Finding Text
2024-001 – Internal Controls Over Service Agencies
Federal Agency: Department of Housing and Urban Development
Program Name: Community Development Block Grant
Assistance Listing Number: ALN 14.228
Pass-through Entity: Michigan Economic Development Corporation
Grant Number: MSC 222028-ESB
Criteria: Per 2 CFR 200.303, the recipient must establish, document, and maintain effective internal control over the federal award that provides reasonable assurance that the recipient or subrecipient is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should align with the 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).
Condition: The City contracted with a service agency for administration of the grant. Processes and procedures were in place related to the review of the reimbursement requests prior to submission. However, as it relates to other reporting requirements, there was no formalized review process prior to submission.
Cause: The project is related to the demolition and clearance of the former hospital location. The City is the grantee, but Northern Michigan University Foundation is the property owner. The City reimbursed the property owner for allowable costs in accordance with the grant agreement.
In order to assist with grant administration, the service agency received information not only from the City, but also the property owner related to the project. The overall project consisted of multiple phases; however, only portions of Phase I were covered by the grant agreement. When preparing one of the semi-annual CDBG Progress Reports, the service agency erroneously included amounts that were not related to the grant.
Effect: One of the semi-annual CDBG Progress Reports submitted to the Michigan Economic Development Corporation was erroneous.
Questioned Costs: None.
Identification of How Questioned Costs were Computed: N/A
Perspective: When informed of the error, the service agency immediately reached out to the Michigan Economic Development Corporation (MEDC), the pass-through entity, for guidance on how to proceed with correcting the error. Prior to re-submitting a revised CDBG Progress Report, the service agency forwarded the report to a responsible official at the City for review.
Review of the MEDC’s Single Audit Certification report did not result in any errors detected.
Furthermore, review of the reimbursement requests did not reveal any errors which would have resulted in the City over or under-receiving federal reimbursements.
Repeat Finding: No.
Recommendation: Procedures should be put into place that when a service agency is utilized for administering a federal grant(s) that all reports are reviewed by a responsible City official prior to submission to the federal agency. This includes, but is not limited to, reimbursement requests, intermittent reporting, and any other required reports.
Views of Responsible Officials: Management agrees with the finding.