City of CheboyganLocal Government

Procurement, Suspension, and Debarment Finding Type: Material Weakness in Internal Control over Compliance. Programs: United States Environmental Protection Agency Capitalization Grants for Clean Water State Revolving Funds (ALN #66.458) and Capitalization Grants for Drinking Water State Revolving Funds (ALN #66.468) Criteria: The Uniform Guidance, §200.214, requires that a recipient of federal awards are subject to the non-procurement debarment and suspension regulations implementing Executive Orders 12549 and 12689, 2 CFR part 180. The regulations in 2 CFR part 180 restrict awards, subawards, and contracts with certain parties that are debarred, suspended, or otherwise excluded from or ineligible for participation in Federal assistance programs or activities. Condition/Finding: During our audit procedures over the City’s debarment and suspension procedures, we noted that the City relies on their engineers to make sure contractors are not debarred, suspended, or otherwise excluded from Federal assistance programs or activities. The City does not have a process in place to verify the engineers are in fact monitoring the contractors on the project. Cause: The City does not have the proper internal controls in place to ensure that all contractors are not debarred, suspended, or otherwise excluded from Federal assistance programs or activities. Effect: The City did not follow requirements to check whether a vendor is suspended or debarred. Questioned Costs: No costs have been questioned as a result of this finding. Recommendation: We recommend that the City verify that any vendors or contractors selected are verified as neither suspended or debarred per the SAM.gov website prior to awarding the bid, and, that the City retain documentation of their verification in the bid file.

Cash Management Finding Type: Noncompliance and Material Weakness in Internal Control over Compliance. Programs: United States Environmental Protection Agency Capitalization Grants for Clean Water State Revolving Funds (ALN #66.458) and Capitalization Grants for Drinking Water State Revolving Funds (ALN #66.468) Criteria: For cost-reimbursement contracts under the Federal Acquisition Regulation (“FAR”), reimbursement payment is the predominant method of funding. Advance payments under FAR based contracts are rare. The FAR clause at 48 CFR section 52.216-7 applies to reimbursement payment. Paragraph (b)(1) of that clause requires that the non-Federal entity request reimbursement for (a) only allocable, allowable, and reasonable contract costs that have already been paid, or (b) if the non-Federal entity is not delinquent in paying costs of contract performance in the ordinary course of business, costs incurred, but not necessarily paid. As defined in 48 CFR section 52.216-7(b)(1), with relation to supplies and services purchased for use on the contract, “ordinary course of business” would be in accordance with the terms and conditions of a subcontract or invoice, and ordinarily within 30 days of the request to the Federal Government for reimbursement. Condition/Finding: During our audit procedures over the City’s cash management procedures, we noted that the City paid contractors and vendors 30 days after receiving the Federal reimbursement on two of the five federal reimbursements, with vouchers totaling $212,541. The City does not have a process in place to ensure contractors and vendors are paid in a timely manner. Cause: The City does not have a cash management policy which led to them receiving and disbursing funds not in compliance with the Uniform Guidance. Effect: Contractors and vendors were not paid timely and federal funds were held for over thirty days prior to the disbursement of funds. Questioned Costs: No costs have been questioned as a result of this finding. Recommendation: The City should develop and implement a cash management policy and procedures and if reimbursements are requested prior to paying the contractors and vendors the contractors and vendors are paid within 30 days of the request.

2022-001 - Preparation of the Schedule of Expenditures of Federal Awards Finding Type: Material weakness. Programs: Capitalization Grants for Clean Water Revolving Funds (ALN #66.458) Criteria: The Uniform Guidance, ?200.510, requires that a recipient of federal awards subject to a single audit ?prepare a schedule of expenditures of Federal awards for the period covered by the auditee's financial statements, which must include the total Federal awards expended as determined in accordance with ?200.502.? In addition, the City is required to prepare appropriate financial statements, including the Schedule of Expenditures of Federal Awards (the "Schedule") in accordance with these guidelines. Condition/Finding: Management provided an initial Schedule of Expenditure of Awards; however, material adjustments were discovered during the audit process. This condition was primarily caused by the extreme infrequency of the City being required to prepare a Schedule of Expenditures of Federal Awards and the corresponding lack of established policies and procedures to produce an accurate Schedule. As a result of this condition, the City is not in compliance with the required written procedures under the Uniform Guidance. Cause: Required federal expenditures where not accurately recorded on the Schedule of Expenditures of Federal Awards. Effect: The schedule of expenditures of federal awards, would have been materially misstated if audit adjustments hadn?t been made. Questioned Costs: No costs have been questioned as a result of this finding. Recommendation: The City should develop and implement written procedures over the preparation of the schedule of expenditures of federal awards to be used as a reference for future year(s) subject to single audit reporting.

2022-002 - Written Policies Required by the Uniform Grant Guidance Finding Type: Immaterial noncompliance. Programs: Capitalization Grants for Clean Water Revolving Funds (ALN #66.458) Criteria: The Uniform Guidance requires a non-federal entity that has expended federal awards for a grant awarded on or after December 26, 2014, to have written policies pertaining to allowability of costs charged to federal programs, controlled activities over allowable costs and allowable activities, cash management, financial management, compensation/payroll, and relocation cost of employees (?200.300 - 328)). Condition/Finding: Although the City has processes in place to cover these areas, the City lacks formal written policies covering these areas. Cause: This condition appears to be the result of a time lag in identifying the requirement and developing a plan for compliance. Effect: As a result of this condition, the City did not fully comply with the Uniform Guidance applicable to the above noted grants. Questioned Costs: No costs have been questioned as a result of this finding. Recommendation: We recommend that the City ensures these policies are updated to conform with the Uniform Guidance as soon as practical, but no later than the end of fiscal year 2023.