Audit 332703

FINDING 2021-003 Subject: Water and Waste Disposal Systems for Rural Communities - Internal Controls Federal Agency: Department of Agriculture Federal Program: Water and Waste Disposal Systems for Rural Communities Assistance Listings Number: 10.760 Federal Award Number and Year (or Other Identifying Number): FY 2021 Compliance Requirements: Activities Allowed or Unallowed; Allowable Costs/Cost Principles; Matching, Level of Effort, Earmarking Audit Finding: Material Weakness Condition and Context An effective internal control system, which would include segregation of duties, was not in place at the Town in order to ensure compliance with requirements related to the grant agreement and the following compliance requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Matching. Activities Allowed or Unallowed and Allowable Costs/Cost Principles There was no documented oversight, review, or approval process in place over federal expenditures related to the grant. Although the Town Council approved grant project related contracts, individual expenditures did not have a documented review process in place (or consistent Town Council approval) to ensure disbursements made were allowable and in accordance with contract provisions related to the grant. Matching No documented reports, spreadsheets, or calculations prepared by the Town were provided to ensure matching requirements were met or being met. Additionally, the Town Council was not reviewing and approving all federal expenditures (including matching expenditures) related to the grant. 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 18 TOWN OF NEWPORT SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Cause A proper system of internal controls was not designed by management of the Town, 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 Town'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 implementation of an effectively designed 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. It also placed the Town at risk of noncompliance with the grant agreement. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the Town 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 2021-004 Subject: Water and Waste Disposal System for Rural Communities - Reporting Federal Agency: Department of Agriculture Federal Program: Water and Waste Disposal System for Rural Communities Assistance Listings Number: 10.760 Federal Award Number and Year (or Other Identifying Number): FY 2021 Compliance Requirement: Reporting Audit Findings: Material Weakness, Modified Opinion Condition and Context Recipients are required to submit RD 442-2 (Statement of Budget, Income and Equity) and RD 442-3 (Balance Sheet) covering the fiscal year within 60 days of the end of the fiscal year to the United States Department of Agriculture (USDA). There was no documented oversight, review, or approval process to ensure the required RD 442-2 (Statement of Budget, Income and Equity) and RD 442-3 (Balance Sheet) reports were completed and submitted timely and accurately to the Department of Agriculture (USDA). Due to the lack of internal controls, the Town did not submit the required RD 442-2 and 442-3 reports to the USDA during the audit period. INDIANA STATE BOARD OF ACCOUNTS 19 TOWN OF NEWPORT SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 7 CFR 1780.47(e) states in part: ". . . within 60 days following the end of each fiscal year, furnish the RUS with annual financial statements, consisting of a verification of the organization's balance sheet and statement of income and expense by an appropriate official of the organization. Forms RD 442-2, 'Statement of Budget, Income and Equity,' and 442-3 may be used." Cause The Town was unable to provide documentation to show that the RD 442-2 and RD 442-3 reports were filed. Effect Without the proper implementation of an effectively designed system of internal controls, the Town could not ensure that the required reports were filed with the awarding agency. As such, the awarding agency did not have accurate and current information to discern the financial status of the Town's project. Furthermore, noncompliance with the provisions of federal statutes, regulations, and the terms and conditions or the federal award could result in the loss of future federal funding to the Town. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the Town's management design and implement a system of internal controls that would provide segregation of duties for the preparation and review of federal reports to ensure appropriate reviews, approvals, and oversight are taking place. Additionally, management should develop policies and procedures to ensure that all required reports are filed timely and accurately. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2021-003 Subject: Water and Waste Disposal Systems for Rural Communities - Internal Controls Federal Agency: Department of Agriculture Federal Program: Water and Waste Disposal Systems for Rural Communities Assistance Listings Number: 10.760 Federal Award Number and Year (or Other Identifying Number): FY 2021 Compliance Requirements: Activities Allowed or Unallowed; Allowable Costs/Cost Principles; Matching, Level of Effort, Earmarking Audit Finding: Material Weakness Condition and Context An effective internal control system, which would include segregation of duties, was not in place at the Town in order to ensure compliance with requirements related to the grant agreement and the following compliance requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Matching. Activities Allowed or Unallowed and Allowable Costs/Cost Principles There was no documented oversight, review, or approval process in place over federal expenditures related to the grant. Although the Town Council approved grant project related contracts, individual expenditures did not have a documented review process in place (or consistent Town Council approval) to ensure disbursements made were allowable and in accordance with contract provisions related to the grant. Matching No documented reports, spreadsheets, or calculations prepared by the Town were provided to ensure matching requirements were met or being met. Additionally, the Town Council was not reviewing and approving all federal expenditures (including matching expenditures) related to the grant. 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 18 TOWN OF NEWPORT SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Cause A proper system of internal controls was not designed by management of the Town, 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 Town'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 implementation of an effectively designed 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. It also placed the Town at risk of noncompliance with the grant agreement. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the Town 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 2021-004 Subject: Water and Waste Disposal System for Rural Communities - Reporting Federal Agency: Department of Agriculture Federal Program: Water and Waste Disposal System for Rural Communities Assistance Listings Number: 10.760 Federal Award Number and Year (or Other Identifying Number): FY 2021 Compliance Requirement: Reporting Audit Findings: Material Weakness, Modified Opinion Condition and Context Recipients are required to submit RD 442-2 (Statement of Budget, Income and Equity) and RD 442-3 (Balance Sheet) covering the fiscal year within 60 days of the end of the fiscal year to the United States Department of Agriculture (USDA). There was no documented oversight, review, or approval process to ensure the required RD 442-2 (Statement of Budget, Income and Equity) and RD 442-3 (Balance Sheet) reports were completed and submitted timely and accurately to the Department of Agriculture (USDA). Due to the lack of internal controls, the Town did not submit the required RD 442-2 and 442-3 reports to the USDA during the audit period. INDIANA STATE BOARD OF ACCOUNTS 19 TOWN OF NEWPORT SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 7 CFR 1780.47(e) states in part: ". . . within 60 days following the end of each fiscal year, furnish the RUS with annual financial statements, consisting of a verification of the organization's balance sheet and statement of income and expense by an appropriate official of the organization. Forms RD 442-2, 'Statement of Budget, Income and Equity,' and 442-3 may be used." Cause The Town was unable to provide documentation to show that the RD 442-2 and RD 442-3 reports were filed. Effect Without the proper implementation of an effectively designed system of internal controls, the Town could not ensure that the required reports were filed with the awarding agency. As such, the awarding agency did not have accurate and current information to discern the financial status of the Town's project. Furthermore, noncompliance with the provisions of federal statutes, regulations, and the terms and conditions or the federal award could result in the loss of future federal funding to the Town. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the Town's management design and implement a system of internal controls that would provide segregation of duties for the preparation and review of federal reports to ensure appropriate reviews, approvals, and oversight are taking place. Additionally, management should develop policies and procedures to ensure that all required reports are filed timely and accurately. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.