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TORRES MARTINEZ DESERT CAHUILLA INDIANSAudited Financial Statements
For the year ended September 30, 2008
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TORRES MARTINEZ DESERT CAHUILLA INDIANS
TABLE OF CONTENTS
Page
FINANCIAL SECTION
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Basic Financial Statements
Tribe-Wide Financial Statements
Statement of Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Statement of Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Governmental Fund Financial Statements
Balance Sheet - Governmental Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Statement of Revenues, Expenditures, and
Changes in Fund Balances - Governmental Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Reconciliation of Statement of Revenues, Expenditures, and
Changes in Fund Balances- Governmental Funds to Statement of Activities. . . . . . . . . . . . . . 14
Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SINGLE AUDIT SECTION
Schedule of Federal Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Independent Auditors' report on compliance and on internal
control over financial reporting based on an audit of financial
statements performed in accordance with
Governmental Auditing Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Independent Auditors' report on compliance requirements
applicable to each major program and internal control over
compliance in accordance with OMB Circular A-133 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Schedule of Findings and Questioned Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Corrective Action Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
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INDEPENDENT AUDITORS' REPORT
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Midwest Professionals, P.L.L.CCertified Public Accountants 215 South Court Avenue, Gaylord, MI 49735
989-732-1156 Fax 989-731-2541
Member of American Institute of Certified Public Accountants
Member of Native American Finance Officers Association
INDEPENDENT AUDITORS REPORT
Tribal Council
Torres Martinez Desert Cahuilla Indians
P.O. Box 1160
Thermal, California 92274
We have audited the accompanying financial statements of the governmental activities, each
major fund, and the aggregate remaining fund information and the Tribal Housing Authority
discretely presented component unit of the Torres Martinez Desert Cahuilla Indians (theTribe), as of and for the year ended September 30, 2008, which collectively comprise the basic
financial statements of the Torres Martinez Desert Cahuilla Indians primary government as
listed in the table of contents. These financial statements are the responsibility of Torres
Martinez Desert Cahuilla Indians management. Our responsibility is to express opinions on
these financial statements based on our audit. We did not audit the financial statements of the
Selnek-is Tem-Al Corporation, a discretely presented component unit of the Tribe and is
presently separately as a part of the Tribes basic financial statements. These component unit
financial statements were audited by other auditors whose report thereon has been furnished to
us, and our opinion, insofar as it relates to the amounts included for the Torres Martinez Desert
Cahuilla Indians, is based on the report of the other auditors.
We conducted our audit in accordance with 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 provisions of
Office of Management and Budget Circular A-133, "Audits of States, Local Governments and
Non-Profit Organizations". Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinions.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the respective financial position of the governmental activities, each major fund, and the
aggregate remaining fund information and the discretely presented component units for the
primary government of the Torres Martinez Desert Cahuilla Indians for the year then ended
September 30, 2008, and the respective changes in financial position and cash flows, where
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Midwest Professionals, P.L.L.CCertified Public Accountants 215 South Court Avenue, Gaylord, MI 49735
989-732-1156 Fax 989-731-2541
Member of American Institute of Certified Public Accountants
Member of Native American Finance Officers Association
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applicable, thereof for the year then ended in conformity with accounting principles generally
accepted in the United States of America.
In accordance with Government Auditing Standards, we have also issued our report dated,
September 27, 2009 on our consideration of the Torres Martinez Desert Cahuilla Indians
internal control over financial reporting and on our tests of its compliance with certain provisions
of laws, regulations, contracts, and grants. That report is an integral part of an audit performed
in accordance with Government Auditing Standards and should be read in conjunction with this
report in considering the results of the audit.
The Torres Martinez Desert Cahuilla Indians has not presented the managements discussion and
analysis and budgetary comparison information that accounting principles generally accepted in
the United States of America has determined is necessary to supplement, although not required
to be part of, the basic financial statements.
As discussed in Note 13 to the financial statements, the Torres Martinez Desert Cahuilla Indians,
has expended certain grant funds in a manner that may have violated certain restrictive
provisions of the related grants. The possible outcome of these matters is uncertain at this time.
Accordingly, no provision for any liability has been made in the financial statements for possible
federal and state claims for refunds of those grant monies.
Our audit was performed for the purpose of forming an opinion on the financial statements taken
as a whole. The accompanying schedule of expenditures of federal and state awards is presented
for purposes of additional analysis as required by U.S. Office of Management and Budget
Circular A-133,Audits of States, Local Governments, and Non-Profit Organizations, and is not a
required part of the financial statements of Torres Martinez Desert Cahuilla Indians. Such
information in that schedule has been subject to the auditing procedures applied in the audit of
the financial statements and, in our opinion, is fairly stated, in all material respects, in relation to
the financial statements taken as a whole.
Midwest Professionals, PLLC
Midwest Professionals, P.L.L.C.
September 27, 2009
Gaylord, Michigan
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BASIC FINANCIAL STATEMENTS
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PRIMARY GOVERNMENT FINANCIAL STATEMENTS
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Statement of Net Assets
September 30, 2008
See Accompanying Notes to the Financial Statements.
Component Units
GovernmentalActivities
Selnek-Is
Tem-AlCorporation
Tribal HousingAuthority
AssetsCurrent assets
Cash and cash equivalents $ 1,486,845 $ 1,199,132 $Due from other governments 4,975,472Receivables - net 12,169 157,461Other receivables 39,850Prepaid expenses 58,596 225,568Inventory 234,010
Total current assets 6,572,932 1,816,171 0Noncurrent assets
Restricted cash 1,035,412
Capital assetsCapital assets not being depreciated 1,157,174Capital assets, depreciable 3,250,531 21,857,336
Net capital assets 4,407,705 21,857,336
Total assets 10,980,637 25,365,819 0
LiabilitiesCurrent liabilities
Accounts payable $ 796,923 $ 2,152,516 $Accrued liabilities 337,522 667,629Line of credit 695,312Deferred revenue 4,773,774Notes payable-equipment 45,701Current portion of capital lease obligations 37,492 124,525
Current portion of notes payable 875,388 3,661,015Payable to related party 200,000Due to HHS 662,492Due to AMIHA 159,201
Total current liabilities 7,642,792 7,546,698Non-current liabilities
Compensated absences 241,385Capital lease net of current portion 259,341Notes payable, net of current portion 19,950,294
Total non-current liabilities 241,385 20,209,635
Total liabilities 7,884,177 27,756,333 0
Net assets
Invested in capital assets 4,581,498Restricted (1,816,757)Unrestricted 331,719 (2,390,514)
Total net assets $ 3,096,460 $ (2,390,514) $ 0
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Statement of Activities
For the Year Ended September 30, 2008
See Accompanying Notes to the Financial Statements.
Program Revenues
ExpensesCharges forServices
Operating
Grants andContributions
Capital Grants
andContributions
Functions/ProgramsPrimary Government:Governmental activities
General operation $ 5,542,341 $ 27,543 $ 395,143 $Economic Development 549,330 25,820Public works 17,844 13,653 3,495Health and general welfare 16,637 16,637Education 42,703 33,682General assistance 27,269Community services 13,342,234 15,733,060Culture and recreation 213,893 173,289
Redevelopment and housing 221,315Environmental management 192,111 164,280Indirect costs 1,437,707Interest on long-term debt 29,491Unallocated depreciation and
amortization 419,072Total governmental activities 21,830,632 240,305 16,567,612 0
Component unitSelnek-Is Tem-Al Corporation $ 4,490,068 $ 1,220,351 $ $TMHA 261,649 99,670 237,325
Total component unit $ 4,751,717 $ 1,320,021 $ 237,325 $General revenues
CA non-gaming tribes revenueInterest and investment incomeGaming Proceeds Red Earth CasinoIndirect cost transfersOtherTransfers from/(to) component unitsTransfers in/(out)
Total general revenues andtransfers
Change in net assets
Net assets - ending
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Balance Sheet - Governmental Funds
September 30, 2008
See Accompanying Notes to the Financial Statements.
General Fund TANF
NonmajorGovernmental
Funds
TotalGovernmental
FundsAssetsCurrent assets
Cash and cash equivalents $ 946,702 $ $ 540,143 $ 1,486,845Due from other governments 4,444,576 530,896 4,975,472Accounts receivable 9,448 2,721 12,169
Employee receivable 23,437 1,725 14,688 39,850Prepaid expenses 23,893 23,893Due from other funds 547,492 691,038 15,000 1,253,530
Total assets $ 1,527,079 $ 5,163,953 $ 1,100,727 $ 7,791,759
Liabilities and fund balancesCurrent liabilities
Accounts payable $ 234,615 $ 386,024 $ 176,284 $ 796,923Accrued liabilities 13,262 271,687 52,572 337,521Deferred revenue 4,491,242 282,532 4,773,774Due to other funds 691,038 15,000 547,492 1,253,530Due to other governments 159,201 159,201
Total liabilities 1,098,116 5,163,953 1,058,880 7,320,949
Fund balances
Unreserved, reported inGeneral fund 428,963 428,963Special revenue fund 41,847 41,847
Total fund balances 428,963 0 41,847 470,810
Total liabilities and fund balances $ 1,527,079 $ 5,163,953 $ 1,100,727 $ 7,791,759
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Reconciliation of Governmental Fund Balancesto the Statement of Net Assets
September 30, 2008
See Accompanying Notes to the Financial Statements.
Total governmental fund balances $ 470,810
Amounts reported for governmental activities in the statement of net assets are differentbecause:
Capital assets used in governmental activities are not financial resources and thereforeare not reported in the funds. 4,407,706
Prepaid expenses are are amortized over the benefited periods, but are expended inthe period of acquisition in the funds: 34,701
Long-term loans payable are not due and payable in the current period and thereforeare not reported in the funds. (1,816,757)
Net assets - governmental activities, per statement of net assets $ 3,096,460
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Statement of Revenues, Expenditures and Changes inFund Balance - Governmental Funds
For the Year Ended September 30, 2008
See Accompanying Notes to the Financial Statements.
General Fund TANF
Nonmajor
GovernmentalFunds
Total
GovernmentalFunds
RevenuesIntergovernmental $ 15,018,743 $ 1,548,869 $ 16,567,612Indirect cost recoveries $ 1,437,707 1,437,707CA non-gaming tribes revenue 1,100,000 1,100,000Interest investment income 461,447 34,952 1,026 497,425Tero fees 11,000 11,000Charges for goods and services 186,941 186,941Rental revenue 14,368 14,368Licenses, permits, fines, and forfeits 27,996 27,996Other 483,932 10,526 6,833 501,291
Total revenues 3,723,391 15,064,221 1,556,728 20,344,340
ExpendituresCurrent
General operations $ 4,098,451 $ 1,096,024 $ 365,351 $ 5,559,826Economic development 549,330 549,330Public works 14,349 3,495 17,844Health and general welfare 16,637 16,637Education 42,703 42,703Community services 139,122 12,519,852 683,260 13,342,234Culture and recreation 213,893 213,893Bad debt expense 27,269 27,269Environmental management 192,111 192,111Indirect costs 1,390,495 47,212 1,437,707
Debt servicePrincipal 42,756 42,756Interest 20,377 9,114 29,491
Capital outlay 5,980 239,299 245,279Total expenditures 5,062,791 15,064,221 1,590,068 21,717,080
Revenues over (under) expenditures (1,339,400) 0 (33,340) (1,372,740)
Other financing sources (uses)Transfers in/(out) 99,666 33,278 132,944
Total other financing sources (uses) 99,666 0 33,278 132,944
Net change in fund balances (1,239,734) 0 (62) (1,239,796)
Fund balances, beginning of year 1,591,251 0 41,909 1,633,160
Prior period adjustments 77,446 77,446
Fund balances, as restated 1,668,697 0 41,909 1,710,606
Fund balances, end of year $ 428,963 $ 0 $ 41,847 $ 470,810
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Reconciliation of the Statement of Revenues,Expenditures and Changes in Fund Balance of
Governmental Funds to the Statement of Activities
For the Year Ended September 30, 2008
See Accompanying Notes to the Financial Statements.
Net change in fund balances - governmental funds $ (1,239,796)
Amounts reported for governmental activities in the statement of activities are differentbecause:
Capital outlays are reported in governmental funds as expenditures.However, in the statement of activities, the cost of those assets isallocated over their estimated useful lives as depreciation expense.In the current period, these amounts are:Capital outlays - 245,279Depreciation and amortization expense - (419,072)
Amount by which capital outlays are less than depreciation incurrent period (173,793)
Compensated absences are expensed as used in the governmental funds. However,they are expensed as earned on the statement of activities. (17,219)
Repayment of principal on long-term debt is reported in the governmental funds as anexpenditure, but is reported as a reduction in long-term debt in the statement of netassets and does not affect the statement of activities. The amount of long-term debtprincipal payment in the current year is: 42,756
Expenditures for certain items are recognized in the period of acquisition in the funds,but are required to be amortized over the benefited period in the Statement ofActivities 34,701
Change in net assets of governmental activities $ (1,353,351)
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NOTES TO THE FINANCIAL STATEMENTS
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Notes to the Financial Statements
For the Year Ended September 30, 2008
Note 1 - Nature of Business and Summary of Significant Accounting Policies
The Torres Martinez Indian Reservation, located in Thermal, California, was established byExecutive Order on May 15, 1876.
The Torres Martinez Desert Cahuilla Indian Tribe (the "Tribe") is a federally recognized Indian tribelocated in California, comprised of approximately 445 individual members. Within certainrestrictions imposed by the U.S. Government, the Tribe has jurisdiction over activities occurring onthe reservation and has rights to economic and other benefits resulting from the use of reservationproperty and resources.
The Tribe is governed by an elected Tribal Council (Council), consisting of eight members. Itoperates under a constitution that was approved by the United States government on November 9,1997. The Indian Reorganization Act of 1934 and subsequent federal legislation govern therelationship between the Tribe and the United States government. In accordance with its
Constitution, the Tribe enacts laws through resolutions of the Council.
The financial activities of the Tribe and its enterprises are confidential. The accompanyingfinancial statements and related notes are to be distributed only based on authorization fromCouncil or its designee. Information related to federal grants and contracts required by U.S. Officeof Management and Budget Circular A-133 is public information and is available on request fromthe Tribal Treasurer.
The financial statements of the Tribe conform with generally accepted accounting principles(GAAP) applicable to government units. The Governmental Accounting Standards Board (GASB)is the standard-setting body for governmental accounting and financial reporting. GASBstatements and interpretations constitute GAAP for governments, including Indian Tribes. Aspermitted by GASB Statement 20, the Tribe has elected not to apply pronouncements of the
Financial Accounting Standards Board (FASB) issued subsequent to November 30, 1989 in theaccounting for business-type activities and enterprise funds.
The accompanying financial statement have been prepared in accordance with the reporting modeldefined by GASB Statement 34, Basic Financial Statements - and Management's Discussion andAnalysis - for State and Local Governments. In addition, GASB Statement 37, Basic FinancialStatements-and Management's Discussion and Analysis-for State and Local Governments:Omnibus and GASB Statement 38, Certain Financial Statement Note Disclosures, are alsoapplicable in conjunction with GASB Statement 34.
A. Reporting Entity
Legal EntityAll the entities that are not legally separate are part of the Tribe's primary government for financialreporting purposes. The legal entity includes:
Governmental and regulatory offices, agencies and departments of the Tribe.
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Notes to the Financial Statements
For the Year Ended September 30, 2008
Note 1 - Nature of Business and Summary of Significant Accounting Policies - Continued
A. Reporting Entity - Continued
Component UnitsComponent units are legally separate organizations for which the Tribe is financially accountableand/or for which the nature and significance of their relationship with the Tribe is such thatexclusion would cause the financial statements to be misleading or incomplete.
The Tribe is considered to be financially accountable for an organization when either:
1. The Tribe appoints a voting majority of the organization's governing body and canimpose its will on that organization; or
2. There is a potential for the organization to provide specific financial benefits to, or
impose specific financial burdens on, the Tribe.Discrete Component UnitsComponent units not meeting the criteria for blending with the primary government are discretelypresented in the financial statements. Discrete presentation entails reporting component unitfinancial data in a column separate from the financial data of the Tribe's primary government.
The Selnek-Is Tem-Al Corporation ("Selnek") is considered a discrete component unit accountableto the Tribe's primary government. Two Council members sit on the five-member Selnek Board ofDirectors, and Selnek is responsible for managing the Tribe's economic development. Selnek'sfinancial statements as of and for the year ended December 31, 2007 were separately audited.Copies of those audited financials can be obtained by contacting The Torres Martinez DesertCahuilla Indian Tribe.
The Torres Martinez Tribal Housing Authority ("TMTHA") is also considered a discrete componentunit accountable to the Tribe's primary government. Two Council members sit on theseven-member Board of Commissioners. TMTHA is responsible for the undertaking, construction,maintenance and operation of the housing projects that were previously managed by the Tribe andAll Mission Indian Housing Authority (AMIHA). TMTHA does not issue a separate audit report.
B. Summary of Significant Accounting Policies
Basis of Presentation
Basic Financial StatementsThe basic financial statements of the Tribe include the government-wide and the fund financialstatements. The focus is on the Tribe as a whole in the government-wide financial statements,while reporting additional and detailed information about the Tribe's major governmental activities
in fund financial statements.
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Notes to the Financial Statements
For the Year Ended September 30, 2008
Note 1 - Nature of Business and Summary of Significant Accounting Policies - Continued
B. Summary of Significant Accounting Policies - ContinuedGovernment-Wide Financial StatementsThe government-wide statement of net assets and statement of activities display information aboutthe Tribe's primary government. These statements include the financial activities of the overallTribe, except for fiduciary activities. Eliminations have been made to minimize the double countingof internal activities.
Government activities are financed primarily through investment income, intergovernmentalrevenues, indirect cost reimbursements, licenses and permits, and taxes.
The government-wide statement of activities reflects the cost of programs and functions (socialservices, environmental, education, etc.) reduced by directly associated revenues (program
income, and operating and capital grants) to arrive at the net revenue or expense for each programand function. Net program revenue or expense for governmental activities are then adjusted forgeneral revenues to determine the change in net assets for the year. Indirect expenses such assupport services and administration incurred in the general government and otherfunctions/activities are not allocated to programs/functions that they may benefit. When bothrestricted and unrestricted resources are available for use, it is the Tribe's policy to use restrictedresources first, then unrestricted resources as they are needed.
Fund Financial StatementsThe fund financial statements provide information about the Tribe's funds. Separate statements forthe governmental fund category are presented. The emphasis of fund financial statements is onmajor governmental and enterprise funds, each displayed in a separate column. All remaining
governmental and enterprise funds are aggregated and reported as nonmajor funds.
The Tribe reports the following major governmental funds:
General Fund - The general fund is the Tribe's primary operating fund. It accounts for allgovernmental financial resources, except those required to be accounted for in another fund.
TANF- DHHS - The Tribal Temporary Aid to Need Families (TANF) fund accounts for the Tribe'sTANF program revenues and related activities.
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Notes to the Financial Statements
For the Year Ended September 30, 2008
Note 1 - Nature of Business and Summary of Significant Accounting Policies - Continued
B. Summary of Significant Accounting Policies - Continued
Basis of AccountingThe government-wide fund financial statements are reported using the economic resourcesmeasurement focus and the accrual basis of accounting. Under this method revenue is recordedwhen earned and expenses are recorded when liabilities are incurred, regardless of when therelated cash flow takes place. Grants and similar items are recognized as revenue as soon as alleligibility requirements imposed by the provider have been met.
Governmental funds are reported using the flow of current financial resources measurement focusand the modified accrual basis of accounting. Under this method revenue is recognized whenmeasurable and available. The Tribe considers all revenue reported in the governmental funds to
be available if the revenue is collected within sixty days after year-end. Expenditures are recordedwhen the related fund liability is incurred. General capital asset acquisitions are reported asexpenditures in governmental funds. Proceeds from long-term debt and acquisitions under capitalleases are reported as other financing sources.
InvestmentsInvestments are recorded at market value. Fair value is determined by the reported market valueof securities and mutual funds trading on national exchanges.
The Tribe receives advance payments of certain grant awards. Section 112 of the Department ofInterior and Related Agencies Act, 1998, P.L. 105-82, Nov. 14, 1997, specifies investment optionsas follows:
Advance payments made under this title to Indian Nations, tribal organizations, and tribal consortiapursuant to the Indian Self-Determination and Education Assistance Act (25 U.S.C. 450 et seq.)may be invested by the Indian Nation, tribal organizations, or consortium before such funds areexpended for the purposes of the grant, compact or annual finding agreement so long as suchfunds are: (1) invested by the Indian Nation, tribal organization, or consortium only in obligations ofthe United States, or in obligations or securities that are guaranteed or insured by the UnitedStates, or mutual (or other funds) registered with the Securities and Exchange Commission andwhich only invest in obligations of the United States or securities that are guaranteed or insured bythe United States; or (2) deposited only into accounts that are fully collateralized to ensureprotection of the funds, even in the event of a bank failure.
Accounts and Loans Receivable
Accounts receivable includes normal business receivables and loans to members of the Tribe.The Tribe has not adopted any policies for identifying potential uncollectible accounts.
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Notes to the Financial Statements
For the Year Ended September 30, 2008
Note 1 - Nature of Business and Summary of Significant Accounting Policies - Continued
B. Summary of Significant Accounting Policies - Continued
Internal BalancesThe primary government controls disbursements through a central cash account in the generalfund and other funds are then required to repay the general fund for the disbursements made ontheir behalf. To simplify the management of some types of assets (such as investment accounts)the general fund may sometimes account for assets that are owed to other funds. Since each fundis a fiscal and accounting entity, the amounts due to one fund from other funds, as well as theamounts owed to other funds are reflected in the financial statements as interfund receivables andpayables.
Interfund transfers are flows of assets (such as cash or goods) without equivalent flows of assets inreturn and without a requirement for repayment.
Capital AssetsCapital assets are recorded at historical cost. Contributed assets, including those from the federalgovernment, are recorded at estimated fair value on the date received. Additions, improvementsand other capital outlays that significantly extend the useful life of an asset are capitalized. Costsincurred for repairs and maintenance are expensed as incurred. Reservation lands and relatedresources (such as timber stands and other natural resources) are not capitalized because there isnot an historical cost associated with these assets.
Capitalization thresholds (the dollar values above which asset acquisitions are added to the capitalasset accounts) and estimated useful lives of capital assets are as follows:
Governmental FundsAsset Category CapitalizationThreshold Useful LifeBuildings and improvements $5,000 40 yearsEquipment, vehicles, and fixtures $5,000 5 yearsComputer equipment $5,000 3Modular Buildings $5,000 15Wells/Pump Houses $5,000 15
Depreciation is provided using the straight-line method over estimated useful lives.
Construction in ProgressConstruction-in-progress represents the construction costs incurred related to infrastructure and
other building projects. Upon completion, such costs are reclassified to the appropriate capitalasset classification and depreciation is commenced. No interest costs were capitalized duringSeptember 30, 2008.
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Notes to the Financial Statements
For the Year Ended September 30, 2008
Note 1 - Nature of Business and Summary of Significant Accounting Policies - Continued
B. Summary of Significant Accounting Policies - Continued
Fund EquityIn the government-wide financial statements, equity is classified as net assets and displayed inthree components:
Invested in capital assets, net of related debt - Consists of capital assets, includingrestricted capital assets, net of accumulated depreciation and reduced by theoutstanding balance of any borrowing that is attributable to the acquisition orimprovement of those assets.
Restricted net assets - Consists of net assets with constraints placed on the useeither by (a) external groups such as creditors, grantors, or laws and regulations ofother governments; or (b) law through enalbling legilation.
Unrestricted net assets - All other net assets that do not meet the definitions ofabove.
In the fund financial statements, governmental fund equity is classified as unreserved fundbalance. Fund balance is further classified as reserved or unreserved. Reserves represent thoseprotions of fund balance that are not available to be appropriated for expenditure or legallysegregated for a specific future use.
Federal Awards and GrantsThe Tribe has received federal funds for specific purposes that are subject to review and audit bythe grantor agencies. Although such audits could generate expenditure disallowances under theterms of the grants, it is believed that any required reimbursement would not be material.
Deferred RevenueThe Tribe reports deferred revenue on its combined balance sheet. Deferred revenues arise whenpotential revenue does not meet both the "measurable" and "available" criteria for recognition inthe current period. Deferred revenues also arise when resources are received by the governmentbefore it has a legal claim to them, for example, when grant money is received prior to theincurrence of qualifying expenditures. In subsequent periods, when both revenue recognitioncriteria are met or when the Tribe has a legal claim to the resources, the liability for deferredrevenues is removed from the combined balance sheet and revenue is recognized.
Compensated AbsencesIt is the Tribe's policy to permit employees to accumulate up to 200 hours of earned but unusedvacation leave benefits and carry them forward into following years. Employees may be paid forunused vacation leave upon separation from service. Sick leave is not accumulated from year toyear. Vacation pay liability has not been reported in the governmental funds financial statementsbecause the majority of the balance is not expected to be liquidated with current availableresources.
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Notes to the Financial Statements
For the Year Ended September 30, 2008
Note 1 - Nature of Business and Summary of Significant Accounting Policies - Continued
B. Summary of Significant Accounting Policies - Continued
Advertising CostsAdvertising costs are expensed as incurred. During the year ended September 30, 2008advertising costs amounted to $12,453.
Indirect CostsThe Tribe's last negotiated indirect cost rate was 11.94% for fiscal year 2007. Indirect costsrepresent costs of administration and operation, including accounting costs, which cannot bereadily allocated to individual programs. These costs are paid from the indirect cost pool andallocated to applicable programs, based on a negotiated indirect cost agreement. The rate of11.94% of total direct costs, less capital expenditures and pass through funds, was charged tobenefiting programs.
Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally acceptedin the United States of America requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts of revenue andexpenses during the reporting period. Accordingly, actual results could differ from those estimates.
Federal and State Income TaxesThe Torres Martinez Desert Cahuilla Indian Tribe, as a federally recognized sovereign government,is exempt from federal and state income taxes. As such, no income taxes have been provided forin the accompanying financial statements.
Budgetary DataThe Tribal Council does not establish a formal annual budget for its governmental general or majorspecial revenue funds because it is not legally required and, therefore, presentation of budgetarycomparison information is not required.
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Notes to the Financial Statements
For the Year Ended September 30, 2008
Note 2 - Cash and Cash EquivalentsCash consists of the following at September 30, 2008:
Governmental ActivitiesCarryingAmount
Bank Balance
Demand deposits $ 1,486,845 $ 2,817,531Total cash and cash equivalents $ 1,486,845 $ 2,817,531
Except as shown below, as of September 30, 2008 the Tribe's accounts were insured by FDIC.
Custodial Credit Risk - DepositsCustodial credit risk is the risk that in the event of a bank failure, the government's deposits may not bereturned to it. The Tribe does not have a deposit policy for custodial credit risk. As of September 30,
2008, $1,598,143 of the government's bank balance of $2,817,531 was exposed to custodial credit riskas follows:
2008Uninsured and uncollateralized $ 1,598,143
Note 3 - ReceivablesGovernmental receivables at September 30, 2008 are summarized as follows:
GeneralFund USDA TANF Total
Receivables:Employees $ 6,413 $ 1,725 $ 8,138Revolving loans $ 14,688 14,688Other 26,472 2,721 29,193
Gross receivables 32,885 14,688 4,446 52,019Net total receivables $ 32,885 $ 14,688 $ 4,446 $ 52,019
Note 4 - Due from Other GovernmentsThe following amounts are due from the respective funding agencies at September 30, 2008 forgrant/contract program reimbursements:
Governmental Activities:
U.S. GovernmentInterior $ 261,099Health and Human Services 14,913Environmental Protection Agency 128,781Institute of Museum and Library 6,103Housing and Urban Development 115,310
State of California and other 4,449,266Total Governmental Activities $ 4,975,472
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Notes to the Financial Statements
For the Year Ended September 30, 2008
Note 5 -Capital AssetsCapital assets activity for the year ended September 30, 2008, is summarized as follows:
Balance Prior Period Balance10/1/2007 Additions Deletions Adjustments 9/30/2008
Governmental activitiesCapital assets not being depreciated
Land $ 377,955 $ $ $ $ 377,955Construction in progress 551,071 228,148 779,219
Total capital assets not beingdepreciated 929,026 228,148 0 0 1,157,174
Capital assets being depreciatedLand improvements 41,267 41,267Buildings and improvements 1,807,802 1,807,802Modular Buildings 1,045,609 1,045,609Computers & Equipment 1,035,899 17,131 1,053,030Vehicles 1,055,925 1,055,925Wells/Pump Station 780,759 780,759
Total capital assets beingdepreciated 5,767,261 17,131 0 0 5,784,392
Less accumulated depreciationLand improvements 9,960 2,751 12,711Buildings and improvements 219,146 45,632 264,778Modular Buildings 377,081 69,707 446,788Computers & Equipment 908,703 52,614 961,317Vehicles 409,092 196,317 605,409Wells/Pump Station 190,806 52,051 242,857
Total accumulated depreciation 2,114,788 419,072 0 0 2,533,860Net capital assets being
depreciated 3,652,473 (401,941) 0 0 3,250,532
Net capital assets $ 4,581,499 $ (173,793) $ 0 $ 0 $ 4,407,706
Depreciation expense was allocated as follows on the statement of activities.
Government ActivitiesCommunity services $ 12,100General operation $ 130,668Health and general welfare 251,515
Natural resources 11,564Culture and recreation 13,225
Total governmental activities depreciation expense $ 419,072
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Notes to the Financial Statements
For the Year Ended September 30, 2008
Note 6 - Related Party TransactionsIn October 2003, the Tribe entered into a lease with Selnek to lease certain real estate property in
Imperial County, California. The lease provides for the Company to construct and operate a highwaytravel center with a gas station, convenience store, and related amenities. The term of the lease isfifty-five years with an option for an additional 25 years. The annual rent is $20.
The Tribe made contributions to Selnek of $100,100 and $10,761, respectively, during the years endedDecember 31, 2007 and 2006. Selnek is carrying a note payable to the Tribe for $200,000 for fundsadvanced in 2005 and 2006 at December 31, 2007; even though, the Tribe determined that amount isuncollectible and reported the $200,000 loan balance as a transfer to related party at 9/30/07. Thedecision to expend the note payable balance was not approved until after the Selnek 12/31/07 audit wasisssued and prior to the issuance of the 9/30/07 Tribal audit.
The Tribe paid $9,448 worth of expenditures on behalf of Selnek at 9/30/08, which the Tribe has
recorded as a receivable. These expenditures are in addition to the contributions that were made toSelnek listed in the above paragraph.
The Tribe transferred the Housing Authority component unit to All Mission Indian Housing Authority inJune 2008. All account balances were transferred to AMIHA, except for the MEPA liability balance dueto AMIHA from the Tribe, which amounted to $159,200 at September 30, 2008. The MEPA liability wassubsequently paid to AMIHA during fiscal year 2009. The Indian Community Development Block Grantand the Indian Housing Block Grant funds, previously recorded in the financial statements under theHousing Authority Component Unit, were received by the Tribe and passed through to AMIHA after June2008. AMIHA now administers these grants on behalf of the Tribe.
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Notes to the Financial Statements
For the Year Ended September 30, 2008
Note 7 - Interfund ActivityInterfund balances are summarized as follows:
Due From Due To TotalNon-major funds General fund $ 547,492General fund TANF $ 691,038TANF Non-major funds $ 15,000
The Tribe uses a pooled cash account for all general fund and non-major fund disbursements. TheInterfund balances represent each fund's allocated share of pooled cash. The net amount of fundsadvanced by the general fund to other non-major governmental funds for expenditures is $550,786 as ofSeptember 30, 2008. Amounts are non-interest bearing, and generally due upon demand.
Interfund transfers are summarized as follows:
Transfers From Transfers To Purpose TotalGeneral Fund Non-major funds Close-out grant $ 33,278Housing Authority General Fund Transfer Housing Authority to General
fund$ 132,945
Housing Authority Other Entity Transfer Housing Authority to AMIHA $ 623,674
Note 8 - Deferred RevenueGovernmental funds report deferred revenue in connection with receivables for revenues that are notconsidered to be available to liquidate liabilities of the current period. Governmental funds defer revenuerecognition in connection with resources that have been received, but not yet earned. At the end of thecurrent fiscal year, the various components of deferred revenue reported in the governmental funds were
as follows:
U.S. GovernmentInterior $ 220,358Health and Human Services 4,495,014Environmental Protection Agency 54,290
State of California and other 4,109Total Governmental Activities $ 4,773,771
The deferred grant revenue represents payments made by the granting agencies that have not beenspent as of September 30, 2008.
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Notes to the Financial Statements
For the Year Ended September 30, 2008
Note 9 - PayablesAccounts payable and accrued liabilities at September 30, 2008, were as follows:
VendorsAccruedExpenses MEPA Total
Governmental activitiesGeneral fund $ 234,615 $ 13,264 $ $ 247,879TANF 386,024 271,687 657,711Nonmajor governmental funds 176,284 52,571 228,855
Total governmentalactivities $ 796,923 $ 337,522 $ 0 $ 1,134,445
Note 10 - Lease Commitments
The Tribe leases its building and land from Biometric Solution Technologies under a capital lease. Thelease requires minimum monthly payments of tribal council, through December 10, 2009. At theexpiration of the lease term, the Tribe may purchase the building and land for $0. The Tribe madepayments of $42,756 to Biometric Solution Technologies for the year ended September 30, 2008.
A summary of changes in capital leases for the year ended September 30, 2008 is as follows:
Balance10/2/2007 Additions Reductions
Balance9/30/2008
$ 80,247 $ 0 $ (42,756) $ 37,491
Obligations under capital leases at September 30, 2008 were as follows:
2009 $ 39,900--
Total minimum lease payments 39,900
Less: Amount representing interest costs (2,409)
Present value of minimum lease payments $ 37,491
The future minimum lease payments at September 30, 2008 are as follows:
Years Ending September 30, Principal Interest Total2009 $ 37,491 $ 2,409 $ 39,900
Total $ 37,491 $ 2,409 $ 39,900
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Notes to the Financial Statements
For the Year Ended September 30, 2008
Note 13 - Contingent Liabilities and CommitmentsFederal and State Grants
Many of the Tribe's programs are funded by various federal and state agencies. Expenditures madeunder such programs are subject to review and approval or disallowance by the agencies. Any costsdisallowed by the agencies are subject to negotiation and are not recorded as liabilities until mutuallyagreed-upon.
Questioned costs relating to the Tribe's management of federal grants during the fiscal years 2007($356,290) and 2008 ($62,246) totaled $ 418,536. Details of these questioned costs can be found inPart C, Schedule of Findings and Questioned Costs, which is identified, as part of this report, in the tableof contents. The current financials do not reflect any liabilities that may result from the resolution ofthese questioned costs. The impact of these audit findings on the Tribe's financial statements cannot bedetermined at this time.
OtherThe Tribe is subject to lawsuits and claims that arise out of the normal course of business. Although theoutcome of such matters cannot be forecast with certainty, it is the opinion of management and legalcounsel that the likelihood is remote that any such claims or proceedings will have a material adverseeffect on the Tribe's financial position, results of operations, or liquidity.
As indicated in Note 1, Tribal employees are paid for unused annual leave at separation with carryover ofannual leave to the next fiscal year restricted to 200 hours. The Tribe's policy is to recognize the costs ofcompensated absences when actually paid to the employees.
The Tribe maintains a solid waste landfill and is responsible for certain closure and post-closure carecosts as defined by state and federal laws. An estimated amount of post-closure care costs to beincurred by the Tribe has not been determined. The Tribe has historically been awarded contracts fromthe U.S. Government to fund closure and post-closure accounts.
The Tribe is required to provide guarantees on two loan agreements for Selnek. One loan is acommercial construction loan to be used for building the Casino with a long-term balance of 18,969,722as of 12/31/2007. The second is a real estate term loan agreement for the Travel Center with a balanceof $4,641,587 as of 12/31/07. 90% of the real estate loan agreement is guaranteed by the United StatesDepartment of Interior.
Selnek is operating under a compact between the Torres-Martinez Cahuilla Indians and the State ofCalifornia, which was approved by the United States Department of Interior on November 26, 2003 andwas effective January 16, 2004 when it was published in the Federal Register. The compact containsspecific requirements, including the payment of a percentage of its net win from the operations of gamingdevices. The percentages are three percent in the first year, four percent in the second year ofoperations and five percent thereafter.
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Notes to the Financial Statements
For the Year Ended September 30, 2008
Note 14 - Risk ManagementThe Tribe faces a considerable number of risks of loss, including:
a) damage to and destruction and loss of property and contents;b) environmental damage;c) workers' compensation (i.e., employee injuries);d) tort actions; and,e) errors and omissions.
A variety of methods is used to provide insurance for these risks. Commercial insurance policies,transferring all risks of loss, except for relatively small deductible amounts, are purchased for propertyand content damage, tort actions, and errors and omissions. Settled claims for these risks have notexceeded commercial insurance coverage for the past three years. The Housing Authority participates inthe Tribe's commercial insurance policy and Selnek has their own insurance policy.
Given the lack of coverage available, the Tribe has no coverage for potential losses due to environmentaldamages. The amounts of any potential future losses are unknown.
Note 15 - Economic DependenceThe Torres Martinez Desert Cahuilla Indian Tribe receives approximately 73% of its operating revenuefrom the TANF grant provided by the Department of Health and Human Services.
Note 16 - Prior Period AdjustmentsCertain prior period adjustments were recorded effective October 1, 2007 to correct/reclassify variousbalance sheet accounts and correct errors made in prior years as follows:
Governmental Activities
GovernmentalActivities
Beginning net assets/fund balances, as previously reported $ 4,449,811Changes to:
Long-term liabilities 77,447Beginning net assets/fund balances, as restated $ 4,527,258
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Notes to the Financial Statements
For the Year Ended September 30, 2008
Note 17 - Retirement Plan
Employee Benefit PlanThe Tribe has established a defined contribution 401(k) retirement plan for the benefit of its employeesand employees of its enterprises, effective January 1, 1999, entitled the (the "Plan"). Generally thePlan's eligibility requirements are as follows:
each employee will be eligible to be a participant in the Plan after one full year of eligibleemployment and the attainment of age eighteen;
a participant employee's interest shall fully vest after six years; a participant employee may direct the employer to make a contribution to the Plan in an
amount payable to the participant from his/her current salary; the employer may make a voluntary matching contribution to the Plan on behalf of each
participant employee;
the Plan includes a rollover provision; and distribution of benefits may occur when a participant reaches retirement, dies or separates
from employment.
During the year ended September 30, 2008, the Tribe recorded expenses for matching contributions tothe Plan of approximately $116,686.
Note 18 - Per Capita DistributionsThe The Torres Martinez Desert Cahuilla Indian Tribe legislature voted to make per capita distributionsfrom the money received from other California tribes that have gaming. During the year endedSeptember 30, 2008, distributions were made to Tribal members age 18 and older.
At September 30, 2008, distributions were made to eligible members in the amount of $1,198,338.
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THE TORRES MARTINEZ DESERT CAHUILLA INDIAN TRIBE
Schedule of Expenditures of Federal, State and Other Awards
For the Year Ended September 30, 2008
Grantor/Program Title Federal
Federal Grantor/Pass Through CFDA Federal
Grantor/Program Title Number Expenditures
U.S. Department of Housing and Urban Development
Direct Programs
Indian Housing Block Grant 14.867 21,675$
Indian Housing Block Grant 14.867 20,915
Indian Housing Block Grant 14.867 18,982
Indian Housing Block Grant 14.867 23,431
Indian Housing Block Grant 14.867 152,322
*Indian Community Development Block Grant 14.862 221,315
*Indian Community Development Block Grant 14.862 371
Total U.S. Department of Housing and Urban Development 459,011
U.S. Department of Interior
Direct Programs
*Consolidated Tribal Government Program 15.021 215,769
*Consolidated Tribal Government Program - FY08 DCSC 15.024 24,980Water Resource 15.037 14,851
Environmental Management 15.041 5,222
Total U.S. Department of Interior 260,821
U.S. Environmental Protection Agency
Direct Programs
Clean Air Act 66.034 70,707
Clean Air Act 66.038 469
*Performance Partnership Grants 66.605 687,048
Lead Awareness 66.715 31,611
Water Infrastructure 66.202 41,421
General Assistance Program III 66.926 199,651
Total Environmental Protection Agency 1,030,907
Institute of Museum and Library Services
Direct Programs
Native American Library Technical Services 45.311 6,000
Native American Library Services-Enhancement 45.311 103
Total Institute of Museum and Library Services 6,103
U.S. Department of Health and Human Services
Direct Programs
Child Care - Mandatory 93.576 21,167
Total U.S. Department of Health and Human Service 21,167
TOTAL EXPENDITURES OF FEDERAL AWARDS 1,778,010$
* tested as a major program under OMB A-133
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Torres Martinez Desert Cahuilla Indian TribeNotes to Schedule of Expenditures of Federal and State Awards
for the Year Ended September 30, 2008
Note A- Basis of Accounting
The accompanying schedule of expenditures of Federal and State Awards includes theFederal and State Grant activity of Torres Martinez Desert Cahuilla Indians and ispresented on the modified accrual basis of accounting. The information in this scheduleis presented in accordance with the requirements of OMB Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations.Therefore, some amountspresented in this schedule may differ from amounts presented in, or used in thepreparation of, the basic financial statements.
Note B-Subrecipients
The Torres Martinez Desert Cahuilla Indians did not provide federal awards tosubrecipients during the fiscal year.
Note C-Outstanding Federal Loans
The Torres Martinez Desert Cahuilla Indian Tribe has no federal loan balancesoutstanding at September 30, 2008.
Note D-Reconciliation of Reported Expenditures to Financial Statement Totals
The following is a reconciliation of total federal expenditures reported on the Schedule ofExpenditures of Federal and State Awards to the federal revenue total reported on theTribes statement of revenues, expenditures, and changes in fund balance-governmental funds for the year ending September 30, 2008 is as follows:
Intergovernmental Expenditures reported per financials 21,717,080$
Less: General Fund expenditures (5,062,791)
Less: Program income (53,337)
Less: State Grant expenditures (15,026,927)
Plus: Housing Authority grant expenditures 237,325
Less: Transfers (33,278)
Less: Excess expenditures over revenues (62)
Adjusted Expenditures per Governmental Financials 1,778,010$
Federal Expenditures per Schedule of Awards 1,778,010$
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Midwest Professionals, P.L.L.C.Certified Public Accountants 215 South Court Avenue, Gaylord, MI 49735
989-732-1156 Fax 989-731-2541
Member of American Institute of Certified Public Accountants
Member of Native American Finance Officers Association
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
Tribal Council
Torres Martinez Desert Cahuilla Indians
P.O. Box 1160
Thermal, California 92274
We have audited the basic financial statements of the Torres Martinez Desert Cahuilla Indians as
of and for the year ended September 30, 2008, and have issued our report dated September 27,
2009. We conducted our audit in accordance with 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.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered Torres Martinez Desert Cahuilla Indians
internal control over financial reporting as a basis for designing our auditing procedures for the
purpose of expressing our opinions on the basic financial statements, but not for the purpose of
expressing an opinion on the effectiveness of the Torres Martinez Desert Cahuilla Indiansinternal control over financial reporting. Accordingly, we do not express an opinion on the
effectiveness of the Torres Martinez Desert Cahuilla Indians internal control over financial
reporting.
A control deficiency 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
misstatements on a timely basis. A significant deficiency is a control deficiency, or combination
of control deficiencies, that adversely affects the Torres Martinez Desert Cahuilla Indians ability
to initiate, authorize, record, process, or report financial data reliably in accordance with
generally accepted accounting principles such that there is more than a remote likelihood that a
misstatement of the Tribes financial statements, that is more than inconsequential, will not beprevented or detected by the Tribes internal control.
We consider the deficiencies described in the accompanying schedule of findings and question
costs to be significant deficiencies in internal control over financial reporting as findings 06-01,
06-04, and 07-01.
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Midwest Professionals, P.L.L.C.Certified Public Accountants 215 South Court Avenue, Gaylord, MI 49735
989-732-1156 Fax 989-731-2541
Member of American Institute of Certified Public Accountants
Member of Native American Finance Officers Association
Page 2
A material weakness is a significant deficiency, or combination of significant deficiencies, that results in
more than a remote likelihood that a material misstatement of the financial statements will not be
prevented or detected by the Tribes internal control.
Our consideration of the internal control over financial reporting was for the limited purpose
described in the first paragraph of this section and would not necessarily identify all deficiencies
in internal control that might be significant deficiencies or material weaknesses. However, of the
significant deficiencies described above, we consider findings 06-04, and 07-01 to be material
weaknesses.
Compliance and Other MattersAs part of obtaining reasonable assurance about whether the Torres Martinez Desert Cahuilla
Indians financial statements are free of material misstatements, 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 instances of noncompliance or other matters that are required to
be reported under Government Auditing Standards which are described in the accompanying
schedule of findings and question costs as items 08-01 and 08-02.
This report is intended solely for the information and use of the Torres Martinez Desert CahuillaIndians Tribal Council, management of the Torres Martinez Desert Cahuilla Indians, and
federal/state awarding agencies and is not intended to be and should not be used by anyone other
than these specified parties.
Midwest Professionals, PLLC
Midwest Professionals, P.L.L.C.
September 27, 2009
Gaylord, Michigan
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Midwest Professionals, P.L.L.C.Certified Public Accountants 215 South Court Avenue, Gaylord, MI 49735
989-732-1156 Fax 989-731-2541
Member of American Institute of Certified Public Accountants
Member of Native American Finance Officers Association
REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACHMAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN
ACCORDANCE WITH OMB CIRCULAR A-133
Tribal Council
Torres Martinez Desert Cahuilla Indians
P.O. Box 1160
Thermal, California 92274
Compliance
We have audited the compliance of the Torres Martinez Desert Cahuilla Indians with the types ofcompliance requirements described in the U.S. Office of Management and Budget (OMB)Circular A-133 Compliance Supplementthat are applicable to each of its major federal and state
programs for the year ended September 30, 2008. Torres Martinez Desert Cahuilla Indiansmajor federal programs are identified in the summary of auditors results section of the
accompanying schedule of findings and questioned costs. Compliance with the requirements of
laws, regulations, contracts, and grants applicable to each of its major federal programs is the
responsibility of Torres Martinez Desert Cahuilla Indians management. Our responsibility is toexpress an opinion on the Torres Martinez Desert Cahuilla Indians compliance based on our
audit.
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; andOMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations.
Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain
reasonable assurance about whether noncompliance with the types of compliance requirementsreferred 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 Torres Martinez Desert
Cahuilla Indians compliance with those requirements and performing such other procedures, as
we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion. Our audit does not provide a legal determination of Torres MartinezDesert Cahuilla Indians compliance with those requirements.
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Midwest Professionals, P.L.L.C.Certified Public Accountants 215 South Court Avenue, Gaylord, MI 49735
989-732-1156 Fax 989-731-2541
Member of American Institute of Certified Public Accountants
Member of Native American Finance Officers Association
Page 2
As described in findings: 06-07, 06-13, 07-01, 07-03, 08-01 and 08-02 in the accompanyingschedule of findings and questioned costs, the Torres Martinez Desert Cahuilla Indians did not
comply with requirements regarding Allowable Costs/Cost Principles, Cash Management, and
Reporting that are applicable to these programs:
Federal Program CFDA#
Other Aid to Tribal Governments 15.020
Temporary Aid for Needy Families 93.558
Performance Partnership 66.605
Indian Housing Block Grant 14.867
Community Development Block Grant 14.862
State Program
TANF-Maintenance of Effort State of California- DSS
Compliance with such requirements is necessary, in our opinion, for the Tribe to comply with the
requirements applicable to those programs.
In our opinion, except for the noncompliance described in the preceding paragraph, the Torres
Martinez Desert Cahuilla Indians, complied, in all material respects, with the requirementsreferred to above that are applicable to each of its major federal/state programs for the year
ended September 30, 2008.
Internal Control Over Compliance
The management of the Torres Martinez Desert Cahuilla Indians is responsible for establishingand maintaining effective control over compliance with requirements of laws, regulations,
contracts and grants applicable to federal programs. In planning and performing our audit, we
considered Torres Martinez Desert Cahuilla Indians internal control over compliance withrequirements that could have a direct and material effect on major federal and state programs in
order to determine our auditing procedures for the purpose of expressing our opinion on
compliance, but not for the purpose of expressing an opinion on the effectiveness of the internal
over compliance. Accordingly, we do not express an opinion on the effectiveness of the Tribesinternal control over compliance.
Our consideration of internal control over compliance was for the limited purpose described inthe first paragraph of this section and would not necessarily identify all deficiencies in the
internal control that might be significant deficiencies or material weaknesses as defined below.
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Torres Martinez Desert Cahuilla Indians
Schedule of Findings and Questioned Costs
Year Ended September 30, 2008
A. Summary of Auditors Results
1. The auditors report expresses an unqualified opinion on the basic financial statements ofthe Torres Martinez Desert Cahuilla Indians.
2. Significant deficiencies relating to the audit of the basic financial statements is reportedin theReport on Compliance and on Internal Control over Financial Reporting Based onan Audit of Financial Statements Performed in Accordance With Government Auditing
Standards. Some of these significant deficiencies are identified as material weaknesses.
3. No instances of noncompliance material to the basic financial statements of the TorresMartinez Desert Cahuilla Indians were disclosed during audit.
4. Significant deficiencies relating to the audit of the major federal and state programsare
reported in theReport on Compliance Requirements Applicable to Each Major Programand Internal Control Over Compliance in Accordance with OMB Circular A-133. Someof these significant deficiencies are identified as material weaknesses.
5. The auditors report on compliance for the major federal and state award programs forthe Torres Martinez Desert Cahuilla Indians expresses a qualified opinion.
6. Audit findings relative to a major federal and state award programs for the TorresMartinez Desert Cahuilla Indians are reported in Part C. of this Schedule.
7. The programs tested as major programs included:
CFDANo.
Federal Programs:
Aid to Tribal Government 15.020(Bureau of Indian Affairs)
Temporary Aid for Needy Families 93.558(U.S. Dept. of Health and Human Services)
Performance Partnership 66.605(Environmental Protection Agency)
Community Development Block Grant 14.862(U.S. Dept. of Housing and Urban Development)
State Programs:
TANF- Maintenance of Effort MOU-08-60(State of California-CDSS) MOU-07-60
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Torres Martinez Desert Cahuilla Indians
Fiscal Year Ending September 30, 2008
B. FINDINGS - FINANCIAL STATEMENT AUDIT
PRIOR YEAR FINDINGS:
Internal Controls Over Financial Reporting
06-1 Payroll
Significant Deficiency
Criteria or Specific Requirement: Payroll information should be accurately reported and timecards shouldbe signed before payroll is processed.
Condition: During our testing of forty tribal payroll transactions, we noted the following exceptions:
One employee's check did not have taxes deducted correctly. Two instances where the hours reported on the timecards did not match the hours on the
pay stubs. Five instances where timecards were either not signed by the employee or not signed by
a supervisor.
Six I-9's were not properly completed.Context: A random sample was selected for testing from the population of payroll checks written duringfiscal year 2006.
Effect: The Tribe could be paying employees for hours that were not worked. One employee is having anincorrect amount of taxes deposited on their behalf. Additionally, the Tribe could be penalized for eachincomplete I-9.
Cause: Payroll personnel are not ensuring that correct practices are being followed.
Auditors' Recommendations: We recommend that payroll personnel be reminded of the importance ofkeeping accurate payroll information. We also would recommend that the payroll procedures be updatedto allow more time for payroll personnel to adequately ensure that payroll procedures be properly followed.Supervisors should attend training to stress the importance of verifying time daily to ensure that all time isapproved.
Current Year Status: Unresolved. Our audit procedures over payroll transactions identified similarproblems with timecards/timesheets not properly signed by a supervisor and in some instances,timecards/timesheets were missing.
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Torres Martinez Desert Cahuilla Indians
Fiscal Year Ending September 30, 2008
B. FINDINGS - FINANCIAL STATEMENT AUDIT
Internal Controls Over Financial Reporting-continued
06-04 Reconciliation of Accounts
Material Weakness
Criteria or Specific Requirement: All accounts should be reconciled on a monthly basis.
Condition: The following account classifications had one or more accounts that were not reconciled duringthe year:
Cash - The three bank accounts (including the housing bank account) were notreconciled separately and the reconciled amount did not tie to the trial balance. Some ofthe outstanding checks are more than a year old.
Accounts receivable - These accounts were not reconciled and the only support providedwas general ledger detail.
Tenants receivable - No account has been set up for housing tenants accounts receivable,and no allowance for doubtful accounts has been established.
MEPA receivables - No receivable has been set up. No estimate has been made. Employee advances - No supporting documentation was provided Prepaid assets - No supporting documentation was provided for material prepaid
accounts selected for testing.
Capital assets - No detailed capital asset listing was kept for the tribe as a whole and thefew lists provided were not accurate.
Accounts payable - This account was not reconciled. The cash basis of accounting wasused rather than an accrual basis for the general funds.
MEPA liability - No liability has been set up and no estimate has been done. Due to / due from accounts do not tie out between the funds of the Tribe, or between the
Tribe and its component units. Indirect cost revenues and expenses are not reconciled.
Context: We attempted to audit all material balance sheet accounts.
Effect: The financial statements are materially misstated.
Cause: There was a lack of qualified accounting staff mixed with high turnover during the fiscal year.
Auditors' Recommendations: We recommend that the accounting staff hire additional competent staff orhire an outside accounting firm to provide accounting services for the tribe. The staff should be carefullyselected and trained to follow the policies and procedures established. We would also recommendreviewing policies and procedures and make appropriate changes that would better assist the Tribe with
dealing with the negative effects of high turnover. The tribe should consider changing accounting softwareso that TANF and the Tribe are using the same accounting software.
Current Year Status: Unresolved. A C.P.A. firm was contracted by the organization to performreconciliation and tie-in procedures on all financial balances. While these procedures were performed andbalances were accurate, the issue of timeliness of these reconciliation procedures still remains a materialweakness. Most of these reconciliation procedures were performed 6+ months following year-end. Theseprocedures should be performed on a monthly/quarterly basis.
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Torres Martinez Desert Cahuilla Indians
Fiscal Year Ending September 30, 2008
B. FINDINGS - FINANCIAL STATEMENT AUDIT
Internal Controls over Financial Reporting-continued
07-01Support for Salaries and Wages
Material Weakness
Condition: Our payroll testing procedures identified these issues involving timesheet support:
1) Salaries and wage allocations between multiple activities were not found to be properlysupported on individual employees timesheets (28 out of 75 payroll transactions test).
2) Timesheets did not always identify the specific department/program in which the employeeperformed services (28 out of 75 payroll transactions test).
Criteria: Federal grant requirements in OMB Circular A-87, Attachment B, Sect. 8, under Support of salaries and
wages section requires that not only the program charged be identified on the timesheet (personnel activity report)but that the timesheet must reflect an after the fact distribution of the actual activity of each employee. Each
programs actual hours charged must be reflected on the employees timesheet(s).
Cause: Improper completion of employee timesheets with split payrolls has resulted in this finding.
Effect: Split payrolls may not reflect actual time spent on each charged activity (program).
Recommendation: Proper completion by the program supervisors of the employee timesheets should resolve this
issue. The personnel/payroll department should enforce the proper completion of employee timesheets as it relates
to proper documentation of split program timesheets. The Tribes timesheet will have to be either modified or
multiple timesheets will have to be used for employees whose wages are allocated to multiple activities. Werecommend that the fiscal policies and procedures manual section related to payroll and timesheet processing be
revised.
Current Year Status: Unresolved.
Compliance and Other Matters
None
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Torres Martinez Desert Cahuilla Indians
Fiscal Year Ending September 30, 2008
B. FINDINGS - FINANCIAL STATEMENT AUDIT
CURRENT YEAR FINDINGS:
Internal Controls Over Financial Reporting
None
Compliance and Other Matters
08-01 Indirect Cost Plan
Condition: The Tribe operated its indirect cost plan during the fiscal year without an approved indirect costrate. To date no final approved rate has been issued.
Criteria: OMB Circular A-87 requires that a Tribe receive approval of its cost recovery rate over its indirect costplan whenever federal contracts and awards are to be charged to the plan. Current year plans are required to besubmitted no later than six months following the close of the prior fiscal year. These plans are sent to the U.S.Department of Interior-National Business Center (N.B.C.) for approval and determination of an allowable costrecovery rate.
Effect: During the fiscal year ending September 30, 2008, the Tribe recorded cost recovery charges totaling$1,437,707 to various federal programs. Without an approved rate, charges were made to programs using anestimated (provisional) rate. This rate is subject to final approval by the NBC which creates uncertainty over thefinancial position of the Tribe as it relates to changes in recoveries once a final rate is approved.
Recommendation: Submission of the Tribe's indirect cost plan in a timely manner to N.B.C. for plan and rateapproval.
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Torres Martinez Desert Cahuilla Indians
Fiscal Year Ending September 30, 2008
B. FINDINGS - FINANCIAL STATEMENT AUDIT
Compliance and Other Matters-continued
08-02 Collateralization of Bank Deposits
Criteria or Specific Requirement: Section 112 of the Department of Interior and Related Agencies Act, 1998, P.L.105-82, Nov. 14, 1997, states, "Advance payments made under this title to Indian Nations, tribal organizations, andtribal consortia pursuant to the Indian Self-Determination and Education Assistance Act (25 U.S.C. 450 et seq.)
may be invested by the Indian Nation, tribal organizations, or consortium before such funds are expended for the
purposes of the grant, compact or annual finding agreement so long as such funds are: (1) invested by the Indian
Nation, tribal organization, or consortium only in obligations of the United States, or in obligations or securities
that are guaranteed or insured by the United States, or mutual (or other funds) registered with the Securities and
Exchange Commission and which only invest in obligations of the United States or securities that are guaranteed or
insured by the United States; or (2) deposited only into accounts that are fully collateralized to ensure protection of
the funds, even in the event of a bank failure."
Condition: As of September 30, 2008, the Tribe had $1,598,143 in bank deposits that were uninsured anduncollateralized. Approximately $329,000 of these uncollateralized bank deposits can be attributed to federal grantfunds (deferred revenue).
Effect: In the event of a bank failure, the Tribe could lose funds deposited with the bank.
Cause: Management is not following compliance requirements as specified by the Department of the Interior andRelated Agencies Appropriations Act.
Recommendation: We recommend that the Tribe establish a bank account for the TANF program that meets the100% collateralization requirement. The tribe was in the process of obtaining pledged collateral for all federalfunding during our audit fieldwork.
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C. FINDINGS AND QUESTIONED COSTS MAJOR FEDERALAND STATE AWARD PROGRAMS AUDIT
PRIOR YEAR FINDINGS (CROSS-CUTTING):
Internal Control over Compliance
06-05 Procurement
Significant Deficiency
Criteria or Specific Requirement: Procurement procedures that were established by the Tribe andadopted by the TANF program should be strictly followed. One of four methods must be used forprocurement. The procurement manual outlines these. The established procedures involvingprocurement are detailed in the procurement manual in section 1.5 as either, a) small purchaseprocedures, b) sealed bids (formal advertising) c) competitive negotiation [and] d) sole source.
Condition: Thirteen checks were selected for testing the various levels of procurement. Thefollowing exceptions were noted during testing:
Six transactions were missing requisitions. Nine of thirteen transactions that were required to have documentation proving
that bids were collected had no documentation.
Eleven out of thirteen purchases did not provide proper evidence regardingdebarment.
Questioned Costs: Not applicable
Context: We examined thirteen transactions selected from the entire TANF check population.
Effect: The TANF program is not in compliance with grant requirements. Additionally, the Tribemay be paying more for equipment and supplies than necessary were they to use the bid process.
Cause: High turnover in staff and lack of proper training have contributed to the lack of controlsbeing used by the tribe over procurement.
Auditors' Recommendations: We recommend that procurement responsibilities be assignedprimarily to one person. This one person should be properly trained on all procurementprocedures and be able to help others understand the requirements of procurement.
Current Year Status: Resolved.
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C. FINDINGS AND QUESTIONED COSTS MAJOR FEDERALAND STATE AWARD PROGRAMS AUDIT
Internal Control over Compliance-continued
06-08 Equipment and Real Property Management
Significant Deficiency
Criteria or Specific Requirement: The Code of Federal Regulations Title 45, Section 92.32,paragraph (c)(1) and (c)(2) states that, Procedures for managing equipment (includingreplacement equipment), whether acquired in whole or in part with grant funds, until dispositiontakes place will, as a minimum, meet the following requirements:
(1) Property records must be maintained that include a description of the property, a serial numberor other identification number, the source of property, who holds title, the acquisition date andcost of the property, percentage of Federal participation in the cost of the property, the location,use and condition of the property, and any ultimate disposition data including the date of disposaland sale price of the property.
Condition: Property management records can not be produced for the end of the fiscal year underaudit.
Questioned Costs: None
Context: We requested capital asset listings for the year under audit.
Effect: The existing and purchased property and equipment in the TANF program is lackingproper controls to monitor the use of the equipment and what equipment the program actuallyowns.
Cause: There are several different areas where capital asset listings are maintained. Vehicles andthe IT equipment are two of the areas with some sort of asset listings. Both of the listings wereincomplete as prescribed by federal regulations due to lack of job training and employeeknowledge as to what the lists should include.
Auditors' Recommendations: The Program management should develop and implement adequateproperty management policies and procedures that comply with the federal regulations, complete acomprehensive inventory of its equipment and real property, and reconcile the results with theamounts recorded in the accounting records.
Current Year Status: Resolved.
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C. FINDINGS AND QUESTIONED COSTS MAJOR FEDERALAND STATE AWARD PROGRAMS AUDIT
Other Compliance Matters-continued
06-13 Single Audit Act
Criteria or Specific Requirement: OMB A-133 Subpart C.320 states "The audit shall becompleted and the data collection form and reporting package shall be submitted within the earlierof 30 days after receipt of the auditors report(s), or nine months after the end of the audit period,unless a longer period is agreed to in advance by the cognizant or oversight agency for audit."
Condition: The Tribe has not submitted a timely audit report for 2006.
Questioned Costs: Not applicable
Context: The audit report was not submitted within nine months after the end of the audit period.
Effect: The federal agency may restrict or withhold grant funds for non-compliance with OMBA-133.
Cause: The Tribe did not properly maintain financial records or plan for a timely audit.
Auditors' Recommendations: The Tribe should do a complete overhaul of the fiscal department'spolicies and procedures. This would include a thorough evaluation of the functions of thedepartment. The Tribal Administration should also consider the addition of one or twocomponent staff members, preferably a CPA, to allow for a reasonable work load after the policiesand procedures are re-written.
Current Year Status: Unresolved.
CURRENT YEAR FINDINGS (CROSS-CUTTING):
Internal Control over Compliance
None
Other Compliance Matters
None
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C. FINDINGS AND QUESTIONED COSTS MAJOR FEDERALAND STATE AWARD PROGRAMS AUDIT
PRIOR AND CURRENT YEAR FINDINGS (MAJOR PROGRAMS):
Prior year findings 06-05 Procurementand 06-08Equipment and Real Property are considered resolved asthey relate to all major federal and state programs.
Federal Major Programs:
U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES
Temporary Aid to Needy FamiliesCFDA no. 93.558
Internal Controls Over Compliance
Significant deficiencies, identified in Part B of the Schedule of Findings and Question Costs, finding 06-01Payroll, 06-04 Reconciliation of Accounts, 07-01 Support for Salaries and Wages are applicable as
findings to this major program.
Below is noted specific question costs related to some of these unresolved findings:
07-01 Support for Salaries and Wages (see Part B)
Question Costs: Unsupported payroll, consisting of missing and unsigned timesheets/timecards, as well as,timesheets lacking support of split payroll allocations (between administrative and support services), wereas follows:
Population and Sample Size:
Number Dollars
Population 6344 $4,270,039Sample 89 77,487Not in Compliance 27 27,394
FY 2008 Question Costs: $27,394
Less: State of California-MOE portion (100%) 27,394
Total Federal Portion of Question Costs $ 0
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C. FINDINGS AND QUESTIONED COSTS MAJOR FEDERALAND STATE AWARD PROGRAMS AUDIT
Temporary Aid to Needy Families-continuedCFDA no. 93.558
Other Compliance Matters-continued
06-07 Cash Management-continued
Current Year Status:-continued
agreement for the use of federal advance TANF dollars in order to support state MOE spending bythe Tribe.
Recommendation: The Tribe needs to obtain its State MOE funding during the fiscal year. Thiswill require the Tribe to formally request a change in payment method from the State ofCalifornia. State funding needs to be received at the same time spending is occurring. Once a newpayment method is established, there will be no need for the Tribe to borrow federal funds tocover these State MOE expenditures.
Current Year Status:As of September 30, 2008, the Tribes TANF program owed back to thefederal agency reimbursements totaling $4,444,576 which is included as part of the deferredrevenue balance as of September 30, 2008.
2) Condition: Unspent federal TANF dollars, totaling $150,674, were held by the Tribe at the endof the year. The agency funds the Tribe on a cost reimbursable basis