Audit 372641

Federal Agency: U.S. Department of Transportation Federal Program Title: Formula Grants for Rural Area and Tribal Transit Program AL Number: 20.509 Federal Award Identification Number and Year: MN-2023-045-00 Pass-Through Agency: Minnesota Department of Transportation Pass-Through Number(s): 1054531 Award Period: 1/1/2024-12/31/2024 Type of Finding: • Material Weakness in Internal Control over Compliance, Material Non-Compliance Criteria or specific requirement: A documented review process ensures that the cost and activity was allowable. Also, supporting evidence should be maintained to ensure budgeted allocations charged to the grant are reviewed after-the-fact to ensure accurate amounts are charged to the grant. Lastly, amounts should be charged to proper grant year. Per CFR Part 200, (viii) Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards, but may be used for interim accounting purposes, provided that: (A) the system for establishing the estimates produces reasonable approximations of the activity actually performed; (B) significant changes in the corresponding work activity (as defined by the non-Federal entity's written policies) are identified and entered into the records in a timely manner. Short term (such as one or two months) fluctuation between workload categories need not be considered as long as the distribution of salaries and wages is reasonable over the longer term; and (C) the non-Federal entity's system of internal controls includes processes to review after-the-fact interim charges made to a Federal award based on budget estimates. All necessary adjustment must be made such that the final amount charged to the Federal award is accurate, allowable, and properly allocated. Condition: During our testing of general disbursements, we noted the Organization was missing documentation to support the approval of a general disbursement by someone knowledgeable with the grant. During our testing of payroll disbursements, we noted the Organization did not retain support to show after-the-fact review of budgeted payroll charged to the grant to show the allocation charged to the grant was accurate. During our testing of benefit disbursements, we noted the Organization expended benefits to the incorrect grant year Questioned costs: $3,112 Context: Three of the sixty allowable cost transactions did not have support for review of the costs charged to the grant. Eight of the sixty allowable cost transactions selected for testing did not have adequate support to show the budgeted charge allocated to the grant was reviewed after-the-fact to support the allocation was accurate. One of the sixty allowable cost transactions selected for testing was not charged to the correct grant year. Cause: Management did not have documented approval of allowable costs by someone familiar with the grant. Management did not perform after-the-fact review of budgeted payroll costs allocated to the grant to ensure the costs were accurate and properly allocated. Management did not ensure expenditures are charged to the correct grant year. This was not a statistically valid sample. Effect: Inaccurate amounts of funds could be charged to the grant. Repeat finding: This is a repeat finding. Recommendation: The Organization should ensure proper documentation is retained to support the approval of allowable costs by someone knowledgeable of the grant and its guidelines. The Organization should reconcile the budgeted payroll allocation charged to the grant after-the-fact to actual work performed to ensure the allocation was accurately reflected. The Organization should ensure expenditures are charged to proper grant year. Views of responsible officials and planned corrective actions: There are no disagreements with the audit finding. The Organization will ensure moving forward that proper support is retained for allowable costs charged to the grant and budgeted amounts are reconciled to after-the-fact actual amounts.

Federal Agency: U.S. Department of Transportation Federal Program Title: Formula Grants for Rural Area and Tribal Transit Program AL Number: 20.509 Federal Award Identification Number and Year: MN-2023-045-00 Pass-Through Agency: Minnesota Department of Transportation Pass-Through Number(s): 1054531 Award Period: 1/1/2024-12/31/2024 Type of Finding: • Material Weakness in Internal Control over Compliance, Material Noncompliance Criteria or specific requirement: Non-federal entities other than states, including those operating federal programs as subrecipients of states, must follow the procurement standards set out at 2 CFR sections 200.318 through 200.326. They must use their own documented procurement procedures, which reflect applicable state and local laws and regulations, provided that the procurements conform to applicable federal statutes and the procurement requirements identified in 2 CFR Part 200. Non-federal entities should also follow any state procurement requirements as well. Condition: During our testing we noted the Organization did not apply any procurement procedures for four small purchases and two proposals as they did not perform nor retain adequate documentation in accordance with Uniform Guidance and state requirements. Questioned costs: Unknown Context: Six out of six procurement selections did not have any procurement procedures followed for a total of $192,756 charged to the grant. This was not a statistically valid sample. Cause: Vendors in place had been procured in prior years, before current management assumed operations. Current management was unable to verify if the policies were followed. Effect: Potential effect of noncompliance with Uniform Guidance and state requirements when procuring goods and services for expenditures over federal awards. Repeat finding: This is a repeat finding. Recommendation: The Organization should review 2 CFR sections 200.318 through 200.326 and state requirements for procurement. The Organization should ensure documents are retained to support whether procurement policies were followed for vendors procured in years past. Views of responsible officials and planned corrective actions: There are no disagreements with the audit finding. The Organization will review the procurement standards as well as ensure documents are retained to support whether procurement policies were followed.

Federal Agency: U.S. Department of Transportation Federal Program Title: Formula Grants for Rural Area and Tribal Transit Program AL Number: 20.509 Federal Award Identification Number and Year: MN-2023-045-00 Pass-Through Agency: Minnesota Department of Transportation Pass-Through Number(s): 1054531 Award Period: 1/1/2024-12/31/2024 Type of Finding: • Material Weakness in Internal Control over Compliance and Other Matters Criteria or Specific Requirement: When a non-Federal entity enters into a covered transaction with an entity at a lower tier, the non-Federal entity must verify that the entity, as defined in 2 CFR section 180.995 and agency adopting regulations, is not suspended or debarred or otherwise excluded from participating in the transaction. This verification may be accomplished by (1) checking the System for Award Management (SAM) Exclusions maintained by the General Services Administration (GSA) and available at https://www.sam.gov/portal/public/SAM/ (2) collecting a certification from the entity, or (3) adding a clause or condition to the covered transaction with that entity (2 CFR section 180.300). Condition: During our testing we noted the Organization did not apply its suspension and debarment procedures for five contractors sampled as they did not perform nor retain adequate documentation in accordance with Uniform Guidance. Questioned Costs: N/A Context: Five out of five selections did not have any suspension/debarment procedures followed until after entering into the covered transaction. Cause: Management was aware of the suspension and debarment requirements dictated by the Uniform Guidance, however, did not follow their policy. Effect: Potential for the Organization to do business with entities that are suspended or debarred which is not allowed per Uniform Guidance. Repeat Finding: This is a repeat finding. Recommendation: The Organization should ensure they follow their suspension and debarment policy. The Organization should ensure documents are retained to support whether suspension and debarment policies were followed for contractors in years past. Views of responsible officials and planned corrective actions: There are no disagreements with the audit finding. The Organization will ensure they follow their suspension and debarment policy moving forward and documentation is retained.

Federal Agency: U.S. Department of Transportation Federal Program Title: Formula Grants for Rural Area and Tribal Transit Program AL Number: 20.509 Federal Award Identification Number and Year: MN-2023-045-00 Pass-Through Agency: Minnesota Department of Transportation Pass-Through Number(s): 1054531 Award Period: 1/1/2024-12/31/2024 Type of Finding: • Material Weakness in Internal Control over Compliance Criteria or Specific Requirement: Under 2 CFR section 200.303, a non-federal entity must establish and maintain effective internal controls over the federal awards 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). Timely review and approval should be maintained to ensure accurate amounts are being drawn down prior to submission. Condition: The Organization did not have adequate internal controls in place for the full fiscal year to ensure cash drawdowns are approved by the appropriate personnel before being submitted. Questioned Costs: N/A Context: Three of the three selections did not have a documented review process in place on the drawdown prior to submission to the state. This was not a statistically valid sample. Cause: Management did not have a separate individual assigned to review the cash drawdown for the request for funds. Effect: Potential for inaccurate amounts of funds to be requested. Repeat Finding: This is not a repeat finding. Recommendation: A separate individual with supervisory authority over the preparer should be assigned to review and approve the cash drawdown prior to submission. Views of responsible officials and planned corrective actions: There are no disagreements with the audit finding. The Organization will ensure there are proper segregation of duties regarding the cash drawdown process.