FINDING 2025-001 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Suspension and Debarment Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number and Year (or Other Identifying Number): ARP Act Compliance Requirement: Procurement and Suspension and Debarment Audit Finding: Material Weakness INDIANA STATE BOARD OF ACCOUNTS 13 CITY OF EAST CHICAGO SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2024-001. Condition and Context During the audit period, the COVID-19 - Coronavirus State and Local Fiscal Recovery Funds (SLFRF) totaling $4,593,666 were expended under the water, sewer, and broadband eligible use categories. The City entered into two contracts with one vendor for two projects under the water, sewer, and broadband eligible use category during the audit period. Total payments made to the vendors during the audit period were $4,593,666, all of which were subject to suspension and debarment provisions. Prior to entering into subawards and covered transactions with the SLFRF award funds, recipients are required to verify that such contractors and subrecipients are not suspended, debarred, or otherwise excluded. "Covered transactions" include, but are not limited to, contracts for goods and services awarded under a nonprocurement transaction (i.e., grant agreement) that are expected to equal or exceed $25,000. The verification is to be done by checking the Excluded Parties List System (EPLS), collecting a certification from that person or entity, or adding a clause or condition to the covered transaction with that person or entity. The City's policy related to suspension and debarment requirements included the Executive Secretary of the Engineering and Board of Works (Executive Secretary) verifying the SAMs exclusions. Per inquiry with the City, the Executive Secretary verified the vendor was not suspended or debarred by checking the SAMs exclusions; however, a documented internal control process was not in place to ensure that suspension and debarment was verified according to City policy. The lack of internal controls was a systemic issue throughout the audit period. Criteria 2 CFR 200.303 states in part: "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). . . ." Cause A policy over suspension and debarment requirements was in place. The policy put the responsibility for the SAM search to the department and/or board utilizing federal funds. However, the policy did not state how the City was going to ensure the department and/or board utilizing federal funds implemented the policy. INDIANA STATE BOARD OF ACCOUNTS 14 CITY OF EAST CHICAGO SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the City's management strengthen its policy and implement procedures to ensure its compliance with requirements related to suspension and debarment. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2025-002 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Reporting Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number and Year (or Other Identifying Number): ARP Act Compliance Requirement: Reporting Audit Findings: Material Weakness, Other Matters Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2024-002. Condition and Context Recipients are required to submit quarterly or annual Project and Expenditure (P&E) reports to the U.S. Department of the Treasury (Treasury). The reporting periods, as well as the respective due dates, are based upon type of recipient and its population, as well as the recipient's allocation amount. Information to be reported includes projects funded, expenditures, and contracts for the appropriate reporting period. The City was classified as a city with a population below 250,000 residents that received an allocation of more than $10 million in COVID-19 - Coronavirus State and Local Fiscal Recovery Funds. The quarterly reports were to cover one calendar quarter and must be submitted to the Treasury by the last day of the month following the end of the period covered. The City submitted all required P&E reports during the audit period. All four quarterly reports submitted contained errors for current period obligations, current period expenditures, and cumulative expenditures as follows: INDIANA STATE BOARD OF ACCOUNTS 15 CITY OF EAST CHICAGO SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The 2024 Quarter 4 P&E Report current period obligations and expenditures were overstated by $1,121,010 and $379,005, respectively. The 2025 Quarter 1 P&E Report current period obligations and expenditures were each understated by $2,660,694, and the cumulative expenditures were understated by $2,093,083. The 2025 Quarter 2 P&E Report current period obligations and expenditures were each understated by $1,264,473, and the cumulative expenditures were understated by $2,669,107. The 2025 Quarter 3 P&E Report current period obligations and expenditures were each understated by $705,426, and the cumulative expenditures were understated by $3,368,532. The lack of internal controls and noncompliance was a systemic issue throughout the audit period. Criteria 2 CFR 200.303 states in part: "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). . . ." Compliance and Reporting Guidance, State and Local Fiscal Recovery Funds, page 13, states in part: ". . . 10. Reporting. 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. . . ." 31 CFR 35.4(c) states in part: "Reporting and requests for other information. During the period of performance, recipients shall provide to the Secretary or her delegate, as applicable, periodic reports providing detailed accounting of the uses of funds, . . ." Cause All quarterly P&E reports were prepared and submitted without an oversight or review process in place to prevent, or detect and correct, errors prior to submission. INDIANA STATE BOARD OF ACCOUNTS 16 CITY OF EAST CHICAGO SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Effect Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the repayment or loss of future federal funding to the City. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the City's management establish a proper system of internal controls that would ensure compliance with the Reporting compliance requirement. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.