City of Gary

FINDING 2024-003 Subject: CDBG - Entitlement/Special Purpose Grants Cluster - Internal Control Federal Agency: Department of Housing and Urban Development Federal Programs: Community Development Block Grants/Entitlement Grants, COVID-19 Community Development Block Grants/Entitlement Grants Assistance Listings Number: 14.218 Federal Award Numbers and Years (or Other Identifying Numbers): B11MN180005, B21MC180005, B22MC180005, B23MC180005, B20MW180005 Compliance Requirement: Reporting Audit Finding: Significant Deficiency Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2023-003. Condition and Context An effective internal control system, which would include segregation of duties, was not in place at the City in order to ensure compliance with requirements related to the grant agreement and the Reporting compliance requirement. Recipients are required to submit FFATA (Federal Funding Accountability and Transparency Act) Reports that are input into the FSRS (Federal Subaward Reporting System) database based on subrecipient agreements. The City did not have an oversight or review process in place to ensure the required reports were submitted timely, accurately, and completely. The reports were generated and submitted by one individual, without a review or oversight process to detect and correct errors prior to submission. 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 The City's management did not have properly designed internal controls in place to review reports prior to submission. INDIANA STATE BOARD OF ACCOUNTS 22 CITY OF GARY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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 of the FFATA Reports. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2024-004 Subject: Congressionally Recommended Awards - Procurement and Suspension and Debarment Federal Agency: Department of Justice Federal Program: Congressionally Recommended Awards Assistance Listings Number: 16.753 Federal Award Number and Year (or Other Identifying Number): FY2024 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 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 (e.g., grant agreement) that are expended to equal or exceed $25,000 and all subawards. The verification is to be done by checking the System for Award Management (SAM) Excluded Parties List System (EPLS), collecting a certification from the person or entity, or adding a clause or condition to the covered transaction with that person or entity. One covered transaction paid from the award funds during the audit period was identified and tested. The covered transaction, totaling $999,998, did not include the appropriate provisions in the contract, nor did the City require a certification or check the SAM EPLS to ensure the entity was not suspended or debarred prior to making payment. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: INDIANA STATE BOARD OF ACCOUNTS 23 CITY OF GARY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (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 Management of the City did not follow their formalized suspension and debarment policy to ensure procedures related to suspension and debarment were in place and followed. Effect Without the proper implementation of an effectively designed system of internal controls, the City could not ensure the vendors paid with federal funds were eligible to participate in federal programs. Any program funds the City used to pay vendors that have been suspended or debarred would be unallowable, and the funding agency could potentially recover them. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the City establish a proper system of internal controls and follow policies and procedures to ensure contractors and subrecipients, as appropriate, are not suspended, debarred, or otherwise excluded prior to entering into contracts or subawards. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2024-005 Subject: Congressionally Recommended Awards - Internal Control Federal Agency: Department of Justice Federal Program: Congressionally Recommended Awards Assistance Listings Number: 16.753 Federal Award Number and Year (or Other Identifying Number): FY2024 Compliance Requirement: Reporting Audit Finding: Material Weakness Condition and Context An effective internal control system, which would include segregation of duties, was not in place at the City in order to ensure compliance with requirements related to the grant agreement and the Reporting compliance requirement. Recipients are required to submit semiannual performance reports along with quarterly financial reports based on grant activity. The City did not have an oversight or review process in place to ensure the required reports were submitted timely, accurately, and completely. The reports were generated and submitted by one individual, without a review or oversight process to detect and correct errors prior to submission. 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 The City's management did not have properly designed internal controls in place to review reports prior to submission. 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. INDIANA STATE BOARD OF ACCOUNTS 25 CITY OF GARY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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 of the semiannual performance reports and quarterly financial reports. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2024-006 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): FY2023 Compliance Requirement: Reporting Audit Findings: Material Weakness, Other Matters 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 metropolitan 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. In a test of two of the four submitted reports, errors were identified as noted below: Quarter 2 report (April 1, 2024 to June 30, 2024) • The Total Cumulative Expenditures reported were understated by $2,185,409. Quarter 3 report (July 1, 2024 to September 30, 2024) • The Total Cumulative Expenditures reported were understated by $2,366,082. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: INDIANA STATE BOARD OF ACCOUNTS 26 CITY OF GARY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.328 states: "Unless otherwise approved by OMB, the Federal awarding agency must solicit only the OMBapproved governmentwide data elements for collection of financial information (at time of publication the Federal Financial Report or such future, OMB-approved, governmentwide data elements available from the OMB-designated standards lead. This information must be collected with the frequency required by the terms and conditions of the Federal award, but no less frequently than annually nor more frequently than quarterly except in unusual circumstances, for example where more frequent reporting is necessary for the effective monitoring of the Federal award or could significantly affect program outcomes, and preferably in coordination with performance reporting. The Federal awarding agency must use OMBapproved common information collections, as applicable, when providing financial and performance reporting information." 31 CFR 35.4(c) states: "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, 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. A consultant prepared the reports based on calculations from a spreadsheet, which did not agree to the City's ledgers due to timing and reconciling differences. 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. INDIANA STATE BOARD OF ACCOUNTS 27 CITY OF GARY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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 2023-003 Subject: CDBG - Entitlement Grants Cluster - Internal Control Federal Agency: Department of Housing and Urban Development Federal Programs: Community Development Block Grants/Entitlement Grants; COVID-19 - Community Development Block Grants/Entitlement Grants Assistance Listings Number: 14.218 Federal Award Numbers and Years (or Other Identifying Numbers): B20MC180005; B21MC180005; B22MC180005; B20MW180005 Compliance Requirement: Reporting Audit Finding: Material Weakness INDIANA STATE BOARD OF ACCOUNTS 23 CITY OF GARY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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 the HUD's Integrated Disbursement Information System (IDIS). Recipients are also required to submit annually a Section 3 Summary Report and Federal Funding Accountability and Transparency Act (FFATA) reports. The City did not have internal control procedures in place over the PR29 quarterly reports, Section 3 Summary Report, and the FFATA Report. The reports were generated and submitted by one individual, without a review or oversight process to detect and correct errors prior to submission. The lack of internal controls was isolated to the 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 or implemented by management of the City to ensure that policies and procedures were in place related to reporting to ensure the amounts reported were accurate. 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, Section 3 Summary Report, and FFATA Reports. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2022-003 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Allowable Costs/Cost Principles Federal Agency: Department of 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): FY 2022 Compliance Requirement: Allowable Costs/Cost Principles Audit Findings: Material Weakness, Other Matters Condition and Context Allowable costs are based on the premise that a recipient is responsible for the effective administration of the federal award, application of sound management practices, and administration of federal funds in a manner consistent with the program objectives and terms and conditions of the awards. State and Local Fiscal Recovery Funds (SLFRF) recipients must implement internal controls and effective monitoring to ensure compliance with the cost principles. Costs were charged to the SLFRF award in two ways. Either directly, as an expense to the fund at the time of initial posting, or indirectly via a journal entry after the initial time of posting. Costs charged directly at the time of initial posting were reviewed and approved by an individual that had knowledge of the activity. Costs charged to the SLFRF award indirectly via a journal entry were completed by one employee with no review process in place to ensure the journal entry posted was allowable, accurate, and timely. Due to the lack of effective internal controls over direct payroll postings, 2 deviations out of 13 payroll transactions tested were not supported due to the City incorrectly calculating the firefighter overtime wages. The deviations noted were for the pay periods ending March 27, 2022, and July 3, 2022. This time frame was covered in an audit conducted by the Department of Labor (DOL). The audit conducted by the DOL was over the City's payroll pertaining to firefighter and paramedic overtime wages. The audit covered the period of March 8, 2020 to October 29, 2022, and concluded that the City underpaid 172 firefighters/paramedics due to incorrectly calculating the overtime wages for the audit period covered. Based on the audit conducted by the DOL, we tested two employees' payrolls from November 4, 2022 through December 30, 2022, which consisted of 10 additional transactions, to determine if the City had corrected the calculations after the audit period that was covered by the DOL audit. This testing identified that the City had not corrected the calculation issue for the overtime wages for these two employees which resulted in 9 additional deviations of noncompliance. 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: INDIANA STATE BOARD OF ACCOUNTS 24 CITY OF GARY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (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 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." Cause A proper system of internal controls over payroll transactions was not effective to ensure that the City correctly calculated firefighter wages that were paid from the COVID-19 - Coronavirus State and Local Fiscal Recovery Funds grant. 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, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As such, costs paid from the SLFRF funds for overtime pay to firefighters and paramedics was not adequately documented. 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 design and implement a proper system of internal controls, including policies and procedures to ensure that the City's payroll is calculated properly based on the Fair Labor Standards Act (FLSA) requirements. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2020-003 Subject: Economic Development Cluster - Special Tests and Provisions - Wage Rate Requirements Federal Agency: Department of Commerce Federal Program: Investments for Public Works and Economic Development Facilities Assistance Listings Number: 11.300 Federal Award Number and Year (or Other Identifying Number): 06-01-06008 Compliance Requirement: Special Tests and Provisions - Wage Rate Requirements 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 - Wage Rate Requirements compliance requirement. There was no oversight or review process in place at the City to ensure all subcontractors were notified to comply with prevailing wage rate requirements. The City had a responsibility to include a provision in its construction contracts that the contractors or subcontractors comply with the prevailing wage rate requirements. The City's contract stated that the Contractor was to submit to the City a written statement concerning the proposed award to the subcontractor which would include appropriate provisions. The City was responsible to provide written approval before the contractor awarded any work to a subcontractor. The City did not provide the written statements for all subcontractors that were tested; therefore, we were unable to determine if the subcontractors were notified of the wage rate requirements. The lack of internal controls and noncompliance was isolated to the subcontractors. 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). . . ." 40 USC 3142(a) states: "Application.?The advertised specifications for every contract in excess of $2,000, to which the Federal Government or the District of Columbia is a party, for construction, alteration, or repair, including painting and decorating, of public buildings and public works of the Government or the District of Columbia that are located in a State or the District of Columbia and which requires or involves the employment of mechanics or laborers shall contain a provision stating the minimum wages to be paid various classes of laborers and mechanics." Contract Documents and Specifications for Buffington Harbor Drive Reconstruction in the City of Gary states in part: "Subcontracts The Contractor may utilize the services of specialty Subcontractors on those parts of the work which, under normal contracting practices, are performed by specialty Subcontractors. The Contractor shall not award any work to any subcontractor without prior written approval of the City, which approval will not be given until the Contractor submits to the City a written statement concerning the proposed award to the subcontractor, which statement shall contain such information as the City may require. The Contractor shall be as fully responsible to the City for the acts and omissions of his subcontractors, and of persons either directly or indirectly employed by them, as he is for the acts and omissions of persons directly employed by him. The Contractor shall cause appropriate provisions to be inserted in all subcontracts relative to the work to bind subcontractors to the Contractor by the terms of the General Conditions and other contract documents insofar as applicable to the work of subcontractors and to give the Contractor the same power as regards terminating any subcontract that the City may exercise over the Contractor under any provision of the contract documents. Nothing contained in this contract shall create any contractual relation between any subcontractor and the City." Cause Management had not developed a system of internal control that would have ensured compliance with requirements related to the grant agreement and the Special Tests and Provisions - Wage Rate Requirements compliance requirement. Effect The failure to establish an effective internal control system, as well as maintain and provide appropriate documentation, prevented the determination of the City's compliance with the grant agreement and the Special Tests and Provisions - Wage Rate Requirements compliance requirement. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the City's management establish an effective system of internal control, as well as retain documentation, related to the grant agreement and the Special Tests and Provisions - Wage Rate Requirements 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 2019-003 Subject: CDBG - Entitlement Grants Cluster - Reporting Federal Agency: Department of Housing and Urban Development Federal Program: Community Development Block Grants/Entitlement Grants CFDA Number: 14.218 Federal Award Number and Year (or Other Identifying Number): B14MC180005 (Section 108 Loan) Compliance Requirement: Reporting Audit Finding: Significant Deficiency Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2018-003. Condition and Context An effective internal control system was not in place at the City in order to ensure compliance with requirements related to the grant agreement and the Reporting compliance requirement. The City had not designed or implemented adequate policies or procedures to ensure that monthly reports for the Section 108 Loan program were accurately prepared and submitted. The City prepared and submitted the required monthly reports without an oversight, review, or approval process. The lack of internal controls was isolated to the Section 108 Loan program monthly reports. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over 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). . . ." Cause The City's management had not developed a system of internal controls to ensure compliance with the grant agreement and reporting requirements. Effect The failure to establish an effective internal control system placed the City at risk of noncompliance with the grant agreement and reporting requirements. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the City's management establish a system of internal controls to ensure compliance with 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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