FINDING 2022-003
Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Allowable Costs/Cost Principles
Federal Agency: Department of Treasury
Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds
Assistance Listings Number: 21.027
Federal Award Number and Year (or Other Identifying Number): FY 2022
Compliance Requirement: Allowable Costs/Cost Principles
Audit Findings: Material Weakness, Other Matters
Condition and Context
Allowable costs are based on the premise that a recipient is responsible for the effective administration
of the federal award, application of sound management practices, and administration of federal
funds in a manner consistent with the program objectives and terms and conditions of the awards. State
and Local Fiscal Recovery Funds (SLFRF) recipients must implement internal controls and effective
monitoring to ensure compliance with the cost principles.
Costs were charged to the SLFRF award in two ways. Either directly, as an expense to the fund
at the time of initial posting, or indirectly via a journal entry after the initial time of posting. Costs charged
directly at the time of initial posting were reviewed and approved by an individual that had knowledge of the
activity. Costs charged to the SLFRF award indirectly via a journal entry were completed by one employee
with no review process in place to ensure the journal entry posted was allowable, accurate, and timely.
Due to the lack of effective internal controls over direct payroll postings, 2 deviations out of 13
payroll transactions tested were not supported due to the City incorrectly calculating the firefighter overtime
wages. The deviations noted were for the pay periods ending March 27, 2022, and July 3, 2022. This time
frame was covered in an audit conducted by the Department of Labor (DOL). The audit conducted by the
DOL was over the City's payroll pertaining to firefighter and paramedic overtime wages. The audit covered
the period of March 8, 2020 to October 29, 2022, and concluded that the City underpaid 172
firefighters/paramedics due to incorrectly calculating the overtime wages for the audit period covered.
Based on the audit conducted by the DOL, we tested two employees' payrolls from November 4,
2022 through December 30, 2022, which consisted of 10 additional transactions, to determine if the City
had corrected the calculations after the audit period that was covered by the DOL audit. This testing
identified that the City had not corrected the calculation issue for the overtime wages for these two
employees which resulted in 9 additional deviations of noncompliance.
The lack of internal controls and noncompliance were systemic issues throughout the audit period.
Criteria
2 CFR 200.303 states in part:
"The non-Federal entity must:
INDIANA STATE BOARD OF ACCOUNTS
24
CITY OF GARY
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). . . ."
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:
(a) Be necessary and reasonable for the performance of the Federal award and be
allocable thereto under these principles.
(b) Conform to any limitations or exclusions set forth in these principles or in the Federal
award as to types or amount of cost items. . . .
(g) Be adequately documented. . . ."
Cause
A proper system of internal controls over payroll transactions was not effective to ensure that the
City correctly calculated firefighter wages that were paid from the COVID-19 - Coronavirus State and Local
Fiscal Recovery Funds grant. Embedded within a properly designed and implemented internal control
system should be internal controls consisting of policies and procedures. Policies reflect the City's
management statements of what should be done to effect internal controls, and procedures should consist
of actions that would implement these policies.
Effect
Without the proper implementation of an effectively designed system of internal controls, the
internal control system cannot be capable of effectively preventing, or detecting and correcting, material
noncompliance. As such, costs paid from the SLFRF funds for overtime pay to firefighters and paramedics
was not adequately documented. 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 design and implement a proper system of internal
controls, including policies and procedures to ensure that the City's payroll is calculated properly based on
the Fair Labor Standards Act (FLSA) requirements.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2022-003
Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Allowable Costs/Cost Principles
Federal Agency: Department of Treasury
Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds
Assistance Listings Number: 21.027
Federal Award Number and Year (or Other Identifying Number): FY 2022
Compliance Requirement: Allowable Costs/Cost Principles
Audit Findings: Material Weakness, Other Matters
Condition and Context
Allowable costs are based on the premise that a recipient is responsible for the effective administration
of the federal award, application of sound management practices, and administration of federal
funds in a manner consistent with the program objectives and terms and conditions of the awards. State
and Local Fiscal Recovery Funds (SLFRF) recipients must implement internal controls and effective
monitoring to ensure compliance with the cost principles.
Costs were charged to the SLFRF award in two ways. Either directly, as an expense to the fund
at the time of initial posting, or indirectly via a journal entry after the initial time of posting. Costs charged
directly at the time of initial posting were reviewed and approved by an individual that had knowledge of the
activity. Costs charged to the SLFRF award indirectly via a journal entry were completed by one employee
with no review process in place to ensure the journal entry posted was allowable, accurate, and timely.
Due to the lack of effective internal controls over direct payroll postings, 2 deviations out of 13
payroll transactions tested were not supported due to the City incorrectly calculating the firefighter overtime
wages. The deviations noted were for the pay periods ending March 27, 2022, and July 3, 2022. This time
frame was covered in an audit conducted by the Department of Labor (DOL). The audit conducted by the
DOL was over the City's payroll pertaining to firefighter and paramedic overtime wages. The audit covered
the period of March 8, 2020 to October 29, 2022, and concluded that the City underpaid 172
firefighters/paramedics due to incorrectly calculating the overtime wages for the audit period covered.
Based on the audit conducted by the DOL, we tested two employees' payrolls from November 4,
2022 through December 30, 2022, which consisted of 10 additional transactions, to determine if the City
had corrected the calculations after the audit period that was covered by the DOL audit. This testing
identified that the City had not corrected the calculation issue for the overtime wages for these two
employees which resulted in 9 additional deviations of noncompliance.
The lack of internal controls and noncompliance were systemic issues throughout the audit period.
Criteria
2 CFR 200.303 states in part:
"The non-Federal entity must:
INDIANA STATE BOARD OF ACCOUNTS
24
CITY OF GARY
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). . . ."
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:
(a) Be necessary and reasonable for the performance of the Federal award and be
allocable thereto under these principles.
(b) Conform to any limitations or exclusions set forth in these principles or in the Federal
award as to types or amount of cost items. . . .
(g) Be adequately documented. . . ."
Cause
A proper system of internal controls over payroll transactions was not effective to ensure that the
City correctly calculated firefighter wages that were paid from the COVID-19 - Coronavirus State and Local
Fiscal Recovery Funds grant. Embedded within a properly designed and implemented internal control
system should be internal controls consisting of policies and procedures. Policies reflect the City's
management statements of what should be done to effect internal controls, and procedures should consist
of actions that would implement these policies.
Effect
Without the proper implementation of an effectively designed system of internal controls, the
internal control system cannot be capable of effectively preventing, or detecting and correcting, material
noncompliance. As such, costs paid from the SLFRF funds for overtime pay to firefighters and paramedics
was not adequately documented. 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 design and implement a proper system of internal
controls, including policies and procedures to ensure that the City's payroll is calculated properly based on
the Fair Labor Standards Act (FLSA) requirements.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.