HomeMy WebLinkAboutAgenda Report - July 21, 2021 C-25C- 25
CITY OF LODI
COUNCIL COMMUNICATION
AGENDA TITLE: Receive for File the Following Reports and Financial Statements Submitted by The
Pun Group, LLP and the Finance Department for FY2019-2020 Including Single
Audit Report
MEETING DATE: July 21, 2021
PREPARED BY: Accounting Manager
RECOMMENDED ACTION. Receive for file the following reports and financial statements
submitted by The Pun Group, LLP and the Finance Department for
Fiscal Year 2019-2020 including the Single Audit Report.
BACKGROUND INFORMATION: The annual audit was conducted to assure the City Council and
other interested parties that the City's financial reports and reports
are prepared in accordance with generally accepted accounting
principle (GAAP) against loss from unauthorized use or disposition of assets and that the City has
complied with all agreements and covenants to obtain grant funds and debt financing. The Pun Group,
LLP issues and "unmodified opinion".
The agreed upon procedures for the above reports, were agreed upon by the City and The Pun Group
and performed solely to assist in meeting the requirements of Section 1.5 of Article XIII -B of the California
Constitution. The agreed upon procedures engagements were conducted in accordance with attestation
standards established by the American Institute of Certified Public Accountants. City's management is
responsible for preparing each of the reports.
The reports will be provided to Federal and State oversight agencies, bond trustees and insurance
companies for their review and evaluation. Copies of the reports are provided to the City Council and
also available to the public by contacting the Financial Services Division.
FISCAL IMPACT:
FUNDING AVAILABLE
No fiscal impact.
No funding requested.
Melissa Munoz, Accounting Manager
Qftvj,� "a p
Andrew Keys, Deputy City Manager
APPROVED
Stephen Schwabauer, City Manager
IE ��
LIN GROUP
OLINTANTS & ADVISORS
City of Lodi
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 ........... :....................................................... l
Independent Auditors' Report on Compliance for Each Major Federal Program,
on Internal Control Over Compliance Required by the Uniform Guidance,
and on Schedule of Expenditures of Federal Awards.....................................................................................3
Schedule of Expenditures of Federal Awards............................................................................................................5
Notes to the Schedule of Expenditures of Federal Awards......................................:..:..............................................T
Scheduleof Findings and Questioned Costs .... ................................................ .......................................................... 8
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THE
PUN GROUP
ACCOUNTANTS & ADVTSORS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND
OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN
ACCORDANCE WITH GOVERNMENTA UDITING STANDARDS
Iiiilenentlent Alirlitor.Y' Report
To the Honorable Mayor and Members of City Council
of the City of Lodi
Lodi, California
We were engaged to audit, 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 basic financial statements of the governmental activities, the business -
type activities, each major fund, and the aggregate remaining fund information of the City of Lodi, California (the
"City"), as of and for the year ended June 30, 2020, and the related notes to the basic financial statements which
collectively comprise the City's basic financial statements and have issued our report thereon dated June 18, 2021.
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.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and
was not designed to identify all deficiencies in internal control that might be material weaknesses or significant
deficiencies and therefore, material weaknesses or significant deficiencies may exist that have not been identified.
However, as described in the accompanying Schedule of Findings and Questioned Costs, we did identify certain
deficiencies in internal control that we consider to be material weaknesses and 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 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 is 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 2020-001 and 2020-
002 to be significant deficiencies.
2121 North California Blvd., Suite 290,Walnut Creek, California 94596
Tel: 925-974-3394 • Fax: 949-777-8850
www.pungroup.cpa
To the Honorable Mayor and Members of City Council
of the City of Lodi
Lodi, California
Page 2
Compliance and Other Matters
As part of obtaining reasonable assurance about whether City's basic 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 financial statements. 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.
City's Response to Findings
The City's responses to the findings identified in our engagement is described in the accompanying Schedule of
Findings and Questions Costs. The City's response was not subjected to the auditing procedures applied in the audit of
the basic financial statements and, accordingly, we express no opinion on it.
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 City'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.
�ej
Walnut Creek, California
November 23, 2020
THE
PUN GROUP
ACCOUNTANTS & AMTSOPL6
REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM,
ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE
UNIFORM GUIDANCE, AND ON SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
IndenendentAuditors' Report
To the Honorable Mayor and Members of City Council
of the City of Lodi
Lodi, California
Report on Compliance for Each Major Federal Program
We have audited the City of Lodi, California's (the "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, 2020. The City's major federal programs are identified in the summary of
the 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 terms and conditions of 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 alegal determination of the City's compliance.
Opinion on Each Major Federal Program
In our opinion, the City 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 June 30, 2020.
2121 North California Blvd., Suite 290,Walnut Creek, California 94596
Tel: 925-974-3394 • Fax: 949-777-8850
www.pungroup.cpa
To the Honorable Mayor and Members of City Council
of the City of Lodi
Lodi, California
Page 2
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 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 detennine the auditing procedures that are appropriate in the circumstances for
the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal
control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on
the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness
of City's internal control over compliance.
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. 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.
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 City as of and for the year ended June 30, 2020, and have issued
our report thereon dated November 23, 2020 which contained unmodified opinions on those financial statements. Our
audit was conducted for the purpose of forming our opinions on the City's Basic Financial Statements. The
accompanying Schedule of Expenditures of Federal Awards, as required by Title 2 U.S. Code of Federal Regulations
Part 2005 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is
presented for purposes of additional analysis and is not a required part of the 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 financial statements. The information has been subjected to the auditing procedures applied
in the audit of the basic financial statements and certain other procedures, including comparing and reconciling such
information directly to the underlying accounting and other records used to prepare the financial statements or to the
financial statements themselves, and other additional procedures in accordance with auditing standards generally
accepted in the United States of America. In our opinion, the Schedule of Expenditures of Federal Awards is fairly
stated in all material respects in relation to the basic financial statements as a whole.
Walnut Creek, California
June 18, 2021, except for the Schedule of Expenditures of Federal Awards which is as of November 23, 2020
City of Lodi
Schedule of Expenditures of Federal Awards
For the Year Ended June 30, 2020
Total U.S. Department of Housing and Urban Development
I1.S. De pilrtment of Justice
Direct Program:
Edward Byrne Memorial Justice Assistance Grant Program
Direct Program:
Bulletproof Vest Partnership
I� S•_4cparintent of!Mm portation
Federal Transit Cluster
Direct Program:
FY 19/20 Operating Assistance (7/1/19-1/3 1/20)*
COVID-19 Lodi FY 19/20 Operating Assistance (2/1/20-6/30/20)*
*Using Section 5307 Funds
Congestion Mitigation Air Quality (CMAQ)
Total Federal Transit Cluster
Highway Planning and Construction Cluster
Passed through California Department of Transportation:
Highway Planning and Construction
Total Planning and Construction Cluster
Passed through California Office of Traffic Safety:
Selective Traffic Enforcement Program (STEP)
U.S. Envirenmcatal Prater inn A encv
Direct Program:
Brownfields Assessment and Cleanup Cooperative Agreements
U.S. Iknarlment of Homeland Security
Disaster Grants - Public Assistance
Direct Program:
Great Plates Program - Phase
Great Plates Program - Phase it
Category B Expenses (COV ID- 19)
Total Disaster Grants - Public Assistance
Amount
Federal Provided to
Expenditures Subrecipients
S 4,657 $
29,770
9,945
371,791 _
416,163 _
416,163
16 738 2019 -DJ -BX -0537
Federal
Grant
Federal Grantor/Pass- Through
CFDA
Identification
Grantor/Program Title
Number
Number
II.S. D arlmenI of Hou sin and I rban DevOo ment
2,090,300 -
20.507 CA -2016-085-01
CDBG - Entitlement Grants Cluster
3,470,950
Direct Program:
20.205 STPL-5154(043)
1,980,009 -
Community Development Block Grant
14.218
B -16 -MC -06-0038
Community Development Block Grant
14 218
B -17 -MC -06-0038
Community Development Block Grant
14.218
B -18 -MC -06-0038
Community Development Block Grant
14.218
B -19 -MC -06-0038
Total CDBG - Entitlement Grants Cluster
384,719
97.036 PW 153893
Total U.S. Department of Housing and Urban Development
I1.S. De pilrtment of Justice
Direct Program:
Edward Byrne Memorial Justice Assistance Grant Program
Direct Program:
Bulletproof Vest Partnership
I� S•_4cparintent of!Mm portation
Federal Transit Cluster
Direct Program:
FY 19/20 Operating Assistance (7/1/19-1/3 1/20)*
COVID-19 Lodi FY 19/20 Operating Assistance (2/1/20-6/30/20)*
*Using Section 5307 Funds
Congestion Mitigation Air Quality (CMAQ)
Total Federal Transit Cluster
Highway Planning and Construction Cluster
Passed through California Department of Transportation:
Highway Planning and Construction
Total Planning and Construction Cluster
Passed through California Office of Traffic Safety:
Selective Traffic Enforcement Program (STEP)
U.S. Envirenmcatal Prater inn A encv
Direct Program:
Brownfields Assessment and Cleanup Cooperative Agreements
U.S. Iknarlment of Homeland Security
Disaster Grants - Public Assistance
Direct Program:
Great Plates Program - Phase
Great Plates Program - Phase it
Category B Expenses (COV ID- 19)
Total Disaster Grants - Public Assistance
Amount
Federal Provided to
Expenditures Subrecipients
S 4,657 $
29,770
9,945
371,791 _
416,163 _
416,163
16 738 2019 -DJ -BX -0537
25,369
16 607 1121-0235
6,387
Total U.S. Department of Transportation
31,756
20.507 CA -2020-200-00
750,650 _
20 507 CA -2020-199-00
2,090,300 -
20.507 CA -2016-085-01
630,000
3,470,950
20.205 STPL-5154(043)
1,980,009 -
1,980,009
20.608 PT20070
44,355
Total U.S. Department of Transportation
5,495,314
66 818 BF 99T30201-0
47,751 _
Total U.S. Environmental Protection Agency
47,751 -
97.036 PW 138077
326,795
97,036 PW 144535
384,719
97.036 PW 153893
9,450
720,964
Total U.S. Department of Homeland Security
720,964
Total Expenditures of Federal Awards $
6,711,948 $
See accompanying Notes to the Schedule of Expenditures of Federal Awards.
5
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City of Lodi
Notes to the Schedule of Expenditures of Federal Awards
For the Year Ended June 30, 2020
Note 1— Reporting Entity
The financial reporting entity, as defined by the Governmental Accounting Standard Board ("GASB"), consists of the
primary government, which is the City of Lodi, California (the "City"), organizations for which the primary
government is financially accountable, and other organizations for which the nature and significance of their
relationship with the primary government are such that exclusion would cause the reporting entity's financial
statements to be misleading or incomplete. The City Council also acts as the governing body and is able to impose its
will on the Lodi Public Financing Authority which establishes financial accountability.
Note 2 — Basis of Accounting
Funds received under the various grant programs have been recorded within the governmental and proprietary fund
types of the City. The City utilizes the modified accrual method of accounting for the governmental fund types and the
full accrual method of accounting for the proprietary fund types. The accompanying Schedule of Expenditures of
Federal Awards ("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). Therefore, some amounts presented in the schedule may differ from amounts presented
in, or used in, the preparation of the City's basic financial statements.
Note 3 — Schedule of Expenditures of Federal Awards
The accompanying Schedule presents the activity of all federal financial assistance programs of the City. Federal
financial assistance received directly from federal agencies as well as federal financial assistance passed through the
State of California is included in the Schedule. The Schedule was prepared only from the accounts of various grant
programs and, therefore, does not present the financial position, change in fund balance/net position, or results of
operations of the City.
Note 4 — Indirect Cost Rate
The City has not elected to use the 10 -percent de minimis indirect rate as allowed under the Uniform Guidance.
City of Lodi
Schedule of Findings and Questioned Costs
For the Year Ended June 30, 2020
Section I — Summary of Auditor's Results
Financial Statements
Type of report the auditors issued on whether the financial
statements audited were prepared in accordance with GAAP:
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 auditor's report issued on compliance for major programs
Any audit findings disclosed that are required to be reported in
accordance with 2 CFR 200.516(a)?
Identification of major programs:
Unmodified
No
Yes, 2020-001, 2020-002
No
None reported
Unmodified
No
CFDA Number(s) Name of Federal Program or Cluster Expenditures
20.507 Federal Transit Cluster $ 3,470,950
97.036 Disaster Grants - Public Assistance 720.964
Total Expenditures of All Major Federal Programs $ 4,191,914
Total Expenditures of Federal Awards $ 6,711,948
Percentage of Total Expenditures of Federal Awards 62.45%
Dollar threshold used to distinguish between type A and type B program $750,000
Auditee qualified as low-risk auditee in accordance with 2 CFR 200.520? Yes
8
City of Lodi
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2020
Section II — Financial Statement Findings
A. Current Year Findings — Financial Statement Audit
Finding 2020-001 Improve Internal Controls Over Financial Reporting
Criteria:
Management is responsible for the preparation and fair presentation as well as the accuracy of its financial
statements including disclosures in accordance with accounting principles generally accepted in the United States
of America; this includes the design, implementation, and maintenance of internal control relevant to the
preparation and fair presentation of financial statements that are free from material misstatement, whether due to
fraud or error. An overall purpose of internal control over financial reporting is to foster the preparation of reliable
financial statements. Reliable financial statements must be materially accurate. The COSO Framework supports
the accurate preparation of financial statement through internal control
Condition:
During the audit, we identified the following conditions in internal control:
Bank Reconciliation
The City's monthly bank reconciliation process was not completed in a timely manner during the period of the
audit. During our review of the bank reconciliation process, we found that there were unreconciled difference in
the amount of approximately $39,650 that could not be identified in the March 2020 reconciliation. The City was
able to subsequently identify and reconcile the amounts.
Payroll
We found that three (3) out of the forty (40) timesheets or timecards that were selected for testing for proper
authorization, were missing the required approvals. In addition, one employee selected for testing had an incorrect
contractual pay increase that was not applied correctly in the payroll system. The employee was underpaid as a
result of the error. The employee's pay was subsequently corrected.
Context:
The City has been working steadily to improve its internal control over financial accounting and reporting through
the institution of improved policies, procedures, and automation of existing manual controls. This past fiscal year
had a host of challenges including resolution of its ransomware attack and the pandemic which began in March
2020. This required attention by all personnel including finance away from improving controls in these areas.
Effect:
Reconciliations and adjustments to year end balances that either are not recorded or are posted after the preparation
of fiscal year end reports increase the risk of error in the financial statements. In addition, not following formal
policies and procedures regarding approval and authorization of individual transaction or the lack of approval of
adjustments to pay could result in errors that occur and not be detected and corrected in a timely manner.
City of Lodi
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2020
Section II — Financial Statement Findings (Continued)
A. Current Year Findings —Financial Statement Audit (Continued)
Finding 2020-001 Improve Internal Controls Over Financial Reporting (Continued)
Cause:
The City has processes in place that may not be fully executed since they are manual such as the timesheet
approval process. Until controls are automated over time entry, manual checks and balances must be in place to
ensure compliance with the policy and procedures. This requires additional staff who have already taken on added
responsibilities. Sufficient resources to properly review and reconcile the bank sub -ledger to the general ledger to
ensure the accuracy of the financials were not in place.
Recommendation:
We recommend that the timecard and bank reconciliation process be evaluated for automation within the Tyler
Munis system to the extent possible. In the absence of automated controls, the City should contemplate whether
additional personnel are needed in order to enhance its review, reconciliation and authorization process within the
internal control is implemented and operating.
View of Responsible Officials:
The City concurs with the recommendation. New procedures including additional checks and balances have been
put in place to ensure more accurate closing, reconciliations, cash receipting and payroll processes. New
procedures have been drafted by an outside industry expert to ensure better processing of bank reconciliations.
New restrictions have been placed in Munis so no batches will automatically release without review. In addition,
all batch paperwork will be stamped released, with the date, and the signature/initials of the one release the batch
for posting. Training to departments on timesheet management will be provided by the end of the current fiscal
year. City will also be implementing workflow processes and moving to Employee Self Service for time
management of employees. Due to the COVID-19 global pandemic, the City was only able to partially implement
all recommendations and improvements are still ongoing.
10
City of Lodi
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2020
Section II — Financial Statement Findings (Continued)
A. Current Year Findings — Financial Statement Audit (Continued)
Finding 2020-002 Capital Asset Accounting and Valuation — Electric Utility Lines
Criteria:
Accounting principles generally accepted in the United States of America (GAAP), as prescribed by the
Governmental Accounting Standards Board, require entities to track and record the original cost of capital assets
and to calculate depreciation on certain of those capital assets and expense the costs over their useful life from the
date placed in service. Electric public utilities and licensees within the Federal Energy Regulatory Commission
jurisdiction are required to maintain their books and records in accordance with the Commission's Uniform System
of Accounts (CUSA). Though not GAAP for local electric utilities, the CUSA provides useful information on the
basics of accounting for transmission and distribution systems including public utilities. This guidance suggests
that plant inventory be maintained for each utility and include the annual additions and retirements which are
reconciled to the Financial Statements.
Condition:
The City's plant inventory records as of June 30, 2020 and in prior years for the City's electric utility contained
incomplete data to determine the unit, location of the unit, date the unit was placed in service, and actual cost of
the unit for the City's electric utility infrastructure including utility lines, transformers, and other components of
the transmission and distribution system. In past years, the City had accounted for all miles of utility line as one
unit using a single replacement cost for all miles of line. The units of additions and repairs that extended the
useful life of existing lines, additions for expansion of the current system for new lines, and the retirements of
existing line being replaced was not captured. In addition, the actual cost based on the City's work order system
were not being utilized.
Periodic inventories are taken, however there have been large accounting adjustments made to account for
differences between the actual physical inventory counts taken and the general ledger.
Context:
This finding is a continuation of the finding from the prior year. Improvements have already been made to the
work order system but a robust system of accounting for the utility infrastructure will take time to implement.
With COVID-19 arriving in March 2020, there were not sufficient resources to both respond to the pandemic and
its demands and complete the full corrective action planned by management.
Effect:
Absent tracking the costs and quantity of the infrastructure in a systematic manner, capital assets and net position
may be misstated by a material amount in the Utility Fund and Business -Type Activities.
City of Lodi
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2020
Section II — Financial Statement Findings (Continued)
A. Current Year Findings — Financial Statement Audit (Continued)
Finding 2020-002 Capital Asset Accounting and Valuation — Electric Utility Lines (Continued)
Recommendation:
We recommend the City continue to work on implementing changes to its policy and process to account for the
addition to or retirement of electric plant, the cost, the source of the costs, and the electric plant account or
accounts to which charged or credited. Work orders covering jobs of short duration should be cleared monthly. In
the case of major projects, records should be maintained by the department and reconciled with the Finance
Department for use in the capital asset accounting. For existing capital infrastructure, we recommend the City
conduct or update past studies of its overall plant, transmission and distribution system to include data on the
overall system lines, historical costs and current valuation.
View of Responsible Officials:
The City concurs with the finding. The City will continue to work towards implementation of best practice policy
recommendations.
12
City of Lodi
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2020
Section II — Financial Statement Findings (Continued)
B. Prior Year Findings — Financial Statement Audit
Finding 2019-001 Improve Internal Controls Over Financial Reporting
Criteria:
Management is responsible for the preparation and fair presentation as well as the accuracy of its financial
statements including disclosures in accordance with accounting principles generally accepted in the United States
of America; this includes the design, implementation, and maintenance of internal control relevant to the
preparation and fair presentation of financial statements that are free from material misstatement, whether due to
fraud or error. As part of satisfying that responsibility, staff should possess that skills, knowledge, and experience
necessary to complete year-end close and diligently employ that knowledge, skill, and experience to produce
reliable and accurate financial information.
Generally accepted auditing standards defined internal control as a process — affected by the Members of City
Council, management, and other personnel — designed to provide reasonable assurance regarding the achievement
of objectives in the following categories:
• Reliability of financial reporting
• Effectiveness and efficiency of operations, and
• Compliance with applicable laws and regulations.
The Committee of Sponsoring Organizations of the Treadway Commission ("COSO") established the following
framework that stress the need for policies and procedures to promote effective internal control for an entity:
Control Environment — Establish structures, reporting lines, authorities and responsibilities
Control Activities — Select and develop control activities that mitigate risks
Control Activities — Deploy control activities through policies and procedures
Information and Communication — Communicate internal control information internally
Monitoring — Evaluations are used to determine if controls are present and functioning
An overall purpose of internal control over financial reporting is to foster the preparation of reliable financial
statements. Reliable financial statements must be materially accurate.
Condition:
During the audit, we noted the following conditions that resulted in material audit adjustments to the financial
statements:
Accuracy in External Financial Reporijug
The year-end closing process was not thorough and did not ensure that account balances were reconciled and
accurate in advance of the audit requiring a significant number of adjusting journal entries to correct the
financial statements. It appears these errors were primarily caused because the trial balance was prepared from
data that was not complete, contained errors and appropriate year-end reconciliations were not performed.
Some of the more significant entries were as follows:
• Discounts to low-income customers were not reflected in the Electric Utility Fund (Approximately
$500,000).
13
City of Lodi
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2020
Section II — Financial Statement Findings (Continued)
B. Prior Year Findings — Financial Statement Audit (Continued)
Finding 2019-001 Improve Internal Controls Over Financial Reporting (Continued)
Accuracy in External Financial Reporting continued
• Adjustment to reconcile capital assets was needed (Approximately $15.6 million).
• Allocate accrued payroll by fund (Approximately $1.5 million).
• Adjust interest payable (Approximately $1.2 million).
• Adjustments were made to reconcile bond premium and deferred amount on refunding of debt
(Approximately $996,000).
• CDBG Grant Receivable was understated (Approximately $505,000).
• Record unearned revenue in various funds (Approximately $934,000).
• Amounts were recorded to reclassify negative cash (Approximately $1.0 million).
Bank Reconciliation
The City's monthly bank reconciliation process was not completed in a timely manner during the period of the
audit. During our review of the bank reconciliation process, we found that all of the fiscal year 2018-19 bank
reconciliations had not been finalized. In addition, there were unreconciled difference in the amount of
approximately $563,000 that could not be identified. The City was able to subsequently identify and reconcile the
amounts. The most significant unreconciled difference was a payroll posting error that caused accounts payable
and cash to both be overstated.
Revenue. Receivahles. and Cash Receipts
The internal control procedures as described and documented included segregation of duties within the cash receipt
process. However, in certain instances we were unable to verify that the review process existed because signatures
and/or any type of documentation or evidence to identify which personnel specifically reviewed and released the
cash receipt batches were not available. We found four (4) out of the twenty-five (25) batches selected for testing
were appropriately stamped and signed -off by the CSR Supervisor indicating the review and release process had
taken place.
Pa3 roll
During our consideration of internal controls over payroll, we found that ten (10) out of the twenty-five (25)
timesheets or timecards that were selected for testing for proper authorization, were missing the required
approvals.
Context:
Various financial statement amounts were not accurate and were either under or overstated by a material amount
after the audit began and the books were closed. Misstatements in financial statements are material when they can
reasonably be expected to influence the decisions taken based on those financial statements and exceed the level of
tolerable misstatements.
14
City of Lodi
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2020
Section II — Financial Statement Findings (Continued)
B. Prior Year Findings — Financial Statement Audit (Continued)
Finding 2019-001 Improve Internal Controls Over Financial Reporting (Continued)
Effect:
Reconciliations and adjustments to year end balances that either are not recorded or are posted after the preparation
of fiscal year end reports decrease the reliability and usefulness of the reports. In addition, not following formal
policies and procedures regarding internal control over individual transaction cycles could lead to inconsistency in
processing transactions and also increases the risk that errors will not be detected and corrected in a timely manner.
Cause:
The City has experienced significant turnover in key personnel in the City's finance department in past years.
Absent robust accounting policies and procedures, when vacancies occur information can be lost and as
individuals are getting up to speed, some processes may not be fully executed if they are manual and not fully
embedded into an automated system. In addition, the City experienced a Ransomware attack late in the year.
During our testing period alternative processes had to be employed while the systems were restored. This caused
different processes to be followed which was not necessarily consistent with the documented processes. Staff had
to take on additional responsibilities and did not have sufficient resources to properly review and reconcile the sub -
ledger to the general ledger to ensure the accuracy of the financials.
Recommendation:
We recommend that the City put in place procedures in order to reduce the amount of material journal entries and
errors found after the closing process and reduce the risk of errors in the preparation of the City's Comprehensive
Annual Financial Report. This should contemplate if there are sufficient resources not only available to prepare a
complete set of financial statements but to provide a review process in order to detect errors prior to delivery for
the audit. In addition, the City should contemplate whether additional personnel are needed in order to enhance its
review processes for internal control over the financial reporting and within each transaction cycle to ensure that
they are thoroughly evaluated, reviewed and recorded in order to facilitate the accurate and complete year-end
closing of the general ledger.
View of Responsible Officials:
The City concurs with the recommendation. New procedures including additional checks and balances have been
put in place to ensure more accurate closing, reconciliations, cash receipting and payroll processes. New
procedures have been drafted by an outside industry expert to ensure better processing of bank reconciliations.
New restrictions have been placed in Munis so no batches will automatically release without review. In addition,
all batch paperwork will be stamped released, with the date, and the signature/initials of the one release the batch
for posting. Training to departments on timesheet management will be provided by the end of the current fiscal
year. City will also be implementing workflow processes and moving to Employee Self Service for time
management of employees.
Status:
Finding has not been partially implemented. See finding 2020-001.
15
City of Lodi
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2020
Section II — Financial Statement Findings (Continued)
B. Prior Year Findings — Financial Statement Audit (Continued)
Finding 2019-002 Capital Asset Accounting — Multi -Year Projects
Criteria:
Accounting principles generally accepted in the United States of America (GAAP), as prescribed by the
Governmental Accounting Standards Board, require entities to track and record the original cost of capital assets
and to calculate depreciation on certain of those capital assets and expense the costs over their useful life from the
date placed in service.
Condition:
During our review of the capital assets schedules and the detail additions report, we found that the Construction -in -
Progress (CIP) additions consisted of both CIP additions in the current year and CIP additions from prior years.
The prior year additions were related to the costs of certain multi-year capital projects in CIP and / or completed
Asset along with the related depreciation expense that were not capitalized when the assets were placed in service.
These projects should have been capitalized in prior years. The projects included a storage pond, electric screen in
the Wastewater fund ($108,145), Phase 7 of the Water Meter project in the Water Fund ($549,219), and facility
upgrades, bus stop shelter, and equipment in the Transit Fund ($398,669). Because these capital outlay costs
spanned multiple years but were expensed as opposed to being capitalized, capital assets and net position were
understated in prior years by a material amount.
Context:
A total of $1.3 million was recorded as an increase in net position in the governmental activities and business type
activities on the government -wide financial statements.
Effect:
The detailed capital assets schedules contained errors and were not reconciled to the capital outlay accounts on an
annual basis. Information obtained from the related department also did not possess accurate tracking of capital
assets and therefore were incorrectly reported to the Finance Department.
Recommendation:
We recommend that the City establish procedures to periodically reconcile the capital outlay accounts to the asset
additions report and project expenditure reports to ensure that all capital outlay is captured as an addition in the
current year, if it meets the City's capitalization threshold, or expensed.
View of Responsible Officials:
The City concurs with the recommendation. Additional review layers have been put in place to be ensure all
completed capital projects are captured each year from the departments responsible for delivering the capital asset.
Accounting will verify cost associated with the capital asset, including any invoices that cross fiscal years, to
ensure all cost are captured.
Status:
Finding has been implemented subsequent to June 30, 2020.
16
City of Lodi
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2020
Section II — Financial Statement Findings (Continued)
B. Prior Year Findings — Financial Statement Audit (Continued)
Finding 2019-003 Capital Asset Accounting and Valuation — Electric Utility Lines
Criteria:
Accounting principles generally accepted in the United States of America (GAAP), as prescribed by the
Governmental Accounting Standards Board, require entities to track and record the original cost of capital assets
and to calculate depreciation on certain of those capital assets and expense the costs over their useful life from the
date placed in service.
Electric public utilities and licensees within the Federal Energy Regulatory Commission jurisdiction are required
to maintain their books and records in accordance with the Commission's Uniform System of Accounts (CUSA).
Though not GAAP for local electric utilities, the CUSA provides useful information on the basics of accounting
for transmission and distribution systems including public utilities.
A transmission system means (1) All land, conversion structures, and equipment employed at a primary source of
supply (i.e., generating station, or point of receipt in the case of purchased power) to change the voltage or
frequency of electricity for the purpose of its more efficient or convenient transmission; (2) All land, structures,
lines, switching and conversion stations, high tension apparatus, and their control and protective equipment
between a generating or receiving point and the entrance to a distribution center or wholesale point; and (3) All
lines and equipment whose primary purpose is to augment, integrate or tie together the sources of power supply. A
distribution system means all land, structures, conversion equipment, lines, line transformers, and other facilities
employed between the primary source of supply (i.e., generating station, or point of receipt in the case of
purchased power) and of delivery to customers, which are not includible in transmission system, whether or not
such land, structures, and facilities are operated as part of a transmission system or as part of a distribution system.
Plant inventory record means company plant records for retirement units and mass property that provide, as either
a single record, or in separate records readily obtainable by references made in a single record, the following
information for each retirement unit: (1) the name or description of the unit, or both; (2) the location of the unit;
(3) the date the unit was placed in service; (4) the cost of the unit; and (5) the control account to which the cost of
the unit is charged.
Each utility shall record all construction and retirements of electric plant by means of work orders or job orders.
Separate work orders may be opened for additions to and retirements of electric plant or the retirements may be
included with the construction work order, provided, however, that all items relating to the retirements shall be
kept separate from those relating to construction and provided, further, that any maintenance costs involved in the
work shall likewise be segregated. Each utility shall keep its work order system to show the nature of each addition
to or retirement of electric plant, the total cost thereof, the source or sources of costs, and the electric plant account
or accounts to which charged or credited. Work orders covering jobs of short duration may be cleared monthly. In
the case of major utilities, each utility shall maintain records in which, for each plant account, the amounts of the
annual additions and retirements are classified to show the number and cost of the various record units or
retirement units.
17
City of Lodi
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2020
Section II — Financial Statement Findings (Continued)
B. Prior Year Findings — Financial Statement Audit (Continued)
Finding 2019-003 Capital Asset Accounting and Valuation — Electric Utility Lines (Continued)
Condition:
The City's plant inventory records as of June 30, 2019 and in prior years for the City's electric utility lines
contained insufficient data to determine the unit, location of the unit, date the unit was placed in service, and actual
cost of the unit. In past years, the City had accounted for all miles of utility line as one unit using a single
replacement cost for all miles of line. The units of additions and repairs that extended the useful life of existing
lines, additions for expansion of the current system for new lines, the retirements of existing line replaced, and the
actual cost based on work order system was not being used and accounted for in the detailed inventory records for
the City.
In addition, in our sample of the work order system used to determine the actual cost of the replacement of the
utility lines in the current year included duplicate charges for the materials used in the project. Meaning the
materials were expensed twice to the project accounting record. The impact of the duplicate charges results in an
understatement of the ending inventory for materials relieved to the job cost report that are still held by the Electric
Utility. Because periodic inventories are taken, there are large accounting adjustments being made to account for
the actual physical inventory counts taken which offsets the understatement. However, in a perpetual materials
inventory accounting system, we would not expect these large variations to occur in materials inventory.
Context:
The years in which lines were placed in service were not available from data within the system and detailed
inventory reports. Only a unit replacement cost was used and had not been updated in five or more years resulting
in a grossly undervalued inventory of utility lines ($8.9 million) and related accumulated depreciation ($4.9
million). The work order/job cost ledger did not contain reliable costs accounting information due to the duplicate
entries made. This appeared to be a systematic error across all work orders.
Effect:
The overall effect is that capital assets and net position were understated by a material amount in the Utility Fund
and Business -Type Activities financial statements in prior years.
Recommendation:
We recommend the City implement a work order system to show the nature of each addition to or retirement of
electric plant, the total cost thereof, the source or sources of costs, and the electric plant account or accounts to
which charged or credited. Work orders covering jobs of short duration may be cleared monthly. In the case of
major utilities, each utility shall maintain records in which, for each plant account, the amounts of the annual
additions and retirements are classified to show the number and cost of the various record units or retirement units.
This information should be maintained by the department and reconciled with the Finance Department for use in
the capital asset accounting.
18
City of Lodi
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2020
Section II — Financial Statement Findings (Continued)
B. Prior Year Findings — Financial Statement Audit (Continued)
Finding 2019-003 Capital Asset Accounting and Valuation — Electric Utility Lines (Continued)
View of Responsible Officials:
The City concurs with the recommendation. This was a long-standing issue. The report has been updated and the
electric utility has updated its procedure to keep a better count of line units and update its cost annually. New
replacement cost is determined for each project completed and accounting/department will ensure that all work
papers are reflecting the new cost of the project.
The City has made changes to warehouse operations that ensure inventory is checked out and back in timely to job
beginning and completion. The City is currently exploring work order software to enhance these process and
control improvements.
Status:
Finding has been partially implemented. See finding 2020-002.
19
City of Lodi
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2020
Section II — Financial Statement Findings (Continued)
B. Prior Year Findings — Financial Statement Audit (Continued)
Finding 2019-004 Establish a Comprehensive Set of Safeguards over Cyber Security
Criteria:
Cybersecurity is computer security that provides the protection of computer systems and networks from the theft
of or damage to their hardware, software, or electronic data, as well as from the disruption or misdirection of the
services they provide with a focus on technical controls or safeguards, data location, criticality, risk exposure, and
an attack and defend mindset. Information technology general computer controls are part of an overall program
but are not a comprehensive set of safeguards designed to protect information assets from breach or compromise.
The National Institute of Standards and Technology (NIST), Framework for Improving Critical infrastructure
Cybersecurity, Version 1.1 (April 2018) is one framework that provides a common language for understanding,
managing, and expressing cybersecurity risk to internal and external stakeholders. It can be used to help identify
and prioritize actions for reducing cybersecurity risk, and it is a tool for aligning policy, business, and
technological approaches to managing that risk. It can be used to manage cybersecurity risk across entire
organizations, or it can be focused on the delivery of critical services within an organization. The Framework
Core, which consists of five functions — identify, protect, detect, respond and recover - provides a set of activities
to achieve specific cybersecurity outcomes, and references examples of guidance to achieve those outcomes. There
are other frameworks outside of NIST that also provide standards for protection.
Condition:
In April 2019, the City was impacted by a Ransomware attack after a staff member clicked on an email
attachment. Ransomware is a malicious software, or "malware" attack that threatens to publish or block access to
a computer, a computer system's files or data until a ransom is paid. The email that was inadvertently opened
contained "malware" that was spread through the city's network of computers. This "malware" encrypted critical
files that interrupted several key phone lines and critical accounting systems within the Finance Department.
Along with the "malware", the unidentified attackers demanded the City pay a "Bitcoin" ransom in exchange for
the encryption keys, like passwords, that would release the servers, systems, and underlying data. Bitcoin, as an
unregulated form of virtual currency, has become the most popular method for demanding ransom because
transactions are anonymous. The hackers demanded a ransom of 75 Bitcoins (estimated at approximately $400,000
at the time) to be paid to restore systems. The City opted instead to restore systems from their normal system
backups relying on established controls to protect critical data.
Context:
Though little to no data was lost as a result of the attack, the attack exposed that the City lacked procedures to
provide adequate protection of computer systems and networks from theft and or damage. Vulnerabilities clearly
existed within the City's security and access controls, training, and other areas that allowed outside attackers to
access the City's systems in a way that gave them the capabilities to sufficiently deploy malware intended to bring
down and compromise critical systems, including those systems needed for financial accounting and reporting.
Effect:
Internal controls over financial reporting were compromised while critical accounting systems within finance
could not be completely restored for approximately 6 weeks. Contingency plans for manual processing were
deployed in order to mitigate the loss of system usage which are often inefficient. Though contingency plans
functioned during this timeframe, the City was exposed to other financial risks while the internal controls were not
functioning in an automated environment such as manual overrides, processes that do not conform to policy, and
potential misstatement due to the loss of data.
20
City of Lodi
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2020
Section II — Financial Statement Findings (Continued)
B. Prior Year Findings — Financial Statement Audit (Continued)
Finding 2019-004 Establish a Comprehensive Set of Safeguards over Cyber Security (Continued)
Recommendation:
There are many simple and effective steps cities can take to avoid vulnerabilities and reinforce cybersecurity best
practices as follows:
• Establish a common language for communicating cybersecurity risks across the organization
• Adopt a Cybersecurity Framework that is aligned with the organization's objectives
• Ensure the cybersecurity program is adequately funded and resourced
■ identify one individual to be responsible for cybersecurity programs
• Make digital hygiene an institutional priority
• Promote cybersecurity awareness and user responsibilities
• Conduct an analysis and develop a risk ledger of local government vulnerabilities
• Ensure data is properly backed up
• Implement multi -factor authentication
• Create policies or plans to manage potential attacks including periodic penetration testing, controlled
phishing campaigns and other procedures to identify gaps and take corrective action
• Ensure public communication is part of your attack response plan
View of Responsible Officials:
The City concurs with the recommendation. The City has moved ERP resources to the cloud, and is in the process
of upgrading firewalls, email filters, virus protection and penetration testing. The City is also working to develop
better written disaster response plans. The $500,000 grant received from the State of California should help to
implement some measures in this area.
The City has continually improved networking, cybersecurity and data protection methods over the past year. In
2018 and 2019 the City had initiated a series of projects that have improved overall network reliability and
security. Many systems were first deployed in 2016 when the City launched a new data center that introduced an
improved network design, data storage and virtualization environment. Since the launch of the new data center the
City has initiated or is in the process of migrating services to newer security appliances, data protection services
and cyber security and awareness training for employees. The City has either fully migrated services to, or is in the
execution phase of, migrating the following devices and services:
• Back up appliance with cloud -based storage and recovery points
• Firewalls in high availability featuring software defined networking
• New training and awareness services for employees
• New email filtering and data protection services
• New network monitoring and behavioral base threat detection
Status:
Finding has been implemented.
21
City of Lodi
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2020
Section II — Financial Statement Findings (Continued)
B. Prior Year Findings — Financial Statement Audit (Continued)
Finding 2019-005 Accounting for Sick Leave Conversion Bank
Criteria:
Under Governmental Accounting Standards Board Statement ("GASB") No. 16, Accounting for Compensated
Absences sick leave and other compensated absences with similar characteristics should be accrued as a liability as
the benefits are earned by the employees but only to the extent it is probable that the employer will compensate the
employees for the benefits through cash payments conditioned on the employees' termination or retirement
("termination payments"). Alternatively, the liability should be measured based on the sick leave and other
compensated absences with similar characteristics accumulated at the balance sheet date for those employees who
currently are eligible to receive termination payments as well as other employees who are expected to become
eligible in the future to receive such payments. When the liability is calculated, these accumulations should be
reduced to the maximum amount allowed as a termination payment.
Condition:
The City offers sick leave conversion benefits to certain eligible retirees. Eligible retirees may choose between
conversion option or bank option for accumulated but unused sick leave amounts. Under the conversion option,
accumulated unused sick leave is converted to a period during which the City will pay for a retiree's health
premiums. The amount of premium paid by the City each year shall be the same amount as paid at the time of
retirement. Retirees are responsible for paying for future increases in the health premiums. Under the bank
option, accumulated unused sick leave is converted to a dollar amount and becomes the employee's "Bank".
Medical premiums are paid out of this account until it is depleted. Accumulated unused sick leave under the
conversion option is accounted for under GASB No. 75, Accounting and Financial Reporting for Postemployment
Benefits Other Than Pensions whereas accumulated unused sick leave benefits under the bank option should be
accounted for under GASB No. 16, Accounting for Compensated Absences.
Upon implementation of GASB No. 75, the City inadvertently removed the accumulated unused sick leave under
the bank option from the long-term liabilities in the financial statements because the bank option was thought to be
included in the GASB No. 75 actuarially determined liability. The Finance Department was unaware that a
separate actuarial report had been obtained to determine the value of the bank option benefits under GASB No. 16.
Context:
Long-term liabilities for compensated absences for the sick leave bank option as of June 30, 2019 and 2018 was
$8.1 million and $8.5 million, respectively.
Effect:
Net position on the government -wide financial statement was overstated by $8.5 million as of the beginning of the
year. The preparation of the government -wide financial statement in the current year had understated net position
by $8.1 million. Both were materially misstated, and an audit adjustment was made to correct the error.
Recommendation:
The Finance Department should, in collaboration with human resources, perform a thorough review of all
collective bargaining agreements to ensure that any compensation related benefits are properly identified,
cataloged and accounted for under generally accepted accounting principles.
22
City of Lodi
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2020
Section II — Financial Statement Findings (Continued)
B. Prior Year Findings — Financial Statement Audit (Continued)
Finding 2019-005 Accounting for Sick Leave Conversion Bank (Continued)
View of Responsible Officials:
The City concurs with the recommendation. The City is aware of this issue and will have this correctly allocated in
the Fiscal Year 2019-20 CAFR.
Status:
Finding has been implemented.
23
City of Lodi
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2020
Section III — Federal Award Findings
A. Current Year Findings and Questioned Costs — Major Federal Award Program Audit
No current year findings and questioned costs noted.
B. Prior Year Findings and Questioned Costs — Major Federal Award Program Audit
Finding 2019-006 Procurement, Suspension, and Debarment
Program:
Federal Transit - Formula Grants (CFDA Number 20.507, U.S. Department of Transportation)
Criteria:
Suspension and Debarment - Non -Federal entities are prohibited from contracting with 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 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 recipient (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 System for Award Management ("SAM") Exclusions maintained by the General Services
Administration (GSA) and available at https://www.sam.gov/portal/public/SAM/ (Note: The OMB guidance at 2
CFR part 180 and agency implementing regulations still refer to the SAM Exclusions as the Excluded Parties List
System (EPLS)), (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:
During our testing of the Federal Transit - Formula Grants, the City could not provide the supporting documents
demonstrating the department verified the project contractor selected for testing was not debarred from receiving
federal funding prior to awarding the vendor the contract. Though the vendor was licensed in California, their
registration had been inactive in SAM for more than a year. Therefore, information was not available within the
system.
Questioned Costs:
Total expenditures paid to the vendor for the contract was $402,202.
Context:
See condition above for context of the finding.
24
City of Lodi
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2020
Section III — Federal Award Findings (Continued)
B. Prior Year Findings and Questioned Costs — Major Federal Award Program Audit (Continued)
Finding 2019-006 Procurement, Suspension, and Debarment (Continued)
Effect:
Without verifying whether vendors are suspended or debarred from working on federally -funded projects prior to
the contract awarded, the City could be contracting with vendors that are prohibited from working on federally
funded projects.
Cause:
The City does not have formal policies and process in maintaining proper documentation in regards to their
suspension, and debarment review process over vendors that the City contracted with federally -funded projects.
Identification as a Repeat Finding, if Applicable:
Not applicable.
Recommendation:
We recommended the City retain documentation of the monitoring of the suspension, and debarment process
through a checklist in the vendor files to ensure vendors are not suspended or debarred from federally -funded
purchases.
View of Responsible Officials:
The City concurs with the recommendation. The staff responsible for review SAM registrations have been
educated on the importance of reviewing for contractor registration in addition to agency registration. Management
feels this is a onetime occurrence that with proper training of current and future staff should not occur again.
Status:
Finding has been implemented,
25