Finding Text
FINDING 2022-001 Subject: Formula Grants for Rural Areas and Tribal Transit Program - Reporting Federal Agency: Department of Transportation Federal Program: Formula Grants for Rural Areas and Tribal Transit Program Assistance Listings Number: 20.509 Federal Award Numbers and Years (or Other Identifying Numbers): 1804006O, 1803906O Pass-Through Entity: Indiana Department of Transportation Compliance Requirement: Reporting Audit Findings: Material Weakness, Other Matters Condition and Context The City had not properly designed or implemented a system of internal controls that would likely be effective in preventing, or detecting and correcting, noncompliance. Recipients of the Formula Grants for Rural Areas and Tribal Transit Program are required to submit claim vouchers quarterly to the Indiana Department of Transportation (INDOT). Each quarterly reimbursement request is to reflect the total expenditures for the quarter then ended. The City submitted a total of five claim vouchers during the audit period; however, one of the claim vouchers was not properly prepared. The fourth quarter claim voucher for 2021, covering the period of October 2021 to December 2021, submitted to the INDOT by the City, incorrectly included the expenditures for September 2021 instead of the expenditures for October 2021. This caused the September 2021 expenditures to be reimbursed for a second time, and the October 2021 expenditures to not be reimbursed. The September 2021 expenditure amount was $72,824; however, the October 2021 expenditure amount was $182,909. The October 2021 expenditures have not been requested for reimbursement to date. The lack of internal controls and noncompliance was isolated to the fourth quarter claim voucher for 2021. 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 200.328 states: "Unless otherwise approved by OMB, the Federal awarding agency must solicit only the OMBapproved governmentwide data elements for collection of financial information (at time of publication the Federal Financial Report or such future, OMB-approved, governmentwide data elements available from the OMB-designated standards lead. This information must be collected with the frequency required by the terms and conditions of the Federal award, but no less frequently than annually nor more frequently than quarterly except in unusual circumstances, for example where more frequent reporting is necessary for the effective monitoring of the Federal award or could significantly affect program outcomes, and preferably in coordination with performance reporting. The Federal awarding agency must use OMB-approved common information collections, as applicable, when providing financial and performance reporting information." Cause A proper system of internal controls over the quarterly expenditure report was not designed by management of the City to ensure the correct expenditures were requested for reimbursement. 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 policies. Effect Without the proper implementation of an effectively designed system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of future federal funding to the City. In addition, not requesting reimbursement for the correct amount led to the City not being reimbursed for all applicable expenditures. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the City design and implement a proper system of internal controls that would provide a segregation of duties for the preparation and review of federal reports to ensure appropriate reviews, approvals, and oversight are taking place. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.