SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Benton-Franklin Council of Governments January 1, 2024 through December 31, 2024 2024-001 The Council’s internal controls were inadequate for ensuring compliance with federal reporting requirements for the Economic Assistance Adjustment Program. Assistance Listing Number and Title: 11.307, COVID-19 Economic Adjustment Assistance Federal Grantor Name: U.S. Department of Commerce Economic Development Administration Federal Award/Contract Number: 07-79-07622 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: Yes, Finding 2023-002 Background The primary objective of the Economic Adjustment Assistance program is to assist communities with revitalizing and expanding their physical and economic infrastructure and support the creation and retention of jobs for area residents by helping eligible recipients promote the economic development of their local economies. To carry out the program objective, the Council distributes business loans from the money it receives from the U.S. Economic Development Administration (EDA) using a revolving loan fund (RLF). Qualified businesses in Benton and Franklin counties can apply to this program for a financial assistance business loan. In 2024, the Council reported a $1,075,399 outstanding loan balance for its Economic Adjustment Assistance program. Federal regulations require recipients to establish, document and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. The Council must submit semiannual financial reports (Form ED-209) to the EDA so it can monitor the Council’s management and use of program funds from the RLF. The EDA requires the Council to include in its reports key line items, or financial information the EDA considers critical in measuring how the Council manages program funds. Description of Condition The Council’s internal controls were ineffective to ensure the financial information it reported in the semiannual financial reports was accurate. We consider this internal control deficiency to be a significant deficiency. Cause of Condition The Council experienced staff turnover and the employee responsible for submitting the semiannual reports lacked an understanding of the EDA Portal and the report's pre-population and cumulation functions. Additionally, the Council did not follow the established process to review the reports before submitting them. Effect of Condition The ED-209 report documents the number of loans, amount loaned, and outstanding principal of both active loans, written-off loans, capital base, income used for administrative expenses, income earned, leverage dollars, and loan leverage ratio. These semiannual reports include information the EDA uses to conduct risk analysis ratings of each RLF recipient’s RLF program to assess the strengths and weaknesses of each and to identify RLFs that require additional monitoring, technical assistance or other corrective action. Failing to submit accurate and complete information to the EDA diminishes the federal government’s ability to monitor the Council’s RLF program. Our audit found the Council submitted reports with errors in the following key line items for the fiscal year. The Council reported: • Administrative expenses as percentage of income as 0% for the fiscal year. The correct percentage was 18.2% • RLF income used for administrative expenses for the fiscal year as $0. The correct amount was $2,133. • RLF income earned during the fiscal year as $12,682. The correct amount was $24,413. Recommendation We recommend the Council develop and follow internal controls to ensure compliance with federal laws and regulations. Specifically, we recommend the Council provide adequate training to staff who prepare the semiannual reports, and review financial information reported for completeness and accuracy in compliance with the program’s requirements. Council’s Response BFCOG concurs with this finding. Although significant effort was put into implementing the 2023 Corrective Action Plan related to internal controls, it was still insufficient to eliminate all potential errors associated with completing the ED209 semi-annual financial reports for the EDA CARES Revolving Loan Fund program. 1. Key staff changes in 2024 and early 2025 contributed to continued (albeit reduced) errors in the 2024 semi-annual reports. Toward the end of 2024, BFCOG hired a full-time Staff Accountant, significantly increasing the ability to provide attention to detail and report submission support going forward. 2. A detailed guide to completing ED209 was created, and staff training on the portal eliminated the past confusion related to pre-populated information and cumulative functions, which was a significant issue with the 2023 reporting. 3. Upon further review, the details in the risk assessment section of the new guide, where the missing/inconsistently reported information in 2024 occurred, needed more detail. 4. While staff followed the new secondary review process before report submission, because the guide was missing important details on those fields, the review also missed noting them as errors. 5. An error in entering the data for running one of the backup financial reports (run during a gap in accounting support) resulted in some of the information being incorrectly entered, and this data error was not noted when the report was reviewed to ensure accuracy in completing ED209. 6. Additionally, the staff member responsible for saving the backup review copies to document the internal review process did not do so, which was part of our internal control process. Auditor’s Remarks We appreciate the Council’s commitment to resolve this finding and thank the Council for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 13 CFR Part 307, Economic Adjustment Assistance Investments, Subpart B, Revolving Loan Fund Program, section 14, Revolving Loan Fund reports, describes Revolving Loan Fund reporting requirements, including certification the information provided is complete and accurate.