Finding 1153517 (2024-004)

2024-004 Improve Internal Controls Over the Preparation of the Schedule of Expenditures of Federal Awards (SEFA) Federal Program(s) Information Federal Agency: Department of Transportation Award Name: National Infrastructure Investments Assistance Listing Number: 20.933 Award Year: 2024 Federal Agency: Environmental Protection Agency Award Name: Clean Water State Revolving Fund Assistance Listing Number: 66.458 Award Year: 2024 Federal Agency: Department of Housing and Urban Development Award Name: Lead Hazard Reduction Demonstration Grant Assistance Listing Number: 14.905 Award Year: 2024 Type of Finding Compliance Internal Control Over Compliance – Material Weakness SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS (CONTINUED) Criteria or Specific Requirement Per 2 CFR 200.510(b), auditees must prepare a complete and accurate Schedule of Expenditures of Federal Awards (SEFA) for the period covered by the auditee’s financial statements. The SEFA must accurately and completely report federal awards expended during the period, regardless of when reimbursements are received. The SEFA should reflect federal expenditures as incurred in accordance with program requirements and generally accepted accounting principles. Condition and Context While preparing its draft SEFA, the City did not include $1,183,881 in federal expenditures under the National Infrastructure Investment grant. In addition, expenditures reported under the Clean Water State Revolving Fund grant were understated by $30,921 and expenditures reported under the Lead Hazard Reduction Demonstration Grant Program were overstated by $391,414. As a result, an adjustment was required in order for the SEFA to be complete and accurate. Cause The City did not have adequate controls in place in order to ensure the complete and accurate preparation of the SEFA, including reconciling federal expenditures reported in the general ledger with the information included on the SEFA. Certain programs within the City reported expenditures on the SEFA based on when federal reimbursements were received, rather than when expenditures were incurred. Expenditures under the Lead Hazard Reduction Demonstration Grant initially included CDBG funds and the match that was not to be reported under the program on the SEFA. The misapplication of the reporting basis led to misstatement and omission of federal expenditures. Effect or Potential Effect Incomplete and inaccurate SEFA reporting increases the risk that federal agencies and oversight bodies receive misleading financial information. It may also result in improper determination of major programs for audit testing and affect audit risk assessments. Reporting federal expenditures by reimbursement rather than when incurred is not compliant with federal requirements and generally accepted accounting principles. No questioned costs are reported as the finding relates to completeness and accuracy of reporting, not the allowability of costs. Recommendation The City should strengthen its procedures and controls for preparing the SEFA to ensure all federal awards expended during the period are included and accurately reported based on expenditures incurred, not reimbursements received. The City should ensure that adequate procedures and controls are in place to ensure that the SEFA is complete and accurate. These controls should include controls requiring the reconciliation of federal expenditures to the appropriate supporting documentation (e.g., general ledger, grant reports, etc.). SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS (CONTINUED) Views of Responsible Official Management’s corrective action plan is included at the end of this report after the Schedule of Prior Year Findings.