Knott County Fiscal CourtLocal Government

Knott County Fiscal Court Did Not Maintain Proper FEMA Documentation Federal Program: Assistance Listing #97.036 FEMA Public Assistance Program Award Number and Year: FEMA-4663DRKYP00000001 2022 Name of Federal Agency and Pass-Thru Agency: U. S. Department of Homeland Security and State Department of Military Affairs Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Period of Performance Type of Finding: Material Weakness, Noncompliance Amount of Questioned Costs: $1,212,805 COVID Related: No Knott County had severe flooding in July of 2022. This event qualified Knott County Fiscal Court to receive federal funding to recover from the disaster. Paperwork is maintained to document and track work that is necessary and to determine the portion eligible for coverage by FEMA. The fiscal court did not maintain proper FEMA documentation. Out of 36 disbursements tested, 11 did not have any accompanying information that would detail the expected scope of work or cost. The 11 disbursements that did not have appropriate documentation totaled $1,212,805 in questioned cost. The fiscal court has not sufficiently overseen the expenditure of federal funds and did not prioritize the implementation of an effective internal control system. Tracking of the FEMA projects was consistently executed on completed projects but was not available for the in-progress projects that were tested. The lack of documentation to appropriately connect the disbursements to FEMA authorized work resulted in the determination that the county was not in compliance with the applicable attributes. An inaccurate implementation of controls and the lack of management oversight and involvement can cause noncompliance with federal requirements and jeopardize the fiscal court’s future funding. The lack of appropriate documentation also prevented the ability to rely on supplementary information, such as the Schedule of Expenditures of Federal Awards. 2 CFR part 200 Uniform Administrative Requirements, Cost Principles, And Audit Requirements For Federal Awards provides guidance on Federal regulations pertaining to Federal Awards. 2 CFR 200.306, regarding cost sharing or matching, states that any shared costs or matching funds must meet all of the following criteria: verifiable from the non-Federal entity’s records; not included as contributions for any other Federal award; necessary and reasonable for accomplishment of project or program objectives; allowable under subpart E of this part; not paid by the Federal Government under another Federal award except where allowed; provided for in the approved budget when required by the Federal awarding agency; and conform to other provisions of this part, as applicable. 2 CFR 200.318(i), regarding general procurement standards, requires Non-Federal entities to maintain records sufficient to detail the history of procurement. These records will include, but are not limited to, the rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the basis for the contract price. 2 CFR 200.329, concerning monitoring and reporting program performance, states that the non-Federal entity is responsible for oversight of the operations of the Federal award supported activities. The non-Federal entity must monitor its activities under Federal awards to assure compliance with applicable Federal requirements and performance expectations are being achieved. Monitoring by the non-Federal entity must cover each program, function, or activity. We recommend the Knott County Fiscal Court implement adequate internal controls to ensure federal compliance requirements are met. In addition, the fiscal court should maintain documentation for all project activity to effectively track work that is necessary and to determine the portion eligible for coverage under Federal programs.

The Knott County Fiscal Court Has Received Reimbursement For $245,877 In Unallowed And Questioned Costs For The Coronavirus Relief Fund Federal Program Federal Program: COVID-19 Coronavirus Relief Fund ALN 21.019 Award Number and Year: Fiscal Year 2021 Name of Federal Agency and Pass-Thru Agency: U.S. Department of the Treasury, passed through the Kentucky Department for Local Government Compliance Requirements: Activities Allowed or Unallowed, Allowable Cost/Cost Principles, Period of Performance Type of Finding: Material Noncompliance Amount of Questioned Costs: $245,877 Opinion Modification: Adverse COVID Related: Yes During fiscal year 2021, the Knott County Fiscal Court requested and received reimbursement from the Department for Local Government for Coronavirus Relief Fund (CRF) expenses totaling $386,622 related to coronavirus mitigation activities. Of this amount, $245,877 was for payroll expenses incurred and paid by the Kentucky River Regional Jail, a legally separate entity and a joint venture between Knott and Perry counties as is disclosed in Note 1 in ?Notes to Financial Statement.? The payroll expenses for the Kentucky River Regional Jail meet the requirements of permissible use of Fund payments according to the guidance in the Federal Register Volume 86 (86 FR 4182) published January 15, 2021 as correctional and detention officers are specifically noted as presumed to meet the requirements of employees who are substantially dedicated to coronavirus response activities. However, these payroll expenses were incurred and paid by the Kentucky River Regional Jail not the Knott County Fiscal Court. The Knott County Fiscal Court has retained the funds reimbursed for these eligible payroll expenses. In order for costs to be allowable under the Coronavirus Relief Fund, the entity must have incurred an eligible expense during the period of performance. The fiscal court did not have adequate internal controls in place to ensure material compliance with all federal programs. Management believed the payroll expenses incurred by the Kentucky River Regional Jail could be received and retained by the Knott County Fiscal Court because the fiscal court provides operating revenue to the jail via payments for housing inmates and other payments as established in the Interlocal Cooperation Agreement. However, these payments to the jail do not meet the requirements of Activities Allowed or Allowable Cost under the guidance provided in the Federal Register Volume 86 as these expenses were already an established part of the county?s budget and the actual payroll expenses, submitted for reimbursement, were not expenses incurred by the county. The Knott County Fiscal Court requested and received reimbursement totaling $245,877 from the Coronavirus Relief Fund (CRF) for expenses that were not incurred by the fiscal court. These costs will be reported as questioned costs and result in a material non-compliance and a modified opinion for the county?s compliance with Activities Allowed or Unallowed, Allowable Cost/Cost Principles, and Period of Performance compliance requirements for the major program identified for fiscal year ended June 30, 2021. Due to the unprecedented nature of coronavirus relief efforts and since Coronavirus Relief Fund (CRF) payments have been deemed high risk by guidance in 2 CFR Part 200 Appendix XI, we tested all items submitted for reimbursement for CRF. Known questioned costs total $245,877 and were computed using supporting documentation the entity submitted with the reimbursement request for Coronavirus Relief Fund. Guidance for compliance with Coronavirus Relief Fund (CRF) distributions is outlined in 2 CFR Part 200 Appendix XI, which further directs auditees to the Frequently Asked Questions section of the Federal Register in order to determine allowability of costs in accordance with the goals and intentions of the federal program. Section 601(a) of the Social Security Act, as added by section 5001(a) of Division A of the Coronavirus Aid, Relief, and Economic Security (CARES) Act established the Coronavirus Relief Fund. Under the CARES Act, the Fund is to be used to make payments for specified uses to States 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; and 3. were incurred during the period that begins on March 1, 2020 and ends on December 31, 2021. We recommend the Knott County Fiscal Court consult with the Department for Local Government to determine a satisfactory resolution to address these questioned costs. Further, we recommend the fiscal court establish adequate internal controls to ensure compliance with all requirements applicable to federal programs. We will refer this matter to the Department for Local Government.