Finding 499399 (2023-003)

FINDING 2023-003 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Allowable Costs/Cost Principles 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): YR 2023 Compliance Requirements: Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context The County elected to receive the standard revenue loss allowance, allowing it to claim its total COVID-19 - Coronavirus State and Local Fiscal Recovery Fund (SLFRF) allocation of $4,014,711 as revenue loss to use for government services. As such, all SLFRF program funds to date were expended under the revenue loss eligible use category. The U.S. Department of the Treasury (Treasury) determined that there are no subawards under this eligible use category and that recipients' use of revenue loss funds would not give rise to subrecipient relationships as there is no federal program or purpose to carry out in the case of the revenue loss portion of the award. INDIANA STATE BOARD OF ACCOUNTS 17 SULLIVAN COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) On May 11, 2021, the Board of County Commissioners passed Ordinance 2021-07 that created a new fund and adopted the American Rescue Plan (ARP). The Ordinance included the procedures for spending the ARP funding which included the following:  The Board of County Commissioners will establish the plan, conditions, and rules upon which the funds are to be requested and used.  Funds shall be appropriated by the County's fiscal body before use.  All expenditure of funds shall be approved by the Board of County Commissioners with any and all claims to be paid from the County's ARP fund. The County Council approved appropriations for all eleven expenditures from the ARP fund in 2023. All eleven expenditures were tested for compliance with the Allowable Costs/Cost Principles compliance requirement. Two of the eleven expenditures, totaling $44,500, did not have adequate supporting documentation to determine the allowability of the cost. In addition, the County did not have written procedures for determining the allowability of costs in accordance with subpart E of 2 CFR 200. The lack of effective internal controls and noncompliance were systemic issues 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). . . ." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. . . . (g) Be adequately documented. . . ." 2 CFR 200.302(b)states: "The financial management system of each non-Federal entity must provide for the following . . . (7) Written procedures for determining the allowability of costs in accordance with subpart E of this part and the terms and conditions of the Federal award." INDIANA STATE BOARD OF ACCOUNTS 18 SULLIVAN COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Cause The lack of internal controls allowed for the County to charge questionable expenditures to the SLFRF program that could be requested to be returned by the Treasury. The County also did not adopt the required written procedures for determining allowability of costs for federal awards. Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, costs that were not adequately documented were paid for with federal funds. Questioned Costs Known questioned costs of $44,500 were identified as detailed in the Condition and Context. Recommendation We recommend the County's management establish a proper system of internal controls and develop policies and procedures to ensure costs are allowable for SLFRF award funds. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.