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HomeMy WebLinkAboutCOM 0922.001 2016-2018 Valerie T.Poindexter : - •., Bonnie S.Nims,CGRP =-oNtY;9 •"•'?iy Legislative Auditor Chair&Presiding Officer �o,. 9,� g Council District 1 / - ' ��‘!'ii%• -- =% - Business Address s>qT�N�NPP 120 Pauahi St. °F,_ Suite 309 4 Hilo,Hawaii 96720 ILn f of Cr. h£inti OFFICE OF THE LEGISLATIVE AUDITOR 25 Aupuni Street Hilo,Hawai`i 96720 * (808)961-8386 * Fax(808) 961-8905 website:http://hawaiicountv.gov e-mail:publiclao@hawar.'icozintv.gov , May 1, 2018 c-) ; Q,c) ' c TO: Valerie T. Poindexter, Chairperson --tom c And Members of the County Council _ a. "< o-< =r- rn FROM: Bonnie S. Nims Ili Legislative Auditor a RE: Post-Audit Reports for.Fiscal Year Ending June 30, 2017 This letter transmits for your review, deliberation, and acceptance, the Single Audit of Federal Financial Assistance Program for the Fiscal Year Ended June 30, 2017, as prepared by external auditor, N&K CPAs Inc. Pursuant to the 2012 Hawaii County Charter, Section 10-13, Post-audit, which requires the county council to provide at least once every year for an independent audit of the accounts and other evidences of financial transactions of the county and of every county agency and executive agency and performed by a certified public accountant or firm of certified public accountants who have no personal interest, direct or indirect, in the fiscal affairs of the county or of any of its agencies or executive agencies. N&K CPAs Inc. will be present at the Hawaii County Council Finance Committee meeting on May 21, 2018 for a short presentation and to answer any questions you may have. Appropriate department head(s) or their representative(s) will also be asked to attend the meeting. In the meantime, please feel free to contact me at 961-8490 should you require further information. Enclosures cc w/o enclosures: N&K CPAs Inc. Comm. No. q2-2, I Department of Finance Ref. To: FC- Ref. Date MAI 01 2.01ti Hawai`i County is an Equal Opportunity Provider and Employer I COUNTY OF HAWAII STATE OF HAWAII SINGLE AUDIT OF FEDERAL FINANCIAL ASSISTANCE PROGRAMS Fiscal Year Ended June 30, 2017 N&K CPAs, Inc. ACCOUNTANTSICONSULTANTS AMERICAN SAVINGS BANK TOWER I 1001 BISHOP STREET, SUITE 17001 HONOLULU, HAWAII 96813-3696 T (808) 524-2255 F (808) 523-2090 1 nkcpa.com kv N&K CPAs, Inc. March 22, 2018 To the Chair and Members of the County Council County of Hawaii AMERICAN SAVINGS BANK TOWER 1001 BISHOP STREET, SUITE 1700 HONOLULU, HAWAII 96813-3696 T (808) 524-2255 F (808) 523-2090 We have completed our financial audit of the basic financial statements and other supplementary information of the County of Hawaii, State of Hawaii (the County), as of and for the fiscal year ended June 30, 2017. Our report containing our opinions on those basic financial statements is included in the County's Comprehensive Annual Financial Report. We submit herein our reports on the County's internal control over financial reporting and compliance, the County's compliance with requirements that could have a direct and material effect on each of its major federal programs and internal control over compliance, and our report on the schedule of expenditures of federal awards. OBJECTIVES OF THE AUDIT The primary purpose of our audit was to form opinions on the fairness of the presentation of the County's basic financial statements as of and for the fiscal year ended June 30, 2017, and to comply with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which establishes audit requirements for state and local governments that receive federal financial assistance. More specifically, the objectives of the audit were as follows: To provide a basis for an opinion on the fairness of the presentation of the County's financial statements. 2. To report on internal control over financial reporting and compliance with provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts in accordance with Government Auditing Standards. 3. To report on internal control over compliance related to major federal programs and an opinion on compliance with federal statutes, regulations, and the terms and conditions of federal awards that could have a direct and material effect on each major federal program in accordance with the Single Audit Act Amendments of 1996 and the Uniform Guidance. 2 N&K CPAs, Inc. ACCOUNTANTS I CONSULTANTS SCOPE OF THE AUDIT Our audit was performed in accordance with auditing standards generally accepted in the United States of America as prescribed by the American Institute of Certified Public Accountants; Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of the Uniform Guidance. The scope of our audit included an examination of the transactions and accounting records of the County for the fiscal year ended June 30, 2017. ORGANIZATION OF THE REPORT This report is presented in four parts as follows: • Part I - Our report on internal control over financial reporting and on compliance and other matters. • Part II - Our report on compliance for each major federal program, report on internal control over compliance; and report on the schedule of expenditures of federal awards required by the Uniform Guidance. • Part III - The schedule of findings and questioned costs. • Part IV - The summary schedule of prior audit findings. We wish to express our sincere appreciation for the excellent cooperation and assistance extended by the staff of the County. Sincerely, N&K CPAs, INC. 3 COUNTY OF HAWAII, STATE OF HAWAII TABLE OF CONTENTS Page PART I REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 6 - 7 PART II REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY THE UNIFORM GUIDANCE Report on Compliance for Each Major Federal Program; Report on Internal Control over Compliance; and Report on the Schedule of Expenditures of Federal Awards Required by the Uniform Guidance 9-11 Schedule of Expenditures of Federal Awards 12-23 Notes to Schedule of Expenditures of Federal Awards 24 PART III SCHEDULE OF FINDINGS AND QUESTIONED COSTS 26 PART IV SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS Status Report 12 k3w,4s7 PART I REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS N&K CPAs, Inc. ACCOUNTANTS I CONSULTANTS AMERICAN SAVINGS BANK TOWER 1001 BISHOP STREET, SUITE 1700 HONOLULU, HAWAII 96813-3696 T (808) 524-2255 F (808) 523-2090 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS INDEPENDENT AUDITOR'S REPORT To the Chair and Members of the County Council County of Hawaii We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business -type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the County of Hawaii, State of Hawaii (the County), as of and for the fiscal year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the County's basic financial statements, and have issued our report thereon dated December 28, 2017. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the County's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the County's internal control. Accordingly, we do not express an opinion on the effectiveness of the County's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. 0 N&K CPAs, Inc. ACCOUNTANTS I CONSULTANTS Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the County's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Honolulu, Hawaii December 28, 2017 7 PART II REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY THE UNIFORM GUIDANCE 0 N&K CPAs, Inc. ACCOUNTANTS I CONSULTANTS AMERICAN SAVINGS BANK TOWER 1001 BISHOP STREET, SUITE 1700 HONOLULU, HAWAII 96813-3696 T (808) 524-2255 F (808) 523-2090 REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY THE UNIFORM GUIDANCE INDEPENDENT AUDITOR'S REPORT To the Chair and Members of the County Council County of Hawaii Report on Compliance for Each Major Federal Program We have audited the County of Hawaii, State of Hawai`i's (the County) compliance with the types of compliance requirements described in the OMB Compliance Supplementthat could have a direct and material effect on each of the County's major federal programs for the fiscal year ended June 30, 2017. The County's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for each of the County's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the County's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. 0 N&K CPAs, Inc. ACCOUNTANTS I CONSULTANTS We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the County's compliance. Opinion on Each Major Federal Program In our opinion, the County complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the fiscal year ended June 30, 2017. Report on Internal Control Over Compliance Management of the County is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the County's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the County's internal control over compliance. 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 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. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 10 N&K CPAs, Inc. ACCOUNTANTS I CONSULTANTS 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. Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of the governmental activities, the business - type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the County as of and for the fiscal year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the County's basic financial statements. We issued our report thereon dated December 28, 2017, which contained unmodified opinions on those financial statements. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the County's basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole. 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The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the County of Hawaii , it is not intended to, and does not present the financial position, changes in financial position, or cash flows of the County of Hawaii. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Expenditures reported on the Schedule are reported on the cash basis of accounting. Such expenditures are recognized following, as applicable, either the cost principles in Office of Management and Budget Circular A-87, Cost Principles for State, Local and Indian Tribal Governments, or the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. NOTE C - INDIRECT COST RATE The County of Hawaii has elected not to use the 10 -percent de minimis indirect cost rate allowed under the Uniform Guidance. 24 PART III SCHEDULE OF FINDINGS AND QUESTIONED COSTS 25 County of Hawaii, State of Hawaii SCHEDULE OF FINDINGS AND QUESTIONED COSTS Fiscal Year Ended June 30, 2017 SECTION I - SUMMARY OF AUDITOR'S RESULTS Financial Statements Type of report the auditor issued on whether the financial statements audited were prepared in accordance with GAAP: Unmodified Internal control over financial reporting: Material weakness(es) identified? _ yes ✓ no Significant deficiency(ies) identified? _ yes ✓ none reported Noncompliance material to financial statements noted? _ yes ✓ no Federal Awards Internal control over major federal programs: Material weakness(es) identified? _ yes ✓ no Significant deficiency(ies) identified? _ yes ✓ none reported Type of auditor's report issued on compliance for major federal programs: Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516(a)? Identification of major federal programs: CFDA Number 14.228 93.044/93.045/93.053 .. .: Dollar threshold used to distinguish between Type A and Type B programs: Auditee qualified as a low-risk auditee? SECTION II - FINANCIAL STATEMENT FINDINGS No matters were reported. Unmodified yes ✓ no Name of Federal Program or Cluster Community Development Block Grants/State's Program and Non - Entitlement Grants in Hawaii Aging Cluster Capitalization Grants for Drinking Water State Revolving Funds $1,370,648 ✓ yes _ no SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. 26 PART IV SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS (Provided by the County of Hawaii) 27 County of Hawaii, State of Hawaii STATUS REPORT Fiscal Year Ended June 30, 2017 This section contains the current status of prior audit recommendations. The recommendations are referenced to the pages of the previous audit report for the fiscal year ended June 30, 2016, dated March 29, 2017. FINANCIAL STATEMENT FINDINGS Reference Number Recommendation Current Status 2016-001 Physical Security (page 28) We recommend that the County develop formal The County has identified a policies over the physical security of IT systems at new location that will be the Center and to implement them. The server room renovated into the new server should be locked and access to keys or codes room and partial funding has should be limited to authorized personnel. A fire already been secured. The suppression system should be installed to prevent new location would include a or limit the loss of data from fire. backup generator capacity to support servers and air conditioning; fire suppression and a secure managed access. In the interim, racks have been relocated to improve airflow and allow the door of the current room to be secured. As in prior years, the County still contends that its current policies serve as mitigating controls that address the recommendations of the auditors including the fact that the general facility that houses the server room is restricted to authorized personnel and overall access is limited and that all data is backed up nightly to a different physical location to prevent the loss of data from all possibilities. W County of Hawaii, State of Hawaii STATUS REPORT (Continued) Fiscal Year Ended June 30, 2017 FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Reference Number Recommendation 2009-001 Activities Allowed and Unallowed - Calculation of Federal Expenditures (page 34) The County overstated the federal share of eligible costs related to the Ikuo Hisaoka Gymnasium, resulting in a questioned cost of $27,965. The amount the County reported was based on the actual expenditures, however, as the Ikuo Hisaoka Gymnasium was insured at the time of the loss, the expenditures should have been based on the insurance deductible in accordance with Title 44 Code of Federal Regulations (44 CFR 206.250(c)). 29 Current Status As of last year, as an indication of the difficulty posed by this project's various sources of funding, the State Civil Defense had just submitted their recommendation to closeout this project to the federal government over seven (7) years after the County submitted initial paperwork. The recommendation was to pay the County $50,431.20 and that process to make payment has just recently been initiated by the State Civil Defense.