2025-001 Equipment and Real Property Management Prior Year Finding Number: N/A Year of Finding Origination: 2025 Type of Finding: Internal Control Over Compliance and Compliance Severity of Deficiency: Significant Deficiency and Other Matter Federal Agency: U.S. Department of Housing and Urban Development Program: 14.218 Community Development Block Grants/Entitlement Grants Award Number and Year: B-25-MC-27-0002, 2025 Pass-Through Agency: N/A – Direct Criteria: Title 2 U.S. Code of Federal Regulations § 200.303 states that the auditee must establish, document, and maintain effective internal control over the federal award that provides reasonable assurance that the auditee is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. Title 2 U.S. Code of Federal Regulations § 200.313 (d) states that regardless of whether the equipment is acquired in part or its entirety under the federal award, the recipient or subrecipient must manage equipment (including replacement equipment). Specifically, Title 2 U.S. Code of Federal Regulations § 200.313 (d)(1) states that property records must include a description of the property, a serial number or another identification number, the source of funding for the property (including the federal award identification number (FAIN)), the title holder, the acquisition date, the cost of the property, the percentage of the federal agency contribution towards the original purchase, the location, use and condition of the property, and any disposition data including the date of disposal and sale price of the property. The recipient and subrecipient are responsible for maintaining and updating property records when there is a change in the status of the property. Condition: The City of Duluth maintains a listing of equipment acquired with Community Development Block Grants/Entitlement Grant (CDBG) funds; however, the listing does not include all information required by Title 2 U.S. Code of Federal Regulations § 200.313 (d)(1). In the sample of six items tested from the CDBG equipment listing, one of the items tested was no longer in use. A review of the City’s governmental capital asset listing disclosed $142,000 of City park improvements partially funded from the 2016, 2017, and 2018 CDBG projects that were not listed on the CDBG equipment listing. Questioned Costs: Undetermined. Elements of the missing information, such as serial number and location, are not quantifiable as costs. Context: The City of Duluth maintains a listing of equipment; however, the listing does not include the serial number or other identification number, the FAIN, who holds title (City or subrecipient), acquisition date, the percentage of federal award participation, or the disposition data, including the date of disposal and sales price of the property, nor is the City’s CDBG equipment listing complete. The City’s CDBG equipment listing included 19 items totaling $518,355; a sample of six items totaling $178,885 was tested. The sample size was based on the guidance from Chapter 11 of the AICPA Audit Guide, Government Auditing Standards and Single Audits. Effect: The City of Duluth is not in compliance with Title 2 U.S. Code of Federal Regulations §§ 200.313 (d) and (d)(1). Cause: Oversight by City staff. Recommendation: We recommend the City of Duluth implement procedures to ensure the equipment and real property listing includes all the required information. The City should also implement procedures to identify asset additions and disposals to ensure that they are properly identified, recorded, maintained, and safeguarded. View of Responsible Official: Concur
2025-002 Reporting – Federal Funding Accountability and Transparency Act (FFATA) Prior Year Finding Number: N/A Year of Finding Origination: 2025 Type of Finding: Internal Control Over Compliance and Compliance Severity of Deficiency: Significant Deficiency and Other Matter Federal Agency: U.S. Department of Housing and Urban Development Program: 14.218 Community Development Block Grants/Entitlement Grants Award Number and Year: B-24-MC-27-0002, 2024 and B-25-MC-27-0002, 2025 Pass-Through Agency: N/A – Direct Criteria: Title 2 U.S. Code of Federal Regulations § 200.303 states that the auditee must establish, document, and maintain effective internal control over the federal award that provides reasonable assurance that the auditee is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. Under the requirements of the Federal Funding Accountability and Transparency Act (Pub. L. No. 109-282), as amended by Section 6202 of Public Law 110-252, that are codified in Title 2 U.S. Code of Federal Regulations, Part 170, recipients (i.e., direct recipients) of grants or cooperative agreements are required to report first-tier subawards of $30,000 or more to the Federal Funding Accountability and Transparency Act Subaward Reporting System (FSRS) or SAM.gov. Title 2 U.S. Code of Federal Regulations, Appendix A to Part 170, requires reporting a subaward, once issued, by the end of the subsequent month. Condition: In the sample of four transactions selected from the 2025 submitted FFATA subawards, two subawards were not submitted by the due date. One of these subaward reports was incorrectly entered in SAM.gov. Additionally, one sub-award issued during 2025 relating to the 2024 award year in the amount of $78,300, was not submitted in SAM.gov. Transactions Tested Subaward Not Reported Report Not Timely Subaward Amount Incorrect 4 1 2 1 Dollar Amount of Tested Transactions Subaward Not Reported Report Not Timely Subaward Amount Incorrect $ 505,480 $ 78,300 $ 75,480 $ 30,000 Questioned Costs: None. Context: For the subaward not reported, a subrecipient requested that safety improvements be incorporated in a City road project and requested federal funding from the City to pay for those improvements. The City originated an award in the amount of $78,300, provided federal funding to the subrecipient, and made the safety improvements. The subrecipient then reimbursed that funding to the City. For the two reports not reported timely, these were due in late January 2026 but were submitted a month late. For the subaward reported for the incorrect amount, the amount submitted to SAM.gov was $30,000 but the subaward was issued for $25,000 and, therefore, would be exempt from FFATA reporting requirements. The population included nine subawards reported in 2025 totaling $959,480, with the sample of four subawards totaling $505,480. The sample size was based on the guidance from Chapter 11 of the AICPA Audit Guide, Government Auditing Standards and Single Audits. Effect: The City of Duluth is not in compliance with FFATA reporting requirements. Cause: The subaward not reported by the City was omitted from FFATA reporting under the mistaken assumption that the reimbursement received from the subrecipient exempted the transaction from compliance. City staff reported they had difficulties in January 2026 with accessing the SAM.gov website which delayed the submission of the subaward reports until February 27, 2026. The incorrect subaward in SAM.gov was the result of an entry error; the submissions to SAM.gov are not reviewed. Recommendation: We recommend the City of Duluth implement procedures to ensure reports are submitted as required by FFATA. View of Responsible Official: Concur