FAC Explorer

Finding 20760 (2022-004)

Significant Deficiency
Requirement
AB
Questioned Costs
-
Year
2022
Accepted
2023-01-19
Audit: 21190
Organization: Henderson County Fiscal Court (KY)
Auditor: Mike Harmon Auditor of Public Accounts

AI Summary

  • Core Issue: Henderson County transferred federal ARPA funds to the general fund without proper documentation of allowable expenditures.
  • Impacted Requirements: Lack of effective internal controls led to non-compliance with federal regulations regarding allowable costs.
  • Recommended Follow-Up: Implement internal controls to ensure accurate documentation and compliance for all federal fund expenditures.

Finding Text

Federal Program: 21.027 Covid 19-Coronavirus State and Local Fiscal Recovery Funds Award Number and Year: 2022 Name of Federal Agency: U.S. Department of the Treasury Compliance Requirements Activities Allowed or Unallowed; Allowable Costs/Cost Principles Type of Finding: Significant Deficiency Amount of Questioned Costs: $0 COVID Related: Yes The Henderson County Fiscal Court transferred federal funds from the ARPA fund to the general fund without first ensuring sufficient supporting documentation of allowable expenditures during the same period as the funds were reported as expended on the Schedule of Expenditures of Federal Awards (SEFA). The county was awarded $8,781,513 in American Rescue Plan Act (ARPA) funds, receiving the first payment of $4,390,756 into the ARPA fund in June 2021 and a second payment of $4,390,757 in June 2022. In September 2021, the county transferred $1,490,494 from the ARPA fund into the general fund for ?lost revenue?. At the time of the transfer, and until auditors inquired about the supporting documentation, the county did not maintain a list of expenditures that reconciled to the transfer total. After this inquiry, the county gathered documentation and provided auditors a reconciliation of expenditures of eligible costs that supported the amount transferred into the general fund. An effective internal control system was not in place in Henderson County to ensure compliance with requirements related to the administration of ARPA funds and the Allowable Costs/Cost Principles compliance requirements. Failure to establish and maintain effective internal controls over compliance with federal program requirements could subject the county to the risk of reporting ineligible expenditures on the SEFA and using grant funds for unallowable purposes. 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.? We recommend the county establish and maintain internal controls over compliance for all federal program expenditures to ensure accurate use and reporting of federal awards, including maintaining sufficient supporting documentation of expenditures that reconciles to any transfer from a federal program fund into other county funds.

Corrective Action Plan

Prepared by: Brad Schneider, County Judge Executive Date Prepared: 12/5/2022 Person Responsible for Corrective Action Plan: Judge Executive and Staff Anticipated Completion Date: In process, once the October 6, 2022 guidance was provided by the State Auditor's office. Official's Response: We disagree with the audit assessment that the county did not have an "effective internal control system" for compliance with Coronavirus State and Local Fiscal Recovery Fund Requirements. Faced with the unique situation surrounding these funds, the lack of any formal guidance from the State Auditor's Office on expending the funds before they arrived, and the often confusing and contradictory guidance provided by various state organizations and consultants, we believe Henderson County attempted to correctly and conscientiously handle these monies with the best information we had at the time. We found it interesting that shortly after the initial word from our auditors that we did not administer the funds properly, the State Auditor's Office then issued guidelines for counties. In our exit interview we were told the negative finding language covering our use of these funds would likely appear as findings in the audits of dozens of other counties who also made unwitting mistakes. We believe the after-the-fact guidelines and nearly universal adverse findings for counties indicate that it wasn't local officials who failed to do the proper thing but were, in fact, evidence the State Auditor's Office that failed to do its job. Simply put, if we'd been told in advance by state auditors specifically how they wanted these federal funds accounted for, we'd have done that. Minus that information, were left to figure it all out on our own as best we could. We respectfully believe our efforts should not be described as failures or non-compliance.

Categories

Allowable Costs / Cost Principles Reporting

Other Findings in this Audit

  • 597202 2022-004
    Significant Deficiency

Programs in Audit

ALN Program Name Expenditures
21.027 Covid-19 - Coronavirus State and Local Fiscal Recovery Funds $2.29M
90.204 States' Economic Development Assistance Program $306,500
97.036 Disaster Grants - Public Assistance (presidentially Declared Disasters) $97,882
93.563 Child Support Enforcement $77,303
16.575 Crime Victim Assistance $43,419
97.042 Emergency Management Performance Grants $24,892
14.228 Community Development Block Grants/state's Program $1,000