September 20, 2016 Planning and Modal Programs P1575-0046...

State of California California State Transportation Agency DEPARTMENT OF TRANSPORTATION

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To COCO BRISENO Date September 20 2016 Deputy Director Planning and Modal Programs

File P1575-0046

From WILLIAM E LEWIS vi~ Assistant Director Audits and Investigations

Subject INCURRED COST AUDIT- CITY OF DUNSMUIR

We audited costs claimed by and reimbursed to the City of Dunsmuir (City) totaling $165581 for work performed under projects RPSTPLE-5183(005) and BHL0-5183(006) with California Department of Transportation (Caltrans) The audit was performed to determine whether the costs were supported and in compliance with agreement provisions and state and federal regulations This audit was performed as a management service to assist Caltrans in fulfilling its fiduciary responsibilities to state and federal regulatory agencies The final report is attached

Based on our audit we determined that project costs totaling $163367 did not comply with respective agreement provisions and state and federal regulations In addition the City did not have policies and procedures did not utilize a proper financial management system approved unallowable and questionable costs and did not have a responsible person in charge for the Tauhindauli [RPSTPLE-5 183(005)] construction project Further we determined that the City poses a higher risk for federal- and state funding and we recommend the program take steps to mitigate the risk

Please provide our office with a corrective action plan addressing the recommendations in the report including estimated timelines by October 24 2016

If you have questions or need additional information please contact MarSue Morrill External Audits - Local Governments at (916) 323-7105

Attachment

Provide a safe sustainable integrated and efficient transporlalion system to enhance California S economy and livability

COCO BRISENO September 20 2016 Page 2

c Paul H Poczabut Jr City Manager City of Dunsmuir Michael Tritz Deputy Secretary for Audits and Performance Improvement California

State Transportation Agency Janice Williams Director of Financial Services Federal Highway Administration Susan Bransen Executive Director California Transportation Commission Malcolm Dougherty Director Caltrans Kome Ajise Chief Deputy Director Caltrans Dave Moore District Director District 2 Caltrans Clark Paulsen Chief Division of Accounting Caltrans Ray Zhang Chief Division of Local Assistance Caltrans Lena Ashley Acting Deputy District Director Planning and Local Assistance Cal trans Ian Howat District Local Assistance Engineer District 2 Caltrans MarSue Morrill Chief External Audits - Local Governments Audits and Investigations

Caltrans

middotmiddotProvide a safe sustainable imegrated and efficie111 1ra11spor1alion system to enhance California seconomy and livability

Audit Report September 20 2016

lbtransbull

City ofDunsmuir Incurred Cost Audit

PREPARED BY California Department of Transportation

Audits and Investigations - MS 2

Post Office Box 942874

Sacramento California 94274-0001

wwwdotcagovhqaudits

AunITTEAM

MarSue Morrill CPA Chief External Audits-Local Agencies

Clifford Vose Audit Manager

Barbara Nolan Auditor-in-Charge

Ngoc Bui Auditor

P1575-0046

Provide a safe sustainable integrated and efficient transportalion system to enhance California s economy and livability

City of Dunsmuir Incurred Cost Audit

TABLE OF CONTENTS

SUMMARY 1

OBJECTIVES 1

SCOPE 1

METHODOLOGY 2

BACKGROUND 2

CONCLUSION 2

VIEWS OF RESPONSIBLE OFFICIALS 3

FINDINGS AND RECOMMENDATIONS 4

FINDING 1 - Lack of Written Policies and Procedures 4

FINDING 2- Financial Management Needs Improvement 5

FINDING 3 - Grant Management Needs Improvement 6

FINDING 4 - Procurement Needs Improvement 7

FINDING 5 - Contract Management Needs Improvement 9

FINDING 6 - Needs for Responsible Person in Charge I Construction Management Needs Improvement 10

ATTACHMENTS

I Audit Universe and Questioned I Disallowed Costs

II Criteria


SuMMARY OBJECTIVES ScoPE

METHODOLOGY BACKGROUND AND CONCLUSION

SUMMARY

The California Department ofTransportation (Cal trans) Audits and Investigations (AampI) audited reimbursed project costs totaling $165581 to the City of Dunsmuir (City) and found project costs totaling $163 367 were not in compliance with respective agreement provisions and state and federal regulations

OBJECTIVES

Caltrans AampI performs incurred cost audits to ensure Caltrans is meeting its legal and fiduciary responsibilities and that state and federal funds are properly expended by local government agencies This audit was performed to determine whether project costs claimed by and reimbursed to the City were allowable adequately supported and in compliance with the respective agreement provisions and state and federal regulations

The audit included costs incurred on the Tauhindauli Trail and Viewing Platform project RPSTPLE-5183(005) and the Butterfly Bridge Scour project BHL0-5183(006) during the period from November 10 2009 through March 27 2015

SCOPE

The scope of the audit was limited to reviewing financial and compliance activities The audit of the Citys financial management system included interviews of City staff necessary to obtain an understanding of the Citys financial management system The audit consisted of transaction testing ofreimbursed project costs to evaluate compliance with Title 2 Code of Federal Regulations (CFR) Part 225 Title 48 CFR Chapter 1 Part 31 Title 49 CFR Part 18 Title 23 CFR Caltrans Local Assistance Procedures Manual and requirements stipulated in the Citys agreements with Caltrans Field work was completed on February 8 2016 and transactions occurring subsequent to this date were not tested and accordingly our conclusion does not include costs or credits arising after this date

The City is responsible for the claimed costs compliance with applicable agreement provisions state and federal regulations and the adequacy of its financial management system to accumulate and segregate reasonable allocable and allowable costs Because of inherent limitations in any financial management system misstatements due to error or fraud may occur and not be detected Also any projection or evaluation of the financial management system in future periods using the results of this audit are subject to the risk that the financial management system

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may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate

Subsequent to field work we were informed that the City submitted a final report of expenditures on the RPSTPLE-5183(005) project A review of that report indicates that there may be additional eligible and ineligible costs reported as well as inconsistencies in the classification of certain preliminary engineering costs The final report of expenditures was not audited and our conclusions do not consider those costs or potential misclassifications However we will provide a management memo to the Caltrans Division of Local Assistance regarding our review of the final report of expenditures

METHODOLOGY

We conducted this performance audit in accordance with generally accepted government auditing standards Those standards require that we plan and perform the audit to obtain sufficient 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

An audit includes examining on a test basis evidence supporting the amounts and disclosures in the data and the records selected An audit also includes assessing the accounting principles used and significant estimates made as well as evaluating the overall presentation

BACKGROUND

Caltrans has a legal and fiduciary responsibility to ensure that all state and federal funds are expended in compliance with state and federal laws regulations and agreements Title 23 CFR Part 19 requires that federal aid funds be expended in compliance with state and federal laws Additionally Title 23 CFR Part 136 states that payment of funds to a state can be withheld ifthe state has violated or failed to comply with federal laws or with the regulations of Title 23 CFR Part 136 Caltrans performs audits to ensure it is meeting its legal and fiduciary responsibilities and that state and federal funds are properly expended by local government agencies

CONCLUSION

Based on our audit we determined the City

bull Reimbursed project costs totaling $163367 (see Attachment I) were not in compliance with respective agreement provisions and state and federal regulations

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bull Did not have policies and procedures covering grant management contract management or construction management

bull Did not utilize a proper financial management system to segregate and accumulate project costs

bull Did not follow proper procedures related to grant management procurement contract management or construction management

bull Approved unallowable and questionable costs bull Did not have a responsible person in charge of its construction project

Based on our findings we determine the City poses a higher risk for federal-aid funding and recommend that certain conditions be imposed Title 2 CFR 200207 states that specific conditions may include but are not limited to requiring more detailed financial reports and project monitoring requiring the City to obtain technical or management assistance and establishing additional prior approvals

VIEWS OF RESPONSIBLE OFFICIALS

Government auditing standards recommend obtaining the views of responsible officials To accomplish this objective we provided the City with a copy of our draft report and met with them to discuss the findings The City did not however provide a response to our draft report

This report is intended as information for Caltrans management the Federal Highway Administration and the City This report is a matter ofpublic record and will be placed on Cal trans AampI s website

Ifyou have any questions please contact Barbara Nolan Auditor at (916) 323-7880 or CliffVose Audit Manager at (916) 323-7917

September 20 2016

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FINDIN GS AND REcoMMENDATIONS

FINDING 1 - Lack of Written Policies and Procedures

The City of Dunsmuir (City) did not have written policies and procedures related to grant management procurement contract management construction management or record keeping as required by Title 23 Code of Federal Regulations (CFR) Part 172 49 CFR 18 and by the new 2 CFR 200302 City management explained that they had competing priorities and developing written polices was not their highest priority

The Citys lack of adequate policies and procedures that detail proper practices to be followed for activities performed by staff contributed to deficiencies and noncompliant actions noted in Findings 2 through 6 Without adequate written policies and procedures there is increased risk for errors to occur and not be detected or corrected This could result in unallowable or ineligible costs billed and reimbursed

See Attachment II for detailed criteria

RECOMMENDATION

We recommend the City establish and maintain written policies and procedures related to grant management procurement contract management construction management and record keeping to ensure compliance with state and federal regulations and ensure that management and staff are trained accordingly These policies and procedures should include staff roles and responsibilities pertaining to

bull Grant management procedures detailing invoice preparation ofeligible costs costs claimed to grant agreement and review and maintenance of grant guidance and regulations

bull Procurement procedures detailing competition selection methods (including limited circumstances for noncompetitive procurement) record retention contract price estimating and negotiating and negotiation and establishment of profit or fee as a separate element of contract cost

bull Contract management procedures detailing the required contract provisions invoice review and approval steps as well as reconciling vendor invoices to contract terms

bull Construction management procedures detailing identifying the person in responsible charge and progress payment review and approval process

bull Record keeping procedures detailing the types of records to maintain location and protection of records and time limits for keeping records

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FINDING 2- Financial Management Needs Improvement

The City s accounting system was not fully utilized in order to properly accumulate and segregate project costs as required by 49 CFR 1820 (a) fiscal control and accounting procedures We found that invoices from the same vendor for the same services in the same project phase were assigned to different general ledger accounts The City used at least four separate general ledger accounts to record project costs from the Tauhindauli Trail and Viewing Platform project (Tauhindauli) and two separate accounts to record project costs from the Butterfly Bridge Scour project (Butterfly Bridge) Each account also included non-project costs

We also found that consultant invoices did not always have evidence showing that the invoices were reviewed and approved for payment Good internal controls provide for a review and approval of costs by responsible individuals and that the review is documented by signing or initialing invoices For example initials of the staff person approving the payment or account coding was not consistently recorded on the invoice For the Tauhindauli project 15 of 3 8 invoices reviewed were missing the approvers initials account coding or both For the Butterfly Bridge project 4 of the 8 invoices reviewed did not have account coding and 7 were not initialed for approval of payment

The City had been without a full-time financial officer since September 2014 and no written procedures for the processing of vendor invoices had been developed however the City had recently hired accounting staff to work on a part-time basis Based on our review and interviews with staff the accounting system software was capable of accumulating and segregating project costs but unique account codes had not been assigned to track costs at the project level Without an adequate financial management system the City risks charging for costs that are not accurate or valid By enhancing the accounting system the City should be able to properly accumulate and segregate project costs in accordance to federal regulations


RECOMMENDATION

We recommend the Citys existing accounting system be fully utilized to accomplish the following

bull Accumulate and segregate project costs at the phase level and capture cost and payment information accurately and consistently

bull Provide cost reports by project phase and consultant or vendor when preparing requests for reimbursement from the California Department of Transportation (Caltrans)

The city should also ensure that all invoices are reviewed for compliance with contract terms and conditions and approved for payment in accordance with a written policy and that the review and approval is documented

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FINDING 3-Grant Management Needs Improvement

The City did not follow requirements of the federal-aid highway program related to authorization dates reimbursement and reporting as required by the Citys Master Agreement with Caltrans and federal regulations As noted above the City had been without key staff including a finance officer and city manager for an extended period of time Without having established grant management practices the City risks billing for ineligible costs and the loss of federal funding In addition Caltrans ability to monitor the Citys progress is diminished which limits Caltrans from identifying and potentially redirecting unused funds to other projects and priorities

Specifically we noted the following exceptions pertaining to Grant management

bull The City billed $3725 for construction engineering costs incurred between July 18 2013 and August 22 2013 which was prior to the authorization date of September 3 2013 for the construction phase on the Tauhindauli project These costs are disallowed

bull The City billed for and was reimbursed for consultant costs prior to having paid the consultant on the Butterfly Bridge project Specifically payment from Caltrans for $1360 in Citys consultant costs was recorded in the Citys accounting system on September 8 2014 but the Citys check to pay the consultant for these costs was dated September 19 2014

bull Requests for reimbursement were not reported to Caltrans more than six months after the receipt of the prior invoice in 2 of 4 instances on the Tauhindauli project and in 3 of 3 instances for the Butterfly Bridge project As a result the Tauhindauli and Butterfly Bridge projects were placed on inactive status


RECOMMENDATION

We recommend the City reimburse Caltrans $3725 for the disallowed costs identified above NOTE This amount is also included in finding 4

In addition we recommend the City develop policies and procedures and train staff accordingly to ensure

bull Proper grant management processes to include eligible start dates and reporting requirements

bull Consultants have been paid and checks have cleared the bank pnor to requesting reimbursement for project costs

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FINDING 4 - Procurement Needs Improvement

The City did not maintain records to support that the procurement of professional services and construction contracts met federal and state laws and regulations The City did not have established policies and procedures for procurement or the retention ofrecords We reviewed what records were available and noted the following exceptions

Engineering Services - PACE Engineering (PACE) On June 27 2011 the City entered into a contract with PACE to provide engineering and surveying services for general City Engineer work and other specific projects as requested by the City of Dunsmuir A separate contract to prepare plans specifications and estimates for the Butterfly project was also entered into with PACE on June 27 2011 None of the City staff involved in the award of the contracts are now working for the City and were unavailable to comment on the procurement process Based on the recollection of City staffnot directly involved with the procurement but working at the time of the award it was understood that these contracts were the result of a Request for Qualifications (RFQ) the City prepared for General City Engineering Services dated September 2010 Records of the September 2010 RFQ were incomplete and the City was unable to show

bull The RFQ was advertised

bull Sufficient response time was allowed

bull The basis for selecting PACE and rejecting other RFQ proposers (There was a tie in scoring but no documentation for basis of breaking the tie)

bull The City negotiated contract cost and contractor profit

bull The contract was awarded solely based on qualifications without price influencing the decision

bull Whether all future project specific work would be awarded to PACE or if future project specific work would be competitively bid

On September 23 201 1 the City entered into another contract with PACE to prepare plans specifications and cost estimate for the Tauhindauli project It is unclear whether this contract was a direct result of the September 2010 RFQ and the City could not show that the contract was awarded as the result of open and full competition

We question all PACE costs billed to and reimbursed by Caltrans which total $13847 for the Butterfly Bridge project and $45745 for the Tauhindauli project

Environmental Services - Enplan The City had no documentation to support the procurement of a May 2010 contract with Enplan therefore the City could not support that the procurement met state and federal laws and regulations Based on interviews with the City Engineer (PACE staff) and a review ofbackground information documented in a letter from Enplan to the City it appears that the Enplan contract was not put out to bid and the City did not have any evidence to support the justification for the sole

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source procurement as required by 49 CFR 1836 Therefore all $40035 in Enplan costs billed to and reimbursed by Caltrans on the Tauhindauli project are questioned

Construction - Dunton Construction Company (Dunton) The City did not maintain any procurement records for the construction contract awarded to Dunton for the Tauhindauli project Some procurement records were located at the City Engineers office (PACE) but the records were incomplete Records detailing the history of a procurement are required to be maintained per 49 CFR 1836 (b) (9) and maintained for a period of three years from date offinal payment to City for project costs per the Master Agreement Article V paragraph 3

Specifically we noted the following

bull There was no evidence to certify a public opening of bids

bull Only two envelopes from six bidders were date or time stamped

bull Only three of the six original bids were kept

Without these records the City cannot support that bids were received before the deadline opened in public and read aloud or support which bid was in fact the lowest Therefore we question all Dunton costs billed to and reimbursed by Caltrans of $63740 on the Tauhindauli project


RECOMMENDATION

We recommend the City develop or adopt procurement policies and procedures that comply with state and federal laws and regulations and train staff accordingly We also recommend the City ensure that they maintain records sufficient to detail the significant history of the procurement process as required by 23 CFR 172 2 CFR 200 and Caltrans Local Assistance Procedures Manual (LAPM) Chapters 10 and 15 The policy and procedure must include the requirement that records must be maintained for a period of at least three years from the date of final payment to the City for the project

We also recommend Caltrans Division of Local Assistance (DLA) work with the Federal Highway Administration (FHW A) to determine whether the $163367 (45745+ 13847+40035+63740) in questioned costs identified above should be repaid

NOTE This amount is also includes $3 725 ofunallowable costs for grant management in Finding 3 above and $2 211 ofdisallowed costs for contract management noted in Finding 5 below

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FINDING 5 - Contract Management Needs Improvement

The City did not manage its professional services contracts to ensure that the consultants were providing services and billing in accordance with the terms conditions and specifications of the contracts resulting in unallowable costs

Specifically we noted the following exceptions

bull The City did not have a written contract covering engineering services provided by PACE between March and October 2010 for the Tauhindauli project As a result $2211 in environmental and permit phase costs incurred during that time are disallowed

bull The City did not maintain current copies of the specified hourly rate schedules of their consultants

bull The City s contracts did not include certain provisions required by Chapter 10 of the LAPM 49 CFR 1836 and the Master Agreement between the City and Caltrans We noted that the following key contract provisions were missing from the contacts between the City and its consultants

o Contract end dates (PACE Enplan) o Not to exceed amounts (PACE Enplan) o Termination for cause or convenience (Enplan and Dunton) o Record Retention for three years after final payment (PACE Enplan and Dunton) o Right to Audit (PACE Enplan and Dunton) o Agree that 48 CFR 31 will be used to determine the allowability of costs (PACE

and Enplan) o Compliance with 49 CFR 18 (PACE and Enplan) o Maintain an accounting system that accumulates and segregates project costs

(PACE and Enplan) o Conformance with Generally Accepted Accounting Principles (Enplan)

The City did not have an established policy or procedures for contract management Also the City used the consultants boilerplate contract language instead of using the examples of consultant contracts provided in Chapter 10 of the LAPM or developing their own contracts to ensure that the Citys Caltrans and FHWA s interests were protected The consultants boilerplate language did not meet state and federal requirements Without adequate contract management and contract language the City risks incurring costs that are not accurate or valid and may be unallowable for state or federal reimbursements


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RECOMMENDATION


We recommend the City establish and implement contract management policies and procedures and train staff accordingly The policy and procedures should include but not limited to requirements that reimbursable work not be authorized to begin until a signed contract is in place requirements for managing professional services contracts to ensure that the consultants perform and bill for costs in accordance with the terms conditions and specifications ofthe contracts such as verifying billed services and rates to contract terms We also recommend the City ensure that its contracts contain required provisions to protect the City s Caltrans and FHWA s interests

FINDING 6 - Needs for Responsible Person in Charge I Construction Management Needs Improvement

The City did not have a full time responsible person in charge of the Tauhindauli construction project in violation of FHWA regulations and LAPM requirements Although the City contracted out its City engineering needs federal regulations still required that the City have a public employee designated as being in responsible charge The responsible charge is expected to perform the following duties (not all inclusive) visit and review project frequently direct project staff agency or consultants carry out project administration and contract oversight be aware of the qualifications assignments and on-the-job performance of the agency and consultant staff etc Not having a responsible person in charge may have contributed to the construction record issues identified below

During our review of the City s construction records Caltrans Construction Oversight Engineer staff provided technical expertise and identified specific construction record exceptions including

bull Inadequate documentation for actual material quantities placed on the construction project It appears the City paid based on theoretical amounts rather than actual amounts ie bid item amounts paid at 100 percent complete rather than at the unit amount for each item placed (cubic yards linear feet etc)

bull No support provided to show the type of concrete used (structure concrete versus minor concrete) in the project

bull No Weekly Statement of Working days to track contract status on a real-time basis

We also found that the City did not have possession of the construction files The construction files were located at the City s consultant engineers offices (PACE) We also found that the construction files were not organized in a uniform manner in violation of the LAPM and did not contain all of the required documents For example there were no weekly statements of working days and the daily reports did not include names equipment numbers or hours of people and

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equipment working etc Without adequate record keeping the City risks billing for unsupported and unallowable costs


RECOMMENDATION

We recommend the City develop policies and procedures and train staff accordingly to

bull Assign an employee who can fulfill the duties of the person in responsible charge for projects that employ consultants for construction engineering services

bull Ensure staff establish and follow procedures to document work being performed on a construction project such as quantities and types of materials used personnel present at the job site etc

bull Ensure that consultants hired to perform construction engineering services also understand and document work being performed on construction projects as required

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ATTACHMENT I Audit Universe and Questioned I Disallowed Costs

Projects Audited Tauhindauli Path Butterfly Bridge Scour Total Federal Project Number RPSTPLE 5183(005) BHLO 5183(006) Federal Participation PE 8853 100 Federal Participation CON 100 na Total Funds Reimbursed $ 151733 $ 13847 $ 165581

Questioned Costs

Finding 4 $ 149520 $ 13847 $ 163367 Federal PE 54021 13847 State PE 6999 na Federal CON 88500 na

Disallowed Cost Finding 3 (Federal CON) $ 3725 $ - $ 3725 Finding 5 (PE) $ 2211 $ 2211

Federal PE 1958 State PE 254

Total Disallowed Cost $ 5936 $ - $ 5936

PE =Preliminary Engineering phase includes Environmental and Permits and Plans Specification and Estimate CON =Construction phase includes construction engineering and construction

Note The $593625 disallowed costs is included in the $14952018 questioned cost

ATTACHMENT II Criteria

Finding 1 - Lack of Written Policies and Procedures

Title 2 Code ofFederal Regulations (CFR) 200302 (b) The financial management system of each non-Federal entity must provide for the following

(6) Written procedures to implement the requirements of sect200305 Payment (7) Written procedures for determining the allowability of costs in accordance with Subpart

E - Cost Principles of this part and the terms and conditions of the Federal award

23 CFR 1725 (b ) Subrecipients shall develop and sustain organizational capacity and provide the resources necessary for the procurement management and administration of engineering and design related consultant services Responsibilities shall include the following

(1) Adopting written policies and procedures prescribed by the awarding [State Transportation Agency] or other recipient for the procurement management and administration of engineering and design related consultant services in accordance with applicable Federal and State laws and regulations or when not prescribed shall include the following (i) Preparing and maintaining its own written policies and procedures in accordance

with paragraph ( c) of this section or (ii) Submitting documentation associated with each procurement and subsequent

contract to the awarding STA or other grantee for review to assess compliance with applicable Federal and State laws regulations and the requirements of this part

23 CFR 1725 ( d) A contracting agency may formally adopt by statute or within approved written policies and procedures as specified in paragraph (c) of this section any direct Federal Government or other contracting regulation standard or procedure provided its application does not conflict with the provisions of 23 USC 112 the requirements of this part and other laws and regulations applicable to the [Federal Aid Highway Program]

2 CFR 200400 (a) The non-Federal entity is responsible for the efficient and effective administration of the Federal award through the application of sound management practices

49 CFR Part 1820 (b) (3) Effective control and accountability must be maintained for all grant and subgrant cash real and personal property and other assets Grantees and subgrantees must adequately safeguard all such property and must assure that it is used solely for authorized purposes

49 CFR Part 1836 (b) (1 ) Grantees and subgrantees will use their own procurement procedures which reflect applicable State and local laws and regulations provided that the procurement conform to applicable Federal law and the standards identified in this section

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Finding 2 - Financial Management Needs Improvement

Federal Master Agreement 02-5183R Article V Paragraph 2 ADMINISTERING AGENCY its contractors and subcontractors shall establish and maintain an accounting system and records that properly accumulate and segregate incurred PROJECT costs The accounting system of ADMINISTERING AGENCY its contractors and all subcontractors shall conform to Generally Accepted Accounting Principles

2 CFR 200302 (a) non-Federal entitys financial management systems 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

2 CFR 200302 (b) The financial management system of each non-Federal entity must provide for the following

(1) Identification in its accounts of all Federal awards received and expended and the Federal programs under which they were received

(2) Accurate current and complete disclosure of the financial results of each Federal reward or program

(3) Records that identify adequately the source and application of funds for federally funded activities

(4) Effective control over and accountability for all funds property and other assets (5) Comparison of expenditures with budget amounts for each Federal award

49 CFR 1820 (a) Fiscal control and accounting procedures of the State as well as its subgrantees and cost-type contractors must be sufficient to (2) Permit the tracing of funds to a level of expenditures adequate to establish that such funds have not been used in violation of the restrictions and prohibitions of applicable statutes

49 CFR 1820 (b) (3) Effective control and accountability must be maintained for all grant and sub grant cash real and personal property and other assets Grantees and sub grantees must adequately safeguard all such property and must assure that it is used solely for authorized purposes

Finding 3 - Grant Management Needs Improvement

Federal Master Agreement 02-5183R Article I Paragraph 7 Federal State and matching funds will not participate in PROJECT work performed in advance of the approval of the E-76 or E-76 (AMOD) unless otherwise stated in the executed project-specific PROGRAM SUPPLEMENT ADMINISTERING AGENCY agrees that it will only proceed with the work authorized for that specific phase(s) on the project-specific E-76 or E-76 (AMOD)

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Federal Master Agreement No 02-5183R Article IV Paragraph 7 Payments to ADMINISTRATERING AGENCY can only be released by STATE as reimbursement of actual allowable PROJECT costs already incurred and paid for by ADMINISTRATING AGENCY

Federal Master Agreement 02-5183R Article IV Paragraph 4 ADMINISTERING AGENCY agrees as a minimum to submit invoices at least once every six (6) months

Finding 4 - Procurement Needs Improvement

49 CFR 1836 ( c) (1 ) All procurement transactions will be conducted in a manner providing full and open competition consistent with the standards ofsect 1836

49 CFR 1836 (b) (9) Grantees and subgrantees will maintain records sufficient to detail the significant history of a procurement These records will include but are not necessarily limited to the following rationale for the method of procurement selection of contract type contractor selection or rejection and the basis for the contract price

Local Assistance Procedures Manual (LAPM) August 2009 ChapterlO The local agency advertises the availability of the RFP in a major newspaper of general circulation or technical publication of widespread circulation A minimum of four weeks is usually allowed between the time the [Request For Proposal (RFP)] is mailed and time that proposals must be submitted A minimum of two weeks is usually allowed between the time the [Request for Qualifications] is mailed and time that proposals must be submitted

49 CFR 1836 ( c) (3) Grantees will have written selection procedures for procurement transactions These procedures will ensure that all solicitations

(i) Incorporate a clear and accurate description of the technical requirements for the material product or service to be procured

49 CFR 1836 (d) (2) Procurement by sealed bids (formal advertising) Bids are publicly solicited and a firm-fixed-price contract (lump sum or unit price) is awarded to the responsible bidder whose bid conforming with all the material terms and conditions of the invitation for bids is the lowest in price

(ii) If sealed bids are used the following requirements apply (C) All bids will be publicly opened at the time and place prescribed in the invitation for bids (D) A firm fixed-price contract award will be made in writing to the lowest responsive and responsible bidder

2 CFR 172 (a) (1) (iii) (B) Price shall not be used as a factor in the evaluation ranking and selection phase

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49 CFR 1836 (d) (4) Procurement by noncompetitive proposals is procurement through solicitation of a proposal from only one source or after solicitation of a number of sources competition is determined inadequate

Federal Master Agreement 02-5 l 83R Article V Paragraph 3 All of the above referenced parties shall make such AGREEMENT and PROGRM SUPPLEMENT materials available at

their respective offices at all reasonable times during the entire PROJECT period and for three (3) years from the date of final payment to ADMINISTRATING AGENCY under PROGRAM

SUPPLEMENT

Finding 5 - Contract Management Needs Improvement

2 CFR 200459 (b) In determining the allowability of costs in a particular case no single factor is necessarily determinative However the following factors are relevant (8) Adequacy of the contractual agreement for the service (eg description of the service estimate of time required rate of compensation and termination provisions)

49 CFR 1820 (b) (6) Accounting records must be supported by such source documentation as contract documents

49 CFR 1836 (b) (2) Grantees and subgrantees will maintain a contract administration system which ensures that contractors perform in accordance with the terms conditions and specifications of their contracts or purchase orders

49 CFR 1836 (i) A grantees and subgrantees contracts must contain provisions in paragraph (i) of this section (2) Termination for cause and for convenience by the grantee or sub grantee including the manner by which it will be effected and the basis for settlement (All contracts in excess of $10000)

Federal Master Agreement between Caltrans and the City 02-5183R Article V Paragraph 1 ST A TE reserves the right to conduct technical and financial audits of PROJECT work and records when determined to be necessary or appropriate and ADMINISTERING AGENCY agrees and shall require its contractors and subcontractors to agree to cooperate with STATE by making all appropriate and relevant PROJECT records available for audit and copying as required by paragraph three (3) ofARTICLE V

Federal Master Agreement between Caltrans and the City 02-5183R Article V Paragraph 3 ADMINISTERING AGENCY ADMINISTERING AGENCYs contractors and subcontractors and STATE shall each maintain and make available for inspection and audit all books documents papers accounting records and other evidence pertaining to the performance of such contracts including but not limited to the costs of administering those various contracts All of the above referenced parties shall make such AGREEMENT and PROGRAM SUPPLEMENT materials available at their respective offices at all reasonable times during the

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entire PROJECT period and for three (3) years from the date of final payment to ADMINISTERING AGENCY under any PROGRAM SUPPLEMENT STATE the California State Auditor or any duly authorized representative of STATE or the United States shall each have access to any books records and documents that are pertinent to a PROJECT for audits examinations excerpts and transactions and ADMINISTERING AGENCY shall furnish copies thereof if requested

Federal Master Agreement between Caltrans and the City 02-5183R Article IV Paragraph 19 ADMINISTERING AGENCY agrees and will assure that its contractors and subcontractors will be obligated to agree that (a) Contract Cost Principles and Procedures 48 CFR Federal Acquisition Regulations System Chapter 1 Part 31 et seq shall be used to determine the allowability of individual PROJECT cost items and (b) those parties shall comply with federal administrative procedures in accordance with 49 CFR Part 18 Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments

Federal Master Agreement between Caltrans and the City 02-5183R Article V Paragraph 2 ADMINISTERING AGENCY its contractors and subcontractors shall establish and maintain an accounting 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 Generally Accepted Accounting Principles 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

LAPM Chapter 10 Exhibit 10-D (May 30 2009 version) Beginning and ending dates must be specified for work under the agreement

LAPM Chapter 10 Exhibit 10-D (May 30 2009 version) The agreement sets a maximum limit on the total amount payable

Finding 6- Needs for Responsible Person in Charge I Construction Management Needs Improvement

23 CFR 63 51 05 ( c) ( 4 ) In those instances where a local public agency elects to use consultants for construction engineering services the local public agency shall provide a full-time employee of the agency to be in responsible charge of the project

LAPM Chapter 16 page 16-5 (November 23 2005 version) Local public agency shall provide a full-time employee of the agency to be in responsible charge of the project that employs consultants for construction engineering services

LAPM Chapter 16 (February 1 1998 version) The construction records must contain a file of source documents supporting payments made to contractors Source documents shall be any written record(s) prepared by the administering agency which clearly record

5


bull To what specified portion of work it applies bull The necessary measurements andor calculations by which the quantity is Determined

and bull The name of the individual who made the determination

49 CFR 1820 (b) (3) Internal control Effective control and accountability must be maintained for all grant and subgrant cash real and personal property and other assets Grantees and subgrantees must adequately safeguard all such property and must assure that it is used solely for authorized purposes

6

COCO BRISENO September 20 2016

c Paul H Poczabut Jr City Manager City of Dunsmuir Michael Tritz Deputy Secretary for Audits and Performance Improvement California

State Transportation Agency Janice Williams Director of Financial Services Federal Highway Administration Susan Bransen Executive Director California Transportation Commission Malcolm Dougherty Director Caltrans Kome Ajise Chief Deputy Director Caltrans Dave Moore District Director District 2 Caltrans Clark Paulsen Chief Division of Accounting Caltrans Ray Zhang Chief Division of Local Assistance Caltrans Lena Ashley Acting Deputy District Director Planning and Local Assistance Cal trans Ian Howat District Local Assistance Engineer District 2 Caltrans MarSue Morrill Chief External Audits - Local Governments Audits and Investigations

Caltrans

middotmiddotProvide a safe sustainable imegrated and efficie111 1ra11spor1alion system to enhance California seconomy and livability


lbtransbull






wwwdotcagovhqaudits

AunITTEAM




Ngoc Bui Auditor

P1575-0046



TABLE OF CONTENTS

SUMMARY 1

OBJECTIVES 1

SCOPE 1

METHODOLOGY 2

BACKGROUND 2

CONCLUSION 2









ATTACHMENTS


II Criteria




SUMMARY


OBJECTIVES



SCOPE



1




METHODOLOGY



BACKGROUND


CONCLUSION



2











September 20 2016

3







RECOMMENDATION







4







RECOMMENDATION





5









RECOMMENDATION





6














7










RECOMMENDATION




8













9


RECOMMENDATION










10




RECOMMENDATION





11



Questioned Costs




















1














2













3





SUPPLEMENT








4











5





6


lbtransbull






wwwdotcagovhqaudits

AunITTEAM




Ngoc Bui Auditor

P1575-0046



TABLE OF CONTENTS

SUMMARY 1

OBJECTIVES 1

SCOPE 1

METHODOLOGY 2

BACKGROUND 2

CONCLUSION 2









ATTACHMENTS


II Criteria




SUMMARY


OBJECTIVES



SCOPE



1




METHODOLOGY



BACKGROUND


CONCLUSION



2











September 20 2016

3







RECOMMENDATION







4







RECOMMENDATION





5









RECOMMENDATION





6














7










RECOMMENDATION




8













9


RECOMMENDATION










10




RECOMMENDATION





11



Questioned Costs




















1














2













3





SUPPLEMENT








4











5





6






wwwdotcagovhqaudits

AunITTEAM




Ngoc Bui Auditor

P1575-0046



TABLE OF CONTENTS

SUMMARY 1

OBJECTIVES 1

SCOPE 1

METHODOLOGY 2

BACKGROUND 2

CONCLUSION 2









ATTACHMENTS


II Criteria




SUMMARY


OBJECTIVES



SCOPE



1




METHODOLOGY



BACKGROUND


CONCLUSION



2











September 20 2016

3







RECOMMENDATION







4







RECOMMENDATION





5









RECOMMENDATION





6














7










RECOMMENDATION




8













9


RECOMMENDATION










10




RECOMMENDATION





11



Questioned Costs




















1














2













3





SUPPLEMENT








4











5





6


TABLE OF CONTENTS

SUMMARY 1

OBJECTIVES 1

SCOPE 1

METHODOLOGY 2

BACKGROUND 2

CONCLUSION 2









ATTACHMENTS


II Criteria




SUMMARY


OBJECTIVES



SCOPE



1




METHODOLOGY



BACKGROUND


CONCLUSION



2











September 20 2016

3







RECOMMENDATION







4







RECOMMENDATION





5









RECOMMENDATION





6














7










RECOMMENDATION




8













9


RECOMMENDATION










10




RECOMMENDATION





11



Questioned Costs




















1














2













3





SUPPLEMENT








4











5





6




SUMMARY


OBJECTIVES



SCOPE



1




METHODOLOGY



BACKGROUND


CONCLUSION



2











September 20 2016

3







RECOMMENDATION







4







RECOMMENDATION





5









RECOMMENDATION





6














7










RECOMMENDATION




8













9


RECOMMENDATION










10




RECOMMENDATION





11



Questioned Costs




















1














2













3





SUPPLEMENT








4











5





6




METHODOLOGY



BACKGROUND


CONCLUSION



2











September 20 2016

3







RECOMMENDATION







4







RECOMMENDATION





5









RECOMMENDATION





6














7










RECOMMENDATION




8













9


RECOMMENDATION










10




RECOMMENDATION





11



Questioned Costs




















1














2













3





SUPPLEMENT








4











5





6











September 20 2016

3







RECOMMENDATION







4







RECOMMENDATION





5









RECOMMENDATION





6














7










RECOMMENDATION




8













9


RECOMMENDATION










10




RECOMMENDATION





11



Questioned Costs




















1














2













3





SUPPLEMENT








4











5





6







RECOMMENDATION







4







RECOMMENDATION





5









RECOMMENDATION





6














7










RECOMMENDATION




8













9


RECOMMENDATION










10




RECOMMENDATION





11



Questioned Costs




















1














2













3





SUPPLEMENT








4











5





6







RECOMMENDATION





5









RECOMMENDATION





6














7










RECOMMENDATION




8













9


RECOMMENDATION










10




RECOMMENDATION





11



Questioned Costs




















1














2













3





SUPPLEMENT








4











5





6









RECOMMENDATION





6














7










RECOMMENDATION




8













9


RECOMMENDATION










10




RECOMMENDATION





11



Questioned Costs




















1














2













3





SUPPLEMENT








4











5





6














7










RECOMMENDATION




8













9


RECOMMENDATION










10




RECOMMENDATION





11



Questioned Costs




















1














2













3





SUPPLEMENT








4











5





6










RECOMMENDATION




8













9


RECOMMENDATION










10




RECOMMENDATION





11



Questioned Costs




















1














2













3





SUPPLEMENT








4











5





6













9


RECOMMENDATION










10




RECOMMENDATION





11



Questioned Costs




















1














2













3





SUPPLEMENT








4











5





6


RECOMMENDATION










10




RECOMMENDATION





11



Questioned Costs




















1














2













3





SUPPLEMENT








4











5





6




RECOMMENDATION





11



Questioned Costs




















1














2













3





SUPPLEMENT








4











5





6



Questioned Costs




















1














2













3





SUPPLEMENT








4











5





6














1














2













3





SUPPLEMENT








4











5





6














2













3





SUPPLEMENT








4











5





6













3





SUPPLEMENT








4











5





6





SUPPLEMENT








4











5





6











5





6





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September 20, 2016 Planning and Modal Programs P1575-0046...

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