FINDING 2023-003
Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - 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): FY 2023
Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost
Principles, Period of Performance
Audit Findings: Material Weakness, Modified Opinion
Condition and Context
Recipients may use COVID-19 - Coronavirus State and Local Fiscal Recovery Funds (SLFRF)
funds for any eligible expenses subject to the restrictions set forth in sections 602 and 603 of the Social
Security Act as added by section 9901 of the American Rescue Plan Act of 2021 and amended by the
Consolidated Appropriations Act of 2023. The SLFRF program provides substantial flexibility for each
recipient to meet local needs within seven separate eligible use categories. Recipients may use SLFRF
funds to:
Respond to the COVID-19 public health emergency and its negative economic impacts;
Respond to workers performing essential work during the COVID-19 public health
emergency by providing premium pay to eligible workers of eligible employers that have
eligible workers who are performing essential work;
Provide government services, to the extent COVID-19 caused a reduction in revenues
collected in the most recent full fiscal year of the recipient;
Make necessary investments in water, sewer, or broadband infrastructure;
Provide emergency relief from natural disasters or their negative economic impacts;
Fund eligible Surface Transportation projects; and
Fund Title I projects that are eligible activities under the Community Development Block
Grant and Indiana Community Development Block Grant programs.
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 did
not properly design or implement such a system.
The City elected to receive the standard revenue loss allowance, allowing it to claim its total SLFRF
allocation of $2,290,914 as revenue loss to use for government services. The allocated funds may only be
used to cover costs incurred from the period beginning on March 3, 2021, and ending on December 31,
2024. Obligations for costs incurred are required to be liquidated no later than December 31, 2026 (the
end of the period of performance). During the audit period, the City completed three separate transfers of
SLFRF funds from the ARPA Coronavirus Local Fiscal fund to the Comm Crossing Grant Fund and Water
Utility-Operating funds, totaling $976,431 and $494,159, respectively. The transfers allowed for federal
grant funds to be commingled with other grant and operating funds.
Subsequently, expenditures were disbursed from the Comm Crossing Grant Fund and Water
Utility-Operating funds. However, since the transfer of SLFRF funds into the Comm Crossing Grant Fund
and Water Utility-Operating funds commingled receipts, and the City did not ensure there was an
appropriate system of internal controls in place to account for the federal expenditures separately from
other grant and operating expenditures, we were unable to determine a complete population of federal
expenditures. Without a complete population of expenditures, we were unable to determine the City's
compliance with the Activities Allowed or Unallowed, the Allowable Costs/Cost Principles, and the Period
of Performance compliance requirements. As such, the $976,431 and $494,159 transferred from the ARPA
Coronavirus Local Fiscal fund are considered questioned costs.
The lack of internal controls and appropriate documentation to test the compliance requirements
was isolated to the situation described 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 200.300(b) states in part: "The non-Federal entity is responsible for complying with all
requirements of the Federal award. . . ."
2 CFR 200.302 states in part:
"(a) Each state must expend and account for the Federal award in accordance with state laws
and procedures for expending and accounting for the state's own funds. In addition, the state's
and the other non-Federal entity's financial management systems, including records documenting
compliance with Federal statutes, regulations, and the terms and conditions of the
Federal award, must be sufficient to permit the preparation of reports required by general and
program-specific terms and conditions; and the tracing of funds to a level of expenditures
adequate to establish that such funds have been used according to the Federal statutes,
regulations, and the terms and conditions of the Federal award. . . .
(b) The financial management system of each non-Federal entity must provide for the following
. . .
(1) Identification, in its accounts, of all Federal awards received and expended and the
Federal programs under which they were received. Federal program and Federal
award identification must include, as applicable, the Assistance Listings title and
number, Federal award identification number and year, name of the Federal agency,
and name of the pass-through entity, if any.
(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. . . .
(3) Records that identify adequately the source and application of funds for federallyfunded
activities. These records must contain information pertaining to Federal
awards, authorizations, financial obligations, unobligated balances, assets, expenditures,
income and interest and be supported by source documentation.
(4) Effective control over, and accountability for, all funds, property, and other assets. . . ."
Cause
Due to the lack of internal controls, the City was unable to differentiate expenditures made from
federal and nonfederal funds once it commingled other grant, operating, and federal grant awards into a
single fund within its ledger without consideration of the need to separately identify and account for federal
expenditures.
Effect
Without the proper implementation of an effectively designed system of internal controls, the Town
cannot identify the expenditures paid with federal grant funds. As such the Town cannot ensure nor can
we determine that expenditures of the grant were not unallowable and fell within the period of performance.
Questioned Costs
We identified $1,470,590 in known questioned costs as noted above in the Condition and Context.
Recommendation
We recommended that management of the City establish a system of internal controls to ensure
that grant award funds are accounted for and tracked in a designated grant fund. All activity of the grant
should be in this fund with supporting documentation for each transaction.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.