CITY OF EAST SAINT LOUISLocal Government

Criteria: 2 CFR §200.302 requires recipients to maintain accurate, complete, and timely accounting records for federal awards. Additionally, 2 CFR §200.303 requires recipients to establish and maintain effective internal controls over federal awards to ensure proper recording, reconciliation, and reporting. The U.S. Treasury’s SLFRF Compliance and Reporting Guidance also requires recipients to submit accurate and timely Project and Expenditure Reports. Condition: Audit procedures identified multiple errors and deficiencies in the City’s accounting records and SLFRF reporting, including: 1. The SEFA reported ARPA expenditures of $11,695,336.46 for the year ended December 31, 2022; however, included in this amount were expenditures totaling $1,728,205.96 that were incurred in fiscal year 2023 and should not have been reported as 2022 expenditures. 2. A discrepancy of $131,898.82 was noted between the general ledger and the expenditure audit trail. 3. The City received the second tranche of ARPA funds on July 18, 2022 amounted to $18,189,922; however, due to a system interface error, the transaction was not recorded in the general ledger. The City did not identify or correct this error in a timely manner through its reconciliation process. 4. Differences were noted between amounts reported in the SLFRF Project and Expenditure Reports and the City’s general ledger. Public Health expenditures differed by $23,349, and administrative expenditures differed by $10,000. In addition, salary expenditures for police and fire personnel totaling $1,588,887.57 were not reported. These variances indicate that amounts reported to the U.S. Treasury were not fully reconciled to the City’s accounting records. 5. Based on our review, the City did not submit certain required SLFRF quarterly reports by the established deadlines. The 2nd quarter 2022 report, due July 31, 2022, was submitted on August 15, 2022, and the 3rd quarter 2022 report, due October 31, 2022, was submitted on December 1, 2022. 6. In addition, a duplicate payment totaling $675 was identified during our review of SLFRF expenditures. Cause: These conditions occurred because the City did not have adequate internal controls over federal grant accounting and reporting. Specifically, the City did not ensure federal revenues and expenditures were properly and completely recorded in the general ledger, amounts reported in the SLFRF reports and SEFA were reconciled to the accounting records prior to submission, or expenditures were reported in the proper fiscal year. In addition, reconciliation procedures were not performed timely to identify and correct errors, including system posting issues affecting the recording of federal grant activity. Effect: As a result, federal expenditures were inaccurately reported, accounting records were incomplete or not properly reconciled, required reports were submitted late, and errors such as unrecorded transactions and duplicate payments were not timely identified or corrected. This resulted in noncompliance with federal requirements and increases the risk of material misstatement and improper use or reporting of federal funds. Recommendation: We recommend the City strengthen internal controls over federal awards by ensuring all transactions are properly recorded in the general ledger, performing regular reconciliations between accounting records and federal reports, ensuring SEFA accuracy, implementing procedures to prevent and detect duplicate payments, and establishing procedures to ensure timely submission of required federal reports. Questioned Cost: -0- View of Responsible Official: The City agrees with the first 3 bullet points but does not agree with the points 4 and 5. The ARPA reports contain categories of expenditures for public health as well as well public safety salaries. Those items are specifically identified in the report as well as the City kept a separate schedule that reconciled to the spending of the ARPA funds that was provided to the auditors. Also, the City provided communications to the ARPA technical assistance that indicated issues related to their software. This software was newly created and under their own admission they knew there would be possible issues in reporting. The City made sure to send those communications to the auditor.

Criteria: Under 2 CFR §200.303, non-Federal entities are required to establish and maintain effective internal controls over Federal awards to ensure compliance with federal statutes, regulations, and the terms and conditions of the award. In addition, 2 CFR §200.318–200.320 require entities to maintain records sufficient to detail the history of procurement transactions, including the rationale for contractor selection and the basis for contract price, and to ensure vendors are not suspended or debarred. Further, 2 CFR §200.302 requires recipients to maintain accurate and complete financial records that properly support and record federal expenditures. Condition: During our testing of expenditures charged to the Coronavirus State and Local Fiscal Recovery Fund under the American Rescue Plan Act (ARPA), we identified several instances where the City did not maintain adequate documentation and supporting records for program expenditures. Specifically: a. The City did not consistently maintain documentation supporting procurement decisions. Documentation for competitive bidding, vendor selection rationale, and price reasonableness was not consistently available. The City also did not provide evidence that vendors were verified against SAM.gov for suspension and debarment. Management indicated certain procurements were made under COVID-19 emergency conditions; however, written justification and required approvals were not consistently maintained. b. Expenditures totaling $1,070,694.56, out of $6,305,879.54 tested, were recorded in fiscal year 2022 instead of 2023. c. One disbursement had an invoice dated October 1, 2021, but was not paid until April 26, 2022, resulting in a delay of approximately seven months. d. For certain expenditures, purchase orders totaling $1,018,000 did not agree with related invoices totaling $1,410,483.81, indicating discrepancies between approved purchase amounts and billed amounts. Cause: These issues appear to be due to inadequate internal controls over procurement documentation, expenditure processing, and financial recordkeeping. The City did not consistently maintain documentation supporting procurement decisions, review supporting documentation for completeness, or ensure that expenditures were recorded in the appropriate accounting period. In addition, review procedures were not consistently performed to verify that supporting documents, purchase orders, and invoices were complete and consistent prior to processing payments. Effect: These deficiencies indicate significant weaknesses in the City’s internal controls over procurement documentation, expenditure review, and financial recordkeeping. As a result, the City cannot ensure that expenditures were properly authorized, supported by adequate documentation, recorded in the appropriate accounting period, or consistent with approved purchase amounts. These conditions increase the risk of unsupported or improperly recorded expenditures and limit the City’s ability to demonstrate compliance with federal requirements. Recommendation: The City should strengthen internal controls over procurement and expenditure processing by maintaining complete procurement documentation, including evidence of competitive bidding, vendor selection rationale, price reasonableness, and suspension and debarment verification. Management should also implement procedures to ensure expenditures are recorded in the correct fiscal period and that purchase orders, invoices, and supporting documentation are reviewed for completeness and consistency prior to payment. Questioned Cost: -0- View of Responsible Official: The City agrees with this finding. ARPA rules again were still developing during this time frame and some items were not a requirement during reporting. However, the City did require vendors to start registering with Sams.gov as well perform checking vendors for suspension and debarment after the rules changed.

Criteria: According to 2 CFR Part 200.317, the City must adhere to its established policies and procedures for both federal and non-federal funds. The City’s procurement policies require that purchase orders must properly authorized and documented. Additionally, the City is required to use competitive procurement methods, including an informal bidding process for purchases under specified thresholds, to ensure fairness and transparency. Condition: The audit revealed that several purchase orders related to ARPA-funded expenditures were processed without the necessary approvals, and the informal bidding process was not followed for purchases. Cause of Condition: The City’s procurement policies and procedures were not adequately followed, possibly due to insufficient enforcement of internal controls related to procurement processes for ARPA funds. Effect: The lack of proper authorization and competitive bidding could lead to unauthorized transactions, higher costs, and potential conflicts of interest. This undermines the control over ARPA-funded expenditures and increases the risk of non-compliance with federal regulations. Recommendation: Enforce procurement procedures to ensure all purchase orders for ARPA funded projects are signed and approved by authorized personnel. Additionally, implement and adhere to an informal bidding process for applicable procurements to ensure compliance with competitive procurement requirements. Questioned Cost: $ 76,914.75 Views of Responsible Official: The City acknowledges and agrees with the finding regarding procurement deficiencies during the administration of ARPA funds. Since the time period covered by the audit, the City has taken significant steps to strengthen internal controls over procurement. A full-time Purchasing Manager has been appointed to oversee and enforce compliance with both City and federal procurement standards. In addition, the City is currently updating its procurement policy to ensure clearer thresholds, detailed procedures for informal bidding, and approval workflows aligned with 2 CFR Part 200. All procurement staff are being trained on the revised procedures and control mechanisms. These updates are being documented, and we have introduced internal review checkpoints prior to purchase order execution. We are also developing a procurement checklist and digital authorization process to ensure documentation is complete before funds are obligated. This will prevent similar deficiencies from recurring.

Criteria: Based on 2 CFR Part 200 Subpart F which governs Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, stipulates that recipients must maintain accurate financial records and ensure proper accounting of federal funds. Entities should implement control activities to ensure the complete, accurate and timely recording of financial transactions in their accounting records. Condition: After examining the records of the City, it was identified that that a receipt of American Rescue Plan Act (ARPA) funds amounting $18,189,922 was not recorded in the City’s general ledger at the time of receipt. Although the Treasurer’s office tracked the receipt in its subsystem and provided supporting documentation, the amount was not properly interfaced into the general ledger due to accounting system upgrade issues. As a result, the general ledger initially did not reflect this significant transaction until it was subsequently corrected. Cause of Condition: The interruption in proper recording resulted from technical upgrade challenges within the City’s accounting system, specifically a failure of the data interface linking the Treasurer’s subsystem to the general ledger. Additionally, the absence of effective reconciliation procedures delayed detection and correction of the unrecorded transaction. Effect: This can result in improper financial reporting, difficulties in tracking and managing ARPA funds, and potential non-compliance with federal regulations. Recommendation: Implement controls to ensure all ARPA fund receipts are accurately and promptly recorded in the general ledger upon receipt, regardless of subsystem or accounting software changes. Establish formal reconciliation procedures between the Treasurer’s subsystem (or any other sub-ledgers) and the general ledger on a monthly or quarterly basis to promptly identify and resolve any discrepancies. Questioned Cost: $ 0 Views of Responsible Official: The City partially agrees with this finding. The ARPA funds in question were received and recorded by the Treasurer’s Office, and documentation of the receipt was submitted to the auditors. However, due to technical limitations stemming from a system upgrade during the fiscal year, the transaction was not interfaced properly with the general ledger side of the City’s accounting system. To address this issue, the City is:  Working with the current software provider to resolve the integration problem;  Performing a full reconciliation of Treasurer records and general ledger entries for all ARPA funds;  Exploring the implementation of a more robust and user-friendly financial system to ensure proper recording and reporting in the future. Additionally, we are developing standard operating procedures to ensure manual entries are logged and reconciled during system outages or migration periods.

Criteria: The Compliance Supplement for Federal Awards and 2 CFR Part 200 Subpart F require that recipients accurately report federal expenditures in the Schedule of Expenditures of Federal Awards (SEFA). The SEFA must present federal award information in accordance with the prescribed format and include all relevant details for accurate reporting and compliance verification. Additionally, the Uniform Guidance, along with the ARPA grant award terms, requires that all federal funds and related expenditures be accurately recorded in the general ledger. Condition: The City expended $1,087,839 in premium pay to employees. However, this expenditure was not initially recorded in the ARPA designated general ledger fund; instead it was charged to other funding sources. As a result, the ARPA expenditures reported on the Schedule of Expenditures of Federal Awards (SEFA) could not be reconciled to the City's general ledger records at the time of testing. Additionally, a $5,300,000 cash transfer between bank accounts associated with ARPA was not recorded in the City’s general ledger, further impairing the completeness and accuracy of ARPA fund activity reported in the City’s financial system. These discrepancies were subsequently identified and corrected by the City. Cause of Condition: Discrepancies in the reports and incorrect allocation of expenditures to the appropriate fund appear to result from inadequate accounting procedures or regular process to reconcile the general ledger to the SEFA. This lack of periodic reconciliation and review allowed misclassifications and omissions of ARPA transactions to go unnoticed, resulting in incomplete and inaccurate accounting records. Effect: The SEFA does not accurately reflect the federal expenditures of the City and this may lead to non-compliance with federal regulations and could impact the City’s eligibility for further federal funding. It also impairs the ability to ensure that ARPA funds are used appropriately and reported accurately. Recommendation: It is recommended that the City implement or strengthen procedures for preparing and reviewing the SEFA to ensure accuracy and completeness. Furthermore, verify that all federal expenditures are reported in the appropriate funds and implement regular reconciliations between the SEFA and general ledger to promptly identify and address discrepancies.. Additionally, training should be provided to staff on proper federal fund accounting and reporting practices. Questioned Cost: $ 0 Views of Responsible Official: The City partially disagrees with the finding. The classification approach used by the City was based on guidance provided by the U.S. Department of the Treasury under SLFRF. Specifically, the City elected to treat up to $10 million in ARPA funds as revenue replacement and allocated these across two fiscal years to track usage of restricted vs. unrestricted portions. However, we acknowledge that SEFA preparation should reflect expenditures as reported under Uniform Guidance regardless of internal fund classifications. In response, we are:  Updating our SEFA preparation procedures to ensure full alignment with 2 CFR §200 Subpart F;  Implementing a review and sign-off process by both Finance and Grants Management prior to submission;  Providing training to our accounting team on federal expenditure classification and SEFA reporting standards. We will also consult with our external auditors during the next reporting cycle to validate fund treatment and ensure that reporting is accurate and consistent with federal expectations.