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Cit 6.1.F. - Page 184 �ity � Single Audit Reports Notes to Schedule of Expenditures of Federal Awards For the year ended June 30,2012 D. PRIOR YEAR FINDINGS AND QUESTIONED COSTS,Continued SA2011-01 Schedule of Expenditures of Federal Awards & Prior Period Adjustment to the Financial Statements,Continued Questioned Costs: Not applicable. Context and Effect: The Schedules of Expenditure of Federal Awards were incomplete and the City was not complying with the requirements under OMB Circular A-133 in prior fiscal years. In addition, prior years' financial statements have been misstated. Recommendation: We recommend that the City formalize a written grant reporting process to be communicated to all departments to ensure that all federal grant expenditures are reported on the schedule of expenditures of federal awards, and all grant reimbursable revenues are properly accrued. Management Response: In May 2010, Redwood City entered into a cooperative agreement with the United States Bureau of Reclamation (USBR) for Federal financial assistance with the Redwood City Recycled Water Project (Project). The Cooperative Agreement was later modified in July 2010. The objective of the Cooperative Agreement was to reimburse Redwood City for the appropriate Federal cost share associated with the Project, which was the lesser of 25% of the total project cost or $1,100,000.00, which is the maximum federal cost share as prescribed in Public Law 110-229, section 512, section 1646. The Cooperative Agreement with USBR entitled Redwood City to have incurred allowable costs on or after August 1, 2002 for pre-construction activities, and on or after May 8, 2008 for construction related activities, which if had been incurred after the Cooperative Agreement was entered into, would have been allowable, allocable, and reasonable under the terms and conditions of the Agreement. In FY2010-11, Redwood City was therefore reimbursed for Projects costs incurred prior to authorization. These allowable costs went back as far back as 2007. The City did not report $1,037,656 in prior period federal expenditures in the schedule of expenditures of federal awards for the respective reporting periods because these allowable costs were not authorized unti12010. The City is currently working on a grant management policy Status: 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. 18