Audit 318652

FINDING 2023-001 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 Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2022-001. Condition and Context During the audit period, the SLFRF program funds totaling $11,258,475 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 $9,778,321, 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 nonprocurement 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 had four ongoing contracts awarded in the prior audit period, with two vendors for various projects under the water, sewer, and broadband eligible use category. Total payments made to the vendors during the audit period were $9,778,321, 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 the suspension and debarment requirements. 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 19.300 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 do business is not excluded or disqualified. You do this by: (a) Checking the EPLS, or (b) Collecting a certification from that person if allowed by this rule, or (c) Adding a clause or condition to the covered transaction with that person." Cause A proper system of internal controls was not implemented by management of the City. Policies over suspension and debarment were in place; however, the procedures did not address the retention of documentation. As such, the City was unable to provide documentation to demonstrate they checked SAM.gov to verify that contractors were not suspended or debarred prior to payment. 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 to show the status of vendors to whom payments equal to or in excess of $25,000 were made. Program funds used to pay contractors that have been suspended or debarred would be unallowable and the funding agency could potentially recovery them. 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 strengthen its system of internal controls to ensure that all contractors that are paid $25,000 or more, all in or in part with federal funds, are not suspended or debarred from participating in federal programs. We also recommended strengthening its policies and procedures to ensure appropriate supporting documentation for federal programs is retained to be present for audit. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2023-002 Subject: CDBG - Entitlement Grants Cluster - Reporting Federal Agency: Department of Housing and Urban Development Federal Program: Community Development Block Grants/Entitlement Grants Assistance Listings Number: 14.218 Federal Award Numbers and Years (or Other Identifying Numbers): B-18-MC-180004, B-19-MC-180004, B-20-MC-180004, B-21-MC-180004, B-22-MC-180004, B-23-MC-180004 Compliance Requirement: Reporting Audit Finding: Material Weakness Condition and Context Recipients are required to submit quarterly the CDBG Cash on Hand Quarterly report (PR29). The report is generated from information entered by the City into HUD's Integrated Disbursement Information System (IDIS). The City did not have internal control procedures in place over the PR29 Quarterly Reports. The reports were generated and submitted by one individual, without a review or oversight process to detect and correct errors. The lack of internal controls was isolated to the quarterly reports noted above. 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 the 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 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 over reporting, the City cannot ensure that the reports submitted are materially accurate and correct. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the management of the City design and implement a proper system of internal controls, including a segregation of duties, to ensure the accuracy and correctness of the PR 29 reports. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2023-001 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 Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2022-001. Condition and Context During the audit period, the SLFRF program funds totaling $11,258,475 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 $9,778,321, 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 nonprocurement 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 had four ongoing contracts awarded in the prior audit period, with two vendors for various projects under the water, sewer, and broadband eligible use category. Total payments made to the vendors during the audit period were $9,778,321, 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 the suspension and debarment requirements. 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 19.300 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 do business is not excluded or disqualified. You do this by: (a) Checking the EPLS, or (b) Collecting a certification from that person if allowed by this rule, or (c) Adding a clause or condition to the covered transaction with that person." Cause A proper system of internal controls was not implemented by management of the City. Policies over suspension and debarment were in place; however, the procedures did not address the retention of documentation. As such, the City was unable to provide documentation to demonstrate they checked SAM.gov to verify that contractors were not suspended or debarred prior to payment. 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 to show the status of vendors to whom payments equal to or in excess of $25,000 were made. Program funds used to pay contractors that have been suspended or debarred would be unallowable and the funding agency could potentially recovery them. 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 strengthen its system of internal controls to ensure that all contractors that are paid $25,000 or more, all in or in part with federal funds, are not suspended or debarred from participating in federal programs. We also recommended strengthening its policies and procedures to ensure appropriate supporting documentation for federal programs is retained to be present for audit. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2023-002 Subject: CDBG - Entitlement Grants Cluster - Reporting Federal Agency: Department of Housing and Urban Development Federal Program: Community Development Block Grants/Entitlement Grants Assistance Listings Number: 14.218 Federal Award Numbers and Years (or Other Identifying Numbers): B-18-MC-180004, B-19-MC-180004, B-20-MC-180004, B-21-MC-180004, B-22-MC-180004, B-23-MC-180004 Compliance Requirement: Reporting Audit Finding: Material Weakness Condition and Context Recipients are required to submit quarterly the CDBG Cash on Hand Quarterly report (PR29). The report is generated from information entered by the City into HUD's Integrated Disbursement Information System (IDIS). The City did not have internal control procedures in place over the PR29 Quarterly Reports. The reports were generated and submitted by one individual, without a review or oversight process to detect and correct errors. The lack of internal controls was isolated to the quarterly reports noted above. 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 the 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 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 over reporting, the City cannot ensure that the reports submitted are materially accurate and correct. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the management of the City design and implement a proper system of internal controls, including a segregation of duties, to ensure the accuracy and correctness of the PR 29 reports. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.