Findings Citing § 200.1

Finding 2024-002 – Procurement and Suspension and Debarment Identification of the federal program: U.S. Department of Health and Human Services U.S. Department of Defense Research and Development Cluster Assistance Listing Numbers: 12.910 – Research and Technology Development 93.279 – Drug Use and Addiction Research Programs 93.351 – Research Infrastructure Programs 93.855 – Allergy and Infectious Diseases Research Federal Award Numbers Award Period Pass-Through Entity, if Applicable HR00112420365 7/23/2024-1/22/2026 Texas A&M Engineering Experiment Station (M2404608) U19AI135972-07 1/1/2024-12/31/2024 Icahn School of Medicine at Mount Sinai P51OD011133-26 5/1/2024-4/30/2025 N/A R01DA052845-04 7/1/2023-6/30/2024 N/A Criteria or specific requirement (including statutory, regulatory, or other citation) 2 CFR 200.303(a) requires that a 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 and the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).” 200.318 General procurement standards. (i) Procurement records. The recipient or subrecipient must maintain records sufficient to detail the history of each procurement transaction. These records must include the rationale for the procurement method, contract type selection, contractor selection or rejection, and the basis for the contract price. 200.319 Competition. (a) All procurement transactions under the Federal award must be conducted in a manner that provides full and open competition and is consistent with the standards of this section and § 200.320. 200.320 Procurement Methods There are three types of procurement methods described in this section: informal procurement methods (for micro-purchases and simplified acquisitions); formal procurement methods (through sealed bids or proposals); and noncompetitive procurement methods. For any of these methods, the recipient or subrecipient must maintain and use documented procurement procedures, consistent with the standards of this section and §§ 200.317, 200.318, and 200.319. (a) Informal procurement methods for small purchases. These procurement methods expedite the completion of transactions, minimize administrative burdens, and reduce costs. Informal procurement methods may be used when the value of the procurement transaction under the Federal award does not exceed the simplified acquisition threshold as defined in § 200.1. Recipients and subrecipients may also establish a lower threshold. Informal procurement methods include: (1) Micro-purchases — (i) Distribution. The aggregate amount of the procurement transaction does not exceed the micro-purchase threshold defined in § 200.1. To the extent practicable, the recipient or subrecipient should distribute micro-purchases equitably among qualified suppliers. (ii) Micro-purchase awards. Micro-purchases may be awarded without soliciting competitive price or rate quotations if the recipient or subrecipient considers the price reasonable based on research, experience, purchase history, or other information; and maintains documents to support its conclusion. Purchase cards may be used as a method of payment for micro-purchases. (iii) Micro-purchase thresholds. The recipient or subrecipient is responsible for determining and documenting an appropriate micro-purchase threshold based on internal controls, an evaluation of risk, and its documented procurement procedures. The micro-purchase threshold used by the recipient or subrecipient must be authorized or not prohibited under State, local, or tribal laws or regulations. (2) Simplified acquisitions — (i) Simplified acquisition procedures. The aggregate dollar amount of the procurement transaction is higher than the micro-purchase threshold but does not exceed the simplified acquisition threshold. If simplified acquisition procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources. Unless specified by the Federal agency, the recipient or subrecipient may exercise judgment in determining what number is adequate. (ii) Simplified acquisition thresholds. The recipient or subrecipient is responsible for determining an appropriate simplified acquisition threshold based on internal controls, an evaluation of risk, and its documented procurement procedures, which may be lower than, but must not exceed, the threshold established in the FAR. (b) Formal procurement methods. Formal procurement methods are required when the value of the procurement transaction under a Federal award exceeds the simplified acquisition threshold of the recipient or subrecipient. Formal procurement methods are competitive and require public notice. The following formal methods of procurement are used for procurement transactions above the simplified acquisition threshold determined by the recipient or subrecipient in accordance with paragraph (a)(2)(ii) of this section: (1) Sealed bids. This is a procurement method in which bids are publicly solicited through an invitation and a firm fixed-price contract (lump sum or unit price) is awarded to the responsible bidder whose bid conforms with all the material terms and conditions of the invitation and is the lowest in price. The sealed bids procurement method is preferred for procuring construction services. (i) For sealed bidding to be feasible, the following conditions should be present: (A) A complete, adequate, and realistic specification or purchase description is available; (B) Two or more responsible bidders have been identified as willing and able to compete effectively for the business; and (C) The procurement lends itself to a firm-fixed-price contract, and the selection of the successful bidder can be made principally based on price. (ii) If sealed bids are used, the following requirements apply: (A) Bids must be solicited from an adequate number of qualified sources, providing them with sufficient response time prior to the date set for opening the bids. Unless specified by the Federal agency, the recipient or subrecipient may exercise judgment in determining what number is adequate. For local governments, the invitation for bids must be publicly advertised. (B) The invitation for bids must define the items or services with specific information, including any required specifications, for the bidder to properly respond; (C) All bids will be opened at the time and place prescribed in the invitation for bids. For local governments, the bids must be opened publicly. (D) A firm-fixed-price contract is awarded in writing to the lowest responsive bid and responsible bidder. When specified in the invitation for bids, factors such as discounts, transportation cost, and life-cycle costs must be considered in determining which bid is the lowest. Payment discounts must only be used to determine the low bid when the recipient or subrecipient determines they are a valid factor based on prior experience. (E) The recipient or subrecipient must document and provide a justification for all bids it rejects. (2) Proposals. This is a procurement method used when conditions are not appropriate for using sealed bids. This procurement method may result in either a fixed-price or cost-reimbursement contract. They are awarded in accordance with the following requirements: (i) Requests for proposals require public notice, and all evaluation factors and their relative importance must be identified. Proposals must be solicited from multiple qualified entities. To the maximum extent practicable, any proposals submitted in response to the public notice must be considered. (ii) The recipient or subrecipient must have written procedures for conducting technical evaluations and making selections. (iii) Contracts must be awarded to the responsible offeror whose proposal is most advantageous to the recipient or subrecipient considering price and other factors; and (iv) The recipient or subrecipient may use competitive proposal procedures for qualifications-based procurement of architectural/engineering (A/E) professional services whereby the offeror’s qualifications are evaluated, and the most qualified offeror is selected, subject to negotiation of fair and reasonable compensation. The method, where the price is not used as a selection factor, can only be used to procure architectural/engineering (A/E) professional services. The method may not be used to purchase other services provided by A/E firms that are a potential source to perform the proposed effort. (c) Noncompetitive procurement. There are specific circumstances in which the recipient or subrecipient may use a noncompetitive procurement method. The noncompetitive procurement method may only be used if one of the following circumstances applies: (1) The aggregate amount of the procurement transaction does not exceed the micro-purchase threshold (see paragraph (a)(1) of this section); (2) The procurement transaction can only be fulfilled by a single source; (3) The public exigency or emergency for the requirement will not permit a delay resulting from providing public notice of a competitive solicitation; (4) The recipient or subrecipient requests in writing to use a noncompetitive procurement method, and the Federal agency or pass-through entity provides written approval; or (5) After soliciting several sources, competition is determined inadequate of single-use plastic products. See Executive Order 14057, section 101, Policy. 200.324 Contract cost and price. (a) The recipient or subrecipient must perform a cost or price analysis for every procurement transaction, including contract modifications, in excess of the simplified acquisition threshold. The method and degree of analysis conducted depend on the facts surrounding the particular procurement transaction. For example, the recipient or subrecipient should consider potential workforce impacts in their analysis if the procurement transaction will displace public sector employees. However, as a starting point, the recipient or subrecipient must make independent estimates before receiving bids or proposals. (b) Costs or prices based on estimated costs for contracts under the Federal award are allowable only to the extent that the costs incurred or cost estimates included in negotiated prices would be allowable for the recipient or subrecipient under subpart E of this part. The recipient or subrecipient may reference its own cost principles as long as they comply with subpart E of this part. (c) The recipient or subrecipient must not use the “cost plus a percentage of cost” and “percentage of construction costs” methods of contracting. Condition Texas Biomed did not comply with procurement requirements per the Uniform Guidance. Specifically, Texas Biomed did not comply with informal procurement methods for small purchases and noncompetitive procurement requirements. Texas Biomed also did not comply with its own procurement policy in relation to procurements of small purchases and noncompetitive procurements. Additionally, Texas Biomed did not maintain records for certain procurements sufficient to detail the history of procurement, including the rationale for the method of procurement, selection of contract type, contractor selection or rejection, the basis for the contract price, and the performance of a cost or price analysis, when required. Cause Texas Biomed did not have effective internal controls and procedures in place to ensure Texas Biomed complied with federal procurement requirements and Texas Biomed’s procurement policy and also maintained records for procurements sufficient to detail the history of procurement, including the rationale for the method of procurement and other required elements, including a cost or price analysis, when required. Effect or potential effect Texas Biomed did not comply with the general procurement standards, methods of procurement, and cost or price analysis requirements, according to the Uniform Guidance. Questioned costs $270,923 in total as follows: $29,438 – Assistance Listing Number 12.910, Award Identification Number – HR00112420365 $149,500 – Assistance Listing Number 93.351, Award Identification Number – P51OD011133-26 $11,295 – Assistance Listing Number 93.855, Award Identification Number – U19AI135972-07 $80,690 – Assistance Listing Number 93.279, Award Identification Number – R01DA052845-04 Questioned costs were computed by using the total procurements over $10,000 that did not adhere to procurement methods per the Uniform Guidance or were not supported by adequate documentation regarding the history of the procurement, including the rationale of the procurement and the performance of a cost or price analysis, when required. Per 2 CFR 200.1, questioned cost means an amount, expended or received from a Federal award, that in the auditor’s judgment: (1) Is noncompliant or suspected noncompliant with Federal statutes, regulations, or the terms and conditions of the Federal award; (2) At the time of the audit, lacked adequate documentation to support compliance; or (3) Appeared unreasonable and did not reflect the actions a prudent person would take in the circumstances. Context EY issued a material weakness for Texas Biomed related to internal control over procurement in the prior year. Based upon the implementation date for the corrective action provided by management, the finding related to this internal control had not been remediated for the full period under audit. As such, we did not test the operating effectiveness of this control and are issuing a material weakness consistent with the prior year finding. EY tested 12 procurements over the micro-purchase threshold of $10,000, with expenditures totaling $2,148,830 from a population of 48 procurements over $10,000 with expenditures totaling $3,629,769 during the year ended December 31, 2024. For 1 procurement with expenditures in the amount of $29,438 for supplies, Texas Biomed obtained only 2 quotes rather than 3 quotes, as required by Texas Biomed’s procurement policy in effect at the time of the procurement. Documentation of the history of the procurement did not include a reason for obtaining 2 quotes instead of 3 quotes. For 1 procurement with expenditures in the amount of $149,500, related to a total purchase order of $980,500, for animal food, Texas Biomed did not contemporaneously document sole source justification at the time of the procurement. Additionally, since the total purchase order for this procurement exceeded $250,000, the simplified acquisition threshold, a cost or price analysis was required but was not performed. For 2 procurements with expenditures in the amounts of $11,295 for supplies and $80,690 for animal purchases, Texas Biomed did not obtain quotes or document sole source justification or the history of the procurement, including the rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the basis for the contract price. We consider the expenditures related to these procurements to be questioned costs due to Texas Biomed not adhering to federal procurement requirements per the Uniform Guidance and also Texas Biomed’s procurement policy. Identification as a repeat finding, if applicable This is a repeat finding – Finding 2023-002. Recommendation Texas Biomed should comply with federal procurement requirements, as well as Texas Biomed’s procurement policy with regards to obtaining quotes for small purchases and documentation of sole source justification at the time of the procurement, as applicable. Texas Biomed should retain written documentation for procurements, documenting the history of the procurement prior to the procurement of goods or services including, but not limited to, the rationale for the method of procurement, selection of contract type, contractor selection or rejection, the basis for the contract price, and the performance of a cost or price analysis, when required. Views of responsible officials Management agrees with the finding and will implement corrective action to ensure controls are in place to retain the required written documentation for procurements.

2024-001 – Material Weakness in Internal Control over Cash Management Identification of federal programs: United States Department of the Interior (DOI): #15.608 Fish and Aquatic Conservation - Aquatic Invasive Species: F21AC02420, F23AC01420, and F23AP01474 #15.685 National Fish Passage: F23AC02320 Criteria: Part 3 Compliance Supplement Non-federal entities must minimize the time elapsing between the transfer of funds from the U.S. Treasury or pass-through entity and disbursement by the non-federal entity for direct program or project costs and the proportionate share of allowable indirect costs. Under the advance payment method, federal awarding agency or pass-through entity payment is made to the non-federal entity before the non-federal entity disburses the funds for program purposes (2 CFR section 200.1). A non-federal entity must be paid in advance provided that it maintains, or demonstrates the willingness to maintain, both written procedures that minimize the time elapsing between the transfer of funds from the U.S. Treasury and disbursement by the non-federal entity, as well as a financial management system that meets the specified standards for fund control and accountability (2 CFR section 200.305(b)(1)). Condition: The Organization received advanced payments of grant funding and did not minimize the time elapsing between the transfer of funds and disbursement by the Organization. Advanced funding outstanding as of December 31, 2024 was as follows: #15.608: -F21AC02420 = $161,728 -F23AC01420 = $137,398 -F23AP01474 = $93,662 #15.685: -F23AC02320 = $54,037 Additionally, on the F23AC02320 annual financial report, the funding is improperly reported as liquidated cash disbursements and not cash on hand. Though it had been obligated, it had not yet been disbursed. Cause: The Organization’s written policies and procedures do not address all of the cash management requirements of Uniform Guidance. Previously, the Organization’s grants were operated on a reimbursement basis. At the end of the fiscal year under audit, due to the significant size and nature of the grants, and due to general economic uncertainty and internal risk assessments performed, the Organization determined that it was in their best interest to draw down grant funds in advance so that funding would be available for significant purchases during upcoming construction stages of the grants. Effect or potential effect: The Organization is not in compliance with the cash management requirements of the Uniform Guidance. Questioned Costs: None. Context: -#15.608: Three out of five grants had significant advanced funds outstanding at the end of the year, that were not subsequently disbursed soon after year end. -#15.685: One out of one grant had significant advanced funds outstanding at the end of the year, that were not subsequently disbursed soon after year end. Identification of Repeat Finding: Not applicable. Recommendations: We recommend that the Organization reviews and revises their policies and procedures to ensure that they align with the cash management requirements of Uniform Guidance. We also recommend that as part of the Organization’s internal control structure over compliance with cash management requirements, to establish planning and monitoring procedures or checklists to ensure that timing is minimized between receipt from the U.S. Treasury or pass-through entity, and disbursement to the vendor. Additionally, we recommend that the Organization implements policy and procedures to ensure that earned interest is appropriately monitored and handled in accordance with the requirements of Uniform Guidance. Views of Responsible Officials: See Corrective Action Plan.

FINDING 2024-003 Subject: Drinking Water State Revolving Fund - Procurement and Suspension and Debarment Federal Agency: Environmental Protection Agency Federal Programs: Drinking Water State Revolving Fund Assistance Listing Number: 66.468 Federal Award Numbers (or Other Identifying numbers): DW23150901, DW24660904 Pass-Through Entity: Indiana Finance Authority Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2023-004. Condition and Context An effective internal control system was not designed or implemented at the City to ensure compliance with requirements related to the grant agreement and the Procurement and Suspension and Debarment compliance requirement. Procurement - Policy The City had not established a purchasing policy that reflected applicable state laws and regulations, including procedures to avoid the acquisition of unnecessary or duplicative items and procedures to ensure that all solicitations incorporate a clear and accurate description of the technical requirements for the material, product, or service to be procured. Additionally, the City did not maintain a policy that prohibits the use of statutorily or administratively imposed state, local, or tribal geographical preferences in evaluation of bids or proposals. Procurement The City expended federal funds to pay ten separate vendors to provide goods and services for the duration of the City's Lead Service Line Replacement project. A population of seven vendors were tested that had aggregated expenditures for the audit period that were less than the simplified acquisition threshold of $150,000, but exceeded the $10,000 micro-purchase threshold. All seven of the vendors were tested; for four of the seven vendors, the City was unable to provide any documentation that the procurement method used was appropriate or that the procurement provided full and open competition or rationale to support the determination to limit competition. The history of the procurement, including rationale for the method of procurement, selection of the vendor, and the basis for the price, was not adequately documented. Additionally, a population of three vendors were identified with contract amount or aggregated total of expenditures that exceeded the simplified acquisition threshold of $150,000. All three vendors were tested; for one of these vendors, the procurement method used was not appropriate as the City relied on quotes obtained, rather than a formal procurement method as required for purchases that exceed the simplified acquisition threshold. Suspension and Debarment Prior to entering into sub-awards and covered transactions with award funds, recipients are required to verify that vendors 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 adding a clause or condition to the covered transaction with that person. Due to the agreement with the Indiana Finance Authority (IFA), the City was not required to perform testing over suspension and debarment for a majority of the vendors used; however, several drawdowns from the State Revolving Funds (SRF) program were used to reimburse the City for payments made to specific vendors. The vendors paid directly by the City were not included in IFA's procedures for checking suspension and debarment; therefore, the City was obligated to meet the requirement. The City did not maintain a set of procedures for checking suspension and debarment status of vendors for expenditures related to the SRF awards. A total of three vendors paid directly by the City exceeded the S&D threshold of $25,000 and were subject to testing. No documentation to show that suspension and debarment was verified prior to entering into the contract could be provided for any vendor. 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 200.320 states in part: "The non-Federal entity must have and use documented procurement procedures, consistent with the standards of this section and §§ 200.317, 200.318, and 200.319 for any of the following methods of procurement used for the acquisition of property or services required under a Federal award or sub-award. (a) Informal procurement methods. When the value of the procurement for property or services under a Federal award does not exceed the simplified acquisition threshold (SAT), as defined in § 200.1, or a lower threshold established by a non-Federal entity, formal procurement methods are not required. The non-Federal entity may use informal procurement methods to expedite the completion of its transactions and minimize the associated administrative burden and cost. The informal methods used for procurement of property or services at or below the SAT include: . . . (2) Small purchases– (i) Small purchase procedures. The acquisition of property or services, the aggregate dollar amount of which is higher than the micro-purchase threshold but does not exceed the simplified acquisition threshold. If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources as determined appropriate by the non-Federal entity. . . ." (b) Formal procurement methods. When the value of the procurement for property or services under a Federal financial assistance award exceeds the SAT, or a lower threshold established by a non-Federal entity, formal procurement methods are required. Formal procurement methods require following documented procedures. Formal procurement methods also require public advertising unless a non-competitive procurement can be used in accordance with § 200.319 or paragraph (c) of this section. The following formal methods of procurement are used for procurement of property or services above the simplified acquisition threshold or a value below the simplified acquisition threshold the non-Federal entity determines to be appropriate: (1) Sealed bids. A procurement method in which bids are publicly solicited and a firm fixed-price contract (lump sum or unit price) is awarded to the responsible bidder whose bid, conforming with all the material terms and conditions of the invitation for bids, is the lowest in price. The sealed bids method is the preferred method for procuring construction, if the conditions. (i) In order for sealed bidding to be feasible, the following conditions should be present: (A) A complete, adequate, and realistic specification or purchase description is available; (B) Two or more responsible bidders are willing and able to compete effectively for the business; and (C) The procurement lends itself to a firm fixed price contract and the selection of the successful bidder can be made principally on the basis of price. (ii) If sealed bids are used, the following requirements apply: (A) Bids must be solicited from an adequate number of qualified sources, providing them sufficient response time prior to the date set for opening the bids, for local, and tribal governments, the invitation for bids must be publicly advertised; (B) The invitation for bids, which will include any specifications and pertinent attachments, must define the items or services in order for the bidder to properly respond; (C) All bids will be opened at the time and place prescribed in the invitation for bids, and for local and tribal governments, the bids must be opened publicly; (D) A firm fixed price contract award will be made in writing to the lowest responsive and responsible bidder. Where specified in bidding documents, factors such as discounts, transportation cost, and life cycle costs must be considered in determining which bid is lowest. Payment discounts will only be used to determine the low bid when prior experience indicates that such discounts are usually taken advantage of; and (E) Any or all bids may be rejected if there is a sound documented reason. (2) Proposals. A procurement method in which either a fixed price or costreimbursement type contract is awarded. Proposals are generally used when conditions are not appropriate for the use of sealed bids. They are awarded in accordance with the following requirements: (i) Requests for proposals must be publicized and identify all evaluation factors and their relative importance. Proposals must be solicited from an adequate number of qualified offerors. Any response to publicized requests for proposals must be considered to the maximum extent practical; (ii) The non-Federal entity must have a written method for conducting technical evaluations of the proposals received and making selections; (iii) Contracts must be awarded to the responsible offeror whose proposal is most advantageous to the non-Federal entity, with price and other factors considered; and (iv) The non-Federal entity may use competitive proposal procedures for qualifications-based procurement of architectural/engineering (A/E) professional services whereby offeror's qualifications are evaluated and the most qualified offeror is selected, subject to negotiation of fair and reasonable compensation. The method, where price is not used as a selection factor, can only be used in procurement of A/E professional services. It cannot be used to purchase other types of services though A/E firms that are a potential source to perform the proposed effort. 2 CFR 180.300 states: "When you enter into a covered transaction with another person at the next lower tier, you must verify that the person with whom you intend to do business is not excluded or disqualified. You do this by: (a) Checking the SAM Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person." 2 CFR 200.214 states: "Non-Federal entities are subject to the non-procurement debarment and suspension regulations implementing Executive Orders 12549 and 12689, 2 CFR part 180. The regulations in 2 CFR part 180 restrict awards, subawards, and contracts with certain parties that are debarred, suspended, or otherwise excluded from or ineligible for participation in Federal assistance programs or activities." 2 CFR 200.318(a) states: "The non-Federal entity must have and use documented procurement procedures, consistent with State, local, and tribal laws and regulations and the standards of this section, for the acquisition of property or services required under a Federal award or subaward. The nonfederal entity's documented procurement procedures must conform to the procurement standards identified in §§ 200.317 through 200.327." 2 CFR 200.318(d) states: "The non-Federal entity's procedures must avoid acquisition of unnecessary or duplicative items. Consideration should be given to consolidating or breaking out procurements to obtain a more economical purchase. Where appropriate, an analysis will be made of lease versus purchase alternatives, and any other appropriate analysis to determine the most economical approach." 2 CFR 200.319(c) states: "The non-Federal entity must conduct procurements in a manner that prohibits the use of statutorily or administratively imposed state, local, or tribal geographical preferences in the evaluation of bids or proposals, except in those cases where applicable Federal statutes expressly mandate or encourage geographic preference. Nothing in this section preempts state licensing laws. When contracting for architectural and engineering (A/E) services, geographic location may be a selection criterion provided its application leaves an appropriate number of qualified firms, given the nature and size of the project, to compete for the contract." 2 CFR 200.319(d) states: "The non-Federal entity must have written procedures for procurement transactions. These procedures must ensure that all solicitations: (1) Incorporate a clear and accurate description of the technical requirements for the material, product, or service to be procured. Such description must not, in competitive procurements, contain features which unduly restrict competition. The description may include a statement of the qualitative nature of the material, product or service to be procured and, when necessary, must set forth those minimum essential characteristics and standards to which it must conform if it is to satisfy its intended use. Detailed product specifications should be avoided if at all possible. When it is impractical or uneconomical to make a clear and accurate description of the technical requirements, a 'brand name or equivalent' description may be used as a means to define the performance or other salient requirements of procurement. The specific features of the named brand which must be met by offers must be clearly stated; and (2) Identify all requirements which the offerors must fulfill and all other factors to be used in evaluating bids or proposals." Cause The City did not maintain a procurement policy that would demonstrate the appropriate procedures to be followed when procuring with federal funding and were not aware of the need to follow federal guidelines for procurement or suspension and debarment for expenditures associated with the SRF awards. Effect Without a proper system of internal controls in place that operated effectively, noncompliance remained undetected. As a result, proper procurement procedures were not adhered to for all vendors. Without following the required methods for procurement, the City could be overpaying for services, or providing federal funds to an entity that is suspended or debarred. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of future federal funds 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 to ensure expenditures made from federal awards use the appropriate procurement method and retain the documentation to support the procurement methods used in order to ensure compliance with the terms and conditions of the federal award and ensure that vendors paid from federal funds are neither suspended nor debarred. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2024-003 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 Numbers and Years (or Other Identifying Numbers): CONTRACT 64511, YR 2024 Compliance Requirement: Reporting Audit Findings: Material Weakness, Other Matters Condition and Context The County elected to receive the standard revenue loss allowance, allowing it to claim a total COVID-19 - Coronavirus State and Local Fiscal Recovery Funds (SLFRF) allocation of $7,107,956 as revenue loss to use for government services. As such, all SLFRF program funds expended from January 1, 2024 to December 31, 2024, were under the revenue loss eligible category. The U.S. Department of the Treasury (Treasury) determined that there were no subawards under this eligible use category, and that recipients' use of revenue loss funds would not give rise to subrecipient relationships as there is no federal program or purpose to carry out in the case of revenue loss portion of the award. Recipients are required to submit quarterly or annually Project and Expenditure (P&E) reports to the Treasury. The reporting periods, as well as the respective due dates are based on the type of recipient and the recipient's 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 County was classified as a metropolitan county with a population below 250,000 residents that received an allocation of less than $10 million in SLFRF. As such, the initial P&E report, covering the period from March 3, 2021 to March 31, 2022, was required to be submitted to the Treasury by April 30, 2022. The subsequent annual reports are to cover one calendar year and must be submitted to the Treasury by April 30 each year. The County submitted the P&E report by April 30, 2024, as required during the audit period. Although the County Auditor's Bookkeeper prepared the P&E report, and the County Auditor reviewed and submitted the report, internal controls were not effective in preventing, or detecting and correcting, errors. The data summited included amounts which were not supported by the County's records. The County reported current expenditures for three projects on the annual report, for which there were no expenditures during the reporting period. The lack of effective internal controls and noncompliance were systemic issues 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). . . ." Coronavirus State and Local Fiscal Recovery Funds Compliance and Reporting Guidance, page 10, 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 The County Auditor's Bookkeeper stated that they understood that current expenditures and current obligations should agree to the cumulative expenditures and cumulative obligations, which resulted in reporting errors. 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. As such, the County did not report current period obligations properly when filing the P&E report for the period April 1, 2023 to March 31, 2024. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of future federal funding to the County. In addition, not meeting the SLFRF reporting requirements increases the likelihood that the public and the Treasury will not have access to transparent and accurate information regarding expenditures of federal awards. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the County design and implement a proper system of internal controls to provide for a segregation of duties in the preparation and review of federal reports to ensure appropriate reviews, approvals, and oversight are taking place. We also recommended the development of policies and procedures to ensure the County provides the Treasury with complete and accurate information for the P&E report. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2024-004 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 Numbers and Years (or Other Identifying Numbers): CONTRACT# 64280, FY2024 Pass-Through Entity: Indiana Department of Health Compliance Requirement: Reporting Audit Findings: Material Weakness, Other Matters INDIANA STATE BOARD OF ACCOUNTS 19 HENDRICKS COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context Recipients are required to submit quarterly or annually Project and Expenditure (P&E) reports to the Department of the Treasury (Treasury). The reporting periods, as well as the respective due dates, are based upon type of recipient and its population, and the recipient's allocation amount. Information to be reported includes projects funded, expenditures, and contracts for the appropriate reporting period. The County was classified as a metropolitan county 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 funding. As such, the initial P&E report, covering three calendar quarters from March 3, 2021 to December 31, 2021, was required to be submitted to the Treasury by January 31, 2022. The subsequent quarterly reports are 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 County submitted the P&E report, as required, and had a system of internal controls in place whereby one employee prepared and submitted the P&E reports and another employee reviewed the reports; however, it was not sufficient to prevent, or detect and correct, errors. The data submitted included amounts that were not supported by the County's records and amounts that should not have been included. Errors identified included the following: Quarter 1 P&E report - January 1, 2024 to March 31, 2024  The current Period Obligations were understated by $1,440. Quarter 2 P&E report - April 1, 2024 to June 30, 2024  The current Period Obligations were understated by $29,020. Quarter 3 P&E report - July 1, 2024 to September 30, 2024  The current Period Obligations were understated by $30,197.  The total Cumulative Obligations were understated by $299,096.  The total Cumulative Expenditures were understated by $16,370. 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). . . ." INDIANA STATE BOARD OF ACCOUNTS 20 HENDRICKS COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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 The County's system of internal controls, including policies and procedures, was insufficient to prevent or detect errors on the P&E report prior to submission. Internal controls were in place but were not effective. 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. As such, the County did not accurately report current period obligations and cumulative obligations when filing the P&E report. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management implement a proper system of internal controls, including policies and procedures, to ensure that the County provided the Treasury with complete and accurate information for the P&E report. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2024-002 Subject: Drinking Water State Revolving Fund - Procurement Federal 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): DW23332501 Pass-Through Entity: Indiana Finance Authority Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Condition and Context The Town had not established an effective internal control system related to the grant agreement and the Procurement and Suspension and Debarment compliance requirement. The Town was not in compliance with the Procurement and Suspension and Debarment compliance requirement. Purchasing Policy The Town's purchasing policy did not reflect applicable state laws and regulations. In addition, the policy did not include procedures to avoid acquisition of unnecessary or duplicative items, procedures to ensure that all solicitations incorporate a clear and accurate description of the technical requirements for the material, product, or service to be procured, or procedures that prohibits the use of statutorily or administratively imposed state, local, or tribal geographical preferences in the evaluation of bids or proposals. Additionally, the Town's policy did not contain written standards of conduct covering conflicts of interest and governing the performance of its employees engaged in the selection, award, and administration of contracts. Small Purchases Federal regulations allow for informal procurement methods when the value of the procurement for property or services does not exceed the simplified acquisition threshold, which is customarily set at $250,000. However, Indiana Code 5-22-8 has a more restrictive threshold of $150,000 or less for when small purchase procedures may be used. This informal process allows for methods other than the formal bid process. Micro-purchases are typically for those purchases $10,000 or under, and small purchase procedures are for those purchases above the micro-purchase threshold but below the simplified acquisition threshold. Micro-purchases may be awarded without soliciting competitive price rate quotations. If small purchase procedures are used, then price or rate quotations must be obtained from an adequate number of qualified sources. INDIANA STATE BOARD OF ACCOUNTS 16 TOWN OF KEWANNA SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Two vendors were identified that fell within the small purchase threshold. Purchases from the vendors totaled $34,414 and $92,437. As such, price or rate quotations from an adequate number of qualified sources should have been obtained. However, the Town did not obtain price or rate quotations for the purchases nor was full and open competition provided for the vendors. Additionally, the history of each procurement was not adequately documented, including rationale for the method of procurement, selection of vendor, and basis for price. The lack of internal controls and noncompliance were isolated to the purchasing policy and to small purchases procured during 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). . . ." 2 CFR 200.318(a) states: "The non-Federal entity must have and use documented procurement procedures, consistent with State, local, and tribal laws and regulations and the standards of this section, for the acquisition of property or services required under a Federal award or subaward. The nonfederal entity's documented procurement procedures must conform to the procurement standards identified in §§ 200.317 through 200.327." 2 CFR 200.318(c)(1) states: "The non-Federal entity must maintain written standards of conduct covering conflicts of interest and governing the actions of its employees engaged in the selection, award and administration of contracts. No employee, officer, or agent may participate in the selection, award, or administration of a contract supported by a Federal award if he or she has a real or apparent conflict of interest. Such a conflict of interest would arise when the employee, officer, or agent, any member of his or her immediate family, his or her partner, or an organization which employs or is about to employ any of the parties indicated herein, has a financial or other interest in or a tangible personal benefit from a firm considered for a contract. The officers, employees, and agents of the non-Federal entity may neither solicit nor accept gratuities, favors, or anything of monetary value from contractors or parties to subcontracts. However, non-Federal entities may set standards for situations in which the financial interest is not substantial or the gift is an unsolicited item of nominal value. The standards of conduct must provide for disciplinary actions to be applied for violations of such standards by officers, employees, or agents of the non-Federal entity." INDIANA STATE BOARD OF ACCOUNTS 17 TOWN OF KEWANNA SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 2 CFR 200.318(d) states: "The non-Federal entity's procedures must avoid acquisition of unnecessary or duplicative items. Consideration should be given to consolidating or breaking out procurements to obtain a more economical purchase. Where appropriate, an analysis will be made of lease versus purchase alternatives, and any other appropriate analysis to determine the most economical approach." 2 CFR 200.319(c) states: "The non-Federal entity must conduct procurements in a manner that prohibits the use of statutorily or administratively imposed state, local, or tribal geographical preferences in the evaluation of bids or proposals, except in those cases where applicable Federal statutes expressly mandate or encourage geographic preference. Nothing in this section preempts state licensing laws. When contracting for architectural and engineering (A/E) services, geographic location may be a selection criterion provided its application leaves an appropriate number of qualified firms, given the nature and size of the project, to compete for the contract." 2 CFR 200.319(d) states: "The non-Federal entity must have written procedures for procurement transactions. These procedures must ensure that all solicitations: (1) Incorporate a clear and accurate description of the technical requirements for the material, product, or service to be procured. Such description must not, in competitive procurements, contain features which unduly restrict competition. The description may include a statement of the qualitative nature of the material, product or service to be procured and, when necessary, must set forth those minimum essential characteristics and standards to which it must conform if it is to satisfy its intended use. Detailed product specifications should be avoided if at all possible. When it is impractical or uneconomical to make a clear and accurate description of the technical requirements, a 'brand name or equivalent' description may be used as a means to define the performance or other salient requirements of procurement. The specific features of the named brand which must be met by offers must be clearly stated; and (2) Identify all requirements which the offerors must fulfill and all other factors to be used in evaluating bids or proposals." 2 CFR 200.320 states in part: "The non-Federal entity must have and use documented procurement procedures, consistent with the standards of this section and §§ 200.317, 200.318, and 200.319 for any of the following methods of procurement used for the acquisition of property or services required under a Federal award or sub-award. (a) Informal procurement methods. When the value of the procurement for property or services under a Federal award does not exceed the simplified acquisition threshold (SAT), as defined in § 200.1, or a lower threshold established by a non-Federal entity, formal procurement methods are not required. The non-Federal entity may use informal procurement methods to expedite the completion of its transactions and minimize the associated administrative burden and cost. The informal methods used for procurement of property or services at or below the SAT include: . . . INDIANA STATE BOARD OF ACCOUNTS 18 TOWN OF KEWANNA SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (2) Small purchases– (i) Small purchase procedures. The acquisition of property or services, the aggregate dollar amount of which is higher than the micro-purchase threshold but does not exceed the simplified acquisition threshold. If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources as determined appropriate by the non-Federal entity. . . ." Cause The Town was unable to provide documentation to demonstrate it had policies or procedures in place to comply with the Procurement and Suspension and Debarment compliance requirement. Effect Without the proper implementation of an effectively designed system of internal controls, the Town cannot demonstrate it obtained an adequate number of price or rate quotations prior to selecting a vendor. Therefore, the Town could have overpaid for the services obtained. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the Town's management design and implement a system of internal controls to ensure that a purchasing policy is in place and that quotes are obtained for all small purchases. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2024-003 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): FY 2024 Compliance Requirement: Reporting Audit Findings: Material Weakness, Modified Opinion Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2023-004. Condition and Context The County had not properly designed or implemented a system of internal controls, which would include appropriate segregation of duties that would likely be effective in preventing, or detecting and correcting, noncompliance. Recipients are required to submit quarterly or annually 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 on the type of recipient and the recipient's 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 County was classified as a county with a population below 250,000 residents that received an allocation of less than $10 million in COVID-19 - Coronavirus State and Local Fiscal Recovery Funds (SLFRF). As such, the P&E report, covering the period from April 1, 2023 to March 31, 2024, was required to be submitted to the Treasury by April 30, 2024. INDIANA STATE BOARD OF ACCOUNTS 18 MIAMI COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The County submitted one P&E report during the audit period, which was obtained from the Treasury's website. Although one employee prepared the P&E report and another reviewed the entries, the system of internal controls was not effective in preventing, or detecting and correcting, errors. The information submitted included amounts based on the incorrect period, amounts that should have been omitted, and amounts which were based on budgeted amounts instead of actual amounts, as such, the reports were not fairly presented. Errors identified included the following:  Total Cumulative Obligations were overstated by $2,077,147.  Total Current Obligations were overstated by $245,909. 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). . . ." 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 . . . periodic reports providing detailed accounting of the uses of funds . . ." Cause Although a system of internal controls over the P&E report was designed by management, which included segregation of duties, it was not documented, and it did not ensure that the County provided the Treasury with complete and accurate information related to the SLFRF awards. The officials were new and not familiar with the reporting requirements. INDIANA STATE BOARD OF ACCOUNTS 19 MIAMI COUNTY 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. As such, the County did not accurately report when filing the P&E report for the period April 1, 2023 to March 31, 2024. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of future federal funding to the County. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the County design and implement a proper system of internal controls that would ensure appropriate reviews, approvals and oversight are taking place. Additionally, management should develop policies and procedures to ensure that the County provides the Treasury with complete and accurate information for the P&E report. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2024-003 Subject: Water and Waste Disposal Systems for Rural Communities - Procurement Federal Agency: Department of Agriculture Federal Program: Water and Waste Disposal Systems for Rural Communities Assistance Listings Number: 10.760 Federal Award Numbers and Years (or Other Identifying Numbers): 92-02, 92-03, 92-04, 92-05 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Other Matters Condition and Context As part of sound management of the federal award, the City was responsible for implementing a system of internal controls that would ensure compliance with the applicable requirements. The City had not properly designed or implemented such a system, which would include appropriate segregation of duties, that would likely be effective in preventing, or detecting and correcting, noncompliance. Federal regulations allow for informal procurement methods when the value of the procurement for property or services does not exceed the simplified acquisition threshold, which is set at $250,000 unless a lower, more restrictive threshold is set by a nonfederal entity. The State of Indiana has established a more restrictive threshold of $150,000 for informal procurement methods. This informal process allows for methods other than the formal bid process. The informal process is divided between two methods based on thresholds: micro-purchases, typically for those purchases $10,000 or under, and small purchase procedures for those purchases above the micro-purchase threshold, but below the simplified acquisition threshold. Small purchase procedures require that price or rate quotations must be obtained from an adequate number of qualified sources or documented reasoning to support a single source provider. Two vendors were identified that were paid $10,500 and $59,408, respectively, during the audit period using federal funds under the award, thereby requiring small purchase procedures for both procurements. Both vendors were selected for testing. The City was unable to provide any documentation for either vendor that the procurement method used was appropriate or that the procurement provided full and open competition or rationale to support the determination to limit competition. Additionally, the history of the procurement, including the rationale for the method of procurement, selection of the vendor, and the basis for the price, was not adequately documented for either vendor. The lack of internal controls and noncompliance were systemic issues 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). . . ." 2 CFR 200.318 states in part: "(a) The non-Federal entity must have and use documented procurement procedures, consistent with State, local, and tribal laws and regulations and the standards of this section, for the acquisition of property or services required under a Federal award or subaward. The non-Federal entity's documented procurement procedures must conform to the procurement standards identified in §§ 200.317 through 200.327. . . . (i) The non-Federal entity must maintain records sufficient to detail the history of procurement. These records will include, but are not necessarily limited to, the following: Rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the basis for the contract price. . . ." 2 CFR 200.320 states in part: "The non-Federal entity must have and use document procurement procedures, consistent with the standards of this section and §§ 200.317, 200.318, and 200.319 for any of the following methods of procurement used for the acquisition of property or services required under a Federal award or sub-award. (a) Informal procurement methods. When the value of the procurement for property or services under a Federal award does not exceed the simplified acquisition threshold (SAT), as defined in § 200.1, or a lower threshold established by a non-Federal entity, formal procurement methods are not required. The non-Federal entity may use informal procurement methods to expedite the completion of its transactions and minimize the associated administrative burden and cost. The informal methods used for procurement of property or services at or below the SAT include: . . . (2) Small purchases- (i) Small purchase procedures. The acquisition of property or services, the aggregate dollar amount of which is higher than the micro-purchase threshold but does not exceed the simplified acquisition threshold. If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources as determined appropriate by the non-Federal entity. . . . (c) Noncompetitive procurement. There are specific circumstances in which noncompetitive procurement can be used. Noncompetitive procurement can only be awarded if one or more of the following circumstances apply: (1) The acquisition of property or services, the aggregate dollar amount of which does not exceed the micro-purchase threshold (see paragraph (a)(1) of this section); (2) The item is available only from a single source; (3) The public exigency or emergency for the requirement will not permit a delay resulting from publicizing a competitive solicitation; (4) The Federal awarding agency or pass-through entity expressly authorizes a noncompetitive procurement in response to a written request from the non-Federal entity; or (5) After solicitation of a number of sources, competition is determined inadequate." Cause The vendors in question had been utilized by the City for various services over the course of multiple years, including for several years under this award with the ongoing multi-year project. For continuity purposes, the City chose to limit competition when procuring the services. The City included the requirements for limiting competition in its purchasing policy but did not follow the established policy. Effect Without a proper system of internal controls in place that operated effectively, noncompliance remained undetected. As a result, proper procurement procedures were not adhered to for all vendors. Without following the required methods for procurement, the City could be overpaying for services by not receiving the most competitive pricing. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the 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 to ensure expenditures made from federal awards use the appropriate procurement method and retain the documentation to support the procurement methods used in order to ensure compliance with the terms and conditions of the federal award. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2024-006 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): 2024 Compliance Requirement: Reporting Audit Findings: Material Weakness, Modified Opinion Condition and Context As part of sound management of the federal award, the City was responsible for implementing a system of internal controls that would ensure compliance with the applicable requirements. The City had not properly designed or implemented such a system, which would include appropriate segregation of duties, that would likely be effective in preventing, or detecting and correcting, noncompliance. The City was required to submit an annual Project and Expenditure (P&E) report to the U.S. Department of the Treasury. The P&E report data to be submitted included, but was not limited to, current period and total cumulative obligations and current period and total cumulative expenditures. We were unable to trace the annual P&E report to the City's records. The errors identified were as follows: • Total cumulative obligations were overstated by $23,337. • Total cumulative expenditures were understated by $171,136. • Current period expenditures were understated by $163,789. The lack of internal controls and noncompliance were systemic issues 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). . . ." 2 CFR 200.302(b) states in part: "The financial management system of each non-Federal entity must provide for the following . . . (2) Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements set forth in §§ 200.328 and 200.329. . . ." 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 periodic reports providing detailed accounting of the uses of funds, . . ." Coronavirus State and Local Fiscal Recovery Funds Compliance and Reporting Guidance, page 10, 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. . . ." Cause The Clerk-Treasurer had served in the position for two years when the report for 2024 was due and was inexperienced with the reporting requirements of the award. As a result, the Clerk-Treasurer did not properly prepare the report. Additionally, the Clerk-Treasurer was solely responsible for preparing and submitting the report with no oversight, review, or approval process that would have allowed for prevention, or detection and correction, of the noncompliance. Effect Without a proper system of internal controls in place that operated effectively, the City did not file an accurate annual P&E report as required under the federal award. As a result, material noncompliance occurred and remained undetected. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the 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 and develop and implement reporting policies and procedures to ensure that all required reports are complete and accurate when submitted. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

The City is required to comply with the Federal Funding Accountability and Transparency Act of 2006 (Transparency Act or FFATA) for direct grants. The Transparency Act was created to empower Americans with the ability to hold the government accountable for each spending decision and, as a result, to reduce wasteful spending by the government. The Transparency Act requires the federal government to make certain information on federal awards available to the public. In accordance with the Transparency Act, the City is required to report information about subgrants, or subawards, given to other governments or to nonprofit organizations, also referred to as subrecipients. Federal regulations [2 CFR 200.1] define a subaward as an award provided by a pass-through entity, in this case the City, to an entity to carry out part of a federal grant award received by the pass-through entity. A subrecipient is defined in federal regulations [2 CFR 200.1] as “an entity, usually but not limited to non-Federal entities, that receives a subaward from a pass-through entity to carry out part of a federal award; but does not include an individual that is a beneficiary of such award. A subrecipient may also be a recipient of other Federal awards directly from a federal awarding agency.” The City is required to submit FFATA information through the Federal Funding Accountability and Transparency Act Subaward Reporting System (FSRS). Once the City submits a report to FSRS, the public can view information from the report, including the subrecipient’s name, subaward identification number, subaward obligation/action date, subaward amount, federal awarding agency and subagency, the City’s name, and the Citty’s grant award identification number. The City omitted the FFATA reports for CDBG. he City did not have a control over FFATA reporting. Without sufficient review and monitoring controls, the FFATA reporting required for the grant was not performed by the City. The City should implement internal controls for CDBG and all direct grants by developing policies and procedures to ensure that it complies with requirements under the Federal Funding Accountability and Transparency Act. These procedures should include requirements to maintain supporting documentation, including evidence of timely submission and subaward documentation for awards made to subrecipients, as required. The City agrees with the finding and has put together a correction action plan for the finding. See corrective action plan included in this report.

2024-010 Period of Performance Assistance Listing No.: 14.267 Continuum of Care Program Condition: The Organization was unable to demonstrate consistent controls over the period of performance requirement. Criteria: The requirements for the period of performance are contained in 2 CFR section 200.1 Definitions for “budget period,” “financial obligations,” “period of performance,” 2 CFR section 200.308 (revision of budget and program plans), 2 CFR section 200.309 (modifications to period of performance), 2 CFR section 200.344 (closeout), program legislation, federal awarding agency regulations; and the terms and conditions of the award. Questioned Costs There are no questioned costs. Cause: The Organization did not have good controls on ensuring the period of performance requirement was met due to staff turn over. Effect: The Organization could have incurred grant expenditures outside the grant period. Perspective: Two of forty items selected for testing did not have documentation of the control over compliance with the period of performance requirement. Repeat Finding: This is a repeat finding. See finding 2023-014. Based on timing of prior year audit the Organization did not have time to fully correct the issue. Recommendation: In order to prevent future occurences of this deficiency, RBT recommends that management expand controls to ensure that they are able to demonstrate that all expenses meet their procurement policy. Auditee's Response: The Organization agrees with the finding. See attached corrective action plan.

Federal Grantor: U.S. Department of Treasury Pass-through Grantor: n/a Assistance Listing No.: 21.027 Program Title: COVID-19 Coronavirus State and Local Fiscal Recovery Funds Award Year: 2024 Compliance Requirement: Subrecipient Monitoring Known Questioned Costs: n/a Criteria: Part 1 of the Compliance and Reporting Guidance, issued by the U.S. Department of the Treasury, states that "SLFRF recipients that are pass-through entities as described under 2 CFR 200.1 are required to manage and monitor their recipients to ensure compliance with requirements of the SLFRF award pursuant to 2 CFR 200.332 regarding requirements for pass-through entities." Additionally, it is stated that pass-through entities are required to clearly identify to the subrecipient any and all compliance requirements for use of SLFRF funds. Condition: The County requires potential recipients of SLFRF funds to complete an application, which clearly identifies any and all compliance requirements for the use of the SLFRF funds. It also advises potential recipients to retain documentation of all uses of the funds and produce those documents to the County upon request. The County awarded SLFRF funds to two subrecipients. For one of the two subrecipients, the County did not ask the subrecipient to produce any documentation of the use of the funds and, therefore, did not perform their duty as a pass-through entity to manage and monitor their recipients to ensure compliance. Additionally, the County did not properly ascertain that any subrecipients expected to be audited as required by the Uniform Guidance, under subpart F, met this requirement (2 CFR 200.331(f)). This verification performed as part of the required monitoring under 2 CFR 200.331(d)(2) is required to ensure that the subrecipient takes timely and appropriate action on deficiencies detected through audits. Cause: Oversight. Effect: The County, as a pass-through entity, is required to manage and monitor their recipients to ensure compliance with requirements of the SLFRF. By failing to manage and monitor one of their subrecipients, the County is in violation of their responsibility as a pass-through entity. Recommendation: We recommend that the County implement procedures for monitoring the spending of SLFRF funds by subrecipients during, and upon completion of their projects to ensure compliance. Management's Response: The County has created a filing system for recipients of SLFRF funds and a calendar set to send reminder notices to get receipts and other information from recipients. The reminders will be set in 3 month increments from the time funds are awarded to recipient. Implementation will begin January 1, 2026 with reminder notices set in calendar.

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

Finding 2024-003: Unsubstantiated Expense Program Name: Rail and Transit Security Grant Program Assistance Listing No. 97.075 Federal Award No.: EMW-2021-RA-00048 Federal Agency: U.S. Department of Homeland Security Criteria The code of federal regulations – 2 CFR 200.405 Allocable costs requires that: A cost is allocable to a Federal award or other cost objective if the cost is assignable to that Federal award or other cost objective in accordance with the relative benefits received. This standard is met if the cost satisfies any of the following criteria: (1) Is incurred specifically for the Federal award; (2) Benefits both the Federal award and other work of the recipient or subrecipient and can be distributed in proportions that may be approximated using reasonable methods; or (3) Is necessary to the overall operation of the recipient or subrecipient and is assignable in part to the Federal award in accordance with these cost principles. The code of federal regulations – 2 CFR 200.1 Definitions defines Questioned costs as: Questioned cost means an amount, expended or received from a Federal award, that in the auditor’s judgment: (i) Is noncompliant or suspected noncompliant with Federal statutes, regulations, or the terms and conditions of the Federal award; The following exceptions to the criteria were observed during the performance of the audit procedures: 1. As part of our procedures relating to the testing requirement of Sections A and B (Activities Allowed or Unallowed and Allowable Costs/Cost Principles), we identified a transaction erroneously included in the expenditure population that did not represent an expenditure allocable to Assistance Listing #97.075 incurred by Amtrak. The $24,200 amount included on the SEFA and in the underlying population related to a project funded by the Assistance Listing #20.315. Cause Amtrak’s control procedures in place as it relates to the review of manual journal entries related to reclassification of expenses between different projects under different funding sources were not operating effectively. The review process failed to identify the correct project to allocate the reclassification journal entry to. Effect Amtrak is in non-compliance with the related grant agreement. Questioned Costs This finding resulted in a total of $24,200 of questioned costs for Assistance Listing #97.075 – Rail and Transit Security Grant Program for Federal Award # EMW-2021-RA-00048. Context We selected 40 AB expenditure transactions, related to Assistance Listing #97.075, for internal control and compliance testing. One exception as described in the Condition section above was noted for matters 1-3 in the Criteria section above, indicating that internal controls were not functioning. Identification as a Repeat Finding Not a repeat finding. Recommendation We recommend that management strengthen the process to identify and review funding sources of underlying expenditures, that support the amounts of the reclassification journal entries. This could include reviewing approved budgets for the federal award in scope at a necessary level of detail to determine appropriateness of allocations in a timely manner. Views of Responsible Officials The invoice identified in this finding was initially charged to the incorrect project code, due to a manual process that was done incorrectly. The charges on the invoice should have been recorded to Amtrak’s annual grant, not the Rail and Transit Security Grant. The Company has moved the charges to the correct project code. The review and approval controls within the procurement process would have normally prevented the assignment of the incorrect project code, but in this situation, the project code was not set up at the time the services were rendered and an incorrect project code was used. This created the requirement for a manual journal entry to reclassify the expenses and at that time the incorrect code was selected. Amtrak will reinforce the need for proper project set up in advance and proper review of project charges once incurred.

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

2024-008–Noncompliance and Significant Deficiency in Internal Control Over Period of Performance Criteria: Per 2CFR 200.1, the requirements of period of performance are defined as the time interval between the start and end date of a Federal award, which may include one or more budget periods. Each grant has a specified period of performance for the period which should be followed in accordance with the grant agreement. Condition: During our testing, D&T identified expenditures which were inappropriately classified to the wrong grant year for period of performance. Cause: The department did not perform a detailed review of the period of performance due to department turnover. Effect: Failure to ensure expenses are properly reviewed and coded to the correct period or grant could result in noncompliance with the award contract, which may result in the early termination of the grant award, non-reimbursement of grant funding, or cessation of future funding. Recommendation: Grant management should ensure that a detailed review of the period of performance is performed. Views of Responsible Officials: See Corrective Action Plan County Contact Person(s): Leah Barton, Interim Executive Director of Public Health

Finding 2024-003: Unsubstantiated Expense Program Name: Rail and Transit Security Grant Program Assistance Listing No. 97.075 Federal Award No.: EMW-2021-RA-00048 Federal Agency: U.S. Department of Homeland Security Criteria The code of federal regulations – 2 CFR 200.405 Allocable costs requires that: A cost is allocable to a Federal award or other cost objective if the cost is assignable to that Federal award or other cost objective in accordance with the relative benefits received. This standard is met if the cost satisfies any of the following criteria: (1) Is incurred specifically for the Federal award; (2) Benefits both the Federal award and other work of the recipient or subrecipient and can be distributed in proportions that may be approximated using reasonable methods; or (3) Is necessary to the overall operation of the recipient or subrecipient and is assignable in part to the Federal award in accordance with these cost principles. The code of federal regulations – 2 CFR 200.1 Definitions defines Questioned costs as: Questioned cost means an amount, expended or received from a Federal award, that in the auditor’s judgment: (i) Is noncompliant or suspected noncompliant with Federal statutes, regulations, or the terms and conditions of the Federal award; The following exceptions to the criteria were observed during the performance of the audit procedures: 1. As part of our procedures relating to the testing requirement of Sections A and B (Activities Allowed or Unallowed and Allowable Costs/Cost Principles), we identified a transaction erroneously included in the expenditure population that did not represent an expenditure allocable to Assistance Listing #97.075 incurred by Amtrak. The $24,200 amount included on the SEFA and in the underlying population related to a project funded by the Assistance Listing #20.315. Cause Amtrak’s control procedures in place as it relates to the review of manual journal entries related to reclassification of expenses between different projects under different funding sources were not operating effectively. The review process failed to identify the correct project to allocate the reclassification journal entry to. Effect Amtrak is in non-compliance with the related grant agreement. Questioned Costs This finding resulted in a total of $24,200 of questioned costs for Assistance Listing #97.075 – Rail and Transit Security Grant Program for Federal Award # EMW-2021-RA-00048. Context We selected 40 AB expenditure transactions, related to Assistance Listing #97.075, for internal control and compliance testing. One exception as described in the Condition section above was noted for matters 1-3 in the Criteria section above, indicating that internal controls were not functioning. Identification as a Repeat Finding Not a repeat finding. Recommendation We recommend that management strengthen the process to identify and review funding sources of underlying expenditures, that support the amounts of the reclassification journal entries. This could include reviewing approved budgets for the federal award in scope at a necessary level of detail to determine appropriateness of allocations in a timely manner. Views of Responsible Officials The invoice identified in this finding was initially charged to the incorrect project code, due to a manual process that was done incorrectly. The charges on the invoice should have been recorded to Amtrak’s annual grant, not the Rail and Transit Security Grant. The Company has moved the charges to the correct project code. The review and approval controls within the procurement process would have normally prevented the assignment of the incorrect project code, but in this situation, the project code was not set up at the time the services were rendered and an incorrect project code was used. This created the requirement for a manual journal entry to reclassify the expenses and at that time the incorrect code was selected. Amtrak will reinforce the need for proper project set up in advance and proper review of project charges once incurred.

Finding No.: 2024-002 Federal Agency: U.S. Department of Treasury Federal Communications Commission AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Requirement: Procurement Questioned Costs: $150,676 Criteria: 2 CFR 200.1, defines State as any State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, U.S. Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, and any agency or instrumentality thereof exclusive of local governments. 2 CFR 200.317 requires that when conducting procurement transactions under a Federal award, a State or Indian Tribe must follow the same policies and procedures it uses for procurements with non-Federal funds. If such policies and procedures do not exist, States and Indian Tribes must follow the procurement standards in §§ 200.318 through 200.327. In addition to its own policies and procedures, a State or Indian Tribe must also comply with the following procurement standards: §§ 200.321, 200.322, 200.323, and 200.327. All other recipients and subrecipients, including subrecipients of a State or Indian Tribe, must follow the procurement standards in §§ 200.318 through 200.327. Effective July 1, 2019, GMHA Materials Management Policy and Procedure Manual (Policy No. 4.2) includes the following citations: All supplies, equipment and services purchased by Guam Memorial Hospital Authority (GMHA) shall be in accordance with the provisions of the Guam Procurement Law and GMHA Rules and Regulations as amended. Title 26 of the Guam Administrative Rules and Regulations (GARR) Chapter 16, sets forth as follows: §16308. Methods of Source Selection. Unless otherwise authorized by law, all hospital contracts shall be by competitive sealed bidding, pursuant to §16309 (Competitive Sealed Bidding) of these Regulations, except as provided in: (1) Section 16310 (Procurement from Non Profit Corporations); (2) Section 16311 (Small Purchases); (3) Section 16312 (Sole Source Procurement); (4) Section 16313 (Emergency Procurement); (5) Section 16314 (Competitive Selection Procedures for Services Specified in §16212); (6) Section 16507 (Architect-Engineer and Land Surveying Services); or (7) Section 16315 (Purchase of Drugs by Generic Names). §16309. Competitive Sealed Bidding. (a) Application. The provisions of this section apply to every procurement made by competitive sealed bidding, including multi-step bidding.§16309. Competitive Sealed Bidding. (a) Application. The provisions of this section apply to every procurement made by competitive sealed bidding, including multi-step bidding.§16311. Small Purchases. (1) Application. In accordance with 5 GCA §5213 (Small Purchases) of the GuamProcurement Act, this section is established for procurement of less than five thousand dollars ($5,000) for supplies or services and less than fifteen thousand dollars ($15,000) for construction.(b) Authority to Make Small Purchases. (1) Amount. The Hospital Administrator may use this section if the procurement is to be less than five thousand dollars ($5,000) for supplies or services and less than fifteen thousand dollars ($15,000) for construction. If these methods are not used, the other methods of source selection provided in 5 GCA §5210 (Methods of Source Selection) of the Guam Procurement Act and these Regulations shall apply. Condition: For 2 (or 17%) of 12 items tested, GMHA’s method of procurement did not comply with local procurement regulations. GMHA is considered an instrumentality of the Government of Guam which is included in the definition of a State within 2 CFR 200. Accordingly, as there exists policies and procedures for procurement, such policies and procedures should have been used in conducting procurement transactions under a federal award in accordance with 2 CFR 200.317. Cause: GMHA did not use the same policies and procedures used for procurement of non-federal funds in accordance with 2 CFR 200.317. Effect: GMHA is in noncompliance with the applicable requirement. Recommendation: GMHA should adopt and implement the same policies and procedures for federal funds as those used for non-federal funds in accordance with 2 CFR 200.317. Views of Responsible Officials: Management disagrees with the finding. Management concluded that procurement thresholds is not an aspect of policies and procedures required under 2 CFR 200.317. Management concluded that higher thresholds set in 2 CFR 200.320 Simplified Acquisition Threshold as the applicable requirement. Please refer to GMHA’s views of responsible officials for their detailed response.

Reporting – FFATA Subawards Federal Agency: U.S. Department of Labor Federal Program Title: Workforce Innovation and Opportunity Act Cluster ALN: 17.258, 17.259, 17.278 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 23A55AY000040–01–00 April 1, 2023 – June 30, 2026 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Workforce (TWC) must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that TWC 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). Under the requirements of the Federal Funding Accountability and Transparency Act (FFATA) (Pub. L. No. 109- 282), as amended by Section 6202 of Public Law 110-252, recipients (i.e., direct recipients) of grants or cooperative agreements are required to report first-tier subawards of $30,000 or more to the Federal Funding Accountability and Transparency Act Subaward Reporting System (FSRS) no later than the last day of the month following the month in which the subaward/subaward amendment obligation was made or the subcontract award/subcontract modification was made. Condition: As the prime recipient of grant funding, TWC is responsible for reporting first-tier subawards of $30,000 or more in FSRS. Audit procedures included testing 59 subawards made during the fiscal year for FFATA requirements, including subawards made by Texas Education Agency (TEA) using state pass through funds from TWC. TWC passed through $3,000,000 of federal grant funds to TEA who in turn made 33 subawards totaling $2,911,755. Based on Part 3 of the 2024 compliance supplement, transfers of federal awards to another component of the same auditee under 2 CFR Part 200, Subpart F, do not constitute a subrecipient or contractor relationship. Accordingly, subawards made by TEA should be reported in FSRS by TWC as the prime recipient. The following compliance exceptions were identified: See chart or table in the Schedule of Findings and Questioned Costs. Questioned costs: None Context: See “Condition.” Cause: TWC considered the funds passed through to TEA as a subaward and reported these amounts in FSRS. However, as TEA is an agency of the State of Texas, it does not meet the definition of a subrecipient. Effect: Failure to submit FFATA subawards timely may lead to noncompliance with federal requirements. Repeat Finding: No Recommendation: We recommend that, as the prime recipient, TWC coordinate with state pass through entities to obtain the information needed for FFATA reporting in order to be compliant with FFATA requirements. Views of responsible officials: In this situation, TWC disagrees with the applicability of the following statement “Transfers of federal awards to another component of the same auditee under 2 CFR Part 200, Subpart F, do not constitute a subrecipient or contractor relationship” from the Fiscal Year 2024 2 CFR Part 200, Appendix XI Compliance Supplement. According to 2 CFR Part 170, TWC is required to report first-tier subawards. In the case of TWC and TEA, there is an Interagency Agreement Contract (IAC) which designates TEA as a subrecipient of TWC making TEA a first_x0002_tier grantee of TWC. Neither TWC nor TEA considers this funding a “transfer.” The definition of a pass-through entity according to 2 CFR Part 200, means a recipient or subrecipient that provides a subaward to a subrecipient (including lower tier subrecipients) to carry out a federal program. In the case of TWC and TEA, there is an Interagency Agreement Contract (IAC) that establishes a relationship that would not be considered a transfer but a first tier subaward. The IAC establishes TWC as a pass-through entity and TEA as a subrecipient per the definitions of these terms in 2 CFR 200.1. Under the requirements for pass-through entities at 2 CFR 200.332, TWC is responsible for monitoring TEA performance under this subaward which may include enforcement under 2 CFR 200.339 and the recovery of costs associated with subrecipient noncompliance. This contractual consideration and possibility of repayment supports that this relationship is one of pass-through and subrecipient, and not a transfer of a federal award to another component of an auditee. As such, subawards made by TEA are in fact second tier subawards for TWC and TWC has no obligation to report them as established in Appendix A 2 CFR Part 170. The Federal Funding Accountability and Transparency Act of 2006 (FFATA) was passed in the vein of openness and transparency to the public as it relates to Federal spending. Reporting on first-tier subawards took effect October 1, 2010. (See OMB Memorandum for Senior Accountable Officials, “Open Government Directive–Federal Spending Transparency and Subaward and Compensation Data Reporting,” August 27, 2010.) FFATA, § 2—Full Disclosure of Entities Receiving Federal Funding, directed the Office of Management and Budget to “ensure the existence and operation of a single searchable website, accessible by the public at no cost to access, that includes for each Federal award—(A) the name of the entity receiving the award” and other specified information. (See Public Law 109-282, §2(b).) That website is USASpending.gov. On that website, a search by “recipient” does not have an option to search for “State of Texas.” Rather, the search options individually list the Texas Workforce Commission and other Texas state agencies as separate recipients. When TWC makes an interagency pass-through contract to another state agency, TWC has always treated that other state agency as first-tier subrecipient for FFATA reporting purposes. That decision was based on guidance and interpretation of information available when the FFATA subaward reporting requirements took effect in 2010. TWC has continued in that manner with no audit finding on that approach until now. If TWC adheres to the recommendation made by this finding, the public will no longer have access to the interagency contract amounts through USASpending.gov. The USASpending.gov data presented to the public will instead indicate that the subrecipients of another state agency received subawards directly from TWC, which is inaccurate, will make the USASpending.gov data of the other state agency incomplete, and will cause the USASpending.gov data to be inconsistent with both state agencies’ presentation of those subawards in their respective systems and financial statements. In effect, the USASpending.gov data will represent the subawards of the other state agency as TWC’s subrecipients, while TWC’s systems and financial statements will have no record of those subawards beyond FFATA reporting. Similarly, the other state agency’s systems and financial statements will reflect those subawards as its own, but with no related reflection of that relationship in USASpending.gov. If the public were to submit an open records request about the subawards, the State’s response would be delayed by one state agency collecting data from the other, and inconsistent with the public’s expectation as to which state agency issued and managed those subawards. Those effects seem inconsistent with FFATA’s openness and transparency goals.

Reporting – FFATA Subawards Federal Agency: U.S. Department of Labor Federal Program Title: Workforce Innovation and Opportunity Act Cluster ALN: 17.258, 17.259, 17.278 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 23A55AY000040–01–00 April 1, 2023 – June 30, 2026 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Workforce (TWC) must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that TWC 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). Under the requirements of the Federal Funding Accountability and Transparency Act (FFATA) (Pub. L. No. 109- 282), as amended by Section 6202 of Public Law 110-252, recipients (i.e., direct recipients) of grants or cooperative agreements are required to report first-tier subawards of $30,000 or more to the Federal Funding Accountability and Transparency Act Subaward Reporting System (FSRS) no later than the last day of the month following the month in which the subaward/subaward amendment obligation was made or the subcontract award/subcontract modification was made. Condition: As the prime recipient of grant funding, TWC is responsible for reporting first-tier subawards of $30,000 or more in FSRS. Audit procedures included testing 59 subawards made during the fiscal year for FFATA requirements, including subawards made by Texas Education Agency (TEA) using state pass through funds from TWC. TWC passed through $3,000,000 of federal grant funds to TEA who in turn made 33 subawards totaling $2,911,755. Based on Part 3 of the 2024 compliance supplement, transfers of federal awards to another component of the same auditee under 2 CFR Part 200, Subpart F, do not constitute a subrecipient or contractor relationship. Accordingly, subawards made by TEA should be reported in FSRS by TWC as the prime recipient. The following compliance exceptions were identified: See chart or table in the Schedule of Findings and Questioned Costs. Questioned costs: None Context: See “Condition.” Cause: TWC considered the funds passed through to TEA as a subaward and reported these amounts in FSRS. However, as TEA is an agency of the State of Texas, it does not meet the definition of a subrecipient. Effect: Failure to submit FFATA subawards timely may lead to noncompliance with federal requirements. Repeat Finding: No Recommendation: We recommend that, as the prime recipient, TWC coordinate with state pass through entities to obtain the information needed for FFATA reporting in order to be compliant with FFATA requirements. Views of responsible officials: In this situation, TWC disagrees with the applicability of the following statement “Transfers of federal awards to another component of the same auditee under 2 CFR Part 200, Subpart F, do not constitute a subrecipient or contractor relationship” from the Fiscal Year 2024 2 CFR Part 200, Appendix XI Compliance Supplement. According to 2 CFR Part 170, TWC is required to report first-tier subawards. In the case of TWC and TEA, there is an Interagency Agreement Contract (IAC) which designates TEA as a subrecipient of TWC making TEA a first_x0002_tier grantee of TWC. Neither TWC nor TEA considers this funding a “transfer.” The definition of a pass-through entity according to 2 CFR Part 200, means a recipient or subrecipient that provides a subaward to a subrecipient (including lower tier subrecipients) to carry out a federal program. In the case of TWC and TEA, there is an Interagency Agreement Contract (IAC) that establishes a relationship that would not be considered a transfer but a first tier subaward. The IAC establishes TWC as a pass-through entity and TEA as a subrecipient per the definitions of these terms in 2 CFR 200.1. Under the requirements for pass-through entities at 2 CFR 200.332, TWC is responsible for monitoring TEA performance under this subaward which may include enforcement under 2 CFR 200.339 and the recovery of costs associated with subrecipient noncompliance. This contractual consideration and possibility of repayment supports that this relationship is one of pass-through and subrecipient, and not a transfer of a federal award to another component of an auditee. As such, subawards made by TEA are in fact second tier subawards for TWC and TWC has no obligation to report them as established in Appendix A 2 CFR Part 170. The Federal Funding Accountability and Transparency Act of 2006 (FFATA) was passed in the vein of openness and transparency to the public as it relates to Federal spending. Reporting on first-tier subawards took effect October 1, 2010. (See OMB Memorandum for Senior Accountable Officials, “Open Government Directive–Federal Spending Transparency and Subaward and Compensation Data Reporting,” August 27, 2010.) FFATA, § 2—Full Disclosure of Entities Receiving Federal Funding, directed the Office of Management and Budget to “ensure the existence and operation of a single searchable website, accessible by the public at no cost to access, that includes for each Federal award—(A) the name of the entity receiving the award” and other specified information. (See Public Law 109-282, §2(b).) That website is USASpending.gov. On that website, a search by “recipient” does not have an option to search for “State of Texas.” Rather, the search options individually list the Texas Workforce Commission and other Texas state agencies as separate recipients. When TWC makes an interagency pass-through contract to another state agency, TWC has always treated that other state agency as first-tier subrecipient for FFATA reporting purposes. That decision was based on guidance and interpretation of information available when the FFATA subaward reporting requirements took effect in 2010. TWC has continued in that manner with no audit finding on that approach until now. If TWC adheres to the recommendation made by this finding, the public will no longer have access to the interagency contract amounts through USASpending.gov. The USASpending.gov data presented to the public will instead indicate that the subrecipients of another state agency received subawards directly from TWC, which is inaccurate, will make the USASpending.gov data of the other state agency incomplete, and will cause the USASpending.gov data to be inconsistent with both state agencies’ presentation of those subawards in their respective systems and financial statements. In effect, the USASpending.gov data will represent the subawards of the other state agency as TWC’s subrecipients, while TWC’s systems and financial statements will have no record of those subawards beyond FFATA reporting. Similarly, the other state agency’s systems and financial statements will reflect those subawards as its own, but with no related reflection of that relationship in USASpending.gov. If the public were to submit an open records request about the subawards, the State’s response would be delayed by one state agency collecting data from the other, and inconsistent with the public’s expectation as to which state agency issued and managed those subawards. Those effects seem inconsistent with FFATA’s openness and transparency goals.

Reporting – FFATA Subawards Federal Agency: U.S. Department of Labor Federal Program Title: Workforce Innovation and Opportunity Act Cluster ALN: 17.258, 17.259, 17.278 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 23A55AY000040–01–00 April 1, 2023 – June 30, 2026 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Workforce (TWC) must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that TWC 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). Under the requirements of the Federal Funding Accountability and Transparency Act (FFATA) (Pub. L. No. 109- 282), as amended by Section 6202 of Public Law 110-252, recipients (i.e., direct recipients) of grants or cooperative agreements are required to report first-tier subawards of $30,000 or more to the Federal Funding Accountability and Transparency Act Subaward Reporting System (FSRS) no later than the last day of the month following the month in which the subaward/subaward amendment obligation was made or the subcontract award/subcontract modification was made. Condition: As the prime recipient of grant funding, TWC is responsible for reporting first-tier subawards of $30,000 or more in FSRS. Audit procedures included testing 59 subawards made during the fiscal year for FFATA requirements, including subawards made by Texas Education Agency (TEA) using state pass through funds from TWC. TWC passed through $3,000,000 of federal grant funds to TEA who in turn made 33 subawards totaling $2,911,755. Based on Part 3 of the 2024 compliance supplement, transfers of federal awards to another component of the same auditee under 2 CFR Part 200, Subpart F, do not constitute a subrecipient or contractor relationship. Accordingly, subawards made by TEA should be reported in FSRS by TWC as the prime recipient. The following compliance exceptions were identified: See chart or table in the Schedule of Findings and Questioned Costs. Questioned costs: None Context: See “Condition.” Cause: TWC considered the funds passed through to TEA as a subaward and reported these amounts in FSRS. However, as TEA is an agency of the State of Texas, it does not meet the definition of a subrecipient. Effect: Failure to submit FFATA subawards timely may lead to noncompliance with federal requirements. Repeat Finding: No Recommendation: We recommend that, as the prime recipient, TWC coordinate with state pass through entities to obtain the information needed for FFATA reporting in order to be compliant with FFATA requirements. Views of responsible officials: In this situation, TWC disagrees with the applicability of the following statement “Transfers of federal awards to another component of the same auditee under 2 CFR Part 200, Subpart F, do not constitute a subrecipient or contractor relationship” from the Fiscal Year 2024 2 CFR Part 200, Appendix XI Compliance Supplement. According to 2 CFR Part 170, TWC is required to report first-tier subawards. In the case of TWC and TEA, there is an Interagency Agreement Contract (IAC) which designates TEA as a subrecipient of TWC making TEA a first_x0002_tier grantee of TWC. Neither TWC nor TEA considers this funding a “transfer.” The definition of a pass-through entity according to 2 CFR Part 200, means a recipient or subrecipient that provides a subaward to a subrecipient (including lower tier subrecipients) to carry out a federal program. In the case of TWC and TEA, there is an Interagency Agreement Contract (IAC) that establishes a relationship that would not be considered a transfer but a first tier subaward. The IAC establishes TWC as a pass-through entity and TEA as a subrecipient per the definitions of these terms in 2 CFR 200.1. Under the requirements for pass-through entities at 2 CFR 200.332, TWC is responsible for monitoring TEA performance under this subaward which may include enforcement under 2 CFR 200.339 and the recovery of costs associated with subrecipient noncompliance. This contractual consideration and possibility of repayment supports that this relationship is one of pass-through and subrecipient, and not a transfer of a federal award to another component of an auditee. As such, subawards made by TEA are in fact second tier subawards for TWC and TWC has no obligation to report them as established in Appendix A 2 CFR Part 170. The Federal Funding Accountability and Transparency Act of 2006 (FFATA) was passed in the vein of openness and transparency to the public as it relates to Federal spending. Reporting on first-tier subawards took effect October 1, 2010. (See OMB Memorandum for Senior Accountable Officials, “Open Government Directive–Federal Spending Transparency and Subaward and Compensation Data Reporting,” August 27, 2010.) FFATA, § 2—Full Disclosure of Entities Receiving Federal Funding, directed the Office of Management and Budget to “ensure the existence and operation of a single searchable website, accessible by the public at no cost to access, that includes for each Federal award—(A) the name of the entity receiving the award” and other specified information. (See Public Law 109-282, §2(b).) That website is USASpending.gov. On that website, a search by “recipient” does not have an option to search for “State of Texas.” Rather, the search options individually list the Texas Workforce Commission and other Texas state agencies as separate recipients. When TWC makes an interagency pass-through contract to another state agency, TWC has always treated that other state agency as first-tier subrecipient for FFATA reporting purposes. That decision was based on guidance and interpretation of information available when the FFATA subaward reporting requirements took effect in 2010. TWC has continued in that manner with no audit finding on that approach until now. If TWC adheres to the recommendation made by this finding, the public will no longer have access to the interagency contract amounts through USASpending.gov. The USASpending.gov data presented to the public will instead indicate that the subrecipients of another state agency received subawards directly from TWC, which is inaccurate, will make the USASpending.gov data of the other state agency incomplete, and will cause the USASpending.gov data to be inconsistent with both state agencies’ presentation of those subawards in their respective systems and financial statements. In effect, the USASpending.gov data will represent the subawards of the other state agency as TWC’s subrecipients, while TWC’s systems and financial statements will have no record of those subawards beyond FFATA reporting. Similarly, the other state agency’s systems and financial statements will reflect those subawards as its own, but with no related reflection of that relationship in USASpending.gov. If the public were to submit an open records request about the subawards, the State’s response would be delayed by one state agency collecting data from the other, and inconsistent with the public’s expectation as to which state agency issued and managed those subawards. Those effects seem inconsistent with FFATA’s openness and transparency goals.

Reporting – FFATA Subawards Federal Agency: U.S. Department of Labor Federal Program Title: Workforce Innovation and Opportunity Act Cluster ALN: 17.258, 17.259, 17.278 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 23A55AY000040–01–00 April 1, 2023 – June 30, 2026 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Workforce (TWC) must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that TWC 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). Under the requirements of the Federal Funding Accountability and Transparency Act (FFATA) (Pub. L. No. 109- 282), as amended by Section 6202 of Public Law 110-252, recipients (i.e., direct recipients) of grants or cooperative agreements are required to report first-tier subawards of $30,000 or more to the Federal Funding Accountability and Transparency Act Subaward Reporting System (FSRS) no later than the last day of the month following the month in which the subaward/subaward amendment obligation was made or the subcontract award/subcontract modification was made. Condition: As the prime recipient of grant funding, TWC is responsible for reporting first-tier subawards of $30,000 or more in FSRS. Audit procedures included testing 59 subawards made during the fiscal year for FFATA requirements, including subawards made by Texas Education Agency (TEA) using state pass through funds from TWC. TWC passed through $3,000,000 of federal grant funds to TEA who in turn made 33 subawards totaling $2,911,755. Based on Part 3 of the 2024 compliance supplement, transfers of federal awards to another component of the same auditee under 2 CFR Part 200, Subpart F, do not constitute a subrecipient or contractor relationship. Accordingly, subawards made by TEA should be reported in FSRS by TWC as the prime recipient. The following compliance exceptions were identified: See chart or table in the Schedule of Findings and Questioned Costs. Questioned costs: None Context: See “Condition.” Cause: TWC considered the funds passed through to TEA as a subaward and reported these amounts in FSRS. However, as TEA is an agency of the State of Texas, it does not meet the definition of a subrecipient. Effect: Failure to submit FFATA subawards timely may lead to noncompliance with federal requirements. Repeat Finding: No Recommendation: We recommend that, as the prime recipient, TWC coordinate with state pass through entities to obtain the information needed for FFATA reporting in order to be compliant with FFATA requirements. Views of responsible officials: In this situation, TWC disagrees with the applicability of the following statement “Transfers of federal awards to another component of the same auditee under 2 CFR Part 200, Subpart F, do not constitute a subrecipient or contractor relationship” from the Fiscal Year 2024 2 CFR Part 200, Appendix XI Compliance Supplement. According to 2 CFR Part 170, TWC is required to report first-tier subawards. In the case of TWC and TEA, there is an Interagency Agreement Contract (IAC) which designates TEA as a subrecipient of TWC making TEA a first_x0002_tier grantee of TWC. Neither TWC nor TEA considers this funding a “transfer.” The definition of a pass-through entity according to 2 CFR Part 200, means a recipient or subrecipient that provides a subaward to a subrecipient (including lower tier subrecipients) to carry out a federal program. In the case of TWC and TEA, there is an Interagency Agreement Contract (IAC) that establishes a relationship that would not be considered a transfer but a first tier subaward. The IAC establishes TWC as a pass-through entity and TEA as a subrecipient per the definitions of these terms in 2 CFR 200.1. Under the requirements for pass-through entities at 2 CFR 200.332, TWC is responsible for monitoring TEA performance under this subaward which may include enforcement under 2 CFR 200.339 and the recovery of costs associated with subrecipient noncompliance. This contractual consideration and possibility of repayment supports that this relationship is one of pass-through and subrecipient, and not a transfer of a federal award to another component of an auditee. As such, subawards made by TEA are in fact second tier subawards for TWC and TWC has no obligation to report them as established in Appendix A 2 CFR Part 170. The Federal Funding Accountability and Transparency Act of 2006 (FFATA) was passed in the vein of openness and transparency to the public as it relates to Federal spending. Reporting on first-tier subawards took effect October 1, 2010. (See OMB Memorandum for Senior Accountable Officials, “Open Government Directive–Federal Spending Transparency and Subaward and Compensation Data Reporting,” August 27, 2010.) FFATA, § 2—Full Disclosure of Entities Receiving Federal Funding, directed the Office of Management and Budget to “ensure the existence and operation of a single searchable website, accessible by the public at no cost to access, that includes for each Federal award—(A) the name of the entity receiving the award” and other specified information. (See Public Law 109-282, §2(b).) That website is USASpending.gov. On that website, a search by “recipient” does not have an option to search for “State of Texas.” Rather, the search options individually list the Texas Workforce Commission and other Texas state agencies as separate recipients. When TWC makes an interagency pass-through contract to another state agency, TWC has always treated that other state agency as first-tier subrecipient for FFATA reporting purposes. That decision was based on guidance and interpretation of information available when the FFATA subaward reporting requirements took effect in 2010. TWC has continued in that manner with no audit finding on that approach until now. If TWC adheres to the recommendation made by this finding, the public will no longer have access to the interagency contract amounts through USASpending.gov. The USASpending.gov data presented to the public will instead indicate that the subrecipients of another state agency received subawards directly from TWC, which is inaccurate, will make the USASpending.gov data of the other state agency incomplete, and will cause the USASpending.gov data to be inconsistent with both state agencies’ presentation of those subawards in their respective systems and financial statements. In effect, the USASpending.gov data will represent the subawards of the other state agency as TWC’s subrecipients, while TWC’s systems and financial statements will have no record of those subawards beyond FFATA reporting. Similarly, the other state agency’s systems and financial statements will reflect those subawards as its own, but with no related reflection of that relationship in USASpending.gov. If the public were to submit an open records request about the subawards, the State’s response would be delayed by one state agency collecting data from the other, and inconsistent with the public’s expectation as to which state agency issued and managed those subawards. Those effects seem inconsistent with FFATA’s openness and transparency goals.

Reporting – FFATA Subawards Federal Agency: U.S. Department of Labor Federal Program Title: Workforce Innovation and Opportunity Act Cluster ALN: 17.258, 17.259, 17.278 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 23A55AY000040–01–00 April 1, 2023 – June 30, 2026 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Workforce (TWC) must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that TWC 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). Under the requirements of the Federal Funding Accountability and Transparency Act (FFATA) (Pub. L. No. 109- 282), as amended by Section 6202 of Public Law 110-252, recipients (i.e., direct recipients) of grants or cooperative agreements are required to report first-tier subawards of $30,000 or more to the Federal Funding Accountability and Transparency Act Subaward Reporting System (FSRS) no later than the last day of the month following the month in which the subaward/subaward amendment obligation was made or the subcontract award/subcontract modification was made. Condition: As the prime recipient of grant funding, TWC is responsible for reporting first-tier subawards of $30,000 or more in FSRS. Audit procedures included testing 59 subawards made during the fiscal year for FFATA requirements, including subawards made by Texas Education Agency (TEA) using state pass through funds from TWC. TWC passed through $3,000,000 of federal grant funds to TEA who in turn made 33 subawards totaling $2,911,755. Based on Part 3 of the 2024 compliance supplement, transfers of federal awards to another component of the same auditee under 2 CFR Part 200, Subpart F, do not constitute a subrecipient or contractor relationship. Accordingly, subawards made by TEA should be reported in FSRS by TWC as the prime recipient. The following compliance exceptions were identified: See chart or table in the Schedule of Findings and Questioned Costs. Questioned costs: None Context: See “Condition.” Cause: TWC considered the funds passed through to TEA as a subaward and reported these amounts in FSRS. However, as TEA is an agency of the State of Texas, it does not meet the definition of a subrecipient. Effect: Failure to submit FFATA subawards timely may lead to noncompliance with federal requirements. Repeat Finding: No Recommendation: We recommend that, as the prime recipient, TWC coordinate with state pass through entities to obtain the information needed for FFATA reporting in order to be compliant with FFATA requirements. Views of responsible officials: In this situation, TWC disagrees with the applicability of the following statement “Transfers of federal awards to another component of the same auditee under 2 CFR Part 200, Subpart F, do not constitute a subrecipient or contractor relationship” from the Fiscal Year 2024 2 CFR Part 200, Appendix XI Compliance Supplement. According to 2 CFR Part 170, TWC is required to report first-tier subawards. In the case of TWC and TEA, there is an Interagency Agreement Contract (IAC) which designates TEA as a subrecipient of TWC making TEA a first_x0002_tier grantee of TWC. Neither TWC nor TEA considers this funding a “transfer.” The definition of a pass-through entity according to 2 CFR Part 200, means a recipient or subrecipient that provides a subaward to a subrecipient (including lower tier subrecipients) to carry out a federal program. In the case of TWC and TEA, there is an Interagency Agreement Contract (IAC) that establishes a relationship that would not be considered a transfer but a first tier subaward. The IAC establishes TWC as a pass-through entity and TEA as a subrecipient per the definitions of these terms in 2 CFR 200.1. Under the requirements for pass-through entities at 2 CFR 200.332, TWC is responsible for monitoring TEA performance under this subaward which may include enforcement under 2 CFR 200.339 and the recovery of costs associated with subrecipient noncompliance. This contractual consideration and possibility of repayment supports that this relationship is one of pass-through and subrecipient, and not a transfer of a federal award to another component of an auditee. As such, subawards made by TEA are in fact second tier subawards for TWC and TWC has no obligation to report them as established in Appendix A 2 CFR Part 170. The Federal Funding Accountability and Transparency Act of 2006 (FFATA) was passed in the vein of openness and transparency to the public as it relates to Federal spending. Reporting on first-tier subawards took effect October 1, 2010. (See OMB Memorandum for Senior Accountable Officials, “Open Government Directive–Federal Spending Transparency and Subaward and Compensation Data Reporting,” August 27, 2010.) FFATA, § 2—Full Disclosure of Entities Receiving Federal Funding, directed the Office of Management and Budget to “ensure the existence and operation of a single searchable website, accessible by the public at no cost to access, that includes for each Federal award—(A) the name of the entity receiving the award” and other specified information. (See Public Law 109-282, §2(b).) That website is USASpending.gov. On that website, a search by “recipient” does not have an option to search for “State of Texas.” Rather, the search options individually list the Texas Workforce Commission and other Texas state agencies as separate recipients. When TWC makes an interagency pass-through contract to another state agency, TWC has always treated that other state agency as first-tier subrecipient for FFATA reporting purposes. That decision was based on guidance and interpretation of information available when the FFATA subaward reporting requirements took effect in 2010. TWC has continued in that manner with no audit finding on that approach until now. If TWC adheres to the recommendation made by this finding, the public will no longer have access to the interagency contract amounts through USASpending.gov. The USASpending.gov data presented to the public will instead indicate that the subrecipients of another state agency received subawards directly from TWC, which is inaccurate, will make the USASpending.gov data of the other state agency incomplete, and will cause the USASpending.gov data to be inconsistent with both state agencies’ presentation of those subawards in their respective systems and financial statements. In effect, the USASpending.gov data will represent the subawards of the other state agency as TWC’s subrecipients, while TWC’s systems and financial statements will have no record of those subawards beyond FFATA reporting. Similarly, the other state agency’s systems and financial statements will reflect those subawards as its own, but with no related reflection of that relationship in USASpending.gov. If the public were to submit an open records request about the subawards, the State’s response would be delayed by one state agency collecting data from the other, and inconsistent with the public’s expectation as to which state agency issued and managed those subawards. Those effects seem inconsistent with FFATA’s openness and transparency goals.

2024-001 U.S. Department of Health and Human Services Passed-through the Texas Department of State Health Services FFAL #93.958 Mental Health Block Grant (Federal Award) (Contract numbers HHS000502700001, HHS001108400004, HHS001204800001, and H79SM085571-01) Health Community Collaboratives (State Award – No FFAL) Allowable Costs Cash Management Non-Material Noncompliance Significant Deficiency in Internal Control Criteria: Section 2 CFR 200.414 establishes that recipients and subrecipients that do not have a current Federal negotiated indirect cost rate (including provisional rate) may elect to charge a de minimis rate of up to 10 percent of modified total direct costs (MTDC). The recipient or subrecipient is authorized to determine the appropriate rate up to this limit. When applying the de minimis rate, costs must be consistently charged as either direct or indirect costs and may not be double charged or inconsistently charged as both. The de minimis rate does not require documentation to justify its use and may be used indefinitely. Once elected, the recipient or subrecipient must use the de minimis rate for all Federal awards until the recipient or subrecipient chooses to receive a negotiated rate. Per 2 CFR 200.1, modified total direct cost (MTDC) means all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $50,000 of each subaward (regardless of the period of performance of the subawards under the award). MTDC excludes equipment, capital expenditures, charges for patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs, and the portion of each subaward in excess of $50,000. Other items may only be excluded when necessary to avoid a serious inequity in the distribution of indirect costs and with the approval of the cognizant agency for indirect costs. TxGMS follow this same guidance. Condition: The Center did not exclude charges for patient care when calculating modified total direct costs (MTDC). Cause: Due to the Center improperly calculating modified total direct costs (MTDC), an indirect rate other than the 10% de minimis indirect cost rate elected by the Center and allowed under the Uniform Guidance and TxGMS was being charged to and reimbursed by the federal and state grants. Effect: Insufficient procedures and internal controls over cash management resulted in noncompliance. Questioned Costs: Mental Health Block Grant – Total known questioned costs due to error in calculating MTDC amounted to $5,139. Projected or likely questioned costs as a result of the error are approximately $39,283. Healthy Community Collaboratives - Total known questioned costs due to error in calculating MTDC amounted to $26,426. Projected or likely questioned costs as a result of the error are approximately $88,200. Context/Sampling: Mental Health Block Grant – A nonstatistical sample of 3 out of 12 reimbursement requests for the fiscal year were selected for cash management testing. For the 3 reimbursements selected, we tested approximately $843,000 of reimbursements out of total reimbursements of approximately $5,850,000. Healthy Community Collaboratives - A nonstatistical sample of 3 out of 12 reimbursement requests for the fiscal year were selected for cash management testing. For the 3 reimbursements selected, we tested approximately $949,000 of reimbursements out of total reimbursements of approximately $2,750,000. Repeat Finding from Prior Years: No. Recommendation: We recommend that the Center establish and adhere to policies and procedures, including internal controls, to ensure compliance with cash management requirements as established by 2 CFR 200.414 and 2 CFR 200.1 and TxGMS. Views of Responsible Officials: Management agrees with the finding.

2024-001 U.S. Department of Health and Human Services Passed-through the Texas Department of State Health Services FFAL #93.958 Mental Health Block Grant (Federal Award) (Contract numbers HHS000502700001, HHS001108400004, HHS001204800001, and H79SM085571-01) Health Community Collaboratives (State Award – No FFAL) Allowable Costs Cash Management Non-Material Noncompliance Significant Deficiency in Internal Control Criteria: Section 2 CFR 200.414 establishes that recipients and subrecipients that do not have a current Federal negotiated indirect cost rate (including provisional rate) may elect to charge a de minimis rate of up to 10 percent of modified total direct costs (MTDC). The recipient or subrecipient is authorized to determine the appropriate rate up to this limit. When applying the de minimis rate, costs must be consistently charged as either direct or indirect costs and may not be double charged or inconsistently charged as both. The de minimis rate does not require documentation to justify its use and may be used indefinitely. Once elected, the recipient or subrecipient must use the de minimis rate for all Federal awards until the recipient or subrecipient chooses to receive a negotiated rate. Per 2 CFR 200.1, modified total direct cost (MTDC) means all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $50,000 of each subaward (regardless of the period of performance of the subawards under the award). MTDC excludes equipment, capital expenditures, charges for patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs, and the portion of each subaward in excess of $50,000. Other items may only be excluded when necessary to avoid a serious inequity in the distribution of indirect costs and with the approval of the cognizant agency for indirect costs. TxGMS follow this same guidance. Condition: The Center did not exclude charges for patient care when calculating modified total direct costs (MTDC). Cause: Due to the Center improperly calculating modified total direct costs (MTDC), an indirect rate other than the 10% de minimis indirect cost rate elected by the Center and allowed under the Uniform Guidance and TxGMS was being charged to and reimbursed by the federal and state grants. Effect: Insufficient procedures and internal controls over cash management resulted in noncompliance. Questioned Costs: Mental Health Block Grant – Total known questioned costs due to error in calculating MTDC amounted to $5,139. Projected or likely questioned costs as a result of the error are approximately $39,283. Healthy Community Collaboratives - Total known questioned costs due to error in calculating MTDC amounted to $26,426. Projected or likely questioned costs as a result of the error are approximately $88,200. Context/Sampling: Mental Health Block Grant – A nonstatistical sample of 3 out of 12 reimbursement requests for the fiscal year were selected for cash management testing. For the 3 reimbursements selected, we tested approximately $843,000 of reimbursements out of total reimbursements of approximately $5,850,000. Healthy Community Collaboratives - A nonstatistical sample of 3 out of 12 reimbursement requests for the fiscal year were selected for cash management testing. For the 3 reimbursements selected, we tested approximately $949,000 of reimbursements out of total reimbursements of approximately $2,750,000. Repeat Finding from Prior Years: No. Recommendation: We recommend that the Center establish and adhere to policies and procedures, including internal controls, to ensure compliance with cash management requirements as established by 2 CFR 200.414 and 2 CFR 200.1 and TxGMS. Views of Responsible Officials: Management agrees with the finding.

2024-001 U.S. Department of Health and Human Services Passed-through the Texas Department of State Health Services FFAL #93.958 Mental Health Block Grant (Federal Award) (Contract numbers HHS000502700001, HHS001108400004, HHS001204800001, and H79SM085571-01) Health Community Collaboratives (State Award – No FFAL) Allowable Costs Cash Management Non-Material Noncompliance Significant Deficiency in Internal Control Criteria: Section 2 CFR 200.414 establishes that recipients and subrecipients that do not have a current Federal negotiated indirect cost rate (including provisional rate) may elect to charge a de minimis rate of up to 10 percent of modified total direct costs (MTDC). The recipient or subrecipient is authorized to determine the appropriate rate up to this limit. When applying the de minimis rate, costs must be consistently charged as either direct or indirect costs and may not be double charged or inconsistently charged as both. The de minimis rate does not require documentation to justify its use and may be used indefinitely. Once elected, the recipient or subrecipient must use the de minimis rate for all Federal awards until the recipient or subrecipient chooses to receive a negotiated rate. Per 2 CFR 200.1, modified total direct cost (MTDC) means all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $50,000 of each subaward (regardless of the period of performance of the subawards under the award). MTDC excludes equipment, capital expenditures, charges for patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs, and the portion of each subaward in excess of $50,000. Other items may only be excluded when necessary to avoid a serious inequity in the distribution of indirect costs and with the approval of the cognizant agency for indirect costs. TxGMS follow this same guidance. Condition: The Center did not exclude charges for patient care when calculating modified total direct costs (MTDC). Cause: Due to the Center improperly calculating modified total direct costs (MTDC), an indirect rate other than the 10% de minimis indirect cost rate elected by the Center and allowed under the Uniform Guidance and TxGMS was being charged to and reimbursed by the federal and state grants. Effect: Insufficient procedures and internal controls over cash management resulted in noncompliance. Questioned Costs: Mental Health Block Grant – Total known questioned costs due to error in calculating MTDC amounted to $5,139. Projected or likely questioned costs as a result of the error are approximately $39,283. Healthy Community Collaboratives - Total known questioned costs due to error in calculating MTDC amounted to $26,426. Projected or likely questioned costs as a result of the error are approximately $88,200. Context/Sampling: Mental Health Block Grant – A nonstatistical sample of 3 out of 12 reimbursement requests for the fiscal year were selected for cash management testing. For the 3 reimbursements selected, we tested approximately $843,000 of reimbursements out of total reimbursements of approximately $5,850,000. Healthy Community Collaboratives - A nonstatistical sample of 3 out of 12 reimbursement requests for the fiscal year were selected for cash management testing. For the 3 reimbursements selected, we tested approximately $949,000 of reimbursements out of total reimbursements of approximately $2,750,000. Repeat Finding from Prior Years: No. Recommendation: We recommend that the Center establish and adhere to policies and procedures, including internal controls, to ensure compliance with cash management requirements as established by 2 CFR 200.414 and 2 CFR 200.1 and TxGMS. Views of Responsible Officials: Management agrees with the finding.

2024-001 U.S. Department of Health and Human Services Passed-through the Texas Department of State Health Services FFAL #93.958 Mental Health Block Grant (Federal Award) (Contract numbers HHS000502700001, HHS001108400004, HHS001204800001, and H79SM085571-01) Health Community Collaboratives (State Award – No FFAL) Allowable Costs Cash Management Non-Material Noncompliance Significant Deficiency in Internal Control Criteria: Section 2 CFR 200.414 establishes that recipients and subrecipients that do not have a current Federal negotiated indirect cost rate (including provisional rate) may elect to charge a de minimis rate of up to 10 percent of modified total direct costs (MTDC). The recipient or subrecipient is authorized to determine the appropriate rate up to this limit. When applying the de minimis rate, costs must be consistently charged as either direct or indirect costs and may not be double charged or inconsistently charged as both. The de minimis rate does not require documentation to justify its use and may be used indefinitely. Once elected, the recipient or subrecipient must use the de minimis rate for all Federal awards until the recipient or subrecipient chooses to receive a negotiated rate. Per 2 CFR 200.1, modified total direct cost (MTDC) means all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $50,000 of each subaward (regardless of the period of performance of the subawards under the award). MTDC excludes equipment, capital expenditures, charges for patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs, and the portion of each subaward in excess of $50,000. Other items may only be excluded when necessary to avoid a serious inequity in the distribution of indirect costs and with the approval of the cognizant agency for indirect costs. TxGMS follow this same guidance. Condition: The Center did not exclude charges for patient care when calculating modified total direct costs (MTDC). Cause: Due to the Center improperly calculating modified total direct costs (MTDC), an indirect rate other than the 10% de minimis indirect cost rate elected by the Center and allowed under the Uniform Guidance and TxGMS was being charged to and reimbursed by the federal and state grants. Effect: Insufficient procedures and internal controls over cash management resulted in noncompliance. Questioned Costs: Mental Health Block Grant – Total known questioned costs due to error in calculating MTDC amounted to $5,139. Projected or likely questioned costs as a result of the error are approximately $39,283. Healthy Community Collaboratives - Total known questioned costs due to error in calculating MTDC amounted to $26,426. Projected or likely questioned costs as a result of the error are approximately $88,200. Context/Sampling: Mental Health Block Grant – A nonstatistical sample of 3 out of 12 reimbursement requests for the fiscal year were selected for cash management testing. For the 3 reimbursements selected, we tested approximately $843,000 of reimbursements out of total reimbursements of approximately $5,850,000. Healthy Community Collaboratives - A nonstatistical sample of 3 out of 12 reimbursement requests for the fiscal year were selected for cash management testing. For the 3 reimbursements selected, we tested approximately $949,000 of reimbursements out of total reimbursements of approximately $2,750,000. Repeat Finding from Prior Years: No. Recommendation: We recommend that the Center establish and adhere to policies and procedures, including internal controls, to ensure compliance with cash management requirements as established by 2 CFR 200.414 and 2 CFR 200.1 and TxGMS. Views of Responsible Officials: Management agrees with the finding.