Audit 410682

Finding 2022-004 – Inadequate Segregation of Federal and Non-Federal Expenditures (Major and Non-Major Program) (Material Weakness) Federal Program: 66.468 Capitalization Grants for Drinking Water, State Revolving Funds Name of Federal Agency: U.S. Environmental Protection Agency Compliance/Internal Control over Compliance: Auditee Responsibilities Federal Program: 21.027 Coronavirus Sate Fiscal Recovery Fund, Parks and Trail Name of Federal Agency: U.S. Department of Treasury, Oregon Department of Administrative Services Compliance/Internal Control over Compliance: Auditee Responsibilities Criteria: Per CFR §200.302(b)(1), non-federal entities must maintain financial management systems that identify Federal expenditures separately to facilitate accurate reporting. Additionally, CFR §200.510(b) requires the SEFA to present complete and accurate Federal expenditures. Condition: For Federal programs, both major program, and a non-major program, Federal and non-Federal expenditures were recorded within the same general ledger accounts. For the major program, additional costs beyond the reportable amounts were combined in the general ledger. For a non-major program, significant amounts of non-federal project costs were combined in the general ledger accounts, with the federal costs, rather than clearly isolating all applicable Federal expenditures. This issue complicated the gathering and reporting of federal expenditures for review and creation of the SEFA. Cause: The issue appears to stem from inadequate procedures and controls over identification, tracking and reporting of federal awards. Management had insufficient accounting structure and controls to track project expenditures by funding source (Federal vs. Non-Federal), and did not implement a formal process to compile and review SEFA information for completeness and accuracy. Effect: • Potential for incomplete or inaccurate SEFA reporting. • Increased risk that Federal expenditures are misreported or misclassified. • Reduced audit trail supporting compliance with Uniform Guidance. Questioned Cost: None noted. Context: During our testing of Federal programs, we reviewed project-level expenditures and the client’s process for accumulating amounts reported on the SEFA. We noted that for certain projects, Federal and non-Federal expenditures were recorded in the same general ledger accounts without clear identifiers by funding source. As a result, the client relied on external and manual information to determine and report the Federal portion, and only a subset of total expensed project costs was reported as Federal expenditures. This condition demonstrates that management did not have sufficient processes in place to identify, accumulate, and report federal expenditures, and the general ledger did not provide accurate information for the SEFA preparation without additional analysis and selection of amounts. Repeat of a Prior-Year Finding: No Recommendation: We recommend that The City of North Plains: • Establish policies and procedures to ensure that all Federal awards are identified and reported accurately on the general ledger, utilizing separate general ledger accounts, cost centers, or project codes for Federal awards. • Establish procedures to track expenditures by funding source throughout the project lifecycle. • Internal Controls should be designed to perform periodic reconciliations of the SEFA information to the general ledger accounts throughout the fiscal year. • Provide appropriate training to staff who are assigned to prepare and review the SEFA. Client's Response: The City of North Plains concurs with the recommendation and will work through the Corrective Action Plan to improve or solve the deficiency. Corrective Action Plan: __________________To be developed by City of North Plains. Planned Implementation Date: In progress. Responsible Person: City of North Plains Mayor. Section IV—Summary Schedule of Prior Audit Findings