The City?s internal controls were inadequate for ensuring compliance with federal requirements for reporting and suspension and debarment. Assistance Listing Number and Title: 21.027 ? COVID-19 ? Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: N/A Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: Yes, Finding 2021-002 Background The objectives of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program are to respond to the COVID-19 pandemic?s negative effects on public health and the economy, provide premium pay to essential workers during the pandemic, provide government services to the extent COVID-19 caused a reduction in revenues collected, and make necessary investments in water, sewer or broadband infrastructure. In 2022, the City spent $27,043,504 in program funds for these activities. Federal regulations require recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Suspension and Debarment Federal requirements prohibit recipients from contracting with or making subawards to parties suspended or debarred from doing business with the federal government. Whenever the City makes subawards, it must verify the subrecipients have not been suspended, debarred or otherwise excluded. The City may accomplish this verification by collecting a written certification from the subrecipient, adding a clause or condition into the contract that states the subrecipient is not suspended or debarred, or checking for exclusion records in the U.S. General Services Administration?s System for Award Management at SAM.gov. The City must perform this verification before making the subaward, and it must keep documentation demonstrating compliance with this federal requirement. Reporting Cities with a population below 250,000 residents that are allocated more than $10 million in SLFRF funding are required to submit a Project and Expenditure Report on financial data, projects funded, expenditures, and contracts and subawards more than $50,000. This report is due by January 31, 2022, and then 30 days after the end of each quarter thereafter. The U.S. Department of the Treasury identified the following key line item as containing critical information: 1. Obligations and expenditures ? Current period obligation ? Cumulative obligation ? Current period expenditure ? Cumulative expenditure Description of Condition Suspension and Debarment Our audit found the City?s internal controls were inadequate for ensuring staff verified the suspension and debarment status of all recipients of federal subawards. Specifically, the City did not verify one subrecipient was not suspended or debarred from participating in federal programs before entering into the agreement. Reporting Although the City had a process to ensure reports were submitted, its controls were inadequate for ensuring key line items were accurate. The City?s reports of expenditures to date and obligations were not supported by its general ledger or supporting award documentation, which showed the Project and Expenditure Reports to be underreported for each quarter of fiscal year 2022. We consider these internal control deficiencies to be material weaknesses, which led to material noncompliance. Cause of Condition Suspension and Debarment The City typically includes a suspension and debarment clause in federal subawards. However, the City did not verify the subrecipient?s status when deciding to charge the associated costs to the federal program. Reporting Staff responsible for completing the reports did not receive the appropriate training to ensure that expenditure and obligation amounts for each project were tracked properly, both in the aggregate or per subrecipient. Effect of Condition Suspension and Debarment The City did not obtain a written certification, insert a clause into the agreement, or maintain support of checking SAM.gov to verify one subrecipient it paid $237,000 was not suspended or debarred. Without this verification, the City increases its risk of providing federal funds to subrecipients that are excluded from participating in federal programs. Any payments the City made to an ineligible party would be unallowable, and the federal grantor could potentially recover them. We subsequently verified the subrecipient was not suspended or debarred, so we are not questioning the costs. Reporting The U.S. Department of the Treasury uses the reports for oversight purposes, and any inaccurate information limits its ability to ensure transparency of program spending and fulfill its legal obligations. Recommendation Suspension and Debarment We recommend the City strengthen its internal controls to ensure all recipients of federal subawards are not suspended or debarred from participating in federal programs before entering into agreements with them. Reporting We recommend the City review the Project Report User Guide section in the Coronavirus State and Local Fiscal Recovery Funds Compliance and Reporting Guidance, as well as the reporting webinars issued by Treasury, for all reporting requirements. We also recommend the City maintain quarterly records that trace the Project and Expenditure Reports to underlying documentation to ensure a clear audit trail, and thoroughly review these reports for completeness and accuracy before submitting them to Treasury. City?s Response The City takes their responsibility for creating internal controls to ensure compliance with federal requirements in the highest regard. Management is committed to ensuring the City has internal controls and procedures in place designed to ensure that it complies with all requirements governing the administration of federal grant programs. To achieve this, the City will take the following actions: Suspension & Debarment 1. Work with the Procurement and Payables division and Legal to update all contract templates to add self-certification language for suspension and debarment. Reporting 1. Provide training to appropriate staff that will be responsible for report submittal, and 2. Require management review for completeness of report prior to submittal. Auditor?s Remarks We appreciate the City?s commitment to improving its processes and resolving this issue. We thank the City for its cooperation and assistance during the audit. We will review the status of the City?s corrective action during the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. U.S. Department of the Treasury?s Coronavirus State and Local Fiscal Recovery Funds Compliance and Reporting Guidance, Section B, page 17, provides the reporting requirements for the Project and Expenditure Report. Title 2 CFR Part 180, OMB Guidelines to Agencies on Governmentwide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.