Criteria: 2 CFR §200.302 requires recipients to maintain accurate, complete, and timely accounting records for federal awards. Additionally, 2 CFR §200.303 requires recipients to establish and maintain effective internal controls over federal awards to ensure proper recording, reconciliation, and reporting. The U.S. Treasury’s SLFRF Compliance and Reporting Guidance also requires recipients to submit accurate and timely Project and Expenditure Reports. Condition: Audit procedures identified multiple errors and deficiencies in the City’s accounting records and SLFRF reporting, including: 1. The SEFA reported ARPA expenditures of $11,695,336.46 for the year ended December 31, 2022; however, included in this amount were expenditures totaling $1,728,205.96 that were incurred in fiscal year 2023 and should not have been reported as 2022 expenditures. 2. A discrepancy of $131,898.82 was noted between the general ledger and the expenditure audit trail. 3. The City received the second tranche of ARPA funds on July 18, 2022 amounted to $18,189,922; however, due to a system interface error, the transaction was not recorded in the general ledger. The City did not identify or correct this error in a timely manner through its reconciliation process. 4. Differences were noted between amounts reported in the SLFRF Project and Expenditure Reports and the City’s general ledger. Public Health expenditures differed by $23,349, and administrative expenditures differed by $10,000. In addition, salary expenditures for police and fire personnel totaling $1,588,887.57 were not reported. These variances indicate that amounts reported to the U.S. Treasury were not fully reconciled to the City’s accounting records. 5. Based on our review, the City did not submit certain required SLFRF quarterly reports by the established deadlines. The 2nd quarter 2022 report, due July 31, 2022, was submitted on August 15, 2022, and the 3rd quarter 2022 report, due October 31, 2022, was submitted on December 1, 2022. 6. In addition, a duplicate payment totaling $675 was identified during our review of SLFRF expenditures. Cause: These conditions occurred because the City did not have adequate internal controls over federal grant accounting and reporting. Specifically, the City did not ensure federal revenues and expenditures were properly and completely recorded in the general ledger, amounts reported in the SLFRF reports and SEFA were reconciled to the accounting records prior to submission, or expenditures were reported in the proper fiscal year. In addition, reconciliation procedures were not performed timely to identify and correct errors, including system posting issues affecting the recording of federal grant activity. Effect: As a result, federal expenditures were inaccurately reported, accounting records were incomplete or not properly reconciled, required reports were submitted late, and errors such as unrecorded transactions and duplicate payments were not timely identified or corrected. This resulted in noncompliance with federal requirements and increases the risk of material misstatement and improper use or reporting of federal funds. Recommendation: We recommend the City strengthen internal controls over federal awards by ensuring all transactions are properly recorded in the general ledger, performing regular reconciliations between accounting records and federal reports, ensuring SEFA accuracy, implementing procedures to prevent and detect duplicate payments, and establishing procedures to ensure timely submission of required federal reports. Questioned Cost: -0- View of Responsible Official: The City agrees with the first 3 bullet points but does not agree with the points 4 and 5. The ARPA reports contain categories of expenditures for public health as well as well public safety salaries. Those items are specifically identified in the report as well as the City kept a separate schedule that reconciled to the spending of the ARPA funds that was provided to the auditors. Also, the City provided communications to the ARPA technical assistance that indicated issues related to their software. This software was newly created and under their own admission they knew there would be possible issues in reporting. The City made sure to send those communications to the auditor.
Criteria: Under 2 CFR §200.303, non-Federal entities are required 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. In addition, 2 CFR §200.318–200.320 require entities to maintain records sufficient to detail the history of procurement transactions, including the rationale for contractor selection and the basis for contract price, and to ensure vendors are not suspended or debarred. Further, 2 CFR §200.302 requires recipients to maintain accurate and complete financial records that properly support and record federal expenditures. Condition: During our testing of expenditures charged to the Coronavirus State and Local Fiscal Recovery Fund under the American Rescue Plan Act (ARPA), we identified several instances where the City did not maintain adequate documentation and supporting records for program expenditures. Specifically: a. The City did not consistently maintain documentation supporting procurement decisions. Documentation for competitive bidding, vendor selection rationale, and price reasonableness was not consistently available. The City also did not provide evidence that vendors were verified against SAM.gov for suspension and debarment. Management indicated certain procurements were made under COVID-19 emergency conditions; however, written justification and required approvals were not consistently maintained. b. Expenditures totaling $1,070,694.56, out of $6,305,879.54 tested, were recorded in fiscal year 2022 instead of 2023. c. One disbursement had an invoice dated October 1, 2021, but was not paid until April 26, 2022, resulting in a delay of approximately seven months. d. For certain expenditures, purchase orders totaling $1,018,000 did not agree with related invoices totaling $1,410,483.81, indicating discrepancies between approved purchase amounts and billed amounts. Cause: These issues appear to be due to inadequate internal controls over procurement documentation, expenditure processing, and financial recordkeeping. The City did not consistently maintain documentation supporting procurement decisions, review supporting documentation for completeness, or ensure that expenditures were recorded in the appropriate accounting period. In addition, review procedures were not consistently performed to verify that supporting documents, purchase orders, and invoices were complete and consistent prior to processing payments. Effect: These deficiencies indicate significant weaknesses in the City’s internal controls over procurement documentation, expenditure review, and financial recordkeeping. As a result, the City cannot ensure that expenditures were properly authorized, supported by adequate documentation, recorded in the appropriate accounting period, or consistent with approved purchase amounts. These conditions increase the risk of unsupported or improperly recorded expenditures and limit the City’s ability to demonstrate compliance with federal requirements. Recommendation: The City should strengthen internal controls over procurement and expenditure processing by maintaining complete procurement documentation, including evidence of competitive bidding, vendor selection rationale, price reasonableness, and suspension and debarment verification. Management should also implement procedures to ensure expenditures are recorded in the correct fiscal period and that purchase orders, invoices, and supporting documentation are reviewed for completeness and consistency prior to payment. Questioned Cost: -0- View of Responsible Official: The City agrees with this finding. ARPA rules again were still developing during this time frame and some items were not a requirement during reporting. However, the City did require vendors to start registering with Sams.gov as well perform checking vendors for suspension and debarment after the rules changed.