City of La Porte

FINDING 2024-001 Subject: CDBG - Entitlement/Special Purpose Grants Cluster - Reporting, Special Tests and Provisions - Environmental Reviews, Special Tests and Provisions - Rehabilitation 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-19-MC-18-0021, B-20-MC-18-0021, B-21-MC-18-0021, B-22-MC-18-0021, B-23-MC-18-0021 Compliance Requirements: Reporting, Special Tests and Provisions - Environmental Reviews Special Tests and Provisions - Rehabilitation Audit Finding: Material Weakness Condition and Context An effective internal control system was not in place to ensure compliance with requirements related to the grant agreement and the Reporting, Special Tests and Provisions - Environmental Reviews, and Special Tests and Provisions - Rehabilitation compliance requirements. Reporting The Community Development Block Grant (CDBG) recipients are required to submit a Financial Summary Report (PR26) annually. The report is generated from information entered by the City into the U.S. Department of Housing and Urban Development (HUD) Integrated Disbursement Information System (IDIS). The Financial Summary Report (PR26) was prepared with supporting documentation attached and submitted by one employee without evidence of an oversight or review process to ensure that the report was accurate and complete. Special Tests and Provisions - Environmental Reviews CDBG recipients are required to prepare an environmental review over projects that are deemed necessary and maintain written documentation for the projects that are deemed not necessary to have an environmental review. The CDBG Program Manager prepared environmental reviews when necessary and prepared documentation when the project was exempt from the requirement; however, there was no review or oversight process in place to ensure that the environmental reviews were completed and the required documentation was completed or being maintained. Special Tests and Provisions - Rehabilitation CDBG recipients are required to conduct onsite inspections prior to rehabilitation work being completed to document the deficiencies of the residential property and include that information in a scope of work contract with the homeowner. INDIANA STATE BOARD OF ACCOUNTS 14 CITY OF LA PORTE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The CDBG Program Manager conducted onsite inspections of the rehabilitation projects and maintained the case files where required documentation was maintained. However, there was no oversight or review process in place to ensure that the inspections were completed or that the required information was properly included in the contract with the homeowner. The lack of internal controls 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). . . ." 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 the Reporting, Special Tests and Provisions - Environmental Reviews, and Special Tests and Provisions - Rehabilitation compliance requirements to ensure the amounts reported were accurate and the proper documentation that was to be maintained was maintained properly. Effect Without the proper implementation of an effectively designed system of internal controls over the Reporting, Special Tests and Provisions - Environmental Reviews, and Special Tests and Provisions - Rehabilitation compliance requirements, the City cannot ensure that the reports submitted are materially accurate and correct and that the proper documentation is properly being maintained. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the City establish a proper system of internal controls over the Financial Summary Report (PR26), environmental reviews and supporting documentation, and inspections for rehabilitation work to ensure the inspections are completed and the required information is included in the Scope of Work Contracts. 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: 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): CY 2021 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 2021-001. Condition and Context The City received a State and Local Fiscal Recovery Funds (SLFRF) allocation of $11,476,496. During the audit period, SLFRF program funds were expended under negative economic impacts and revenue loss eligible use categories. Prior to entering into subawards and covered transactions with 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. Upon inquiry of the City in order to review the procedures in place for verifying that an entity with which it plans to enter into a covered transaction is not suspended, debarred, or otherwise excluded, the City divulged that prior to its previous audit the City was unaware of the suspension and debarment requirements related to the SLFRF awards. However, as of August 2022, the City updated its policies and procedures to include a clause in the contract, if applicable, or to collect a certification or check EPLS. A population of 15 covered transactions for goods or services that equaled or exceeded $25,000 paid from SLFRF funds during the audit period was identified. A sample of three transactions, totaling $1,881,333, was selected for testing. For each of the three transactions, the City did not verify the vendors' suspension and debarment status prior to payment. Due to the number and magnitude of exceptions identified, per auditor judgment, we concluded it would not be appropriate to expand the sample size or perform any additional audit procedures. 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 intend to 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 control 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 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 a result, vendors to whom payments equal to or in excess of $25,000 were not verified to be not suspended, debarred, or otherwise excluded. 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 and develop policies and procedures to ensure contractors and subrecipients, as appropriate are not suspended, debarred, or otherwise excluded prior to entering into any 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 2021-001 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Procurement and Suspension and Debarment 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): CY 2021 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion 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 Procurement and Suspension and Debarment compliance requirement. The City entered into a contract with Maple Commons, LLC in the amount of $185,000 for heating system improvements, lead-based paint remediation, and mold remediation for a low-income housing building. The City did not have procedures in place to verify the entity was not suspended, debarred, or otherwise excluded from or ineligible from participation in federal award programs or activities. The lack of internal controls and noncompliance was isolated to the contract with Maple Commons, LLC. 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 intend to 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 had not developed a system of internal control that would have ensured compliance with the grant agreement and the Procurement and Suspension and Debarment compliance requirement. Effect The failure to design and implement an effective internal control system enabled material noncompliance to go undetected. Noncompliance with the grant agreement and the Procurement and Suspension and Debarment 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 and comply with the grant agreement and the Procurement and Suspension and Debarment 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 2021-002 Subject: Federal Transit Cluster Federal Agency: Department of Transportation Federal Program: Federal Transit Formula Grants, COVID-19 - Federal Transit Formula Grants Assistance Listings Number: 20.507 Federal Award Numbers and Years (or Other Identifying Numbers): IN-2018-026, IN-2018-016, IN-2019-030, IN-2020-014 Pass-Through Entity: Northwestern Indiana Regional Planning Commission Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion 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 Procurement and Suspension and Debarment compliance requirement. The City had a procurement policy; however, the policy did not reflect all applicable federal procurement guidelines. The policy did not require quotes from an adequate number of qualified sources for small purchases that were between $10,000 and $50,000. A single vendor fell within the small purchase threshold. The total amount paid to this vendor for propane for buses was $42,745. Documentation detailing the history of the procurement, which must include the reason for the procurement method used and the rationale for limiting competition, was not available for audit. 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 200.318(i) states: "The non-Federal entity must maintain records sufficient to detail the history of procurement. These records will include, but are not necessarily limited to, the following: Rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the basis for the contract price." 2 CFR 200.320 states in part: "The non-Federal Entity must have and use documented procurement procedures, consistent with the standards of this section and ?? 200.317, 200.318, and 200.319 for any of the following methods of procurement used for the acquisition of property or services required under a Federal award or sub-award. (a) informal procurement methods. When the value of the procurement for property or services under a Federal award does not exceed the simplified acquisition threshold (SAT), as defined in ? 200.1, or a lower threshold established by a non-Federal entity, formal procurement methods are not required. The non-Federal entity may use informal procurement methods to expedite the completion of its transactions and minimize the associated administrative burden and cost. The informal methods used for procurement of property or services at or below the SAT include: . . . (2) Small purchases - (i) Small purchase procedures. The acquisition of property or services, the aggregate dollar amount of which is higher than the micro-purchase threshold but does not exceed the simplified acquisition threshold. If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources as determined appropriate by the non-Federal entity. . . ." Cause Management had not developed a system of internal control that would have ensured compliance with the grant agreement and the Procurement and Suspension and Debarment compliance requirement. Effect The failure to design and implement an effective internal control system enabled material noncompliance to go undetected. Noncompliance with the grant agreement and the Procurement and Suspension and Debarment 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 and comply with the grant agreement and the Procurement and Suspension and Debarment compliance requirement. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

Subject: Community Development Block Grants/Entitlement Grants - Reporting Federal Agency: Department of Housing and Urban Development Federal Program: Community Development Block Grants/Entitlement Grants CFDA Number: 14.218 Federal Award Numbers and Years (or Other Identifying Numbers): B-16-MC-18-0021, B-17-MC-18-0021, B-18-MC-18-0021, B-19-MC-18-0021 Compliance Requirement: Reporting Audit Finding: Material Weakness Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2018-002. 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. The CDBG Program Manager prepared and submitted the following required reports for the grant: HUD 60002, Section 3 Summary Report, Economic Opportunities for Low- and Very Low-Income Persons, C04PR03 - Activity Summary Report, and the C04PR26 - CDBG Financial Summary. While there was supporting documentation for the reports, there was no evidence of a review or approval process to ensure accuracy of the reports prior to submission. The lack of 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 had not properly developed a system of internal control to ensure 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. A lack of segregation of duties within an internal control system could have also allowed noncompliance with compliance requirements and allowed the misuse and mismanagement of federal funds and assets by not having proper oversight, reviews, and approvals over the activities of the program. 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 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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