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SECTION II—FINANCIAL STATEMENT FINDINGS Our audit did not disclose any significant deficiencies, material weaknesses, or instances of noncompliance material to the basic fmancial statements. We have also issued a separate Memorandum on Internal Control dated December 8, 2017 which is an integral part of our audits and should be read in conjunction with this report. SECTION III—FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Our audit disclosed the following fmdings and questioned costs required to be reported in accordance with Uniform Guidance. Finding reference number: SA2017-001 CFDA number:20.205 CFDA Title:Highway Planning and Construction Name of Federal Agency:United States Department of Transportation Federal Award Identification number and year: BHLS-5101(028),2017 BPMP-5101(029),2017 STPL-5101(030),2017 Name of pass-through Entity:California Department of Transportation Criteria: Pursuant to the approved Finance Letter for Local Agency-State Agreement No. 04- 5101F15,issued by the California Department of Transportation,the approved federal reimbursable rate for expenditures is 53.69%. Condition: During our audit we noted that the City's first reimbursement request submitted to the California Department of Transportation on August 24, 2017 included total participating costs of $812,173.The City requested to be reimbursed at 51.83% of the total costs instead of the approved reimbursable rate of 53.69%. Effect: The City is not in compliance with the reimbursement rates authorized in the approved Finance Letter provided by the California Department of Transportation. Cause:The error was caused by an oversight by City staff. Recommendation: We recommend the City ensure that all reimbursement requests are remitted to the State with the appropriate reimbursement rates. View of Responsible Officials and Planned Corrective Actions: Please see Corrective Action Plan separately prepared by the City. 2