FINDING 2022-005 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): FY2021 Compliance Requirement: Reporting Audit Findings: Material Weakness, Other Matters Condition and Context The County had not properly designed a system of internal controls that would be effective in preventing, or detecting and correcting, noncompliance. Recipients are required to submit quarterly or annually Project and Expenditure (P&E) reports to the U.S. Department of the Treasury (Treasury). The reporting periods, as well as the respective due dates, are based upon type of recipient and its population, as well as recipient's allocation amount. Information to be reported includes projects funded, expenditures, and contracts for the appropriate reporting period. The County was classified as a Tier 2 (Metropolitan cities and counties with a population below 250,000 residents which received more than $10 million in Coronavirus State and Local Fiscal Recovery Funds (SLFRF)) recipient. As such, the initial P&E report, covering three calendar quarters from March 3, 2021 to December 31, 2021, was required to be submitted to the Treasury by January 31, 2022. The subsequent quarterly reports were to cover one calendar quarter and must be submitted to the Treasury by the last day of the month following the end of the period covered. The County submitted four P&E reports during the audit period; however, the errors as identified below were noted on all four reports. Quarterly Report: March 3, 2021 to December 31, 2021 Current period expenditures were reported as $0 for all 44 projects identified in the report. However, 3 projects had current year expenditures. Quarterly Report: January 1, 2022 to March 31, 2022 Current period expenditures were reported as $0 for all 22 projects identified in the report. However, 5 projects had current year expenditures. In addition, 1 project reported total cumulative expenditures when in fact no expenditures had yet occurred. Quarterly Report: April 1, 2022 to June 30, 2022 Current period expenditures were reported as $0 for 20 of 22 projects identified in the report. However, 1 project, had current year expenditures. In addition, 1 project reported total cumulative expenditures when in fact no expenditures had yet occurred. Quarterly Report: July 1, 2022 to September 30, 2022 Current period expenditures were reported as $0 for 5 projects identified in the report. However, the 5 projects had current period expenditures. In addition, 5 projects identified in the report reported current period expenditures when in fact no expenditures had occurred in the reporting period. Finally total cumulative expenditures for 1 project could not be traced to the County's ledger. The lack of effective internal controls and noncompliance were systemic issues throughout the audit period. 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). . . ." Coronavirus State and Local Fiscal Recovery Funds Compliance and Reporting Guidance, states in part: "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, compliance 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 A proper system of internal controls over P&E reports was not implemented by the management of the County to ensure that complete and accurate information related to the SLFRF awards was provided to the Treasury. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the County's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper implementation of an effectively designed system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. 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. In addition, not meeting the SLFRF reporting requirements increases the likelihood that the public will not have access to transparent and accurate information regarding expenditures of federal awards. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the County design and implement a proper system of internal controls that would provide a segregation of duties for the preparation and review of federal reports to ensure appropriate reviews, approvals and oversight are taking place. Additionally, management should develop policies and procedures to ensure that the County provides the Treasury with complete and accurate information for the P&E report. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.