FINDING 2022-003 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Period of Performance Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number and Year (or Other Identifying Number): FY 2022 Pass-Through Entity: Boone County Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/ Cost Principles, Period of Performance Audit Findings: Material Weakness, Modified Opinion Condition and Context The Town submitted an application to the Indiana Finance Authority's (IFA) Clean Water State Revolving Fund (SRF) Loan Program on June 13, 2019. The Clean Water SRF provides financial assistance to local communities for the planning, design, construction, renovation, improvement, or expansion of wastewater collection and treatment systems, or for other activities that are permitted by the Clean Water Act. The Town's proposed project was for infrastructure improvements and the expansion of its existing waste stabilization lagoon. The Town submitted to IFA the required Preliminary Engineering Report (PER), which provided the information necessary for IFA to determine technical, economic, and environmental adequacy of the proposed project. On November 18, 2020, the Town received approval of its PER from IFA. This approval was contingent upon the issuance of all required permits, including construction permits. After receiving approval, the Town was to contact its financial advisor and its nationally-recognized bond counsel to assist in preparing the appropriate financial and legal documents needed to close the Town's SRF loan. All SRF Loan Program requirements, including bidding the entire SRF-financed project, was to be completed prior to the Town receiving SRF funding. On July 26, 2021, the Town received the necessary permits, including the construction permit issued by the Indiana Department of Environmental Management related to the waste stabilization lagoon project. On October 25, 2021, the Town passed Resolution No. 2021-7 A Resolution Authorizing the Issuance of Interim Financing with Home National Bank for the Cost of Improvements to the Sewage Works of the Town. As a result, the Town issued Sewage Works Bond Anticipation Notes of 2021 in the principal amount of $1,500,000. On March 11, 2022, the Town received a $1,500,000 subaward from Boone County (County). The subaward was made from the County's allocation of State and Local Fiscal Recovery Funds (SLFRF). On March 12, 2022, the Town made a payment of $1,500,000 to Home National Bank to repay the Sewage Works Bond Anticipation Notes of 2021. The source of the payment was the SLFRF subaward received from the County on March 11, 2022. On April 21, 2022, the Town received a $500,000 subaward from the County. The subaward was made from the County's allocation of State and Local Fiscal Recovery Funds (SLFRF). Effective on April 29, 2022, the Town entered into a Subrecipient Agreement (agreement) with the County. Per the agreement, the County appropriated $2,000,000 of its SLFRF allocation as a subaward to the Town to construct certain improvements and expansions of the Town's sanitary sewer system and lagoon. The agreement is to remain in effect no later than the later of December 31, 2026, or the completion of the project and payment of the final project expenses, unless terminated by the County in writing. Per the agreement, the Town agreed to comply with all federal, state, and local laws and all requirements and published guidance set forth regarding the usage of any and all SLFRF monies. Per SLFRF program regulations, the period of performance for the SLFRF award began on the date the funds were disbursed and ends on December 31, 2026. As such, funds may only be used to cover costs incurred during the period that began on March 3, 2021, and ends on December 31, 2024. Recipients must liquidate all obligations incurred by December 31, 2024, under the award no later than December 31, 2026, which is the end of the period of performance. Although the Town's project is an eligible water and sewer infrastructure project under the SLFRF Final Rule, the project was initiated and approved by the Town prior to the SLFRF period of performance beginning date of March 3, 2021. Further, the project was not prospective in nature, and the Town incurred a financial obligation prior to the beginning of the period of performance. In addition, the SLFRF subaward received from the County was used to pay the principal on an outstanding debt that was initiated outside the effective date of the subaward agreement. As such, the payment of $1,500,000 was determined to be questioned costs. 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). . . ." 31 CFR 35.5(a) states: "In general. A recipient may only use funds to cover costs incurred during the period beginning March 3, 2021, and ending December 31, 2024, for one or more of the purposes enumerated in sections 602(c)(1) and 603(c)(1) of the Social Security Act, as applicable, including those enumerated in ? 35.6, subject to the restrictions set for in sections 602(c)(2) and 603(c)(2) of the Social Security Act, as applicable." 31 CFR 35.3 states in part: ". . . Obligation means an order placed for property and services and entering into contracts, subawards, and similar transactions that require payment. . . ." 31 CFR 35.6 states in part: "(a) In general. Subject to ?? 35.7 and 35.8, a recipient may use funds for one or more of the purposes described in paragraphs (b) through (f) . . . (b) Responding to the public health emergency or its negative economic impacts. . . . (1) Identifying eligible responses to the public health emergency or it negative economic impacts. (i) A program, service, or capital expenditure . . . (c) Providing premium pay to eligible workers. . . . (d) Providing government services. A recipient may use funds for the provision of government services to the extent of the reduction in the recipient's general revenue due to the public health emergency, . . . (e) Making necessary investments in water, sewer, and broadband infrastructure. . . . (f) Meeting the non-federal matching requirements for Bureau of Reclamation projects. . . ." Interim Final Rule Frequently Asked Questions, Question 4.3, states in part: ". . . Expenses related to financing, including servicing or redeeming notes, would not address the needs of the pandemic response or its negative economic impacts. Such expenses would also not be considered provision of government services, as these financing expenses do not directly provide services or aid to citizens. This applies to paying interest or principal on any outstanding debt instrument, including, for example, short term revenue or tax anticipation notes, or paying fees or issuance costs associated with the issuance of new debt." Federal Register, Vol. 87, No.18, page 4429, states in part: ". . . debt service is not an eligible use of funds either to respond to the public health emergency or its negative economic impacts or as a provision of government services to the extent of revenue loss . . ." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: . . . (h) Cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to ? 200.308(e)(3)." Cause The system of internal controls, as designed and implemented by management of the Town, was not effective to ensure SLFRF funds were used appropriately. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the Town's management statements 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. As such, payment on debt associated with a project outside of the period of performance was allowed to occur. Noncompliance with the provisions of federal statutes, regulations, and terms and conditions of the federal award could result in the loss of future federal funding to the Town. Questioned Costs Known questioned costs in the amount of $1,500,000 were identified as noted in the Condition and Context. Recommendation We recommended that management of the Town establish a system of internal controls and develop policies and procedures to ensure SLFRF funds are used appropriately. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report. Auditor's Response It is the Town's responsibility to comply with applicable federal regulations and guidelines when accepting and managing a federal award. The Town had designed and implemented a system of internal controls; however, these internal controls were not effective in ensuring that federal funds were obligated during the period of performance and spent in accordance with Activities Allowed or Unallowed and Allowable Costs/Cost Principles. Payments from the Fiscal Recovery Funds are intended to be used prospectively to provide support to governments in responding to the impact of COVID-19. The Town's waste stabilization lagoon project was initiated prior to, and the Town incurred a financial obligation for the project, prior to the pandemic as the contracts and corresponding financing documents were completed prior to the period of performance and could not have been enacted in anticipation of the passage of the Act, as they were executed a year prior to referenced legislation. Furthermore, while "outstanding debt" is not defined in the interim final rule, a general definition is the total amount of money, including interest and fees, owed to a lender or creditor. As such, as soon as the bond anticipation notes were issued, they were "outstanding debt." We reaffirm our finding and will review the status of the finding during our next audit.
FINDING 2022-004 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Reporting Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number and Year (or Other Identifying Number): FY 2022 Compliance Requirement: Reporting Audit Finding: Material Weakness Condition and Context The Town had not properly designed or implemented a system of internal controls, which would include appropriate segregation of duties 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 U.S. 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 Town was classified as a metropolitan city/town with a population below 250,000 residents that received an allocation of less than $10 million in State and Local Fiscal Recovery Funds. As such, the initial P&E report, covering one calendar year from was required to be submitted to the Treasury by April 30, 2022. The subsequent annual reports were to cover one calendar year and must be submitted to the Treasury by the last day of the year following the end of the period covered. The Town submitted one P&E report during the audit period; however, a single employee prepared and submitted the P&E report without a review or oversight process in place to prevent, or detect and correct, errors. The lack of internal controls was a systemic issue 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). . . ." Cause A proper system of internal controls was not designed by management of the Town, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the Town's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the Town design and implement a proper system of internal controls, including policies and procedures that would provide segregation of duties to ensure appropriate reviews, approvals, and oversight are taking place. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2022-004 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Reporting Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number and Year (or Other Identifying Number): FY 2022 Compliance Requirement: Reporting Audit Finding: Material Weakness Condition and Context The Town had not properly designed or implemented a system of internal controls, which would include appropriate segregation of duties 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 U.S. 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 Town was classified as a metropolitan city/town with a population below 250,000 residents that received an allocation of less than $10 million in State and Local Fiscal Recovery Funds. As such, the initial P&E report, covering one calendar year from was required to be submitted to the Treasury by April 30, 2022. The subsequent annual reports were to cover one calendar year and must be submitted to the Treasury by the last day of the year following the end of the period covered. The Town submitted one P&E report during the audit period; however, a single employee prepared and submitted the P&E report without a review or oversight process in place to prevent, or detect and correct, errors. The lack of internal controls was a systemic issue 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). . . ." Cause A proper system of internal controls was not designed by management of the Town, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the Town's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the Town design and implement a proper system of internal controls, including policies and procedures that would provide segregation of duties to ensure appropriate reviews, approvals, and oversight are taking place. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2022-003 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Period of Performance Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number and Year (or Other Identifying Number): FY 2022 Pass-Through Entity: Boone County Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/ Cost Principles, Period of Performance Audit Findings: Material Weakness, Modified Opinion Condition and Context The Town submitted an application to the Indiana Finance Authority's (IFA) Clean Water State Revolving Fund (SRF) Loan Program on June 13, 2019. The Clean Water SRF provides financial assistance to local communities for the planning, design, construction, renovation, improvement, or expansion of wastewater collection and treatment systems, or for other activities that are permitted by the Clean Water Act. The Town's proposed project was for infrastructure improvements and the expansion of its existing waste stabilization lagoon. The Town submitted to IFA the required Preliminary Engineering Report (PER), which provided the information necessary for IFA to determine technical, economic, and environmental adequacy of the proposed project. On November 18, 2020, the Town received approval of its PER from IFA. This approval was contingent upon the issuance of all required permits, including construction permits. After receiving approval, the Town was to contact its financial advisor and its nationally-recognized bond counsel to assist in preparing the appropriate financial and legal documents needed to close the Town's SRF loan. All SRF Loan Program requirements, including bidding the entire SRF-financed project, was to be completed prior to the Town receiving SRF funding. On July 26, 2021, the Town received the necessary permits, including the construction permit issued by the Indiana Department of Environmental Management related to the waste stabilization lagoon project. On October 25, 2021, the Town passed Resolution No. 2021-7 A Resolution Authorizing the Issuance of Interim Financing with Home National Bank for the Cost of Improvements to the Sewage Works of the Town. As a result, the Town issued Sewage Works Bond Anticipation Notes of 2021 in the principal amount of $1,500,000. On March 11, 2022, the Town received a $1,500,000 subaward from Boone County (County). The subaward was made from the County's allocation of State and Local Fiscal Recovery Funds (SLFRF). On March 12, 2022, the Town made a payment of $1,500,000 to Home National Bank to repay the Sewage Works Bond Anticipation Notes of 2021. The source of the payment was the SLFRF subaward received from the County on March 11, 2022. On April 21, 2022, the Town received a $500,000 subaward from the County. The subaward was made from the County's allocation of State and Local Fiscal Recovery Funds (SLFRF). Effective on April 29, 2022, the Town entered into a Subrecipient Agreement (agreement) with the County. Per the agreement, the County appropriated $2,000,000 of its SLFRF allocation as a subaward to the Town to construct certain improvements and expansions of the Town's sanitary sewer system and lagoon. The agreement is to remain in effect no later than the later of December 31, 2026, or the completion of the project and payment of the final project expenses, unless terminated by the County in writing. Per the agreement, the Town agreed to comply with all federal, state, and local laws and all requirements and published guidance set forth regarding the usage of any and all SLFRF monies. Per SLFRF program regulations, the period of performance for the SLFRF award began on the date the funds were disbursed and ends on December 31, 2026. As such, funds may only be used to cover costs incurred during the period that began on March 3, 2021, and ends on December 31, 2024. Recipients must liquidate all obligations incurred by December 31, 2024, under the award no later than December 31, 2026, which is the end of the period of performance. Although the Town's project is an eligible water and sewer infrastructure project under the SLFRF Final Rule, the project was initiated and approved by the Town prior to the SLFRF period of performance beginning date of March 3, 2021. Further, the project was not prospective in nature, and the Town incurred a financial obligation prior to the beginning of the period of performance. In addition, the SLFRF subaward received from the County was used to pay the principal on an outstanding debt that was initiated outside the effective date of the subaward agreement. As such, the payment of $1,500,000 was determined to be questioned costs. 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). . . ." 31 CFR 35.5(a) states: "In general. A recipient may only use funds to cover costs incurred during the period beginning March 3, 2021, and ending December 31, 2024, for one or more of the purposes enumerated in sections 602(c)(1) and 603(c)(1) of the Social Security Act, as applicable, including those enumerated in ? 35.6, subject to the restrictions set for in sections 602(c)(2) and 603(c)(2) of the Social Security Act, as applicable." 31 CFR 35.3 states in part: ". . . Obligation means an order placed for property and services and entering into contracts, subawards, and similar transactions that require payment. . . ." 31 CFR 35.6 states in part: "(a) In general. Subject to ?? 35.7 and 35.8, a recipient may use funds for one or more of the purposes described in paragraphs (b) through (f) . . . (b) Responding to the public health emergency or its negative economic impacts. . . . (1) Identifying eligible responses to the public health emergency or it negative economic impacts. (i) A program, service, or capital expenditure . . . (c) Providing premium pay to eligible workers. . . . (d) Providing government services. A recipient may use funds for the provision of government services to the extent of the reduction in the recipient's general revenue due to the public health emergency, . . . (e) Making necessary investments in water, sewer, and broadband infrastructure. . . . (f) Meeting the non-federal matching requirements for Bureau of Reclamation projects. . . ." Interim Final Rule Frequently Asked Questions, Question 4.3, states in part: ". . . Expenses related to financing, including servicing or redeeming notes, would not address the needs of the pandemic response or its negative economic impacts. Such expenses would also not be considered provision of government services, as these financing expenses do not directly provide services or aid to citizens. This applies to paying interest or principal on any outstanding debt instrument, including, for example, short term revenue or tax anticipation notes, or paying fees or issuance costs associated with the issuance of new debt." Federal Register, Vol. 87, No.18, page 4429, states in part: ". . . debt service is not an eligible use of funds either to respond to the public health emergency or its negative economic impacts or as a provision of government services to the extent of revenue loss . . ." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: . . . (h) Cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to ? 200.308(e)(3)." Cause The system of internal controls, as designed and implemented by management of the Town, was not effective to ensure SLFRF funds were used appropriately. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the Town's management statements 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. As such, payment on debt associated with a project outside of the period of performance was allowed to occur. Noncompliance with the provisions of federal statutes, regulations, and terms and conditions of the federal award could result in the loss of future federal funding to the Town. Questioned Costs Known questioned costs in the amount of $1,500,000 were identified as noted in the Condition and Context. Recommendation We recommended that management of the Town establish a system of internal controls and develop policies and procedures to ensure SLFRF funds are used appropriately. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report. Auditor's Response It is the Town's responsibility to comply with applicable federal regulations and guidelines when accepting and managing a federal award. The Town had designed and implemented a system of internal controls; however, these internal controls were not effective in ensuring that federal funds were obligated during the period of performance and spent in accordance with Activities Allowed or Unallowed and Allowable Costs/Cost Principles. Payments from the Fiscal Recovery Funds are intended to be used prospectively to provide support to governments in responding to the impact of COVID-19. The Town's waste stabilization lagoon project was initiated prior to, and the Town incurred a financial obligation for the project, prior to the pandemic as the contracts and corresponding financing documents were completed prior to the period of performance and could not have been enacted in anticipation of the passage of the Act, as they were executed a year prior to referenced legislation. Furthermore, while "outstanding debt" is not defined in the interim final rule, a general definition is the total amount of money, including interest and fees, owed to a lender or creditor. As such, as soon as the bond anticipation notes were issued, they were "outstanding debt." We reaffirm our finding and will review the status of the finding during our next audit.
FINDING 2022-004 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Reporting Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number and Year (or Other Identifying Number): FY 2022 Compliance Requirement: Reporting Audit Finding: Material Weakness Condition and Context The Town had not properly designed or implemented a system of internal controls, which would include appropriate segregation of duties 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 U.S. 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 Town was classified as a metropolitan city/town with a population below 250,000 residents that received an allocation of less than $10 million in State and Local Fiscal Recovery Funds. As such, the initial P&E report, covering one calendar year from was required to be submitted to the Treasury by April 30, 2022. The subsequent annual reports were to cover one calendar year and must be submitted to the Treasury by the last day of the year following the end of the period covered. The Town submitted one P&E report during the audit period; however, a single employee prepared and submitted the P&E report without a review or oversight process in place to prevent, or detect and correct, errors. The lack of internal controls was a systemic issue 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). . . ." Cause A proper system of internal controls was not designed by management of the Town, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the Town's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the Town design and implement a proper system of internal controls, including policies and procedures that would provide segregation of duties to ensure appropriate reviews, approvals, and oversight are taking place. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2022-004 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Reporting Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number and Year (or Other Identifying Number): FY 2022 Compliance Requirement: Reporting Audit Finding: Material Weakness Condition and Context The Town had not properly designed or implemented a system of internal controls, which would include appropriate segregation of duties 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 U.S. 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 Town was classified as a metropolitan city/town with a population below 250,000 residents that received an allocation of less than $10 million in State and Local Fiscal Recovery Funds. As such, the initial P&E report, covering one calendar year from was required to be submitted to the Treasury by April 30, 2022. The subsequent annual reports were to cover one calendar year and must be submitted to the Treasury by the last day of the year following the end of the period covered. The Town submitted one P&E report during the audit period; however, a single employee prepared and submitted the P&E report without a review or oversight process in place to prevent, or detect and correct, errors. The lack of internal controls was a systemic issue 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). . . ." Cause A proper system of internal controls was not designed by management of the Town, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the Town's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the Town design and implement a proper system of internal controls, including policies and procedures that would provide segregation of duties to ensure appropriate reviews, approvals, and oversight are taking place. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.