Finding 1073383 (2023-003)

Material Weakness
Requirement
ABH
Questioned Costs
$1
Year
2023
Accepted
2024-09-16
Audit: 319688
Organization: City of Michigan City (IN)

AI Summary

  • Core Issue: The City of Michigan City incurred costs for body cameras before the grant agreement was signed, violating federal guidelines.
  • Impacted Requirements: Noncompliance with 2 CFR 200.403 and 2 CFR 200.458 regarding allowable costs and pre-award expenses.
  • Recommended Follow-Up: Establish stronger internal controls to ensure compliance with grant terms and prevent future unallowed expenditures.

Finding Text

FINDING 2023-003 Subject: COVID-19: Coronavirus State and Local Fiscal Recovery Funds - Body Camera - Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Period of Performance 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): 71391 Pass-Through Entity: Indiana Department of Homeland Security Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/ Cost Principles, Period of Performance Audit Findings: Material Weakness, Other Matters INDIANA STATE BOARD OF ACCOUNTS 17 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context The City's Police Department applied for and was awarded a body camera grant from the Indiana Department of Homeland Security (IDHS). The City's Police Department sought reimbursement from the IDHS in October of 2023. An invoice from Utility, dated October 28, 2022, in the amount of $600,000 for body cameras was submitted for the reimbursement. The invoice was originally paid by the City with American Rescue Plan Act (ARPA) funds on April 3, 2023. The City received reimbursement of $61,740 from the IDHS on December 5, 2023, which was receipted into the City's Grant Fund along with the City's local match in the amount of $30,870. The Controller's Office did an adjustment on December 31, 2023, in the amount of $92,610, to reimburse the ARP Coronavirus LF Recovery Fund and decrease the Grant Fund, for the reimbursement of $61,740 and the local share of $30,870. However, per the grant agreement with the IDHS, "If the subrecipient incurs a financial obligation prior to approval of the State, then the subrecipient will be required to reimburse the State for the amount of funds that were not approved." As such, the expenditure was not an allowable activity or allowable cost and was outside of the period of performance due to the City incurring the expense prior to signing the grant agreement with the IDHS on March 3, 2023. The lack of internal controls and noncompliance were isolated to the purchase noted above. 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 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: . . . (c) Be consistent with policies and procedures that apply uniformly to both federallyfinanced and other activities of the non-Federal entity. . . . (f) Not be included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or a prior period. . . ." 2 CFR 200.306(b) states: "For all Federal awards, any shared costs or matching funds and all contributions, including cash and third-party in-kind contributions, must be accepted as part of the non-Federal entity's cost sharing or matching when such contributions meet all of the following criteria: (1) Are verifiable from the non-Federal entity's records; INDIANA STATE BOARD OF ACCOUNTS 18 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (2) Are not included as contributions for any other Federal award; (3) Are necessary and reasonable for accomplishment of project or program objectives; (4) Are allowable under subpart E of this part; (5) Are not paid by the Federal Government under another Federal award, except where the Federal statute authorizing a program specifically provides that Federal funds made available for such program can be applied to matching or cost sharing requirements of other Federal programs; (6) Are provided for in the approved budget when required by the Federal awarding agency; and (7) Conform to other provisions of this part, as applicable." The Grant Agreement states in part: "Any purchases made by the Subrecipient that are not authorized by the U.S. Department of the Treasury allowability guidelines, the Subrecipient's Project or State, will not be reimbursed under this grant." "Pre-award costs, as defined in 2 CFR 200.458, may not be paid with funding from this award." 2 CFR 200.458 states: "Pre-award costs are those incurred prior to the effective date of the Federal award or subaward directly pursuant to the negotiation and in anticipation of the Federal award where such costs are necessary for efficient and timely performance of the scope of work. Such costs are allowable only to the extent that they would have been allowable if incurred after the date of the Federal award and only with the written approval of the Federal awarding agency. If charged to the award, these costs must be charged to the initial budget period of the award, unless otherwise specified by the Federal awarding agency or pass-through entity." Cause Management had not developed a system of internal controls that would have prevented or detected material noncompliance. The City did not ensure that the policies and procedures in place related to allowable or unallowable activities, allowable costs and cost principles, and period of performance were complied with at the acceptance of the grant from the IDHS. 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 a result, an invoice that was previously paid with other federal award funds was submitted for reimbursement to another agency. The original invoice was outside of the period of performance and unallowable as related to the award from the IDHS. Furthermore, 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 We identified $61,740 in questioned costs as noted above in the Condition and Context. INDIANA STATE BOARD OF ACCOUNTS 19 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Recommendation We recommended that management of the City establish a proper system of internal controls, including strengthening its policies and procedures to ensure all costs submitted for reimbursement are not already reimbursed by another federal award and are within the period of performance. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

Categories

Questioned Costs Allowable Costs / Cost Principles Matching / Level of Effort / Earmarking Subrecipient Monitoring Period of Performance

Other Findings in this Audit

  • 496939 2023-001
    Material Weakness Repeat
  • 496940 2023-002
    Material Weakness Repeat
  • 496941 2023-003
    Material Weakness
  • 496942 2023-004
    Material Weakness
  • 496943 2023-005
    Material Weakness
  • 496944 2023-006
    Material Weakness
  • 1073381 2023-001
    Material Weakness Repeat
  • 1073382 2023-002
    Material Weakness Repeat
  • 1073384 2023-004
    Material Weakness
  • 1073385 2023-005
    Material Weakness
  • 1073386 2023-006
    Material Weakness

Programs in Audit

ALN Program Name Expenditures
20.507 Federal Transit_formula Grants $831,194
20.106 Airport Improvement Program $152,100
20.205 Highway Planning and Construction $141,131
16.922 Equitable Sharing Program $125,196
21.027 Coronavirus State and Local Fiscal Recovery Funds $62,370
14.218 Community Development Block Grants/entitlement Grants $56,212
66.472 Beach Monitoring and Notification Program Implementation Grants $37,240
20.600 State and Community Highway Safety $2,292