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HomeMy WebLinkAbout08262024 City Council Laydown - Audit Compliance Reportsr CITY OF SEWARD, ALASKA Compliance Reports Year Ended December 31, 2023 Altman, Rogers RTIFIED PUBLIC Co. CEACCOUNTANTS CITY OF SEWARD, ALASKA Compliance Reports Year Ended December 31, 2023 City of Seward, Alaska Table of Contents SINGLE AUDIT: 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 Page No. 1-2 Independent Auditor's Report on Compliance For Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance 3-5 Schedule of Expenditures of Federal Awards 6 Notes to Schedule of Expenditures of Federal Awards 7 Schedule of Findings and Questioned Costs 8-9 Summary Schedule of Prior Audit Findings 10 Corrective Action Plan 11 Altman, Rogers CERTIFIED Co.6z ACCOUPUBLICNTANTS 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 Independent Auditor's Report Honorable Mayor and City Council City of Seward, Alaska 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, the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of City of Seward, Alaska, (City of Seward), as of and for the year ended December 31, 2023, and the related notes to the financial statements, which collectively comprise City of Seward's basic financial statements, and have issued our report thereon dated July 31, 2024. Our report includes a reference to other auditors who audited the financial statements of the Providence Seward Medical Center, as described in our report of City of Seward's basic financial statements. The financial statements of the Providence Seward Medical Center were not audited in accordance with Government Auditing Standards, and accordingly, this report does not include reporting on internal control over financial reporting or compliance and other matters associated with the Providence Seward Medical Center or that are reported on separately by those auditors who audited the financial statements of the Providence Seward Medical Center. Report on Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered City of Seward'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 City of Seward's internal control. Accordingly, we do not express an opinion on the effectiveness of City of Seward'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. 1 3000 C Street N. Suite 201 Anchorage, Alaska 99503 Offices in Juneau and Soldotna Phone 907-274-2992 Fax 907-274-2993 A Professional Corporation Honorable Mayor and City Council City of Seward, Alaska Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that have not been identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. We identified a certain deficiency in internal control, described in the accompanying schedule of findings and questioned costs as Finding 2023-001, that we consider to be a significant deficiency. Report on Compliance and Other Matters As part of obtaining reasonable assurance about whether City of Seward'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. City of Seward's Response to Finding Governmental Auditing Standards requires the auditor to perform limited procedures on the City of Seward's response to the finding identified in our audit and described in the accompanying schedule of findings and questioned costs. City of Seward's response was not subjected to the other auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on the response. 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. Anchorage, Alaska July 31, 2024 2 Altman, Rogers CERTIFIED dic PUBLIC Co. ACCOUNTANTS Report on Compliance For Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance Independent Auditor's Report Honorable Mayor and City Council City of Seward, Alaska Report on Compliance For Each Major Federal Program Opinion on Each Major federal Program We have audited City of Seward, Alaska's 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 City of Seward's major federal programs for the year ended December 31, 2023. City of Seward'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, City of Seward complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, 2023. 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 Auditing Standards, issued by the Comptroller General of the United States (Government Auditing Standards); and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). 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 City of Seward 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 City of Seward'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 City of Seward's federal programs. 3 3000 C Street N. Suite 201 Anchorage, Alaska 99503 Offices in Juneau and Soldotna Phone 907-274-2992 Fax 907-274-2993 A Professional Corporation Honorable Mayor and City Council City of Seward, Alaska 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 City of Seward'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 that 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 City of Seward's compliance with the 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 City of Seward's compliance with the compliance requirements referred to above and performing such other procedures as we considered necessary in the circumstances. • Obtain an understanding of City of Seward'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 on the effectiveness of City of Seward'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 identified 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. 4 Honorable Mayor and City Council City of Seward, Alaska Our consideration of internal control over compliance was for the limited purpose described in the 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 defined above. However, material weaknesses or significant deficiencies in internal control over compliance may exist that were not identified. 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 in 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 City of Seward, as of and for the year ended December 31, 2023, and the related notes to the financial statements, which collectively comprise City of Seward's basic financial statements. We issued our report thereon dated July 31, 2024, which contained unmodified opinions on those financial statements. Our audit was performed for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. The accompanying schedule of expenditures of federal awards and related notes are presented for purposes of additional analysis as required by the Uniform Guidance and are 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 and related notes are fairly stated in all material respects in relation to the basic financial statements as a whole. Anchorage, Alaska July 31, 2024 5 City of Seward, Alaska Schedule of Expenditures of Federal Awards Year Ended December 31, 2023 Federal Grantor U.S. Department of Justice: Passed through Justice and Security Strategies, Inc. - Small, Rural, and Tribal Body -Worn Camera Program National Oceanic and Atmospheric Administration (NOAA): Passed through the Pacific States Marine Fisheries Commission - Gulf of Alaska Pacific Cod Disaster Funding U.S. Department of the Treasury: Passed through the State of Alaska Department of Commerce, Community, and Economic Development - COVID-19 Coronavirus State and Local Fiscal Recovery Funds Grant Number or Pass Through Assistance Grantor's Program / Passed Listing Award Award Through to Federal Number Number Amount Subrecipients Expenditures 16.835 28531572 $ 10,000 - 6,000 11.477 22-178G 21.027 22-LGLR-34 43,676 32,076 1,806,416 - 878,453 U.S. Department of Agriculture: Passed through the State of Alaska, Department Natural Resources - 2023 Assistance to Firefighters Grant 10.664 None 4,229 4,229 U.S. Department of Energy: Direct - Seward Heat Loop Project 81.087 DE-EE0010668 192,150 16,556 U.S. Department of Health and Human Services: Passed through the State of Alaska Department of Health: COVID-19 Healthy and Equitable Communities 93.391 C0622-584-RX 24,581 17,094 17,094 COVID-19 Healthy and Equitable Communities 93.268 C0622-584-RX 24,581 17,093 17,093 49,162 34,187 34,187 Direct: Health Center Program Cluster: Grants for New and Expanded Services under the Health Center Program COVID-19 Expanding COVID-19 Vaccinations Grants for New and Expanded Services under the Health Center Program Total Health Center Program Cluster 93.527 93.527 9-H80CS26600 1-H8GCS48130 93.224 9-H80CS26600 1,117,814 93,152 22,054 22,054 372,605 31,050 1,512,473 146,256 Total Department of Health and Human Services 1,561,635 Total Expenditures of Federal Awards 34,187 180,443 $ 3,618,106 34,187 1,117,757 Reconciliation to Intergovernmental Revenues in the Statement of Revenues, Expenditures, and Changes in Fund Balance: Total Federal financial assistance per above schedule (SEFA) 1,117,757 Total State financial assistance (SSFA) 683,424 State funding not considered financial assistance under 2 AAC 45.010 571,460 Less state cruise ship tax expenditures (543,328) Intergovernmental contracts not included on the SEFA or SSFA 610,337 State and Federal Funds reported as Capital Contributions in the Enterprise Funds (162,626) Total Intergovernmental Revenues in the Statement of Revenues, Expenditures and Changes in Fund Balance (Exhibit D-1). $ See accompanying notes to the Schedule. 2,277,024 6 City of Seward, Alaska Notes to the Schedule of Expenditures of Federal Awards Year Ended December 31, 2023 (1) Basis of Presentation The accompanying Schedule of Expenditures of Federal Awards (the "Schedule") includes the federal award activity of City of Seward, Alaska, under programs of the federal government for the year ended December 31, 2023. The information in this 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). Because the Schedule presents only a selected portion of the operations of City of Seward, it is not intended to and does not present the basic financial statements of City of Seward. (2) Summary of Significant Accounting Policies Expenditures reported on the Schedule are reported on the modified accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. (3) Indirect Cost Rate City of Seward has elected not to use the 10% de minimis indirect cost rate allowed under the Uniform Guidance. (4) Subrecipients The City of Seward passed the following amounts through to subrecipients during the year ended December 31, 2023: Seward Prevention Coalition Seward Prevention Coalition Total ALN #93.391 ALN #93.268 $ 17,094 17,093 $ 34,187 7 City of Seward, Alaska Schedule of Findings and Questioned Costs Year Ended December 31, 2023 Section I - Summary of Auditor's Results Financial Statements Type of Type of report the auditor issued on whether the financial statements audited were prepared in accordance with GAAP: Is a going concern emphasis -of -matter paragraph included in the audit report? Unmodified Yes X No Internal control over financial reporting: Material weakness(es) identified? Yes X No Significant deficiency(ies) identified? X Yes None reported Noncompliance material to financial statements noted? Yes X No Federal Awards Internal control over major programs (2 CFR 200.516 (a)(1)): Material weakness(es) identified? Yes X No Significant deficiency(es) identified? Yes X None reported Any material noncompliance with the provisions of laws, regulations, contracts, or grant agreements related to a major program (2 CFR 200.516 (a)(2))? Yes X No Type of auditor's report issued on compliance for major program: Unmodified Any audit findings disclosed that are required to be reported in accordance with Uniform Guidance, (2 CFR 200.516 (a)(3) or (4)? Yes X No Identification of major programs: Assistance Listing Number(s) 21.027 Name of Federal Program or Cluster Coronavirus State and Local Fiscal Recovery Funds Dollar threshold used to distinguish between Type A and Type B programs: $ 750,000 Auditee qualified as low -risk auditee? Yes X No 8 City of Seward, Alaska Schedule of Findings and Questioned Costs, Continued Section II - Financial Statement Findings Finding 2023-001 Lack of Internal Controls over Utility Billings Significant Deficiency Criteria: Internal controls should be in place to ensure accurate financial reporting in accordance with Generally Accepted Accounting Principles (GAAP). Condition and Context: During our testing of internal controls over the utility billing system we noted one instance where a customer was not charged a base fee in addition to their applicable metering cost. Cause: The City does not have adequate processes and controls in place to ensure that all utility accounts are billed the correct rate and for the correct service. Effect: The amounts noted are immaterial in nature but indicate a lack of internal controls over utility billings. Repeat Finding: Repeat of Finding 2022-001. Recommendation: We recommend the City simplify the utility rate structure and implement new processes and controls related to individual utility account balances and charges. Management's Response: Management agrees with this finding. See Corrective Action Plan. Section III - Federal Award Findings The City of Seward did not have any findings that relate to Federal awards. 9 CITY OF SEWARD P.O. Box 167 410 Adams Street Seward, Alaska 99664-0167 • Main Office (907) 224-4050 • Police (907) 224-3338 • Harbor (907) 224-3138 • Fire (907) 224-3445 • City Clerk (907) 224-4046 • Community Development (907) 224-4049 • Utilities (907) 224-4050 • Fax (907) 224-4038 Summary Schedule of Prior Audit Findings Year Ended December 31, 2023 Financial Statement Findings Finding 2022-001 Material Weakness Condition and Context: Lack of Internal Controls over Utility Billings During our testing of internal controls over the utility billing system, we noted five instances of charges not billed to customers as a result of net meter readings, and learned that the entire population of net metered customers were not billed for various periods during the year. We noted two instances of charges that were not updated from the previous billing, one instance of an industrial client charged incorrectly by ERU's for sewer, as opposed to actual usage, one instance in which the customer was categorized as the incorrect type of entity, one instance in which the customer was charged duplicate amounts, and one instance where a base rate was charged with no additional charges for usage as required by tariff. Status: This finding has not been resolved and is repeated as Finding 2023- 001. 10 CITY OF SEWARD P.O. Box 167 410 Adams Street Seward, Alaska 99664-0167 O. Corrective Action Plan Year Ended December 31, 2023 • Main Office (907) 224-4050 • Police (907) 224-3338 • Harbor (907) 224-3138 • Fire (907) 224-3445 • City Clerk (907) 224-4046 • Community Development (907) 224-4049 • Utilities (907) 224-4050 • Fax (907) 224-4038 Financial Statement Findings Finding 2023-001 Material Weakness Name of Contact Person: Corrective Action Plan: Lack of Internal Controls over Utility Billings Sully Jusino, Finance Director The City has made significant progress in transforming its utility billing system to address areas of weakness. A contract management firm has been engaged to address billing challenges caused by a lack of expertise and staffing shortages. The finance department and Utility Assistant have worked closely together to review and update processes with meticulous attention to detail. The City is actively addressing findings and has implemented robust new standards and policies. The City's responsibilities include cash collection, meter readings, customer documents, and printing and mailing the billings. Furthermore, the City is planning to upgrade its utility billing software, hardware, and meters to greatly enhance its billing process. Proposed Completion Date: December 31, 2024. 11