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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