Audit 365912

Material Weakness in Cash Management Controls Federal Agency and Pass-through Entity: U.S. Environmental Protection Agency – Georgia Environmental Finance Authority Program Title/Cluster: Clean Water State Revolving Fund Cluster (CWSRF) Criteria: In accordance with 2 CFR §200.305(b), when advance payments are made, the non-federal entity must maintain written procedures to minimize the time elapsing between the transfer of funds from the U.S. Treasury (or pass-through entity) and disbursement. Effective internal control over compliance with the cash management requirement includes documented procedures to ensure federal funds are drawn down only when needed and promptly disbursed. Per 2 CFR §200.303, the non-federal entity must establish and maintain effective internal controls over federal awards that provide 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. Condition: During our testing of compliance with cash management requirements for the CWSRF program, we inquired about the City’s procedures to minimize the time elapsed between draw requests, deposit of funds, and disbursement to contractors. We noted that the City did not have formal or documented internal controls in place specifically related to this process. No control activities were identified to monitor or ensure timely disbursement following drawdowns. Effect: The absence of identifiable internal controls over cash management increases the risk of noncompliance with federal requirements, including the potential for drawing federal funds in advance of immediate cash needs. While our audit testing did not identify any instances of noncompliance (contractor payments were made within a reasonable timeframe) this control deficiency represents a material weakness in internal control over compliance. Questioned Costs: None reported. Recommendation: We recommend that the City develop and implement formal, documented procedures and internal controls to ensure that federal funds are drawn only when needed and disbursed in a timely manner in accordance with federal cash management requirements. This should include documented monitoring of the timing of drawdowns and corresponding disbursements. Status: New finding in the current year.

Preparation of Schedule of Expenditures of Federal Awards Federal Agency and Pass-through Entity: U.S. Environmental Protection Agency – Georgia Environmental Finance Authority Program Title/Cluster: Clean Water State Revolving Fund Cluster (CWSRF) Criteria: The Schedule of Expenditures of Federal Awards is a supplemental schedule to the financial statements required to be produced when the entity is subject to a single audit. The single audit requirement is triggered when the federal expenditures reported on the Schedule of Expenditures of Federal Awards exceed $750,000 or more within an entity’s fiscal year. Uniform Guidance 2 CFR §200.510(b) states “The auditee must prepare a Schedule of Expenditures of Federal Awards for the period covered by the auditee’s financial statements which must include the total federal awards expended as determined in accordance with §200.502.” Condition: For the year ended December 31, 2023, the City kept records of all expenditures and receipts of funding from drawdown requests together with support of payments and deposits of funds related to all federal expenditures but did not present those expenditures correctly or completely on a Schedule of Expenditure of Federal Awards that met minimum requirements as established by Uniform Guidance 2 CFR §200.510(b). Effect: An accurate representation of total federal expenditures for the fiscal year is required to clearly identify federal expenditures for the audit period. The absence of a complete and accurate Schedule of Expenditures of Federal Awards for the audit period is noncompliant with the requirements set forth under Uniform Guidance 2 CFR §200.510(b) but does not constitute a significant deficiency or material weakness in internal control over compliance. Questioned Costs: None reported. Recommendation: The City should implement a policy requiring entry of any federal expenditures to the Schedule of Expenditures of Federal Awards as part of the drawdown or pay request processes when submitting expenditures to the Federal Agency or Pass-through Entity providing funding. The procedures should be followed consistently to ensure that federal funds are appropriately accounted for and clearly identifiable for the period in which they occurred. The City of Hartwell should refer to the compliance requirements of Title 2 U.S. Code of Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principals, and Audit Requirements for Federal Awards, and ensure the City meets the minimum Schedule of Expenditures of Federal Awards requirements as described in 2 CFR §200.510(b). Status: This finding is a repeat from the prior year’s issue, indicating that the corrective actions recommended in the previous audit were not fully implemented.

Material Weakness in Cash Management Controls Federal Agency and Pass-through Entity: U.S. Environmental Protection Agency – Georgia Environmental Finance Authority Program Title/Cluster: Clean Water State Revolving Fund Cluster (CWSRF) Criteria: In accordance with 2 CFR §200.305(b), when advance payments are made, the non-federal entity must maintain written procedures to minimize the time elapsing between the transfer of funds from the U.S. Treasury (or pass-through entity) and disbursement. Effective internal control over compliance with the cash management requirement includes documented procedures to ensure federal funds are drawn down only when needed and promptly disbursed. Per 2 CFR §200.303, the non-federal entity must establish and maintain effective internal controls over federal awards that provide 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. Condition: During our testing of compliance with cash management requirements for the CWSRF program, we inquired about the City’s procedures to minimize the time elapsed between draw requests, deposit of funds, and disbursement to contractors. We noted that the City did not have formal or documented internal controls in place specifically related to this process. No control activities were identified to monitor or ensure timely disbursement following drawdowns. Effect: The absence of identifiable internal controls over cash management increases the risk of noncompliance with federal requirements, including the potential for drawing federal funds in advance of immediate cash needs. While our audit testing did not identify any instances of noncompliance (contractor payments were made within a reasonable timeframe) this control deficiency represents a material weakness in internal control over compliance. Questioned Costs: None reported. Recommendation: We recommend that the City develop and implement formal, documented procedures and internal controls to ensure that federal funds are drawn only when needed and disbursed in a timely manner in accordance with federal cash management requirements. This should include documented monitoring of the timing of drawdowns and corresponding disbursements. Status: New finding in the current year.

Preparation of Schedule of Expenditures of Federal Awards Federal Agency and Pass-through Entity: U.S. Environmental Protection Agency – Georgia Environmental Finance Authority Program Title/Cluster: Clean Water State Revolving Fund Cluster (CWSRF) Criteria: The Schedule of Expenditures of Federal Awards is a supplemental schedule to the financial statements required to be produced when the entity is subject to a single audit. The single audit requirement is triggered when the federal expenditures reported on the Schedule of Expenditures of Federal Awards exceed $750,000 or more within an entity’s fiscal year. Uniform Guidance 2 CFR §200.510(b) states “The auditee must prepare a Schedule of Expenditures of Federal Awards for the period covered by the auditee’s financial statements which must include the total federal awards expended as determined in accordance with §200.502.” Condition: For the year ended December 31, 2023, the City kept records of all expenditures and receipts of funding from drawdown requests together with support of payments and deposits of funds related to all federal expenditures but did not present those expenditures correctly or completely on a Schedule of Expenditure of Federal Awards that met minimum requirements as established by Uniform Guidance 2 CFR §200.510(b). Effect: An accurate representation of total federal expenditures for the fiscal year is required to clearly identify federal expenditures for the audit period. The absence of a complete and accurate Schedule of Expenditures of Federal Awards for the audit period is noncompliant with the requirements set forth under Uniform Guidance 2 CFR §200.510(b) but does not constitute a significant deficiency or material weakness in internal control over compliance. Questioned Costs: None reported. Recommendation: The City should implement a policy requiring entry of any federal expenditures to the Schedule of Expenditures of Federal Awards as part of the drawdown or pay request processes when submitting expenditures to the Federal Agency or Pass-through Entity providing funding. The procedures should be followed consistently to ensure that federal funds are appropriately accounted for and clearly identifiable for the period in which they occurred. The City of Hartwell should refer to the compliance requirements of Title 2 U.S. Code of Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principals, and Audit Requirements for Federal Awards, and ensure the City meets the minimum Schedule of Expenditures of Federal Awards requirements as described in 2 CFR §200.510(b). Status: This finding is a repeat from the prior year’s issue, indicating that the corrective actions recommended in the previous audit were not fully implemented.