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Home My WebLink AboutSingle Audit Report - June 30, 2007 CITY OF PALM DESERT, CALIFORNIA SINGLE AUDIT REPORT JUNE 30, 2007 CiTY OF PALM DESERT, CALIFORNIA SINGLE AUDIT REPORT JUNE 30, 2007 CITY OF PALM DESERT JUNE 30, 2007 TABLE OF CONTENTS Page Number Report on Intemal Control Over Financial Repo�ting and on Compliance and Other Matters Based on an Audit of Financial Statements Perforrned in Accordance with Government Auditing Standards.................................................................... 1 Report on Compliance with Requirements Applicabis to Each Major Program and on Intemal Control Over Compliance in Accordance with OMBCircular A-133...........................................................................................................................3 Schedule 1 - Schedule of Expenditures of Federal Awards for the Year Ended June 30, 2007............................................ ............... 5 ........................... Notes to the Schedule of Expenditures of Federal Awards....................................................................6 Schedule 2 - Schedule of Findings and Questioned Costs for the . Fiscal Year Ended June 30, 2007............................................................................7 Bmndon�'V'.Burrows Lance Donald L.Par{cer Mkhael K.Chu y+O" � DavW E.Hale Lunghard "�"'�"'""'�`"' Dooald G.Slater LLP Rlchard K.Kfkuchi Retired Certified Public Accountants Robe�c.l,,t,�e If14Hf� Rkhard C.Soll Fred J.Lungherd,Jr. is�ts� REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE W ITH GOVERNMENT AUD177NG STANDARDS To the Honorable Mayor and Members of the City Council City of Palm Desert,Califomia We have audited the financial statements of the govemmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the Ciry of Palm Desert,Califomia (the"City')as of and for the year ended June 30,2007.We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Gou�ernmeni Auditing Standai-ds,issued by the Comptroller General of the United States. Internal Control Over Flnancial Reporting In planning and performing our audit, we considered the City's intemal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements,but not for the purpose of expressing an opinion on the effectiveness of the City's intemal control over financial reporting.Accordingly,we do not express an opinion on the effectiveness of the City's internal control over financial reporting. Our consideration of intemal control over financial reporting was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in intemal control over financial reporting that might be signficant deficiencies or material weaknesses. However, as reported in the accompanying schedule of findings and questioned costs,we identfied certain deficiencies in intemal control over financial reporting that we consider to be sign�cant deficiencies A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of perfwming their assigned functi�ons,to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the City's ebility to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the Cit�s financial statements that is more than inconsequential will not be prevented or detected by the City's intemal control. We consider the deficiencies described in the accompanying schedule of findings and questioned costs to be significant deficiencies in intemal control over financial reporting as item 07-1. A material weakness is a significant deficiency,or combination of sign�cant deficiencies,that results in more than a remote Ukelihood that a material misstatement of the financial statements will not be prevented or detected by the City's intemal control. 7S YEARS � 1919 1004 Q� F 203 N. Brea Blvd..Suite 203• Brea,CA 92821-4056• (714)672-0022• Faz(714)672-0331 • �yww.�s�p•�,�.cim Lance � s Lunghard LLP GERT/R/EO rINL�L ACCpUN/ANi� To the Honorable Mayor and Members of the Ciry Council The City of Palm Dese�t, Califomia Our consideration of the intemal control over financial reporting was for the limited purpose described in the flrst paragraph of this section and would not necessarily iden�fy all deficiencies in the intemal control that might be signficant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. However, we believe that none of the significant deficiencies described in the accompanying schedule of findings and questioned costs is a material weakness. Compltance and Other Mattera As part of obtaining reasonable assurance about whether the City's flnanaal statements are free of material misstatement,we perFoRned tests of its compliance with certaln provisions of laws,regula6ons,contracts,and grant agreements, noncompliance with which could have a direct and material effect on the detennination of financial statement arnounts. However,providing an opinion on compliance with those provisions was not an objective of aur audit, and accocdingly,we do not express such an opinion.The results of our tests disclosed no instance of noncompliance or other matters that is required to be reported under Government Auditing Standards issued by the Comptroller General of the United States: This report is intended solely for the information and use of the Goveming Board, Committees of and management of the City of Palm Desert, federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these spe�ed partles. �, .��-� , �� November 20, 2007 2 Brandon W'.Burrows Lance Dona�d L.Parker Michad K.Chu SO�I � David E.Hale Lu n g ha rd A AroJnifow�f Capnuio� Dauld G.Slater LLP Rlchard K.Klkuchi Certified Public Accountants Retired Robert C.Lrnce �ns-n� Rkhard C.Soll F�td J.I.unghard,Jr. 1978-Hf9 REPORT ON COMPLIANCE WITH REDUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 To the Honorable Mayor and Members of the City Council City of Palm Desert, Califomia Compliance We have audited the compliance of the City of Palm Desert (the "Cit�I') with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circu/ar A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30,2007.The Cit�s major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs.Compliance with the requirements of laws,regulations,contracts, and grants applicable to each of its major federal programs is the responsibility of the City's management.Our responsibility is to express an opinion on the City's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generalty accepted in the United States of America; the standards applicable to financial audits contained in Govemment Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Govemments, and Non-Profit Organizations.Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements refe�red 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 Cit�s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the City's compliance with those requirements. In our opinion, the City complied, in all material respects, with the requirements refeRed to above that are appficabte to each of its major federal programs for the year ended June 30, 2007. Internal Control Over Complfance The management of the City is responsible for establishing and maintaining effective intemal control over compliance with the requirements of laws,regulations,co�tracts,and grants applicabte to federal programs.In planning and perfonning our audit, we considered the City's intemal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to deterrnine our auditing procedures for the purpose of expressing our opinion on compliance, but not for the purpose of expressing an opinion on the effectiveness of intemal control over compliance.Accordingly,we do not express an opinion on the effectiveness of the City's intemal control over campliance. 7S YEARS I929 2004 Q� F�!�� 203 N. Brea Blvd.,Suite 2U3• Brea.CA 92821-4056• (714)672-i)i)22• Fax(714)672-Q331 • www.lslc�s.cum �ance SoN s Lunghard LLP C[MIffED IIMUC AG1Cpl/N14N7s To the Honocable Mayor and Members of the City Councif The City of Paim Desert, Califomia A control deficiency in an entit�s intemal controf over compiiance exists when the design or operation of a control doss not allow management or employees, in the normal course of performing their assigned functions,to p�event or detect noncompliance with a type af compliance requirement of a federal program on a timely basis. A signlficant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the enUty's ability to administer a federal prog�am such that there is more than a remote likelihood that noncompliance with a type o!compliance requirement of a federaf program that is more than inconsequential will not be prevented or detected by the City's intemal control. A material weakness is a signficant deficiency,or combination of significant deficiencies,that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected by the Clty's intemal cont�ol. Our consideration of intemal conVof over compfiance was for the limited purpose described in the preceding paragraph a�d would not necessarily identify all deficiencies in the entity's intemal conhol that might be significant deficiencies or material weaknesses.We did not identtfy any deficiency in the intemal control over compfiance that we consider material weakness as defined above. Scheduie of Expenditures of Federal Awards We have audited the basic financial statements ot the City as of and for the year ended June 30,2007, and have issued our report thereon dated November 20,2007.Our audit was perfortned for the purpose of forming an opinion of the basic financial statements taken as a whole.The accompanying schedule of expenditures of federal awards is presented for purposes of addltional anafysis as required by OMB Circufar A-133 and is not a required part of the basic financial statements. Such informabon has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion is fairly stated in all material respects in relafion to the basic finanaal statements taken as a whole. This report is intended solely for the information af the City Council,management,federal awarding agencies and pass-through entities and is not intended to be, and shou{d not be, used by anyone other than these specified parties. �, .��-� , �'��° �� February 15, 2008 4 � CITY OF PALM DESERT Scfiedute 1 SCHEDULE OF EXPENDfTURES OF FEDERAL AWAROS FOR THE YEAR ENDED JUNE 30,Zd07 Federal Pass-Through I CFDA Gra�tor's Federal Grnntor/Psss-Throu�h GrontorlProaram 71t1s Numbsr Number Expenditures �� s �eoartment of Housina and Urban Develpome�t Direct Program: Community Development Block Grant' 14.218 B-04-MC-06-0594 $ 59,500 B-05-MC-O6-0594 224,271 B-O6-MC-06-0594 215,117 Total U.S.Department of Housing and Urban Development 498,888 U.S. Deaartment of Justice Direct Program: Edward Byme Memorial Justice Assistance Grant 16.738 2006-DJ-BX-1132 10,927 Total U.S. Department of Justfce 10,927 U.S. Department of Transaortation Passed through the State of Galifomia: Highway Planning and Construction' 20.205 STPL-5414(005} 372,685 Totai U.S. Department of Transportatton 372,685 Total Federal Expenditures S 882,500 'Major Program Note a: Refer to Note 1 to the financial statements for a descrip6on of significant accounting policies used in preparing this schedule. Note b: There are no federal awards expended in the form of non-cash assistance, insurance in effect or loans or ioan guarantees during the year. Note c: Total amount provided to subrecipients during the year from the Community Development 81ock Grant amounted to 5495,886. 5 CITY OF PALM DESERT NOTES TO THE SCHEDUIE OF EXPENDITURES OF �'EDERAL AWARDS JUNE 30, 2007 Note 1: Summary af SiynlficaM Accounting Policies Appficable to the Schedule of Expendltures of Fsderal Awards a. Scope of Presentation The accompanying schedule presents only the expenditu�es incuRed by the City of Palm Desert that are reimbursable under federal programs of federal fi�anciat assistance.Far the purposes of this schedule,federal awards includes both federal financial assistance received directly from a federat agency, as well as federal funds received indirectly by the City from a non-federal agency or other organization.Only the portion of program expenditures that are reimbursable with such federal funds are reported in the accompanying schedule.Program expenditures in excess of the maximum federal reimbursement authonzed or the portion of the program expenditures that were funded with state, local or other non-federal funds are excluded from the accompanying schedule. b. Basis of Accounting The expenditures included in the accompanying schedule were reported on the modified accrual basis of accounting. Under the modfied accrual basis of accounting, expenditures are incurred when the City becomes obligated for payment as a result of tha receipt of the related goods and services. Expendftures �eported included a�y property or equipment acquisitions incurred under the federal program. 6 CfTY OF PALM DESERT Schedule 2 SCHEDULE OF FINDINGS AND QUESTIONED GOSTS �OR THE FISCAL YEAR ENDED JUNE 30, 2007 SECTION I-SUMMARY OF AUDITORS' RESULTS Financial Statements Type of auditors'report issued: Unqualified Intemal control over financiai �eporting: • Significant deficiencies identified? �es no • Sign�cant deficiencies identified that are considered to be material weaknesses? �yes X none reported Noncompliance material to financial statements noted? ^yes X no Federal Awards Intemal cantrol ovar major programs: • Significant deficiencies identified? +yes X no • Significant deficiencies identified that are considered to be material weaknesses? _�es X none reported Type of auditors'report issued on compliance for major programs: Unqualfied Any audit findings disGased that are required to be reported in accordance with section 510(a)of Circufar A-133? _yes X no identification of major programs: CFDA Number(s) Name of Federal Praa�am or Cluster 14.218 Community Development Block Grant 20.205 Highway Planning and Construction Dollar threshold used to distinguish between type A and type B program $300,000 Auditee quaf�ed as low-risk auditee? _yes X no 7 CITY OF PALM DESERT Schedule 2 (Continuod) SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE FlSCAL YEAR ENDED JUNE 30,2007 SECTION 11-FINANCIAL STATEMENT FINDINGS Findins� Number: 07-1: A restatement was made to correct an overstatement in prio�year's accounts receivable balance that resufted from a payment received from CVAG on June 30, 2006 which should have bee� applied against this receivable. A restatement was made to capital assets to recognize prior period additions ratated to improvement costs incurred at the Housing Authority's apartment complexes. A restatement was made to capital assets to reflect the removai of capitalized site improvement costs, relating to the Hovley Gardens Apartment project,which were provided to benefit very low and low income households. Manas�emertt Resaonses: Comment(11• A restatement was made to correct an overstatement in prior year's accounts receivable balance that resufted from a payment received from CVAG on June 30, 2006 which should have been applied against this receivable. Causes and tmplementation; Cause: The City has a dece�tralized invoice system. Each department is responsible to prepare and submit an invoice with backup to the City Finance Department. The Finance Department then creates a receivabfe for that invoice. For the Fiscal Year ended June 30,2005,the City of Palm Desert's Finance Department booked a receivable for monies owed to the City as an expense reimbursement for the Fred W anng Project. This receivable was appropriately recorded as a receivable for the fiscal year ending June 30, 2005. In this case,the originating department did not create the invoice unUl June 2006—nearly one year after the Finance Depafinent had properly recorded the receivable without an invoice number(with a decentralized invoice system, the accounting soflware does not automarically connect receivables with invoices). After making an adjustrnent to the i�voice submitted by the City, the reimbursing agency partiafly paid the invoice on June 30,2006. Due to tfie total separation of the receivable from the invoice,and the mismatct�ed receivable and payment amounts, the payment was recorded as revenue instead of�educing the receivable that was recognized in the prior fiscal year. Revenue was accordingly overstated for the year. When the Finance staff was reviewing the 2007 balances, we noted that a receivable still existed. After analyang the account we realized that the above error occurred.The Finance statf immediately contacted the auditors t�nofrfy them of the accounting matter and to inform them that a prior year adjustment would be proposed. 8 . CITY OF PALM DESERT Schedufe 2 SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) FOR THE FlSCAI.YEAR ENDED JUNE 30, 2007 SECT{ON 11 -FINANCIAL S7ATEMENT FfNDiNGS This lype of error is inherent in a decentrafized invoice system. Most private sector businesses use a centralized invace system. Under a centralized invoice system,the origina6ng department would send the backup to the Finance Department,which woufd create and cross-�eference,by number,both the invoice and the receivable at the same�ant in time, and then mail the invoice. In addition,ths F+nance Department has required departments to use the invoice system cunenUy in place; however,the Finance Department conGnually receives various payments unaware of any previous billing and has to track down the department that billed for reimbursement. Implementatian: The Finance Department has implemented procedures to reduce the potential for this type of transaction to happen again.We currendy require that all receivables recorded at the fiscal year end are supported by the proper documentation and that all receipts are properiy charged against the receivables befwe the fiscal year end books are closed and the City's financial statements are issued. Additionally, the Finance Department will woric with the City Manager and require a{1 departments to comply with a central invoicing system to better track and record all receivables for the City. Comment(21: A restatement was made to capitaf assets to recognize prior period additions related to improvement costs incurred at the Housing Authority apartment complexes. Causes and Implamentation: Cause: During the first two years of Lance,Soll, and Lunghard's tenure as auditors for the City,these capital assets in the housing fund were non-existent;however,during the last three y+ears capital assets were either purchased or constnacted in the housing fund. Additionally, the account numbers for the apartment complexes were created to separate the different apartment compfexes, This account structure was contrary to the norm in creating accounts,which caused them to be omitted when a capital asset account report was run.Resulting in an oversight when reviewing the account balance for proper recor�ing. In reviewing this year's draft financial statements, the Finance staff noted that the current year expenditures were not classfied as capttal assets.As a result,the Finance staff reviewed the pricx year's expenditures and discovered that those expenditures were not classified as capital assets. The Finance staff notified the auditors of this matter, a�d provided them with the entry to corred the account. Implemerrtation: The Finance Department has modlfied the capita{ asset account report to include the apartment complex accounts. 9 CITY OF PALM DESERT Schodule 2 SCHEDULE OF FINDINGS AND�UESTIONED COSTS (Continued) FOR THE FiSCAL YEAR ENDED JUNE 30, 200T SECTION Il - FINANCIAL STATEMENT FINDINGS Comment(31: A restatement was made to capital assets to reflect the removal of capitalized site improvement costs refated to Hovley Gardens Apartment Project, which were provided for the benefit of very low and low income households. Causes and imptementation: Cause: During the years in which the costs were capitafixed and included in work-in-progress, the best information avaitable was that the Agency would retain ownership of al{improvements.However, later it was feamed ihat these improvements were provided for the benefit of very low and low income households. Implementation: The Finance Department will annually ask the various departments to determine if an asset meets the City's capitalization policy. SECTION 111-FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported, 10