FINDING 2022-004 Subject: Staffing for Adequate Fire and Emergency Response (SAFER) - Cash Management Federal Agency: Department of Homeland Security Federal Program: Staffing for Adequate Fire and Emergency Response (SAFER) Assistance Listings Number: 97.083 Federal Award Number and Year (or Other Identifying Number): EMW-2019-FF-00944 Compliance Requirement: Cash Management Audit Findings: Material Weakness, Modified Opinion Condition and Context The Township submits request for reimbursements to the Federal Emergency Management Agency of the Department of Homeland Security. The reimbursement method of cash management requires the Township to retain supporting documentation that shows the costs for which reimbursement was requested were paid prior to the reimbursement date. The Township was awarded a SAFER grant to increase the number of firefighters and was approved for personnel and fringe benefits costs, which includes health insurance, for nine additional firefighters. The Township is self-insured and would make payments to third-party administrators and other benefit coordinators. The Township would pay a large dollar amount at the end of each year to its selfinsurance benefit coordinators for the next year's benefit, and then additional payments throughout the year as needed for employee's medical claim coverage. These payments were made from various Township funds and the Payroll Deductions fund. Additionally, the payroll deductions for health insurance, including those for employees paid from the grant, would accumulate in the Payroll Deductions fund, and be used for payments to the benefit coordinators as needed and the payment of the next year's required funding. The amount submitted for reimbursement for health insurance benefits were based upon a calculation. The Township did not have supporting documentation for the calculation of those benefits that were claimed. In addition, the health insurance benefits claimed for reimbursement were not paid out of the SAFER Grant Fund and were not at a transaction level in the ledger. The health insurance benefit submitted for reimbursement could not be tied to a specific payment; thus, we were unable to determine the Township's compliance for the health benefit reimbursements being incurred and paid prior to the Township's request for reimbursement. 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). . . ." 2 CFR 200.302 states in part: "(a) Each state must expend and account for the Federal award in accordance with state laws and procedures for expending and accounting for the state's own funds. In addition, the state's and the other non-Federal entity's financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. See also ? 200.450. (b) The financial management system of each non-Federal entity must provide for the following (see also ?? 200.334, 200.335, 200.336, and 200.337): (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, Federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (2) Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements set forth in ?? 200.328 and 200.329. If a Federal awarding agency requires reporting on an accrual basis from a recipient that maintains its records on other than an accrual basis, the recipient must not be required to establish an accrual accounting system. This recipient may develop accrual data for its reports on the basis of an analysis of the documentation on hand. Similarly, a pass-through entity must not require a subrecipient to establish an accrual accounting system and must allow the subrecipient to develop accrual data for its reports on the basis of an analysis of the documentation on hand. (3) Records that identify adequately the source and application of funds for federallyfunded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. (4) Effective control over, and accountability for, all funds, property, and other assets. The non-Federal entity must adequately safeguard all assets and assure that they are used solely for authorized purposes. See ? 200.303. . . ." Cause A system of internal controls was not designed or implemented by management of the Township which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect management's expectation 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. As a result, health insurance benefits were requested for reimbursement without adequate supporting documentation that the amount was paid prior to the request. Noncompliance with the grant agreement and the cash management compliance requirement could result in the loss of future federal funds to the Township. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the Township establish a proper system of internal controls and develop policies and procedures to ensure expenses are paid prior to requesting reimbursement. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.