Finding Text
Type of finding: Federal Award.
Situation: Material weakness; Material noncompliance with federal regulations.
Federal Program: Coronavirus State and Local Fiscal Recovery Funds
Assistance Listing 21.027
Compliance Requirements: Activities allowed or unallowed / Allowable costs/Cost Principle
Prior-Year(s) Audit Finding(s): 2022-004
Questioned Costs: $164,619
Condition:
The Municipality could not provide supporting documentation for the disbursement of $164,619 of program funds. Documentation for the disbursement of $164,619 of program funds was not identified by the Municipality nor provided for our review, therefore we could not ascertain that the disbursements complied with program regulations.
Context:
The Municipality recognized as revenue $3,518,621 during the fiscal year ended on June 30, 2023. A total of $164,619 of program funds were disbursed without sufficient and appropriate documentation. The Municipality indicated that Revenue Replacement was their only project expenditure category on their annual March 2023 SLFRF Compliance Report.
Revenue loss in and of itself is not an eligible use. Instead, recipients calculate lost revenue based on the formula provided in the Interim Final Rule and Final Rule to determine the limit for funds that can be used for the provision of government services. Entities are expected to use the direct payments to meet pandemic response needs and rebuild a strong, more equitable economy as the country recovers. Interim and final regulations state that recipients may not use funds to pay interest or principal on outstanding debt, as these expenses would not address the needs of pandemic response or its negative economic impacts. Such expenses would also not be considered provision of government services, as these financing expenses do not directly provide services or aid to citizens.
The Coronavirus State and Local Fiscal Recovery Funds program is authorized by sections 602 and 603 of the Social Security Act as added by section 9901 of the American Rescue Plan Act of 2021, Pub. L. No. 117-2 (Mar. 11, 2021). Recipients may use payments from the Fund to among other things, replace lost public sector revenue to provide government services.
Criteria:
Uniform Guidance states in 2 CFR 200.403 that otherwise authorized by statue, costs must be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles, be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the non-Federal entity and be adequately documented. As per 2 CFR 200.302 the other non-Federal entity’s financial management system must provide for the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the federal statues, regulations, and the terms and conditions of the Federal Award. Further, Coronavirus Local Fiscal Recovery Fund Award terms and conditions state the following regarding the maintenance of and Access to Records:
1. Recipient shall maintain records and financial documents sufficient to evidence compliance with section 603 © of the Act, Treasury’s regulations implementing that section, and guidance issued by Treasury regarding the foregoing.
2. The Treasury Office of Inspector General and the Government Accountability Office, or their authorized representatives, shall have the right of access of records (electronic or otherwise) of Recipient in order to conduct audits or other investigations.
3. Records shall be maintained by the Recipient for a period of five (5) years after all funds have been expended or returned the Treasury, whichever is later.
Cause:
The Municipality applied inconsistent program procedures to disbursement transactions totaling $164,619.
Effect:
Coronavirus Local Fiscal Recovery Fund Award terms and conditions state the following regarding Remedial Actions: In the event of recipient’s noncompliance with section 603 of the Act, other applicable laws, Treasury’s implementing regulations, guidance, or any reporting or other program requirements, Treasury may impose additional conditions on the receipt of a subsequent tranche of future award funds, if any, or take other available remedies as set forth in 2 CFR 200.339. In case of a violation of section 603 © of the Act regarding the use of funds, previous payments shall be subject to recoupment as provided in section 603 © of the Act.
Auditor’s recommendation:
The Municipality must strengthen internal controls and procedures to ensure that disbursement of program funds is properly documented and allowed under program regulations. The Municipality must ensure that all documentation that serves as evidence for eligible expenses be preserved and maintained for at least five years.
2023-003, cont.
Views of Responsible officials and corrective actions: