Finding Text
Criteria: 2 CFR section 200.305 stipulates that the entity receiving the federal funds must ensure that the time elapsing between the transfer of federal funds to the recipient and the disbursement of such funds for program purposes by the recipient is minimized. This section also stipulates that interest earned on the deposit of federal funds exceeding $500 may not be retained by the City. Condition: A draw of federal funds from loan CW2020018-L in the amount of $910,162 was received by the City on October 3, 2024, and was electronically deposited by the state agency into a separate project checking account. On October 15, 2024, the draw was transferred by staff to the City’s operating checking account. The draw was held in the City’s interest-bearing operating account for four months, until it was remitted to the vendor on February 13, 2025. Additionally, another draw of federal funds from loan CW2020018-L in the amount of $210,382 was received by the City on November 15, 2024, and was electronically deposited by the state agency into a separate project checking account. The funds remained in the project checking account but were paid to the vendor three months later on February 13, 2025. Cause: Internal controls related to the timely receipt and subsequent payment to a vendor related to a federal project were not effective. This caused a longer than usual time period between receipt of funds and payment to the vendor. Additionally, interest earned on the erroneous deposit of monies in the operating account exceeded $500 for those four months. That interest, while required to be paid to the appropriate party by law, is still held in the operating account of the City. Effect: Loan funds of $910,162 were commingled with the general operating monies of the City, and 2.46% interest was earned on said funds for four months before being remitted to the vendor. This is estimated to be $7,486 for that time period. Additionally, $1,120,544 of vendor payments were not timely processed. Recommendation: It is our recommendation that project managers and department supervisors overseeing the projects are trained in proper cash management procedures related to federal funding. Loan proceeds should remain in the segregated noninterest-bearing checking account until expenditure to vendor has been made, at which time it is appropriate to transfer the monies to the account from which the payment is made. Additionally, interest earned on the monies held in the operating account exceeding $500 should be remitted to the appropriate party. Response: The City agrees with this finding and will train their project manager and/or department supervisor on the requirements of federal programs currently underway as well as require such training before a project commences in the future.