FINDING 2020-002
Subject: Water and Waste Disposal Systems for Rural Communities - Matching
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): CY2020
Compliance Requirement: Matching, Level of Effort, Earmarking
Audit Findings: Material Weakness, Modified Opinion
INDIANA STATE BOARD OF ACCOUNTS
14
TOWN OF MONROEVILLE
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Condition and Context
The Town had not designed or implemented adequate internal controls and procedures to ensure
compliance with the requirements related to the grant agreement and the Matching compliance requirement.
As part of the grant agreement with the U.S. Department of Agriculture (USDA), the Town was to
contribute $15,000 of local funds toward bond council. The Clerk-Treasurer posted all grant activity in Fund
810, Water Line Construction. Through inspection of the Fund, the Indiana State Board of Accounts
determined that no local funds were posted to be used to pay toward bond council.
The lack of internal controls and noncompliance were systemic issues, which occurred 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 1780.44(d) states: "Applicant contribution. An applicant contributing funds toward the
project cost shall deposit these funds in its project account before start of construction. Project costs paid
with applicant funds prior to the required deposit time shall be appropriately accounted for."
Cause
The lack of internal controls resulted in the required local fund contribution of $15,000 not being
posted to Fund 810, Water Line Construction.
Effect
Without the proper implementation of an effectively designed system of internal controls, the
omission of the local fund contribution posting of $15,000 occurred, allowing noncompliance with the
matching requirement. 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
Town.
Questioned Costs
Known questioned costs of $15,000 were identified, as detailed in Condition and Context.
Recommendation
We recommended that the Town's management establish a system of internal controls to ensure
compliance with the grant agreement and the Matching compliance requirement.
INDIANA STATE BOARD OF ACCOUNTS 15
TOWN OF MONROEVILLE
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 2020-003
Subject: Water and Waste Disposal Systems for Rural Communities - Reporting
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): CY2020
Compliance Requirement: Reporting
Audit Findings: Material Weakness, Modified Opinion
Condition and Context
Annual financial reports are to be filed with the awarding agency. The Town was required to file
two reports during the audit period, the Statement of Budget, Income and Equity (Form RD 442-2) and the
Balance Sheet (Form RD 442-3) with the U.S. Department of Agriculture (USDA).
The Form RD 442-2 covers financial operations relating to the Town's water main replacement
project and the Form RD 442-3 presents the financial status of the project. In both instances, a borrower
may submit the financial data on other forms, provided the forms are in a similar format and signed and
dated by the organization's official to certify the correctness of the information. Alternatively, an annual
audit may be submitted in lieu of the forms.
The Town did not prepare or file the required reports, submit financial data on other forms, or submit
an annual audit in lieu of the forms to the USDA. As such, we could not substantiate the financial operations
or the financial status of the project. Additionally, the Town did not obtain a written waiver from the USDA
to allow the Town not to file the reports.
The lack of internal controls and noncompliance were systemic issues, which occurred 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). . . ."
INDIANA STATE BOARD OF ACCOUNTS
16
TOWN OF MONROEVILLE
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
2 CFR 200.302(b) states in part:
"The financial management system of each non-Federal entity must provide for the following
. . .
(2) Accurate, current, and complete disclosure of the financial results of each Federal
award or program in accordance with the reporting requirements set forth in §§ 200.328
and 200.329. . . ."
7 CFR 1780.47(e) states:
"Borrowers exempt from audits. All borrowers who are exempt from audits, will, 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
Management of the Town had not established an effective system of internal controls that segregated
key functions and would have ensured compliance with reporting requirements of the grant. As a
result, Form 442-2 and Form 442-3 were not filed. The Town did not obtain a written waiver from the USDA
to support the reports not being filed.
Effect
Without the proper implementation of an effectively designed system of internal controls, the Town
cannot ensure the required reports were filed with the awarding agency. As such, the USDA does 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 of 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 establish a proper system of internal controls and
develop policies and procedures to ensure required reports, or allowable alternatives, are completed and
filed with the USDA.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2020-002
Subject: Water and Waste Disposal Systems for Rural Communities - Matching
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): CY2020
Compliance Requirement: Matching, Level of Effort, Earmarking
Audit Findings: Material Weakness, Modified Opinion
INDIANA STATE BOARD OF ACCOUNTS
14
TOWN OF MONROEVILLE
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Condition and Context
The Town had not designed or implemented adequate internal controls and procedures to ensure
compliance with the requirements related to the grant agreement and the Matching compliance requirement.
As part of the grant agreement with the U.S. Department of Agriculture (USDA), the Town was to
contribute $15,000 of local funds toward bond council. The Clerk-Treasurer posted all grant activity in Fund
810, Water Line Construction. Through inspection of the Fund, the Indiana State Board of Accounts
determined that no local funds were posted to be used to pay toward bond council.
The lack of internal controls and noncompliance were systemic issues, which occurred 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 1780.44(d) states: "Applicant contribution. An applicant contributing funds toward the
project cost shall deposit these funds in its project account before start of construction. Project costs paid
with applicant funds prior to the required deposit time shall be appropriately accounted for."
Cause
The lack of internal controls resulted in the required local fund contribution of $15,000 not being
posted to Fund 810, Water Line Construction.
Effect
Without the proper implementation of an effectively designed system of internal controls, the
omission of the local fund contribution posting of $15,000 occurred, allowing noncompliance with the
matching requirement. 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
Town.
Questioned Costs
Known questioned costs of $15,000 were identified, as detailed in Condition and Context.
Recommendation
We recommended that the Town's management establish a system of internal controls to ensure
compliance with the grant agreement and the Matching compliance requirement.
INDIANA STATE BOARD OF ACCOUNTS 15
TOWN OF MONROEVILLE
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 2020-003
Subject: Water and Waste Disposal Systems for Rural Communities - Reporting
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): CY2020
Compliance Requirement: Reporting
Audit Findings: Material Weakness, Modified Opinion
Condition and Context
Annual financial reports are to be filed with the awarding agency. The Town was required to file
two reports during the audit period, the Statement of Budget, Income and Equity (Form RD 442-2) and the
Balance Sheet (Form RD 442-3) with the U.S. Department of Agriculture (USDA).
The Form RD 442-2 covers financial operations relating to the Town's water main replacement
project and the Form RD 442-3 presents the financial status of the project. In both instances, a borrower
may submit the financial data on other forms, provided the forms are in a similar format and signed and
dated by the organization's official to certify the correctness of the information. Alternatively, an annual
audit may be submitted in lieu of the forms.
The Town did not prepare or file the required reports, submit financial data on other forms, or submit
an annual audit in lieu of the forms to the USDA. As such, we could not substantiate the financial operations
or the financial status of the project. Additionally, the Town did not obtain a written waiver from the USDA
to allow the Town not to file the reports.
The lack of internal controls and noncompliance were systemic issues, which occurred 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). . . ."
INDIANA STATE BOARD OF ACCOUNTS
16
TOWN OF MONROEVILLE
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
2 CFR 200.302(b) states in part:
"The financial management system of each non-Federal entity must provide for the following
. . .
(2) Accurate, current, and complete disclosure of the financial results of each Federal
award or program in accordance with the reporting requirements set forth in §§ 200.328
and 200.329. . . ."
7 CFR 1780.47(e) states:
"Borrowers exempt from audits. All borrowers who are exempt from audits, will, 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
Management of the Town had not established an effective system of internal controls that segregated
key functions and would have ensured compliance with reporting requirements of the grant. As a
result, Form 442-2 and Form 442-3 were not filed. The Town did not obtain a written waiver from the USDA
to support the reports not being filed.
Effect
Without the proper implementation of an effectively designed system of internal controls, the Town
cannot ensure the required reports were filed with the awarding agency. As such, the USDA does 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 of 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 establish a proper system of internal controls and
develop policies and procedures to ensure required reports, or allowable alternatives, are completed and
filed with the USDA.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.