Finding 1239700 (2023-007)

FINDING 2023-007 Subject: Scope Limitation Compliance Requirements: Schedule of Expenditures of Federal Awards Reporting, Major Program Determination, Auditor's Report on Compliance and Internal Control over Compliance Audit Findings: Material Weakness, Modified Opinion INDIANA STATE BOARD OF ACCOUNTS 20 TOWN OF WEST TERRE HAUTE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context The Schedule of Expenditures of Federal Awards (SEFA) is required to be fairly stated in relation to the audited financial statements. However, as disclosed in the Independent Auditor's Report in the Financial Statement Audit Report of the Town, sufficient appropriate audit evidence could not be obtained to support the Town's financial statements, resulting in a disclaimer of opinion. Because the SEFA must be audited "in-relation-to" the financial statements, we were likewise unable to obtain sufficient appropriate evidence to determine whether the SEFA was fairly stated as outlined in Finding 2023-002. Due to the inability to audit the SEFA, we could not determine the Town's major federal programs in accordance with the risk-based major program selection requirements of 2 CFR 200.518. Consequently, major programs could not be identified, and thus we did not perform any compliance audit procedures under the Uniform Guidance. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control . . ." 2 CFR 200.1 states in part: ". . . Internal controls for non-Federal entities means: (1) Processes designed and implemented by non-Federal entities to provide reasonable assurance regarding the achievement of objectives in the following categories: (i) Effectiveness and efficiency of operations; (ii) Reliability of reporting for internal and external use; and . . ." 2 CFR 200.508 states in part: "The auditee must: . . . (b) Prepare appropriate financial statements, including the schedule of expenditures of Federal awards in accordance with § 200.510. . . ." 2 CFR 200.510(b) states: "Schedule of expenditures of Federal awards. The auditee must also prepare a schedule of expenditures of Federal awards for the period covered by the auditee's financial statements which must include the total Federal awards expended as determined in accordance with § 200.502. While not required, the auditee may choose to provide information requested by Federal awarding agencies and pass-through entities to make the schedule easier to use. For example, when a Federal program has multiple Federal award years, the auditee may list the amount of Federal awards expended for each Federal award year separately. At a minimum, the schedule must: INDIANA STATE BOARD OF ACCOUNTS 21 TOWN OF WEST TERRE HAUTE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (1) List individual Federal programs by Federal agency. For a cluster of programs, provide the cluster name, list individual Federal programs within the cluster of programs, and provide the applicable Federal agency name. For R&D, total Federal awards expended must be shown either by individual Federal award or by Federal agency and major subdivision within the Federal agency. For example, the National Institutes of Health is a major subdivision in the Department of Health and Human Services. (2) For Federal awards received as a subrecipient, the name of the pass-through entity and identifying number assigned by the pass-through entity must be included. (3) Provide total Federal awards expended for each individual Federal program and the Assistance Listings Number or other identifying number when the Assistance Listings information is not available. For a cluster of programs also provide the total for the cluster. (4) Include the total amount provided to subrecipients from each Federal program. (5) For loan or loan guarantee programs described in § 200.502(b), identify in the notes to the schedule the balances outstanding at the end of the audit period. This is in addition to including the total Federal awards expended for loan or loan guarantee programs in the schedule. (6) Include notes that describe that significant accounting policies used in preparing the schedule, and note whether or not the auditee elected to use the 10% de minimis cost rate as covered in § 200.414." 2 CFR 200.515(c) states in part: "A report on compliance for each major program and a report on internal control over compliance. This report must describe the scope of testing of internal control over compliance, include an opinion or disclaimer of opinion as to whether the auditee complied with Federal statutes, regulations, and the terms and conditions of Federal awards which could have a direct and material effect on each major program and refer to the separate schedule of findings and questioned costs. . . ." 2 CFR 200.518(a) states: "The auditor must use a risk-based approach to determine which Federal programs are major programs. This risk-based approach must include consideration of: current and prior audit experience, oversight by Federal agencies and pass-through entities, and the inherent risk of the Federal program. The process in paragraphs (b) through (h) of this section must be followed." 2 CFR 200.516(a)(5) states in part: "The circumstances concerning why the auditor's report on compliance for each major program is other than an unmodified opinion. . . ." Cause The disclaimer of opinion on the financial statement did not allow for sufficient appropriate audit evidence to be obtained for the support of the amounts and disclosures in the Town's financial statement. This lack of evidentiary support prevented the performance of required in-relation-to procedures on the SEFA. INDIANA STATE BOARD OF ACCOUNTS 22 TOWN OF WEST TERRE HAUTE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Effect Because the SEFA is unauditable, major programs could not be determined. Without major program identification, required compliance testing could not be performed. Accordingly, the auditor issued a disclaimer of opinion on compliance for federal awards. Questioned Costs Not applicable. No compliance testing was performed due to the scope limitation. Recommendation The Town should strengthen internal controls over financial reporting and federal award reporting to ensure all information included in the financial statement and the SEFA is complete, accurate, and supported by sufficient appropriate audit evidence. Only with auditable financial statement and an auditable SEFA can major program determination and required compliance testing be performed. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report. INDIANA STATE BOARD OF ACCOUNTS 23