FINDING 2025-003 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): FY2025 Compliance Requirement: Reporting Audit Findings: Material Weakness, Modified Opinion Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2024-003. Condition and Context Recipients of COVID-19 - Coronavirus State and Local Fiscal Recovery Funds (SLFRF) grants 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 Town was classified as a Tier 5 auditee - a metropolitan city with a population below 250,000 residents which received less than $10 million in SLFRF funding. Tier 5 auditees are required to submit an annual P&E report due in April of each year. The Town was required to file an annual P&E report by April 30, 2025. The report was to cover the period of April 1, 2024 to March 31, 2025. The Town presented this report for audit, and while internal controls were in place they were not effective to prevent, or detect and correct, errors, which resulted in the following: The Town reported $0 in current period obligations, despite entering into multiple contracts during the reporting period. Current period obligations should have been $364,521. The Town understated current period expenditures by $3,000, which is immaterial to the program. The lack of effective internal controls and noncompliance was isolated to the 2025 P&E report. INDIANA STATE BOARD OF ACCOUNTS 18 TOWN OF ZIONSVILLE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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). . . ." Compliance and Reporting Guidance, State and Local Fiscal Recovery Funds, page 13, states in part: ". . . 10. Reporting. All recipients of federal funds must complete financial, performance, and compliance reporting as required and outlined in Part 2 of this guidance. Expenditures may be reported on a cash or accrual basis, as long as the methodology is disclosed and consistently applied. Reporting must be consistent with the definition of expenditures pursuant to 2 CFR 200.1. Your organization should appropriately maintain accounting records for compiling and reporting accurate, compliant financial data, in accordance with appropriate accounting standards and principles. . . ." 31 CFR 35.4(c) states in part: "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 . . ." Cause A proper system of internal controls over the P&E reports was not designed by management of the Town. A properly designed and implemented internal control system should include internal controls consisting of documented policies and procedures. The Director of Finance and Records did not understand that contracts entered into during the reporting period should be considered current period obligations. Effect Without the proper implementation of an effectively designed system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, the Town did not accurately report current period obligation and current period expenditures when filing the P&E report for the period April 1, 2024 to March 31, 2025. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of future federal funding to the Town. INDIANA STATE BOARD OF ACCOUNTS 19 TOWN OF ZIONSVILLE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the Town design and implement a proper system of internal controls, including policies and procedures that would provide segregation of duties to ensure appropriate reviews, approvals, and oversight of federal reports are taking place. We also recommended the development of policies and procedures to ensure the Town provides the Treasury with complete and accurate information for the P&E report. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.