Fort Walton Beach — Annual Comprehensive Financial Report, September 30, 2022 — reading text

control over compliance that might be material weaknesses or significant deficiencies in internal control over compliance and therefore, material weaknesses or significant deficiencies may exist that were not identified. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, as discussed below, we did identify certain deficiencies in internal control over compliance that we consider to be significant deficiencies. 141 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. We consider the deficiency in internal control over compliance described in the accompanying schedule of findings and questioned costs as item #2022-003 to be a significant deficiency. 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. Government Auditing Standards requires the auditor to perform limited procedures on the City’s response to the internal control over compliance findings identified in our audit described in the accompanying schedule of findings and questioned costs. The City’s response was not subjected to the other auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. 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. Fort Walton Beach, Florida March 15, 2023 142  CITY OF FORT WALTON BEACH, FLORIDA SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED SEPTEMBER 30, 2022 I. SUMMARY OF AUDITORS' RESULTS Financial Statements Type of auditors' report issued: Unmodified Internal control over financial reporting: • Material weakness(es) identified? X Yes No • Significant deficiency(ies) identified? X Yes No Noncompliance material to financial statements noted? Yes X No Federal Awards Internal control over major programs: • Material weakness(es) identified? Yes X No • Significant deficiency(ies) identified? X Yes No Type of auditors' report issued on compliance for major programs: Unmodified • Any audit findings disclosed that are required to be reported in accordance with Uniform Guidance? X Yes No Identification of major programs: Assistance Listing No. Name of Federal Program 16.710 Public Safety Partnership and Community Policing (COPS) Grant 97.083 Staffing for Adequate Fire and Emergency Response (SAFER) Grant Dollar threshold used to distinguish between type A and type B programs: $ 750,000 Auditee qualified as federal low-risk auditee? Yes X No 143  CITY OF FORT WALTON BEACH, FLORIDA SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED SEPTEMBER 30, 2022 II. FINANCIAL STATEMENT FINDINGS FINDING 2022-001 – RECONCILIATION OF GRANT ACTIVITIES Criteria The City’s internal control over financial reporting is designed to allow for management and employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, a material misstatement on a timely basis. Pursuant to GASB Statement No. 33, recipients of expenditure-driven grants should recognize revenue as qualifying expenditures are incurred. Condition The City provided schedule of grant revenues and expenditures, including unearned revenues and receivables, did not reconcile to the accounting records and other supporting documentation. Cause Reconciliation of grant activities for financial reporting purposes was not prepared and reviewed on a timely basis by appropriately experienced and trained personnel. While the City has a written policy for grant administration activities, that policy does not provide the guidance necessary to facilitate financial reporting of grant activities in accordance with U.S. general accepted accounting procedures as well as preparation of the Schedule of Expenditures of Financial Awards (SEFA) required by the Uniform Guidance. Effect Various audit adjustments were proposed and accepted by management to properly reconcile grant activity for financial reporting purposes and to prepare the SEFA. Recommendation  Management should adopt written policies and procedures for identifying and reconciling expenditure-driven grant revenues with related qualifying expenditures.  These policies should reflect who is responsible for preparing and reviewing the reconciling schedule of grant activities for financial reporting purposes as well as preparation of the SEFA. Management’s Response Concur. The Finance Department is in the process of gathering and updating any outstanding written policies and procedures for identifying and reconciling expenditure-driven grant revenues with related qualifying expenditures. Additionally, the department is currently researching multiple grant tracking software systems in order to streamline and make the process more efficient. The Finance Director will train the Grant Manager on preparation of the SEFA. 144  CITY OF FORT WALTON BEACH, FLORIDA SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED SEPTEMBER 30, 2022 II. FINANCIAL STATEMENT FINDINGS – CONTINUED FINDING 2022-002 – COMPREHENSIVE ACCOUNTING POLICIES AND PROCEDURES / DEPARTMENT STAFFING Criteria The City’s internal control over financial reporting is designed to allow for management and employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, a material misstatement on a timely basis. Condition The City does not have written policy that outlines the nature and types of general ledger and account reconciliation reviews that should take place on a monthly, quarterly and year end basis in a centralized location. Cause There is not sufficient time for City staff to accomplish a robust review of the final trial balances, due to the lack of cohesive and comprehensive accounting policies and procedures that identify all tasks, particularly year end closing considerations. In addition, there is inadequate accounting department staffing for the volume of accounting activities to be performed and reviewed throughout the year. Effect The system of internal control over financial accounting and reporting is not functioning as designed for the year ended September 30, 2022. Recommendation  The City should adopt a comprehensive and cohesive set of written policies outlining accounting and financial reporting procedures and activities.  These policies should outline the personnel responsible for performing and reviewing each task as well as the timeframe for completion. In addition, management should establish more effective review and reconciliation policies and procedures, as a customary part of the accounting process, to perform more frequent reviews of the general ledger activity throughout the year.  City management needs to periodically evaluate the pay scale for finance staff positions along with methods of identifying, recruiting, and retaining qualified candidates. Management’s Response Concur. Finance personnel are working with the Finance Director and revisiting outdated policies regarding accounting and financial reporting procedures. Deadlines have already put in place for items relating to month-end closeouts and reconciliations. 145  CITY OF FORT WALTON BEACH, FLORIDA SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED SEPTEMBER 30, 2022 III. FINDINGS AND QUESTIONED COSTS FOR FEDERAL AWARDS FINDING 2022-003 – CASH MANAGEMENT Assistance Listing Number: 16.710 – Public Safety Partnership and Community Policing (COPS) Grant and 97.083 – Staffing for Adequate Fire and Emergency Response (SAFER) Grant Grant Numbers: 2020UMWX0107 and EMW-2018-FH-00488 Grant Period: Year Ended September 30, 2022 U.S. Department of Justice and U.S. Department of Homeland Security Criteria 2 CFR Section 200.303 requires nonfederal entities to establish and maintain effective internal control over federal awards that provides reasonable assurance that the awards are being managed in compliance with federal statutes, regulations, and the terms and conditions of the federal award. Condition The City was unable to provide documentary evidence illustrating its adherence to its written grant administration policies pertaining to supervisory review of grant reimbursement requests prepared by City staff prior to submission to the grant funding agency. Cause Grant reimbursement requests were not properly reviewed on a timely basis by supervisory personnel. Effect Key controls over the City’s compliance with cash management requirements for federal award programs were not functioning as designed. Context There were two instances in which the City submitted a reimbursement request for costs previously reimbursed by the grant funding agency under the federal award. However, the funds requested in error were subsequently discovered and returned to the grant funding agency. Questioned Costs None Recommendation The City should adhere to its written policies and procedures regarding supervisory review of grant reimbursement requests. In addition, we recommend that employees preparing and reviewing reimbursement requests initial or sign off on the payroll reports to provide evidence of their actions. Views of Responsible Officials Concur. The Grant Manager will work directly with the Finance Director on timeliness and proper controls. The department is planning on acquiring and