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FINDING 2025-001 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): FY 2025 Compliance Requirement: Reporting Audit Findings: Material Weakness, Other Matters Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2024-003. Condition and Context As part of sound management of the federal award, the County was responsible for implementing a system of internal controls that would ensure compliance with the applicable requirements. The County had not properly designed or implemented such a system that would likely be effective in preventing, or detecting and correcting, noncompliance with the reporting requirements of the federal award. The County was required to submit an annual Project and Expenditure (P&E) report to the U.S. Department of the Treasury (Treasury), which included information on the County's current period expenditures and obligations and total cumulative expenditures and obligations. The County had designed an internal control that the County Auditor's Bookkeeper prepared the P&E report based on reports generated from the County's financial software. The County Auditor's Bookkeeper then submitted the P&E report to the County Auditor for review and approval. However, the internal control was not effective as the review of the P&E report did not prevent, nor detect and correct, noncompliance. As a result, the P&E report submitted in April 2025 was not accurate as the County reported total cumulative amounts for both current year expenditures/obligations and total cumulative expenditures/obligations for the County's five projects, which resulted in current year expenditures/obligations being overstated by the same amount by project as follows: Amount Project Overstated Project 1: YR2022 $ 470,000 Project 2: YR2023 177,808 Project 3: Health Dept Renovation/Furnishings 289,000 Project 4: YR 2023-2024 3,658,115 Project 5: YR 2024-2025 815,846 These variances were discussed with County management, who stated they were already aware that the numbers submitted through the federal portal did not match its local financial records. The lack of internal controls and noncompliance were systemic issues throughout the audit period. INDIANA STATE BOARD OF ACCOUNTS 14 KNOX COUNTY 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 periodic reports providing detailed accounting of the uses of funds, . . ." Cause The County Auditor's Bookkeeper stated that County officials understood that current expenditures and current obligations should agree to the cumulative expenditures and cumulative obligations, which resulted in reporting errors. Effect Without a proper system of internal controls in place that operated effectively, the County did not file an accurate annual P&E report as required under the federal award. As a result, noncompliance occurred and remained undetected. 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 County. Questioned Costs There were no questioned costs identified. INDIANA STATE BOARD OF ACCOUNTS 15 KNOX COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Recommendation We recommended that the management of the County establish a system of internal controls and develop policies and procedures over the preparation and review of federal reports to ensure appropriate reviews, approval, and oversight take place. Additionally, management should develop policies and procedures to ensure that the County provides the Treasury with complete and accurate information for all reports. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.