Audit 407506

SIGNIFICANT DEFICIENCY IN INTERNAL CONTROL OVER COMPLIANCE – U.S. DEPARTMENT OF THE TREASURY, COVID-19 CORONAVIRUS STATE AND LOCAL FISCAL RECOVERY FUNDS (CSLFRF) – FEDERAL ALN 21.027 AND U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, ECONOMIC DEVELOPMENT INITIATIVE, COMMUNITY PROJECT FUNDING, AND MISCELLANEOUS GRANTS – FEDERAL ALN 14.251 2025-001 Internal Control Over Compliance With Federal Suspension and Debarment Requirements Criteria – 2 CFR § 180 and 2 CFR § 200.318-327 requires City of Farmington, Minnesota (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 Economic Development Initiative and CSLFRF federal programs. 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. The City’s internal controls required the City to review for compliance with suspension and debarment requirements. The City represented that it was performing the necessary search to verify the vendors used were not ineligible. However, documentation of the procedures performed and the results of the search was not retained. Questioned Costs – None. Checks were completed and none of the vendors were suspended or debarred. Context – The City did not obtain the appropriate documentation for 1 of 2 vendors tested applicable to the Economic Development Initiative program and 1 of 1 vendor tested applicable to the CSLFRF 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 utilized 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 Economic Development Initiative and CSLFRF federal programs. 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.

SIGNIFICANT DEFICIENCY IN INTERNAL CONTROL OVER COMPLIANCE – SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS – ALL FEDERAL PROGRAMS 2025-002 Reporting Compliance Requirement Criteria – 2 CFR § 200.510 requires that 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 $147,700 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 not required for the 2024 fiscal year. Context – The City’s SEFA presented for audit for the year ended December 31, 2025 included $147,700 in one program 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.