City of Martinez, 03/02/2026 (rmrp Moe)

CITY OF MARTINEZ Final Audit Report ROAD MAINTENANCE AND REHABILITATION PROGRAM July 1, 2021, through June 30, 2023 M ALIA M. C OHEN C S C ALIFORNIA TATE ONTROLLER March 2026 S25-RMR-0001 STATE CONTROLLER’S OFFICE | DIVISION OF AUDITS Post Office Box 942850 | Sacramento, CA 94250 Sacramento Office: 3301 C Street, Suite 700 | Sacramento, CA 95816 | 916-324-8907 Monterey Park Office: 901 Corporate Center Drive, Suite 200 | Monterey Park, CA 91754 | 323-981-6802 www.sco.ca.gov MALIA M. COHEN CALIFORNIA STATE CONTROLLER March 2, 2026 Ms. June Du, Finance Director City of Martinez 525 Henrietta Street Martinez, CA 94553 Dear Ms. Du: The State Controller’s Office audited the City of Martinez’s (the city) Road Maintenance and Rehabilitation Program (RMRP) to determine whether the city complied with RMRP maintenance-of-effort (MOE) requirements for the period of July 1, 2021, through June 30, 2023. Our audit found that the city complied with RMRP MOE requirements. However, we found that the city’s reported expenditures for RMRP MOE compliance were inaccurate and included ineligible expenditures as well as excluded eligible expenditures. The inaccurately reported expenditures did not result in non-compliance with RMRP MOE requirements. If you have any questions regarding this report, please contact Efren Loste, Chief, Local Government Audits Bureau, by telephone at 916-324-7226 or email at eloste@sco.ca.gov. Thank you. Sincerely, Original signed by Kimberly A. Tarvin, CPA Chief, Division of Audits MAILING ADDRESS P.O. Box 942850, Sacramento, CA 94250 SACRAMENTO 3301 C Street, Suite 700, Sacramento, CA 95816 | 916.324.8907 LOS ANGELES 901 Corporate Center Drive, Suite 200, Monterey Park, CA 91754 | 323.981.6802 Ms. June Du March 2, 2026 Page 2 of 2 Copy: The Honorable Brianne Zorn, Mayor City of Martinez Michael Chandler, City Manager City of Martinez Joe Enke, Public Works Director City of Martinez MAILING ADDRESS P.O. Box 942850, Sacramento, CA 94250 SACRAMENTO 3301 C Street, Suite 700, Sacramento, CA 95816 | 916.324.8907 LOS ANGELES 901 Corporate Center Drive, Suite 200, Monterey Park, CA 91754 | 323.981.6802 Office of the State Controller | City of Martinez Road Maintenance and Rehabilitation Program Final Audit Report March 2026 CONTENTS SUMMARY 1 BACKGROUND 1 AUDIT AUTHORITY 2 OBJECTIVE, SCOPE, AND METHODOLOGY 2 CONCLUSION 4 FOLLOW-UP ON PRIOR AUDIT FINDINGS 4 VIEWS OF RESPONSIBLE OFFICIALS 4 RESTRICTED USE 5 SCHEDULE 6 FINDING AND RECOMMENDATION 7 Office of the State Controller | City of Martinez Road Maintenance and Rehabilitation Program Final Audit Report March 2026 SUMMARY The State Controller’s Office audited the City of Martinez’s (the city) Road Maintenance and Rehabilitation Program (RMRP) to determine whether the city complied with RMRP maintenance-of-effort (MOE) requirements for the period of July 1, 2021, through June 30, 2023. Our audit found that the city complied with RMRP MOE requirements. However, we found that the city’s reported expenditures for RMRP MOE compliance were inaccurate and included ineligible expenditures as well as excluded eligible expenditures. The inaccurately reported expenditures did not result in non-compliance with RMRP MOE requirements. BACKGROUND Senate Bill 1 (Statutes of 2017, Chapter 5), known as the Road Repair and Accountability Act of 2017, created the RMRP to address deferred maintenance on the state highway system and the local street and road system. RMRP funds are apportioned by formula to eligible cities (including towns) and counties pursuant to Streets and Highways Code (SHC) section 2032. Article XIX of the California Constitution and SHC sections 2030 through 2038 provide the requirements for RMRP funding. SHC section 2036 establishes the RMRP MOE requirements. Specifically, to remain eligible for an allocation or apportionment of the RMRP funds, cities (including towns) and counties must maintain their existing commitment of local funds for street, road, and highway purposes. The required level of funding, or MOE amount, was computed using the city’s average discretionary expenditures for fiscal year (FY) 2009-10, FY 2010-11, and FY 2011-12, as reported in a city’s or town’s Annual Street Report (ASR) or a county’s Annual Road Report. The city’s required MOE contribution is $1,608,847. -1- Office of the State Controller | City of Martinez Road Maintenance and Rehabilitation Program Final Audit Report March 2026 On July 16, 2021, the Governor signed into law Assembly Bill 149 amending SHC section 2036. The amendment allowed cities and counties to use the decrease in taxable sales, if any, from FY 2018-19 through FY 2020-21 to adjust their MOE requirements for FY 2020-21 and FY 2021-22. Furthermore, it allowed a city or county to petition the Controller to use transient occupancy tax revenues, in lieu of taxable sales, for purposes of adjusting the MOE requirement for FY 2021-22. As a result of this amendment, the city’s MOE for FY 2021-22 was reduced to $1,559,780. AUDIT AUTHORITY We conducted this audit in accordance with SHC section 2036(e), which provides the SCO with authority to perform audits to ensure compliance with the MOE. OBJECTIVE, SCOPE, AND METHODOLOGY Our audit objective was to determine whether the city complied with RMRP MOE requirements for the period of July 1, 2021, through June 30, 2023. To achieve our objective, we performed the following procedures: • We gained an understanding and evaluated the effectiveness of the city’s internal controls that are significant to the audit objective by reviewing policies and procedures, interviewing key personnel, completing an internal control questionnaire, reviewing the city’s organization chart, and inspecting documents and records. • We assessed the reliability of computer-processed data by reviewing existing information about the data and the system that produced it; by interviewing the city’s 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. -2- Office of the State Controller | City of Martinez Road Maintenance and Rehabilitation Program Final Audit Report March 2026 • We conducted a risk assessment to determine the nature, timing, and extent of substantive testing. • We performed analytical procedures to identify and explain the existence of unusual or unexpected account balances. • We verified that the discretionary street-related expenditures were funded with revenues that were discretionary in nature. • We verified that the expenditures incurred during the audit period were supported by proper documentation and eligible in accordance with the applicable criteria by testing all expenditure transactions that were equal to or greater than the significant item amount (calculated based on materiality threshold), and judgmentally selecting non-statistical samples of other transactions for the following categories. Errors found were not projected to the intended (total) population. o FY 2021-22 ▪ Services and supplies – We tested $381,001 of $1,239,608. ▪ Labor – We tested all $614,080. ▪ Indirect – We tested $124,740 of $201,076. ▪ Transfers – We tested all $25,000. o FY 2022-23 ▪ Services and supplies – We tested $412,923 of $1,229,899. ▪ Labor – We tested all $895,376. ▪ Indirect – We tested $227,731 of $254,921. ▪ Transfers – We tested all $50,000. -3- Office of the State Controller | City of Martinez Road Maintenance and Rehabilitation Program Final Audit Report March 2026 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 the city complied with RMRP MOE requirements. 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 objective. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective. CONCLUSION Our audit found that the city complied with RMRP MOE requirements. However, we found that the city’s reported expenditures for RMRP MOE compliance were inaccurate and included ineligible expenditures as well as excluded eligible expenditures. The inaccurately reported expenditures did not result in non-compliance with RMRP MOE requirements. FOLLOW-UP ON PRIOR AUDIT FINDINGS We have not previously conducted an audit of the city’s RMRP MOE. VIEWS OF RESPONSIBLE OFFICIALS We issued a draft audit report on February 6, 2026. The city’s representatives responded by email on February 17, 2026; the city agreed with the audit results. -4- Office of the State Controller | City of Martinez Road Maintenance and Rehabilitation Program Final Audit Report March 2026 RESTRICTED USE This report is intended solely for the information and use of the city 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 A. Tarvin, CPA Chief, Division of Audits March 2, 2026 -5- Office of the State Controller | City of Martinez Road Maintenance and Rehabilitation Program Final Audit Report March 2026 SCHEDULE—ROAD MAINTENANCE AND REHABILITATION PROGRAM MAINTENANCE-OF-EFFORT DISCRETIONARY EXPENDITURES July 1, 2021, through June 30, 2023 Discretionary Expenditures FY 2021-22 Amount FY 2022-23 Amount The city-reported discretionary expenditures $1,435,620 $1,149,153 Audit adjustments: Less: Overstated expenditures 63,861 31,232 Plus: Understated expenditures 644,143 1,281,042 Total discretionary expenditures, per audit $2,015,902 $2,398,963 —The city's MOE amount $1,559,780 $1,608,847 Total discretionary expenditures, per audit $2,015,902 $2,398,963 The city met MOE requirement, per audit Yes Yes -6- Office of the State Controller | City of Martinez Road Maintenance and Rehabilitation Program Final Audit Report March 2026 FINDING AND RECOMMENDATION Finding—Inaccurate Reporting of Expenditures During our initial review of the city’s discretionary expenditures for FY 2021-22 reported in its ASR, we identified a potential MOE expenditure shortfall of $124,160, prompting an audit. During our audit, we tested the reported expenditures to verify their eligibility and found that the city had included ineligible expenditures totaling $63,861. As a result, we expanded our testing to include expenditures for FY 2022-23. We found that for FY 2022-23, the city reported similar ineligible expenditures totaling $31,232. The ineligible expenditures are detailed in the following table: Description FY 2021-22 FY 2022-23 Drinking water, coffee, and associated services $489 $713 Police department car washes 24 32 Unmet liability deductible payments 45,991 28,575 Drywall repair panels 0 94 Ceiling tiles for City Hall 0 239 Hidden Lakes – paint and parking lot expenditures 1,768 0 Parks – sprinkler nozzles 336 0 Pallets of water bottles 447 1,579 Transfers – dining platforms and set-up equipment 14,806 0 Total $63,861 $31,232 During our review of the city’s expenditures, we also discovered that the city inadvertently excluded reporting in its ASR eligible expenditures, resulting in understatements of its FY 2021-22 and FY 2022-23 discretionary expenditures. The city reported in its ASR $1,435,620 in discretionary expenditures in FY 2021-22 and $1,149,153 in FY 2022-23. We identified additional discretionary expenditures of $644,143 in FY 2021-22 and $1,281,042 in FY 2022-23. As a result, despite reducing the reported expenditures to remove ineligible costs, we found that, with the inclusion of these previously unreported eligible expenditures, the city is in compliance with the RMRP MOE for FY 2021-22 and FY 2022-23. -7- Office of the State Controller | City of Martinez Road Maintenance and Rehabilitation Program Final Audit Report March 2026 SHC section 2151 states that each city must file with the SCO a complete report of the expenditures for street or road purposes during the preceding fiscal year ending on the 30th day of June. This report must be certified by the city’s fiscal officer to verify its accuracy. The Instructions to Cities for Preparing the Annual Street Report (LGRS Online Submission), published in October 2023, provides guidance and step-by-step instructions for reporting revenues and expenditures, including discretionary revenues and expenditures. The inaccurate reporting occurred because the city did not follow applicable policies and procedures to ensure that its report of expenditures was accurate. Recommendation We recommend that the city follow applicable policies and procedures to ensure that its report of expenditures is accurate. End of report -8-