Audit 413179

Criteria: The Schedule of Expenditures of Federal Awards reported for the year under audit must reflect actual federal expenditures. Per 2 CFR 200.510(b) Schedule of expenditures of Federal awards, “the auditee must also prepare a schedule of expenditures of Federal awards for the period covered by the auditee's financial statements which must include the total Federal awards expended as determined in accordance with 2 CFR 200.502, Basis for determining Federal awards expended. 2 CFR 200.502(a) Determining Federal awards expended, states that “the determination of when a Federal award is expended must be based on when the activity related to the Federal award occurs.” Condition: Federal expenditures were not correctly reported on the City of Blaine, Minnesota’s 2023 SEFA included in the original audit report dated September 12, 2024. Subsequent to the original audit report issuance dated September 12, 2024, it was determined that $935,584 of expenditures relating to a subrecipient grant from the State of Minnesota under the Highway Planning and Construction (Federal-Aid Highway Program) were not included on the SEFA. Cause: Sufficient internal controls were not in place to ensure proper recognition of contractor versus subrecipient relationships for federal funds received through pass-through entities. Questioned Costs: None. Effect: By not having proper controls over SEFA preparation, there is a risk that the SEFA will not reflect all the federal awards subject to the Uniform Guidance. The total change in federal expenditures reported on the SEFA was $935,584. Context: The City considered itself to have a contractor relationship with the State of Minnesota under Federal Project # HSIP 0223 (118), DCP Agreement #1050395, instead of a subrecipient relationship; therefore, these funds were excluded from the SEFA. However, per subsequent review of grant documentation and communications with the State, it was determined the City was a subrecipient of federal funds under this project. Recommendation: We recommend that the City of Blaine, Minnesota review procedures to ensure timely identification of federal funds, including the clear distinction between subrecipient and contractor relationships for all contract and grant agreements involving federal funds, and verify any changes are properly communicated. In situations where the relationship is unclear, we recommend City staff contact the pass-through entity for clarification. Views of Responsible Officials and Planned Corrective Actions: Management agrees with this finding and has developed internal controls to ensure timely identification of federal funds including identifying whether the City is a subrecipient and contractor when receiving funds. Additional details can be found in the City of Blaine, Minnesota’s Corrective Action Plan.