Finding Text
Criteria
The City must establish proper internal controls to ensure that expenditure of federal grant monies is in compliance with the grant requirements and for actual goods or services provided.
Condition
Funds were embezzled from the City using fictitious vendors established by the City employees who were managing the Coronavirus Relief Fund (CRF) program. The invoices for the fictitious vendors were charged to a line item designated for the CRF program. The grant reporting to the State for the CRF program was performed by the Finance Director and not by the Grant Coordinator Department. The original reporting of the specific disbursements for the program included the invoices for the fictitious vendors. The reporting was subsequently revised to remove the fraudulent invoices.
Questioned costs
None noted. The reporting was subsequently revised as there were other expenditures that were allowable costs under the grant
Context
Although the City has a Grant Coordinator that is responsible for the monitoring, accounting and reporting for federal and state grants, the CRF grant program was managed by another employee and the reporting was performed by the Finance Director. This circumvented the City’s internal control policies and procedures that were designed to ensure proper grant administration and reporting.
Effect
Fraudulent expenditures were reported to the State as disbursements for the CRF program. The grant program was not properly monitored in accordance with established policies and procedures and related internal controls. Cause
The City did not follow the established procedures and internal controls for grant monitoring and reporting.
Vendors were added to the vendor file without proper due diligence and approval.
Recommendation
We recommend the following:
• Adequate due diligence be performed on all vendors before invoices are approved and paid (See finding 2021-001)
• Invoices for grant programs should reviewed and approved by employees who are knowledgeable about grant requirements and allowable and unallowable costs
• All grant programs should be properly monitored by the Grants Coordinator for compliance and reporting
Views of responsible officials and planned corrective actions
Management agrees with the finding. The City will implement the proper policies and procedures and internal controls over grants.