FINDING 2023-002 Subject: CDBG - Entitlement Grants Cluster - Program Income Federal Agency: Department of Housing and Urban Development Federal Program: Community Development Block Grants/Entitlement Grants Assistance Listings Number: 14.218 Federal Award Numbers and Years (or Other Identifying Numbers): B-11-UN-18-0002, B-19-UC-18-0016, B-20-UC-18-0016, B-21-UC-18-0016, B-22-UC-18-0016, B-23-UC-18-0016 Compliance Requirement: Program Income Audit Findings: Material Weakness, Modified Opinion This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2022-003. Condition and Context The County received program income through various loan programs it offered to qualifying individuals. Once the County received a loan payment, the receipt was posted into the financial accounting system of the County and recorded in a grant fund. The amount received was also to be recorded in the Department of Housing and Urban Development's (HUD) Integrated Disbursement and Information System (IDIS) website. The recorded program income in the IDIS website would then appear on the Drawdown Report by Voucher Number report (PR07). One individual was responsible for notifying the County Auditor's office when program income money was received so it could be receipted in the County's financial accounting system. The same individual was also responsible for reporting the information on the IDIS site. No internal controls were established to ensure the program income that was recorded in the financial accounting system was also reported on the IDIS site and the PR07 report. There were 5 out of 38 receipts that were unable to be located on the PR07 report provided for audit. In addition, we were unable to verify the total amount recorded in the receipt ledger to the total reported on the PR07 report. The County's ledger amount was greater than the PR07 report by $54,727 and is primarily attributed to under reporting of program income in the IDIS as identified above. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: INDIANA STATE BOARD OF ACCOUNTS 20 LAKE COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (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). . . ." 2 CFR 200.1 states in part: ". . . Internal controls for non-Federal entities means: (1) Processes designed and implemented by non-Federal entities to provide reasonable assurance regarding the achievement of objectives in the following categories: (i) Effectiveness and efficiency of operations; (ii) Reliability of reporting for internal and external use; . . ." 2 CFR 200.302 states in part: "(a) Each state must expend and account for the Federal award in accordance with state laws and procedures for expending and accounting for the state's own funds. In addition, the state's and the other non-Federal entity's financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. . . . (b) The financial management system of each non-Federal entity must provide for the following: . . . (3) Records that identify adequately the source and application of funds for federally funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. . . ." 24 CFR 570.504 states in part: "(a) Recording program income. The receipt and expenditure of program income as defined in § 570.500(a) shall be recorded as part of the financial transactions of the grant program. (b) Disposition of program income received by recipients. (1) Program income received before grant closeout may be retained by the recipient if the income is treated as additional CDBG funds subject to all applicable requirements governing the use of CDBG funds. (2) If the recipient chooses to retain program income, that program income shall be disposed of as follows: INDIANA STATE BOARD OF ACCOUNTS 21 LAKE COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (i) Program income in the form of repayments to, or interest earned on, a revolving fund as defined in § 570.500(b) shall be substantially disbursed from the fund before additional cash withdrawals are made from the U.S. Treasury for the same activity. (This rule does not prevent a lump sum disbursement to finance the rehabilitation of privately owned properties as provided for in § 570.513.) (ii) Substantially all other program income shall be disbursed for eligible activities before additional cash withdrawals are made from the U.S. Treasury. . . ." Cause A turnover of staff in the County's Community Development office and management not ensuring that a system of internal controls that segregated key functions was designed, implemented, and operating effectively contributed to the program income issue identified above. Effect Without the proper implementation of an effectively designed system of internal controls, the County could not ensure that program income was properly reported and used before the drawdown of federal funds as required. The County could be at risk of losing federal funds by the federal awarding agency due to noncompliance with federal regulations. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the management of the County establish a system of internal controls to ensure that all program income received is properly reported in the IDIS system and expended prior to drawing down federal awards. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2023-003 Subject: COVID-19 - Emergency Rental Assistance Program - Period of Performance Federal Agency: Department of the Treasury Federal Program: COVID-19 - Emergency Rental Assistance Program Assistance Listings Number: 21.023 Federal Award Number and Year (or Other Identifying Number): ERA-0359 Compliance Requirement: Period of Performance Audit Findings: Material Weakness, Modified Opinion INDIANA STATE BOARD OF ACCOUNTS 22 LAKE COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context The County received a federal Emergency Rental Assistance (ERA) Program grant, that was created during the COVID-19 pandemic, to help provide financial and housing stability assistance to eligible households to help prevent eviction and ensure stable housing. Recipients had a period of performance to incur costs that was between the start of the grant until September 30, 2022, for the Emergency Rental Assistance Program 1 (ERA1) and could be extended until December 29, 2022, if the recipient received reallocated funds from the Department of the Treasury. The County did receive reallocated funds from the Department of the Treasury; therefore, the County had until December 29, 2022, to incur costs for the ERA1 program. The costs that were incurred during the period of performance then had a liquation date of April 28, 2023. The County did not have internal controls in place to ensure costs were incurred within the grant period of performance and those costs incurred were properly paid by the liquidation date. Five out of seven of the expenditures tested, totaling $124,787, were for costs incurred after the period of performance. One expenditure included a December obligation to a subrecipient of $31,026, which was within the period of performance. But, the County did not pay the subrecipient by the liquidation date, so a total of $155,813 was paid after the liquidation date. 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). . . ." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: . . . (h) Cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3)." Cause Due to turnover in the Economic Development Department and lack of knowledge of the period of performance dates of the ERA1 program, noncompliance went undetected by the County. Effect Noncompliance with the provisions of federal statutes, regulations, and terms and conditions of the federal award resulted in the request by the Department of the Treasury for the County to refund $154,945. INDIANA STATE BOARD OF ACCOUNTS 23 LAKE COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Questioned Costs We identified $155,813 in known questioned costs as noted above in the Condition and Context. Recommendation We recommended that management of the County establish a system of internal controls to ensure compliance with period of performance requirements. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2023-004 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Procurement and Suspension and Debarment Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Numbers and Years (or Other Identifying Numbers): Contract #65873, SLT-3157 Pass-Through Entity: Indiana Department of Natural Resources Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Condition and Context Procurement The County did adopt an applicable federal purchasing policy. The Lake County Indiana Purchasing Manual for Supplies, Services and Public Works states on page 19 that "Federal funds more than $50,000 but less than $150,000 will invite 3 quotes at an open public meeting . . .", which is the federal requirement for small purchases. However, the County did not follow this policy. In 2023, the County had one vendor that was paid a total of $97,525 from COVID-19 - Coronavirus State and Local Fiscal Recovery Funds (SLFRF) under Contract #65873 from the Indiana Department of Natural Resources. However, the County did not obtain price or rate quotes for the one applicable vendor under the small purchase threshold as required. Suspension and Debarment Prior to entering into subawards and covered transactions with the SLFRF award funds, recipients are required to verify that such contractors and subrecipients are not suspended, debarred, or otherwise excluded. "Covered transactions" include, but are not limited to, contracts for goods and services awarded under a nonprocurement transaction (i.e., grant agreement) that are expected to equal or exceed $25,000 and all subawards. The verification is to be done by checking the Excluded Parties List System (EPLS), collecting a certification from that person or entity, or adding a clause or condition to the covered transaction with that person or entity. INDIANA STATE BOARD OF ACCOUNTS 24 LAKE COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The County did not have policies or procedures in place related to the suspension and debarment requirements for the SLFRF funds. Two covered transactions totaling $1,990,616 paid from SLFRF funds were identified. Documentation to show that suspension and debarment was verified prior to entering into contracts with these two vendors could not be provided by the County. The amounts for which suspension and debarment were not verified for Contract #65873 from the Indiana Department of Natural Resources and the SLT-3157 directly from the Department of the Treasury were $176,711 and $1,813,905, respectively. The lack of internal controls and noncompliance were isolated to the transactions identified above. 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). . . ." 2 CFR 200.318(i) states: "The non-Federal entity must maintain records sufficient to detail the history of procurement. These records will include, but are not necessarily limited to the following: Rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the basis for the contract price." 2 CFR 200.320 states in part: "The non-Federal entity must have and use documented procurement procedures, consistent with the standards of this section and §§ 200.317, 200.318, and 200.319 for any of the following methods of procurement used for the acquisition of property or services required under a Federal award or subaward. (a) Informal Procurement methods. When the value of the procurement for property or services under a Federal award does not exceed the simplified acquisition threshold (SAT), as defined in § 200.1, or a lower threshold established by a non-Federal entity, formal procurement methods are not required. The non-Federal entity may use informal procurement methods to expedite the completion of its transactions and minimize the associated administrative burden and cost. The informal methods used for procurement of property or services at or below the SAT include: . . . (2) Small purchases - (i) Small purchase procedures. The acquisition of property or services, the aggregate dollar amount of which is higher than the micro-purchase threshold but does not exceed the simplified acquisition threshold. If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources as determined appropriate by the non-Federal entity. . . ." INDIANA STATE BOARD OF ACCOUNTS 25 LAKE COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 2 CFR 180.300 states: "When you enter into a covered transaction with another person at the next lower tier, you must verify that the person with whom you intend to do business is not excluded or disqualified. You do this by: (a) Checking SAM Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person." Cause The County's purchasing policy does not provide procedures on how the County will ensure the appropriate number of quotes will be obtained for small purchases or how the County will ensure compliance with the suspension and debarment requirements. Effect Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the repayment or loss of future federal funding to the County. Questioned Costs There were no questioned costs identified. Recommendation Management of the County should develop procedures to ensure the appropriate procurement methods are used for items or services procured that are within the small purchase threshold and to ensure vendors are not suspended or debarred when expending federal funds. Appropriate documentation should be maintained to ensure compliance with procurement and suspension and debarment. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2023-005 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Reporting Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number and Year (or Other Identifying Number): SLT-3157 Compliance Requirement: Reporting Audit Finding: Material Weakness INDIANA STATE BOARD OF ACCOUNTS 26 LAKE COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context Recipients are required to submit quarterly Project and Expenditures (P&E) reports to the U.S. Department of the Treasury. The reporting periods, as well as the respective due dates, are based upon type of recipient and its population, as well as the recipient's allocation amount. Information to be reported includes projects funded, expenditures, and contracts for the appropriate reporting period. The County was classified as a county with a population above 250,000 residents. As such, the County was required to submit quarterly P&E reports in 2023. The County did not have internal control procedures in place over the quarterly P&E reports. The quarterly P&E reports were generated by one individual without a review or oversight process to detect and correct errors prior to submission. 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). . . ." Cause A proper system of internal controls was not designed or implemented by management of the County to ensure that policies and procedures were in place related to reporting to ensure the amounts reported were accurate. Effect Without the proper implementation of an effectively designed system of internal controls over reporting, the County cannot ensure that the quarterly P&E reports submitted were materially accurate and correct. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the repayment or loss of future federal funding to the County. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the management of the County design and implement a proper system of internal controls to ensure the accuracy and correctness of the quarterly P&E reports. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.