Audit 411798

FINDING 2025-003 Subject: Drinking Water State Revolving Fund - Allowable Costs Agency: Environmental Protection Agency Federal Program: Drinking Water State Revolving Fund Assistance Listings Number: 66.468 Federal Award Number and Year (or Other Identifying Number): DW23148904 Pass-Through Entity: Indiana Finance Authority Compliance Requirement: Allowable Costs/Cost Principles Audit Findings: Material Weakness, Other Matters Condition and Context The financial management system of each nonfederal entity must provide written procedures for determining the allowability of costs in accordance with federal regulations and terms and conditions of the federal award. The policy should provide clear guidance as to what costs constitute appropriate direct and indirect charges to federal awards as well as provide for consistency in charging practices across the Town. The Town did not have written procedures for determining the allowability of costs in accordance with Subpart E of 2 CFR 200 and the terms and conditions of the federal award as required by 2 CFR 200.302(7). 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). . . ." 2 CFR 200.302(b) states in part: "The financial management system of each non-Federal entity must provide for the following . . . (7) Written procedures for determining the allowability of costs in accordance with subpart E of this part and the terms and conditions of the Federal award." INDIANA STATE BOARD OF ACCOUNTS 19 TOWN OF CENTERVILLE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Cause Management of the Town had not established an effective system of internal controls that would ensure providing and maintaining on file written procedures for determining allowability of costs in accordance with terms and conditions of the federal award. These policies and procedures should also be implemented in the processes involving the expenditures of federal grant awards. The Town Council was not aware of the requirement to establish allowable costs policies over federal expenditures. Effect Without written procedures for determining the allowability of costs, the Town lacks documented guidance to ensure expenditures related to federal programs are evaluated consistently and in accordance with applicable grant requirements. Questioned Costs There were no known questioned costs identified. Recommendation We recommended that the Town's management and governance establish a proper system of internal controls and develop written policies and procedures to ensure expenditures made using federal grant funds are done so in accordance with allowable costs/cost principles guidelines as established in the federal compliance supplement and other OMB guidelines and considerations. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.