FINDING 2022-004 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): FY 2022 Compliance Requirement: Reporting Audit Findings: Material Weakness, Modified Opinion Condition and Context The County had not properly designed or implemented a system of internal controls, which would include appropriate segregation of duties that would likely be effective in preventing, or detecting and correcting, noncompliance. A single employee prepared and submitted reports without a review or oversight process in place to prevent or detect and correct errors. Recipients are required to submit quarterly or annual 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 the type of recipient and its population, as well as the 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 metropolitan county with a population below 250,000 residents that received an allocation of more than $10 million in State and Local Fiscal Recovery Funds. 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 are 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 three P&E reports during the audit period as no expenditures existed for the period of October 1, 2021 to December 31, 2021, and, therefore, the County did not submit a report for that period. For the three reports submitted, all activity for the reporting period was not included, information submitted was not supported by the County's records, and the reports were not fairly presented. Errors identified included the following: Quarter 1 report (January 1, 2022 to March 31, 2022) 1. Total Cumulative Obligations and Total Cumulative Expenditures were overstated by $500,000. 2. Current Period Obligations and Current Period Expenditures were understated by $1,850,000. Quarter 2 report (April 1, 2022 to June 30, 2022) 1. Total Cumulative Obligations and Total Cumulative Expenditures were understated by $144. 2. Current Period Obligations and Current Period Expenditures were overstated by $1,849,856. Quarter 3 report (July 1, 2022 to September 30, 2022) 1. Total Cumulative Obligations and Total Cumulative Expenditures were understated by $316,080. 2. Current Period Obligations and Current Period Expenditures were overstated by $2,159,064. The lack of 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, page 10, states in part: ". . . 10. 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, compliant 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 the P&E reports was not designed by management of the County. 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, 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 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.