Federal Program 14.228 - Community Development Block Grants/State's Program and Non-Entitlement Grants in Hawaii Award Numbers CDBG Subgrant: 1137-21-111-PF-01 Federal Agencies U.S. Department of Housing and Urban Development (HUD} Compliance Requirement Special Tests and Provisions-Section 3 Compliance (24 CFR Part 75) Type of Finding Internal Control over Compliance - Significant Deficiency Compliance - Noncompliance Questioned Costs None Criteria Per 24 CFR §75.27, recipients of CDBG funds must include Section 3 requirements in all contracts for work funded in whole or in part with Section 3 covered assistance. This includes contracts exceeding $100,000 for professional services, such as architectural and engineering vvork, related to Section 3 covered projects. Condition During our testing of Section 3 compliance, we noted the engineering services contract, which exceeded $100,000 in CDBG funding, did not include the required Section 3 clause. Although the engineering firm's advertisement referenced Section 3, the executed contract lacked any language requiring compliance with Section 3 provisions. Cause The City did not have a consistent process in place to ensure that Section 3 language was included in all applicable contracts. Effect Failure to include Section 3 requirements in covered contracts increases the risk of noncompliance with HUD regulations and may result in missed opportunities to promote economic opportunities for low- and very low-income persons. Context This issue was identified during our review of three contracts under the CDBG program. The engineering contract exceeded the $100,000 threshold but lacked Section 3 language. No new hires were made by the engineering firm during the project period. Recommendation We recommend that the City implement procedures to ensure that all contracts subject to Section 3 requirements include the appropriate language and that documentation of compliance efforts is retained. Views of Responsible Officials The City concurs with the finding. The City has adopted a Section 3 Action Plan and will ensure that all future contracts funded with CDBG assistance include the required Section 3. language. The City will also enhance its documentation practices to support compliance with HUD's Section 3 Final Rule.
2024-037 - Citizen Participation Plan Federal Program 14.228 - Community Development Block Grants/State's Program Award Numbers CDBG Subgrant: 1137-21-111-PF-01 Federal Agency U.S. Department of Housing and Urban Development (HUD) Compliance Requirement Special Tests and Provisions - 24 CFR §570.486(a) Type of Finding Internal Control over Compliance - Significant Deficiency Compliance - Noncompliance Questioned Costs None Criteria Per 24 CFR §570.486(a}, grantees must develop and follow a written Citizen Participation Plan that outlines procedures for public involvement, including public hearings, access to information, and comment periods. Condition The City of Batesville did not maintain a formal written Citizen Participation Plan for its 2021 CDBG Public Facilities Grant. Cause The City relied on general public notice and hearing procedures but did not document a formal plan specific to CDBG activities. Effect Without a formal plan, there is reduced assurance that citizen participation procedures are consistemtly applied across all CDBG activities. Recommendation The City should develop and maintain a written Citizen Participation Plan to ensure consistent compliance with HUD requirements. Views of Responsible Officials Management concurs with the finding. The City acknowledges that a formal Citizen Participation Plan was not in place for the 2021 CDBG Public Facilities Grant. To address this, the City will develop a written plan that outlines procedures for public hearings, access to information, and comment periods in accordance with 24 CFR §570.486(a). The plan will be adopted prior to the next CDBG application cycle and incorporated into future grant administration practices.
Federal Program 23.002 - Appalachian Area Development Award Number ARC-22699 Federal Agency Appalachian Regional Commission (ARC) Compliance Requirement Matching Type of Finding Internal Control over Compliance - Significant Deficiency Compliance - Noncompliance Questioned costs None Criteria Per 2 CFR §200.306, federal awards may require non-federal entities to contribute a specific percentage of matching funds. ARC grant 23.002 requires a minimum match of 66.9456%. Internal controls should be designed to ensure compliance with such requirements prior to requesting reimbursement. Condition During testing of the ARC grant 23.002, we noted the City of Batesville's initial reimbursement request included ARC charges exceeding the allowable federal share by $26, 180, representing 1.6426% of total allocable expenditures for the year. The overstatement resulted in a cumulative match percentage below the required 66.9456%. The error was identified by the State oversight agency prior to disbursement, and the City subsequently revised Request #4 to bring the overall match into compliance. No federal funds were improperly drawn. Cause The City's internal controls over grant reimbursement requests did not include sufficient review procedures to ensure compliance with federal match requirements prior to submission. The error was not detected internally and was instead identified by the State. Effect Although the error was corrected· before reimbursement and no questioned costs resulted, the lack of internal detection indicates a control deficiency that could lead to future noncompliance or improper use of federal funds if not addressed. Recommendation We recommend the City strengthen its internal controls over grant reimbursement requests by implementing formal review procedures to verify compliance with federal match requirements before submission. This may include checklist protocols, supervisory sign-off, or automated validation tools. Views of Responsible Officials Management concurs with the finding. The City acknowledges that the initial reimbursement request exceeded the allowable federal share and appreciates the State's oversight in identifying the issue prior to disbursement. Moving forward, the City will implement a formal review process for reimbursement submissions, including supervisory approval and automated checks to ensure compliance with match requirements. Staff will also receive training on ARC match calculations and documentation standards.
Finding 2024-043 - Use of Federal Funds to Satisfy Required Local Match Without Prior Approval Summary: The City of Batesville substituted federal Delta Regional Authority (ORA) and Appalachian Regional Commission (ARC) funds for required local match obligations under two federal grants-ARC (ALN 23.002) and CDBG (ALN 14.228)-without obtaining prior written approval from the awarding agencies. Although CDBG was not selected for audit testing, the questioned costs originally exceeded the $10,000 threshold and are reported in accordance with 2 CFR §200.516(a): Total questioned costs of $800,406 were initially allocated proportionally between the two programs; These costs have since been resolved through formal amendments to both grant agreements. Federal Programs 23.002 _; Appalachian Area Development (ARC) 14.228 - Community Development Block Grants/State's Program and Non-Entitlement Grants in Hawaii· (CDBG) Note: ALN 14.228 was not selected for audit testing under the Uniform Guidance compliance requirements. However, a finding is presented in accordance with 2 CFR §200.516(a) due to the materiality of the issue and its connection to ARC grant MS-20699. Award Numbers ARC: MS-20699 CDBG Subgrant: 1137 ~21-111-PF-01 Federal Agencies U.S. Department of the Treasury (via Appalachian Regional Commission) U.S. Department of Housing and Urban Development Compliance Requirements Matching - 2 CFR §200.306 Allowable Costs/Cost Principles - 2 CFR §200.403 Internal Controls -2 CFR §200.303 Audit Finding Threshold - 2 CFR §200.516(a) Type of Finding Internal Control over Compliance - Material Weakness Compliance - Noncompliance Questioned Costs Based on actual net expenditures and proportional match requirements: (TABLE) These questioned costs have been eliminated following receipt of amended contracts from ARC and CDBG approving the use of ORA and CDBG funds as match. Criteria The following federal regulations and grant conditions establish the requirements violated in this finding: 1. Matching Requirements - 2 CFR §200.306 Federal funds may not be used to meet a required cost share or match unless expressly authorized by the awarding agency. Matching contributions must: Be verifiable from the recipient's records Not be included as contributions for any other federal award Be necessary and reasonable for accomplishing program objectives Be allowable under the cost principles Not be paid by. the federal government under another award, unless authorized 2. Allowable Costs ... 2 CFR §200.403 Costs must be necessary, reasonable, allocable, and conform to limitations in the award terms. Costs must be adequately documented and consistent with policies that apply uniformly to both federally financed and other activities. 3. Internal Controls - 2 CFR §200.303 Recipients must establish and maintain effective internal controls to ensure compliance with feqeral statutes, regulations, and award terms. Controls should provide reasonable assurance that the organization is managing the award in compliance with applicable requirements. 4. Audit Finding Threshold-2 CFR §200.516(a) Auditors must report known questioned costs that exceed $10,000 for a federal program, even if the program was not selected for audit testing. Condition During the audit of ARC grant MS-20699 (ALN 23.002), we noted that the City of Batesville substituted $569,600 in federal ORA funds for the originally budgeted local match of $341,784. Additionally, for COBG grant ALN 14.228, the City substituted $569,600 in ORA funds and $553,000 in ARC grant funds for the originally budgeted local match of $901,784. These substitutions were made without prior written approval or executed amendments from the awarding agencies, as required under 2 CFR §200.306 and the respective grant agreements. Resolution Following the audit fieldwork, the City obtained formal amendments to both grant agreements: On October 24, 2025, ARC approved the substitution of ORA and COBG funds as match under ALN 23.002. On November 7, 2025, COBG approved the substitution of ORA and ARC funds as match under ALN 14.228. These approvals eliminate the previously identified questioned costs totaling $800,406. However, the lack of contemporaneous documentation and prior approval reflects a breakdown in internal controls and remains a material compliance issue. Cause The City lacked adequate internal controls to ensure changes to match sources were formally reviewed and approved by the awarding agencies prior to implementation. The substitution of federal funds for required local match was not documented or authorized at the time of expenditure. Effect Although questioned costs have been resolved, the City was in noncompliance with federal matching requirements and allowable cost principles at the time of expenditure. This reflects a broader control deficiency in the City's grant management process and increases the risk of future noncompliance. Recommendation We recommend the City strengthen its internal controls over grant compliance, including: Formal review and documentation of match sources prior to drawdown Written approval from awarding agencies before substituting federal funds for required match Staff training on federal match requirements and Uniform Guidance compliance Views of Responsible Officials Management concurs with the finding. The City acknowledges that federal ORA and ARC funds were applied toward required match obligations without prior approval or amendment to the respective grant agreements. ARC and CDBG representatives have since approved the substitutions through formal amendments. The City will implement procedures requiring written authorization for any future match substitutions and establish a formal review process to verify match sources prior to drawdown.
2024-032 - Delayed Final Reimbursement Due to Unresolved Agency Requests Federal Programs 23.002 - Appalachian Area Development 14.228 - Community Development Block Grants/State's Program Award Numbers ARC-20698 ARC-20699 CDBG Subgrant: 1137-21-111-PF-01 Federal Agency U.S. Department of Housing and Urban Development (HUD) Appalachian Regional Commission (ARC) Compliance Requirement Reporting and Closeout- 2 CFR §§ 200.302, 200.303, and 200.344 Type of Finding: Internal Control over Compliance - Significant Deficiency Compliance - Noncompliance Questioned Costs: None Criteria: In accordance with 2 CFR §200.302 and §200.303, non-federal entities must maintain effective internal control over federal awards and ensure timely closeout. Additionally, 2 CFR §200.344 requires that closeout be completed within one year of the end of the period of performance. Condition: Final reimbursement requests for the above federal programs were submitted over a year ago. Although the granting agencies have initiated follow-up correspondence requesting additional documentation or clarification, the final payments remain outstanding as of the audit date. No resolution has been reached, and the grants remain open. Cause: The City lacks a formalized process for tracking unresolved reimbursement requests and responding to agency inquiries in a timely and coordinated manner. This has contributed to delays in resolving outstanding issues and receiving final payments. Effect: The City has not received final reimbursement for completed federal programs, resulting in delayed revenue recognition and potential strain on local resources. The extended delay also risks noncompliance with federal closeout requirements and may affect future funding eligibility. Recommendation: Implement a grant closeout protocol that includes: A centralized tracking system for final reimbursement submissions and agency correspondence Defined timelines for follow-up and escalation Clear assignment of responsibility for resolving outstanding issues Views of Responsible Officials: Management concurs with the finding. The City acknowledges that final reimbursement requests for the referenced federal programs were submitted in a timely manner; however, final payments have not been received due to ongoing correspondence and requests for additional information from the granting agencies. While staff have responded to these inquiries, the absence of a formalized tracking and escalation process has contributed to delays in resolution.
2024-033 - Delayed Availability of Financial Records Federal Programs Affected 23.002 - Appalachian Area Development 14.228 - Community Development Block Grants/State's Program Award Numbers ARC-20698 ARC-20699 CDBG Subgrant: 1137-21-111-PF-01 Federal Agency U.S. Department of Housing and Urban Development (HUD) Appalachian Regional Commission (ARC) Compliance Requirement: Reporting - 2 CFR §200.512(a) Type of Finding Internal Control over Compliance - Significant Deficiency Compliance - Noncompliance Questioned Costs None Criteria Under 2 CFR §200.512(a), entities expending $750,000 or more in federal awards must submit the Single Audit report to the Federal Audit Clearinghouse within nine months of the end of the fiscal year. Government Auditing Standards also require timely access to financial records to support audit procedures and ensure the audit is completed in accordance with required timelines. Condition The City's financial records were not made available to the auditors until July 22, 2025, despite the Single Audit report being due by June 30, 2025. This delay prevented timely completion and submission of the audit. Cause The delay was due to the City not finalizing its year-end financial closeout in time to support audit fieldwork. Contributing factors included staffing turnover and delays in reconciling key accounts. Effect The Single Audit report was submitted late, resulting in noncompliance with federal reporting deadlines. This may affect the City's standing with federal agencies and could delay access to future federal funding. Recommendation We recommend the City implement procedures to ensure timely financial closeout and audit readiness, including: Establishing internal deadlines for closing the books Assigning responsibility for audit preparation tasks Conducting a pre-audit readiness review to ensure all records are complete and accessible Views of Responsible Officials We acknowledge the delay and are taking steps to improve our year-end close process. We will establish internal deadlines and assign staff to ensure timely audit preparation in future years.
Federal Program 23.002 - Appalachian Area Development 14.228 - Community Development Block Grants/State's Program Award Numbers ARC-20698 ARC-20699 CDBG Subgrant: 1137-21-111-PF-01 Federal Agency U.S. Department of Housing and Urban Development (HUD) Appalachian Regional Commission (ARC) Compliance Requirement Equipment and Real Property Management- 2 CFR §200.310-316 Type of Finding Internal Control over Compliance - Material Weakness Compliance - Noncompliance Questioned Costs None Criteria Per 2 CFR §200.310-316 and the 0MB Compliance Supplement, recipients of federal awards must: Maintain detailed property records including description, serial number, acquisition date, cost, location, and condition Conduct a physical inventory at least once every two years and reconcile results Safeguard assets from loss, damage, or theft File a Notice of Federal Interest for real property acquired with federal funds Follow disposition procedures outlined in 2 CFR §200.311-313 Condition The City of Batesville did not conduct a biennial physical inventory of federally funded equipment and real property as required by 2 CFR §200.313(d)(2). Inventory records were incomplete, decentralized, and lacked key data fields such as asset condition and federal funding source. Infrastructure assets funded by CDBG and ARC grants were not classified as real property, and no Notice of Federal Interest was filed. Additionally, the City could not demonstrate that federally funded assets were safeguarded or reconciled against disposals. Cause The City lacked centralized oversight and formal policies for property management. Staff were unaware of federal requirements related to infrastructure classification and inventory procedures. No training or monitoring mechanisms were in place to ensure compliance. Effect The City is at risk of noncompliance with federal property management standards, including failure to conduct biennial inventories and file Notices of Federal Interest for real property. Although the sewer infrastructure funded by CFDA 14.228 and 23.002 is not susceptible to theft or loss due to its fixed nature, the lack of documentation and oversight represents a material weakness in internal control. No questioned costs were identified, as all expenditures were supported and the assets remain in use. Although Assistance Listing 90.201 was not selected for audit, similar deficiencies in property management were observed during preliminary review, suggesting the issue may be systemic across federal programs. Recommendation Implement a centralized inventory system with required data fields Conduct and document biennial physical inventories File Notices of Federal Interest for applicable real property Provide staff training on federal property standards Deveiop written policies for asset classification, inventory, and disposition Establish internal monitoring procedures to ensure ongoing compliance Views of Responsible Officials Management concurs with the finding. The City will implement a centralized inventory system and conduct a physical inventory by March 31, 2026. Training will be provided to relevant staff, and a formal policy will be adopted to ensure compliance with 2 CFR §200.310-316. The City will consult with HUD and ARC regarding the filing of Notices of Federal Interest for infrastructure assets. Management also acknowledges that similar issues were observed in non-audited programs and will extend corrective actions City-wide.
2024-039 - Inadequate Oversight of Davis-Bacon Compliance Federal Program 23.002 - Appalachian Area Development 14.228 - Community Development Block Grants/State's Program Award Numbers ARC-20698 ARC-20699 CDBG Subgrant: 1137-21-111-PF-01 Federal Agency U.S. Department of Housing and Urban Development (HUD) Appalachian Regional Commission (ARC) Compliance Requirement Special Tests and Provisions - Davis-Bacon Act (24 CFR §570.603) Type of Finding Internal Control over Compliance - Significant Deficiency Compliance - Noncompliance with Special Tests and Provisions Questioned Costs None Criteria Per 2 CFR §200.430 and Davis-Bacon Act requirements, recipients must ensure that contractors and subcontractors pay laborers and mechanics prevailing wage rates and fringe benefits as determined by the U.S. Department of Labor. Effective oversight includes documented review procedures, monitoring activities, and resolution of discrepancies. Condition For ARC MS-20699 and CDBG 1137-21-111-PF-01, the auditor tested 10 of 33 certified payrolls. Two payrolls (20%) omitted employee classifications, which were not identified during the grant administrator's review. A letter dated September 2, 2025, was later obtained certifying the employees were laborers and paid the appropriate wage and fringe rates. No documentation of prior corrective action was available. For ARC MS-20698, the auditor tested all 17 payrolls submitted. Four certified payrolls from the primary contractor were not submitted and could not be tested. Of the submitted payrolls: Two lacked employer signatures on WH-347 forms Three subcontractor payrolls listed employees as "plumber" or "plumber assistant," classifications not included in the applicable wage determination No SF-1444 conformance request was submitted to the Department of Labor One subcontractor payroll lacked a signed certification page In both grants, the grant administrator relied solely on visual checkmarks to indicate payroll review. No formal checklist, documentation of oversight, or corrective action procedures were maintained. Employee interviews were limited to a single date for ARC MS-20699 and to one employee for ARC MS-20698, with no wage rate recorded. Cause The City did not establish formal internal control procedures for Davis-Bacon oversight, including documented review protocols, periodic employee interviews, and a process for resolving discrepancies or following up on missing or incomplete payrolls. Effect Weaknesses in oversight may result in undetected noncompliance with Davis-Bacon requirements, including misclassification or underpayment of wages. The absence of classification, missing payrolls, and unapproved job categories prevent full verification of wage rate compliance. These deficiencies represent both a significant deficiency in internal control and procedural noncompliance with Davis-Bacon provisions. Recommendation The City should implement formal internal control procedures for Davis-Bacon compliance, including: A documented payroll review checklist Periodic employee interviews throughout the construction period A process for identifying and resolving discrepancies Procedures for submitting SF-1444 conformance requests when needed Follow-up protocols for missing or unsigned certified payroll Views of Responsible Officials Management concurs with the finding. The City acknowledges that oversight of Davis-Bacon compliance was informal and lacked documentation. To strengthen internal controls, the City will implement a formal payroll review checklist and conduct periodic employee interviews throughout future construction projects. Staff will receive training on Davis-Bacon requirements, and a process will be established for identifying and resolving discrepancies in certified payrolls, including submission of conformance requests when necessary.
2024-040 - Suspension and Debarment Documentation Deficiency Federal Program 23.002 - Appalachian Area Development Award Numbers MS-20695 MS.:20699 Federal Agency Appalachian Regional Commission (ARC) Compliance Requirement Procurement, Suspension, and Debarment - 2 CFR § 180.220 and § 180.300 Type of Finding Internal Control over Compliance - Significant Deficiency Compliance - Noncompliance Questioned Costs None - No questioned costs were identified because all contractors were ultimately verified as eligible and no federal funds were paid to suspended or debarred entities. Criteria Per 2 CFR § 180.220, non-federal entities must verify that contractors receiving more than $25,000 in federal funds are not suspended or debarred at the time of award. Per 2 CFR §180.300, documentation of this verification must be retained as part of the procurement record. Condition The City of Batesville did not retain documentation verifying that contractors were not suspended or debarred prior to contract execution for federally funded projects under ARC MS-20699 and MS-20698. Although the grant administrator stated that SAM.gov was checked before signing, no evidence of this verification was maintained. Screenshots were printed only after the auditor's request, and one Mississippi Development Authority (MDA) verification letter was dated after the contract award. Cause The City relied on verbal confirmation from the grant administrator and did not implement a formal process to retain debarment verification documentation prior to contract execution. Effect While all contractors were ultimately verified as eligible, the lack of contemporaneous documentation means the control was not operating effectively. This increases the risk of noncompliance and weakens the audit trail. Recommendation We recommend the City implement a formal procurement checklist that includes suspension/debarment verification steps and requires retention of SAM.gov screenshots or equivalent documentation prior to contract execution. Staff should be trained on federal procurement documentation standards. Views of Responsible Officials Management concurs with the finding. The City acknowledges that documentation of suspension and debarment verification was not retained prior to contract execution. To strengthen internal controls, the City will implement a standardized procurement checklist that includes SAM.gov verification and require retention of supporting documentation in the procurement file. Staff involved in grant administration and procurement will receive training on federal requirements under 2 CFR §180.220 and §180.300 to ensure future compliance.
2024-044 - Untimely Submission of Required Performance Reports Federal Programs 23.002 - Appalachian Area Development (ARC) Award Numbers ARC MS-20698 ARC MS~20699 Federal Agency Appalachian Regional Commission (ARC) Compliance Requirement Reporting - 2 CFR §200.328 and §200.303 Type of Finding Internal Control over Compliance - Significant Deficiency Compliance - Noncompliance Questioned Costs None. The reporting noncompliance did not affect the allowability of costs charged to the grant. Criteria 2 CFR §200.328(b)(1) requires recipients to submit performance reports at intervals required by the federal awarding agency or pass-through entity. These reports must contain a comparison of actual accomplishments to the objectives of the award and be submitted in accordance with the terms and conditions of the grant. 2 CFR §200.303 requires recipients to establish and maintain effective internal controls over federal awards to ensure compliance with federal statutes, regulations, and the terms and conditions of the award. This includes controls over timely and accurate reporting. Under the ARC grant agreements, semi-annual performance reports are required to be submitted within 15 days following the end of each six-month reporting period. Condition The City did not submit required semi-annual performance reports for ARC grants MS-20698 and MS-20699 within the timeframes established by the grant agreements. Reports were submitted significantly past the 15-day deadline following the end of each six-month reporting period. In some cases, multiple reports were submitted on the same day, and one report due during the audit period had not been filed as of fieldwork completion. Additionally, the reports lacked clear identification of the reporting period covered. Cause The City did not have adequate procedures in place to ensure timely tracking and submission of required performance reports. Internal controls over reporting deadlines were not operating effectively. Effect Failure to submit timely and complete performance reports limits the pass-through entity's and federal awarding agency's ability to monitor project progress and ensure compliance with grant terms. This represents noncompliance with federal reporting requirements and a deficiency in internal control over federal programs. Recommendation We recommend the City implement procedures to ensure timely submission of required performance reports, including: Maintaining a reporting calendar with automated reminders Assigning responsibility for monitoring deadlines Retaining documentation that clearly identifies the reporting period covered Views of Responsible Officials Management concurs with the finding. The City acknowledges that performance reports were submitted late and that documentation lacked clarity regarding the reporting periods. To address this, the City will implement a reporting calendar with automated reminders and assign staff responsibility for monitoring deadlines. A standardized reporting template will be adopted to ensure each submission clearly identifies the reporting period covered. These measures will strengthen internal controls and improve compliance with ARC reporting requirements.
2024-042 - Misallocation of Expenditures Across Federal Awards Federal Program 14.228 - Community Development Block Grants Program 23.002 - Appalachian Area Development 90.210 - Delta Regional Authority (not subject to audit under Uniform Guidance) Award Numbers ARC-20698 ARC-20699 CDBG Subgrant: 1137-21-111-PF-01 Federal Agencies U.S. Department of Housing and Urban Development (HUD) U.S. Department of the Treasury (via Appalachian Regional Commission) Delta Regional Authority (DRA) Compliance Requirements Allowable Costs/Cost Principles - 2 CFR §200.403 and §200.405 Internal Controls - 2 CFR §200.303 Type of Finding Internal Control over Compliance - Significant Deficiency Compliance '- Noncompliance Questioned Costs (TABLE) Per 2 CFR §200.403, costs must be necessary, reasonable, and allocable to the federal award. Under §200.405, costs must be assigned to the federal award in accordance with the relative benefits received. Additionally, §200.303 requires the non-federal entity to maintain effective internal control over federal awards to ensure compliance. Condition During testing of 13 disbursements totaling $1,541,660 charged to the above federal programs, 11 invoices were not allocated in accordance with the approved budget percentages. This resulted in over-reimbursements across multiple federal awards. Known Over (Under) Reimbursements by Program and Fiscal Year (TABLE) *ALN 90.210 was not subject to audit under Uniform Guidance. Amounts shown are for context only. Cause The City did not consistently apply approved budget allocation percentages when charging expenditures to federal awards. This resulted in misclassification of costs and excess reimbursement from federal sources. Effect The City received federal reimbursements in excess of allowable amounts under ALNs 14.228 and 23.002. These errors may result in repayment obligations and indicate a broader weakness in internal controls over grant accounting and drawdown procedures. Recommendation We recommend the City strengthen its internal controls over grant accounting and reimbursement procedures. This should include: Formal review of allocation schedules prior to submission of reimbursement requests Periodic reconciliation of actual expenditures to approved budget allocations Staff training on federal cost principles and grant compliance requirements Views of Responsible Officials Management concurs with the finding. The City acknowledges that allocation errors occurred across multiple federal programs due to inconsistent application of approved budget percentages. To address this, the City will implement a formal review process for allocation schedules and establish reconciliation procedures to ensure expenditures align with approved budgets. Staff will receive training on federal cost principles and grant compliance requirements. The City will also evaluate prior reimbursements and consult with awarding agencies regarding any necessary adjustments.
2024-038 - Inadequate Documentation of HIDTA Personnel Costs Federal Program 95-001 -- High Intensity Drug Trafficking Areas (HIDTA) Award Number G23-GC0003A Federal Agency Office of National Drug Control Policy Compliance Requirement Allowable Costs/Cost Principles - 2 CFR §200.430 Type of Finding Internal Control over Compliance - Significant Deficiency Compliance - Noncompliance Questioned Costs $14,418 Criteria Per 2 CFR §200.430, personnel costs charged to federal awards must be supported by records that accurately reflect the work performed and be subject to internal control review. Condition Although the HIDTA program was not selected for major program testing under the Single Audit, we identified this issue during the financial statement audit. The Police Department submitted payroll costs totaling $14,418 for HIDTA reimbursement across three quarters. Documentation included overtime forms and manual time cards that lacked sufficient detail, such as start/stop times, activity descriptions, and supervisor approval. These records do not meet the standards for supporting federal personnel costs under 2 CFR §200.430. Cause The City's internal controls over timekeeping and payroll documentation are not sufficient to ensure compliance with federal requirements. Effect Personnel costs totaling $14,418 are considered questioned costs due to inadequate documentation. These costs may be ineligible for reimbursement under the HIDTA program. Recommendation We recommend the City strengthen internal controls over payroll documentation and ensure that all personnel costs charged to federal awards are supported by detailed, approved records that clearly reflect HIDTA-related activities. Views of Responsible Officials Management concurs with the finding. The City acknowledges that payroll documentation submitted for HIDTA reimbursement lacked sufficient detail and formal approval. To address this, the City will implement a standardized timekeeping system that includes start/stop times, activity descriptions, and supervisor sign-off. Staff will receive training on federal documentation standards, and internal controls will be updated to ensure compliance with 2 CFR §200.430.
2024-041 - Unsupported FEMA Reimbursements Federal Program 97.036 - FEMA Disaster Grants - Public Assistance (Presidentially Declared Disasters) Award Numbers PW No. 51 (0) and PW No. 34(0) Federal Agency Department of Homeland Security Compliance requirement Allowable Costs/Cost Principles - 2 CFR §200.403 and §200.405 Type of Finding Internal Control over Compliance - Significant Deficiency Compliance - Noncompliance Questioned Costs: $10,254 Criteria In accordance with 2 CFR §200.403 and §200.405, costs charged to federal awards must be necessary, reasonable, allocable, and adequately documented. Reimbursen,ents based on estimated costs must be reconciled to actual expenditures, and any unsupported amounts must be excluded from final claims. Condition The City received FEMA reimbursements totaling $99,548 under PW No. 51 (0) and $5,704 under PW No. 34(0). These reimbursements were based on estimated costs submitted to FEMA. However, during the financial statement audit, the following discrepancies were noted: PW No. 51 (0): Claimed: Labor $1,048; Equipment $1.8,811; Materials $76,559; Contract $3;130 - Total $99,548 Documented: Labor $1,048; Equipment $8,874; Materials $78,966; Contract $3, 130-Total $92,018 Unsupported costs: $7,530 PW No. 34(0): Claimed: Labor $2,374; Equipment $3,330 -Total $5,704 Documented: Equipment $2,980 - Total $2,980 Unsupported costs: $2,724 Cause The City did not reconcile estimated FEMA reimbursements to actual expenditures incurred and failed to maintain adequate supporting documentation for all cost categories. Effect The City may have received federal funds in excess of actual eligible expenditures, resulting in potential noncompliance with federal cost principles and risk of disallowed costs. Recommendation The City should implement procedures to ensure all FEMA reimbursements are supported by actual, documented expenditures. Management should review the unsupported amounts and consult with FEMA regarding potential repayment or adjustments. Views of Responsible Officials Management concurs with the finding. The City acknowledges that FEMA reimbursements were based on estimated costs and that documentation for certain categories was incomplete. The City will strengthen its procedures for reconciling estimated reimbursements to actual expenditures and ensure that all future claims are supported by detailed documentation. Staff will receive training on FEMA cost principles and documentation standards, and the City will consult with FEMA regarding resolution of the questioned costs.