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City of Redwood City 6.1.F. - Page 183 Single Audit Reports Schedule of Findings and Questioned Costs, Continued For the Year Ended June 30,2012 C. FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAM AUDIT, Continued SA2012-03 Schedule of Expenditures of Federal Awards (Continued) Views of responsible officials and planned corrective actions The City of Redwood City has been recording the CDBG grants and program income following the same Federal grants administrative requirement every fiscal year. During prior fiscal years, the City was not aware of the requirement to report expenditures related to the use of program income. Management is now aware of this requirement and will begin to report the program income related expenditures on the Schedule of Expenditures of Federal Award starting in fiscal year 2012. A draft grant management policy has been completed and has been reviewed by the City Manager, City Attorney and department heads. The grant management policy is scheduled to be taken to the City Council for approval on January 14, 2013. Additionally, in order to improve the City's accounting for grants, a comprehensive list of all City grants has been completed and circulated to all departments for review and input. D. PRIOR YEAR FINDINGS AND QUESTIONED COSTS SA2011-01 Schedule of Expenditures of Federal Awards & Prior Period Adjustment to the Financial Statements Criteria: As described in � .310(b)(3) of OMB Circular A-133, the schedule of expenditures of federal awards for the period covered by the City's financial statements shall include a list of individual Federal programs by Federal agency, and provide total Federal awards expended for each individual Federal program. At the same time, all reimbursable grant revenues should be accrued on the financial statements. Condition: The City had incurred expenditures for the Redwood City Recycled Water Project, and had received federal funding for the Project under the Water Reclamation and Reuse Program (CFDA #15.504). During the performance of the audit, we noted that the City had not reported $1,037,656 in prior period federal expenditures in the schedule of expenditures of federal awards for the respective reporting periods. As a result,the City did not accrue those grant revenues in prior fiscal years. Cause: The City has a decentralized process for requesting grant awards. However departments applying for federal grant awards usually obtain City Council's approval. The City Council grant approval requests are then forwarded to the City's finance department, who rely on this process to ensure that all of the City's federal grants are accounted for, which in turn ensures that all expenditures of federal grant awards are reported on the Schedule of Expenditures of Federal awards for each fiscal year. The department which applied for federal funding under the Water Reclamation and Reuse Program applied for and had incurred expenditures for the federal award prior to seeking approval from City council. 1�