COUNTY OF NORFOLK

U.S. DEPARTMENT OF TREASURY Passed through the Commonwealth of Massachusetts?Office of Administration & Finance Material Weakness 2021-003: Coronavirus Aide Relief and Economic Security (CARES) (Assistance Listing #21.019) Criteria: An entity?s (auditee) established internal controls surrounding documentation of federal award compliance requirements should ensure that all federal award programs are properly identified and accounted for within the underlying accounting system in order for the entity to accurately prepare the schedule of expenditures of federal awards (SEFA) on an annual basis in order to determine whether the entity has met the Single Audit threshold ($750,000 or more of federal program/grant expenditures) on an annual basis. Moreover, the auditee should have an enhanced internal control environment which not only identifies each federal award program, but also ensures the auditee has determined applicable compliance requirements associated with each program and oversees and monitors whether the auditee is compliant with each compliance requirement. Condition and Context: During the current year audit, the County did timely determine the applicability of the Single Audit for the year ended June 30, 2021. As a result of commencement of our audit procedures, additional assistance was provided to the County in their reporting associated with the SEFA. In regard to the major program ? CARES, the County did not segregate the expenditures and associated reimbursements within the accounting records. Based upon our audit, we noted the County submitted various spreadsheets and accompanying invoices to the pass-through entity for reimbursement of eligible costs under the program. However, a specific detailed documentation of expenditures which were submitted and those which were reimbursed and disallowed was not maintained. The County provided several detailed spreadsheets indicating expenditures which were submitted to the pass-through entity for reimbursements. Additionally, numerous correspondence was provided in an attempt to clarify amounts in question. Based upon the spreadsheets provided an aggregate amount of approximately $428,000 was estimated to have been submitted for reimbursement. Based upon available information, the County was reimbursed approximately $389,000 (through fiscal year 2023) associated with these submissions. This represents a difference of approximately $39,000, of which based upon examination of correspondence approximately $8,000 (associated with golf cart related expenditures) was disallowed. The remaining balance of $30,000 is uncertain as to disposition. Per our communications with County personnel and documentation provided, initially, the County had anticipated submitting for FEMA reimbursements, however County personnel indicated this was not performed. During our audit, we noted certain expenditures reported in the SEFA for June 30, 2021, under the program were actually expended in fiscal year 2020. Additionally, during our testing of certain expenditures reported on the detailed spreadsheets provided by the County, we noted legal costs which did not entirely seem to provide detail as related to the program. It is management?s responsibility to ensure an appropriate, detailed audit trail for activity associated with all federal award programs. Cause and effect: While the pandemic and potential funding and associated guidance related thereto may have been disjointed, it is vital that overall monitoring and accounting procedures be established which clearly identify, track, and reconcile activity associated with all federal programs. While the County did have turnover in the County Director?s position, no one individual, nor the accounting system centralized the reporting and activity associated with the program. All federal programs should be segregated within the general ledger. As expenditures are submitted for reimbursement, these expenditures should be moved from the corresponding fund initially charged (i.e., general fund, other) and charged to their own fund. Subsequent reimbursements would be posted to cover the expenditures reported. Any adjustments/disallowed costs would be posted accordingly. Additionally, grant administrators should perform routine reconciliations of records with the underlying general ledger to ensure all activity is accounted for. Perspective Information: The County wasn?t subject to the Single Audit in the prior year. Questioned Costs: None. Based upon the condition detailed above specific cost questioned have not been determined in that the auditor disclaims an opinion on compliance. Auditor?s Recommendation: The County should review currently established (and contemplated) internal control policies and procedures surrounding grant compliance and administration. This should include, but not be limited to the following: ? Accounting for all federal award programs/grants separately within the general ledger. ? Centralized documentation of federal award/grant programs and associated information for preparation of the schedule of expenditures of federal awards (SEFA) on an annual basis. ? Formal grant administration policies and procedures which address all aspects of compliance, including individual compliance requirements of each award. ? Centralized monitoring of compliance of all federal awards. We have been informed by County management that additional policies and procedures have been established for the County?s administration of the American Recovery and Reinvestment Program (ARPA) which began implementation in fiscal year 2022.

FINANCIAL STATEMENT AUDIT Material weakness 2021-001 Maintenance of Financial Reporting Systems, enhanced reconciliation of withholding accounts, other As noted in the previous year, the County doesn?t fully utilize the computerized accounting/financial management system and relies heavily upon a decentralized reporting system (i.e., Excel spreadsheet workbooks) to maintain overall financial reporting to those charged with governance, in conjunction with the computerized financial management/reporting system (budgetary comparison). The decentralized accounting is maintained primarily by one individual. The maintenance of decentralized systems, not only duplicate efforts, but increase the possibility of errors, and misstatements (intentional or otherwise). The County?s significant daily transactions (receipts, payroll, vendor expenditures, and appropriations) are processed through the computerized accounting/financial management system. Financial activity is posted directly into these spreadsheets/worksheets from monthly reports generated from the financial management system to create financial reporting package. As recommended in the prior year, we recommend financial reporting should be a result of all financial activity processed and maintained within computerized financial management/reporting system (Trial balance, balance sheet, budget v. actual, etc.) which allows for meaningful financial reports which can be generated through the normal workflows and processes of the County, to ensure errors and misstatements can be ?prevented, detected and corrected on a timely basis?, including appropriate segregation of duties. Additionally, we recommend the County establish more formalized reconciliation processes surrounding the activity associated with employee withholding accounts. We noted during the fiscal year the County appropriated approximately $250,000 to cover deficits associated in these withholding accounts. Per our discussion with personnel, a formalized reconciliation between the human resources department and the treasurer?s office has yet to be achieved on a routine basis. Moreover, treasury personnel have indicated a review process in subsequent years has indicated certain errors. We recommend the County implement procedures to ensure activity (amounts withheld, received, paid) are appropriate, reviewed and monitored on a monthly basis. Moreover, during fiscal year 2021, the County?s financial reporting process did not properly identify federal award programs and related expenditures which clearly identify expenditures of federal awards to adequately complete a schedule of expenditures of federal awards (SEFA) for determination of the applicability of the Single Audit Act pursuant to OMB guidelines for the year ended June 30, 2021. As a result of our initial audit procedures, we assisted the County in determining the requirement for the fiscal year end. As noted in the prior year, the current treasurer and assistant treasurer have not obtained fidelity bond coverage. We recommend the County review all duties of personnel and officials county-wide to ensure accepted risks of loss and compliance with applicable statutes have been met. The Massachusetts Department of Revenue has a guide for municipal officials? bond coverage which can be utilized within this evaluation. Based upon our understanding, as part of the County?s overall evaluation of internal control policies and procedures, additional utilizations associated with the financial management system and enhanced reconciliation processes are being contemplated. View of responsible official and planned corrective action: The County currently utilizes a centralized and computerized financial reporting system, which provides accurate and meaningful financial reports, incorporates controls, and identifies corrective action, as necessary. In September of 2020, the County contracted with The Abrahams Group to conduct a review of the County's financial and operational management and to assist the County with establishing financial policies and methods for budgetary forecasting. The Commissioners have accepted The Abrahams Group report. The Abrahams Group report is publicly available on the County's website. Based on the review, the County plans implement a number of recommendations, including the adoption of formal policies in order to strengthen the County's financial management operations. The financial policies will reinforce internal controls to ensure any errors are corrected in a timely manner. Further, the County has adopted a cloud-based enterprise resource planning solution to integrate and streamline financial management, payroll, time entry, human resources, and other functions. The County has established a process to ensure activity, including any amounts withheld, received, and paid, is reviewed, and reconciled on a routine basis. The County's system will help identify and correct any errors or misstatements. In addition, the County undertook a technology review and has implemented a new information technology policy as of August of 2023. Responses to the remainder of the items raised in this finding are included in the responses set forth below. Material weakness 2021-002 Monitoring of financial activity/obligations and compliance with laws and regulations This is a repeat finding from the previous year. The issues surrounding the County?s funding of Registry of Deeds expenditures and the Norfolk County Sheriff Department Unfunded Liability, as detailed in our Independent Auditor?s Report, paragraph ?Basis for Qualified Opinion on the Governmental Activities, General Fund and Deeds Excise Fund?, in our professional judgement, represent the need for the County (as a whole) to implement more formalized procedures/methodologies surrounding overall monitoring of financial obligations and compliance with laws and regulations, taken in the aggregate. In the prior year, we recommended the officials and management of the County reach a consensus on the interpretations and methodologies to be used in the budgeting and budgeting monitoring process. Pursuant to County management response in the prior year (FY2020), management?s interpretation is that the required mandate to be provided to support registry of deeds operations is reduced by the registry of deeds? allocated share of deeds excise revenue. Based upon our current understanding, the Register of Deeds has filed a lawsuit against the County Commissioners regarding the matter and accordingly is in arbitration. Deeds Excise Funds In the prior year, fiscal year 2020, the County changed what was deemed an erroneous interpretation of calculation of the County?s funding Registry of Deeds expenditures (so called mandate). Based upon the information provided by the County, in our opinion, a deficiency in the mandate occurred in the range of $197,000 to $282,000. Accordingly, we reported a qualification in the County?s Governmental Activities, General Fund and Deeds Excise fund related to this issue. MGL 64D Section 12(a), indicates?? notwithstanding any general or special law to the contrary, of that portion of the amounts deposited in the Deeds Excise Fund, which represents 10.625% of the taxes collected (1) not more than 60% of the deposits shall be disbursed and expended for meeting the costs of the operation and maintenance of the county; (2) not less than 40% shall be disbursed and expended for the automation, modernization and operation of registries of deeds. (b)?not withstanding any general law or special law to the contrary, with respect to funds appropriated for the purposes designated in clause (2) of subsection (1) and which are not dedicated to the Deeds Excise Fund in each county under section 11, the county budget shall provide a continuing amount of expenditure of not less than 102.5% of the amount expended for that purpose in the preceding year.? Based upon our interpretation of the statute, we understand the following: ? The County?s budgetary process is required to provide the registry of deeds a level of support (maintenance of effort) of 2.5% increase over the prior year expenditures. ? Deeds excise monies are to be collected and segregated into a deeds excise fund. ? These funds are all County monies, and accordingly are maintained by the County in the custody of the County Treasurer. ? Of these deeds excise funds, a minimum of 40% is to be allocated to registry of deeds related functions/operations, and the remaining for other County operations. ? In order for any County funds (including deeds excise funds) to be expended, amounts must be properly appropriated through the County?s budgetary processes established by Massachusetts General Law (MGL Chapter 35, Section 28B). As noted in the prior year, interpretation of the various statutes in the defining issues and determination of the mandate are the integral to the fund balance amounts involved. Based upon our understanding of the County?s accounting records, the balance in the deeds excise fund is intended to represent the portion of deeds excise funds segregated pursuant to statute for registry of deeds operations. During fiscal year 2021, approximately $252,000 of deeds excise funds were appropriated through the County?s budgetary process. Accordingly, the ending fund balance within the deeds excise fund for year ended June 30, 2021, should be approximately $6.6 million, compared to the reported ending balance of $4.3 million. Past practice of the County has been to charge the indirect expenditures (indirect costs) of the registry of deeds to the deeds excise fund, albeit this is not clearly defined within the County?s overall budgetary approval process. Accordingly, under this scenario, the ending fund balance of the deeds excise fund for June 30, 2021, would be approximately $4.9 million, compared to the $4.3 million reported by the Count