City of Santa Cruz Department of Water Resources

CITY OF SANTA CRUZ Audit Report FLOOD CONTROL SUBVENTIONS PROGRAM San Lorenzo River Flood Control Project January 25, 2013, through August 8, 2019 BETTY T. YEE California State Controller September 2022 BETTY T. YEE California State Controller September 28, 2022 Eric Nichol, Assistant Division Chief Division of Flood Management Department of Water Resources 3310 El Camino Avenue, Suite 120 Sacramento, CA 95821 Dear Mr. Nichol: The State Controller’s Office audited Flood Control Subventions Program claims submitted by the City of Santa Cruz to the Department of Water Resources (DWR). Our audit pertained to DWR Claim Numbers SLOR 31 through 39, for the period of January 25, 2013, through August 8, 2019. The city claimed $779,127 for the San Lorenzo River Flood Control Project during the audit period. Our audit found that the entire amount is allowable. The State’s share of allowable costs is $545,389. DWR reimbursed the city $490,850 during the audit period; therefore, the city is owed the remaining balance of $54,539. DWR retained $54,539, which was to be released to the city pending the results of this audit. If you have any questions, please contact Efren Loste, Chief, Local Government Audits Bureau, by telephone at (916) 324-7226. Sincerely, Original signed by KIMBERLY TARVIN, CPA Chief, Division of Audits KT/ac cc: Sami Nall, Manager, Flood Control Subventions Program Department of Water Resources Matt Huffaker, City Manager City of Santa Cruz The Honorable Sonja Brunner, Mayor City of Santa Cruz City of Santa Cruz Flood Control Subventions Program Contents Audit Report Summary ............................................................................................................................ 1 Background ........................................................................................................................ 1 Audit Authority .................................................................................................................. 1 Objective, Scope, and Methodology ................................................................................. 1 Conclusion .......................................................................................................................... 3 Follow-up on Prior Audit Findings .................................................................................. 3 Views of Responsible Officials .......................................................................................... 3 Restricted Use .................................................................................................................... 3 Schedule—Summary of Project Costs ................................................................................. 4 City of Santa Cruz Flood Control Subventions Program Audit Report Summary The State Controller’s Office (SCO) audited Flood Control Subventions Program claims submitted by the City of Santa Cruz to the Department of Water Resources (DWR). Our audit pertained to DWR Claim Numbers SLOR 31 through 39 for the period of January 25, 2013, through August 8, 2019. The city claimed $779,127 for the San Lorenzo River Flood Control Project during the audit period. Our audit found that the entire amount is allowable. Pursuant to California Water Code section 12832, the DWR reimbursed the city 90% of eligible costs claimed, with the remaining 10% to be released subject to the completion of this audit. Based on our audit, the State’s share of allowable project costs is $545,389. DWR reimbursed the city $490,850 during the audit period; therefore, the city is owed the remaining balance of $54,539. Background The State of California provides financial assistance to local agencies participating in the construction of federal flood control projects. Under the Flood Control Subventions Program (California Water Code, Division 6, Part 6, Chapters 1 through 4), the DWR pays a portion of the local agency’s share of flood control project costs, including the costs of rights of way, relocation, and recreation and fish and wildlife enhancements. The DWR’s Guidelines for Reimbursement on Flood Control Projects (Guidelines) describe the compliance requirements for local agencies seeking reimbursement for the State’s share of federal flood control projects. Audit Authority We conducted this performance audit under the general authority of Government Code section 12410 and the specific authority of California Water Code section 12832, which requires the State Controller to perform audits of flood control projects. Objective, Scope, Our audit objective was to determine whether the costs claimed, as presented in the Schedule, were allowable and in compliance with the and Methodology DWR Guidelines, and adequately supported and documented. Our audit pertained to DWR Claim Numbers SLOR 31 through 39, for the period of January 25, 2013, through August 8, 2019. To achieve our objective, we performed the following procedures:  We gained an understanding of the city’s internal controls that are significant to the audit objective by interviewing key personnel, by completing an internal control questionnaire, and by reviewing the city’s organization chart. -1- City of Santa Cruz Flood Control Subventions Program  We evaluated and assessed control activities for the claim preparation process by inspecting documents and records, and by inquiring with key personnel.  We assessed the reliability of computer-processed data by reviewing existing information about the data and the system that produced it; by interviewing city officials knowledgeable about the data; and by tracing data to source documents, based on auditor judgment and non- statistical sampling. We determined that the data was sufficiently reliable for the purposes of achieving our audit objective.  We conducted a risk assessment to determine the nature, timing, and extent of substantive testing.  We reviewed the city’s prior SCO review report and single audit.  We reviewed the DWR’s engineering reports and/or claim evaluations pertaining to the city’s claims.  We determined whether the city received revenues that should be offset against the flood program expenditures.  We determined whether the city received from DWR advances on its flood control project expenditures.  We verified through sampling that the costs claimed were supported by proper documentation and eligible in accordance with the applicable criteria. Based on our risk assessment, we tested all items that were equal to or greater than the significant item amount (calculated based on materiality threshold). For labor costs, we selected a non-statistical block sample of 13 week periods, approximately three months from each item that was equal to or greater than the significant item amount. We tested the following expenditures: o Labor – We tested $49,764 of $146,535 in total labor costs claimed. o Services and supplies – We tested $404,620 of $632,592 in total services and supplies costs claimed. No errors were found. We did not audit the city’s financial statements. We limited our audit scope to planning and performing audit procedures necessary to obtain reasonable assurance that costs claimed are allowable for reimbursement. We conducted the 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 objective. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective. -2- City of Santa Cruz Flood Control Subventions Program Conclusion The city claimed $779,127 in project costs for the period of January 25, 2013, through August 8, 2019. Based on our audit, the State’s share of allowable project costs is $545,389. DWR reimbursed the city $490,850 during the audit period; therefore, the city is owed the remaining balance of $54,539. Follow-up on Our prior review report, issued on September 30, 2016, disclosed no findings. Prior Audit Findings Views of We discussed our audit results with the City of Santa Cruz representatives during an exit conference conducted on July 26, 2022. The city’s Responsible representatives agreed with the audit results. Officials Restricted Use This audit report is solely for the information and use of the City of Santa Cruz, the DWR, and the SCO; it is not intended to be and should not be used by anyone other than these specified parties. This restriction is not intended to limit distribution of this report, which is a matter of public record, and is available on the SCO website at www.sco.ca.gov. Original signed by KIMBERLY TARVIN, CPA Chief, Division of Audits September 28, 2022 -3- City of Santa Cruz Flood Control Subventions Program Schedule— Summary of Project Costs January 25, 2013, through August 8, 2019 Audit State's State's State's Adjustments Share of Share of Adjustments Share of Reimbursement Reimbursement Project / Costs to Claimed Allowable Eligibility Claimed to State Allowable Received by the Due to City Claim # Claimed Costs per Audit Percentage1 Costs Share Costs City Pending Audit San Lorenzo River Flood Control Project SLOR 31 $ 215,565 - $ 215,565 70% $ 150,896 $ - $ 150,896 $ 135,806 $ 15,090 SLOR 32 104,998 - 104,998 70% 73,499 - 73,499 66,149 7,350 SLOR 33 3,000 - 3,000 70% 2,100 - 2,100 1,890 210 SLOR 34 70,238 - 70,238 70% 49,167 - 49,167 44,250 4,917 SLOR 35 103,370 - 103,370 70% 72,359 - 72,359 65,123 7,236 SLOR 36 42,802 - 42,802 70% 29,961 - 29,961 26,965 2,996 SLOR 37 33,495 - 33,495 70% 23,447 - 23,447 21,102 2,345 SLOR 38 93,187 - 93,187 70% 65,230 - 65,230 58,708 6,522 SLOR 39 112,472 - 112,472 70% 78,730 - 78,730 70,857 7,873 $ 7 79,127 $ - $ 7 79,127 $ 5 45,389 $ - $ 5 45,389 $ 4 90,850 $ 54,539 _____________________________ 1The State’s share of allowable project costs represents the percentage of state funding, as stipulated in the California Water Code, for each project cost category. -4- State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250 http://www.sco.ca.gov S22-FLC-0003