FINDING 2024-006 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Reporting Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number and Year (or Other Identifying Number): FY2023 Compliance Requirement: Reporting Audit Findings: Material Weakness, Other Matters Condition and Context Recipients are required to submit quarterly or annual Project and Expenditure (P&E) reports to the U.S. Department of the Treasury (Treasury). The reporting periods, as well as the respective due dates, are based upon type of recipient and its population, as well as the recipient's allocation amount. Information to be reported includes projects funded, expenditures, and contracts for the appropriate reporting period. The City was classified as a metropolitan city with a population below 250,000 residents that received an allocation of more than $10 million in COVID-19 - Coronavirus State and Local Fiscal Recovery Funds. The quarterly reports were to cover one calendar quarter and must be submitted to the Treasury by the last day of the month following the end of the period covered. The City submitted all required P&E reports during the audit period. The internal controls in place were not effective and did not prevent, or detect and correct, errors in the P&E reports prior to submission. In a test of two of the four submitted reports, errors were identified as noted below: Quarter 2 report (April 1, 2024 to June 30, 2024) • The Total Cumulative Expenditures reported were understated by $2,185,409. Quarter 3 report (July 1, 2024 to September 30, 2024) • The Total Cumulative Expenditures reported were understated by $2,366,082. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: INDIANA STATE BOARD OF ACCOUNTS 26 CITY OF GARY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with 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). . . ." 2 CFR 200.328 states: "Unless otherwise approved by OMB, the Federal awarding agency must solicit only the OMBapproved governmentwide data elements for collection of financial information (at time of publication the Federal Financial Report or such future, OMB-approved, governmentwide data elements available from the OMB-designated standards lead. This information must be collected with the frequency required by the terms and conditions of the Federal award, but no less frequently than annually nor more frequently than quarterly except in unusual circumstances, for example where more frequent reporting is necessary for the effective monitoring of the Federal award or could significantly affect program outcomes, and preferably in coordination with performance reporting. The Federal awarding agency must use OMBapproved common information collections, as applicable, when providing financial and performance reporting information." 31 CFR 35.4(c) states: "Reporting and requests for other information. During the period of performance, recipients shall provide to the Secretary or her delegate, as applicable, periodic reports providing detailed accounting of the uses of funds, modifications to a State or Territory's tax revenue sources, and such other information as the Secretary or her delegate, as applicable, may require for the administration of this section. In addition to regular reporting requirements, the Secretary may request other additional information as may be necessary or appropriate, including as may be necessary to prevent evasions of the requirements of this subpart. False statements or claims made to the Secretary may result in criminal, civil, or administrative sanctions, including fines, imprisonment, civil damages and penalties, debarment from participating in Federal awards or contracts, and/or any other remedy available by law." Cause The City's management did not have effective internal controls in place to ensure proper amounts were reported prior to submission. A consultant prepared the reports based on calculations from a spreadsheet, which did not agree to the City's ledgers due to timing and reconciling differences. Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of federal funding to the City. Questioned Costs There were no questioned costs identified. INDIANA STATE BOARD OF ACCOUNTS 27 CITY OF GARY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Recommendation We recommended that management of the City strengthen its system of internal controls over the preparation and review of federal reports to ensure appropriate reviews, approvals, and oversight are effective in preventing, or detecting and correcting, noncompliance. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.