City of New AlbanyLocal Government

FINDING 2024-001 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): CY2021 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 2023-001. 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 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 (SLFRF). As such, the initial P&E report, covering the period from March 3, 2021 to March 31, 2022, was required to be submitted to the Treasury by April 30, 2022. The subsequent 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 four P&E reports during the audit period; however, the internal controls in place were not effective to prevent, or detect and correct, errors. As a result, errors in reporting were identified. The current period and cumulative expenditures reported consisted of the amounts expended by the beneficiaries who were awarded funds from the City, rather than total amounts expended to the beneficiaries, resulting in current period expenditures and cumulative expenditures being incorrectly reported on three of the four reports as follows:  Quarterly Report: October 1, 2023 to December 31, 2023 Current period expenditures were overstated by $666,417. Cumulative expenditures were understated by $964,879.  Quarterly Report: January 1, 2024 to March 31, 2024 Current period expenditures were overstated by $860,312. Cumulative expenditures were understated by $104,567.  Quarterly Report: April 1, 2024 to June 30, 2024 Current period expenditures were overstated by $104,567. The lack of effective internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." Coronavirus State and Local Fiscal Recovery Funds Compliance and Reporting Guidance, page 10, states in part: ". . . 10. Reporting. All recipients of federal funds must complete financial, performance, and compliance reporting as required and outlined in Part 2 of this guidance. Expenditures may be reported on a cash or accrual basis, as long as the methodology is disclosed and consistently applied. Reporting must be consistent with the definition of expenditures pursuant to 2 CFR 200.1. Your organization should appropriately maintain accounting records for compiling and reporting accurate, compliant financial data, in accordance with appropriate accounting standards and principles. . . ." 31 CFR 35.4(c) states in part: "Reporting and requests for other information. During the period of performance, recipients shall provide to the Secretary or her delegate, as applicable, periodic reports providing detailed accounting of the uses of funds, . . ." 2 CFR 200.1 states in part: ". . . Expenditures means charged made by a non-Federal entity to a project or program for which a Federal award was received. . . . (2) For reports prepared on a cash basis, expenditures are the sum of: (i) Cash disbursements for direct charges for property and services; (ii) The amount of indirect expense charged; (iii) The value of third-party in-kind contribution applied; and (iv) The amount of cash advance payments and payments made to subrecipients. . . ." Cause The City's oversight process for filing the P&E reports for the period of October 1, 2023 to September 30, 2024, did not detect errors in the P&E reports. The City's understanding was that the expenditures in its report should be based on when the beneficiaries expended the funds and not when the City disbursed the funds to the beneficiaries. The City officials did not understand the requirements until the prior audit was finished, which was after multiple of these reports had already been submitted. Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As such, the City did not report cumulative expenditures and current period expenditures properly when filing the P&E reports for periods from October 1, 2023 to September 30, 2024. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of future federal funding to the 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 develop policies and procedures to ensure the City provides the Treasury with complete and accurate information as it relates to the City in its P&E reports. 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 - 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): CY2021 Compliance Requirement: Reporting Audit Findings: Material Weakness, Other Matters INDIANA STATE BOARD OF ACCOUNTS 13 CITY OF NEW ALBANY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context Recipients are required quarterly or annually to submit 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 Coronavirus State and Local Fiscal Recovery Funds (SLFRF). As such, the initial P&E report, covering the period from March 3, 2021 to March 31, 2022, was required to be submitted to the Treasury by April 30, 2022. The subsequent 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 four P&E reports during the audit period; however, the internal controls in place were not effective to prevent, or detect and correct, errors. As a result, errors in reporting were identified. The current period and cumulative expenditures reported consisted of the amounts expended by the beneficiaries who were awarded funds from the City rather than total amounts expended to the beneficiaries, resulting in current period expenditures and cumulative expenditures being incorrectly reported on all four reports as follows:  Quarterly Report: October 1, 2022 to December 31, 2022 Current period expenditures were overstated by $40,350. Cumulative expenditures were understated by $262,057.  Quarterly Report: January 1, 2023 to March 31, 2023 Current period expenditures were understated by $2,338,864. Cumulative expenditures were understated by $2,499,656.  Quarterly Report: April 1, 2023 to June 30, 2023 Current period expenditures were understated by $1,200,000. Cumulative expenditures were understated by $3,699,656.  Quarterly Report: July 1, 2023 to September 30, 2023 Current period expenditures were overstated by $2,126,306. Cumulative expenditures were understated by $1,573,349. The lack of effective internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: INDIANA STATE BOARD OF ACCOUNTS 14 CITY OF NEW ALBANY 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 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, . . ." 2 CFR 200.1 states in part: ". . . Expenditures means charges made by a non-Federal entity to a project or program for which a Federal award was received. . . . (2) For reports prepared on a cash basis, expenditures are the sum of: (i) Cash disbursements for direct charges for property and services; (ii) The amount of indirect expense charged; (iii) The value of third-party in-kind contribution applied; and (iv) The amount of cash advance payments and payments made to subrecipients . . ." Coronavirus State and Local Fiscal Recovery Funds Compliance and Reporting Guidance, page 10, states in part: ". . . 10. Reporting. All recipients of federal funds must complete financial, performance, and compliance reporting as required and outlined in Part 2 of this guidance. Expenditures may be reported on a cash or accrual basis, as long as the methodology is disclosed and consistently applied. Reporting must be consistent with the definition of expenditures pursuant to 2 CFR 200.1. Your organization should appropriately maintain accounting records for compiling and reporting accurate, compliant financial data, in accordance with appropriate accounting standards and principles. . . ." Cause The City's oversight process for filing the P&E reports for the period of October 1, 2022 to September 30, 2023, did not detect errors in the P&E reports. The City's understanding was that the expenditures in its report should be based on when the beneficiaries expended the funds and not when the City disbursed the funds to the beneficiaries. Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As such, the City did not report cumulative expenditures and current period expenditures properly when filing the P&E reports for periods from October 1, 2022 to September 30, 2023. INDIANA STATE BOARD OF ACCOUNTS 15 CITY OF NEW ALBANY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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 develop policies and procedures to ensure the City provides the Treasury with complete and accurate information as it relates to the City in its P&E 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: 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): CY2022 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 2021-002. Condition and Context The City received a total State and Local Fiscal Recovery Funds (SLFRF) allocation of $16,927,916. During the audit period, transactions expended under the eligible use categories of Public Health, Negative Economic Impact, and Water, Sewer, and Broadband Infrastructure, totaling $5,636,040, were subject to suspension and debarment provisions. 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 stated they did not have procedures in place related to the SLFRF suspension and debarment requirements. A population of 14 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 4 covered transactions was selected for testing. For each of the 4 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. 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 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 controls 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 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 2021-002 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds 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): CY2021 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Qualified Opinion Condition and Context The City had not designed, nor implemented an effective internal control system to ensure compliance with requirements related to the grant agreement and the Procurement and Suspension and Debarment compliance requirement. The City had a documented procurement policy; however, the policy did not reflect applicable state laws and regulations. In addition, the policy did not include procedures to avoid acquisition of unnecessary or duplicative items, or procedures to ensure that all solicitations incorporate a clear and accurate description of the technical requirements for the material, product, or service to be procured. Additionally, the City did not have procedures in place to verify subrecipients were not suspended, debarred, or otherwise excluded from or ineligible for participation in federal assistance programs or activities. The City did not ensure that the subrecipient agreements initiated, during the audit period, contained a suspension and debarment clause or included a certification from the subrecipient, nor did the City check the Excluded Parties List System (EPLS) prior to entering into the agreements. 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(a) states: "The non-Federal entity must have and use documented procurement procedures, consistent with State, local, and tribal laws and regulations and the standards of this section, for the acquisition of property or services required under a Federal award or subaward. The non- Federal entity's documented procurement procedures must conform to the procurement standards identified in ?? 200.317 through 200.327." 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 did not have an effective system of internal control in place to ensure compliance with the grant agreement and the Procurement and Suspension and Debarment compliance requirement. Effect The failure to establish an effective internal control system allowed material noncompliance with the grant agreement and the Procurement and Suspension and Debarment compliance requirement. 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 to 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.