Audit 405982

SIGNIFICANT DEFICIENCY IN INTERNAL CONTROL OVER COMPLIANCE – U.S. DEPARTMENT OF TRANSPORTATION – PASSED THROUGH MINNESOTA DEPARTMENT OF TRANSPORTATION – HIGHWAY PLANNING AND CONSTRUCTION FEDERAL ALN 20.205 2025-002 Internal Control Over Compliance With Federal Suspension and Debarment Requirements Criteria – 2 CFR § 180 and 2 CFR § 200.318-327 requires the City to establish and maintain effective internal control over compliance with requirements applicable to federal program expenditures, including suspension and debarment requirements applicable to the Highway Planning and Construction federal program. Condition – During our audit, we noted the City did not have sufficient controls in place within its major federal programs to ensure compliance with federal requirements related to assuring that the City was not contracting for goods or services with parties that are suspended or debarred, or whose principals are suspended or debarred from participating in contracts involving the expenditures of federal program funds. Questioned Costs – None. Our testing did not indicate any instances of noncompliance with this requirement. Context – The City did not obtain the appropriate documentation for three of four vendors tested applicable to the Highway Planning and Construction program to ensure the vendors were not suspended or debarred from participation in federal program contracts. This is not a statistically valid sample. Repeat Finding – This is a current year finding. Cause – This was an oversight by city personnel. Effect – Noncompliance with suspension and debarment requirements could result in the City expending federal funds inappropriately or utilizing vendors that are not eligible to be parties to such transactions, which could be viewed as a violation of the award agreement. Recommendation – We recommend that the City review its internal control procedures relating to suspension and debarment for the Highway Planning and Construction federal program. Internal controls over compliance for this area should include retention of adequate documentation of compliance with Uniform Guidance requirements related to suspension and debarment. These controls should include steps to ensure any vendor with which the City contracts for goods or services exceeding $25,000 is not listed as suspended or debarred on the federal Excluded Parties List System website. View of Responsible Official and Planned Corrective Actions – The City agrees with the finding. The City will review procedures relating to suspension and debarment for its federal programs to ensure compliance with the Uniform Guidance in the future. The City has separately issued a Corrective Action Plan related to this finding.

MATERIAL WEAKNESS IN INTERNAL CONTROL OVER COMPLIANCE – SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS – ALL FEDERAL PROGRAMS 2025-001 Reporting Compliance Requirement Criteria – 2 CFR § 200.510 requires that the City of South St. Paul, Minnesota (the City) prepare appropriate financial statements, including the Schedule of Expenditures of Federal Awards (SEFA) for the year ended December 31, 2025, which must include the total federal awards expended as determined in accordance with 2 CFR § 200.502. Management is responsible for establishing and maintaining effective internal controls over compliance with requirements applicable to federal programs, including separately tracking federal expenditures within the finance system to provide for accurate preparation of the SEFA. Condition – During our audit, we noted the City did not have sufficient controls in place to ensure the accurate preparation of the SEFA in compliance with this requirement. The City’s SEFA for fiscal 2025 was overstated by $749,656 in federal expenditures, due to the inclusion of costs that were incurred in the previous fiscal year. Questioned Costs – None. The 2025 SEFA was corrected when the misstatement was identified during the audit, and this would not have changed the determination that a Single Audit of federal awards expenditures was required for the 2024 fiscal year and would not have changed the risk assessment and major program testing for the 2024 fiscal year. Context – The City’s SEFA presented for audit for the year ended December 31, 2025 included $749,656 in two programs that should not have been included in this fiscal year. Cause – This was an oversight by city personnel. Repeat Finding – This is a current year finding. Effect – An inaccurate SEFA could result in incorrect major program determination for the Single Audit and could be considered a violation of federal award agreements. Recommendation – We recommend that the City review its internal control procedures over reporting and verify accuracy of expenditures reported on the SEFA in the future. View of Responsible Official and Planned Corrective Actions – The City agrees with the finding. The City has separately issued a Corrective Action Plan related to this finding.