torres martinez audit 9-30-08

8/14/2019 Torres Martinez Audit 9-30-08

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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



Page 2

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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Statement of Activities

For the Year Ended September 30, 2008


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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Balance Sheet - Governmental Funds

September 30, 2008


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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Reconciliation of Governmental Fund Balancesto the Statement of Net Assets

September 30, 2008


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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Statement of Revenues, Expenditures and Changes inFund Balance - Governmental Funds



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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Reconciliation of the Statement of Revenues,Expenditures and Changes in Fund Balance of

Governmental Funds to the Statement of Activities



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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Notes to the Financial Statements


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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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Schedule of Expenditures of Federal, State and Other Awards


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 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



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


P.O. Box 1160


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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989-732-1156 Fax 989-731-2541



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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989-732-1156 Fax 989-731-2541



REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACHMAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN

ACCORDANCE WITH OMB CIRCULAR A-133

Tribal Council


P.O. Box 1160


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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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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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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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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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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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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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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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


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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Internal Control over Compliance-continued

06-08 Equipment and Real Property Management


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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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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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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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

torres martinez audit 9-30-08

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