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FOLLOW-UP ON PRIOR YEAR FINDINGS AND RECOMMENDATIONS As part of our audit of the City's financial statements for the year ended December 31, 2025, we performed procedures to follow up on the findings and recommendations that resulted from our prior year audit. We reported the following finding that was corrected by the City in the current year: • Finding 2024-002 — Significant deficiency in internal control over financial reporting due to a software conversion and error correction. OTHER OBSERVATIONS AND RECOMMENDATIONS Internal Controls Over Vendors A relatively common method of attempting to defraud local governments involves inducing them to pay claims from fictitious vendors for goods or services that were never provided. Strong safeguards over adding new vendors or making changes to existing vendors within the government's account payable system is an important control to mitigate this risk. Some considerations in this area include: • Limiting the number of employees with access to add or alter vendor records within the accounts payable system, • Requiring vendor additions or changes to be reviewed and approved by supervisory personnel, preferably one not directly involved in processing accounts payable, • Verifying the legitimacy of vendors by obtaining a W-9 or other means, • Verifying any changes to vendor address or banking information prior to processing payments, and • Periodically reviewing the vendor listing to remove inactive vendors from the system. During our testing we noted the City did not have on file 5 of the 10 W-9 forms selected for testing. Uniform Guidance Revisions Although the City did not earn enough federal funding to require a Single Audit of its expenditures of federal awards this year, if the City receives any federal funding it is obligated to maintain a comprehensive system of internal controls over federal grant compliance that is up to date with current requirements. The U.S. Office of Management and Budget issued a revision to Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) in 2024, aiming to streamline grant management and reduce grantor agency and recipient burden. The revised guidance is effective for new federal grant entitlements awarded on or after October 1, 2024. The revision includes a number of significant changes to the federal Single Audit process, including: an increase in dollar threshold for requiring a Single Audit from $750,000 to $1,000,000; changes to the thresholds and process used for determining major programs; an increase in the threshold for the disposition of equipment and remitting unused supplies from $5,000 to $10,000; and an increase in the federal de minimis indirect cost rate from 10 percent to 15 percent. Key changes to written policy requirements for recipients include: enhancement of cybersecurity controls, inclusion of veteran -owned businesses to the group of entities for procurement preference, and a broadened scope for reporting of mandatory disclosures. We recommend the City review its internal control policies to ensure compliance with current guidance. Payroll Withholdings Management is responsible for establishing and maintaining effective internal controls over payroll processing. During our audit, we identified an employee who updated their Internal Revenue Service Form W-4, but the City had not updated the payroll processing system. We recommend that the City review its policies and procedures regarding the processing of W-4's and related payroll information to verify all information is being updated properly into the payroll system and supporting forms are retained on file. -2-