Audit 373355

Finding 2022-008 Material Weakness in Internal Control Over Compliance – Controls over Transfers and Procurement Federal Agency: Department of the Treasury Federal Program: 21.027 - Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) Compliance Requirement: A/B – Allowable Costs/Cost Principles I – Procurement and Suspension & Debarment Criteria: Under 2 CFR §200.303, non-federal entities must establish and maintain effective internal control over federal awards to ensure compliance with federal statutes, regulations, and the award terms. • For Allowable Costs: Transfers of CSLFRF funds to support general government services must be supported by documentation demonstrating allowability, compliance, and proper review. • For Procurement and Suspension & Debarment: Per 2 CFR §§200.318–200.326 and 2 CFR §200.213, entities must follow applicable procurement procedures, including state and local bid laws, and must verify that vendors are not suspended or debarred from federal programs. Condition: Transfers made to cover general government services were not supported by documentation of a formal review or approval process. The City did not maintain evidence of procedures to verify the appropriateness or compliance of these transfers prior to execution. In addition, for procurements related to expenditures charged to CSLFRF, the City did not maintain documentation evidencing a review to ensure compliance with state bid law or verification that vendors were not suspended or debarred prior to award. Cause: The City has not implemented formal internal control procedures to document the review and approval of CSLFRF transfers used for general government services and procurement compliance checks, including bid law requirements and vendor suspension/debarment status. These gaps appear to result from limited staffing and/or a lack of awareness of specific federal documentation requirements. Effect: Without documented review and approval, there is an increased risk that CSLFRF transfers may not comply with federal requirements, leading to potential unallowable costs or questioned expenditures, and procurements may not comply with federal or state requirements, increasing the risk of awarding contracts to ineligible vendors or violating competitive procurement rules. The lack of documentation also impairs auditability and transparency in the use of federal funds. Perspective: These issues were identified during audit procedures and are considered systemic, as they affect multiple transactions and compliance requirements. These conditions reflect a lack of formal internal controls over key compliance areas. Questioned Costs: None noted. Recommendation: We recommend that the City implement formal written procedures to strengthen internal controls in the following areas: • Transfers: Require documented review and approval of all transfers, including evidence of management review, verification of eligibility, and compliance with federal guidelines. • Procurement: Require and maintain documentation of procurement reviews, including verification that proper bid laws were followed and confirmation that vendors are not suspended or debarred prior to contract award. View of Responsible Official: See corrective action plan.