Audit 319735

FINDING 2023-001 Subject: Equitable Sharing Program - Procurement and Suspension and Debarment Federal Agency: Department of Justice Federal Program: Equitable Sharing Program Assistance Listings Number: 16.922 Federal Award Number or Year (or Other Identifying Number): FY2022 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion INDIANA STATE BOARD OF ACCOUNTS 13 CITY OF HOBART SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context Prior to entering into subawards and covered transactions with Equitable Sharing Program award funds, recipients are required to verify that vendors 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 System for Award Management (SAMs) exclusions, collecting a certification from that person, or adding a clause or condition to the covered transaction with that person. The City's policies and procedures for this program related to the suspension and debarment requirements included checking the SAMs exclusions, collecting a certification from the vendor, or adding a clause or condition to the covered transaction with that person/vendor. A population of ten covered transactions was identified. Three transactions for equipment totaling $283,062 were selected for testing. For all three covered transactions tested, documentation to show that suspension and debarment was verified prior to entering into the contract could not be provided. The lack of effective internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 180.300 states: "When you enter into a covered transaction with another person at the next lower tier, you must verify that the person with whom you intend to do business is not excluded or disqualified. You do this by: (a) Checking SAM Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person." Cause The City's system of internal controls was not properly implemented to ensure that the policies and procedures in place would be completed timely prior to payment or that adequate supporting documentation of one of the three methods would be maintained. INDIANA STATE BOARD OF ACCOUNTS 14 CITY OF HOBART SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot ensure 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 funds. 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 implementing procedures to ensure that contractors paid $25,000 or more, all or in part with federal funds, are not suspended, debarred, or otherwise excluded prior to entering into any contracts. 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 - Procurement and 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): FY2022 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 State and Local Fiscal Recovery Funds (SLFRF) award funds, recipients are required to verify that vendors 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 and procedures for this program related to suspension and debarment requirements included checking the Excluded Parties List System (EPLS) via the System for Award Management (SAM) exclusions, collecting a certification from the vendor, or adding a clause or condition to the covered transaction with that person/vendor. A population of six covered transactions was identified. Two covered transactions, totaling $2,317,900, were selected for testing. For one covered transaction tested, the transaction was not completed using a City prepared contract, and, as such, the suspension and debarment clause was not included. For the other covered transaction tested, a contract was not entered into, and neither of the other two methods, verifying SAM exclusions or collection of a certification, were completed. INDIANA STATE BOARD OF ACCOUNTS 15 CITY OF HOBART SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The lack of effective 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 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 City's system of internal controls as established by management did not take into consideration the appropriate and necessary actions to take when the City's contract template was not utilized or a formal contract was not required. Effect Without the proper implementation of an effectively designed system of internal controls, the City cannot ensure 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 funds. 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 contractors paid $25,000 or more, all or in part with federal funds, are not suspended, debarred, or otherwise excluded prior to making payment or entering into a contract. INDIANA STATE BOARD OF ACCOUNTS 16 CITY OF HOBART 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 2023-003 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): FY2022 Compliance Requirement: Reporting Audit Finding: Material Weakness Condition and Context 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 city 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 P&E report covering the period from April 1, 2022 to March 31, 2023, was required to be submitted to the Treasury by April 30, 2023. The P&E report submitted in April 2023 was prepared and submitted by one employee without evidence of an oversight or review process to ensure accuracy. The lack of internal controls was isolated to the April 2023 P&E report. 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 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. INDIANA STATE BOARD OF ACCOUNTS 17 CITY OF HOBART SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Effect Without the proper design and implementation of the components of a system of internal controls, including policies and procedures that provide for segregation of duties and additional oversight as needed, the system cannot be capable of effectively preventing, or detecting and corrections, 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 2023-001 Subject: Equitable Sharing Program - Procurement and Suspension and Debarment Federal Agency: Department of Justice Federal Program: Equitable Sharing Program Assistance Listings Number: 16.922 Federal Award Number or Year (or Other Identifying Number): FY2022 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion INDIANA STATE BOARD OF ACCOUNTS 13 CITY OF HOBART SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context Prior to entering into subawards and covered transactions with Equitable Sharing Program award funds, recipients are required to verify that vendors 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 System for Award Management (SAMs) exclusions, collecting a certification from that person, or adding a clause or condition to the covered transaction with that person. The City's policies and procedures for this program related to the suspension and debarment requirements included checking the SAMs exclusions, collecting a certification from the vendor, or adding a clause or condition to the covered transaction with that person/vendor. A population of ten covered transactions was identified. Three transactions for equipment totaling $283,062 were selected for testing. For all three covered transactions tested, documentation to show that suspension and debarment was verified prior to entering into the contract could not be provided. The lack of effective internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 180.300 states: "When you enter into a covered transaction with another person at the next lower tier, you must verify that the person with whom you intend to do business is not excluded or disqualified. You do this by: (a) Checking SAM Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person." Cause The City's system of internal controls was not properly implemented to ensure that the policies and procedures in place would be completed timely prior to payment or that adequate supporting documentation of one of the three methods would be maintained. INDIANA STATE BOARD OF ACCOUNTS 14 CITY OF HOBART SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot ensure 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 funds. 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 implementing procedures to ensure that contractors paid $25,000 or more, all or in part with federal funds, are not suspended, debarred, or otherwise excluded prior to entering into any contracts. 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 - Procurement and 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): FY2022 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 State and Local Fiscal Recovery Funds (SLFRF) award funds, recipients are required to verify that vendors 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 and procedures for this program related to suspension and debarment requirements included checking the Excluded Parties List System (EPLS) via the System for Award Management (SAM) exclusions, collecting a certification from the vendor, or adding a clause or condition to the covered transaction with that person/vendor. A population of six covered transactions was identified. Two covered transactions, totaling $2,317,900, were selected for testing. For one covered transaction tested, the transaction was not completed using a City prepared contract, and, as such, the suspension and debarment clause was not included. For the other covered transaction tested, a contract was not entered into, and neither of the other two methods, verifying SAM exclusions or collection of a certification, were completed. INDIANA STATE BOARD OF ACCOUNTS 15 CITY OF HOBART SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The lack of effective 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 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 City's system of internal controls as established by management did not take into consideration the appropriate and necessary actions to take when the City's contract template was not utilized or a formal contract was not required. Effect Without the proper implementation of an effectively designed system of internal controls, the City cannot ensure 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 funds. 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 contractors paid $25,000 or more, all or in part with federal funds, are not suspended, debarred, or otherwise excluded prior to making payment or entering into a contract. INDIANA STATE BOARD OF ACCOUNTS 16 CITY OF HOBART 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 2023-003 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): FY2022 Compliance Requirement: Reporting Audit Finding: Material Weakness Condition and Context 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 city 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 P&E report covering the period from April 1, 2022 to March 31, 2023, was required to be submitted to the Treasury by April 30, 2023. The P&E report submitted in April 2023 was prepared and submitted by one employee without evidence of an oversight or review process to ensure accuracy. The lack of internal controls was isolated to the April 2023 P&E report. 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 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. INDIANA STATE BOARD OF ACCOUNTS 17 CITY OF HOBART SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Effect Without the proper design and implementation of the components of a system of internal controls, including policies and procedures that provide for segregation of duties and additional oversight as needed, the system cannot be capable of effectively preventing, or detecting and corrections, 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.