Finding 574051 (2024-001)

2024-001 Improve Internal Controls over the Preparation of the Schedule of Expenditures of Federal Awards (SEFA) Federal Program(s) Information Federal Agency: Environmental Protection Agency Award Name: Drinking Water State Revolving Fund Assistance Listing Number: 66.468 Award Year: 2024 Type of Finding Compliance Internal Control over Compliance – Significant Deficiency Criteria or Specific Requirement Per 2 CFR 200.510(b), auditees must prepare a complete and accurate Schedule of Expenditures of Federal Awards (SEFA) for the period covered by the auditee’s financial statements. The SEFA must identify all federal awards expended, organized by federal program and Assistance Listing Number (ALN), and include all required disclosures. Condition and Context While preparing its draft SEFA, the City incorrectly classified $3,473,784 in federal expenditures as Drinking Water State Revolving Fund when those expenditures should have been classified as Coronavirus State and Local Fiscal Recovery Fund program expenditures. As a result of the initial improper expenditure amounts, the auditors’ assessment over major program determination was impacted. The misclassification was limited to the preparation of the SEFA and there was no impact on amounts reported to and/or claims for reimbursement from the respective funding source(s). This classification error was corrected for purposes of the final SEFA. Cause The City did not have adequate controls in place in order to ensure the complete and accurate preparation of the SEFA, including reconciling federal expenditures reported in the general ledger with the information included on the SEFA and verifying the correct allocation to the proper federal programs. SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS (CONTINUED) Effect or Potential Effect Due to the weakness in internal controls noted above, there is a risk that amounts reported on the SEFA are not complete and accurate. The lack of a complete and accurate SEFA may impact the determination if a single audit is required, as well as major program determination. Recommendation The City should ensure that adequate procedures and controls are in place to ensure that the SEFA is complete and accurate. This should include controls requiring the reconciliation of federal expenditures to the appropriate supporting documentation (e.g., general ledger, grant reports, etc.) and formal review by a knowledgeable individual following preparation of the SEFA. Views of Responsible Official Management’s corrective action plan is included at the end of this report after the Schedule of Prior Year Findings.