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FINDING 2025-003 Subject: Community Development Block Grants/State's program and Non-Entitlement Grants in Hawaii - Internal Controls Federal Agency: Department of Housing and Urban Development Federal Program: Community Development Block Grants/State's program and Non-Entitlement Grants in Hawaii Assistance Listings Number: 14.228 Federal Award Number and Year (or Other Identifying Number): SI-22-109 Pass-Through Entity: Indiana Office of Community and Rural Affairs Compliance Requirement: Reporting Audit Finding: Material Weakness Condition and Context The City was awarded Community Development Block Grant funds to support a large infrastructure project. To assist with project oversight and grant compliance, the City contracted with a consultant. The grant agreement between the City and the awarding agency required the City to submit written progress reports on a semi-annual basis. These reports were to provide detailed information regarding the project's progress and performance. Although the consultant prepared and submitted the semi‑annual progress reports on behalf of the City, the City did not have a properly designed system of internal controls to ensure the reports were reviewed and approved by a City employee or official prior to submission. As a result, required reports were submitted without documented City oversight or authorization. The City remained responsible under the grant agreement for ensuring the accuracy, completeness, and timely submission of all required written progress reports. The lack of internal controls was a systemic issue throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (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). . . ." Cause The City did not design or implement internal controls over the semi-annual progress reports because it relied on the consultant to perform the reporting and compliance functions. City staff believed that hiring the consultant satisfied the City's responsibilities over the reports. INDIANA STATE BOARD OF ACCOUNTS 18 CITY OF HUNTINGTON SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Effect Because the City did not design or implement internal controls over the semi-annual progress reports, there was increased risk of noncompliance with the reporting requirement, including the potential for inaccurate information to be submitted or reports to be filed untimely. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the City design and implement internal controls to ensure all required reports are reviewed and approved by a designated City employee or official prior to submission. These controls should clearly define staff responsibilities, include documented review and approval procedures, and ensure that the City maintains appropriate oversight even when using a consultant to assist with grant administration. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.