Finding Text
Assistance Listing, Federal Agency, and Program Name - ALN 66.443, Environmental Protection Agency, Reducing Lead in Drinking Water (SDWA 1459B) Federal Award Identification Number and Year - 00E03346, 2023 Pass through Entity - N/A Finding Type - Material weakness and material noncompliance with laws and regulations Repeat Finding - No Criteria - Per 2 CFR 200.303, the recipient must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the 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). The agreement provides assistance to DWSD in developing and implementing projects aimed at reducing lead exposure in drinking water by replacing lead service lines and removing potential sources of lead in schools and childcare facilities. The planned activities included the replacement of approximately 400 lead service lines located within Detroit’s disadvantaged opportunity zones. Condition - The project description in the grant award specified that activities would be performed within disadvantaged opportunity zones. However, during the period of performance, DWSD incurred $4.1 million in expenditures related to lead service line replacements that were performed outside of those designated zones. At the time the costs were incurred, DWSD did not have controls in place to ensure that project activities continued to align with the geographic requirements of the award or to promptly notify the granting agency when activities could not be performed as originally planned. Questioned Costs - None If questioned costs are not determinable, description of why known questioned costs were undetermined or otherwise could not be reported - N/A Identification of How Questioned Costs Were Computed - N/A - Refer to Context for additional information Context - None of the $4.1 million in grant expenditures were incurred within a disadvantaged opportunity zone. Subsequent to year-end, DWSD requested and obtained a no cost amendment to the award. Per the amendment dated March 11, 2026, the project description was revised to change the language from “replacement of about 400 lead service lines in Detroit’s disadvantaged opportunity zones” to “replacement of about 400 lead service lines in Detroit’s vulnerable zones.” Based on audit procedures performed on a sample of costs charged to the grant, DWSD provided support demonstrating that the expenditures were related to the replacement of lead service lines located within vulnerable zones in Detroit. As a result of the approved amendment, the costs were deemed allowable, and no questioned costs are reported. Cause and Effect - The project description included in the original grant award did not accurately reflect the geographic areas in which DWSD incurred expenditures. As a result, controls were not in place to ensure that the project scope, as defined in the award documents, was aligned with the locations where costs were incurred. As a result, $4.1 million in expenditures were incurred outside of the disadvantaged opportunity zones specified in the original award. Absent an approved amendment, these costs may not have been allowable under the terms and conditions of the grant. However, subsequent to year-end, DWSD obtained an approved no cost amendment revising the project description, and the expenditures were ultimately deemed allowable. Accordingly, no questioned costs are reported. Recommendation - We recommend that DWSD strengthen internal controls over grant compliance to ensure adherence to Uniform Guidance and award-specific requirements, including those related to allowable activities and geographic limitations. Specifically, DWSD should enhance procedures to ensure staff responsible for grant administration are adequately trained on Uniform Guidance requirements and understand the need to promptly identify and communicate instances in which project activities cannot be performed in the geographic locations specified in the award. In such circumstances, DWSD should establish controls to ensure timely notification to the granting agency and obtain appropriate approvals or amendments prior to incurring related expenditures. Views of Responsible Officials and Planned Corrective Actions - During the audit period, the organization did not implement formal eligibility verification procedures to confirm that projects met the geographic eligibility requirements prior to charging expenditures to the award. While project eligibility was discussed at a program level, there was no documented control requiring verification and approval of disadvantaged opportunity zone status before costs were incurred or recorded. DWSD has since implemented geographical verification controls that incorporate grant standards, aligned checklists and policy updates. Pre-expenditure approval process will be strengthened including training.