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FINDING 2025-004 Subject: Federal Transit Cluster - Period of Performance Federal Agency: Department of Transportation Federal Program: Federal Transit Formula Grants Assistance Listings Number: 20.507 Federal Award Numbers and Years (or Other Identifying Numbers): IN-2025-010-01, IN-2025-010-02 Compliance Requirement: Period of Performance Audit Findings: Material Weakness, Other Matters Condition and Context An effective internal control system was not in place at the City in order to ensure compliance with requirements related to the grant agreement and the Period of Performance compliance requirement. The City submitted four claims to a grant with an invoice dated before the grant started. These invoices were dated in 2024, but the grant did not begin until January 1, 2025. The lack of internal controls and noncompliance were systematic issues throughout the audit period. INDIANA STATE BOARD OF ACCOUNTS 19 CITY OF TERRE HAUTE 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). . . ." 2 CFR 200.343 states: "Costs to the recipient or subrecipient resulting from financial obligations incurred by the recipient or subrecipient during a suspension or after the termination of a Federal award are not allowable unless the Federal agency or pass-through entity expressly authorizes them in the notice of suspension or termination or subsequently. However, costs during suspension or after termination are allowable if: (a) The costs result from financial obligations which were properly incurred by the non- Federal entity before the effective date of suspension or termination, and not in anticipation of it; and (b) The costs would be allowable if the Federal award was not suspended or expired normally at the end of the period of performance in which the termination takes effect." Cause Management had not developed a system of internal controls that would have ensured compliance with the grant agreement and the Period of Performance compliance requirement. The Director of Transit did not look at invoice dates to ensure costs were incurred during the grant period, nor did they get approval from the federal awarding agency to pay outside of the grant period. Effect The failure to establish an effective internal control system enabled noncompliance to go undetected. Noncompliance with the grant agreement and the compliance requirement could have resulted in the loss of funds to the City. Questioned Costs Questioned costs totaling $12,208 were identified. Recommendation We recommended that management of the City establish a system of internal controls and develop policies and procedures to ensure the Federal Transit Cluster funds are used appropriately. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.