FINDING 2023-003
Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Reporting
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): FY 2023
Compliance Requirement: Reporting
Audit Findings: Material Weakness, Other Matters
Condition and Context
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 the respective due dates,
are based upon type of recipient and its population, as well as the recipient's allocation amount. Information
to be reported includes projects funded, expenditures, and contracts for the appropriate reporting period.
The Town was classified as a Non-Entitlement Unit with a population below 250,000 residents that
are allocated less than $10 million in Coronavirus State and Local Fiscal Recovery Funds (SLFRF). As
such, the Town's P&E report, covering the period from April 1, 2022 to March 31, 2023, was required to be
submitted to the Treasury by April 30, 2023.
The Town timely submitted one P&E report during the audit period; however, the report was
submitted without a review or oversight process in place to prevent, or detect and correct, errors. As a
result, errors in reporting were identified. The Town reported current expenditures of $33,325, which did
not agree with the accounting records.
The lack of internal controls and noncompliance were isolated to the one annual P&E report.
INDIANA STATE BOARD OF ACCOUNTS
18
TOWN OF PENDLETON
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
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). . . ."
Coronavirus State and Local Fiscal Recovery Funds Compliance and Reporting Guidance, page
10, states in part:
". . . 10. Reporting. All recipients of federal funds must complete financial, performance, and
compliance reporting as required and outlined in Part 2 of this guidance. Expenditures may be
reported on a cash or accrual basis, as long as the methodology is disclosed and consistently
applied. Reporting must be consistent with the definition of expenditures pursuant to
2 CFR 200.1. Your organization should appropriately maintain accounting records for
compiling and reporting accurate, compliant financial data, in accordance with appropriate
accounting standards and principles. . . ."
31 CFR 35.4(c) states in part: "Reporting and requests for other information. During the period of
performance, recipients shall provide to the Secretary periodic reports providing detailed accounting of the
uses of funds, . . ."
The Indiana State Board of Accounts (SBOA) is required under Indiana Code 5-11-1-27(e) to define
the acceptable minimum level of internal control standards. To provide clarifying guidance, the State
Examiner compiled the standards contained in the manual, Uniform Internal Control Standards for Indiana
Political Subdivisions. All political subdivisions subject to audit by SBOA are expected to adhere to these
standards. The standards include adequate control activities. According to this manual:
"Control activities are the actions and tools established through policies and procedures that
help to detect, prevent, or reduce the identified risks that interfere with the achievement of
objectives. Detection activities are designed to identify unfavorable events in a timely manner
whereas prevention activities are designed to deter the occurrence of an unfavorable event.
Examples of these activities include reconciliations, authorizations, approval processes, performance
reviews, and verification processes.
An integral part of the control activity component is segregation of duties. . . .
There is an expectation of segregation of duties. If compensating controls are necessary, documentation
should exist to identify both the areas where segregation of duties are not feasible
or practical and the compensating controls implemented to mitigate the risk. . . ."
INDIANA STATE BOARD OF ACCOUNTS 19
TOWN OF PENDLETON
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Cause
A proper system of internal controls over P&E reports was not implemented by the management of
the Town to ensure that complete and accurate information related to the SLFRF awards was provided to
the Treasury. Embedded within a properly designed and implemented internal control system should be
internal controls consisting of policies and procedures. Policies reflect the Town's management statements
of what should be done to effect internal controls, and procedures should consist of actions that would
implement these policies. The Town incorrectly reported the current expenditures due to misunderstanding
the line-item requirement.
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.
As such, errors, as identified in the Condition and Context, occurred and inaccurate information
was provided to the Treasury.
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 Town. In addition, not meeting the
SLFRF reporting requirements increases the likelihood that the public will not have access to transparent
and accurate information regarding expenditures of federal awards.
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that management of the Town design and implement a proper system of internal
controls that would provide for segregation of duties to ensure appropriate reviews, approvals, and
oversight are taking place. Additionally, management should develop policies and procedures to ensure
that the Town provides the Treasury with complete and accurate information for the P&E report.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
INDIANA STATE BOARD OF ACCOUNTS
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