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FINDING 2025-005 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Allowable Costs/Cost Principles 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): FY2022 Compliance Requirement: Allowable Costs/Cost Principles Audit Findings: Significant Deficiency, Other Matters Condition and Context Prior to receipt of the 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 within carrying out the objectives of its award. Per the Agreement, the County was responsible for the effective administration of the federal award, as well as the application of sound management practices and administration of the federal funds in a manner consistent with the program objectives and the terms and conditions of the award. INDIANA STATE BOARD OF ACCOUNTS 20 BOONE COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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 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. During the audit, it was identified that the County charged various drug court expenditures to the SLFRF award throughout the audit period. While certain drug court expenditures were used to provide government services, detailed testing determined that the SLFRF funds were applied to costs that are not allowable under state guidance governing the drug court program. These expenditures do not meet the federal eligibility or cost-allowability requirements established for the SLFRF funds, and, therefore, constitute unallowable charges to the grant. The County had a system of internal controls over the compliance requirement; however, they were not properly implemented to prevent noncompliance. 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 200.400 states in part: "The application of these cost principles is based on the fundamental premises that: (a) The non-Federal entity is responsible for the efficient and effective administration of the Federal award through the application of sound management practices. (b) The non-Federal entity assumes responsibility for administering Federal funds in a manner consistent with underlying agreements, program objectives, and the terms and conditions of the Federal award. . . ." INDIANA STATE BOARD OF ACCOUNTS 21 BOONE COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. . . ." 2 CFR 200.404 states in part: "A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost. The question of reasonableness is particularly important when the non-Federal entity is predominantly federally-funded. In determining reasonableness of a given cost, consideration must be given to: (a) Whether the cost is of a type generally recognized as ordinary and necessary for the recipient's or subrecipient's operation or the proper and efficient performance of the Federal award; . . . (d) Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the non-Federal entity, its employees, where applicable its students or membership, the public at large, and the Federal Government. (e) Whether the non-Federal entity significantly deviates from its established practices and policies regarding the incurrence of costs, which may unjustifiably increase the Federal award's cost." Indiana Code 12-23-14-6 states in part: "(a) A program may provide for eligible individuals a range of necessary intervention services, including the following: (1) Screening for eligibility and other appropriate services. (2) Clinical assessment. (3) Education. (4) Referral. (5) Service coordination and case management. (b) A program that is eligible under section 7 of this chapter may also provide a range of necessary treatment and rehabilitation services, including the following: (1) Emergency services. (2) Detoxification. (3) Counseling. (4) Rehabilitative care. INDIANA STATE BOARD OF ACCOUNTS 22 BOONE COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Cause The County improperly charged the SLFRF funds to unallowable drug court costs. This occurred because the County did not have sufficient internal controls or review procedures in place to ensure that expenditures charged to the SLFRF award met federal and state allowability requirements. The approval process did not include adequate verification of eligibility, and staff responsible for coding and approving transactions did not consistently apply federal cost principles when determining whether drug court expenditures were appropriate for the SLFRF funding. As a result, unallowable costs were charged to the grant, leading to noncompliance with federal guidance and an internal control deficiency within the County's grant management processes. Effect Due to a misunderstanding of the SLFRF requirements, the County inadvertently allocated federal grant funds to an unallowable expenditure. Questioned Costs We identified $25,837 in known questioned costs. Recommendation We recommended that management of the County 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 are taking place prior to payment of funds from the SLFRF award. We could also recommend county officials review and become familiar with the grant requirements. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.