FINDING 2023-002
Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - 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): CY 2023
Compliance Requirement: Period of Performance
Audit Findings: Material Weakness, Modified Opinion
Condition and Context
On December 15, 2020, the City entered into a Lease-Purchase agreement with the Crossroads
Bank for police and fire radios. On August 28, 2023, the City made a payment of $2,431,243 to the
Crossroads Bank to pay the remaining balance due for the police and fire radios from its Coronavirus State
and Local Fiscal Recovery Funds (SLFRF) allocation.
Per SLFRF program regulations, the period of performance for the SLFRF award began on March
3, 2021, when the funds were disbursed by the grantor agency. All costs must be incurred by December
31, 2024, and funds must be liquidated before December 31, 2026.
Although the City's purchase is an eligible purchase under the SLFRF Final Rule, the purchase
was initiated and approved by the City prior to the SLFRF period of performance beginning date of March
3, 2021. Further, the project was not prospective in nature, and the City incurred a financial obligation prior
to the beginning of the period of performance. As such, the payment of $2,431,243 was determined to be
questioned costs.
The lack of 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). . . ."
31 CFR 35.5(a) states:
"In general. A recipient may only use funds for the purposes enumerated in § 35.6 (b) through
(f) to cover costs incurred during the period beginning March 3, 2021, and ending December
31, 2024, subject to the restrictions set forth in sections 602(c)(2) and 603(c)(2) of the Social
Security Act, as applicable. A recipient may only use funds for the purposes enumerated in
§ 35.6 (g) through (h) to cover costs incurred during the period beginning December 29, 2022,
and ending December 31, 2024, subject to the restrictions set forth in sections 602(c)(2),
602(c)(5)(C), 603(c)(2), and 603(c)(6)(B) of the Social Security Act, as applicable."
31 CFR 35.3 states in part: ". . . Obligation means an order placed for property and services and
entering into contracts, subawards, and similar transactions that require payment. . . ."
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: . . .
(h) Cost must be incurred during the approved budget period. The Federal awarding
agency is authorized, at its discretion, to waive prior written approvals to carry forward
unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3)."
Cause
Embedded within a properly designed and implemented 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, and procedures should consist of actions that would implement
these polices. The system of internal controls, as designed and implemented by management of the City,
was not effective to ensure SLFRF funds were used appropriately. The original date of the contract was
not considered when determining the funding source of the payment.
Effect
Without the proper implementation of an effectively designed system of internal controls, a payment
on a debt associated with a project outside of the period of performance occurred.
Noncompliance with the provisions of federal statutes, regulations, and terms and conditions of the
federal award could result in the loss of future federal funding to the City.
Questioned Costs
Known questioned costs in the amount of $2,431,243 were identified as noted in the Condition and
Context.
Recommendation
We recommended that management of the City establish a system of internal controls and develop
policies and procedures to ensure SLFRF funds are used appropriately.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.