City of Citrus Heights

The audit included testing transactions reimbursed from Federal Aid project number, STPCML 5475(033) (Sunrise Complete PH3). The audit also included testing the City's procurement policies and procedures for the project numbers ATPSB1L-5475(042) (Electric Greenway) and ATPSB1L-5475(043) (Mariposa PH4). Our audit period was from July 1, 2010, through July 31, 2018.

We conducted our audit of the City's FMS to determine if the FMS, which includes consultant procurement, complied with the requirements in the Master Agreements and supplemental agreements between the City and Caltrans and applicable laws and regulations. The scope of the audit was limited to reviewing and testing the City's FMS, including internal controls, and the City's ability to accumulate, segregate, and allocate reasonable and allowable project costs. The audit also consisted of inquiries of the City's personnel to obtain an understanding of the City's FMS and to evaluate compliance with Title 2 Code of Federal Regulations Part 200 and requirements stipulated in the City's agreement with Caltrans. The audit was limited to financial and compliance activities. Our field work was completed on September 7, 2018. Changes to the FMS subsequent to September 7, 2018, were not tested and, accordingly, our conclusion does not pertain to changes arising after this date.

The City is responsible for the design and maintenance of their FMS. Because of inherent limitations in any FMS, misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the FMS to future periods are subject to the risk that the FMS may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

We conducted this audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient and appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives.

We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The audit was less in scope than an audit performed for the purpose of expressing an opinion on the financial statements of the City. Therefore, we did not audit and are not expressing an opinion on the City's financial statements.

Caltrans has a legal and fiduciary responsibility to ensure that all state and federal funds passed through Caltrans are expended in compliance with state and federal laws, regulations, and agreements. IOAI performs audits to ensure Caltrans is meeting their legal and fiduciary responsibilities and that state and federal funds are properly expended by local government entities.

IOAI audits projects from the Active Transportation Program (ATP). ATP was created to encourage increased use of active modes of transportation. The ATP consolidated various transportation programs into a single program from a combination of state and federal funds. Most recently, the Road Repair and Accountability Act, Senate Bill 1, added approximately $100 million per year in available funds for ATP projects.

Based on our audit, we determined the City's accounting system does identify, segregate, and allocate reasonable and allowable project incurred costs and required matching funds, however, we noted the following deficiencies:

• The City was not able to provide documentation to show how project costs were charged to the project in the accounting system.
• The City's accounting system was not able to accumulate project costs. The accounting system was not able to generate a report summarizing total costs by project from their general ledger that reconciled with their summary of the total project costs report.
• The City did not follow procurement requirements to comply with state and federal laws and regulations.

Our findings and recommendations take in to account the City's response dated October 30, 2018, to our October 19, 2018, draft report. Our findings and recommendations, the City's response, and our analysis of the response are set forth in the Findings and Recommendations section of this report. The report is a matter of public record and will be placed on Caltrans' webpage, which can be viewed at dot.ca.gov/audits/INC.html.

The City of Citrus Heights' (City) accounting system does not accumulate project costs. In addition, we were not able to validate whether the project costs were properly recorded in the accounting system. Specifically, we found the following deficiencies:

• The City was not able to provide documentation to show how some of the project costs for STPCML 5475 (033) were charged to the project in the accounting system.
• The City was not able to generate a report of total costs by project from their general ledger that reconciled to the City's summary of the total project costs for project STPCML 5475 (033).

Caltrans Master Agreement, Article V Audits, Third Party Contracting, Records Retention and Reports, states in part that:

• Agency, its contractors, and subcontractors, shall establish and maintain an accountings system and records that properly accumulate and segregate incurred project costs and matching funds by line item for the Project.
• The accounting system of administering agency, its contractors, and all subcontractors shall conform to GAAP, enable the determination of incurred costs at interim points of completion, and provide support for reimbursement payment vouchers or invoices sent to or paid by STATE.

Title 2 Code of Federal Regulations (CFR) Part 200.302 states in part, (a) the state's and the other non-Federal entity's FMSs, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award.

The City's accounting system was not designed to accumulate project costs. These deficiencies put Caltrans at risk of being billed inaccurately and of being unable to recognize federal fund expenditures passed through Caltrans to report in the annual Single Audit.

Recommendation: 

We recommend the City:

• Update their accounting system to ensure project costs are properly accumulated to comply with the federal and state laws and regulations.
• Develop written accounting system policies and procedures and train staff accordingly.

The City's Response: 

To ensure that staff record project costs accurately in the financial system (Eden), management will create written accounting policies and procedures and train staff accordingly. In addition, the City will record costs by project phase in Eden to ensure reasonable and allowable project costs are properly accumulated, segregated, and allocated, and also comply with the federal and state laws and regulations

Analysis of the City's Response: 

We reviewed the City's response to their accounting procedures, and we determined that the finding related to inaccurate line descriptions and accounting codes might be human error and an isolated incident, therefore, we removed the finding from the audit report.

The City did not procure consultant contracts in accordance with the procurement requirements stipulated in the agreements for Federal-Aid Project No. ATPSB1L-5475(042) (Electric Greenway), ATPSBIL-5475(043) (Mariposa PH4), and STPCML 5475(033) (Sunrise Complete PH3). Several required processes were not performed or completed when the City contracted for architecture and engineering services. The table below summarizes the deficiencies.

X = Deficiency

Please see Attachment I for a summary of applicable criteria.

The City was not aware of the procurement requirements stipulated in the Caltrans, Division of Local Assistance, LAPM, or the federal contract requirements of Title 49 Code of Federal Regulations (CFR) Part 18.36 Procurement. As a result, the City may not be able to ensure that there was fair and open competition during the procurement, and that a reasonable price was obtained.

Recommendation: 

We recommend the City:

• Revise their procurement policies and procedures to conform with stipulations in agreements with Caltrans and with state and federal procurement requirements, and train staff accordingly.
• Include the LAPM Exhibit 10-H format as the final cost proposals for prime and all subconsultants.
• Amend the Electric Greenway and Mariposa contracts to include the LAPM Exhibit 10-H as the final contract cost proposals, and remove any current Fee Estimate and other Cost Proposals schedules.
• Have staff working on procurements take the Caltrans, Division of Local Assistance online Architectural and Engineering Procurement training at: http://dot.ca.gov/hq/LocalPrograms/AE/index.htm.

Summary of City's Response: 

The City stated that the City will update their procedures to include preparation of an independent cost analysis, a dated copy of the analysis prior to receiving proposals, and the Exhibit 10-H in all future contracts. In addition, the City will require their contractors and subcontractors not to include a "Mark Up" line item on the cost proposal form.

The City states that the City's current "Request for Proposal (RFP)" template does include weighted evaluation factors, consultant rating forms updated to reflect these same factors and weights, no bonus factors, criteria for developing a short list, at least three people rating the initial proposals and three people attending the final selection interviews for short listed firms, protest/dispute procedures, documentation of consultant price negotiations prior to award of contract, Federal Title V and/or Disadvantaged Business Enterprise requirements, and Conflict of Interest forms from selection committee and all persons involved in rating prior to finalizing the evaluations.

Analysis of the City's Response:

We reviewed the City's response to the deficiencies unique to the Sunrise Complete PH3 project. We determined that the City's current RFP process does comply with the LAPM and federal and state laws and regulations with exceptions stipulated in the final deficiency table. We removed deficiencies that were unique to the Sunrise Complete PH3 project as we determined the City has corrected these processes.

For the City's full response, see Attachment II.

FINDING 1— Weakness in Financial Management System

• To ensure that staff record project costs accurately in the financial system (Eden), management will create written accounting policies and procedures and train staff accordingly. In addition, The City will record costs by project phase in Eden to ensure reasonable and allowable project costs are properly accumulated, segregated, and allocated, and comply with the federal and state laws and regulations.

FINDING 2 — Deficiency in Proper Procurement Practices