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
Prior to receipt of direct COVID-19 - Coronavirus State and Local Fiscal Recovery Funds (SLFRF)
award funds, all eligible entities were required to execute a Financial Assistance Agreement (Agreement)
which included the Award Terms and Conditions that recipients must comply with in carrying out the
objectives of their award. Per the Agreement, the Town was responsible for the effective administration of
the federal award as well as the application of sound management practices and administration of federal
funds in a manner consistent with program objectives and terms and conditions of the award.
Recipients may use 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;
INDIANA STATE BOARD OF ACCOUNTS
17
TOWN OF UPLAND
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
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 Town was responsible for implementing a
system of internal controls that would ensure compliance with the applicable requirements. The Town had
not properly designed or implemented such a system. There was no evidence of segregation of duties,
such as an oversight, review, or approval process, that would have ensured that expenditures of award
funds were made only for activities and costs that were allowable under the federal award and federal
regulations and that were within the period of performance.
The Town completed five transfers totaling $224,050 to the Town Utility funds. The amounts transferred
to these Utility funds were commingled with other receipts; therefore, the expenditures that went with
the SLFRF money, if any, could not be identified. Therefore, the $224,050 could not be tested to ensure
compliance with the Activities Allowed or Unallowed, the Allowable Costs/Cost Principles, and the Period
of Performance compliance requirements.
The lack of internal controls and noncompliance were isolated to the transfers noted above.
Criteria
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 programspecific
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. . . .
INDIANA STATE BOARD OF ACCOUNTS 18
TOWN OF UPLAND
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
(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. . . ."
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). . . ."
Cause
A proper system of internal controls was not designed by management of the Town. Embedded
within a properly designed and implemented internal control system should be internal controls consisting
of policies and procedures. Policies reflect the Town's management statements of what should be done to
effect internal controls, and procedures should consist of actions that would implement these policies. Due
to the lack of internal controls, the Town was unable to differentiate expenditures made from federal and
nonfederal funds once it commingled nonfederal funds and federal grant awards.
Effect
Without the proper implementation of an effectively designed system of internal controls, the
internal control system was not effective in preventing, or detecting and correcting, material noncompliance
within the grant. The Town was unable to identify all the expenditures paid with federal funds and cannot
ensure, nor can we determine, expenditures of the grant were allowable activity, within the proper period,
and were an allowable cost.
Questioned Costs
We identified $224,050 in known questioned costs as noted above in the Condition and Context.
Recommendation
We recommended that management of the Town 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.