Finding 1073386 (2023-006)

FINDING 2023-006 Subject: COVID-19: Coronavirus State and Local Fiscal Recovery Funds - US 12 Stormwater Drainage Improvement Project - Reporting Federal Agency: Department of the Treasury Federal Program: COVID-19: Coronavirus State and Local Fiscal Recovery Funds Assistance Listing Number: 21.027 Federal Award Number and Year (or Other Identifying Number): TRSW222046 Pass-Through Entity: Indiana Finance Authority Compliance Requirement: Reporting Audit Findings: Material Weakness, Modified Opinion Condition and Context The City 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 were required to submit quarterly expenditure reports and a final report to the Indiana Finance Authority. Information to be reported included the expenditures of the grant and the status on the project for the appropriate reporting period. The City should have submitted four expenditure reports and a final report since the grant agreement was signed on February 25, 2022. However, the City only submitted one expenditure report for the fourth quarter and a final report. In addition, a single employee prepared and submitted the progress report without a review or oversight process in place to prevent, or detect and correct, errors. The lack of internal controls was a systemic issue throughout the audit period. The noncompliance was isolated to the missing reports 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 200.329(c) states: "Non-construction performance reports. The Federal awarding agency must use standard, governmentwide OMB-approved data elements for collection of performance information including performance progress reports, Research Performance Progress Reports. INDIANA STATE BOARD OF ACCOUNTS 24 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (1) The non-Federal entity must submit performance reports at the interval required by the Federal awarding agency or pass-through entity to best inform improvements in program outcomes and productivity. Intervals must be no less frequent than annually nor more frequent than quarterly except in unusual circumstances, for example where more frequent reporting is necessary for the effective monitoring of the Federal award or could significantly affect program outcomes. Reports submitted annually by the non- Federal entity and/or pass-through entity must be due no later than 90 calendar days after the reporting period. Reports submitted quarterly or semiannually must be due no later than 30 calendar days after the reporting period. Alternatively, the Federal awarding agency or pass-through entity may require annual reports before the anniversary dates of multiple year Federal awards. The final performance report submitted by the non-Federal entity and/or pass-through entity must be due no later than 120 calendar days after the period of performance end date. A subrecipient must submit to the pass-through entity, no later than 90 calendar days after the period of performance end date, all final performance reports as required by the terms and conditions of the Federal award. If a justified request is submitted by a non-Federal entity, the Federal agency may extend the due date for any performance report. (2) As appropriate in accordance with above mentioned performance reporting, these reports will contain, for each Federal award, brief information on the following unless other data elements are approved by OMB in the agency information collection request: (i) A comparison of actual accomplishments to the objectives of the Federal award established for the period. Where the accomplishments of the Federal award can be quantified, a computation of the cost (for example, related to units of accomplishment) may be required if that information will be useful. Where performance trend data and analysis would be informative to the Federal awarding agency program, the Federal awarding agency should include this as a performance reporting requirement. (ii) The reasons why established goals were not met, if appropriate. (iii) Additional pertinent information including, when appropriate, analysis and explanation of cost overruns or high unit costs." The Grant Agreement states in part: "The Participant will report to the Finance Authority on the Participant's expenditure of the Grant and the status of the Project on the first day of each quarter following the date of this Agreement, and on the first day of every quarter thereafter until the Participant extends all the Grant funds and completes the Project, whichever is later. At the time the Participant completes the Project, the Participant will provide promptly to the Finance Authority a final report (the "Final Report"). All reports to the Finance Authority will be in form and substance satisfactory to the Finance Authority and as may be required by the United States Department of Treasury . . ." Cause Management had not developed a system of internal controls that would have prevented or detected and allowed for correction of material noncompliance. The City did not complete and submit quarterly reports as required because the officials were unaware of the requirement. INDIANA STATE BOARD OF ACCOUNTS 25 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Without the proper design or implementation of the components of a system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, noncompliance. As such, not all the required reports were not submitted. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the City design and implement a proper system of internal controls, including policies and procedures, to ensure the City completes and submits all required reports. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.