FINDING 2022-001 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Suspension and Debarment Federal Agency: U.S. Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number or Year (or Other Identifying Number): ARP Act Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Condition and Context The City received a total State and Local Fiscal Recovery Funds (SLFRF) allocation of $31,172,909. During the audit period, the SLFRF program funds totaling $8,422,009 were expended under the premium pay and the water, sewer, and broadband eligible use categories. Transactions expended under the water, sewer, and broadband eligible use category, totaling $7,124,581, were subject to suspension and debarment provisions. Prior to entering into subawards and covered transactions with the SLFRF award funds, recipients are required to verify that such contractors and subrecipients are not suspended, debarred, or otherwise excluded. "Covered transactions" include, but are not limited to contracts for goods and services awarded under a non-procurement transaction (i.e. grant agreement) that are expected to equal or exceed $25,000. The verification is to be done by checking the Excluded Parties List System (EPLS), collecting a certification from that person, or adding a clause or condition to the covered transaction with that person. The City's policies related to suspension and debarment requirements included the Executive Secretary of the Engineering and Board of Works (Executive Secretary) verifying the SAMS exclusions. The City entered into five contracts with two vendors for various projects under the water, sewer, and broadband eligible use category during the audit period. Total payments made to the vendors during the audit period were $7,124,581, all of which were subject to suspension and debarment. Per inquiry with the City, the Executive Secretary verified the two vendors were not suspended or debarred by checking the SAMs exclusions; however, retaining documentation of the verification was not part of the process. As such we could not determine if the City complied with suspension and debarment. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 180.300 states: "When you enter into a covered transaction with another person at the next lower tier, you must verify that the person with whom you intend to do business is not excluded or disqualified. You do this by: (a) Checking SAM Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person." Cause The system of internal controls as established by management of the City was not properly implemented to ensure that the policies and procedures in place related to suspension and debarment were resulted in adequate supporting documentation being retained for audit. Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, no documentation was retained of the status of vendors to whom payments equal to or in excess of $25,000. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of future federal funding to the City. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the City establish a proper system of internal controls, including strengthening its policies and procedures to ensure its compliance with requirements related to suspension and debarment. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2022-002 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Reporting Federal Agency: U.S. Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number or Year (or Other Identifying Number): ARP Act Compliance Requirement: Reporting Audit Findings: Material Weakness, Other Matters Condition and Context The City had not properly designed or implemented a system of internal controls that would likely be effective in preventing, or detecting and correcting, noncompliance. Recipients are required to submit quarterly or annually Project and Expenditure (P&E) Reports to the Department of the Treasury (Treasury). The reporting periods as well as the respective due dates are based upon type of recipient and its population, as well as the recipient's allocation amount. Information to be reported includes projects funded, expenditures, and contracts for the appropriate reporting period. The City was classified as a metropolitan city with a population below 250,000 residents that received an allocation of more than $10 million in State and Local Fiscal Recovery Funds. As such, the initial P&E report, covering three calendar quarters from March 3, 2021 to December 31, 2021, was required to be submitted to the Treasury by January 31, 2022. The subsequent quarterly reports are to cover one calendar quarter and must be submitted to the Treasury by the last day of the month following the end of the period covered. The City submitted four quarterly P&E reports during the audit period. The reports were prepared by one knowledgeable employee and reviewed and submitted by another employee; however, the review process in place was not effective to prevent, or detect and correct, errors. Of the four reports filed, two reports were selected for testing. The two reports tested were the quarterly reports due on July 31, 2022, and October 31, 2022. Errors noted on the reports were as follows: Project and Expenditure Report: July 31, 2022: The report was not mathematically accurate and complete, nor was it supported by the unit's records. Additionally, data accumulated and summarized was not accurate and complete including information to support key line items. Of the four projects reported by the City the current period obligation was overstated for all four. The current period obligation was based on a budgeted amount per Resolution instead of an amount for the current period. In addition, the current period expenditures were incorrect for three of the four projects and the cumulative expenditures were incorrect for two of the four projects. Project and Expenditure Report: October 31, 2022: The report was not mathematically accurate and complete, nor was it supported by the unit's records. Additionally, data accumulated and summarized was not accurate and complete including information to support key line items. Of the five projects reported by the City the current period obligation one was overstated as it was based on a budgeted amount per Resolution instead of an amount for the current period and three were understated. In addition, the current period expenditures were incorrect for four of the five projects, and the cumulative expenditures were incorrect for two of the five projects. The lack of internal controls and noncompliance was systemic throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." Reporting. All recipients of federal funds must complete financial, performance, and compliance reporting as required and outlined in Part 2 of this guidance. Expenditures may be reported on a cash or accrual basis, as long as the methodology is disclosed and consistently applied. Reporting must be consistent with the definition of expenditures pursuant to 2 CFR 200.1. Your organization should appropriately maintain accounting records for compiling and reporting accurate, compliant financial data, in accordance with appropriate accounting standards and principles. . . . (Coronavirus State and Local Fiscal Recovery Funds Compliance and Reporting Guidance) 31 CFR 35.4(c) states in part: "Reporting and requests for other information. During the period of performance, recipients shall provide to the Secretary periodic reports providing detailed accounting of the uses of funds . . ." Cause A proper system of internal controls over the P&E report was not designed by management of the City. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the City's management of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of future federal funding to the City. In addition, not meeting the SLFRF reporting requirements increases the likelihood that the public will not have access to transparent and accurate information regarding expenditures of federal awards. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the City design and implement a proper system of internal controls that would ensure appropriate reviews, approvals, and oversight are taking place. Additionally, management should develop policies and procedures to ensure that the City provides the Treasury with complete and accurate information for the P&E report. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2022-001 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Suspension and Debarment Federal Agency: U.S. Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number or Year (or Other Identifying Number): ARP Act Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Condition and Context The City received a total State and Local Fiscal Recovery Funds (SLFRF) allocation of $31,172,909. During the audit period, the SLFRF program funds totaling $8,422,009 were expended under the premium pay and the water, sewer, and broadband eligible use categories. Transactions expended under the water, sewer, and broadband eligible use category, totaling $7,124,581, were subject to suspension and debarment provisions. Prior to entering into subawards and covered transactions with the SLFRF award funds, recipients are required to verify that such contractors and subrecipients are not suspended, debarred, or otherwise excluded. "Covered transactions" include, but are not limited to contracts for goods and services awarded under a non-procurement transaction (i.e. grant agreement) that are expected to equal or exceed $25,000. The verification is to be done by checking the Excluded Parties List System (EPLS), collecting a certification from that person, or adding a clause or condition to the covered transaction with that person. The City's policies related to suspension and debarment requirements included the Executive Secretary of the Engineering and Board of Works (Executive Secretary) verifying the SAMS exclusions. The City entered into five contracts with two vendors for various projects under the water, sewer, and broadband eligible use category during the audit period. Total payments made to the vendors during the audit period were $7,124,581, all of which were subject to suspension and debarment. Per inquiry with the City, the Executive Secretary verified the two vendors were not suspended or debarred by checking the SAMs exclusions; however, retaining documentation of the verification was not part of the process. As such we could not determine if the City complied with suspension and debarment. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 180.300 states: "When you enter into a covered transaction with another person at the next lower tier, you must verify that the person with whom you intend to do business is not excluded or disqualified. You do this by: (a) Checking SAM Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person." Cause The system of internal controls as established by management of the City was not properly implemented to ensure that the policies and procedures in place related to suspension and debarment were resulted in adequate supporting documentation being retained for audit. Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, no documentation was retained of the status of vendors to whom payments equal to or in excess of $25,000. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of future federal funding to the City. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the City establish a proper system of internal controls, including strengthening its policies and procedures to ensure its compliance with requirements related to suspension and debarment. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2022-002 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Reporting Federal Agency: U.S. Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number or Year (or Other Identifying Number): ARP Act Compliance Requirement: Reporting Audit Findings: Material Weakness, Other Matters Condition and Context The City had not properly designed or implemented a system of internal controls that would likely be effective in preventing, or detecting and correcting, noncompliance. Recipients are required to submit quarterly or annually Project and Expenditure (P&E) Reports to the Department of the Treasury (Treasury). The reporting periods as well as the respective due dates are based upon type of recipient and its population, as well as the recipient's allocation amount. Information to be reported includes projects funded, expenditures, and contracts for the appropriate reporting period. The City was classified as a metropolitan city with a population below 250,000 residents that received an allocation of more than $10 million in State and Local Fiscal Recovery Funds. As such, the initial P&E report, covering three calendar quarters from March 3, 2021 to December 31, 2021, was required to be submitted to the Treasury by January 31, 2022. The subsequent quarterly reports are to cover one calendar quarter and must be submitted to the Treasury by the last day of the month following the end of the period covered. The City submitted four quarterly P&E reports during the audit period. The reports were prepared by one knowledgeable employee and reviewed and submitted by another employee; however, the review process in place was not effective to prevent, or detect and correct, errors. Of the four reports filed, two reports were selected for testing. The two reports tested were the quarterly reports due on July 31, 2022, and October 31, 2022. Errors noted on the reports were as follows: Project and Expenditure Report: July 31, 2022: The report was not mathematically accurate and complete, nor was it supported by the unit's records. Additionally, data accumulated and summarized was not accurate and complete including information to support key line items. Of the four projects reported by the City the current period obligation was overstated for all four. The current period obligation was based on a budgeted amount per Resolution instead of an amount for the current period. In addition, the current period expenditures were incorrect for three of the four projects and the cumulative expenditures were incorrect for two of the four projects. Project and Expenditure Report: October 31, 2022: The report was not mathematically accurate and complete, nor was it supported by the unit's records. Additionally, data accumulated and summarized was not accurate and complete including information to support key line items. Of the five projects reported by the City the current period obligation one was overstated as it was based on a budgeted amount per Resolution instead of an amount for the current period and three were understated. In addition, the current period expenditures were incorrect for four of the five projects, and the cumulative expenditures were incorrect for two of the five projects. The lack of internal controls and noncompliance was systemic throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." Reporting. All recipients of federal funds must complete financial, performance, and compliance reporting as required and outlined in Part 2 of this guidance. Expenditures may be reported on a cash or accrual basis, as long as the methodology is disclosed and consistently applied. Reporting must be consistent with the definition of expenditures pursuant to 2 CFR 200.1. Your organization should appropriately maintain accounting records for compiling and reporting accurate, compliant financial data, in accordance with appropriate accounting standards and principles. . . . (Coronavirus State and Local Fiscal Recovery Funds Compliance and Reporting Guidance) 31 CFR 35.4(c) states in part: "Reporting and requests for other information. During the period of performance, recipients shall provide to the Secretary periodic reports providing detailed accounting of the uses of funds . . ." Cause A proper system of internal controls over the P&E report was not designed by management of the City. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the City's management of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of future federal funding to the City. In addition, not meeting the SLFRF reporting requirements increases the likelihood that the public will not have access to transparent and accurate information regarding expenditures of federal awards. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the City design and implement a proper system of internal controls that would ensure appropriate reviews, approvals, and oversight are taking place. Additionally, management should develop policies and procedures to ensure that the City provides the Treasury with complete and accurate information for the P&E report. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.