CITY OF EAST CHICAGO

FINDING 2025-001 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 Number and Year (or Other Identifying Number): ARP Act Compliance Requirement: Procurement and Suspension and Debarment Audit Finding: Material Weakness INDIANA STATE BOARD OF ACCOUNTS 13 CITY OF EAST CHICAGO SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2024-001. Condition and Context During the audit period, the COVID-19 - Coronavirus State and Local Fiscal Recovery Funds (SLFRF) totaling $4,593,666 were expended under the water, sewer, and broadband eligible use categories. The City entered into two contracts with one vendor for two projects under the water, sewer, and broadband eligible use category during the audit period. Total payments made to the vendors during the audit period were $4,593,666, all of which were subject to suspension and debarment provisions. Prior to entering into subawards and covered transactions with the 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 and services awarded under a nonprocurement transaction (i.e., grant agreement) that are expected to equal or exceed $25,000. The verification is to be done by checking the Excluded Parties List System (EPLS), collecting a certification from that person or entity, or adding a clause or condition to the covered transaction with that person or entity. The City's policy related to suspension and debarment requirements included the Executive Secretary of the Engineering and Board of Works (Executive Secretary) verifying the SAMs exclusions. Per inquiry with the City, the Executive Secretary verified the vendor was not suspended or debarred by checking the SAMs exclusions; however, a documented internal control process was not in place to ensure that suspension and debarment was verified according to City policy. 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 A policy over suspension and debarment requirements was in place. The policy put the responsibility for the SAM search to the department and/or board utilizing federal funds. However, the policy did not state how the City was going to ensure the department and/or board utilizing federal funds implemented the policy. INDIANA STATE BOARD OF ACCOUNTS 14 CITY OF EAST CHICAGO SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the City's management strengthen its policy and implement procedures to ensure its compliance with requirements related to suspension and debarment. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2025-002 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 Number and Year (or Other Identifying Number): ARP Act Compliance Requirement: Reporting Audit Findings: Material Weakness, Other Matters Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2024-002. Condition and Context Recipients are required to submit quarterly or annual Project and Expenditure (P&E) reports to the U.S. Department of the Treasury (Treasury). The reporting periods, as well as the respective due dates, are based upon type of recipient and its 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 City was classified as a city with a population below 250,000 residents that received an allocation of more than $10 million in COVID-19 - Coronavirus State and Local Fiscal Recovery Funds. The quarterly reports were to cover one calendar quarter and must be submitted to the Treasury by the last day of the month following the end of the period covered. The City submitted all required P&E reports during the audit period. All four quarterly reports submitted contained errors for current period obligations, current period expenditures, and cumulative expenditures as follows: INDIANA STATE BOARD OF ACCOUNTS 15 CITY OF EAST CHICAGO SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued)  The 2024 Quarter 4 P&E Report current period obligations and expenditures were overstated by $1,121,010 and $379,005, respectively.  The 2025 Quarter 1 P&E Report current period obligations and expenditures were each understated by $2,660,694, and the cumulative expenditures were understated by $2,093,083.  The 2025 Quarter 2 P&E Report current period obligations and expenditures were each understated by $1,264,473, and the cumulative expenditures were understated by $2,669,107.  The 2025 Quarter 3 P&E Report current period obligations and expenditures were each understated by $705,426, and the cumulative expenditures were understated by $3,368,532. The lack of internal controls and noncompliance 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). . . ." Compliance and Reporting Guidance, State and Local Fiscal Recovery Funds, page 13, 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 All quarterly P&E reports were prepared and submitted without an oversight or review process in place to prevent, or detect and correct, errors prior to submission. INDIANA STATE BOARD OF ACCOUNTS 16 CITY OF EAST CHICAGO SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Effect Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the repayment or loss of future federal funding to the City. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the City's management establish a proper system of internal controls that would ensure compliance with the Reporting compliance requirement. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2024-001 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 Number and Year (or Other Identifying Number): ARP Act Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2023-001. Condition and Context During the audit period, COVID-19 - Coronavirus State and Local Fiscal Recovery Funds (SLFRF) totaling $5,647,762 were expended under the water, sewer, and broadband eligible use categories. All of the transactions were subject to suspension and debarment provisions. Prior to entering into subawards and covered transactions with the 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 and services awarded under a nonprocurement transaction (i.e., grant agreement) that are expected to equal or exceed $25,000. The verification is to be done by checking the Excluded Parties List System (EPLS), collecting a certification from that entity, or adding a clause or condition to the covered transaction with that person. The City's policies related to suspension and debarment requirements included the Executive Secretary of the Engineering and Board of Works (Executive Secretary) verifying the SAMS exclusions. The City entered into one contract with one vendor for one project under the water, sewer, and broadband eligible use category during the audit period. Total payments made to the vendor during the audit period were $5,647,762, all of which were subject to suspension and debarment requirements. Per inquiry with the City, the Executive Secretary verified the vendor was not suspended or debarred by checking the SAMs exclusions; however, documentation of the verification was not retained. As such, we could not determine if the City complied with the suspension and debarment requirements. 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 A proper system of internal controls was not implemented by management of the City. Policies over suspension and debarment requirements were in place; however, the procedures did not address the retention of documentation. As such, the City was unable to provide documentation to demonstrate they checked SAM.gov to verify that the contractor was not suspended or debarred prior to payment. Effect Without the proper implementation of an effectively designed system of internal controls, the City cannot ensure contractors paid with federal funds are eligible to participate in federal programs. Any program funds the City used to pay contractors that have been suspended or debarred would be unallowable and the funding agency could potentially request repayment of funds previously provided to the City. Furthermore, noncompliance with the provisions of federal statutes, regulations, and terms and conditions of the federal award could result in the loss of future federal funding to the City. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the City strengthen its system of internal controls to ensure that all contractors paid $25,000 or more, all in or in part with federal funds, are not suspended, debarred, or otherwise excluded from participating in federal programs and ensure appropriate supporting documentation for federal programs is retained for audit. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2024-002 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 Number and Year (or Other Identifying Number): ARP Act Compliance Requirement: Reporting Audit Findings: Material Weakness, Modified Opinion Condition and Context Recipients are required to submit quarterly or annually Project and Expenditure (P&E) reports to the U.S. Department of the Treasury (Treasury). The reporting periods, as well as the respective due dates, are based upon type of recipient and its 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 City was classified as a city with a population below 250,000 residents that received an allocation of more than $10 million in COVID-19 - Coronavirus State and Local Fiscal Recovery Funds. The quarterly reports were to cover one calendar quarter and must be submitted to the Treasury by the last day of the month following the end of the period covered. The City submitted all required P&E reports during the audit period. The internal controls in place were not effective and did not prevent, or detect and correct, errors in the P&E reports prior to submission. All four quarterly reports submitted contained errors; obligations and expenditures were understated by the following amounts: Current Current Period Cumulative Period Cumulative Obligation Obligation Expenditure Expenditure 2023 Q4 P&E Report $ 79,009 $ 89,009 $ 79,009 $ 89,009 2024 Q1 P&E Report 379,005 89,009 379,005 468,014 2024 Q2 P&E Report 1,331,499 79,009 1,331,499 468,014 2024 Q3 P&E Report 2,208,957 79,009 2,208,957 468,014 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 OMB-approved 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." 31 CFR 35.4(c) states: "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, modifications to a State or Territory's tax revenue sources, and such other information as the Secretary or her delegate, as applicable, may require for the administration of this section. In addition to regular reporting requirements, the Secretary may request other additional information as may be necessary or appropriate, including as may be necessary to prevent evasions of the requirements of this subpart. False statements or claims made to the Secretary may result in criminal, civil, or administrative sanctions, including fines, imprisonment, civil damages and penalties, debarment from participating in Federal awards or contracts, and/or any other remedy available by law." Cause The City's management did not have effective internal controls in place to ensure proper amounts were reported prior to submission. 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. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of federal funding to the City. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the City strengthen its system of internal controls over the preparation and review of federal reports to ensure appropriate reviews, approvals, and oversight are effective in preventing, or detecting and correcting, noncompliance. 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 - Suspension and Debarment Federal Agency: U.S. Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number or Year (or Other Identifying Number): ARP Act Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2022-001. Condition and Context During the audit period, the SLFRF program funds totaling $11,258,475 were expended under the premium pay and the water, sewer, and broadband eligible use categories. Transactions expended under the water, sewer, and broadband eligible use category, totaling $9,778,321, were subject to suspension and debarment provisions. Prior to entering into subawards and covered transactions with the 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 and services awarded under a nonprocurement transaction (i.e., grant agreement) that are expected to equal or exceed $25,000. The 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. The City's policies related to suspension and debarment requirements included the Executive Secretary of the Engineering and Board of Works (Executive Secretary) verifying the SAMS exclusions. The City had four ongoing contracts awarded in the prior audit period, with two vendors for various projects under the water, sewer, and broadband eligible use category. Total payments made to the vendors during the audit period were $9,778,321, all of which were subject to suspension and debarment. Per inquiry with the City, the Executive Secretary verified the two vendors were not suspended or debarred by checking the SAMs exclusions; however, retaining documentation of the verification was not part of the process. As such, we could not determine if the City complied with the suspension and debarment requirements. The lack of 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). . . ." 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 A proper system of internal controls was not implemented by management of the City. Policies over suspension and debarment were in place; however, the procedures did not address the retention of documentation. As such, the City was unable to provide documentation to demonstrate they checked SAM.gov to verify that contractors were not suspended or debarred prior to payment. 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 a result, no documentation was retained to show the status of vendors to whom payments equal to or in excess of $25,000 were made. Program funds used to pay contractors that have been suspended or debarred would be unallowable and the funding agency could potentially recovery them. 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. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the City strengthen its system of internal controls to ensure that all contractors that are paid $25,000 or more, all in or in part with federal funds, are not suspended or debarred from participating in federal programs. We also recommended strengthening its policies and procedures to ensure appropriate supporting documentation for federal programs is retained to be present for audit. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2023-002 Subject: CDBG - Entitlement Grants Cluster - Reporting Federal Agency: Department of Housing and Urban Development Federal Program: Community Development Block Grants/Entitlement Grants Assistance Listings Number: 14.218 Federal Award Numbers and Years (or Other Identifying Numbers): B-18-MC-180004, B-19-MC-180004, B-20-MC-180004, B-21-MC-180004, B-22-MC-180004, B-23-MC-180004 Compliance Requirement: Reporting Audit Finding: Material Weakness Condition and Context Recipients are required to submit quarterly the CDBG Cash on Hand Quarterly report (PR29). The report is generated from information entered by the City into HUD's Integrated Disbursement Information System (IDIS). The City did not have internal control procedures in place over the PR29 Quarterly Reports. The reports were generated and submitted by one individual, without a review or oversight process to detect and correct errors. The lack of internal controls was isolated to the quarterly reports noted above. 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 A proper system of internal controls was not designed by the management of the City. 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 over reporting, the City cannot ensure that the reports submitted are materially accurate and correct. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the management of the City design and implement a proper system of internal controls, including a segregation of duties, to ensure the accuracy and correctness of the PR 29 reports. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2022-001 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Suspension and Debarment Federal Agency: U.S. Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number or Year (or Other Identifying Number): ARP Act Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Condition and Context The City received a total State and Local Fiscal Recovery Funds (SLFRF) allocation of $31,172,909. During the audit period, the SLFRF program funds totaling $8,422,009 were expended under the premium pay and the water, sewer, and broadband eligible use categories. Transactions expended under the water, sewer, and broadband eligible use category, totaling $7,124,581, were subject to suspension and debarment provisions. Prior to entering into subawards and covered transactions with the 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 and services awarded under a non-procurement transaction (i.e. grant agreement) that are expected to equal or exceed $25,000. The 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. The City's policies related to suspension and debarment requirements included the Executive Secretary of the Engineering and Board of Works (Executive Secretary) verifying the SAMS exclusions. The City entered into five contracts with two vendors for various projects under the water, sewer, and broadband eligible use category during the audit period. Total payments made to the vendors during the audit period were $7,124,581, all of which were subject to suspension and debarment. Per inquiry with the City, the Executive Secretary verified the two vendors were not suspended or debarred by checking the SAMs exclusions; however, retaining documentation of the verification was not part of the process. As such we could not determine if the City complied with suspension and debarment. The lack of 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). . . ." 2 CFR 180.300 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 intend to do business is not excluded or disqualified. You do this by: (a) Checking SAM Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person." Cause The system of internal controls as established by management of the City was not properly implemented to ensure that the policies and procedures in place related to suspension and debarment were resulted in adequate supporting documentation being retained for audit. 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 a result, no documentation was retained of the status of vendors to whom payments equal to or in excess of $25,000. 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. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the City establish a proper system of internal controls, including strengthening its policies and procedures to ensure its compliance with requirements related to suspension and debarment. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2022-002 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Reporting Federal Agency: U.S. Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number or Year (or Other Identifying Number): ARP Act 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 are required to submit quarterly or annually Project and Expenditure (P&E) Reports to the Department of the Treasury (Treasury). The reporting periods as well as the respective due dates are based upon type of recipient and its 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 City was classified as a metropolitan city with a population below 250,000 residents that received an allocation of more than $10 million in State and Local Fiscal Recovery Funds. As such, the initial P&E report, covering three calendar quarters from March 3, 2021 to December 31, 2021, was required to be submitted to the Treasury by January 31, 2022. The subsequent quarterly reports are to cover one calendar quarter and must be submitted to the Treasury by the last day of the month following the end of the period covered. The City submitted four quarterly P&E reports during the audit period. The reports were prepared by one knowledgeable employee and reviewed and submitted by another employee; however, the review process in place was not effective to prevent, or detect and correct, errors. Of the four reports filed, two reports were selected for testing. The two reports tested were the quarterly reports due on July 31, 2022, and October 31, 2022. Errors noted on the reports were as follows: Project and Expenditure Report: July 31, 2022: The report was not mathematically accurate and complete, nor was it supported by the unit's records. Additionally, data accumulated and summarized was not accurate and complete including information to support key line items. Of the four projects reported by the City the current period obligation was overstated for all four. The current period obligation was based on a budgeted amount per Resolution instead of an amount for the current period. In addition, the current period expenditures were incorrect for three of the four projects and the cumulative expenditures were incorrect for two of the four projects. Project and Expenditure Report: October 31, 2022: The report was not mathematically accurate and complete, nor was it supported by the unit's records. Additionally, data accumulated and summarized was not accurate and complete including information to support key line items. Of the five projects reported by the City the current period obligation one was overstated as it was based on a budgeted amount per Resolution instead of an amount for the current period and three were understated. In addition, the current period expenditures were incorrect for four of the five projects, and the cumulative expenditures were incorrect for two of the five projects. The lack of internal controls and noncompliance was systemic 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). . . ." 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. . . . (Coronavirus State and Local Fiscal Recovery Funds Compliance and Reporting Guidance) 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 periodic reports providing detailed accounting of the uses of funds . . ." Cause A proper system of internal controls over the P&E report was not designed by management of the City. 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 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, 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 meeting the SLFRF reporting requirements increases the likelihood that the public 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 City design and implement a proper system of internal controls that would ensure appropriate reviews, approvals, and oversight are taking place. Additionally, management should develop policies and procedures to ensure that the City 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 2021-001 Subject: CDBG - Entitlement Grants Cluster - Special Tests and Provisions - Environmental Reviews Federal Agency: Department of Housing and Urban Development Federal Program: Community Development Block Grants/Entitlement Grants Assistance Listings Number: 14.218 Federal Award Numbers and Years (or Other Identifying Numbers): B-17-MC-180004, B-18-MC-180004, B-19-MC-180004, B-20-MC-180004,B-21-MC-180005 Compliance Requirement: Special Tests and Provisions - Environmental Reviews Audit Findings: Material Weakness, Other Matters Condition and Context An effective internal control system was not in place at the City to ensure compliance with requirements related to the grant agreement and the Special Tests and Provisions - Environmental Reviews compliance requirement. For the two projects selected for testing, the City did not maintain written determination for activities that were exempt from an environmental review. Despite the lack of written determination, it was determined the reason for the lack of the review was consistent with the criteria contained in 24 CFR 58.34 and 58.35(b). The lack of effective internal controls and noncompliance was a systemic issue that occurred 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 awards 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). . . ." 24 CFR 58.22(b) states: "If a project or activity is exempt under ? 58.34, or is categorically excluded (except in extraordinary circumstances) under ? 58.35(b), no RROF is required and the recipient may undertake the activity immediately after the responsible entity has documented its determination as required in ? 58.34(b) and ? 58.35(d), but the recipient must comply with applicable requirements under ? 58.6." Cause Management had not established a system of internal control that would have ensured compliance with the grant agreement and the Special Tests and Provisions - Environmental Reviews compliance requirement. Effect The failure to establish an effective internal control system placed the City in noncompliance with the grant agreement and the Special Tests and Provisions - Environmental Reviews compliance requirement. Noncompliance with the grant agreement or the compliance requirement could have resulted in the loss of federal funds to the City. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the City's management establish a system of internal control to ensure compliance with the Special Tests and Provisions - Environmental Reviews compliance requirement. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2020-002 Subject: CDBG - Entitlement Grants Cluster - Reporting Federal Agency: U.S. Department of Housing and Urban Development Federal Programs: Community Development Block Grants/Entitlement Grants, COVID-19 - Community Development Block Grants/Entitlement Grants CFDA Number: 14.218 Federal Award Numbers and Years (or Other Identifying Numbers): B-14-MC-180004, B-15-MC-180004, B-16-MC-180004, B-17-MC-180004, B-18-MC-180004, B-19-MC-180004, B-20-MC-180004, B-20-MW-180004 Compliance Requirement: Reporting Audit Finding: Significant Deficiency Condition and Context An effective internal control system was not in place at the City to ensure compliance with requirements related to the grant agreement and the Reporting compliance requirement. During the audit period, the City prepared and submitted five different reports required by the federal agency. The Program Manager completed and submitted the HUD 60002 Section 3 Summary Report, Economic Opportunities for Low-and Very Low-Income Persons, and the PR 29 Cash on Hand Quarterly Reports without a proper system of oversight or review. The lack of internal controls was isolated to the reports mentioned above. 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 had not established an effective system of internal controls that would have ensured compliance with the grant agreement and the Reporting compliance requirement. Effect The failure to establish an effective internal control system placed the City at risk of noncompliance with the grant agreement and the Reporting compliance requirement. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the City's management establish a system of internal controls related to the grant agreement and the Reporting compliance requirement. 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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