Knox County

FINDING 2024-002 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Suspension and Debarment Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Numbers and Years (or Other Identifying Numbers): CONTRACT 64511, YR 2024 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Condition and Context Prior to entering into subawards and covered transactions with the COVID-19 - Coronavirus State and Local Fiscal Recovery Funds (SLFRF) award funds, recipients are required to verify that such contractors and subrecipients are not suspended, debarred, or otherwise excluded. "Covered transactions" include, but are not limited to, contracts for goods or services awarded under a nonprocurement transaction (i.e., grant agreement) that are expected to equal or exceed $25,000. Verification is to be done by checking the Excluded Parties List System (EPLS), collecting a certification from that person, or adding a clause or condition to the covered transaction with that person. Due to the U.S. Department of the Treasury's determination that the revenue loss eligible use category does not give rise to subawards, the County was only required to comply with suspension and debarment requirements related to covered transactions. The County did not have any policies or procedures in place during the audit period for verifying that a vendor with which it plans to enter into a covered transaction is not suspended, debarred, or otherwise excluded. A population of six covered transactions, totaling $760,544, that equaled or exceeded $25,000 paid from SLFRF funds was identified. For each of the six transactions, the County did not provide any evidence that a verification took place to ensure the vendor was not suspended or debarred. The lack of internal controls and noncompliance were systematic issues throughout the audit period. 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). . . ." 31 CFR 19.300 states: "When you enter into a covered transaction with another person at the next lower tier, you must verify that the person with whom you do business is not excluded or disqualified. You do this by: (a) Checking the EPLS; or (b) Collecting a certification from that person if allowed by this rule; or (c) Adding a clause or condition to the covered transaction with that person." Cause The County did not have policies or procedures in place to document the process performed to ensure each vendor related to the SLFRF program was not suspended or debarred from participation in federal awards. Effect Without the proper implementation of an effectively designed system of internal controls and procedures, the County could not ensure the vendors paid with federal funds were eligible to participate in federal programs. Any program funds the County used to pay vendors that have been suspended or debarred would be unallowable and the funding agency could potentially recover the funds. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the County establish a proper system of internal controls and establish policies and procedures to ensure that vendors paid $25,000 or more, all or in part with federal funds, are verified to ensure they are not suspended or debarred, or other excluded from participating in federal programs. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2024-003 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Reporting Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Numbers and Years (or Other Identifying Numbers): CONTRACT 64511, YR 2024 Compliance Requirement: Reporting Audit Findings: Material Weakness, Other Matters Condition and Context The County elected to receive the standard revenue loss allowance, allowing it to claim a total COVID-19 - Coronavirus State and Local Fiscal Recovery Funds (SLFRF) allocation of $7,107,956 as revenue loss to use for government services. As such, all SLFRF program funds expended from January 1, 2024 to December 31, 2024, were under the revenue loss eligible category. The U.S. Department of the Treasury (Treasury) determined that there were no subawards under this eligible use category, and that recipients' use of revenue loss funds would not give rise to subrecipient relationships as there is no federal program or purpose to carry out in the case of revenue loss portion of the award. Recipients are required to submit quarterly or annually Project and Expenditure (P&E) reports to the Treasury. The reporting periods, as well as the respective due dates are based on the type of recipient and the recipient's population, as well as the recipient's allocation amount. Information to be reported includes projects funded, expenditures, and contracts for the appropriate reporting period. The County was classified as a metropolitan county with a population below 250,000 residents that received an allocation of less than $10 million in SLFRF. As such, the initial P&E report, covering the period from March 3, 2021 to March 31, 2022, was required to be submitted to the Treasury by April 30, 2022. The subsequent annual reports are to cover one calendar year and must be submitted to the Treasury by April 30 each year. The County submitted the P&E report by April 30, 2024, as required during the audit period. Although the County Auditor's Bookkeeper prepared the P&E report, and the County Auditor reviewed and submitted the report, internal controls were not effective in preventing, or detecting and correcting, errors. The data summited included amounts which were not supported by the County's records. The County reported current expenditures for three projects on the annual report, for which there were no expenditures during the reporting period. The lack of effective internal controls and noncompliance were systemic issues throughout the audit period. 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). . . ." Coronavirus State and Local Fiscal Recovery Funds Compliance and Reporting Guidance, page 10, states in part: ". . . 10. Reporting. All recipients of federal funds must complete financial, performance, and compliance reporting as required and outlined in Part 2 of this guidance. Expenditures may be reported on a cash or accrual basis, as long as the methodology is disclosed and consistently applied. Reporting must be consistent with the definition of expenditures pursuant to 2 CFR 200.1. Your organization should appropriately maintain accounting records for compiling and reporting accurate, compliant financial data, in accordance with appropriate accounting standards and principles. . . ." 31 CFR 35.4(c) states in part: "Reporting and requests for other information. During the period of performance, recipients shall provide to the Secretary or her delegate, as applicable, periodic reports providing detailed accounting of the uses of funds, . . ." Cause The County Auditor's Bookkeeper stated that they understood that current expenditures and current obligations should agree to the cumulative expenditures and cumulative obligations, which resulted in reporting errors. Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As such, the County did not report current period obligations properly when filing the P&E report for the period April 1, 2023 to March 31, 2024. 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 County. In addition, not meeting the SLFRF reporting requirements increases the likelihood that the public and the Treasury will not have access to transparent and accurate information regarding expenditures of federal awards. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the County design and implement a proper system of internal controls to provide for a segregation of duties in the preparation and review of federal reports to ensure appropriate reviews, approvals, and oversight are taking place. We also recommended the development of policies and procedures to ensure the County provides the Treasury with complete and accurate information for the P&E report. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2023-001 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Internal Controls Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Numbers and Years (or Other Identifying Numbers): YR 2023; CONTRACT 64511; FR-2023-ILBC-00020 Pass-Through Entities: Indiana State Department of Health, Indiana Department of Homeland Security Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Period of Performance Audit Finding: Material Weakness Condition and Context Prior to receipt of direct State and Local Fiscal Recovery Funds (SLFRF) award funds, all eligible entities were required to execute a Financial Assistance Agreement (Agreement), which included the Award Terms and Conditions that recipients must comply with in carrying out the objectives of their award. Per the Agreement, the County was responsible for the effective administration of the federal award, as well as the application of sound management practices and administration of federal funds in a manner consistent with program objectives and terms and conditions of the award. Recipients may use SLFRF funds for any eligible expenses subject to the restrictions set forth in sections 602 and 603 of the Social Security Act as added by section 9901 of the American Rescue Plan Act of 2021. The SLFRF program provides substantial flexibility for each recipient to meet local needs within four separate eligible use categories. Recipients may use SLFRF funds to:  Respond to the COVID-19 public health emergency and its negative economic impacts;  Respond to workers performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers of eligible employers that have eligible workers who are performing essential work;  Provide government services, to the extent COVID-19 caused a reduction in revenues collected in the most recent full fiscal year of the recipient; and  Make necessary investments in water, sewer, or broadband infrastructure. Pursuant to the Agreement, the period of performance for the award began on the date the funds were disbursed to the County and ends on December 31, 2026. Recipients may only use funds to cover costs incurred during the period that began on June 7, 2021, and ends on December 31, 2024. Recipients must liquidate all obligations incurred by December 31, 2024, under the award no later than December 31, 2026, which is the end of the period of performance. In addition, prior to receipt of SLFRF award funds passed through from other entities, the County was required to execute a subrecipient agreement which included terms and conditions that recipients must comply with in carrying out the objectives of its award. Recipients were to use SLFRF funds to develop and improve health outcomes and acquire body cameras for law enforcement. Furthermore, pursuant to the subrecipient agreements, the period of performance for the award began on 8/1/22 and 1/1/23 and ends on 6/30/24 and 12/31/23, respectively. INDIANA STATE BOARD OF ACCOUNTS 16 KNOX COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Accounts payable vouchers paid from the SLFRF fund were processed by one County employee. The employee reviewed and approved the accounts payable voucher to ensure all expenditures were for allowable activities, allowable costs, and were within the period of performance prior to issuing payment from the SLFRF fund. Of the 60 accounts payable vouchers tested during the audit period, 4 were not properly reviewed or approved by the employee responsible for ensuring compliance. The lack of internal controls was a systemic issue throughout the audit period. 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). . . ." Cause Accounts payable vouchers were not approved when the employee that ensured compliance was on vacation. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the County's management 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 County. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the County design and implement a proper system of internal controls to ensure appropriate reviews, approvals, and oversight are taking place prior to payment on a regular basis and when individuals are absent. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2019-002 Subject: Formula Grants for Rural Areas and Tribal Transit Program - Activities Allowed or Unallowed and Allowable Costs/Cost Principles Federal Agency: Department of Transportation Federal Program: Formula Grants for Rural Areas and Tribal Transit Program CFDA Number: 20.509 Federal Award Number and Year or (Other Identifying Number): 1803747O Pass-Through Entity: Indiana Department of Transportation Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Finding: Material Weakness Condition and Context An effective internal control system, which would have included segregation of duties, was not in place at the County to ensure compliance with requirements related to the grant agreement and the following compliance requirements: Activities Allowed or Unallowed and Allowable Costs/Cost Principles. The County had designed, but did not implement, adequate policies and procedures to ensure that disbursements for the federal program were reviewed and/or approved prior to disbursing the payments. This was a systemic issue throughout the audit. 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). . . ." Cause Management of the County had not developed a system of internal controls that segregated key functions. Effect The failure to establish an effective internal control system placed the County at risk of noncompliance with the grant agreement and the compliance requirements listed above. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the County's management establish a system of internal controls, including segregation of duties, related to the grant agreement and the compliance requirements listed above. An internal control system, including segregation of duties, should be designed and operate effectively to provide reasonable assurance that material noncompliance with the grant agreement or a compliance requirement of a federal program will be prevented, or detected and corrected, on a timely basis. In order to have an effective internal control system, it is important to have proper segregation of duties. This is accomplished by making sure proper oversight, reviews, and approvals take place and to have a separation of functions over certain activities related to the program. The fundamental premise of segregation of duties is that an individual or small group of individuals should not be in a position to initiate, approve, undertake, and review the same activity. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

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