MARTIN COUNTY FISCAL COURTLocal Government

2021-005 The Martin County Fiscal Court Submitted Ineligible Expenses For Federal Reimbursement From The Coronavirus Relief Fund Federal Program: ALN 21.019 COVID-19 Coronavirus Relief Fund Award Number and Year: 2100000009, C-104 Name of Federal Agency and Pass-Through Agency: U.S. Department of Treasury and Kentucky Department for Local Government Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/ Cost Principles Type of Finding: Material Weakness and Noncompliance Amount of Questioned Costs: $68,312 Modified Opinion: Adverse The Martin County Fiscal Court submitted expenses that either did not qualify for reimbursement or were not allowable due to not following proper procurement procedures. Total questioned costs of $68,312 were noted for this major program. The county performed computer upgrades for the offices in the Martin County Courthouse. The county did not follow proper procurement procedures and failed to bid the technology and associated labor for these upgrades that totaled $68,190. There were two instances where the county paid sales tax for purchases and were reimbursed with federal funds that totaled $122. The county was under the understanding that since an emergency declaration had been made that the bid requirements were not applicable to the situation. In addition, controls in place were not effective to prevent the payment of sales tax. As a result, the county submitted expenses that did not qualify for reimbursement from the Coronavirus Relief Fund administered by the Commonwealth of Kentucky?s Department for Local Government (DLG). This resulted in $68,312 of questioned costs. The Coronavirus Aid, Relief, and Economic Security Act (?CARES Act?) established the Coronavirus Relief Fund (the ?Fund?) and appropriated $150 billion for payments by Treasury to States, tribal governments, and certain local governments. The CARES Act provides that payments from the Fund may only be used to cover costs that? 1. are necessary expenditures incurred due to the public health emergency with respect to the Coronavirus Disease 2019 (COVID-19); 2. were not accounted for in the budget most recently approved as of March 27, 2020 (the date of enactment of the CARES Act) for the State or government; and 3. were incurred during the period that begins on March 1, 2020, and ends on December 31, 2021. Additionally, 2 CFR 200.303 states: ?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.? We recommend the county establish and maintain effective internal control over federal awards 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. We also recommend the county contact the Department for Local Government for guidance on how to resolve this issue. Views of Responsible Official and Planned Corrective Action: County Judge/Executive Colby Kirk?s Response: The county sought guidance from a trusted party who indicated that the procedure we followed was allowable. This was reimbursement grant, and the DLG approved the submission and reimbursement. See 2021-001 for corrective actions.

The Martin County Fiscal Court Did Not Have Effective Internal Controls Over Federal Expenditures Federal Program: CFDA 12.127 Southern and Eastern Environmental Infrastructure Award Number and Year: 2016 Name of Federal Agency and Pass-Through Agency: U.S. Department of Defense and Kentucky Department of Military Affairs Compliance Requirements: Procurement, Suspension, and Debarment Type of Finding: Material Weakness Amount of Questioned Costs: $0 The Martin County Fiscal Court failed to implement effective internal controls over federal expenditures. Program expenditures totaling $1,195,338 were tested giving 100% coverage. Numerous weaknesses were noted which significantly increase the risk of fraud, misappropriation of funds, and noncompliance with federal funds. During testing the following was noted: ? The fiscal court used restricted federal funds to operate the county. (See Finding 2019-008) ? No purchase orders were maintained for federal expenditures for the 14 transactions that were tested. ? Seven of the 14 transactions tested were not paid within 30 working days. ? The fiscal court was advanced funds; however, waited 18 months to make full payment to the vendor. (See Finding 2019-009) ? The fiscal court did not monitor the contractor for Davis Bacon requirements. (See Finding 2019-010) ? The fiscal court did not monitor for the suspension and debarment requirement. The fiscal court has not sufficiently overseen the expenditure of federal funds and did not prioritize implementation of an effective internal control system. An inaccurate implementation of controls and lack of management oversight and involvement can cause noncompliance with federal requirements and jeopardize the fiscal court?s future funding. Uniform Guidance 2 CFR ?200.303 states ?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.? We recommend the fiscal court implement adequate internal controls to ensure federal compliance requirements are met.

The Martin County Fiscal Court Has $75,000 Of Questioned HUD Funds Federal Program: CFDA 14.U01 Fair Housing Act (VIII) Award Number and Year: 1996 Name of Federal Agency and Pass-Through Agency: Department of Housing and Urban Development and Kentucky Department for Local Government Compliance Requirements: Activities Allowed/Unallowed Type of Finding: Material Weakness Amount of Questioned Costs: $75,000 On July 10, 2018, the fiscal court wrote a check from the HUD escrow account to the Martin County Sheriff?s office in the amount of $75,000 for a police contract. The funds that are deposited into the HUD escrow account are the rental payments from tenants that have received housing. The CFDA number for this federal program was not provided by the fiscal court. Additional time and research from the auditors was done to obtain the CFDA number. The fiscal court has cash flow issues and decided to use restricted federal funds to operate the county. The sheriff?s fund owes the HUD fund $75,000 increasing the deficit fund balance to $267,951 as of June 30, 2019. According to Section 3 of the HUD grant agreement, these funds are to be spent on replacing existing roofing material and sheathing, installation of permanent block foundation, doors and windows, exterior siding, insulation, replacement of damaged sheetrock, heating and cooling systems, replacement of existing plumbing and electrical system, installation of a potable drinking water supply and septic system, and renovations for handicapped accessibility. We recommend the fiscal court not spend restricted funds to operate the county. In addition, we recommend the fiscal court immediately transfer these funds back to the HUD fund.

The Martin County Fiscal Court Failed To Implement Adequate Internal Controls Over Cash Management Of Federal Funds Federal Program: CFDA 12.127 Southern and Eastern Environmental Infrastructure Award Number and Year: 2016 Name of Federal Agency and Pass-Through Agency: U.S. Department of Defense and Kentucky Department of Military Affairs Compliance Requirements: Cash Management Type of Finding: Material Weakness, Noncompliance Amount of Questioned Cost: $0 Opinion Modification: Qualified During the test of federal awards, we found that an invoice was reimbursed before the contractor was paid. The invoice was dated February 28, 2017, in the amount of $92,750. On October 26, 2017, the fiscal court approved a payment to the vendor in the amount of $92,750. The fiscal court made the first payment for this invoice on May 31, 2018, in the amount of $63,049.89, leaving an unpaid balance of $29,700.11, which was paid on September 6, 2018. The check stub is dated October 26, 2017; however, the check isn?t dated until May 31, 2018, which shows the check was originally dated the day of the fiscal court meeting approved payment for the invoice. The first reimbursement from the federal agency was received and deposited in August 2017, in the amount of $63,049.89. Therefore, according to documentation, the fiscal court received reimbursement for an expenditure 18 months before the vendor was paid in full. After the fiscal court approved the payment, the treasurer chose to withhold the payment to the vendor for seven months and did not pay the invoice in full at that time. However, reimbursement for the payment to the vendor was requested and received from the federal agency. It is not clear why the payment was withheld. The county was not in compliance with federal cash management requirements. These delays in payment of invoices could create errors in recording or allow for the possibility of misappropriation of assets. In addition, internal control weaknesses and noncompliance with grant agreements could affect the county receiving federal funds in the future. Per the grant agreement for the county to receive reimbursement of funds, they must submit a ?sufficient invoice?. A ?sufficient invoice? per the agreement must contain the following (1) a written certification by the Non-Federal Sponsor (county) to the Government that it has made specified payments to contractors, suppliers, or employees for performance of work in accordance with this Agreement, or a written certification by the Non- Federal Sponsor (county) to the Government that it has received bills from contractors, suppliers, or employees for performance of work in accordance with this Agreement; (2) copies of all relevant invoices and evidence of such payments or bills received; (3) written identification of such costs that have been paid with Federal program funds and a copy of the written verification from the Federal agency that provided the funds; and (4) a written request for reimbursement for the amount of such specified payments or bills received. Uniform Guidance 2 CFR ?200.303 states ?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.? We recommend the fiscal court implement procedures to comply with all federal compliance requirements and all Federal and State laws regarding grant agreements.

The Martin County Fiscal Court Failed To Implement Adequate Internal Controls Over Special Tests and Provisions - Davis Bacon Requirements Federal Program: CFDA 12.127 Southern and Eastern Environmental Infrastructure Award Number and Year: 2016 Name of Federal Agency and Pass-Through Agency: U.S. Department of Defense and Kentucky Department of Military Affairs Compliance Requirements: Special Tests and Provisions Type of Finding: Material Weakness, Noncompliance Amount of Questioned Cost: None Opinion Modification: Qualified The fiscal court failed to implement adequate internal controls over the Special Tests and Provisions - Davis Bacon requirements. The fiscal court contracted with a third party that oversaw the planning, design, inspection services, environmental services, and construction administration for the project. The agreement with this third party does not state the construction of this project is subject to the wage rate requirements and the Department of Labor regulations. These items are federal government requirements. In addition, the contractor did not submit weekly, when work was performed, a copy of the payroll and a statement of compliance to the fiscal court. When payrolls were recalculated, immaterial discrepancies were found. The fiscal court did not monitor the third party contractor as required to ensure that the federal requirement was met and did not ensure the contract contained the required Davis Bacon provision. When grantees do not follow federal requirements, they cannot ensure that charges to the federal grant are accurate and federal compliance requirements are adhered to. Without good internal controls, the fiscal court cannot ensure that resources are protected from waste, loss, and misuse. These deficiencies could create errors in recording or allow for the possibility of misappropriation of assets. In addition, internal control weaknesses and noncompliance with grant agreements could affect the county?s ability to receive federal funds. Uniform Guidance 2 CFR ?200.303 states ?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.? It is the fiscal court?s responsibility to monitor the third party contractor to ensure that the federal requirement was being met. According to 29 CFR part 5 ?non-federal entities shall include in their construction contracts subject to the Wage Rate Requirements a provision that the contractor or subcontractor comply with those requirements and the Department of Labor (DOL) regulations. This includes a requirement for the contractor or subcontractor to submit to the non-federal entity weekly, for each week in which any contract work is performed, a copy of the payroll and a statement of compliance (certified payroll).? We recommend the fiscal court implement adequate internal controls over federal programs to ensure compliance with applicable federal, state, and local laws.