Finding Text
2022-002 - Deficient Federal Cost Principles Policies and Procedures Finding Type: Material Weakness and Noncompliance over Federal Awards Programs: Capitalization Grants for Clean Water Revolving Funds (Assistance Listing Number 66.458) Criteria: Per 2 CFR Subpart E - Cost Principles, ? 200.400 Policy guide: The application of these cost principles is based on the fundamental premises that: (a) The non-Federal entity is responsible for the efficient and effective administration of the Federal award through the application of sound management practices. (b) The non-Federal entity assumes responsibility for administering Federal funds in a manner consistent with underlying agreements, program objectives, and the terms and conditions of the Federal award. (c) The non-Federal entity, in recognition of its own unique combination of staff, facilities, and experience, has the primary responsibility for employing whatever form of sound organization and management techniques may be necessary in order to assure proper and efficient administration of the Federal award. Condition/Finding: We examined $1,746,599 of federal funds reimbursed to the City from the State Revolving Fund award during the year. Management informed us and we verified that $134,102 of reimbursements were for ineligible construction costs as these amounts were bid alternates that were not allowed uses of the federal award. Further, management informed us and we verified that $17,253 of federal reimbursements were received for a duplicate construction invoice. Further, as a result of reviewing the ineligible costs, management found that in fiscal year 2021, ALN 66.458 included $5,768 in ineligible expenditures, and the overall total expenditures was understated by $184,073. In addition, ALN 14.228 had expenditures of $229,554 that were understated in fiscal year 2021, and ALN 10.760 had expenditures totaling $81,228 that were understated in fiscal year 2021. Cause: The City did not have written policies and procedures over cost principles as required by the Uniform Guidance. Further, the informal policies and procedures that were followed by the City were not effectively designed. The ineffective design allowed an individual to prepare and submit reimbursement requests for federal funds without appropriate review in place to prevent and detect reimbursement reporting and submission errors. Effect: The City?s controls over cost principles were found to be ineffective. Additionally, the City was noncompliant with cost principal requirements and received reimbursements of $151,355 that were subsequently found (by new management) to be ineligible. Questioned Costs: $151,355 costs have been questioned as a result of this finding. Repeat Finding: No Recommendation: We recommend that the City Commission and management adopt, and follow, written policies and procedures (that conform with requirements of the Uniform Guidance) to ensure that future grant and/or loan reimbursements are properly reported, documented, and reviewed by individuals with appropriate knowledge of the award to prevent ineligible costs from being received by the City. View of Responsible Officials (Corrective Action): See corrective action plan.