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FY 2017/18 Single Audit Report CITY OF LA QUINTA, CALIFORNIA SINGLE AUDIT REPORT FOR THE YEAR ENDED JUNE 30, 2018 CITY OF LA QUINTA, CALIFORNIA SINGLE AUDIT REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2018 TABLE OF CONTENTS PAGE 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 Independent Auditors’ Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance; and Report on the Schedule of Expenditures of Federal Awards Required by the Uniform Guidance 3 Schedule of Expenditures of Federal Awards 6 Notes to Schedule of Expenditures of Federal Awards 7 Schedule of Findings and Questioned Costs I. Summary of Auditors’ Results 8 II. Financial Statement Findings 9 III. Federal Award Findings and Questioned Costs 10 Summary Schedule of Prior Audit Findings 13 19340 Jesse Ln., Suite 260, Riverside, CA 92508 P 951.367.3000 F 951.367.3010 W vtdcpa.com 1 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 Honorable Mayor and Members of the City Council of the City of La Quinta La Quinta, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business- type activities, each major fund, and the aggregate remaining fund information of the City of La Quinta, California (City), as of and for the year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements and have issued our report thereon dated December 27, 2018. Our report included an emphasis of matter regarding the City’s adoption of Governmental Accounting Standards Board (GASB) Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions, effective July 1, 2017. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. 2 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. 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. Riverside, California December 27, 2018 19340 Jesse Ln., Suite 260, Riverside, CA 92508 P 951.367.3000 F 951.367.3010 W vtdcpa.com 3 INDEPENDENT AUDITORS’ REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY THE UNIFORM GUIDANCE To the Honorable Mayor and Members of the City Council of the City of La Quinta La Quinta, California Report on Compliance for Each Major Federal Program We have audited the City of La Quinta, California’s (City) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the City’s major federal programs for the year ended June 30, 2018. The City’s major federal programs are identified in the summary of auditors’ results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditors’ Responsibility Our responsibility is to express an opinion on compliance for each of the City’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the City’s compliance. Opinion on Each Major Federal Program In our opinion, the City complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2018. 4 Other Matters The results of our auditing procedures disclosed instances of noncompliance which are required to be reported in accordance with the Uniform Guidance and which are described in the accompanying schedule of findings and questioned costs as items 2018-001 and 2018-002. Our opinion on each major federal program is not modified with respect to these matters. The City’s response to the noncompliance findings identified in our audit is described in the City’s corrective action plan. The City’s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. Report on Internal Control over Compliance Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’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. 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 and therefore, material weaknesses or significant deficiencies may exist that have not been identified. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, we did identify certain deficiencies in internal control over compliance, described in the accompanying schedule of findings and questioned costs as items as 2018-001 and 2018-002, that we consider to be significant deficiencies. The City’s response to the internal control over compliance findings identified in our audit is described in the City’s corrective action plan. The City’s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. 5 Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City, as of and for the year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements. We issued our report thereon dated December 27, 2018, which contained unmodified opinions on those financial statements. Our report included an emphasis of matter paragraph regarding the County’s adoption of Governmental Accounting Standards Board (GASB) Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. 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. Riverside, California March 8, 2019 CITY OF LA QUINTA, CALIFORNIA SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE FISCAL YEAR ENDED JUNE 30, 2018 See accompanying notes to Schedule of Expenditures of Federal Awards 6 Federal Pass-Through Amount CFDA Identification Federal Provided to Number Number Expenditures Subrecipients U.S. Department of Agriculture Direct Assistance: 10.427 N/A 304,474$ -$ Total U.S. Department of Agriculture 304,474 - U.S. Department of Housing and Urban Development Community Development Block Grant/Entitlement Grants Cluster: Passed through the County of Riverside: 14.218 4.LQ.30-17 187,282 18,360 Total Community Development Block Grants/Entitlement Grants Cluster 187,282 18,360 Total U.S. Department of Housing and Urban Development 187,282 18,360 U.S. Department of Transportation Highway Planning and Construction Cluster: Passed through the State of California, Department of Transportation: 20.205 BRLKS-5433(014) 384,036 - 20.205 HSIPL-5433(015) 26,186 - 20.205 HSIPL-5433(017) 32,232 - 20.205 BMPL-5433(018) 30,000 - Total Highway Planning and Construction Cluster 472,454 - Total U.S. Department of Transportation 472,454 - U.S. Department of Homeland Security Passed Through California Governor's Office of Emergency Services: 97.042 2017-0007 12,299 - 97.067 2015-SS-00078 5,786 - Total U.S. Department of Homeland Security 18,085 - Total Expenditures Federal Awards 982,295$ 18,360$ Highway Planning and Construction Highway Safety Improvement Program (HSIP) Emergency Management Performance Grants (EMPG) State Homeland Security Grant Program Highway Bridge Preventative Maintenance Program Highway Safety Improvement Program (HSIP) Federal grantor / pass-through Community Development Block Grant/Entitlement Grants grantor / program or cluster title Rural Rental Assistance Payments CITY OF LA QUINTA, CALIFORNIA NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE FISCAL YEAR ENDED JUNE 30, 2018 7 NOTE #1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. General The accompanying schedule of expenditures of federal awards (the “Schedule”) includes the federal award activity of the City under programs of the federal government for the year ended June 30, 2018. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the City, it is not intended to and does not present the financial position, changes in net position, or cash flows of the City. 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 City’s financial statements. Such expenditures are recognized following, as applicable, either the cost principles in Office of Management and Budget Circular A-87, Cost Principles for State, Local and Indian Tribal Governments, or the cost principles contained in Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, wherein certain types of expenditures are not allowable or are limited as to reimbursement. C. Relationship to Federal Financial Reports Amounts reported in the accompanying Schedule of Expenditures of Federal Awards agree with the amounts reported in the related federal financial reports. However, certain federal financial reports are filed based on cash expenditures. As such, certain timing differences may exist in the recognition of revenues and expenditures between the Schedule of Expenditures of Federal Awards and the federal financial reports. D. Indirect Cost Rate The City has elected not to use the 10-percent de minimis indirect cost rate as allowed under the Uniform Guidance. CITY OF LA QUINTA, CALIFORNIA SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE FISCAL YEAR ENDED JUNE 30, 2018 I. SUMMARY OF AUDITORS’ RESULTS 8 FINANCIAL STATEMENTS Type of report the auditor issued on whether the financial statements audited were prepared in accordance with GAAP: Unmodified Internal control over financial reporting: Material Weakness(es) identified? No Significant Deficiency(ies) identified? No Noncompliance material to financial statements noted? No FEDERAL AWARDS Internal control over major federal programs: Material Weakness(es) identified? No Significant Deficiency(ies) identified? Yes Type of auditors' report issued on compliance for major federal programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with 2 CFR Section 200.516(a)? Yes Identification of major federal programs: CFDA Number Name of Federal Program or Cluster 20.205 Highway Planning and Construction Cluster Dollar threshold used to distinguish between Type A and Type B programs: 750,000$ Auditee qualified as low-risk auditee? No CITY OF LA QUINTA, CALIFORNIA SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE FISCAL YEAR ENDED JUNE 30, 2018 II. FINANCIAL STATEMENT FINDINGS 9 None Noted. CITY OF LA QUINTA, CALIFORNIA SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2018 III. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS 10 Finding 2018-001 Program: Highway Planning and Construction Cluster CFDA No.: 20.205 Federal Grantor: U.S. Department of Transportation Passed-through: State of California Department of Transportation Award Year: FY 2017-18 Compliance Requirements: Allowable Costs/Cost Principles, Cash Management Criteria: Title 2 CFR Section 200.302(b)(6) and (7) of the Uniform Guidance requires all non-Federal entities to establish written procedures to implement the requirements of 2 CFR section 200.305 (Payment) and for determining the allowability of costs in accordance with Subpart E – Cost Principles and the terms and conditions of the Federal award. Condition: Significant Deficiency, Instance of Non-Compliance – The City has not established written procedures to implement the cash management requirements of 2 CFR Section 200.305 or requirements for determining allowability of costs in accordance with Subpart E – Cost Principles or the terms and conditions of the Federal award. Questioned Costs: No questioned costs were identified as a result of our procedures. Context: The condition noted above was identified during our procedures related to cash management and allowable costs for the Highway Planning and Construction program, which is subject to the Uniform Guidance. Effect: The City has not complied with the specific requirements for written procedures over cash management and allowable costs as described in the Uniform Guidance. Cause: The City’s procedures did not ensure the required written procedures were developed and implemented in accordance with the Uniform Guidance. Recommendation: We recommend the City review its policies and formalize written procedures related to cash management requirements within 2 CFR Section 200.305 and allowable costs in accordance with Subpart E – Cost Principles. CITY OF LA QUINTA, CALIFORNIA SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2018 III. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS 11 Views of Responsible Officials and Planned Corrective Actions: See separate corrective action plan. Finding 2018-002 Program: Highway Planning and Construction Cluster CFDA No.: 20.205 Federal Grantor: U.S. Department of Transportation Passed-through: State of California Department of Transportation Award Year: FY 2017-18 Compliance Requirements: Procurement, Suspension, Debarment Criteria: Title 2 CFR Section 200.213 of the Uniform Guidance states that the City must comply with 2 CFR part 180, which implements Executive Order 12549 and 12689, “Debarment and Suspension;” Federal awarding agency regulation in Title 2 of the CFR adopting/implementing the OMB guidance in 2 CFR part 180; program legislation; and the terms and conditions of the award. The 2018 compliance supplement states:  Non-Federal entities are prohibited from contracting with or making subawards under covered transactions to parties that are suspended or debarred. “Covered transactions” include contracts for goods and services awarded under a non-procurement transaction (e.g., grant or cooperative agreement) that are expected to equal or exceed $25,000 or meet certain other criteria as specified in 2 CFR section 180.220. All non-procurement transactions entered into by a pass-through entity (i.e., subawards to subrecipients), irrespective of award amount, are considered covered transactions, unless they are exempt as provided in 2 CFR section 180.215.  When a non-Federal entity enters into a covered transaction with an entity at a lower tier, the non-Federal entity must verify that the entity, as defined in 2 CFR section 180.995 and agency adopting regulations, is 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) and available at https://www.sam.gov/portal/public/SAM/, (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).  Non-Federal entities receiving contracts from the Federal Government are required to comply with the contract clause at FAR 52.209-6 before entering into a subcontract that will exceed $30,000, other than a subcontract for a commercially available off-the-shelf item. Condition: Significant Deficiency, Instance of Non-Compliance - As a result of the test work performed, the City did not have proper procedure in place for verifying that vendors were not debarred, suspended or otherwise excluded prior to entering into covered transactions. CITY OF LA QUINTA, CALIFORNIA SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2018 III. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS 12 Questioned Costs: No questioned costs were identified as a result of our procedures Context: Two of the two procurements selected for test work did not have evidence of suspension and debarment verification prior to entering into the covered transaction. However, of the 2 transactions selected for testing, we noted none of the vendors selected were identified as a suspended or debarred vendor on Sam.gov as of the date of our fieldwork. Effect: As a result of the condition noted, there is an increased risk of non-compliance with procurement, suspension and debarment requirements. Cause: The City does not have proper procedures in place for verifying that vendors are not suspended, debarred or otherwise excluded prior to entering into covered transactions. Recommendation: We recommend the City implement policies and procedures to verify all vendors who are providing services to federally funded programs in excess of $25,000 to ensure that the entity is not suspended, debarred, or otherwise excluded. This verification should be checked on the System for Awards Management (SAM) website, and evidence of the verification should be maintained. Views of Responsible Officials and Planned Corrective Actions: See separate correction action plan. CITY OF LA QUINTA, CALIFORNIA SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 13 Financial Statement Findings 2017-001 Timely approval of cash disbursements 2017-002 Segregation of duties - pay rate approvals Implemented Finding No. Description Status of Corrective Action Implemented Federal Findings None reported.