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FINDING 2022-002 Subject: Drinking Water State Revolving Fund (DWSRF) Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Environmental Protection Agency Federal Program: Capitalization Grants for Drinking Water State Revolving Funds Assistance Listings Number: 66.468 Federal Award Number and Year (or Other Identifying Number): DW211014101 Pass-Through Entity: Indiana Finance Authority Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Finding: Material Weakness Condition and Context The Town failed to properly design and implement a review of the invoices paid to one vendor during the audit period. Although one employee reviewed the invoices prior to them being sent to the Indiana Finance Authority for payment, there was no secondary review to ensure the expenditures were for an allowable activity or an allowable cost. This vendor accounted for 4 of the 17 (24 percent) claims paid from the grant funds. The lack of internal controls was isolated to the vendor noted above. 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). . . ." Cause Management had not developed a system of internal controls, which would include segregation of duties, that would have ensured compliance with the grant agreement and the Activities Allowed or Unallowed and the Allowable Costs/Cost Principles compliance requirements. Effect The failure to establish an effective internal control system placed the Town at risk of noncompliance with the grant agreement and the Activities Allowed or Unallowed and the Allowable Costs/Cost Principles compliance requirements. Questioned Costs There were no questioned costs identified. Recommendation We recommended the Town's management establish a system of internal controls, which would include segregation of duties, related to the grant agreement and the Activities Allowed or Unallowed and the Allowable Costs/Cost Principles compliance requirements. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.