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FINDING 2022-004Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - ReportingFederal Agency: Department of the TreasuryFederal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery FundsAssistance Listings Number: 21.027Federal Award Number and Year (or Other Identifying Number): FY 2021Compliance Requirement: ReportingAudit Finding: Material WeaknessCondition and ContextThe City had not properly designed or implemented a system of internal controls, which wouldinclude appropriate segregation of duties that would likely be effective in preventing, or detecting andcorrecting, noncompliance. Recipients are required to submit quarterly or annually Project and Expenditure(P&E) reports to the U.S. Department of the Treasury (Treasury). The reporting periods, as well as therespective due dates are based upon type of recipient and its population, as well as the recipient's allocationamount. Information to be reported includes projects funded, expenditures, and contracts for the appropriatereporting period.The City was classified as a metropolitan city with a population below 250,000 residents thatreceived an allocation of less than $10 million in State and Local Fiscal Recovery Funds. As such, theinitial P&E report, covering the period from March 3, 2021 to March 31, 2022, was required to be submittedto the Treasury by April 30, 2022. The subsequent annual reports are to cover one calendar year and mustbe submitted to the Treasury by April 30 each year.The City submitted one P&E report during the audit period; however, the Clerk-Treasurer preparedand submitted the P&E report without a review or oversight process in place to prevent or detect and correcterrors.The lack of internal controls was a systemic issue throughout the audit period.Criteria2 CFR 200.303 states in part:"The non-Federal entity must:(a) Establish and maintain effective internal control over the Federal award that providesreasonable assurance that the non-Federal entity is managing the Federal award incompliance with Federal statutes, regulations, and the terms and conditions of the Federalaward. These internal controls should be in compliance with guidance in 'Standards forInternal Control in the Federal Government' issued by the Comptroller General of theUnited States or the 'Internal Control Integrated Framework', issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO). . . ."CauseA proper system of internal controls over the P&E report was not designed by management of theCity, which would include segregation of key functions to ensure the City provided the Treasury with completeand accurate information related to the SLFRF awards. Embedded within a properly designed andimplemented internal control system should be internal controls consisting of policies and procedures.Policies reflect the City's management statements of what should be done to effect internal controls, andprocedures should consist of actions that would implement these policies.EffectWithout the proper implementation of an effectively designed system of internal controls, includingpolicies and procedures that provide segregation of duties and additional oversight as needed, the internalcontrol system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance.Questioned CostsThere were no questioned costs identified.RecommendationWe recommended that management of the City design and implement a proper system of internalcontrols that would provide a segregation of duties for the preparation and review of federal reports toensure appropriate reviews, approvals, and oversight are taking place.Views of Responsible OfficialsFor the views of responsible officials, refer to the Corrective Action Plan that is part of this report.