAL STATEMENT FINDINGS Finding 2010-1: Bank Reconciliations Main Operating Accounts (Material Weakness) Condition: A bank reconciliation is prepared daily by the Treasurer s Office for the Unified Government s main operating cash accounts. However, the reconciliation provided for testing as of December 31, 2010 had significant unreconciled variances dating to approximately April 2010, indicating the reconciliation had not been accurately completed since that time. Criteria or Specific Requirement: Preparation of a complete and accurate bank reconciliation is one of the most significant controls pertaining to the recording of cash and investments, and for the prevention of misappropriation of assets. Cause: There was a change in personnel in late 2009, resulting in a different person being responsible for the daily bank reconciliations. New personnel may not have been adequately trained. Additionally, there was a lack of adequate supervisory review of the reconciliations. Effect: Lack of controls and procedures could result in a material misstatement of cash and investments, and potentially misappropriation of assets. Recommendation: We recommend procedures be designed and implemented that ensure the daily reconciliation process includes timely identification and resolution of reconciling items. Additionally, we recommend the process be monitored by either the Accounting Department or the Legislative Auditors Office to ensure it is being completed. Management Response: A daily bank reconciliation is prepared by the Treasury department. It compares the daily bank balance to the general ledger balance at the end of that particular day. It must have a zero balance at the end of the day. The bank reconciliation can have variances that are dated, listed and noted to best of the knowledge of the Treasury based on the reports that they have run. These variances may include, but are not limited to bank transactions that have not been posted to the general ledger (for example - wires that have not been entered on the books or receipts that postings have not yet been identified and made), differences between the general ledger postings and the actual activity at the bank (system errors) and timing differences (when a posting to the general ledger does not coincide exactly with the date of the activity on the bank). Once the Treasury office completes their review, noting any differences for the day, a copy of the reconciliation is sent to Accounting staff and manager, as well as the legislative auditor with additional communication made to Accounting to advise specific reconciling items that need to be addressed. In recognition of the fact that there are still reconciling items that are being resolved, management is working on creating a specific standard operating procedure SOP for this process. As a first step, in February of 2011 procedures were developed to accurately record wire transactions. The final SOP will detail which department has responsibility for the specific steps in the process and will outline management s expected communications and results. This will be completed and implemented by August 1, 2011. 9
SECTION II FINANCIAL STATEMENT FINDINGS Finding 2010-2: Accounting and Financial Reporting (Material Weakness) Condition: The Unified Government s management is responsible for the accuracy, completeness, and fairness of data presented in the Comprehensive Annual Financial Report, including all disclosures. During 2010, the Unified Government supplemented its year-end closing process by hiring an external accounting firm to assist with preparing entries needed for the GAAP financial statements. This significantly improved the process compared to prior years. Remaining deficiencies in the controls over the period-end financial reporting process include: a) A deficiency among accounting personnel in understanding the Governmental Accounting Standard Board guidance related to governmental generally accepted accounting principles (GAAP) to record financial transactions and to prepare the annual financial statements. Internal resources are not available, and there is a lack of controls and procedures over the preparation of financial statements. b) A deficiency in controls over procedures used to initiate, authorize, record and process journal entries into the general ledger, and record recurring and nonrecurring adjustments to the financial statements. As noted previously, the hiring of an external accounting firm to assist with the year-end closing process has improved this. Certain material adjustments were still made during the audit process, including: to adjust amounts recorded for certain capital assets to reconcile and record pollution remediation and landfill closure / post-closure obligations to adjust estimates for incurred but not reported health and workers compensation claims to adjust estimates for other post-employment benefits to adjust amounts recorded for early termination benefits to reconcile and adjust activity related to capital leases to record receivables related to the sale of land for a new economic development project c) A deficiency related to the reconciliation of special assessments receivable to the underlying outstanding assessments in the property tax system. We encountered difficulties in obtaining a report from the clerk s office or the tax system that would have included accurate amounts of the outstanding receivable. d) During our review of certain agreements related to the soccer stadium / office park development, we identified a number of issues that had accounting and financial reporting implications. This included significant unrecorded receivables and significant matters for footnote disclosure in the financial statements. This development project was unusual in nature, and is not something the Unified Government does on a regular, recurring basis. While management was fully aware of all aspects of these agreements, there was a lack of procedures for identifying and recording activity related to the agreements in the financial statements. 10
Criteria or Specific Requirement: Internal controls should be designed to provide adequate control over the preparation of reliable financial statements. Cause: Accounting personnel responsible for preparation of the Comprehensive Annual Financial Report are not adequately trained in generally accepted accounting principles issued by the GASB. Additionally, internal resources are not sufficient, and there is a lack of documented policies and procedures, and controls for ensuring completion of tasks needed to prepare the financial statements. Effect: Lack of resources, controls and procedures could result in a material misstatement to the financial statements. Recommendation: We recommend management: a) continue to work with the external accounting firm to assist with the year-end preparation of the financial statements, and evaluate and strengthen controls and procedures to capture the information needed to identify, authorize, record and process recurring and nonrecurring journal entries and year-end adjustments to the financial statements. Additionally, the hiring of personnel with appropriate skills would provide internal resources to the organization. b) consider additional training for staff in the preparation of financial statements, and ensure that key personnel in the accounting area are trained in the requirements of governmental accounting and reporting c) continue working with the clerk s office to generate an accurate and complete listing of special assessments that are still outstanding d) evaluate how to improve communication of significant projects between management members knowledgeable of the projects and the accounting office. Additionally, due to the complexity of these projects, guidance may be needed from either the external auditors or other external accounting consultants. Management Response: Management has taken steps to address the issues identified. As noted, the Government contracted with the accounting firm, BKD, to assist in recording year-end entries. The process will include a future meeting with both the external auditor and BKD to review and discuss the entries completed this year and identify how the process can be improved in the future. Additionally, BKD is scheduled to provide staff training and procedures, upon completion of the audit to develop internal capacity with this area of financial reporting. Our goal is to continue to make progress towards staff assuming this responsibility. The receipt of a report indicating outstanding special assessment receivables was identified as an issue. Although the tax software does not include such a report (future assessments), the Clerk s Office maintains records of special assessments. Finance will work with the Auditor and Clerk to insure that these records are provided in a timely manner. It should also be noted that due to staff retirements and reductions, the Accounting Division is functioning with an equivalent of 2.5 less full-time equivalent employees. This limits the ability of existing staff to perform these entries. However, we believe the future training and procedures provided by BKD will improve staff s abilities. 11
SECTION II FINANCIAL STATEMENT FINDINGS Finding 2010-3: Accounting for Capital Assets (Material Weakness) Condition: Capital asset data was found to include errors relating to the accuracy and completeness of the data. Certain adjustments to the capital asset records were required as a result of our procedures, including: a) the identification of completed construction in process (CIP) projects, and removal of those projects from CIP b) recording assets in the Stormwater Fund that had not been previously recorded c) recording assets resulting from capital outlay expenditures funded by American Recovery and Reinvestment Act programs (from fund 820) d) recording assets acquired under capital lease agreements e) the identification of assets acquired under non-cash federal grant awards Criteria or Specific Requirement: Internal controls should be designed so that transactions are properly recorded and accounted for, to permit the preparation of reliable financial statements. Cause: Accounting personnel responsible for preparation of the Comprehensive Annual Financial Report are not adequately trained in generally accepted accounting principles issued by the GASB. Additionally, formal policies and procedures are not in place to address the steps required in accounting for the accuracy and completeness of data, including monitoring and review procedures over the process. Effect: Lack of controls and procedures could result in a material misstatement of the financial statements. Recommendation: The external accounting firm hired to assist with the year-end closing process is also providing assistance with the recording of capital assets. We recommend management continue to evaluate procedures to ensure all capital asset activity is identified, evaluated for recording as a capital asset, and properly reconciled to the general ledger. Management Response: Accounting and Finance staff have placed an emphasis on the refinement of a capital asset database. The Unified Government has engaged an outside Accounting Firm, BKD, to assist in the training of staff to identify and record these entries prior to the audit fieldwork. 12
SECTION II FINANCIAL STATEMENT FINDINGS Finding 2010-4: Municipal Court (Significant Deficiency) Condition: During our review of internal controls in the Municipal Court, we noted the following: a) Municipal Court personnel are unable to generate a listing of bonds outstanding for the bond accounts, and that there is currently no reconciliation being done between the total bonds outstanding and the bank account balance. b) Clerks in Municipal Court have the ability to accept and post payments, and the ability to void transactions without supervisory approval. There is a policy that voided receipts must be approved by a supervisor at the time of the void; however, the clerks have access to perform the voids without that approval. As a compensating control, there is a daily report generated that shows voided transactions. This report is reviewed by a supervisor; however, it is one of the supervisors with access to enter voided transactions. We recommend that the daily voids / adjustments report be reviewed by someone without access to approve voids and adjustments. c) Municipal Court does not have a report or listing that provides them with the total fines that should be collected from the respective issuing departments each day. A possibility exists that the Municipal Court may not be recording all fines because they are not aware that the fines exist. The Unified Government has implemented an electronic ticketing system that would allow for better tracking of tickets issued. Currently, the system is not integrated with the municipal court systems to allow for all tickets issued to automatically be uploaded. Therefore, there remains a risk that tickets issued are not properly submitted for collection. Criteria or Specific Requirement: Internal controls should be designed to provide for adequate segregation of duties, and for reconciliations of transaction activity to the bank accounts as part of the monitoring process. Cause: There may be system limitations for generating the list of bonds outstanding. Additionally, there was a lack of understanding that the daily report should be reviewed by someone other than an individual with access to enter voided transactions. Effect: Lack of adequate segregation of duties and proper reconciliations could result in misappropriation of assets and misstatements to the financial statements. Recommendation: We recommend that job duties be evaluated for personnel in the Municipal Court area who handle cash, and that procedures be implemented to ensure that voided transactions or other adjustments to the system have adequate supervisory review. In addition, procedures should be implemented so that a reconciliation can be performed between the cash account where bond activity is recorded and the detail listing of outstanding bonds. Management Response: Three deficiencies were identified in the Municipal Court review. a) Municipal Court agrees that reconciliation should be done with the bonds account. The Court s application has a feature that tracks bonds activity and reports capturing bond information and funds posted or paid out. However, none of the reports reconcile with actual bond 13
accounts. To reconcile bond accounts would require starting fresh by closing the current account then opening a new account. Municipal Court will submit a request to the government s Technology Department for a report to allow for this reconciliation. b) Municipal Court currently has two supervisory positions. These individuals need to have the ability to approve voids. However, the Court will assign a senior clerk to review void reports and verify actual payments are recorded accurately. c) Electronic tickets are automatically uploaded to the Court s application. Assessed fines are automatically uploaded into the system unless the violations require mandatory court appearance. There is very minimal cause for manual entry. The Police Department in September of 2011 will begin using REJIS for recording offenses, excluding tickets. Tickets will continue to be transferred through E-Ticketing. Municipal Court could potentially have the ability to view and access records from the REJIS database and create an interface with their software application. 14
SECTION II FINANCIAL STATEMENT FINDINGS Finding 2010-5: Treasury Property Tax Collections (Significant Deficiency) Condition: During our review of internal controls in the Treasurer s Office pertaining to collections on property taxes, we noted that a proper void report could not be generated from the new system for supervisory review. The existing void report notes that a transaction was voided, but does not give sufficient detail as to the amount to allow the supervisor to properly review the void. Mitigating controls include the fact that all voided receipts must be turned in daily to the supervisor for review and the supervisor does review these voided receipts for validity. However, the supervisor would not know if they are reviewing the proper transaction or all voided transactions due to not having an adequate listing from the system. Criteria or Specific Requirement: Internal controls should be designed to provide for adequate controls over transactions. Cause: The void report currently generated does not have sufficient detail for an adequate review. Effect: Lack of adequate internal control could result in misappropriation of assets and misstatements to the financial statements. Recommendation: We recommend that reports generated for supervisory review be evaluated to ensure that adequate information is available to conduct the review. Management Response: While there are some limitations to the report provided by the tax administration system (it does not include the amount of the void), management believes that they have mitigated most risk of loss due to this limitation by putting processes into place to review all voids that occur. Management requires a void report from each clerk along with a copy of the receipt that was voided with reasoning provided. The receipt copies are compared to the void report provided by the clerk. To ensure that the clerk s report and copies are properly provided, management runs a master void report that lists all voids by each clerk for the day. Although the reports do not indicate the dollar amount being voided, it does indicate sufficient information for management to confidently review the activity including but not limited to customer, receipt number, parcel number and comments. As of May 19, 2011, the void report shows the dollar amount being voided. 15
SECTION II FINANCIAL STATEMENT FINDINGS Finding 2010-6: Schedule of Expenditures of Federal Awards (Significant Deficiency) Condition: OMB Circular A-133 requires the Unified Government to prepare a schedule of expenditures of federal awards (SEFA) for the period covered by the financial statements. Management s current procedures capture most of the information needed, including a listing of individual federal programs by federal agency and pass-through entity where applicable, and total federal awards expended under each program. However, we noted the following deficiencies related to the preparation of the schedule: a) Certain programs were identified that had not been previously identified as federally-funded programs, resulting in federal expenditures not being included on the schedule. These programs related to non-cash awards, where certain departments within the Unified Government received equipment from federal grant programs. b) Additional items required in the schedule include: a) identification of individual awards within a cluster of programs, b) the identifying number assigned by the pass-through entity for federal awards received as a subrecipient, and c) to the extent practical, the total amount provided by the Unified Government to its subrecipients from each federal program. Management has implemented a form that is sent to individual departments to accumulate this information; however, the process did not capture all the information. We recommend management continue to work on improving the implementation of this process. Criteria or Specific Requirement: An entity that expends federal awards must have controls in place that would enable the entity to compile a SEFA. A SEFA identifies and tracks all federal awards and their related information, including but not limited to the Catalog of Federal Domestic Assistance (CFDA No.), grant award title, grant award amount and federal expenditures. Cause: While the Unified Government has a process in place to track federal awards, it does not capture all required data, and noncash awards or new grants are more likely to be missed. Effect: A SEFA allows for increased knowledge of all federal grant activity at the overall Unified Government level. The lack of an accurate and complete SEFA hinders this knowledge and could lead to grant noncompliance. Recommendation: We recommend management continue to work on improving the implementation of the process that captures information for the SEFA. Overall, we recommend management consider having all federal grants tracked centrally, and that the Unified Government appoint someone to oversee expenditures of, and compliance with, all grant programs. Management Response: Management will revise the form that is sent to individual departments to include all required information and specifically indicate that non-cash awards need to be reported. 16
SECTION III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Finding 2010-6: Schedule of Expenditures of Federal Awards (Significant Deficiency) This finding, as reported under Section II Financial Statement Findings, is also considered to be a Federal Award Finding. For complete description, see Section II. Finding 2010-7 (Material Weakness): CFDA # 93.044 / 93.045 / 93.053 / 93.705 / 93.707 97.067 Program Aging Cluster: Special Programs for the Aging Title III Part B, Title III Part C, and Nutrition Services Incentive Program, U.S. Department of Health and Human Services, passed through the Kansas Department of Aging Homeland Security Grant Program Cluster, U.S. Department of Homeland Security, passed through the Kansas State Highway Patrol Condition: The programs above do not have sufficient procedures for ensuring that contracts are not entered into with parties who are suspended or debarred. Criteria or Specific Requirement: Under the A-133 Compliance Supplement, non-federal entities are prohibited from contracting or making subawards under covered transactions to parties that are suspended or debarred. Covered transactions include those procurement contracts for goods and services awarded under a nonprocurement transaction (e.g., grant or cooperative agreement) that are expected to equal or exceed $25,000, as well as all nonprocurement transactions (i.e., subawards to subrecipients), irrespective of award amount. Questioned Costs: None noted. A subsequently performed verification check of vendors on the EPLS website at http://epls.arnet.gov noted that none were suspended or debarred. Context: No formal procedures were identified to ensure compliance with the requirements, either by the Unified Government Purchasing department, or the program management staff for the grant programs. For the Aging Cluster, a verification check was not completed for two vendors receiving $152,367 in 2010. During testing of Homeland Security Cluster, 18 of 25 expenditures tested were subject to the requirement; with 15 of those not having the documented verification check completed. Effect: A lack of procedures could result in inappropriate vendor or subrecipient contracts, and ultimately, unallowable costs. Cause: Management indicates this condition was due to a lack of understanding regarding this OMB Circular A-133 requirement. Recommendation: We recommend management establish controls to ensure departments have procedures for verifying whether a potential vendor or subrecipient is suspended or debarred. This can be accomplished by checking the EPLS website, or by adding a clause or condition to the covered transaction agreement. If the EPLS site is utilized, such verification checks should be documented in the contract file. 17
SECTION III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Management Response: The Unified Government established a process to ensure vendors are not debarred. The form entitled debarment and suspension certification is attached to all formal bids and RFPs handled through the procurement department. That form has been forwarded to all department heads who handle their own grant funded projects. They have been advised to use that form or the EPLS website for all vendors and subs expecting to receive Federal funds equal to or exceeding $25,000. Finding 2010-8 (Significant Deficiency): #93.705 / 93.707, Aging Cluster, ARRA Aging Home-Delivered Nutrition Services for States and Aging Congregate Nutrition Services for States, Department of Health and Human Services, Passed Through the Kansas Department on Aging Condition: Regarding funds passed through to subrecipients, the Unified Government did not separately identify to each subrecipient, and document at the time of the subaward and disbursement of funds, the Federal award number, CFDA number, and the amount of ARRA funds. Criteria or Specific Requirement: 2 CFR 176.210 requires that recipients agree to separately identify to each subrecipient, and document at the time of subaward and at the time of disbursement of funds, the award number, CFDA number, and amount of Recovery Act funds. Questioned Costs: Unknown. Context: The American Recovery and Reinvestment Act requirements were new in 2009, and the Unified Government received ARRA funding under this program for the first time in 2010. There was one subrecipient of ARRA funding, and that entity received $18,178 during the grant period. Effect: A lack of procedures could result in inappropriate subrecipient contracts, and ARRA funds not being reported properly by the subrecipients. Cause: Likely due to management having a lack of understanding of the new requirements under the Recovery Act. Recommendation: We recommend management establish controls to ensure departments have adequate training in Recovery Act requirements, and have documented procedures for implementing those requirements. Management Response: The Aging Department will establish internal controls to ensure it separately identifies to each subrecipient, and document at the time of the sub-award and disbursement of funds, the Federal award number, CFDA number, and the amount of ARRA funds. Additionally, because there are currently no other ARRA funded awards expected, no further instance of non-compliance is expected. 18
SECTION III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Finding 2010-9 (Material Weakness): #97.067, Homeland Security Grant Program, U.S. Department of Homeland Security, Passed Through the Kansas Highway Patrol, Urban Areas Security Initiative (UASI) Awards Condition: Equipment purchased through this grant program was not recorded on the Unified Government s physical inventory of equipment. The equipment was acquired by the pass-through entity in connection with their fiscal administration of the grant program, then distributed to the Unified Government. The Unified Government does not have adequate internal controls for identifying and recording the receipt of equipment received in these circumstances. Criteria or Specific Requirement: 2 CFR section 215.34 requires that equipment records shall be maintained accurately for all equipment acquired with federal funds. Questioned Costs: None were noted. Context: Equipment totaling $62,181 was received under the grant program in 2010 and not recorded on the physical inventory records. Equipment totaling $1,405,180 from 2004 through 2009 is also not included on the inventory records. Effect: Equipment may not be properly utilized as part of the intended grant program, and upon disposal of the equipment, there would be no recorded identification of the items being disposed as being funded from federal dollars, which could result in improper disposition of equipment under federal guidelines. Cause: The Unified Government does not have adequate internal controls for identifying and recording the receipt of equipment purchased by pass-through entities and then passed on to the Unified Government. There is a lack of general awareness of the equipment requirements in those departments that receive this equipment. Recommendation: We recommend that all federal grants be tracked centrally and that the Unified Government consider appointing someone to oversee expenditures of and compliance with, grant programs. Management Response: The Unified Government will establish internal controls to ensure equipment received from a Federal grant as a non-cash award be recorded on its physical inventory of equipment. Specifically, Unified Government management will communicate Federal compliance requirements with those departments most likely to obtain equipment as a non-cash award. The requirement to report non-cash awards will be indicated on the SEFA reporting form. 19
SECTION III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Finding 2010-10 (Significant Deficiency): #14.257, Homelessness Prevention and Rapid Re-housing Program (HPRP)(Recovery Act Funded), U.S. Department of Housing and Urban Development, Award Number S09-MY-20-0001 Condition: Subrecipient monitoring was not conducted in accordance with the following OMB Circular A-133 requirements: a) there was no procedure or control in place to ensure that subrecipients expending $500,000 or more in Federal awards during the subrecipient s fiscal year met the audit requirements provided in OMB Circular A-133, and b) on-site reviews were not performed as part of during-the-award monitoring to provide reasonable assurance that subrecipients used federal awards for authorized purposes, complied with laws, regulations and the provisions of contracts and grant agreements, and achieved performance goals. Criteria or Specific Requirement: OMB Circular A-133 Section.400(d) requires that subrecipient monitoring be performed, including during-the-award monitoring, and reviews of subrecipient audits. Questioned Costs: Unknown. Context: There were two subrecipients during 2010. Neither was required to have an audit subject to the requirements of OMB Circular A-133. Certain during-the-award monitoring is completed, including reviews of reimbursement requests submitted by the subrecipients, which include supporting documentation for salaries and other expenditures. In addition, regular contact with subrecipients occurred through meetings, phone conversions and email correspondence. Effect: A lack of procedures could result in inappropriate subrecipient activities and reimbursements, and ultimately, unallowable costs. Cause: Management reported that there was turnover in the director of the development department, and that the program coordinator for homeless programs left in 2010, leaving other staff to cover responsibilities until a new coordinator was hired. Recommendation: We recommend management establish procedures that strengthen its subrecipient monitoring and ensure compliance with OMB requirements. Management Response: The Community Development Department currently monitors HPRP subrecipients by requiring supporting documentation of all costs to be submitted before reimbursement. The Community Development Department will establish internal controls to ensure on-site monitoring of subrecipients is performed annually and that subrecipients meet their audit requirements. Regarding ensuring subrecipient audit requirements are met, the Community Development Department will continue to utilize the Federal Clearing House web site to monitor subrecipient audit reports. 20
SECTION III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Finding 2010-11 (Significant Deficiency): CFDA # Program 14.218 / 14.253 Community Development Block Grants Cluster, U.S. Department of Housing and Urban Development 14.239 HOME Investment Partnerships Program, U.S. Department of Housing and Urban Development Condition: Documentation of the comparison of budgeted distributions of salaries to actual costs based on time activity reports was not completed where employees work on multiple activities. In addition, other employees whose salaries are charged 100% to the CDBG or HOME programs crosstrain and have some program duties related to other federal HUD grant programs. Criteria or Specific Requirement: OMB Circular A-87 states that where budget estimates or other distribution percentages are determined before services are performed, the government should, at least quarterly, perform comparisons of actual costs to budgeted distributions based on monthly activity reports. Distribution percentages should be revised, if necessary, to reflect changed circumstances. Questioned Costs: Questioned costs pertaining to employees who are charged 100% to HOME or CDBG but who may incur efforts for programmatic duties related to other federal HUD grant programs is unknown. Total salaries and fringe benefits for the two employees for the HOME program were $136,876, and for the CDBG program were $826,242. Context: Employees are tracking their time spent on their activities; however, this data has not been utilized to distribute their time to the different cost centers. 24 CFR 570.206 allows for CDBG funds to be used to pay for HOME program administration costs. Therefore, the Condition described above for the CDBG program pertains primarily to non-program administration activities performed by employees, and their corresponding salary expenditures. Regarding the employees whose salaries are charged 100% to CDBG, but who may incur efforts on other programs, it was noted that, of the total federal funding received directly from HUD, approximately 58% is for CDBG, 24% is for HOME, and 18% for other programs. Effect: Salary expenditures incurred under the program may not be allowed as a cost of the grant without proper documentation. Cause: Procedures put in place in 2009 to review the time activity reports and distribute salaries were not continued in 2010. Recommendation: We recommend management utilize the time study process started in 2009 to perform quarterly comparisons of actual costs to budgeted distributions. Additionally, distribution percentages should be revised, if necessary, to reflect changed circumstances. Management Response: Regarding employees whose salaries are paid 100% by CDBG or HOME, the Unified Government will utilize time studies to compare actual salary costs to budgeted distributions. Additionally, the Unified Government will establish internal controls to make quarterly adjustments as necessary to the budgeted distributions based on those comparisons. 21