Audit 400695

Internal Control Over General Disbursements Federal Agency: U.S. Department of the Treasury Federal Program Name: Coronavirus State and Local Fiscal Recovery Funds Federal Award Identification Number and Year: 1505-0271 2022 Pass-Through Agency: Knox County Pass-Through Number: Not Available Assistance Listing Number: 21.027 Award Period: July 1, 2022 – June 30, 2023 Type of Finding: • Material Weakness in Internal Control over Compliance Criteria or specific requirement: Uniform Guidance requires non-Federal entities to establish and maintain effective internal control over the Federal award that provides reasonable assurance that the entity is managing the award in compliance with Federal statutes, regulations, and terms and conditions, safeguards assets, and for preventing, detecting, and correcting noncompliance. Condition: CLA selected 40 general disbursements to test controls and compliance and evidence that internal controls over compliance was not provided for 15 of these selections. The 15 transactions were all associated with transportation costs charged to Knox CAC from the Knox County. Based on supporting documentation provided no noncompliance was noted; however, the absence of observable internal controls resulted in a material weakness in internal control. Questioned costs: None noted. Context: Evidence that internal controls are designed effectively and implemented should be appropriately documented and maintained to allow for review during the audit process. Without this evidence the auditor is unable to verify these internal controls were designed effectively and implemented. Cause: Cost related to transportation charged directly to Knox CAC from the County are reviewed on a monthly basis, however, documentation of that review was not properly documented and/or retained by Knox CAC to provide as support that the control was properly designed and implemented. Effect: When internal controls are not designed and implemented effectively it could lead to noncompliance within the program which could result in loss of funding or liability to reimburse federal funds. Repeat Finding: Not a repeat finding. Recommendation: Implement a formal way to document the review and approval of transportation costs charged from the Knox County garage to provide evidence that internal controls are effectively designed and implemented and functioning. Views of responsible officials: There is no disagreement with the audit finding.

Allowable Costs/Cost Principles / Period of Performance Federal Agency: U.S. Department of Health & Human Services Federal Program Name: Community Services Block Grant Federal Award Identification Number and Year: 2201TNCOSR, 2001TNCSC3, 2301TNCOSR - 2023 Pass-Through Agency: Tennessee Department of Human Services Pass-Through Number: Z-20-49109, Z-21-49109, Z-22-49209COV, Z22-49209 Assistance Listing Number: 93.569 Award Period: July 1, 2022 – June 30, 2023 Type of Finding: • Material Weakness in Internal Control over Compliance • Material Noncompliance (Modified Opinion) Criteria or specific requirement: Uniform Guidance requires that costs charged to federal awards be allowable, reasonable, necessary, and adequately controlled. In addition, CSBG program guidanceissued by HHS and state CSBG administering agencies generally requires that assistance toindividuals be restricted to eligible supportive services that further CSBG purposes and that safeguardsexist to prevent misuse of federal funds. Additionally liabilities associated with a grant must be liquidated within 90 days of the end of the grants period of performance. Condition: During our audit we identified that CAC purchased and distributed gift cards totaling $120,000 to program participants. The gift cards were unrestricted at the vendor level, meaning they could be used to purchase any goods or services and were not limited to allowable CSBG purposes (e.g., food or other eligible supportive services). Other than having the recipient sign a form stating they would utilize the gift card for allowable purposes under the CSBG program, CAC did not implement controls to restrict or monitor the use of these gift cards to ensure expenditures aligned with allowable CSBG activities. Additionally, the liability for the gift cards was not liquidated within 90 days of the end of the grant period of performance. Questioned costs: $120,000 Context: Gift cards were purchased and distributed during the audit period as part of participant assistance activities under ALN 93.569. CAC distributed gift cards to multiple program participants without vendor-based restrictions on allowable use. No compensating monitoring controls or postdistribution verification procedures were implemented. Payment of liabilities associated with a grant are required to be paid within a 90 day period of the end of the grant period of performance unless a waiver is obtained. Cause: Management interpreted participant assistance under CSBG as allowable without sufficiently evaluating whether the form of assistance complied with Uniform Guidance allowability standards. Additionally, internal control procedures were not designed to assess or mitigate the risk that unrestricted gift cards could be used for non-CSBG purposes. Controls were not in place appropriately to identify that the payment of liabilities associated with the grant were made within a 90 day period after the end of the grants period of performance. Effect: As a result of the lack of vendor or programmatic restrictions on gift card usage and noncompliance with liability liquidation provisions under Uniform Guidance, Federal funds may have been used for unallowable purposes not consistent with CSBG objectives. The CSBG program is exposed to potential disallowance or repayment of questioned costs. Repeat Finding: This is not a repeat finding Recommendation: We recommend that CAC Discontinue the use of unrestricted gift cards for CSBG funded participant assistance. Implement policies requiring that any gift cards or vouchers be restricted at the vendor level to allowable CSBG purposes or replaced with alternative assistance mechanisms that provide adequate safeguards. Consult state CSBG administering agency guidance prior to implementing participant assistance methods to ensure costs are allowable and properly controlled. Also management should implement controls that allow for the identification of liabilities at the end of a grant to allow for payment within the 90 day liquidation period in accordance with Uniform Guidance. Views of responsible officials: There is no disagreement with the audit finding.