Finding Text
FINDING 2025-003 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Activities Allowed or Unallowed 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): 2025 Compliance Requirement: Activities Allowed or Unallowed Audit Finding: Material Weakness Repeat Finding This is a repeat finding from the prior audit report. The prior audit finding number was 2024-003. Condition and Context As part of sound management of the federal award, the City was responsible for implementing a system of internal controls that would ensure compliance with applicable requirements. The City had not properly designed or implemented such a system, which would include appropriate segregation of duties, that would likely be effective in preventing, or detecting and correcting, noncompliance. INDIANA STATE BOARD OF ACCOUNTS 19 CITY OF VINCENNES SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Prior to the receipt of direct COVID-19 - Coronavirus State and Local Fiscal Recovery Funds (SLFRF), all eligible entities were required to execute a Financial Assistance Agreement (Agreement), which included the Award Terms and Conditions that recipients must comply with in carrying out the objectives of their award. Per the Agreement, the City was responsible for the effective administration of the federal award, as well as the application of the sound management practices and administration of federal funds in a manner consistent with program objectives and terms and conditions of the award. Recipients may use the SLFRF funds for any eligible expenses subject to the restrictions set forth in sections 602 and 603 of the Social Security Act, as added by section 9901 of the American Rescue Plan Act of 2021. The SLFRF program provides substantial flexibility for each recipient to meet the local needs within four separate eligible use categories. Recipients may use the SLFRF funds to: Respond to the COVID-19 public health emergency and its negative economic impacts; Respond to workers performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers of eligible employers that have eligible workers who are performing essential work; Provide government services, to the extent COVID-19 caused a reduction in revenues collected in the most recent full fiscal year of the recipient; and Make necessary investments in water, sewer, or broadband infrastructure. The City elected to receive the standard revenue loss allowance, allowing it to claim its total SLFRF allocation of $3,821,386 as revenue loss to use for government services. The allocated funds may only be used to cover costs incurred from the period beginning on March 3, 2021, and ending on December 31, 2024. Obligations for costs incurred are required to be liquidated no later than December 31, 2026. During the audit period, the City paid claims related to health care premiums. The City did not process these payments in the same manner as other City disbursements. The payments were made via ACH transactions through the City's financial institution. An Accounts Payable Voucher (APV) or check was not prepared for these payments. As a result, the payments were not presented to the Common Council for review and approval nor were they certified by the fiscal officer. The lack of effective 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). . . ." INDIANA STATE BOARD OF ACCOUNTS 20 CITY OF VINCENNES SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Cause A proper system of internal controls over the SLFRF expenditures was not designed by management of the City to ensure the SLFRF funds were being used appropriately. The City did not process the SLFRF payments in the same manner as other payments. The City was not aware that ACH payments should be supported by an APV, approved by the Common Council, and certified by the fiscal officer. Effect The lack of an effective internal control system could enable material noncompliance to occur and remain undetected. Noncompliance with the Activities Allowed or Unallowed compliance requirement could result in the loss of future federal funding to the City. Questioned Costs There were no questioned costs identified. Recommendation We recommended the City's management establish a proper system of internal controls and develop policies and procedures to ensure that expenditures of federal awards are allowable. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.