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HomeMy WebLinkAboutStaff Report 2303-1075CITY OF PALO ALTO CITY COUNCIL Special Meeting Monday, March 27, 2023 Council Chambers & Hybrid 5:00 PM     Agenda Item     6.Consent of the Macias, Gini & O’Connell’s Single Audit Report for the Fiscal Year Ended June 30, 2022 1 8 1 5 City Council Staff Report From: City Manager Report Type: CONSENT CALENDAR Lead Department: City Auditor Meeting Date: March 27, 2023 Report #:2303-1075 TITLE Consent of the Macias, Gini & O’Connell’s Single Audit Report for the Fiscal Year Ended June 30, 2022 RECOMMENDATION The Office of the City Auditor and Staff recommend that the City Council consent to the audit reports for the fiscal year ended June 30, 2022, prepared by Macias Gini & O’Connell (“MGO”). These reports are collectively referred to as the Single Audit. 1. Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements in Accordance with Government Auditing Standards. 2. Independent Auditor’s Report on Compliance for Each Major Federal Program; Report on Internal Control over Compliance; and Report on the Schedule of Federal Awards Required by the Uniform Guidance. BACKGROUND At the January 23, 2023 City Council Meeting, the City Council approved the following audit reports prepared by MGO: a. Auditor’s Report to the City Council (the “Management Letter”) b. Cable TV Franchise, Independent Auditor’s Report and Statements of Franchise Revenues and Expenses for the years ended December 31, 2021 and 2020 c. Palo Alto Public Improvement Corporation (a component unit of the City of Palo Alto) Annual Financial Report for the year ended June 30, 2022 d. Regional Water Quality Control Plant, Independent Auditor’s Report and Financial Statements for the year ended June 30, 2022 e. Independent Accountant’s Report on Applying Agreed-Upon Procedures related to the Article XIII-B Appropriations (GANN) Limit for the year ended June 30, 2022 1 8 1 5 At that time, guidance necessary for the completion of the Single Audit had not yet been released by Federal Office of Management and Budget. The Single Audit report has since been completed, thus the recommended action within this report. MGO reports the following within the Single Audit Report: -Unmodified opinions as it pertains to both the Financial Statements and to Federal Awards -No material weaknesses or significant deficiencies in internal controls over financial reporting or over major programs -No findings or questioned costs FISCAL/RESOURCE IMPACT There is no resource impact associated with this report. STAKEHOLDER ENGAGEMENT This report has been prepared by the Office of the City Auditor in coordination with the Administrative Services Department. ENVIRONMENTAL REVIEW This consent is exempt from CEQA and requires no further environmental review. ATTACHMENTS Attachment A: City of Palo Alto Single Audit Reports FY 2022 APPROVED BY: Adriane McCoy, City Auditor CITY OF PALO ALTO  Single Audit Reports  For the Year Ended June 30, 2022  CITY OF PALO ALTO  Single Audit Reports  For the Year Ended June 30, 2022  Table of Contents      Page  Independent Auditor’s 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 Auditor’s Report on Compliance for Each Major Federal Program;   Report on Internal Control Over Compliance; and Report on Schedule of  Expenditures of Federal Awards Required by the Uniform Guidance .................................................... 3    Schedule of Expenditures of Federal Awards ............................................................................................. 7    Notes to the Schedule of Expenditures of Federal Awards ........................................................................ 8    Schedule of Findings and Questioned Costs ............................................................................................... 9    Summary Schedule of Prior Audit Findings ............................................................................................... 10    www.mgocpa.com Macias Gini & O’Connell LLP 2121 N. California Boulevard, Suite 750 Walnut Creek, CA 94596     1 Independent Auditor’s 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 Honorable Mayor and Members of the City Council of the City of Palo Alto Palo Alto, 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 (Government Auditing Standards), the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Palo Alto, California (City), as of and for the year ended June 30, 2022, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated November 16, 2022. Report on 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) as a basis for designing 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. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses or significant deficiencies may exist that were not identified. Report on 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 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.     2 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. Walnut Creek, California November 16, 2022 www.mgocpa.com Macias Gini & O’Connell LLP 2121 N. California Boulevard, Suite 750 Walnut Creek, CA 94596   3 Independent Auditor’s Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance; and Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance Honorable Mayor and Members of the City Council of the City of Palo Alto Palo Alto, California Report on Compliance for Each Major Federal Program Opinion on Each Major Federal Program We have audited the City of Palo Alto, California’s (City) compliance with the types of compliance requirements identified as subject to audit 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, 2022. The City’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. 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, 2022. Basis for Opinion on Each Major Federal Program We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America (GAAS); the standards applicable to financial audits contained in Government Audit Standards issued by the Comptroller General of the United States (Government Audit Standards); and the audit requirements of Title 2 U.S. Code of Federal Regulation Part 200, Uniform Administrative Requirements, Costs Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Our responsibilities under those standards and the Uniform Guidance are further described in the Auditor’s Responsibilities for the Audit of Compliance section of our report. We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on compliance for each major federal program. Our audit does not provide a legal determination of the City’s compliance with the compliance requirements referred to above. Responsibilities of Management for Compliance Management is responsible for compliance with the requirements referred to above and for the design, implementation, and maintenance of effective internal control over compliance with the requirements of laws, statutes, regulations, rules and provisions of contracts or grant agreements applicable to the City’s federal programs.   4 Auditor’s Responsibilities for the Audit of Compliance Our objectives are to obtain reasonable assurance about whether material noncompliance with the compliance requirements referred to above occurred, whether due to fraud or error, and express an opinion on the City’s compliance based on our audit. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS, Government Auditing Standards, and the Uniform Guidance will always detect material noncompliance when it exists. The risk of not detecting material noncompliance resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Noncompliance with the compliance requirements referred to above is considered material if there is a substantial likelihood that, individually or in the aggregate, it would influence the judgment made by a reasonable user of the report on compliance about the City’s compliance with requirements of each major federal program as a whole. In performing an audit in accordance with GAAS, Government Auditing Standards, and the Uniform Guidance, we:  Exercise professional judgment and maintain professional skepticism throughout the audit.  Identify and assess the risks of material noncompliance, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the City’s compliance with the compliance requirements referred to above and performing such other procedures as we consider necessary in the circumstances.  Obtain an understanding of the City’s internal control over compliance relevant to the audit in order to design audit procedures that are appropriate in the circumstances 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 of the effectiveness of the City’s internal control over compliance. Accordingly, no such opinion is expressed. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and any significant deficiencies and material weaknesses in internal control over compliance that we identify during the audit. Report on 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 a 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 Auditor’s Responsibilities for the Audit of Compliance section above and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies in internal control over compliance. Given these limitations, during our audit we did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses as described above. However, material weaknesses or significant deficiencies in internal control over compliance may exist that were not identified.   5 Our audit was not designed for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, no such opinion is expressed. 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. 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, 2022, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements. We issued our report thereon dated November 16, 2022, which contained unmodified opinions on those financial statements. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s 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. Walnut Creek, California March 16, 2023   6 The page intentionally left blank Grantor Assistance Identifying Listing Federal Subrecipients Grantor/Pass‐Through Grantor/Federal Program Title Number Number  Expenditures   Expenditures  U.S. Department of Housing and Urban Development Direct: CDBG ‐ Entitlement Grants Cluster: Community Development Block Grants/Entitlement Grants  ‐‐ 14.218 293,377$               137,663$               COVID‐19 ‐ Community Development Block Grants/Entitlement Grants  ‐‐ 14.218 140,427                 121,448                 Subtotal ‐ CDBG ‐ Entitlement Grants Cluster 433,804                 259,111                 Total U.S. Department of Housing and Urban Development 433,804                 259,111                 U.S. Department of Justice Direct: Bulletproof Vest Partnership Program  ‐‐ 16.607 9,588                      ‐                           Total U.S. Department of Justice 9,588                      ‐                           U.S. Department of Transportation Direct: Airport Improvement Program 3‐06‐0182‐015‐2020 20.106 6,895,124              ‐                           Airport Improvement Program 3‐06‐0182‐018‐2021 20.106 152,500                 ‐                           Subtotal ‐ Airport Improvement Program 7,047,624              ‐                           Pass‐through from State of California Department of Transportation: Highway Planning and Construction Cluster: Highway Planning and Construction 75LX335‐00180000017 20.205 74,164                   ‐                           Highway Planning and Construction BRLS‐5100(017) 20.205 107,487                 ‐                           Pass‐through from Santa Clara Valley Transportation Authority: Highway Planning and Construction SCL 170021 20.205 4,005                      ‐                           Subtotal ‐ Highway Planning and Construction Cluster 185,656                 ‐                           Total U.S. Department of Transportation 7,233,280              ‐                           U.S. Department of Treasury Direct: COVID‐19 ‐ Coronavirus State and Local Fiscal Recovery Funds  ‐‐ 21.027 8,241,043              ‐                           Pass‐through from California State Water Resources Control Board: COVID‐19 ‐ Coronavirus State and Local Fiscal Recovery Funds  Not Available 21.027 413,642                 ‐                           Pass‐through from California Department of Community Services and Development: COVID‐19 ‐ Coronavirus State and Local Fiscal Recovery Funds  Not Available 21.027 735,969                 ‐                           Subtotal ‐ Coronavirus State and Local Fiscal Recovery Funds 9,390,654              ‐                           Total U.S. Department of Treasury 9,390,654              ‐                           National Endowment for the Humanities Direct: Museums for America MA‐10‐17‐0327‐17 45.301 71,047                   ‐                           Museums for America MA‐10‐19‐0583‐19 45.301 145,333                 ‐                           Museums for America MA‐24‐91‐45OMS‐21 45.301 14,400                   ‐                           Museums for America MA‐40‐18‐0555‐18 45.301 46,391                   ‐                           Subtotal ‐ Museums for America 277,171                 ‐                           COVID‐19 ‐ National Leadership Grants CAGML‐247827‐OMLS 45.312 70,887                   ‐                           Total National Endowment for the Humanities 348,058                 ‐                           U.S. Department of Homeland Security Direct: Staffing for Adequate Fire and Emergency Response (SAFER) EMW‐2020‐FF‐01734 97.083 339,192                 ‐                           Total U.S. Department of Homeland Security 339,192                 ‐                           TOTAL EXPENDITURES OF FEDERAL AWARDS 17,754,576$          259,111$               CITY OF PALO ALTO Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2022 See accompanying notes to the Schedule of Expenditures of Federal Awards 7 CITY OF PALO ALTO  Notes to the Schedule of Expenditures of Federal Awards   For the Year Ended June 30, 2022    8 NOTE 1 – REPORTING ENTITY    The Schedule of Expenditures of Federal Awards (the Schedule) includes expenditures of federal awards  for the City of Palo Alto, California (City), and its component unit as disclosed in the notes to the basic  financial statements.  The information in the 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).    NOTE 2 – BASIS OF ACCOUNTING    Basis  of  accounting  refers  to  when  revenues  and  expenditures  or  expenses  are  recognized  in  the  accounts  and  reported  in  the  financial  statements,  regardless  of  measurement  focus  applied.  The  Schedule  is  presented  using  the  modified  accrual  basis  of  accounting  for  program  expenditures  accounted  for  in  governmental  funds  and  the  accrual  basis  of  accounting  for  program  expenditures  accounted  for  in  proprietary  funds  Expenditures  of  federal  awards  reported  in  the  Schedule  are  recognized  when  incurred  and  all  eligibility  requirements  have been  met.  Such  expenditures  are  recognized following the cost principles contained in 2 CFR 200, Subpart E (Cost Principles), wherein  certain types of expenditures are not allowable or are limited as to reimbursement. The City did not  elect to use the 10% de minimis cost rate allowed under the Uniform Guidance.    As a result of the COVID‐19 pandemic, many new federal programs have been established and funding  has been added to existing federal programs.  Expenditures funded from the following acts are denoted  by the prefix COVID‐19 in the federal program title in the Schedule (as applicable):  • Coronavirus Preparedness and Response Supplemental Appropriations Act  • Families First Coronavirus Response Act  • Coronavirus Aid, Relief, and Economic Security Act (CARES Act)  • Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA)  • American Rescue Plan Act (ARP)    NOTE 3 – DIRECT AND INDIRECT (PASS‐THROUGH) FEDERAL AWARDS  Federal awards may be granted directly to the City by a federal granting agency or may be granted to  other government agencies which pass‐through federal awards to the City. The Schedule includes both  of these types of federal award programs when related expenditures are incurred.    NOTE 4 – RELATIONSHIP TO BASIC FINANCIAL STATEMENTS    Expenditures of federal awards are reported in the City’s basic financial statements as expenditures in  the  governmental  funds  or  as  expenses/capital  assets  in  the  proprietary  funds.  Federal  award  expenditures  agree  or  can  be  reconciled  with  the  amounts  reported  in  the  City’s  basic  financial  statements.    CITY OF PALO ALTO  Schedule of Findings and Questioned Costs  For the Year Ended June 30, 2022    9 Section I    Summary of Auditor’s Results  Financial Statements:    Type of report the auditor issued on whether the financial   statements audited were prepared in accordance   with U.S. GAAP:                 Unmodified   Internal control over financial reporting:   Material weakness(es) identified?           No   Significant deficiency(ies) identified?           None reported   Noncompliance material to the financial statements noted?      No    Federal Awards:    Internal control over major programs:   Material weakness(es) identified?           No   Significant deficiency(ies) identified?          None reported   Type of auditor’s report issued on compliance for the  major federal programs:              Unmodified    Any audit findings disclosed that are required to be   reported in accordance with 2 CFR 200.516(a)?         No    Identification of major federal programs:    Assistance Listing Numbers    Name of Federal Program or Cluster  20.106    Airport Improvement Program  21.027    Coronavirus State and Local Fiscal Recovery Funds    Dollar threshold used to distinguish between   type A and type B programs:             $750,000    Auditee qualified as a low‐risk auditee?            Yes    Section II  Financial Statement Findings    None reported.    Section III   Federal Awards Findings    None reported.  CITY OF PALO ALTO  Summary Schedule of Prior Audit Findings  For the Year Ended June 30, 2022    10 Prior audit findings were not reported.