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FINDING 2025-002 Subject: Economic Development Cluster - Reporting Federal Agency: Department of Commerce Federal Program: Economic Adjustment Assistance Assistance Listings Number: 11.307 Federal Award Number and Year (or Other Identifying Number): 06-36-02088 Compliance Requirement: Reporting Audit Findings: Material Weakness, Modified Opinion Condition and Context An effective internal control system was not in place at the City to ensure compliance with requirements related to the grant agreement and the Reporting compliance requirement. The City did not have internal controls in place to ensure that the required reports were submitted and/or retained for audit. The City submitted the Form ED-209 RLF Financial Report as of June 30, 2024, late during the audit period. The City was unable to provide that report for audit. Additionally, per the City's "Notice of Material Noncompliance and Suspension" from the U.S. Department of Commerce, the Economic Department Administration (EDA) had not received the semiannual financial reports for the periods ending December 31, 2024, June 30, 2025, and December 31, 2025. The City was unable to provide the reports for audit. The same Notice of Material Noncompliance and Suspension states, "EDA is authorized under 2 CFR § 200.339 to suspend and terminate the Award in response to Richmond's failure to submit semi-annual reports on time. Accordingly, this correspondence provides formal notice that the Award is suspended from the date of this letter until further written notice from the EDA. During the period of suspension, no additional costs should be incurred except the servicing of outstanding RLF loans." This Notice of Material Noncompliance and Suspension is dated February of 2026, and the suspension will not take effect until that date in terms of not being able to disburse any funds. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: INDIANA STATE BOARD OF ACCOUNTS 16 CITY OF RICHMOND SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (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). . . ." 13 CFR 307.13(b) states: "Administrative records. RLF Recipients must at all times: (1) Maintain adequate accounting records and source documentation to substantiate the amount and percent of RLF Income expended for eligible RLF administrative costs. (2) Retain records of administrative expenses incurred for activities and equipment relating to the operation of the RLF for three years from the actual submission date of the report that covers the fiscal year in which such costs were claimed. (3) Consistent with § 307.11(a), for the duration of RLF operations, maintain records to demonstrate: (i) The adequacy of the RLF's accounting system to identify, safeguard, and account for the entire RLF Capital Base, outstanding RLF loans, and other RLF operations; (ii) That standard RLF loan documents reasonably necessary or advisable for lending are in place; and (iii) Evidence of fidelity bond coverage for persons authorized to handle funds under the Grant award in an amount sufficient to protect the interests of EDA and the RLF. (4) Make available for inspection retained records, including those retained for longer than the required period. The record retention periods described in this section are minimum periods and such prescription does not limit any other record retention requirement of law or agreement. In no event will EDA question claimed administrative costs that are more than three years old, unless fraud is at issue." 13 CFR 307.14 states: "(a) Frequency of reports. All RLF Recipients, including those receiving Recapitalization Grants for existing RLFs, must complete and submit an RLF report, using Form ED-209, in a format and at a frequency as required by EDA. (b) Report contents. RLF Recipients must certify as part of the RLF report to EDA that the RLF is operating in accordance with the applicable RLF Plan and that the information provided is complete and accurate." Cause Management had not established a system of internal controls that would have ensured compliance or that the appropriate reports were submitted and/or retained for audit related to the grant agreement and the Reporting compliance requirement. INDIANA STATE BOARD OF ACCOUNTS 17 CITY OF RICHMOND SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Effect The failure to retain or provide appropriate reports prevented the determination of the City's compliance with the grant agreement and the Reporting compliance requirement. Should the award be terminated for cause, a federal debt would be created, and the EDA would pursue, at a minimum, the federal share of the remaining RLF Capital Base plus interest. A Termination for Cause could impair the City's future applications for federal assistance from any federal agency. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the City's Management establish internal controls and ensure that the reports are submitted timely and will be maintained and made available for audit related to the grant agreement and the Reporting compliance requirement. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.