2022-004 – Lack of Reporting (SD, NC)
Federal Program Title: Coronavirus State and Local Fiscal Recovery Funds
Federal Catalog Number: 21.027
Federal Agency: U.S. Department of Treasury
Category of Finding: Reporting
Criteria: Pursuant to the Office of Management and Budget (OMB) 2 CFR Part 200, Appendix XI, Compliance Supplement April 2022 Part 4 21.027 Coronavirus State and Local Fiscal Recovery Funds (page 4-21.027-7), the annual reporting requirement for Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) is through the submission of the initial Interim Report, quarterly Project and Expenditure Report, and the Recovery Plan Performance Report. The interim report is a one time report that provides an initial overview of status and use of funding. The Project and Expenditure Report details the financial data, projects funded, expenditures and contracts over $50,000.
Condition: During our audit, the City was unable to provide evidence that any project and expenditure report for the period between July 2021 through June 2022 was submitted. Also, there was no evidence the interim report was submitted. The Recovery Plan Performance report is not a required report for the City due to their population size falling under the 250,000 requirement.
Cause: Lack of appropriate control over reporting, mainly due to turn-over in City personnel.
Effect or Potential Effect: Noncompliance may result in termination of the grants, reduction in future payments or funding amounts, repayment of federal funds already received and spent, imposed fines and penalties, reputational damage, special status for oversight and reviews, need for corrective action plan, and/or suspension or debarment.
Questioned Cost: None.
Context: According to the Assistant City Manager, reports for FY 2022 were neither drafted nor submitted, however they were prepared in FY 2023.
Statistical Sampling Validity: Not applicable. No sampling was performed.
Repeat of a Prior-Year Finding: No.
Recommendation: The City should design and establish internal controls over reporting, which should include maintaining copies of reports submitted for audit.
Management Response and Corrective Action Plan
City's Response: The City concurs with the recommendation.
Corrective Action Plan: The new grants policy will be reviewed and approved by the City Manager and implemented by March 2025.
Planned Implementation Date: March 2025
Responsible Person(s): City Manager
2022-005 – Delayed Approval of Compensation Rates (SD)
Federal Program Title: Section 8 Housing Choice Vouchers
Assistance Listing Number: 14.871
Federal Agency: U.S. Department of Housing and Urban Development
Category of Finding: Allowable Costs and Cost Principles
Criteria: Per 2 CFR §200.430 of the Uniform Guidance, compensation for personnel services, including any adjustments, must be based on documented and approved procedures in accordance with the organization’s established policies. All changes to compensation must be approved and documented in a timely manner to ensure compliance with both federal and non-federal funding requirements. The City uses personnel action forms (PAF) to document changes to compensation. The PAF must be approved by authorized personnel in advance.
Condition: During the review of personnel costs, it was observed that changes in the compensation rates for employees charged to the federally funded project were not approved in a timely manner. Documentation showed delays in the authorization of salary adjustments, with compensation changes becoming effective before formal approval by the City.
Cause: The City’s internal control processes for reviewing and approving compensation changes were not followed promptly. There was a lack of procedures ensuring that salary adjustments were approved prior to the effective date.
Effect or Potential Effect: Untimely approval of compensation changes increases the risk of inaccurate or unallowable personnel costs being charged to the federal award. This may result in questioned costs, non-compliance with federal regulations, and potential audit findings.
Questioned Cost: None.
Context: We selected five employees who worked on the program and in all cases, the PAF were authorized much later than the effective date of the compensation change.
Statistical Sampling Validity: More than 50% of employees who work on the program were selected.
Repeat of a Prior-Year Finding: No.
Recommendation: The City should reinforce internal controls to ensure that all compensation changes are reviewed and approved promptly. This should include:
• Establishing a timeline for the approval of compensation adjustments.
• Implementing procedures that prevent compensation changes from being applied until formal approval is obtained.
• Ensuring proper documentation of all approved salary changes is maintained.
Management Response and Corrective Action Plan
City's Response: The City concurs with the recommendation.
Corrective Action Plan: The HR and payroll policies will be updated to incorporate the above recommendations.
Planned Implementation Date: March 2025
Responsible Person(s): City Manager
2022-006 – Missing Contracts/Agreements with HUD (SD)
Federal Program Title: Section 8 Housing Choice Vouchers
Assistance Listing Number: 14.871
Federal Agency: U.S. Department of Housing and Urban Development
Category of Finding: Special Tests and Provisions
Criteria: Pursuant to Office of Management and Budget (OMB) 2 CFR Part 200, Appendix XI, Compliance Supplement April 2022 Part 4 14.871, the Annual Contribution contract (ACC) establishes the amounts HUD will provide a housing authority for housing assistance payments (HAP) and administrative fees. In addition, CARES Act -HCV Program HAP Supplemental Funding and Administrative Fees were made available to the City in FY 2022. The amounts provided are identified in SF-424. The City should retain a copy of the ACC and the SF-424 for purposes of the audit.
Condition: The City was unable to provide a copy of the ACC and SF-424. It appears that the current personnel at the Local Housing Authority were not aware of the existence of the ACC and SF-424 for FY 2022.
Cause: The turnover of key personnel responsible for document retention and management, coupled with inadequate handover procedures, resulted in the failure to retain or properly transfer documents to new staff members.
Effect or Potential Effect: We were unable to perform some of the procedures to ensure that the reported expenditures were in line with the approved funding.
Questioned Cost: None.
Context: It appears that the current personnel at the Local Housing Authority were not aware of the existence of the ACC and SF-424 for FY 2022.
Statistical Sampling Validity: Not applicable. No sampling was performed.
Repeat of a Prior-Year Finding: No.
Recommendation: The City should establish a formalized procedure for documentation management that includes clear guidelines for document retention. Additionally, there should be a structured transition process when staff turnover occurs to ensure all key responsibilities and documents are properly handed over. This may include a centralized document repository and mandatory documentation of transitions between employees.
Management Response and Corrective Action Plan
City's Response: The City concurs with the recommendation.
Corrective Action Plan: The new grants policy will be reviewed and approved by the City Manager and implemented by March 2025.
Planned Implementation Date: March 2025
Responsible Person(s): City Manager
2022-007 – Lack of Oversight Due of Management Turnover (SD)
Federal Program Title: Section 8 Housing Choice Vouchers
Assistance Listing Number: 14.871
Federal Agency: U.S. Department of Housing and Urban Development
Category of Finding: Reporting/Special Tests and Provisions
Criteria: Under 2 CFR §200.303 of the Uniform Guidance, non-federal entities are required to establish and maintain effective internal control over compliance, including appropriate oversight of federal programs to ensure compliance with applicable laws, regulations, and the terms and conditions of the federal awards. Effective internal controls rely on strong management oversight to ensure that compliance responsibilities are met, even during periods of organizational change.
Condition: During the audit, it was noted that the entity experienced significant turnover in key management positions responsible for overseeing compliance with federal awards. As a result, there was insufficient oversight of federal programs and internal controls. Critical duties related to compliance monitoring, reporting, and financial management were not performed adequately during the transition period, and there was a lack of continuity in management practices.
Cause: The entity did not have adequate processes in place to ensure continuity of oversight and management responsibilities during periods of turnover. There were no succession plans or interim measures to ensure that compliance duties were properly transitioned and maintained.
Effect or Potential Effect: The lack of oversight during the management turnover period increases the risk of non-compliance with federal award requirements. It can lead to gaps in monitoring, failure to meet reporting deadlines, inaccurate financial management, and the potential for disallowed costs or other negative consequences.
Questioned Cost: None.
Context: The deficiency was found during our testing of reporting and special tests and provisions.
Statistical Sampling Validity: Not applicable. No sampling was performed.
Repeat of a Prior-Year Finding: No.
Recommendation: The entity should establish policies and procedures to ensure continuity of oversight and compliance monitoring during management transitions. This should include:
1. Developing a formal succession plan for key management positions responsible for overseeing federal programs.
2. Implementing interim oversight measures, such as assigning temporary leadership or redistributing compliance responsibilities during periods of transition.
3. Ensuring that new management receives timely training on compliance responsibilities and internal controls related to federal awards.
Management Response and Corrective Action Plan
City's Response: The City concurs with the recommendation.
Corrective Action Plan: The recommendations are included in the new grants policy. The City Manager shall review and approve it for implementation by March 2025.
Planned Implementation Date: March 2025
Responsible Person(s): City Manager
2022-004 – Lack of Reporting (SD, NC)
Federal Program Title: Coronavirus State and Local Fiscal Recovery Funds
Federal Catalog Number: 21.027
Federal Agency: U.S. Department of Treasury
Category of Finding: Reporting
Criteria: Pursuant to the Office of Management and Budget (OMB) 2 CFR Part 200, Appendix XI, Compliance Supplement April 2022 Part 4 21.027 Coronavirus State and Local Fiscal Recovery Funds (page 4-21.027-7), the annual reporting requirement for Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) is through the submission of the initial Interim Report, quarterly Project and Expenditure Report, and the Recovery Plan Performance Report. The interim report is a one time report that provides an initial overview of status and use of funding. The Project and Expenditure Report details the financial data, projects funded, expenditures and contracts over $50,000.
Condition: During our audit, the City was unable to provide evidence that any project and expenditure report for the period between July 2021 through June 2022 was submitted. Also, there was no evidence the interim report was submitted. The Recovery Plan Performance report is not a required report for the City due to their population size falling under the 250,000 requirement.
Cause: Lack of appropriate control over reporting, mainly due to turn-over in City personnel.
Effect or Potential Effect: Noncompliance may result in termination of the grants, reduction in future payments or funding amounts, repayment of federal funds already received and spent, imposed fines and penalties, reputational damage, special status for oversight and reviews, need for corrective action plan, and/or suspension or debarment.
Questioned Cost: None.
Context: According to the Assistant City Manager, reports for FY 2022 were neither drafted nor submitted, however they were prepared in FY 2023.
Statistical Sampling Validity: Not applicable. No sampling was performed.
Repeat of a Prior-Year Finding: No.
Recommendation: The City should design and establish internal controls over reporting, which should include maintaining copies of reports submitted for audit.
Management Response and Corrective Action Plan
City's Response: The City concurs with the recommendation.
Corrective Action Plan: The new grants policy will be reviewed and approved by the City Manager and implemented by March 2025.
Planned Implementation Date: March 2025
Responsible Person(s): City Manager
2022-005 – Delayed Approval of Compensation Rates (SD)
Federal Program Title: Section 8 Housing Choice Vouchers
Assistance Listing Number: 14.871
Federal Agency: U.S. Department of Housing and Urban Development
Category of Finding: Allowable Costs and Cost Principles
Criteria: Per 2 CFR §200.430 of the Uniform Guidance, compensation for personnel services, including any adjustments, must be based on documented and approved procedures in accordance with the organization’s established policies. All changes to compensation must be approved and documented in a timely manner to ensure compliance with both federal and non-federal funding requirements. The City uses personnel action forms (PAF) to document changes to compensation. The PAF must be approved by authorized personnel in advance.
Condition: During the review of personnel costs, it was observed that changes in the compensation rates for employees charged to the federally funded project were not approved in a timely manner. Documentation showed delays in the authorization of salary adjustments, with compensation changes becoming effective before formal approval by the City.
Cause: The City’s internal control processes for reviewing and approving compensation changes were not followed promptly. There was a lack of procedures ensuring that salary adjustments were approved prior to the effective date.
Effect or Potential Effect: Untimely approval of compensation changes increases the risk of inaccurate or unallowable personnel costs being charged to the federal award. This may result in questioned costs, non-compliance with federal regulations, and potential audit findings.
Questioned Cost: None.
Context: We selected five employees who worked on the program and in all cases, the PAF were authorized much later than the effective date of the compensation change.
Statistical Sampling Validity: More than 50% of employees who work on the program were selected.
Repeat of a Prior-Year Finding: No.
Recommendation: The City should reinforce internal controls to ensure that all compensation changes are reviewed and approved promptly. This should include:
• Establishing a timeline for the approval of compensation adjustments.
• Implementing procedures that prevent compensation changes from being applied until formal approval is obtained.
• Ensuring proper documentation of all approved salary changes is maintained.
Management Response and Corrective Action Plan
City's Response: The City concurs with the recommendation.
Corrective Action Plan: The HR and payroll policies will be updated to incorporate the above recommendations.
Planned Implementation Date: March 2025
Responsible Person(s): City Manager
2022-006 – Missing Contracts/Agreements with HUD (SD)
Federal Program Title: Section 8 Housing Choice Vouchers
Assistance Listing Number: 14.871
Federal Agency: U.S. Department of Housing and Urban Development
Category of Finding: Special Tests and Provisions
Criteria: Pursuant to Office of Management and Budget (OMB) 2 CFR Part 200, Appendix XI, Compliance Supplement April 2022 Part 4 14.871, the Annual Contribution contract (ACC) establishes the amounts HUD will provide a housing authority for housing assistance payments (HAP) and administrative fees. In addition, CARES Act -HCV Program HAP Supplemental Funding and Administrative Fees were made available to the City in FY 2022. The amounts provided are identified in SF-424. The City should retain a copy of the ACC and the SF-424 for purposes of the audit.
Condition: The City was unable to provide a copy of the ACC and SF-424. It appears that the current personnel at the Local Housing Authority were not aware of the existence of the ACC and SF-424 for FY 2022.
Cause: The turnover of key personnel responsible for document retention and management, coupled with inadequate handover procedures, resulted in the failure to retain or properly transfer documents to new staff members.
Effect or Potential Effect: We were unable to perform some of the procedures to ensure that the reported expenditures were in line with the approved funding.
Questioned Cost: None.
Context: It appears that the current personnel at the Local Housing Authority were not aware of the existence of the ACC and SF-424 for FY 2022.
Statistical Sampling Validity: Not applicable. No sampling was performed.
Repeat of a Prior-Year Finding: No.
Recommendation: The City should establish a formalized procedure for documentation management that includes clear guidelines for document retention. Additionally, there should be a structured transition process when staff turnover occurs to ensure all key responsibilities and documents are properly handed over. This may include a centralized document repository and mandatory documentation of transitions between employees.
Management Response and Corrective Action Plan
City's Response: The City concurs with the recommendation.
Corrective Action Plan: The new grants policy will be reviewed and approved by the City Manager and implemented by March 2025.
Planned Implementation Date: March 2025
Responsible Person(s): City Manager
2022-007 – Lack of Oversight Due of Management Turnover (SD)
Federal Program Title: Section 8 Housing Choice Vouchers
Assistance Listing Number: 14.871
Federal Agency: U.S. Department of Housing and Urban Development
Category of Finding: Reporting/Special Tests and Provisions
Criteria: Under 2 CFR §200.303 of the Uniform Guidance, non-federal entities are required to establish and maintain effective internal control over compliance, including appropriate oversight of federal programs to ensure compliance with applicable laws, regulations, and the terms and conditions of the federal awards. Effective internal controls rely on strong management oversight to ensure that compliance responsibilities are met, even during periods of organizational change.
Condition: During the audit, it was noted that the entity experienced significant turnover in key management positions responsible for overseeing compliance with federal awards. As a result, there was insufficient oversight of federal programs and internal controls. Critical duties related to compliance monitoring, reporting, and financial management were not performed adequately during the transition period, and there was a lack of continuity in management practices.
Cause: The entity did not have adequate processes in place to ensure continuity of oversight and management responsibilities during periods of turnover. There were no succession plans or interim measures to ensure that compliance duties were properly transitioned and maintained.
Effect or Potential Effect: The lack of oversight during the management turnover period increases the risk of non-compliance with federal award requirements. It can lead to gaps in monitoring, failure to meet reporting deadlines, inaccurate financial management, and the potential for disallowed costs or other negative consequences.
Questioned Cost: None.
Context: The deficiency was found during our testing of reporting and special tests and provisions.
Statistical Sampling Validity: Not applicable. No sampling was performed.
Repeat of a Prior-Year Finding: No.
Recommendation: The entity should establish policies and procedures to ensure continuity of oversight and compliance monitoring during management transitions. This should include:
1. Developing a formal succession plan for key management positions responsible for overseeing federal programs.
2. Implementing interim oversight measures, such as assigning temporary leadership or redistributing compliance responsibilities during periods of transition.
3. Ensuring that new management receives timely training on compliance responsibilities and internal controls related to federal awards.
Management Response and Corrective Action Plan
City's Response: The City concurs with the recommendation.
Corrective Action Plan: The recommendations are included in the new grants policy. The City Manager shall review and approve it for implementation by March 2025.
Planned Implementation Date: March 2025
Responsible Person(s): City Manager