CITY OF ANNAPOLIS

Federal Agency: U.S. Department of the Treasury Federal Program Name: COVID-19 Coronavirus Relief Fund Assistance Listing Number: 21.019 Award Period: March 3, 2021 – December 31, 2024 Type of Finding: Significant Deficiency over Compliance and Other Matters Criteria or specific requirement: 2 CFR 200.303 requires non-federal entities to establish and maintain internal control designed to reasonably ensure compliance with federal statutes and regulations, including procedures to verify and document vendor eligibility. 2 CFR 200.214 requires verification that vendors are not suspended or debarred prior to entering into covered transactions. Condition: The City does not have a documented control to perform and retain evidence of suspension and debarment verification (e.g., SAM.gov check or vendor certification) at the time of entering into covered transactions funded by federal awards. Management indicated that vendor eligibility checks are performed as part of standard operating practice; however, documentation evidencing the timing and performance of these checks was not retained. Questioned costs: None. Context: Four of the five covered transactions selected did not have proper supporting documentation for suspension and debarment procedures. Cause: For three of the transactions tested, the City relied on cooperative purchasing agreements. Accordingly, the City did not perform or retain documentation of its own suspension and debarment verification. For the remaining transaction, documentation evidencing suspension and debarment compliance was not retained. Effect: The City did not have a documented control to perform and retain evidence of suspension and debarment verification at the time of award, as required by 2 CFR 200.303. Repeat Finding: No. Recommendation: We recommend the City obtain certifications from vendors stating their organization is not suspended, debarred, or otherwise excluded from participation in federal assistance programs or document the procedures performed to verify the vendor is not identified as suspended or debarred on SAM.gov. Views of responsible officials: There is no disagreement with the audit finding.

Federal Program: Research and Development Cluster Grantor Agency: Department of Defense Program Title: Randomized Trial for Pazopanib in HHT-Related Bleeding Federal Award Year: July 1, 2022 - June 30, 2023 Type of finding: • Significant Deficiency in Internal Control over Compliance • Compliance, Other Matter Criteria: 2 CFR 200.303 requires that organizations establish and maintain effective internal controls in place over Federal awards that provide reasonable assurance that the non-Federal entity is managing the award in compliance with Federal statues, regulations, and the terms of and conditions of the Federal award. Additionally, 2 CFR 200.305(b)(1) requires an organization receiving advances on federal funds must maintain or demonstrate the willingness to maintain both written procedures that minimize the time elapsing between the transfer of funds and disbursement by the non-Federal entity, and financial management systems that meet the standards for fund control and accountability as established in this part, and the timing and amount of advance payments must be as close as is administratively feasible to the actual disbursements by the non-Federal entity for direct program or project costs and the proportionate share of any allowable indirect costs. Condition: One reimbursement request submitted to the cognizant agency included expenditures for which the organization had already been reimbursed and, per review of the organization’s SF-425 submissions and accounting records, we noted that Federal funds advanced to the organization were not disbursed in a timely manner. Context: During our review of the organization’s Federal grant revenue reconciliation, an amount classified as an advance on Federal funds was determined to include amounts for which the organization had already requested reimbursement and been paid. Additionally, through review of grant reports, accounting records and inquiries with management, we discovered that the funds the organization had received in advance had not been used for project costs in a timely manner, consistent with 2 CFR 200.305. Cause: During the preparation of the fiscal year-end drawdown request, the data used to determine the amount the organization needed to draw down was not reviewed or reconciled against amounts previously requested and, thus, the drawdown included duplicate and/or incorrect requests for grant funds. Effect or possible effect of condition: Proper internal controls were not in place to mitigate the excess drawdown due to incorrect underlying information and procedures were not in place to minimize the time elapsing between receipt and disbursement of Federal funds. Questioned Costs: None. Repeat Finding: No. Recommendation: We recommend that management strengthen its internal controls over cash management to ensure that amounts submitted for reimbursement are properly reconciled against internal data used to request funding to date. Additionally, we recommend that management develop written procedures to minimize the time elapsed between receipt of Federal funds and the disbursement thereof. Views of responsible officials: This error occurred during a time of transition from one outsourced accounting firm and accounting system to another. The new outsourced accounting systems were not fully in place or automated at the time of the reporting error and there was no internal review process. The outsourced accounting firm is now fully transitioned, all systems are fully integrated with the accounting software, and the accounting team provides the program managers and organization managers with the reports needed to prepare drawdown requests. Cure HHT has developed and fully implemented a corrective action plan. The organization has communicated with the cognizant agency and all expenses eligible for submission for payment through grant funding will be submitted to and paid from the overdrawn funds. Once these funds are depleted, the organization will resume monthly draw submissions for all eligible expenses. The organization will reconcile all eligible expenses prior to requesting grant funds to avoid future duplicate and/or incorrect requests for grant funds. In addition, pending proper internal approvals of all submitted expenses, grant funds received will be dispersed within 3-7 business days from the date received.

Federal Award Year: July 1, 2022 - June 30, 2023 Type of finding: • Significant Deficiency in Internal Control over Compliance Criteria: 2 CFR 200.303 requires that organizations establish and maintain effective internal controls in place over Federal awards that provide reasonable assurance that the non-Federal entity is managing the award in compliance with Federal statues, regulations, and the terms of and conditions of the Federal award. Condition: During our audit, we identified errors relating to expense accruals and grant revenue recognition that resulted in adjustment to the organization’s financial statements and schedule of expenditures of federal awards. Context: We performed a search for unrecorded liabilities, which entails selecting payments made after year-end to determine if the payment was made for an expense that was incurred during the organization’s fiscal year under audit. Such testing is performed to assess whether the organization had properly accrued for all period expenses, as well as assessing the reliability of the internal controls in place to capture all accrued expenses. We sampled 20 payments made between July 1, 2023 and February 1, 2024, one of which was improperly accrued and four that were improperly not accrued, resulting in a net understatement of $154,969 to the schedule of expenditures of federal awards. Cause: Revenue was underrecognized due to inaccurate recording of fiscal year expenses. Revenue was recognized for the expenses recorded for the fiscal year, however, there were expenses that should have been recorded in the fiscal year but were not, causing revenue to be underrecognized. Effect or possible effect of condition: Without effective internal controls over compliance and financial reporting, the organization’s financial statements and schedule of expenditures of federal awards could be materially misstated. Questioned Costs: None. Repeat Finding: No. Recommendation: We recommend that management review and strengthen its internal controls surrounding expense accruals for vendor and subrecipient payments for services rendered during the audit period but made after year-end and reconcile grant revenues and expenditures to ensure each are properly recognized and incurred, respectively. Views of responsible officials: The outsourced accounting firm will create and execute a year-end process that will analyze all payments made during the 60 days following the fiscal year-end to ensure that expenses are recorded in the correct fiscal year. This process will ensure the Schedule of Expenditures of Federal Awards (SEFA) is reported properly. The grant program manager will ask vendors to submit their invoices for services rendered through the fiscal year end to Cure HHT within 30 days of the fiscal year end. Each grant contract year differs from the Cure HHT fiscal year. Cure HHT will create and execute a grant reconciliation process that involves financial reporting from the outsourced accounting firm, members of the outsourced accounting team, Cure HHT grant managers, and Cure HHT management to validate that all cost reimbursable grants recognize revenue as costs are incurred. All parties will ensure appropriate accounting processes and controls are in place on an ongoing basis. The reconciliation process will take place monthly and at fiscal year-end.

Reference Number: 2021-001 Federal Agency: Department of the Treasury Federal Agency: Department of the Treasury Federal Program Name: Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) Assistance Listing Number: 21.027 Federal Award Identification Number and Year: SLRFP 3389 ; 2021 Award Period: March 3, 2021 ? December 31, 2024 Compliance Requirements: Allowable Activities Type of Finding: Significant Deficiency in Internal Control over Compliance, Other Matters Criteria or specific requirement: Recipients may use Fund payments for any eligible expenses subject to the restrictions set forth in sections 602 and 603 of the Social Security Act as added by section 9901 of the American Rescue Plan Act of 2021. Revenue loss in and of itself is not an eligible use. Instead, recipients calculate lost revenue based on the formula provided in the Interim Final Rule to determine the limit for the amount of CSLFRF funds that can be used for the ?provision of government services." Condition: The City utilized CSLFRF to replace lost revenue within the Transit fund. The City applied CSLFRF funds to cover expenditures, then subsequently applied these expenditures to another funding source. The City corrected the error in fiscal year 2022. Questioned costs: $349,386 Context: The expenditures cover by CSLFRF were related to government services, however, another funding source was available to charge these expenditures and management applied the expenditure to those funds. Cause: The City applied CSLFRF to the Transit fund without recognizing other funding sources were still outstanding and available to cover expenses in the Transit fund. Effect: CSLFRF was drawn to cover expenditures which were already funded by other sources. Repeat Finding: No Recommendation: We recommend that the City consider other outstanding funding opportunities prior to apply additional lost revenue provisions of CSLRFR. Views of responsible officials: There is no disagreement with the audit finding.

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