Finding 371596 (2023-002)

Federal Program: 21.027 Coronavirus State and Local Fiscal Recovery Funds Award Number and Year: 2023 Name of Federal Agency: U.S. Department of the Treasury Compliance Requirements Allowable Costs/Cost Principles Type of Finding: Material Weakness Amount of Questioned Costs: $0 COVID Related: Yes This is a repeat finding and was included in the prior year report as finding 2022-004. The Henderson County Fiscal Court transferred federal funds from the ARPA Fund to the Road Fund without first ensuring sufficient supporting documentation of allowable expenditures prior to the transfer. 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 August 2022, the county transferred $1,589,900 from the ARPA Fund into the Road Fund for “lost revenue”. At the time of the transfer, the county did not maintain a list of expenditures that reconciled to the transfer total. After the disbursements were expended, the county gathered documentation and provided auditors a reconciliation of expenditures of eligible costs that supported the amount transferred into the road 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 controls 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 at the time of the transfer.