HomeMy WebLinkAbout; ; 1989 Federal Financial Assistance audit report; 1989-06-30CITY OF CARLSBAD
Schedule of Federal Financial Assistance
and Auditors' Reports Required
Under the Single Audit Act of 1984
June 30, 1989
CITY OF CARLSBAD, CALIFORNIA
Schedule of Federal Financial Assistance
and Auditors' Reports Required
Under the Single Audit Act of 1984
Year ended June 30, 1989
Table of Contents
Page
Independent Auditors' Report on Supplementary Schedule of Federal
Financial Assistance 1
Schedule of Federal Financial Assistance 2
Notes to Schedule of Federal Financial Assistance 3
Independent Auditors' Report on Compliance at the General Purpose
Financial Statements Level 5
Independent Auditors' Report on General Compliance Requirements 7
Independent Auditors' Report on Compliance with Specific Requirements
Applicable to Major and Nonmajor Federal Financial Assistance Programs 8
Schedule of Findings and Questioned Costs 11
Independent Auditors' Report on the Internal Control Structure in
Accordance with Government Auditing Standards 15
Auditors' Report on Internal Controls (Accounting and Administrative) -
Based on a Study and Evaluation Made as Part of an Audit of the
General Purpose Financial Statements and the Additional Tests
Required by the Single Audit Act 17
KPMG Peat Marwick
Certified Public Accountants
750 B Street
San Diego, CA92101
Independent Auditors' Report on Supplementary
Schedule of Federal Financial Assistance
The Honorable Members of City Council
City of Carlsbad, California:
We have audited the general purpose financial statements of the City of
Carlsbad, California for the year ended June 30, 1989, and have issued our
report thereon dated October 20, 1989. These general purpose financial
statements are the responsibility of the City of Carlsbad's management. Our
responsibility is to express an opinion on these general purpose financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller General
of the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the general purpose
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the general purpose financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
Our audit was made for the purpose of forming an opinion on the general
purpose financial statements of the City of Carlsbad, California taken as a
whole. The supplementary information included in the accompanying schedule of
federal financial assistance is presented for purposes of additional analysis
and is not a required part of the general purpose financial statements. Such
supplementary information has been subjected to the auditing procedures
applied in the audit of the general purpose financial statements and, in our
opinion, is fairly presented in all material respects in relation to the
general purpose financial statements taken as a whole.
October 20, 1989, except as to Note
which is as of April 5, 1990.
CITY OF CARLSBAD
Schedule of Federal Financial Assistance
For the year ended June 30, 1989
Schedule 1
Federal/Pass-Through Grantor/
_ Program Title _
Major Programs:
Highway Research, Planning
and Construction
Lower Income Housing
Assistance Program
(Sec. 8-Existing Housing
and State Agency Program)
Nonmajor Programs:
Community Development Block
Grant/Small Cities Program
State and Local Government
Fiscal Assistance General
Revenue Sharing
Special Programs for the
Aging, Title III, Parts
A & B
Special Programs for the
Aging, Title III, Part C,
Nutrition Services
Pass-
Through Federal Pass-Through Total
CFDA # Grantor's # Expendiu ires
20.205 M-S10K10)
14.156 SF-535-CA16-
E077-001/009
14.219 Subvention
21.300 Subvention
13.633 25081-E
13.635 25081-E
$ 817,320
1,469,477
240,300
224,797
8,195
136.343
Note
2.896.432
A. Passed through the California Department of Transportation
B. Passed through the County of San Diego, California
C. Passed through the San Diego County Department of the Area Agency on Aging
See accompanying notes to schedule of federal financial assistance.
2
CITY OF CARLSBAD
Notes to Schedule of Federal Financial Assistance
For the year ended June 30, 1989
(1) General
The accompanying schedule of federal financial assistance presents the
expenditures of all federal financial assistance programs of the City
of Carlsbad (the City). The City's reporting entity is defined in
Note 1 to the City's general purpose financial statements. All
expenditures of federal financial assistance received directly from
federal agencies as well as expenditures of federal financial
assistance passed through other government agencies are included in the
schedule.
(2) Basig of Accounting
The accompanying schedule of federal financial assistance is presented
using the modified accrual basis of accounting, which is described in
Note 1 to the City's general purpose financial statements.
(3) Relationship to General Purpose Financial Statements
Federal financial assistance programs revenues and expenditures are
reported in the City's general purpose financial statements as follows:
Special Revenue Funds:
Community Development Block Grant
Section 8 Housing Authority
Senior Nutri tion
Capital Projects Funds:
Community Development Block Grant
Revenue Sharing
Federal Grants
Total
Beginni ng
Fund
Balance
(Deficit)
415,637
128,0999,092
547,496
(58.897)
Revenues Expendi tures
83,379
1,473,888
145,000
245,313
29,693
4.797
$ 1.041.427 1.982.070
1,469,477
144,538
240,300
224,797
819.805
2.898.917
Ending
Fund
Balance
(Deficit)
499,016
132,510
9,554
5,013
352,392
(873.905)
124.580
No revenue relating to the Highway Research, Planning and Construction
program, included in the Federal Grants fund above, has been recognized
in the general purpose financial statements as the ultimate amount to
be received could not be determined at the time of issuance of the
general purpose financial statements.
CITY OF CARLSBAD
Notes to Schedule of Federal Financial Assistance, Continued
(4) Subsequent Event
In February 1990, the City was notified that they were not in compliance
with the contract requirements under the Highway Research, Planning and
Construction program. Therefore, no federal reimbursement will be
obtained for the expenditures made under this program during the year
ended June 30, 1989.
KPMG Peat Marwick
Certified Public Accountants
750 B Street
San Diego, CA92101
Independent Auditors' Report on Compliance at the
General Purpose Financial Statements Level
The Honorable Members of City Council
City of Carlsbad, California:
We have audited the general purpose financial statements of the City of
Carlsbad, California (the City) as of and for the year ended June 30, 1989,
and have issued our report thereon dated October 20, 1989.
We conducted our audit in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller General
of the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the general purpose
financial statements are free of material misstatement.
Compliance with laws, regulations, contracts, and grants applicable to the
City is the responsibility of the City's management. As part of obtaining
reasonable assurance about whether the general purpose financial statements
are free of material misstatement, we performed tests of the City's compliance
with certain provisions of laws, regulations, contracts, and grants. However,
our objective was not to provide an opinion on overall compliance with such
provisions.
Material instances of noncompliance are failures to follow requirements or
violations of prohibitions contained in laws, regulations, contracts or grants
that cause us to conclude that the aggregation of the misstatements resulting
from those failures or violations is material to the general purpose financial
statements. The results of our tests of compliance disclosed the following
material instance of noncompliance, the effects of which have been corrected
in the 1989 general purpose financial statements of the City:
The prime contractor has not fulfilled his obligation to perform the
minimum 50% of the contract work with his own organization as
required by Section 5-1.15 of the Project Special Provisions and
Section 8-1.01 of the Standard Specifications.
We considered this instance of noncompliance in forming our opinion on whether
the 1989 general purpose financial statements are presented fairly, in all
material respects, in conformity with generally accepted accounting
principles, and this report does not affect our report dated October 20, 1989
on those general purpose financial statements.
Except as described above, the results of our tests of compliance indicate
that, with respect to the items tested, the City complied, in all material
respects, with the provisions referred to in the fourth paragraph of this
report and with respect to items not tested, nothing came to our attention
that caused us to believe that the City had not complied, in all material
respects, with those provisions.
This report is intended for the information of the members of City Council,
management, and federal regulatory agencies. This restriction is not intended
to limit the distribution of this report, which is a matter of public record.
October 20, 1989
KPMG Peat Marwick
Certified Public Accountants
750 B Street
San Diego, CA92101
Independent Auditors' Report on
General Compliance Requirements
The Honorable Members of City Council
City of Carlsbad, California:
We have applied procedures to test the City of Carlsbad's compliance with the
following requirements applicable to each of its major federal financial
assistance programs, which are identified in the accompanying schedule of
federal financial assistance, for the year ended June 30, 1989. The general
requirements applicable to the City's major federal financial assistance
programs include the following:
Political activity
Davis-Bacon Act
Civil rights
Cash management
Federal financial reports
Our procedures were limited to the applicable procedures described in the
Office of Management and Budget's Compliance Supplement for Single Audits of
State and Local Governments. Our procedures were substantially less in scope
than an audit, the objective of which is the expression of an opinion on the
City of Carlsbad's compliance with the requirements listed in the preceding
paragraph. Accordingly, we do not express such an opinion.
With respect to the items tested, the results of those procedures disclosed no
material instances of noncompliance with the requirements listed in the first
paragraph of this report. With respect to items not tested, nothing came to
our attention that caused us to believe that the City of Carlsbad, California
had not complied, in all material respects, with those requirements. However,
the results of our procedures disclosed immaterial instances of noncompliance
with those requirements, which are described in the accompanying schedule of
findings and questioned costs.
This report is intended for the information of the members of City Council,
management and federal regulatory agencies. This restriction is not intended
to limit the distribution of this report, which is a matter of public record.
October 20, 1989
KPMG Peat Marwick
Certified Public Accountants
750 B Street
San Diego, CA92101
Independent Auditors' Report
on Compliance with Specific Requirements Applicable
to Maior and Nonmaior Federal Financial Assistance Programs
The Honorable Members of City Council
City of Carlsbad, California:
We have audited the City of Carlsbad's compliance with the requirements
governing types of services allowed or unallowed; eligibility; matching;
reporting; special tests and provisions as identified in the attachment;
claims for advances and reimbursements; and amounts claimed or used for
matching that are applicable to each of its major federal financial assistance
programs, which are identified in the accompanying schedule of federal
financial assistance, for the year ended June 30, 1989. The management of the
City of Carlsbad, California is responsible for the City's compliance with
those requirements. Our responsibility is to express an opinion on compliance
with those requirements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards, Government Auditing Standards issued by the Comptroller General of
the United States, and Office of Management and Budget (OMB) Circular A-128
Audits of State and Local Governments. Those standards and OMB Circular A-128
require that we plan and perform the audit to obtain reasonable assurance
about whether material noncompliance with the requirements referred to above
occurred. An audit includes examining, on a test basis, evidence about the
City's compliance with those requirements. We believe that our audit provides
a reasonable basis for our opinion.
The results of our audit procedures for the Highway Research, Planning and
Construction program disclosed that the City did not comply with the
requirement that the prime contractor perform a minimum of 50% of the contract
work with his own organization. In our opinion, the performance of this
requirement is necessary for the City to comply with the requirements
applicable to the Highway Research, Planning and Construction program.
The results of our audit procedures also disclosed immaterial instances of
noncompliance with the requirements referred to above, which are described in
the accompanying schedule of findings and questioned costs. We considered
these instances of noncompliance in forming our opinion on compliance, which
is expressed in the following paragraph.
In our opinion, except for those instances of noncompliance with the
requirements applicable to the Highway Research, Planning and Construction
program referred to in the third paragraph of this report and identified in
the accompanying schedule of findings and questioned costs, the City of
Carlsbad, California complied, in all material respects, with the requirements
governing types of services allowed or unallowed; eligibility; matching;
reporting; special tests and provisions as identified in the attachment;
claims for advances and reimbursements; and amounts claimed or used for
matching that are applicable to each of its major federal financial assistance
programs for the year ended June 30, 1989.
We considered these instances of noncompliance in forming our opinion on
whether the City of Carlsbad, California's 1989 general purpose financial
statements are presented fairly, in all material respects, in conformity with
generally accepted accounting principles, and this report does not affect our
report dated October 20, 1989 on those general purpose financial statements.
In connection with our audit of the 1989 general purpose financial statements
of the City of Carlsbad, California and with our study and evaluation of the
City's internal control systems used to administer federal financial
assistance programs, as required by Office of Management and Budget Circular
A-128 Audits of State and Local Governments, we selected certain transactions
applicable to certain nonmajor federal financial assistance programs for the
year ended June 30, 1989. As required by Circular A-128, we have performed
auditing procedures to test compliance with the requirements governing types
of services allowed or unallowed; and eligibility that are applicable to those
transactions. Our procedures were substantially less in scope than an audit,
the objective of which is the expression of an opinion on the City's
compliance with these requirements. Accordingly, we do not express such an
opinion.
With respect to the items tested, the results of those procedures disclosed no
material instances of noncompliance with the requirements listed in the
preceding paragraph. With respect to items not tested, nothing came to our
attention that caused us to believe that the City of Carlsbad, California had
not complied, in all material respects, with those requirements. However, the
results of our procedures disclosed immaterial instances of noncompliance with
those requirements, which are described in the accompanying schedule of
findings and questioned costs.
This report is intended for the information of the members of City Council,
management, and federal regulatory agencies. This restriction is not intended
to limit the distribution of this report, which is a matter of public record.
October 20, 1989
Attachment
Program
Highway
Research,
Planning and
Construction
Lower Income
Housing
Assistance
Program
CITY OF CARLSBAD
Special Tests and Provisions
Year ended June 30, 1989
Compliance Requirement
• Payment vouchers must be certified and accompanied by
supporting data. The supporting data may be generated
through an automated billing system. The final voucher must
be submitted promptly following project completion.
• Any time extensions granted by a State Highway Agency (SHA)
affecting project costs or the amount of liquidated damages
must be approved by the Federal Highway Administration (FHWA).
• Policies and procedures for the management of real property
acquired for right-of-way purposes are to be established,
including records of acquired parcels and improvements,
property management expenses, rent receipts and disposals.
• Right-of-way property may not be transferred to another
governmental agency for public use without a credit to
federal funds. If there is a payment to the SHA for the
transfer, a credit shall be made to federal funds in the same
ratio as federal funds were used for acquiring the
right-of-way.
• The Contractor shall perform, with his own organization
contract, work amounting to not less than 50 percent of the
original contract price.
• A local public agency must have a sampling and testing program
to assure that materials and workmanship generally conform to
approved plans and specifications.
• The Public Housing Agency (PHA) is required to review the
contract rent and utility allowances for each unit to assure
that they do not exceed certain rent limitations.
• The PHA is required to annually adjust contract rents and
tenant utility allowances, upon request from the owner.
Special adjustments may also be granted to the extent
determined necessary by the PHA and HUD.
• The PHA is required to conduct an initial (annually
thereafter) inspection of units prior to executing the
housing assistance payment contract to insure that the unit
meets Housing Quality Standards (applies to existing housing
and moderate rehabilitation programs only).
10
CITY OF CARLSBAD
Schedule of Findings and Questioned Costs
Year ended June 30, 1989
PROGRAM; Highway Research. Planning and Construction
Finding/Questioned Cost #1
It is questionable as to whether the prime contractor will be able to
fulfill his obligation to perform the minimum 50% of the contract work with
his own organization as required by Section 5-1.15 of the Project Special
Provisions and Section 8-1.01 of the Standard Specification.
Recommendation
The City, in conjunction with CalTrans, should monitor the primary
contractor's work schedules closely to insure adherence to the contract
work specifications.
City's Response
The City is now monitoring the prime contractor regarding his obligations
to assure compliance.
Finding/Questioned Cost #2
There were instances noted where the contractor and subcontractor had not
paid the prevailing wage rates to their employees as required by the grant
agreement.
Recommendation
The City has been relying on CalTrans to monitor compliance with the
Davis-Bacon Act as required by the grant agreement. We suggest that the
City implement its own monitoring system to insure compliance so the
situations can be corrected in a more timely manner.
City's Response
The contractor is required to submit certified payrolls to the City. The
certified payrolls are reviewed by both the City and CalTrans for
compliance. The City will review the certified payrolls more closely in
the future to assure compliance.
11
However, for the current year's grant, the contractor's books have been
thoroughly examined to determine compliance with all federal rules.
Supplemental payrolls were provided by the contractor and both the City and
CalTrans are satisfied that prevailing wage rates have been paid.
Finding/Questioned Cost #3
We question the allowability of $106,607 of construction engineering costs
claimed by the City in billings Nos. 1 to 3 for reimbursement under the
grant agreement. The City was not able to provide supporting documentation
for these amounts. In addition, we noted that the City's claims are
prepared by an individual who is not familiar with the requirements of the
program and the claims are not reviewed for accuracy, completeness or
compliance with the grant agreement by an individual other than the
preparer.
Recommendation
In order to insure proper reporting on the claims submitted to CalTrans, an
individual other than the preparer should review the claim. As part of
this review process, all amounts claimed should be agreed to supporting
documentation.
City's Response
The City will continue to use existing procedures for collecting
construction engineering costs. However, no engineering costs will be
claimed for work prior to start of actual construction.
The finance department will supply the Project Engineer with costs as shown
on the City's financial records and future claims will agree to those
records. The Project Engineer's supervisor will review claims for
accuracy, completeness and compliance with the grant agreement.
12
CITY OF CARLSBAD
Schedule of Findings and Questioned Costs
Year ended June 30, 1989
PROGRAM; Lower Income Housing Assistance Program
Finding/Questioned Cost #1
The second quarter requisition for payment was not submitted by August 15th.
Recommendation
Quarterly requisitions for payments should be prepared earlier in the month
in order to be received by HUD on the fifteenth of the month.
City's Response
The City misinterpreted the requirement believing that the requisition
needed to be postmarked by the fifteenth of the month. To insure that the
requisition is submitted in a timely matter, the City will mail the monthly
requisitions on the tenth of the month.
Finding/Questioned Cost #2
On two of the 50 applicant files reviewed, the monthly contract rent was
increased by more than the allowable percentage. The percentage increase
used was from the Federal Register effective as of November 8, 1987 rather
than the revised rates effective December 9, 1988.
Recommendation
The City should arrange to receive the relevant revisions and updates to
the Federal Register as they are published and distribute these to the
appropriate personnel.
City's Response
In May 1989, the City began subscribing to Nan McKay and Associates
publication which provides regulation updates and interpretations for HUD
Section 8 program recipients.
13
Finding/Questioned Cost #3
The number reported on Line 12 of the quarterly "Housing and Development
Requisition for Partial Payment of Annual Contributions" form for the
quarters ended September 30, 1988 and December 31, 1988 was based on 100%
occupancy of the units available rather than actual units under lease as of
the date of the requisition. This resulted in overpayments of advances
during these quarters.
Recommendation
Quarterly requisitions should be reviewed thoroughly and performed by a
person knowledgeable with the requirements of the form.
City's Response
The Housing and Redevelopment Agency now provides the City with final Per
Unit Month (PUM) reports. The final PUM report shows actual units leased.
Status of Prior Year Findings
The conditions disclosed in the Single Audit for the ended June 30, 1988 have
been satisfactorily resolved.
KPMG Peat Marwick
Certified Public Accountants
750 B Street
San Diego, CA92101
Independent Auditors' Report
on the Internal Control Structure
in Accordance with Government Auditing Standards
The Honorable Members of City Council
City of Carlsbad, California:
We have audited the general purpose financial statements of City of Carlsbad,
California, as of and for the year ended June 30, 1989, and have issued our
report thereon dated October 20, 1989.
We conducted our audit in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller General
of the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the general purpose
financial statements are free of material misstatement.
In planning and performing our audit of the general purpose financial
statements of City of Carlsbad, California, for the year ended June 30, 1989,
we considered its internal control structure in order to determine our
auditing procedures for the purpose of expressing our opinion on the general
purpose financial statements and not to provide assurance on the internal
control structure.
The management of City of Carlsbad, California is responsible for establishing
and maintaining an internal control structure. In fulfilling this
responsibility, estimates and judgments by management are required to assess
the expected benefits and related costs of internal control structure policies
and procedures. The objectives of an internal control structure are to
provide management with reasonable, but not absolute, assurance that assets
are safeguarded against loss from unauthorized use or disposition, and that
transactions are executed in accordance with management's authorization and
recorded properly to permit the preparation of general purpose financial
statements in accordance with generally accepted accounting principles.
Because of inherent limitations in any internal control structure, errors or
irregularities may nevertheless occur and not be detected. Also, projection
of any evaluation of the structure to future periods is subject to the risk
that procedures may become inadequate because of changes in conditions or that
the effectiveness of the design and operation of policies and procedures may
deteriorate.
15
For the purpose of this report, we have classified the significant internal
control structure policies and procedures in the following categories:
• Investments
• Revenues/receipts
• Purchases/disbursements
• Payroll
• External financial reporting
Our consideration of the internal control structure included all of the
control categories listed above except that we did not evaluate the internal
control structure over investments, revenues/receipts and payroll because we
believed the audit could be performed more efficiently by expanding
substantive testing rather than placing reliance on the internal control
systems and because these categories are not significant to the major federal
financial assistance programs. The purpose of our consideration of the
internal control structure was to determine the nature, timing, and extent of
the auditing procedures necessary for expressing an opinion on the general
purpose financial statements.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a reportable condition in which
the design or operation of one or more of the specific internal control
structure elements does not reduce to a relatively low level the risk that
errors or irregularities in amounts that would be material in relation to the
general purpose financial statements being audited may occur and not be
detected within a timely period by employees in the normal course of
performing their assigned functions. We noted no matters involving the
internal control structure and its operation that we consider to be material
weaknesses as defined above.
However, we noted certain matters involving the internal control structure and
its operation that we have reported to the management of City of Carlsbad,
California, in a separate communication dated October 20, 1989.
This report is intended for the information of members of City Council,
management, and the federal regulatory agencies. This restriction is not
intended to limit the distribution of this report, which is a matter of public
record.
Put
October 20, 1989
16
KPMG Peat Marwick
Certified Public Accountants
750 B Street
San Diego, CA92101
Independent Auditors' Report on Internal Controls
(Accounting and Administrative) - Based on a Study
and Evaluation Made as Part of an Audit of the
General Purpose Financial Statements and the
Additional Tests Required bv the Single Audit Act
The Honorable Members of City Council
City of Carlsbad, California:
We have audited the general purpose financial statements of the City of
Carlsbad, California for the year ended June 30, 1989, and have issued our
report thereon dated October 20, 1989. As part of our audit, we made a study
and evaluation of the internal control systems, including applicable internal
administrative controls, used in administering federal financial assistance
programs to the extent we considered necessary to evaluate the systems as
required by generally accepted auditing standards, Government Auditing
Standards. issued by -the Comptroller General of the United States, the Single
Audit Act of 198^, and the provisions of Office of Management and Budget
Circular A-128, Audits of State and Local Governments. For the purpose of
this report, we have classified the significant internal accounting and
administrative controls used in administering federal financial assistance
programs in the following categories:
Accounting Controls
• Purchases/disbursements
• External financial reporting
Controls Used in Administering Federal Programs
General requirements;
• Political activity
• Davis-Bacon Act
• Civil rights
• Cash management
• Federal financial reports
17
Specific requirements;
• Types of services
• Eligibility
• Matching, level of effort
• Reporting
• Special requirements, if any
The management of the City of Carlsbad, California is responsible for
establishing and maintaining internal control systems used in administering
federal financial assistance programs. In fulfilling that responsibility,
estimates and judgments by management are required to assess the expected
benefits and related costs of control procedures. The objectives of internal
control systems used in administering federal financial assistance programs
are to provide management with reasonable, but not absolute, assurance that,
with respect to federal financial assistance programs, resource use is
consistent with laws, regulations, and policies; resources are safeguarded
against waste, loss, and misuse; and reliable data are obtained, maintained,
and fairly disclosed in reports.
Because of inherent limitations in any system of internal accounting and
administrative controls used in administering federal financial assistance
programs, errors or irregularities may nevertheless occur and not be
detected. Also, projection of any evaluation .of the systems to future periods
is subject to the risk that procedures may become inadequate because of
changes in conditions or that the degree of compliance with the procedures may
deteriorate.
Our study included all of the applicable control categories listed above.
During the year ended June 30, 1989, the City of Carlsbad, California expended
79% of its total federal financial assistance under major federal financial
assistance programs. With respect to internal control systems used in
administering major federal financial assistance programs, our study and
evaluation included considering the types of errors and irregularities that
could occur, determining the internal control procedure that should prevent or
detect such errors and irregularities, determining whether the necessary
procedures are prescribed and are being followed satisfactorily and evaluating
any weaknesses.
With respect to the internal control systems used solely in administering the
nonmajor federal financial assistance programs of the City of Carlsbad,
California, our study and evaluation was limited to a preliminary review of
the systems to obtain an understanding of the control environment and the flow
of transactions through the accounting system. Our study and evaluation of
the internal control systems used solely in administering the nonmajor federal
financial assistance programs of the City of Carlsbad, California did not
extend beyond this preliminary review phase.
18
Our study and evaluation was more limited than would be necessary to express
an opinion on the internal control systems used in administering the federal
financial assistance programs of the City of Carlsbad, California.
Accordingly, we do not express an opinion on the internal control systems used
in administering the federal financial assistance programs of the City of
Carlsbad, California. Further, we do not express an opinion on the internal
systems used in administering the major federal financial assistance programs
of the City of Carlsbad, California.
Also, our audit, made in accordance with the standards mentioned above, would
not necessarily disclose material weaknesses in the internal control systems
used solely in administering nonmajor federal financial assistance programs.
However, our study and evaluation and our audit disclosed the following
conditions that we believe result in more than a relatively low risk that
errors or irregularities in amounts that would be material to a federal
financial assistance program may occur and not be detected within a timely
period:
The City's claims for reimbursement under the Highway Research,
Planning and Construction program are prepared by an individual who
is not familiar with the requirements of the program. In addition,
supporting documentation is not required to be attached to the
claims and the claims are not reviewed for accuracy, completeness or
compliance with the grant agreement by an individual other than the
preparer .
These conditions were considered in determining the nature, timing and extent
of the audit tests to be applied in (1) our audit of the 1989 general purpose
financial statements and (2) our audit and review of the City of Carlsbad's
compliance with laws and regulations, noncompliance with which we believe
could have a material effect on the allowability of program expenditures for
each major federal financial assistance program and nonmajor federal financial
assistance programs. This report does not affect our reports on the general
purpose financial statements and on the City of Carlsbad's compliance with
laws and regulations dated October 20, 1989.
This report is intended solely for the use of members of City Council,
management, and the federal regulatory agencies. This restriction is not
intended to limit the distribution of this report, which is a matter of public
record.
October 20, 1989
19