Finding Text
2024-001 Use of Unallowable Funds to Meet Matching Requirement (Material Weakness) Federal Agency: U.S. Environmental Protection Agency Pass-through Agency: N/A Cluster/Program: Congressionally Mandated Projects Assistance Listing Number: 66.202 Passed-through Identification: N/A Compliance Requirement: Matching Type of Finding: Internal Control over Compliance – Material Weakness Material Noncompliance Criteria or Specific Requirement: Per 2 CFR 200.306, matching contributions must be (1) verifiable from the Town’s records, (2) not be paid by the Federal Government under another federal award except where authorized by statute, and (3) be allowable under the terms and conditions of the federal award. In addition, the EPA award terms and implementation guidance, it specifically states that “American Rescue Plan Act (ARPA) funds cannot be used to meet the non-federal cost share requirement.” However, the use of the Clean Water State Revolving Fund (CWSRF) funds is allowable. Condition: During testing of reimbursement requests and supporting documentation, we noted that the Town reported ARPA funds as the source for the required 20% non-federal match on certain project costs. Documentation did not show that CWSRF funds were applied to the match during those reimbursement periods. Cause: The Town used ARPA funds for the 20% non-federal match because personnel did not realize these funds were ineligible under the grant terms. Although eligible CWSRF funds were available, they were not applied or documented as the match. Effect: The Town did not comply with the EPA grant’s matching requirements. As a result, the expenditures reported as match in the amount of $262,500 were not allowable under the award terms. This creates a risk that the EPA may disallow the federal share of costs if sufficient eligible match cannot be documented. Questioned Costs: $262,500 – which represents the portion of match applied to an unallowable source. Identification as Repeat Finding: This is not a repeat finding from the prior year. Recommendation: We recommend that the Town reclassify the match to eligible CWSRF funds for all affected reimbursement requests and provide updated documentation to the EPA. In addition, the Town should strengthen internal controls to ensure that only allowable funding sources are applied toward matching requirements and implement review procedures to verify compliance before submitting reimbursement requests. Finally, staff responsible for grant administration should receive training on grant terms and allowable match sources to prevent similar errors in the future. Views of Responsible Officials: Management’s views and corrective action plan is included at the end of this report.