City of Watertown

2023-001 Document Policies and Procedures Over Federal Awards Federal Program Information: All federal programs Type of Finding Compliance – Other Matters Criteria or Specific Requirement OMB’s Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (UG) requirements stipulate that federal award recipients must document their policies and procedures over certain aspects of financial and program management. Specifically, written policies are required for the following: • Determination of allowable costs • Employee travel • Cash management • Procurement • Conflicts of interest • Subrecipient monitoring and management Condition and Context The City does not have written policies and procedures related to federal awards, as required under the Uniform Guidance. Additionally, the existing written policies for procurement do not include standards of conduct over conflicts of interest and procedures for evaluating vendors for suspension and debarment, as required by the Uniform Guidance. Cause The City has not developed written formal documentation of internal controls to encompass all required areas per the Uniform Guidance. Effect or Potential Effect The City did not comply with the requirements of the Uniform Guidance over documented policies and procedures. Questioned Costs No questioned costs are reported as this requirement is procedural in nature. Identification as a Repeat Finding This is a repeat of finding 2022-001. Recommendation The City should develop and implement policies and procedures related to federal awards in order to comply with the Uniform Guidance. Views of Responsible Official and Planned Corrective Action Management’s corrective action plan is included at the end of this report after the Schedule of Prior Year Findings.

2023-002 Improve Controls and Documentation Over Payroll Federal Agency: U.S. Department of Education Award Name: COVID-19 – Education Stabilization Fund (“ESSER Grant”) AL Number(s): 84.425 Award Year: 2022 Compliance Requirement: Activities Allowed or Unallowed and Allowable Costs/Cost Principles Type of Finding Compliance Internal Control over Compliance – Material Weakness Criteria or Specific Requirement In accordance with 2 CFR § 200.430 and program requirements for the Education Stabilization Fund, payroll costs charged to federal awards must be supported by appropriate documentation, such as approved pay rates. Costs must relate to approved activities, be allowable under the grant, and be supported by the City’s payroll records. Condition and Context During our testing of 28 payroll transactions charged to the ESSER grant, pay rate documentation supporting the amounts charged to the grant were not provided for 5 employees. Further, evidence of mid-year rate increases were unable to be provided for an additional 7 employees. Cause The City did not maintain or was unable to provide the required payroll documentation over pay rates and subsequent pay increases. This indicates a lack of effective internal controls over payroll documentation and grant cost allocations. Effect or Potential Effect Without supporting documentation for pay rates, there is an increased risk that amounts charged to the grant may be incorrect or unallowable. Questioned Costs Due to the condition noted, we were unable to determine if the costs charged to the grant were allowable. AL Number(s) Name of Federal Program or Cluster Questioned Costs 84.425 COVID-19 – Education Stabilization Fund $29,411 Identification as a Repeat Finding This is a repeat of finding 2022-002. Recommendation The City should develop and implement policies and procedures to ensure that documentation supporting pay rates and payroll allocations is retained and readily available for all grant-funded employees. Views of Responsible Official and Planned Corrective Action Management’s corrective action plan is included at the end of this report after the Schedule of Prior Year Findings.

2023-003 Improve Controls and Documentation Over Allowability of Costs Federal Agency: U.S. Department of Education Award Name: COVID-19 – Education Stabilization Fund (“ESSER Grant”) AL Number(s): 84.425 Award Year: 2022 Compliance Requirement: Activities Allowed or Unallowed and Allowable Costs/Cost Principles Federal Agency: U.S. Department of Education Award Name: Special Education Cluster AL Number(s): 84.027, 84.173 Award Year: 2022 Compliance Requirement: Activities Allowed or Unallowed and Allowable Costs/Cost Principles Type of Finding Compliance Internal Control over Compliance – Significant Deficiency Criteria or Specific Requirement Grantees must provide reasonable assurance that federal awards are expended only for allowable activities and that the costs of goods and services charged to federal awards are allowable and in accordance with the applicable cost principles. Management of the City is also responsible for establishing and maintaining effective internal control over compliance with federal requirements that have a direct and material effect on a federal program. The Code of Federal Regulations Section 200.403(g) states that for costs to be allowable under Federal awards, they must be adequately documented and there must be sufficient documentation. Condition and Context A sample of invoices were tested in order to determine if costs were allowable and adequately approved. As a result of our testing, it was determined that invoices were not approved for one transaction in the Education Stabilization Fund program and one invoice could not be provided, including evidence of approval, in the Special Education Cluster. Cause Weaknesses in the design and implementation of internal controls. Effect or Potential Effect Due to the weaknesses in internal controls noted above, there is a risk that amounts charged to federal awards may not be allowable or in accordance with applicable cost principles. Questioned Costs None reported. Identification as a Repeat Finding This is a repeat of finding 2022-003. Recommendation The City should address the weaknesses in internal controls noted above in order to provide reasonable assurance that federal award transactions are allowable and in accordance with the applicable cost principles. Views of Responsible Official and Planned Corrective Action Management’s corrective action plan is included at the end of this report after the Schedule of Prior Year Findings.

2023-004 Improve Procurement Procedures Federal Agency: U.S. Department of Education Cluster/Program: Special Education Cluster Award Name: Special Education Grants to States and Special Education Preschool Grants AL Number(s): 84.027/84.173 Award Year: 2022, 2023 Compliance Requirement: Procurement, Suspension & Debarment Type of Finding Compliance Internal Control over Compliance – Material Weakness Criteria or Specific Requirement OMB’s Uniform Administrative Requirement, Cost Principles, and Audit Requirements for Federal Awards (UG) requires that grant recipients follow procurement procedures for the acquisition of property or services under a federal award. Management is also responsible for establishing and maintaining effective internal controls over compliance with federal requirements that have a direct and material effect on a federal program. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. Condition and Context During our testing of 2 vendor transactions in excess of the micro-purchase threshold of $10,000 under the Special Education Cluster, it was determined that state and federal procurement policies were not followed for 1 vendor. Cause Weaknesses in the design and implementation of internal controls. Effect or Potential Effect Due to the weaknesses in internal control noted above, there is a risk that procurements may be awarded to vendors in a manner that is not consistent with federal or state procurement requirements. Questioned Costs Due to the condition noted, we were unable to determine if the costs charged to the grant were allowable. AL Number(s) Name of Federal Program or Cluster Questioned Costs 84.027/84.173 Special Education Cluster $162,108 Identification as a Repeat Finding This is a repeat of finding 2022-004. Recommendation The City should address the weaknesses in internal controls noted above in order to ensure that federal procurements are conducted in accordance with federal and state requirements. Views of Responsible Official and Planned Corrective Action Management’s corrective action plan is included at the end of this report after the Schedule of Prior Year Findings.

2022-001 Document Policies and Procedures Over Federal Awards Federal Program Information: All federal programs Type of Finding Compliance – Other Matters Criteria or Specific Requirement OMB’s Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (UG) requirements stipulate that federal award recipients must document their policies and procedures over certain aspects of financial and program management. Specifically, written policies are required for the following: • Determination of allowable costs • Employee travel • Cash management • Procurement • Conflicts of interest • Subrecipient monitoring and management Condition and Context The City does not have written policies and procedures related to federal awards, as required under the Uniform Guidance. Additionally, the existing written policies for procurement do not include standards of conduct over conflicts of interest and procedures for evaluating vendors for suspension and debarment, as required by the Uniform Guidance. Cause The City has not developed written formal documentation of internal controls to encompass all required areas per the Uniform Guidance. Effect or Potential Effect The City did not comply with the requirements of the Uniform Guidance over documented policies and procedures. No questioned costs are reported as this requirement is procedural in nature. Recommendation The City should develop and implement policies and procedures related to federal awards in order to comply with the Uniform Guidance. Views of Responsible Official and Planned Corrective Action Management’s corrective action plan is included at the end of this report after the Schedule of Prior Year Findings.

2022-002 Improve Controls and Documentation Over Payroll Federal Agency: U.S. Department of Education Award Name: COVID-19 – Education Stabilization Fund AL Number(s): 84.425 Award Year: 2022 Compliance Requirement: Activities Allowed or Unallowed and Allowable Costs/Cost Principles Type of Finding Compliance Internal Control over Compliance – Material Weakness Criteria or Specific Requirement In accordance with 2 CFR § 200.430 and program requirements for the Education Stabilization Fund, payroll costs charged to federal awards must be supported by appropriate documentation, such as approved pay rates. Costs must relate to approved activities, be allowable under the grant, and be supported by the City’s payroll records. Additionally, for transfers or allocations of payroll costs, documentation of the transfer or allocation to the federal grant must be maintained. Condition and Context During our testing of 22 payroll transactions charged to the ESSER grant, pay rate documentation supporting the amounts charged to the grant was not provided for 16 employees. Further, for 10 employees receiving summer enrichment stipends, the City was unable to provide evidence of the balance transfer of stipend costs to the ESSER grant. Cause The City did not maintain or was unable to provide the required payroll documentation, such as pay rates, and did not retain evidence of payroll balance transfers or allocations to the ESSER grant for summer enrichment stipends. This indicates a lack of effective internal controls over payroll documentation and grant cost allocations. Effect or Potential Effect Without supporting documentation for pay rates, there is an increased risk that amounts charged to the grant may be incorrect or unallowable. Failure to document transfers or allocations to the grant could result in improper charging of costs, questioned costs, or noncompliance with federal regulations. Questioned Costs Due to the condition noted, we were unable to determine if the costs charged to the grant were allowable. AL Number(s) Name of Federal Program or Cluster Questioned Costs 84.425 COVID-19 – Education Stabilization Fund $31,493 Recommendation The City should develop and implement policies and procedures to ensure that documentation supporting pay rates and payroll allocations is retained and readily available for all grant-funded employees. The City should also ensure that all transfers and allocations of payroll costs to federal grants are properly documented, reviewed, and approved. Views of Responsible Official and Planned Corrective Action Management’s corrective action plan is included at the end of this report after the Schedule of Prior Year Findings.

2022-003 Improve Controls and Documentation Over Allowability of Costs Federal Agency: U.S. Department of Education Award Name: COVID-19 – Education Stabilization Fund AL Number(s): 84.425 Award Year: 2022 Compliance Requirement: Activities Allowed or Unallowed and Allowable Costs/Cost Principles Federal Agency: U.S. Department of Education Award Name: Special Education Cluster AL Number(s): 84.027, 84.173 Award Year: 2021, 2022 Compliance Requirement: Activities Allowed or Unallowed and Allowable Costs/Cost Principles Type of Finding Compliance Internal Control over Compliance – Significant Deficiency Criteria or Specific Requirement Grantees must provide reasonable assurance that federal awards are expended only for allowable activities and that the costs of goods and services charged to federal awards are allowable and in accordance with the applicable cost principles. Management of the City is also responsible for establishing and maintaining effective internal control over compliance with federal requirements that have a direct and material effect on a federal program. The Code of Federal Regulations Section 200.403(g) states that for costs to be allowable under Federal awards, they must be adequately documented and there must be sufficient documentation. Condition and Context A sample of invoices were tested in order to determine if costs were allowable and adequately approved. As a result of our testing, it was determined that invoices were not approved for one transaction in the Education Stabilization Fund program. In addition, time and effort support was unable to be provided for one employee selected for testing under the Special Education Cluster. Cause Weaknesses in the design and implementation of internal controls. Effect or Potential Effect Due to the weaknesses in internal controls noted above, there is a risk that amounts charged to federal awards may not be allowable or in accordance with applicable cost principles. No questioned costs are reported as amounts are below the questioned cost threshold. Recommendation The City should address the weaknesses in internal controls noted above in order to provide reasonable assurance that federal award transactions are allowable and in accordance with the applicable cost principles. Views of Responsible Official and Planned Corrective Action Management’s corrective action plan is included at the end of this report after the Schedule of Prior Year Findings.

2022-004 Improve Procurement Procedures Federal Agency: U.S. Department of Education Cluster/Program: Special Education Cluster Award Name: Special Education Grants to States and Special Education Preschool Grants AL Number(s): 84.027/84.173 Award Year: 2021 and 2022 Compliance Requirement: Procurement, Suspension & Debarment Type of Finding Compliance Internal Control over Compliance – Material Weakness Criteria or Specific Requirement OMB’s Uniform Administrative Requirement, Cost Principles, and Audit Requirements for Federal Awards (UG) requires that grant recipients follow procurement procedures for the acquisition of property or services under a federal award. Management is also responsible for establishing and maintaining effective internal controls over compliance with federal requirements that have a direct and material effect on a federal program. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. Condition and Context During our testing of 1 vendor transaction in excess of the micro-purchase threshold of $10K under the Special Education Cluster programs, it was determined that state and federal procurement policies were not followed. Cause Weaknesses in the design and implementation of internal controls. Effect or Potential Effect Due to the weaknesses in internal control noted above, there is a risk that procurements may be awarded to vendors in a manner that is not consistent with federal or state procurement requirements. Known questioned costs are reported as follows: AL Number(s) Name of Federal Program or Cluster Questioned Costs 84.027/84.173 Special Education Cluster $171,428 Recommendation The City should address the weaknesses in internal controls noted above in order to ensure that federal procurements are conducted in accordance with federal and state requirements. Views of Responsible Official and Planned Corrective Action Management’s corrective action plan is included at the end of this report after the Schedule of Prior Year Findings.

Document Policies and Procedures Over Federal Awards Federal Program(s) Information Cluster/Program: All federal Programs Type of Finding Compliance- Other Matters Criteria or Specific Requirement OMB’s Uniform Administrative Requirements. Cost Principles, and Audit Requirements for Federal Awards established significant requirements related to federal awards. The requirements stipulate that federal award recipients must document their policies and procedures over certain aspects of financial and program management. Specifically, written policies are required for the following: Cash management Determination of allowable costs Program income Eligibility determination Equipment and real property management Period of performance Procurement Subrecipient monitoring and management The City does not have written policies and procedures related to federal awards, as required under the Uniform Guidance. Specifically, there are no formalized written policies for cash management, allowable costs, program income/requesting reimbursement, eligibility determination, equipment and real property management, subrecipient monitoring, and period of performance. Additionally, the existing written policies for procurement do not include standards of conduct over conflicts of interest and procedures for evaluating vendors for suspension and debarment, as required by the Uniform Guidance. Cause Weaknesses in the design of internal controls. Effect or Potential Effect There are no questioned costs as there are no costs directly associated with this compliance requirement, and this is a procedural requirement under the Uniform Guidance. Recommendation The City should address the weakness in internal controls noted above in order to comply with the Uniform Guidance. Views of Responsible Official Management agrees with the finding. Planned Corrective Action Management’s corrective action plan is included at the end of this report after the Schedule of Prior Year Findings. SECTION IV - SCHEDULE OF PRIOR YEAR FINDINGS

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