Finding 43456 (2022-004)

Material Weakness
Requirement
ABH
Questioned Costs
-
Year
2022
Accepted
2023-08-13
Audit: 40098
Organization: Putnam County (IN)

AI Summary

  • Core Issue: The County lacks a proper system of internal controls, leading to potential noncompliance with federal regulations regarding SLFRF expenditures.
  • Impacted Requirements: The absence of segregation of duties and oversight in payroll approvals and adjustments violates compliance standards outlined in 2 CFR 200.303.
  • Recommended Follow-Up: Management should establish a robust internal control system with clear policies and procedures for payroll and adjustments, ensuring proper reviews and approvals are conducted.

Finding Text

FINDING 2022-004 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Period of Performance 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): FY2022 Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/ Cost Principles, Period of Performance Audit Finding: Material Weakness 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, material noncompliance related to expenditures made from State and Local Fiscal Recovery Funds (SLFRF). Prior to receipt of SLFRF award funds, all eligible entities were required to execute a Financial Assistance Agreement (Agreement), which included the Award Terms and Conditions that recipients must comply with in carrying out the objectives of their award. Per the Agreement, the County was responsible for the effective administration of the federal award, as well as the application of sound management practices and administration of the federal funds in a manner consistent with the program objectives and the terms and conditions of the award. Recipients may use SLFRF funds for any eligible expenses subject to the restrictions set forth in sections 602 and 603 of the Social Security Act as added by section 9901 of the American Rescue Plan Act of 2021. The SLFRF program provides substantial flexibility for each recipient to meet local needs within four separate eligible use categories. Recipients may use SLFRF funds to: 1. Respond to the COVID-19 public health emergency and its negative economic impacts. 2. Respond to workers performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers of eligible employers that have eligible workers who are performing essential work. 3. Provide government services, to the extent COVID-19 caused a reduction in revenues collected in the most recent full fiscal year of the recipient. 4. Make necessary investments in water, sewer ,or broadband infrastructure. Pursuant to the Agreement, the period of performance for the award began on the date the funds were disbursed to the County and ends on December 31, 2026. Recipients may only use funds to cover costs incurred during the period that began on March 3, 2021, and ends on December 31, 2024. Recipients must liquidate all obligations incurred by December 31, 2024, under the award no later than December 31, 2026, which is the end of the period of performance. As part of the County's policies and procedures to ensure an expense is for an allowable activity, allowable cost, and within the period of performance, the appropriate department head is to review and approve payroll for their direct reports. There were 8 of 26 payroll vouchers tested for premium pay that were not reviewed and approved by the appropriate department head as required by the County's policies and procedures. In addition, four adjustments were made during the audit period. For all four adjustments tested, a single employee prepared the adjustment transaction without a documented oversight, review, or approval process to ensure the adjustment was for an allowable activity, allowable cost, and within the period of performance. The lack of internal controls was a systemic issue 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). . . ." Cause A proper system of internal controls over the SLFRF expenditures was not designed by management of the County, which would include segregation of key functions to ensure SLFRF funds were being used appropriately. 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, including policies and procedures that provide segregation of duties and additional oversight as needed, 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. 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 provide segregation of duties for the preparation and review of the payroll expenditures of the SLFRF awards prior to payment and the preparation and review of adjustments. Additionally, policies and procedures should be implemented to ensure appropriate reviews, approvals, and oversight are taking place. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

Corrective Action Plan

FINDING 2022-004 Contact Person Responsible for Corrective Action: Auditor Kristina Berish Contact Phone Number: 765-653-5513 Views of Responsible Officials: Concur with audit finding. Description of Corrective Action Plan: Payroll vouchers, there were 8 vouchers of 26 tested that did not have the department head signatures on them. It was the premium pay vouchers. The payroll deputy had been instructed after the 2021 audit to make sure all timesheets and payroll vouchers were signed. Corrective action is that this deputy is no longer employed. We now have a Payroll Deputy and a Human Resources Deputy who after each payroll look at all the timesheets and payroll vouchers to make sure they are signed. They both must sign off on it verifying they were reviewed for compliance. The following was an internal control issue pertaining to the period of performance requirement. The premium pay was not set up as a separate pay record for all the employees eligible to receive it. It was done as an adjustment to add the pay along with their regular paycheck. Felt it was an unnecessary amount of time to set up a separate pay record for one check. However, in doing it this way there was not a way to separate the matching taxes and PERF for the premium pay so there was an adjustment made after the payroll so it would be paid from the ARPA funds. There is a report that was ran and printed. It was shown to the audit team showing how the adjustments amount were generated in the payroll program. Chief Deputy Auditor went into our financial program to make the adjustments. We were unaware that since this is Federal monies, we needed to have something besides a verbal discussion on how to make the adjustments and the corresponding report. Corrective Action is in the future if any such adjustments need to be made there will be a verbal understanding of what needs to be done, reports, and something in writing between two employees in the Auditor?s Office stating who, what and why adjustments are being made. And someone signed off that they reviewed the adjustments after they were made. Anticipated Completion Date: March 1, 2024

Categories

Internal Control / Segregation of Duties Allowable Costs / Cost Principles Material Weakness Period of Performance Matching / Level of Effort / Earmarking

Other Findings in this Audit

  • 43457 2022-005
    Material Weakness
  • 43458 2022-006
    Material Weakness
  • 619898 2022-004
    Material Weakness
  • 619899 2022-005
    Material Weakness
  • 619900 2022-006
    Material Weakness

Programs in Audit

ALN Program Name Expenditures
21.027 Coronavirus State and Local Fiscal Recovery Funds $4.98M
14.228 Community Development Block Grants/state's Program and Non-Entitlement Grants in Hawaii $678,600
93.563 Child Support Enforcement $335,518
20.205 Highway Planning and Construction $163,763
93.354 Public Health Emergency Response: Cooperative Agreement for Emergency Response: Public Health Crisis Response $110,615
93.243 Substance Abuse and Mental Health Services_projects of Regional and National Significance $95,591
16.575 Crime Victim Assistance $84,461
93.323 Epidemiology and Laboratory Capacity for Infectious Diseases (elc) $50,562
93.069 Public Health Emergency Preparedness $24,526
16.588 Violence Against Women Formula Grants $20,028
16.034 Coronavirus Emergency Supplemental Funding Program $20,005
93.268 Immunization Cooperative Agreements $19,335
97.042 Emergency Management Performance Grants $11,940
16.839 Stop School Violence $8,250
97.012 Boating Safety Financial Assistance $6,849
16.922 Equitable Sharing Program $4,304