Audit 319688

FINDING 2023-001 Subject: COVID-19: Coronavirus State and Local Fiscal Recovery Funds - Suspension and Debarment 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): 2021 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion INDIANA STATE BOARD OF ACCOUNTS 13 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2022-001. Condition and Context The City elected to receive the standard revenue loss allowance, allowing the City to claim $10,000,000 of its total State and Local Fiscal Recovery Funds (SLFRF) allocation of $16,549,045 as revenue loss to use for government services. All SLFRF program funds expended in 2023 were under the revenue loss eligible use category. The U.S. Department of the Treasury (Treasury) determined that there are no subawards under this eligible use category, and that recipients' use of revenue loss funds would not give rise to subrecipient relationships given that there is no federal program or purpose to carry out in the case of the revenue loss portion of the award. Prior to entering into subawards and covered transactions with 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. Due to the Treasury's determination that the revenue loss eligible use category does not give rise to subawards, the City was only required to comply with suspension and debarment requirements related to contracts. The City's policies related to SLFRF suspension and debarment requirements included the Board of Public Works completing a review of each bid packet to ensure the bidder submitted a statement indicating if they were not suspended or debarred. Of the 14 transactions that equaled or exceeded $25,000 that were paid from SLFRF funds during the audit period, 3 were selected for testing to verify the City followed its procedures related to suspension and debarment. There was 1 transaction in the amount of $226,050 that was made for the purchase of a municipal tractor sweeper for the Street Department. Although bids were obtained for the street sweeper, the vendor's suspension and debarment status was not verified prior to payment. The 2nd second transaction selected for testing in the amount of $55,355 was made for the purchase of a Ford F250 truck for the Park Department. The purchase was made without verifying the vendor's suspension and debarment status. The 3rd transaction selected for testing in the amount of $128,800 was made for the maintenance of a fence in Patriot Park for the Park Department. The purchase was made without verifying the vendor's suspension and debarment status. The lack of internal controls and noncompliance were systemic issues throughout the audit period. INDIANA STATE BOARD OF ACCOUNTS 14 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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 intend to 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 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 appropriately followed. 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, the City cannot ensure the contractors paid with federal funds are eligible to participate in federal programs. Any program funds the City used to pay contractors that have been suspended or debarred would be unallowable, and the funding agency could potentially recover them. Furthermore, 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 that all contractors that are paid $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs before entering into contracts. INDIANA STATE BOARD OF ACCOUNTS 15 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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: COVID-19: Coronavirus State and Local Fiscal Recovery Funds - Reporting - Internal Controls Federal Agency: Department of the Treasury Federal Program: COVID-19: Coronavirus State and Local Fiscal Recovery Funds - Reporting - Internal Controls Assistance Listings Number: 21.027 Federal Award Number and Year (or Other Identifying Number): 2021 Compliance Requirement: Reporting Audit Finding: Material Weakness Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2022-002. Condition and Context The City 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 City was classified as a metropolitan city with a population below 250,000 residents that received an allocation of more than $10 million in Coronavirus State and Local Fiscal Recovery Funds funding. The quarterly reports were 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 P&E reports during the audit period; however, a single employee prepared and submitted each 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: INDIANA STATE BOARD OF ACCOUNTS 16 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (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 City, 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 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 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 City 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 2023-003 Subject: COVID-19: Coronavirus State and Local Fiscal Recovery Funds - Body Camera - 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): 71391 Pass-Through Entity: Indiana Department of Homeland Security Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/ Cost Principles, Period of Performance Audit Findings: Material Weakness, Other Matters INDIANA STATE BOARD OF ACCOUNTS 17 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context The City's Police Department applied for and was awarded a body camera grant from the Indiana Department of Homeland Security (IDHS). The City's Police Department sought reimbursement from the IDHS in October of 2023. An invoice from Utility, dated October 28, 2022, in the amount of $600,000 for body cameras was submitted for the reimbursement. The invoice was originally paid by the City with American Rescue Plan Act (ARPA) funds on April 3, 2023. The City received reimbursement of $61,740 from the IDHS on December 5, 2023, which was receipted into the City's Grant Fund along with the City's local match in the amount of $30,870. The Controller's Office did an adjustment on December 31, 2023, in the amount of $92,610, to reimburse the ARP Coronavirus LF Recovery Fund and decrease the Grant Fund, for the reimbursement of $61,740 and the local share of $30,870. However, per the grant agreement with the IDHS, "If the subrecipient incurs a financial obligation prior to approval of the State, then the subrecipient will be required to reimburse the State for the amount of funds that were not approved." As such, the expenditure was not an allowable activity or allowable cost and was outside of the period of performance due to the City incurring the expense prior to signing the grant agreement with the IDHS on March 3, 2023. The lack of internal controls and noncompliance were isolated to the purchase 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). . . ." 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: . . . (c) Be consistent with policies and procedures that apply uniformly to both federallyfinanced and other activities of the non-Federal entity. . . . (f) Not be included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or a prior period. . . ." 2 CFR 200.306(b) states: "For all Federal awards, any shared costs or matching funds and all contributions, including cash and third-party in-kind contributions, must be accepted as part of the non-Federal entity's cost sharing or matching when such contributions meet all of the following criteria: (1) Are verifiable from the non-Federal entity's records; INDIANA STATE BOARD OF ACCOUNTS 18 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (2) Are not included as contributions for any other Federal award; (3) Are necessary and reasonable for accomplishment of project or program objectives; (4) Are allowable under subpart E of this part; (5) Are not paid by the Federal Government under another Federal award, except where the Federal statute authorizing a program specifically provides that Federal funds made available for such program can be applied to matching or cost sharing requirements of other Federal programs; (6) Are provided for in the approved budget when required by the Federal awarding agency; and (7) Conform to other provisions of this part, as applicable." The Grant Agreement states in part: "Any purchases made by the Subrecipient that are not authorized by the U.S. Department of the Treasury allowability guidelines, the Subrecipient's Project or State, will not be reimbursed under this grant." "Pre-award costs, as defined in 2 CFR 200.458, may not be paid with funding from this award." 2 CFR 200.458 states: "Pre-award costs are those incurred prior to the effective date of the Federal award or subaward directly pursuant to the negotiation and in anticipation of the Federal award where such costs are necessary for efficient and timely performance of the scope of work. Such costs are allowable only to the extent that they would have been allowable if incurred after the date of the Federal award and only with the written approval of the Federal awarding agency. If charged to the award, these costs must be charged to the initial budget period of the award, unless otherwise specified by the Federal awarding agency or pass-through entity." Cause Management had not developed a system of internal controls that would have prevented or detected material noncompliance. The City did not ensure that the policies and procedures in place related to allowable or unallowable activities, allowable costs and cost principles, and period of performance were complied with at the acceptance of the grant from the IDHS. 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, an invoice that was previously paid with other federal award funds was submitted for reimbursement to another agency. The original invoice was outside of the period of performance and unallowable as related to the award from the IDHS. Furthermore, 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 We identified $61,740 in questioned costs as noted above in the Condition and Context. INDIANA STATE BOARD OF ACCOUNTS 19 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Recommendation We recommended that management of the City establish a proper system of internal controls, including strengthening its policies and procedures to ensure all costs submitted for reimbursement are not already reimbursed by another federal award and are within the period of performance. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2023-004 Subject: COVID-19: Coronavirus State and Local Fiscal Recovery Funds - Body Camera - 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): 71391 Pass-Through Entity: Indiana Department of Homeland Security Compliance Requirement: Reporting Audit Findings: Material Weakness, Modified Opinion Condition and Context The City 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 were required to submit quarterly progress reports to the Indiana Department of Homeland Security. Information to be reported included progress or performance on the project for the appropriate reporting period. The City should have submitted two progress reports during the audit period since the grant agreement was signed on March 3, 2023, and a final quarterly report. The final quarterly report was submitted on October 30, 2023. However, the City only submitted one progress report which was prepared and submitted by a single employee 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. The noncompliance was isolated to the quarterly reports that were not submitted. 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). . . ." INDIANA STATE BOARD OF ACCOUNTS 20 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 2 CFR 200.329(c) states: "Non-construction performance reports. The Federal awarding agency must use standard, governmentwide OMB-approved data elements for collection of performance information including performance progress reports, Research Performance Progress Reports. (1) The non-Federal entity must submit performance reports at the interval required by the Federal awarding agency or pass-through entity to best inform improvements in program outcomes and productivity. Intervals must be no less frequent than annually nor more frequent than quarterly except in unusual circumstances, for example where more frequent reporting is necessary for the effective monitoring of the Federal award or could significantly affect program outcomes. Reports submitted annually by the non- Federal entity and/or pass-through entity must be due no later than 90 calendar days after the reporting period. Reports submitted quarterly or semiannually must be due no later than 30 calendar days after the reporting period. Alternatively, the Federal awarding agency or pass-through entity may require annual reports before the anniversary dates of multiple year Federal awards. The final performance report submitted by the non-Federal entity and/or pass-through entity must be due no later than 120 calendar days after the period of performance end date. A subrecipient must submit to the pass-through entity, no later than 90 calendar days after the period of performance end date, all final performance reports as required by the terms and conditions of the Federal award. If a justified request is submitted by a non-Federal entity, the Federal agency may extend the due date for any performance report. (2) As appropriate in accordance with above mentioned performance reporting, these reports will contain, for each Federal award, brief information on the following unless other data elements are approved by OMB in the agency information collection request: (i) A comparison of actual accomplishments to the objectives of the Federal award established for the period. Where the accomplishments of the Federal award can be quantified, a computation of the cost (for example, related to units of accomplishment) may be required if that information will be useful. Where performance trend data and analysis would be informative to the Federal awarding agency program, the Federal awarding agency should include this as a performance reporting requirement. (ii) The reasons why established goals were not met, if appropriate. (iii) Additional pertinent information including, when appropriate, analysis and explanation of cost overruns or high unit costs." The Grant Agreement states in part: "The Subrecipient shall submit to the State written progress reports until completion of the project. These reports shall be submitted on a quarterly basis and shall contain such detail of progress or performance on the Project or as requested by the State." Cause Management had not developed a system of internal controls that would have prevented or detected and allowed for correction of material noncompliance. The City did not complete and submit quarterly reports as required because the officials were unaware of the requirement. INDIANA STATE BOARD OF ACCOUNTS 21 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Effect Without the proper design or implementation of the components of a system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, noncompliance. As such, not all the required reports were not submitted. 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, including policies and procedures to ensure the City completes and submits all required reports. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2023-005 Subject: COVID-19: Coronavirus State and Local Fiscal Recovery Funds - US 12 Stormwater Drainage Improvement Project - Suspension and Debarment 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): TRSW222046 Pass-Through Entity: Indiana Finance Authority Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Condition and Context Prior to entering into subawards and covered transactions with 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 Board of Public Works completing a review of each bid packet to ensure the bidder submitted a statement indicating if they were not suspended or debarred. There was one contract that equaled or exceeded $25,000 during the audit period, which was selected for testing to verify the City followed its procedures related to suspension and debarment. One contract was identified and tested during the audit period. The contract in the amount of $148,795 was for the construction work on the US 12 Stormwater Drainage Improvement project by the City Sanitary District. Although bids were obtained for the construction project, the vendor's suspension and debarment status was not verified prior to payment. The lack of internal controls and noncompliance were isolated to the contract noted above. INDIANA STATE BOARD OF ACCOUNTS 22 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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 intend to 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 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 appropriately followed. 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, the City cannot ensure the contractors paid with federal funds are eligible to participate in federal program. Any program funds the City used to pay contractors that have been suspended or debarred would be unallowable, and the funding agency could potentially recover them. Furthermore, 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 that all contractors that are paid $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs before entering into contracts. INDIANA STATE BOARD OF ACCOUNTS 23 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2023-006 Subject: COVID-19: Coronavirus State and Local Fiscal Recovery Funds - US 12 Stormwater Drainage Improvement Project - Reporting Federal Agency: Department of the Treasury Federal Program: COVID-19: Coronavirus State and Local Fiscal Recovery Funds Assistance Listing Number: 21.027 Federal Award Number and Year (or Other Identifying Number): TRSW222046 Pass-Through Entity: Indiana Finance Authority Compliance Requirement: Reporting Audit Findings: Material Weakness, Modified Opinion Condition and Context The City 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 were required to submit quarterly expenditure reports and a final report to the Indiana Finance Authority. Information to be reported included the expenditures of the grant and the status on the project for the appropriate reporting period. The City should have submitted four expenditure reports and a final report since the grant agreement was signed on February 25, 2022. However, the City only submitted one expenditure report for the fourth quarter and a final report. In addition, a single employee prepared and submitted the progress 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. The noncompliance was isolated to the missing 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). . . ." 2 CFR 200.329(c) states: "Non-construction performance reports. The Federal awarding agency must use standard, governmentwide OMB-approved data elements for collection of performance information including performance progress reports, Research Performance Progress Reports. INDIANA STATE BOARD OF ACCOUNTS 24 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (1) The non-Federal entity must submit performance reports at the interval required by the Federal awarding agency or pass-through entity to best inform improvements in program outcomes and productivity. Intervals must be no less frequent than annually nor more frequent than quarterly except in unusual circumstances, for example where more frequent reporting is necessary for the effective monitoring of the Federal award or could significantly affect program outcomes. Reports submitted annually by the non- Federal entity and/or pass-through entity must be due no later than 90 calendar days after the reporting period. Reports submitted quarterly or semiannually must be due no later than 30 calendar days after the reporting period. Alternatively, the Federal awarding agency or pass-through entity may require annual reports before the anniversary dates of multiple year Federal awards. The final performance report submitted by the non-Federal entity and/or pass-through entity must be due no later than 120 calendar days after the period of performance end date. A subrecipient must submit to the pass-through entity, no later than 90 calendar days after the period of performance end date, all final performance reports as required by the terms and conditions of the Federal award. If a justified request is submitted by a non-Federal entity, the Federal agency may extend the due date for any performance report. (2) As appropriate in accordance with above mentioned performance reporting, these reports will contain, for each Federal award, brief information on the following unless other data elements are approved by OMB in the agency information collection request: (i) A comparison of actual accomplishments to the objectives of the Federal award established for the period. Where the accomplishments of the Federal award can be quantified, a computation of the cost (for example, related to units of accomplishment) may be required if that information will be useful. Where performance trend data and analysis would be informative to the Federal awarding agency program, the Federal awarding agency should include this as a performance reporting requirement. (ii) The reasons why established goals were not met, if appropriate. (iii) Additional pertinent information including, when appropriate, analysis and explanation of cost overruns or high unit costs." The Grant Agreement states in part: "The Participant will report to the Finance Authority on the Participant's expenditure of the Grant and the status of the Project on the first day of each quarter following the date of this Agreement, and on the first day of every quarter thereafter until the Participant extends all the Grant funds and completes the Project, whichever is later. At the time the Participant completes the Project, the Participant will provide promptly to the Finance Authority a final report (the "Final Report"). All reports to the Finance Authority will be in form and substance satisfactory to the Finance Authority and as may be required by the United States Department of Treasury . . ." Cause Management had not developed a system of internal controls that would have prevented or detected and allowed for correction of material noncompliance. The City did not complete and submit quarterly reports as required because the officials were unaware of the requirement. INDIANA STATE BOARD OF ACCOUNTS 25 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Without the proper design or implementation of the components of a system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, noncompliance. As such, not all the required reports were not submitted. 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, including policies and procedures, to ensure the City completes and submits all required 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: 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): 2021 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion INDIANA STATE BOARD OF ACCOUNTS 13 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2022-001. Condition and Context The City elected to receive the standard revenue loss allowance, allowing the City to claim $10,000,000 of its total State and Local Fiscal Recovery Funds (SLFRF) allocation of $16,549,045 as revenue loss to use for government services. All SLFRF program funds expended in 2023 were under the revenue loss eligible use category. The U.S. Department of the Treasury (Treasury) determined that there are no subawards under this eligible use category, and that recipients' use of revenue loss funds would not give rise to subrecipient relationships given that there is no federal program or purpose to carry out in the case of the revenue loss portion of the award. Prior to entering into subawards and covered transactions with 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. Due to the Treasury's determination that the revenue loss eligible use category does not give rise to subawards, the City was only required to comply with suspension and debarment requirements related to contracts. The City's policies related to SLFRF suspension and debarment requirements included the Board of Public Works completing a review of each bid packet to ensure the bidder submitted a statement indicating if they were not suspended or debarred. Of the 14 transactions that equaled or exceeded $25,000 that were paid from SLFRF funds during the audit period, 3 were selected for testing to verify the City followed its procedures related to suspension and debarment. There was 1 transaction in the amount of $226,050 that was made for the purchase of a municipal tractor sweeper for the Street Department. Although bids were obtained for the street sweeper, the vendor's suspension and debarment status was not verified prior to payment. The 2nd second transaction selected for testing in the amount of $55,355 was made for the purchase of a Ford F250 truck for the Park Department. The purchase was made without verifying the vendor's suspension and debarment status. The 3rd transaction selected for testing in the amount of $128,800 was made for the maintenance of a fence in Patriot Park for the Park Department. The purchase was made without verifying the vendor's suspension and debarment status. The lack of internal controls and noncompliance were systemic issues throughout the audit period. INDIANA STATE BOARD OF ACCOUNTS 14 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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 intend to 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 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 appropriately followed. 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, the City cannot ensure the contractors paid with federal funds are eligible to participate in federal programs. Any program funds the City used to pay contractors that have been suspended or debarred would be unallowable, and the funding agency could potentially recover them. Furthermore, 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 that all contractors that are paid $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs before entering into contracts. INDIANA STATE BOARD OF ACCOUNTS 15 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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: COVID-19: Coronavirus State and Local Fiscal Recovery Funds - Reporting - Internal Controls Federal Agency: Department of the Treasury Federal Program: COVID-19: Coronavirus State and Local Fiscal Recovery Funds - Reporting - Internal Controls Assistance Listings Number: 21.027 Federal Award Number and Year (or Other Identifying Number): 2021 Compliance Requirement: Reporting Audit Finding: Material Weakness Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2022-002. Condition and Context The City 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 City was classified as a metropolitan city with a population below 250,000 residents that received an allocation of more than $10 million in Coronavirus State and Local Fiscal Recovery Funds funding. The quarterly reports were 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 P&E reports during the audit period; however, a single employee prepared and submitted each 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: INDIANA STATE BOARD OF ACCOUNTS 16 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (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 City, 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 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 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 City 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 2023-003 Subject: COVID-19: Coronavirus State and Local Fiscal Recovery Funds - Body Camera - 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): 71391 Pass-Through Entity: Indiana Department of Homeland Security Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/ Cost Principles, Period of Performance Audit Findings: Material Weakness, Other Matters INDIANA STATE BOARD OF ACCOUNTS 17 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context The City's Police Department applied for and was awarded a body camera grant from the Indiana Department of Homeland Security (IDHS). The City's Police Department sought reimbursement from the IDHS in October of 2023. An invoice from Utility, dated October 28, 2022, in the amount of $600,000 for body cameras was submitted for the reimbursement. The invoice was originally paid by the City with American Rescue Plan Act (ARPA) funds on April 3, 2023. The City received reimbursement of $61,740 from the IDHS on December 5, 2023, which was receipted into the City's Grant Fund along with the City's local match in the amount of $30,870. The Controller's Office did an adjustment on December 31, 2023, in the amount of $92,610, to reimburse the ARP Coronavirus LF Recovery Fund and decrease the Grant Fund, for the reimbursement of $61,740 and the local share of $30,870. However, per the grant agreement with the IDHS, "If the subrecipient incurs a financial obligation prior to approval of the State, then the subrecipient will be required to reimburse the State for the amount of funds that were not approved." As such, the expenditure was not an allowable activity or allowable cost and was outside of the period of performance due to the City incurring the expense prior to signing the grant agreement with the IDHS on March 3, 2023. The lack of internal controls and noncompliance were isolated to the purchase 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). . . ." 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: . . . (c) Be consistent with policies and procedures that apply uniformly to both federallyfinanced and other activities of the non-Federal entity. . . . (f) Not be included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or a prior period. . . ." 2 CFR 200.306(b) states: "For all Federal awards, any shared costs or matching funds and all contributions, including cash and third-party in-kind contributions, must be accepted as part of the non-Federal entity's cost sharing or matching when such contributions meet all of the following criteria: (1) Are verifiable from the non-Federal entity's records; INDIANA STATE BOARD OF ACCOUNTS 18 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (2) Are not included as contributions for any other Federal award; (3) Are necessary and reasonable for accomplishment of project or program objectives; (4) Are allowable under subpart E of this part; (5) Are not paid by the Federal Government under another Federal award, except where the Federal statute authorizing a program specifically provides that Federal funds made available for such program can be applied to matching or cost sharing requirements of other Federal programs; (6) Are provided for in the approved budget when required by the Federal awarding agency; and (7) Conform to other provisions of this part, as applicable." The Grant Agreement states in part: "Any purchases made by the Subrecipient that are not authorized by the U.S. Department of the Treasury allowability guidelines, the Subrecipient's Project or State, will not be reimbursed under this grant." "Pre-award costs, as defined in 2 CFR 200.458, may not be paid with funding from this award." 2 CFR 200.458 states: "Pre-award costs are those incurred prior to the effective date of the Federal award or subaward directly pursuant to the negotiation and in anticipation of the Federal award where such costs are necessary for efficient and timely performance of the scope of work. Such costs are allowable only to the extent that they would have been allowable if incurred after the date of the Federal award and only with the written approval of the Federal awarding agency. If charged to the award, these costs must be charged to the initial budget period of the award, unless otherwise specified by the Federal awarding agency or pass-through entity." Cause Management had not developed a system of internal controls that would have prevented or detected material noncompliance. The City did not ensure that the policies and procedures in place related to allowable or unallowable activities, allowable costs and cost principles, and period of performance were complied with at the acceptance of the grant from the IDHS. 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, an invoice that was previously paid with other federal award funds was submitted for reimbursement to another agency. The original invoice was outside of the period of performance and unallowable as related to the award from the IDHS. Furthermore, 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 We identified $61,740 in questioned costs as noted above in the Condition and Context. INDIANA STATE BOARD OF ACCOUNTS 19 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Recommendation We recommended that management of the City establish a proper system of internal controls, including strengthening its policies and procedures to ensure all costs submitted for reimbursement are not already reimbursed by another federal award and are within the period of performance. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2023-004 Subject: COVID-19: Coronavirus State and Local Fiscal Recovery Funds - Body Camera - 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): 71391 Pass-Through Entity: Indiana Department of Homeland Security Compliance Requirement: Reporting Audit Findings: Material Weakness, Modified Opinion Condition and Context The City 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 were required to submit quarterly progress reports to the Indiana Department of Homeland Security. Information to be reported included progress or performance on the project for the appropriate reporting period. The City should have submitted two progress reports during the audit period since the grant agreement was signed on March 3, 2023, and a final quarterly report. The final quarterly report was submitted on October 30, 2023. However, the City only submitted one progress report which was prepared and submitted by a single employee 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. The noncompliance was isolated to the quarterly reports that were not submitted. 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). . . ." INDIANA STATE BOARD OF ACCOUNTS 20 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 2 CFR 200.329(c) states: "Non-construction performance reports. The Federal awarding agency must use standard, governmentwide OMB-approved data elements for collection of performance information including performance progress reports, Research Performance Progress Reports. (1) The non-Federal entity must submit performance reports at the interval required by the Federal awarding agency or pass-through entity to best inform improvements in program outcomes and productivity. Intervals must be no less frequent than annually nor more frequent than quarterly except in unusual circumstances, for example where more frequent reporting is necessary for the effective monitoring of the Federal award or could significantly affect program outcomes. Reports submitted annually by the non- Federal entity and/or pass-through entity must be due no later than 90 calendar days after the reporting period. Reports submitted quarterly or semiannually must be due no later than 30 calendar days after the reporting period. Alternatively, the Federal awarding agency or pass-through entity may require annual reports before the anniversary dates of multiple year Federal awards. The final performance report submitted by the non-Federal entity and/or pass-through entity must be due no later than 120 calendar days after the period of performance end date. A subrecipient must submit to the pass-through entity, no later than 90 calendar days after the period of performance end date, all final performance reports as required by the terms and conditions of the Federal award. If a justified request is submitted by a non-Federal entity, the Federal agency may extend the due date for any performance report. (2) As appropriate in accordance with above mentioned performance reporting, these reports will contain, for each Federal award, brief information on the following unless other data elements are approved by OMB in the agency information collection request: (i) A comparison of actual accomplishments to the objectives of the Federal award established for the period. Where the accomplishments of the Federal award can be quantified, a computation of the cost (for example, related to units of accomplishment) may be required if that information will be useful. Where performance trend data and analysis would be informative to the Federal awarding agency program, the Federal awarding agency should include this as a performance reporting requirement. (ii) The reasons why established goals were not met, if appropriate. (iii) Additional pertinent information including, when appropriate, analysis and explanation of cost overruns or high unit costs." The Grant Agreement states in part: "The Subrecipient shall submit to the State written progress reports until completion of the project. These reports shall be submitted on a quarterly basis and shall contain such detail of progress or performance on the Project or as requested by the State." Cause Management had not developed a system of internal controls that would have prevented or detected and allowed for correction of material noncompliance. The City did not complete and submit quarterly reports as required because the officials were unaware of the requirement. INDIANA STATE BOARD OF ACCOUNTS 21 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Effect Without the proper design or implementation of the components of a system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, noncompliance. As such, not all the required reports were not submitted. 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, including policies and procedures to ensure the City completes and submits all required reports. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2023-005 Subject: COVID-19: Coronavirus State and Local Fiscal Recovery Funds - US 12 Stormwater Drainage Improvement Project - Suspension and Debarment 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): TRSW222046 Pass-Through Entity: Indiana Finance Authority Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Condition and Context Prior to entering into subawards and covered transactions with 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 Board of Public Works completing a review of each bid packet to ensure the bidder submitted a statement indicating if they were not suspended or debarred. There was one contract that equaled or exceeded $25,000 during the audit period, which was selected for testing to verify the City followed its procedures related to suspension and debarment. One contract was identified and tested during the audit period. The contract in the amount of $148,795 was for the construction work on the US 12 Stormwater Drainage Improvement project by the City Sanitary District. Although bids were obtained for the construction project, the vendor's suspension and debarment status was not verified prior to payment. The lack of internal controls and noncompliance were isolated to the contract noted above. INDIANA STATE BOARD OF ACCOUNTS 22 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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 intend to 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 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 appropriately followed. 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, the City cannot ensure the contractors paid with federal funds are eligible to participate in federal program. Any program funds the City used to pay contractors that have been suspended or debarred would be unallowable, and the funding agency could potentially recover them. Furthermore, 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 that all contractors that are paid $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs before entering into contracts. INDIANA STATE BOARD OF ACCOUNTS 23 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2023-006 Subject: COVID-19: Coronavirus State and Local Fiscal Recovery Funds - US 12 Stormwater Drainage Improvement Project - Reporting Federal Agency: Department of the Treasury Federal Program: COVID-19: Coronavirus State and Local Fiscal Recovery Funds Assistance Listing Number: 21.027 Federal Award Number and Year (or Other Identifying Number): TRSW222046 Pass-Through Entity: Indiana Finance Authority Compliance Requirement: Reporting Audit Findings: Material Weakness, Modified Opinion Condition and Context The City 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 were required to submit quarterly expenditure reports and a final report to the Indiana Finance Authority. Information to be reported included the expenditures of the grant and the status on the project for the appropriate reporting period. The City should have submitted four expenditure reports and a final report since the grant agreement was signed on February 25, 2022. However, the City only submitted one expenditure report for the fourth quarter and a final report. In addition, a single employee prepared and submitted the progress 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. The noncompliance was isolated to the missing 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). . . ." 2 CFR 200.329(c) states: "Non-construction performance reports. The Federal awarding agency must use standard, governmentwide OMB-approved data elements for collection of performance information including performance progress reports, Research Performance Progress Reports. INDIANA STATE BOARD OF ACCOUNTS 24 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (1) The non-Federal entity must submit performance reports at the interval required by the Federal awarding agency or pass-through entity to best inform improvements in program outcomes and productivity. Intervals must be no less frequent than annually nor more frequent than quarterly except in unusual circumstances, for example where more frequent reporting is necessary for the effective monitoring of the Federal award or could significantly affect program outcomes. Reports submitted annually by the non- Federal entity and/or pass-through entity must be due no later than 90 calendar days after the reporting period. Reports submitted quarterly or semiannually must be due no later than 30 calendar days after the reporting period. Alternatively, the Federal awarding agency or pass-through entity may require annual reports before the anniversary dates of multiple year Federal awards. The final performance report submitted by the non-Federal entity and/or pass-through entity must be due no later than 120 calendar days after the period of performance end date. A subrecipient must submit to the pass-through entity, no later than 90 calendar days after the period of performance end date, all final performance reports as required by the terms and conditions of the Federal award. If a justified request is submitted by a non-Federal entity, the Federal agency may extend the due date for any performance report. (2) As appropriate in accordance with above mentioned performance reporting, these reports will contain, for each Federal award, brief information on the following unless other data elements are approved by OMB in the agency information collection request: (i) A comparison of actual accomplishments to the objectives of the Federal award established for the period. Where the accomplishments of the Federal award can be quantified, a computation of the cost (for example, related to units of accomplishment) may be required if that information will be useful. Where performance trend data and analysis would be informative to the Federal awarding agency program, the Federal awarding agency should include this as a performance reporting requirement. (ii) The reasons why established goals were not met, if appropriate. (iii) Additional pertinent information including, when appropriate, analysis and explanation of cost overruns or high unit costs." The Grant Agreement states in part: "The Participant will report to the Finance Authority on the Participant's expenditure of the Grant and the status of the Project on the first day of each quarter following the date of this Agreement, and on the first day of every quarter thereafter until the Participant extends all the Grant funds and completes the Project, whichever is later. At the time the Participant completes the Project, the Participant will provide promptly to the Finance Authority a final report (the "Final Report"). All reports to the Finance Authority will be in form and substance satisfactory to the Finance Authority and as may be required by the United States Department of Treasury . . ." Cause Management had not developed a system of internal controls that would have prevented or detected and allowed for correction of material noncompliance. The City did not complete and submit quarterly reports as required because the officials were unaware of the requirement. INDIANA STATE BOARD OF ACCOUNTS 25 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Without the proper design or implementation of the components of a system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, noncompliance. As such, not all the required reports were not submitted. 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, including policies and procedures, to ensure the City completes and submits all required reports. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.