Condition: During the process of documenting the County’s internal controls regarding federal disbursements, we noted that Lincoln County has not established procedures to ensure compliance with the following compliance requirements: Activities Allowed or Unallowed; Allowable Costs/Cost Principles; Period of Performance; Procurement and Suspension and Debarment; and Reporting. Cause of Condition: Policies and procedures have not been designed and implemented to ensure federal expenditures are made in accordance with federal compliance requirements. Effect of Condition: This condition could result in noncompliance with grant requirements and could result in a loss of federal funds to the County. Management Response: Chairman of the Board of County Commissioners: The Board acknowledges the recommendation to formalize internal control documentation consistent with GAO Green Book standards. While internal controls have been operationally in practice, documentation has not been consolidated into a single formally adopted policy reflecting the federal framework language referenced in the audit. • A comprehensive written internal control policy will be drafted aligning with GAO Green Book principles. • The policy will incorporate revenue, disbursement, purchasing, monitoring, and documentation controls. • The policy will be reviewed by legal counsel prior to formal adoption. • An annual review process will be implemented to ensure continued compliance with federal standards. • Prior to initiation of any federally funded project, relevant county personnel will be formally briefed on applicable federal requirements. • Upon completion of federally funded projects, an internal review will be conducted to verify that required documentation is complete and that applicable regulations were followed. No questioned costs were identified in connection with these findings. County Clerk: Policies and procedures for federal programs will be included in the employee handbook. Each office will communicate with the County Clerk and Treasurer when federal funds have been awarded to ensure proper procedures are followed. Recommendation: OSAI recommends the County gain an understanding of grant requirements for this program and implement internal control procedures to ensure compliance with grant requirements. Criteria: 2 CFR § 200.303 Internal Controls (a) reads as follows The non-Federal entity must: 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). Accountability and stewardship should be overall goals in management's accounting of federal funds. Internal controls should be designed to monitor compliance with laws and regulations pertaining to grant contracts.
Condition: Upon inquiry of county personnel and a test of fourteen (14) disbursements totaling $696,192, the following weaknesses were noted: • The County did not perform required suspension and debarment verifications on vendors for purchases exceeding $25,000. • The County does not have written standards of conduct that cover conflicts of interest and govern the performance of its employees engaged in the selection, award, and administration of contract. Cause of Condition: Policies and procedures have not been designed and implemented to ensure compliance with all federal award requirements. Effect of Condition: This condition resulted in noncompliance with federal grant requirements for this program and could result in loss of federal funds. Recommendation: OSAI recommends the County gain an understanding of the grant requirements and design and implement policies and procedures to ensure compliance with applicable grant requirements. Management Response: Chairman of the Board of County Commissioners: The Board acknowledges the need to incorporate specific federal clause language and procurement documentation standards into the County’s written procurement policy. • The County procurement policy will be updated to include required federal purchase and Uniform Guidance provisions. • Standardized procurement documentation procedures will be implemented for purchases involving federal funds. • Training will be provided to relevant personnel regarding federal purchasing requirements. • A compliance checklist will be adopted for federal expenditures to ensure documentation consistency. • Federal procurement requirements will be reviewed with personnel prior to project initiation, and documentation will be evaluated at project close out to confirm compliance. No questioned costs were identified in connection with these findings.
Condition: Expenditures for federal programs were not adequately reported on the Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) Compliance Reports. The actual expenditures to vendors were $1,163,327. The County reported $941,437, resulting in an understatement of $221,890. In addition, it was noted one vendor was reported under the wrong category in the amount of $135,409. This amount was reported as revenue loss and should have been reported as administrative expense. Cause of Condition: Policies and procedures have not been designed and implemented to ensure federal expenditures are made in accordance with federal compliance requirements. Effect of Condition: This condition resulted in noncompliance with grant requirements. Management Response: Chairman of the Board of County Commissioners: To correct this issue, the County will develop policy and procedures to timely and accurately track and report on federal funds. The policy and procedures will be reviewed, adopted, and monitored by the Board of County Commissioners. County Clerk: County will implement internal controls to ensure compliance with grant requirements. Recommendation: OSAI recommends the County gain an understanding of the grant requirements for this program and implement internal controls to ensure compliance with these grant requirements. Criteria: Compliance and Reporting Guidance, State and Local Fiscal Recovery Funds (10. Reporting.) reads as follows: All recipients of federal funds must complete financial, performance, and compliance reporting as required and outlined in Part 2 of this guidance. Expenditures may be reported on a cash or accrual basis, as long as the methodology is disclosed and consistently applied. Reporting must be consistent with the definition of expenditures pursuant to 2 CFR 200.1. Your organization should appropriately maintain accounting records for compiling and reporting accurate, compliant financial data, in accordance with appropriate accounting standards and principles. In addition, where appropriate, your organization needs to establish controls to ensure completion and timely submission of all mandatory performance and/or compliance reporting. Further, 2 CFR § 200.329 Monitoring and Reporting Program Performance (c)(1) reads as follows: The non-Federal entity must submit performance reports at the interval required by the Federal awarding agency or pass-through entity to best inform improvements in program outcomes and productivity. Intervals must be no less frequent than annually nor more frequent than quarterly except in unusual circumstances, for example where more frequent reporting is necessary for the effective monitoring of the Federal award or could significantly affect program outcomes. Reports submitted annually by the non-Federal entity and/or pass-through entity must be due no later than 90 calendar days after the reporting period. Reports submitted quarterly or semiannually must be due no later than 30 calendar days after the reporting period. Alternatively, the Federal awarding agency or pass-through entity may require annual reports before the anniversary dates of multiple year Federal awards. The final performance report submitted by the non-Federal entity and/or pass-through entity must be due no later than 120 calendar days after the period of performance end date. A subrecipient must submit to the pass-through entity, no later than 90 calendar days after the period of performance end date, all final performance reports as required by the terms and conditions of the Federal award. See also § 200.344. If a justified request is submitted by a non-Federal entity, the Federal agency may extend the due date for any performance report.
Condition: County-wide internal controls regarding Control Environment, Risk Assessment, Information and Communication and Monitoring have not been designed. Cause of Condition: Policies and procedures have not been designed and implemented to ensure the County complies with grant requirements. Effect of Condition: This condition resulted in noncompliance with grant requirements and could result in loss of federal funds to the County. Management Response: Chairman of the Board of County Commissioners: The Board acknowledges the recommendation to formalize internal control documentation consistent with GAO Green Book standards. While internal controls have been operationally in practice, documentation has not been consolidated into a single formally adopted policy reflecting the federal framework language referenced in the audit. • A comprehensive written internal control policy will be drafted aligning with GAO Green Book principles. • The policy will incorporate revenue, disbursement, purchasing, monitoring, and documentation controls. • The policy will be reviewed by legal counsel prior to formal adoption. • An annual review process will be implemented to ensure continued compliance with federal standards. • Prior to initiation of any federally funded project, relevant county personnel will be formally briefed on applicable federal requirements. • Upon completion of federally funded projects, an internal review will be conducted to verify that required documentation is complete and that applicable regulations were followed. No questioned costs were identified in connection with these findings. County Clerk: Policies and procedures for federal programs will be included in the employee handbook. Each office will communicate with the County Clerk and Treasurer when federal funds have been awarded to ensure proper procedures are followed. County Treasurer: The Treasurer will work with the other County Officials on gaining a better understanding of requirements for this program and will work on implementing policies and procedures to ensure compliance with grant requirements. Recommendation: OSAI recommends that the County design and implement a system of internal controls to ensure compliance with grant requirements Criteria: The GAO Standards – Section 1 – Fundamental Concepts of Internal Control – OV1.01 states in part: Definition of Internal Control Internal control is a process effected by an entity’s oversight body, management, and other personnel that provides reasonable assurance that the objectives of an entity will be achieved. Additionally, GAO Standards – Section 2 – Establishing an Effective Internal Control System – OV2.04 states in part: Components, Principles, and Attributes Control Environment - The foundation for an internal control system. It provides the discipline and structure to help an entity achieve its objectives. Risk Assessment - Assesses the risks facing the entity as it seeks to achieve its objectives. This assessment provides the basis for developing appropriate risk responses. Information and Communication - The quality information management and personnel communicate and use to support the internal control system. Monitoring - Activities management establishes and operates to assess the quality of performance over time and promptly resolve the findings of audits and other reviews.
Condition: During the process of documenting the County’s internal controls regarding federal disbursements, we noted that Lincoln County has not established procedures to ensure compliance with the following compliance requirements: Procurement and Suspension and Debarment, Special Tests and Provisions. Cause of Condition: Policies and procedures have not been designed and implemented to ensure federal expenditures are made in accordance with federal compliance requirements. Effect of Condition: This condition resulted in noncompliance with grant requirements and loss of federal funds to the County. Recommendation: OSAI recommends the County implement a system of internal controls to ensure compliance with grant requirements. Management Response: Chairman of the Board of County Commissioners: As Chairman of the Board of County Commissioners, I am submitting the Board’s response to the federal compliance findings identified in the audit report. The Board acknowledges the recommendation to formalize internal control documentation consistent with GAO Green Book standards. While internal controls have been operationally in practice, documentation has not been consolidated into a single formally adopted policy reflecting the federal framework language referenced in the audit. • A comprehensive written internal control policy will be drafted aligning with GAO Green Book principles. • The policy will incorporate revenue, disbursement, purchasing, monitoring, and documentation controls. • The policy will be reviewed by legal counsel prior to formal adoption. • An annual review process will be implemented to ensure continued compliance with federal standards. • Prior to initiation of any federally funded project, relevant county personnel will be formally briefed on applicable federal requirements. • Upon completion of federally funded projects, an internal review will be conducted to verify that required documentation is complete and that applicable regulations were followed. No questioned costs were identified in connection with these findings. County Clerk: Policies and procedures for federal programs will be included in the employee handbook. Each office will communicate with the County Clerk and Treasurer when federal funds have been awarded to ensure proper procedures are followed. County Treasurer: The Treasurer will work with the other County Officials on gaining a better understanding of requirements for this program and will work on implementing policies and procedures to ensure compliance with grant requirements. Criteria: GAO Standards – Section 2 – Establishing an Effective Internal Control System – OV2.23 states in part: Objectives of an Entity – Compliance Objectives Management conducts activities in accordance with applicable laws and regulations. As part of specifying compliance objectives, the entity determines which laws and regulations apply to the entity. Management is expected to set objectives that incorporate these requirements. 2 CFR § 200.303(a) Internal Controls reads as follows: 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).
Condition: Upon inquiry of county personnel and a test of nineteen (19) disbursements, the following weaknesses were noted: • The County did not advertise bids for at least three weeks. • The County does not have written standards of conduct that cover conflicts of interest and govern the performance of its employees engaged in the selection, award, and administration of contract. Cause of Condition: Policies and procedures have not been designed and implemented to ensure federal expenditures are made in accordance with federal compliance requirements. Effect of Condition: This condition resulted in noncompliance with grant requirements. Recommendation: OSAI recommends the County gain an understanding of the grant requirements for this program and implement internal controls to ensure compliance with these grant requirements. Management Response: Chairman of the Board of County Commissioners: The Board acknowledges the need to incorporate specific federal clause language and procurement documentation standards into the County’s written procurement policy. • The County procurement policy will be updated to include required federal purchase and Uniform Guidance provisions. • Standardized procurement documentation procedures will be implemented for purchases involving federal funds. • Training will be provided to relevant personnel regarding federal purchasing requirements. • A compliance checklist will be adopted for federal expenditures to ensure documentation consistency. • Federal procurement requirements will be reviewed with personnel prior to project initiation, and documentation will be evaluated at project close out to confirm compliance. No questioned costs were identified in connection with these findings. County Clerk: The County will gain an understanding of the grant requirements for this program and implement internal controls to ensure compliance with these grant requirements. Criteria: 2 CFR § 200.317 through 200.327 General Procurement Standards reads as follows: When procuring property and services under a Federal award, a State must follow the same policies and procedures it uses for procurements from its non-Federal funds. The State will comply with §§ 200.321, 200.322, and 200.323 and ensure that every purchase order or other contract includes any clauses required by § 200.327. All other non-Federal entities, including subrecipients of a State, must follow the procurement standards in §§ 200.318 through 200.327. The non-Federal entity must have and use documented procurement procedures, consistent with State, local, and tribal laws and regulations and the standards of this section, for the acquisition of property or services required under a Federal award or subaward. The non-Federal entity’s documented procurement procedures must conform to the procurement standards identified in §§ 200.317 through 200.327. (b) Non-Federal entities must maintain oversight to ensure that contractors perform in accordance with the terms, conditions, and specifications of their contracts or purchases orders. 2 CFR § 200.320 Sealed bids. This is a procurement method in which bids are publicly solicited through an invitation and a firm fixed-price contract (lump sum or unit price) is awarded to the responsible bidder whose bid conforms with all the material terms and conditions of the invitation and is the lowest in price. The sealed bids procurement method is preferred for procuring construction services. (i) For sealed bidding to be feasible, the following conditions should be present: (A) A complete, adequate, and realistic specification or purchase description is available; (B) Two or more responsible bidders have been identified as willing and able to compete effectively for the business; and (C) The procurement lends itself to a firm-fixed-price contract, and the selection of the successful bidder can be made principally based on price. (ii) If sealed bids are used, the following requirements apply: (A) Bids must be solicited from an adequate number of qualified sources, providing them with sufficient response time prior to the date set for opening the bids. Unless specified by the Federal agency, the recipient or subrecipient may exercise judgment in determining what number is adequate. For local governments, the invitation for bids must be publicly advertised. (B) The invitation for bids must define the items or services with specific information, including any required specifications, for the bidder to properly respond; (C) All bids will be opened at the time and place prescribed in the invitation for bids. For local governments, the bids must be opened publicly. (D) A firm-fixed-price contract is awarded in writing to the lowest responsive bid and responsible bidder. When specified in the invitation for bids, factors such as discounts, transportation cost, and life-cycle costs must be considered in determining which bid is the lowest. Payment discounts must only be used to determine the low bid when the recipient or subrecipient determines they are a valid factor based on prior experience. (E) The recipient or subrecipient must document and provide a justification for all bids it rejects.
Condition: Upon inquiry of county personnel and a test of nineteen (19) disbursements, the following weaknesses were noted: • The County was not aware of wage rate requirements. • The County does not have a quality assurance program. Cause of Condition: Policies and procedures have not been designed and implemented to ensure federal expenditures are made in accordance with federal compliance requirements. Effect of Condition: This condition resulted in noncompliance with grant requirements. Recommendation: OSAI recommends the County gain an understanding of the grant requirements for this program and implement internal controls to ensure compliance with these grant requirements. Management Response: Chairman of the Board of County Commissioners: To correct this issue, the County will develop policy and procedures to ensure compliance requirements with federal funds are identified and the County complies with them. The policy and procedures will be reviewed, adopted, and monitored by the Board of County Commissioners. County Clerk: County will gain an understanding of the grant requirements for this program and implement internal controls to ensure compliance with these grant requirements. Criteria: Compliance with Wage Rate Requirements (Special Tests and Provisions) reads as follows: All laborers and mechanics employed by contractors or subcontractors to work on construction contracts in excess of $2,000 financed by federal assistance funds must be paid wages not less than those established for the locality of the project (prevailing wage rates) by the Department of Labor (DOL) (40 USC 3141–3144, 3146, and 3147. Nonfederal entities shall include in their construction contracts subject to the Wage Rate Requirements (which still may be referenced as the Davis-Bacon Act) a provision that the contractor or subcontractor comply with those requirements and the DOL regulations (29 CFR Part 5, Labor Standards Provisions Applicable to Contacts Governing Federally Financed and Assisted Construction). This includes a requirement for the contractor or subcontractor to submit to the nonfederal entity weekly, for each week in which any contract work is performed, a copy of the payroll and a statement of compliance (certified payrolls) (29 CFR sections 5.5 and 5.6; the A-102 Common Rule (section 36(i)(5)); OMB Circular A-110 (2 CFR Part 215, Appendix A, Contract Provisions); 2 CFR Part 176, Subpart C; and 2 CFR section 200.326). This reporting is often done using Optional Form WH-347, which includes the required statement of compliance (OMB No. 1235-0008). The DOL, Employment Standards Administration, maintains a Davis-Bacon and Related Acts web page (https://www.dol.gov/agencies/whd/government-contracts/construction). Optional Form WH-347 and instructions are available on this web page. Further, Compliance with Quality Assurance Program (Special Tests and Provisions) reads as follows: A State DOT or LPA must have a quality assurance (QA) program, approved by FHWA, for construction projects on the NHS to ensure that materials and workmanship conform to approved plans and specifications. Verification sampling must be performed by qualified testing personnel employed by the State DOT, or by its designated agent, excluding the contractor (23 CFR sections 637.201, 637.205, 637.207, and 637.209).
Condition: Upon inquiry of county personnel and a test of eleven (11) disbursements totaling $1,136,767, the following weaknesses were noted: • The County did not perform required suspension and debarment verifications on vendors for purchases exceeding $25,000. Cause of Condition: Policies and procedures have not been designed and implemented to ensure federal expenditures are made in accordance with federal compliance requirements. Effect of Condition: This condition resulted in noncompliance with grant requirements. Recommendation: OSAI recommends the County gain an understanding of the grant requirements for this program and implement internal controls to ensure compliance with these grant requirements. Management Response: Chairman of the Board of County Commissioners: To correct this issue, the County will develop policy and procedures to ensure compliance requirements with federal funds are identified and the County complies with them. The policy and procedures will be reviewed, adopted, and monitored by the Board of County Commissioners. County Clerk: The County will gain an understanding of the grant requirements for this program and implement internal controls to ensure compliance with these grant requirements. All entities that bid projects under these federal grants will require active and good standing under Sam.gov. Criteria: 2 CFR 180.700 – 180.760 Suspension and 2 CFR 180.800 – 180.885 Debarment reads as follows: Non-federal entities are prohibited from contracting with or making subawards under covered transactions to parties that are suspended or debarred. “Covered transactions” include contracts for goods and services awarded under a non-procurement transaction (e.g., grant or cooperative agreement) that are expected to equal or exceed $25,000 or meet certain other criteria as specified in 2 CFR section 180.220. All non-procurement transactions entered into by a pass-through entity (i.e., subawards to subrecipients), irrespective of award amount, are considered covered transactions, unless they are exempt as provided in 2 CFR section 180.215.