BOYD COUNTY FISCAL COURT

Federal Program: CFDA #21.019 Coronavirus Relief Funds Federal Agency: U.S. Department of Treasury Pass Through Agency: Kentucky Department for Local Government Compliance Area: Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Period of Performance Questioned Costs: None Modified Opinion: Adverse Federal Program: CFDA #97.036, Public Assistance Grant Federal Agency: U.S. Department of Homeland Security Pass Through Agency: Kentucky Emergency Management Compliance Area: Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Period of Performance, Reporting, and Special Tests and Provisions Questioned Costs: None Modified Opinion: Disclaimer The fiscal court did not implement adequate internal controls over federal programs. There are no procedures or review processes in place to ensure that compliance requirements are met for all federal programs. The fiscal court does not define, maintain, or periodically evaluate the skills and expertise needed among its members to enable them to ask probing questions of employees managing federal programs and to take commensurate action. Further, the fiscal court does not maintain an organizational structure that facilitates effective reporting and other communications about internal control over compliance among various functions and positions of management. The fiscal court does not have job descriptions for employees managing federal programs nor have they documented significant processes that explain the flow of transactions, controls to address key risk areas, and related reporting responsibilities. No processes are in place to evaluate the performance of individuals and teams against the entity?s expected standards of conduct. The fiscal court also does not offer the training needed to attract, develop, and retain sufficient and competent personnel. The fiscal court believed that they had appropriate procedures in place and did not realize that they were not sufficient. The fiscal court budgets for training in every department, however, training is not mandatory and the fiscal court does not ensure that training is sufficient for relevant employees. The fiscal court also believed that they were using job descriptions for employees outlined in the County Budget Preparation and State Local Finance Officer Policy Manual, however, the positions of employees managing the federal programs are not outlined in the budget manual. Failure to implement internal controls over federal programs creates a greater risk that compliance requirements will not be met and increases the risk of undetected errors or misappropriation due to fraud. Due to the lack of internal controls, there were several instances of non-compliance including: the fiscal court?s schedule of expenditures of federal awards was materially misstated, ineligible expenses were submitted for reimbursement, and auditors were unable to obtain sufficient audit evidence to substantiate amounts. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (Uniform Guidance) 2 CFR ?200.303 Internal Controls 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). (b) Comply with Federal Statues, regulations, and the terms and conditions of the Federal awards. (c) Evaluate and monitor non-Federal entity?s compliance with statutes, regulations and the terms and conditions of Federal awards. (d) Take prompt action when instances of noncompliance are identified including noncompliance identified in audit findings. (e) Take reasonable measures to safeguard protected personally identifiable information and other information the Federal awarding agency or pass-through entity designated as sensitive or the non- Federal entity considers sensitive consistent with applicable Federal, state, local, and tribal laws regarding privacy and obligations of confidentiality. We recommend the fiscal court implement procedures to ensure that federal programs are meeting all compliance requirements. There should be review procedures in place to ensure that all federal expenditures are allowable and fall within the correct period of performance for each federal program. The fiscal court should have job descriptions for all employees and document significant processes that explain the flow of transactions, controls to address key risk areas, and related reporting responsibilities. The fiscal court should also ensure that all employees receive sufficient training in relevant areas to ensure that they attract, develop, and retain sufficient and competent personnel.

Federal Program: CFDA 21.019 Coronavirus Relief Fund Award Number and Year: 2100000016, Reimbursement #1 Name of Federal Agency and Pass-Through Agency: U.S. Department of Treasury and Kentucky Department for Local Government Compliance Requirements: Activities Allowed/ Unallowed, Allowable Costs and Cost Principles, and Period of Performance Type of Finding: Material Weakness, Noncompliance Amount of Questioned Costs: $51,848 Modified Opinion: Adverse The Boyd County Fiscal Court submitted payroll expenses that did not qualify for reimbursement from the Coronavirus Relief Fund (CRF) administered by the Commonwealth of Kentucky?s Department for Local Government (DLG). During testing, the following questioned costs were noted: ? The fiscal court submitted payroll expenses incurred prior to March 1, 2020 for reimbursement from the CRF. The ineligible expense was for the sheriff?s department payroll that was paid on March 13, 2020. The payroll submission causing questioned costs ran from February 24, 2020 through March 10, 2020, which included six days outside the CRF?s prescribed period of performance. The amount of the county?s sheriff?s department gross payroll for the days in February being questioned is $27,707. ? There were two instances in which an employee left employment through the county and received a vacation and compensatory balance payout. These payouts, totaling $9,559, were submitted for reimbursement from the CRF. ? There were eleven instances, totaling $7,250, in which the fiscal court received reimbursement from the CRF for salaries that were already reimbursed through other federal grants. ? The fiscal court submitted school resource officer salaries for reimbursement from the CRF in which a portion, totaling $7,332, was already reimbursed from a school district. The total amount of questioned costs submitted for reimbursement from the Coronavirus Relief Fund is $51,848. February 2020 (Prior to period of performance): Questioned costs were computed based on the cost of the county?s sheriff department?s payroll for the period of February 24, 2020 through February 29, 2020, which we were included in the March 13, 2020 payroll submission. The amount of the county sheriff department?s gross payroll for the days in February being questioned is $27,707. Vacation and Comp time payout: The test of timesheets noted that for two employees there was a calculation for vacation time and compensatory time payout included in their total payroll. The reimbursement request submitted for Coronavirus Relief Funds was reviewed to see if these amounts were included in the request and they were. The vacation time and compensatory time is shown separately on the employee?s pay stubs, which is the amount of total questioned costs. Total vacation and compensatory time payout for the two employees is $9,559. Federal Grant ? double reimbursement: Questioned costs were identified during the test of timesheets when federal overtime recorded for some sheriff?s deputies was noted. When comparing federal overtime reimbursement requests for High Intensity Drug Trafficking Areas (HIDTA) and from federal Highway Safety grant, several instances were noted in which the fiscal court was reimbursed for salaries that were also reimbursed from these grants, totaling $7,250. School Resource Officer: Auditor is familiar with school resource officer (SRO) procedures, therefore, knew that the school districts pay for half of the school resource officer?s salary. Upon review of CRF reimbursement request and SRO?s pay stubs, the entire pay of this officer was reimbursed from CRF. Auditor then contacted the sheriff?s office to get documentation of the school district reimbursing the sheriff?s office for the SRO?s salary. The school district reimbursed a flat amount ($11,000) for January 2020 through June 2020 (six months). The flat amount ($11,000) was divided by six and determined that the school district reimbursed $1,833 for each month, including 4 months during the grant period of performance. Auditor multiplied $1,833 by four to determine a total questioned cost of $7,332. The fiscal court did not have controls in place to ensure that staff knew the requirements and did not monitor or review to make sure requirements were followed. According to the human resource director, who completed the request for reimbursement from Coronavirus Relief Funds, she was unaware that the sheriff?s office received reimbursement from other agencies and/or grants. As a result, the Boyd County Fiscal Court submitted payroll 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 $51,848 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 Initial guidance released on April 22, 2020, provided that the cost of an expenditure is incurred when the recipient has expended funds to cover the cost. Upon further consideration and informed by an understanding of State, local, and tribal government practices, Treasury is clarifying that for a cost to be considered to have been incurred, performance or delivery must occur during the covered period but payment of funds need not be made during that time (though it is generally expected that this will take place within 90 days of a cost being incurred).? Additionally, 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 Boyd County Fiscal Court contact the Department for Local Government (DLG) for guidance on how to resolve these issues. We also recommend the Boyd County Fiscal Court strengthen controls over federal awards by implementing a review process to catch and resolve these matters going forward.

Federal Program: CFDA #97.036, Public Assistance Grant Federal Agency: U.S. Department of Homeland Security Pass Through Agency: Kentucky Emergency Management Compliance Area: Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Period of Performance, Reporting, and Special Tests and Provisions Questioned Costs: None Modified Opinion: Disclaimer We were unable to obtain sufficient and appropriate audit evidence supporting the compliance of Boyd County Fiscal Court with CFDA 97.036 Public Assistance Grant. The county provided auditors with an updated Schedule of Expenditures of Federal Awards (SEFA) that included $1,033,104 in CFDA 97.036 Public Assistance Grant funds. However, auditors were unable to substantiate the source of this number or trace it to the county?s underlying financial records. Based on information obtained, there are 22 instances of known expenses that were omitted from the SEFA totaling $313,206. Further, there were eight expenditures included on the SEFA totaling $17,988 that were included on the SEFA but were actually outside the fiscal year and should not have been included. The fiscal court was aware of this requirement but failed to fulfill the requirement to prepare and submit the SEFA to DLG. The misstatement is the result of a lack of knowledge on the correct way to track and report federal expenditures. The county treasurer prepared the original SEFA based on grant awards received rather than grant funds expended. The fiscal court failed to implement internal control procedures to ensure the SEFA was accurate and complete. As a result, we were unable to determine whether Boyd County Fiscal Court complied with those requirements applicable to that program. KRS 68.210 gives the state local finance officer the authority to prescribe a uniform system of accounts. Pursuant to KRS 68.210, the state local finance officer has prescribed minimum accounting and reporting standards in the Department for Local Government?s County Budget Preparation and State Local Finance Officer Policy Manual, which on page 54 states that a Schedule of Expenditures of Federal Awards is required to be maintained under the uniform system of accounts. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (Uniform Guidance) 2 CFR ?200.502 Basis for determining Federal awards expended. (a) Determining Federal awards expended. The determination of when a Federal award is expended must be based on when the activity related to the Federal award occurs. Generally, the activity pertains to events that require the non-Federal entity to comply with Federal statutes, regulations, and the terms and conditions of Federal awards, such as: expenditure/expense transactions associated with awards including grants, costreimbursement contracts under the FAR, compacts with Indian Tribes, cooperative agreements, and direct appropriations; the disbursement of funds to subrecipients; the use of loan proceeds under loan and loan guarantee programs; the receipt of property; the receipt of surplus property; the receipt or use of program income; the distribution or use of food commodities; the disbursement of amounts entitling the non-Federal entity to an interest subsidy; and the period when insurance is in force. (b) Loan and loan guarantees (loans). Since the Federal Government is at risk for loans until the debt is repaid, the following guidelines must be used to calculate the value of Federal awards expended under loan programs, except as noted in paragraphs (c) and (d) of this section: (1) Value of new loans made or received during the audit period; plus (2) Beginning of the audit period balance of loans from previous years for which the Federal Government imposes continuing compliance requirements; plus (3) Any interest subsidy, cash, or administrative cost allowance received. 2 CFR ?200.510 Financial Statements (b) Schedule of expenditures of Federal awards. The auditee must also 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 Basis for determining Federal awards expended. While not required, the auditee may choose to provide information requested by Federal awarding agencies and pass-through entities to make the schedule easier to use. For example, when a Federal program has multiple Federal award years, the auditee may list the amount of Federal awards expended for each Federal award year separately. At a minimum, the schedule must: (1) List individual Federal programs by Federal agency. For a cluster of programs, provide the cluster name, list individual Federal programs within the cluster of programs, and provide the applicable Federal agency name. For R&D, total Federal awards expended must be shown either by individual Federal award or by Federal agency and major subdivision within the Federal agency. (2) For Federal awards received as a subrecipient, the name of the pass-through entity and identifying number assigned by the pass-through entity must be included. (3) Provide total Federal awards expended for each individual Federal program and the CFDA number or other identifying number when the CFDA information is not available. For a cluster of programs also provide the total for the cluster. (4) Include the total amount provided to subrecipients from each Federal program (5) For loan or loan guarantee programs described in ?200.502 Basis for determining Federal awards expended, paragraph (b), identify in the notes to the schedule the balances outstanding at the end of the audit period. This is in addition to including the total Federal awards expended for loan or loan guarantee programs in the schedule. (6) Include notes that describe that significant accounting policies used in preparing the schedule? We recommend the fiscal court provide knowledgeable and independent oversight of SEFA preparation and ensure staff responsible for it do an effective job, perform a detailed reconciliation of the federal assistance reported by the treasurer, and establish reporting guidance and assistance to the treasurer to ensure timely, accurate and consistent information and periodically assess the effectiveness of the treasurer?s records to ensure accurate reporting.