Audit 400700

MATERIAL WEAKNESS; CRITERIA: Title 2 CFR §200.510(b) and the state single audit implementation act require auditees to prepare a Schedule of Expenditures of Federal and State Awards (SEFSA) for the period covered by the financial statements. 2 CFR §200.502(a) further emphasizes that the auditee is responsible for the accurate preparation and fair presentation of the SEFSA in accordance with federal requirements.; CONDITION: The Town of Spruce Pine did not prepare an accurate SEFSA for the fiscal year ended June 30, 2025. During the audit, we identified errors in reported federal expenditures, including the omission of federal program activity and incorrect amounts recorded as receivable under the federal program. As a result, material audit adjustments were required to properly state the SEFSA.; EFFECT: Because the SEFSA was not accurately prepared, there was an increased risk that federal expenditures were misstated and that federal programs subject to audit were not properly identified. This condition could result in noncompliance with federal reporting requirements and impair federal oversight. No questioned costs were identified as a result of this finding.; CAUSE: There were not adequate internal controls in place over the preparation and review of the SEFSA. Management did not maintain a complete and reconciled listing of federal awards expended during the fiscal year and did not perform a formal review of the SEFSA for completeness and accuracy prior to submission to the auditors. RECOMMENDATION: We recommend that the Town of Spruce Pine establish and document internal controls over the identification, tracking, and reporting of federal and state awards. This should include maintenance of a comprehensive schedule of known and potential awards throughout the fiscal year, reconciliation of grant expenditures to the general ledger, and performance of a supervisory review of the SEFSA prior to audit submission to ensure accuracy and completeness in accordance with federal and state requirements.; VIEWS OF RESPONSIBLE OFFICIALS AND CORRECTIVE ACTIONS: The Town of Spruce Pine agrees with this finding. Finance procedures will be updated to include a suspension and debarment requirements. Town staff will be trained on the updated policies and its implementation.

SIGNIFICANT DEFICIENCY; CRITERIA: 2 CFR §200.302(b)(5) requires non‑Federal entities to have written procedures to implement effective control over and accountability for all funds, including budgeting and financial management practices that allow the entity to relate financial results to project performance.; CONDITION: For the fiscal year ended June 30, 2025 the Town did not prepare or maintain project-level budgets for emergency response and recovery activities. ; EFFECT: Without project budgets, The Town lacks assurance that FEMA funds are spent in accordance with approved scopes of work and allowable cost principles under 2 CFR §200.403 and is unable to demonstrate effective financial oversight or compare actual expenditures to planned costs. This increases the risk of cost overruns, questioned costs, or ineligible expenditures, which may lead to FEMA deobligating funds or requiring repayment.; CAUSE: The Town did not have established internal processes requiring the development of project‑specific budgets for emergency FEMA awards. During the emergency response period, Town staff focused on operational activities, and no designated personnel were assigned responsibility for creating or monitoring project budgets.; RECOMMENDATION: The Town should implement written procedures requiring project‑specific budgets for all Federal awards, including FEMA emergency funding. The Town should also provide staff training to ensure personnel understand Federal grant budgeting requirements and are capable of preparing and maintaining compliant documentation.; VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTIONS: The Town of Spruce Pine agrees with this finding. Finance procedures will be updated to include project-level budgeting and recommended training for staff.

SIGNIFICANT DEFICIENCY; CRITERIA: 2 CFR §200.318(a) requires non‑Federal entities to maintain and follow written procurement procedures that are consistent with Federal laws, the Uniform Guidance, and applicable state laws. State procurement rules also require local governments to follow competitive purchasing and contracting procedures when expending public funds.; CONDITION: The Town’s written procurement policies have not been updated to reflect current Federal procurement standards under 2 CFR §§200.317–200.327 or applicable state procurement requirements. ; EFFECT: Because the Town’s procurement policies are not current with Federal and state requirements, the Town risks noncompliance with Federal procurement standards which increases the likelihood of questioned costs for federally funded purchases. Noncurrent policies could allow insufficient competition, incomplete documentation, or use of unallowable contract types. FEMA or other Federal agencies could determine costs to be ineligible, resulting in reimbursement reductions or the need for the Town to repay Federal funds.; CAUSE: The Town had not conducted a recent review of its procurement policies and procedures and was unaware of necessary updates. Limited staffing in the finance and administrative functions contributed to the delay in updating the written policies.; RECOMMENDATION: The Town should update its written procurement policies to fully incorporate the current Federal procurement standards under 2 CFR §200.317–§200.327 and applicable state laws. The Town should provide staff training on the revised procurement procedures and establish a periodic review schedule to ensure ongoing compliance with Federal and state requirements.; VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTIONS: The Town of Spruce Pine agrees with this finding. Procurement policies and procedures will be updated to be compliant with federal and state laws. Staff will be trained on new procedures, and the policy will be reviewed on an annual basis.

SIGNIFICANT DEFICIENCY; CRITERIA: Per 2 CFR 200.320 the auditee must use appropriate procurement methods based on dollar amounts and conditions of project-level contracts.; CONDITION: For the fiscal year ending June 30, 2025 one FEMA‑funded project reviewed during the audit period, the Town allowed the contractor to begin work before a written contract was executed. The contractor mobilized and started work without a signed agreement defining scope, pricing, Federal requirements, or terms and conditions.; EFFECT: Noncompliance with Federal procurement regulations increases the risk that FEMA may consider associated costs ineligible or unreasonable. The Town could be subject to disputes over scope, pricing, or performance due to the absence of formal terms agreed upon before work began. Lack of assurance that required Federal contract provisions were included carries the potential for questioned costs that could lead to deobligation or repayment of FEMA funds.; CAUSE: The Town initiated work urgently due to the nature of the emergency event and did not follow formal procurement procedures. Staff cited time constraints and the immediate need for response activities, but no emergency procurement documentation or justification was concurrently prepared as allowed under 2 CFR §200.320(c) (noncompetitive procurement during public exigency). Personnel were also not fully aware of FEMA documentation requirements.; RECOMMENDATION: The Town should update its written procurement policies to fully incorporate the current Federal procurement standards under 2 CFR §200.317–§200.327 and applicable state laws. The Town should provide staff training on the revised procurement procedures and establish a periodic review schedule to ensure ongoing compliance with Federal and state requirements.; VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTIONS: The Town of Spruce Pine agrees with this finding. Finance procedures will be updated to include a standard form and procedure for cost and price analysis that will be implemented immediately.

SIGNIFICANT DEFICIENCY; CRITERIA:Per 2 CFR 200.323 and 2 CFR 200.323, the auditee must perform a cost or price analysis with all procurement actions exceeding the simplified acquisition threshold, including contract modfications. The analysis must support the related procurement action. ; CONDITION: For the fiscal year ending June 30, 2025 four expenditures were identified where cost or price analysis was not performed prior to procuring the services of the vendor.; EFFECT: Unformalized or unperformed cost and price analysis constitutes noncompliance with federal procurement requirements. Expenditures made for these projects were therefore not properly vetted for reasonableness prior to their authorization. This may impair federal oversight and increase the risk of enforcement actions, such as heightened monitoring, restrictions on future funding, or other administrative remedies deemed appropriate by awarding agencies such as clawback of funding.; CAUSE: The effects of Hurricane Helene required Town staff to respond quickly to emergent needs of its citizens. Standard procedures were not in place and operating to ensure reasonableness of expenditures of this nature.; RECOMMENDATION: Finance procedures should include emergency protocols that ensure compliance with likely funding sources such as FEMA.; VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTIONS: The Town of Spruce Pine agrees with this finding. Finance procedures will be updated to include a standard form and procedure for cost and price analysis that will be implemented immediately.

SIGNIFICANT DEFICIENCY; CRITERIA: 2 CFR §200.214 (Suspension and Debarment) stipulates that non-Federal entities must not enter into contracts or subawards with parties that are suspended, debarred, or otherwise excluded from Federal programs. Recipients must verify the eligibility of contractors by utilizing SAM.gov, collecting a written certification from the contractor, or including a clause in the contract requiring the contractor to certify its status.; CONDITION: During the audit, it was noted that the Town did not perform required checks to determine whether contractors or vendors selected for federally funded projects were suspended or debarred from doing business with the Federal government. Town staff reported they were not familiar with the Federal debarment requirements and did not use the System for Award Management (SAM.gov) or any other verification method before awarding contracts under FEMA‑funded projects.; EFFECT: Failure to verify contractor eligibility results in noncompliance with 2 CFR §200.214 can lead to questioned costs for the affected FEMA‑funded projects. There is increased risk that the Town would contract with an ineligible or prohibited entities which carries potential that FEMA would deobligate or seek repayment of Federal funds if a contractor is later determined to be ineligible.; CAUSE: The Town lacked written procedures addressing suspension and debarment requirements and was unaware of the mandatory steps needed to verify contractor eligibility prior to awarding federally funded work. Staff assigned to procurement and project oversight had not received training on Uniform Guidance or FEMA procurement standards.; RECOMMENDATION: The Town should implement written procedures to ensure compliance with suspension and debarment requirements for all federally funded procurements.; VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTIONS: The Town of Spruce Pine agrees with this finding. Finance procedures will be updated to include a suspension and debarment requirements. Town staff will be trained on the updated policies and its implementation.