CLARK COUNTY FISCAL COURTLocal Government

Federal Program: 21.019 Coronavirus Relief Fund Award Number and Year: C139 and C2-069 Name of Federal Agency and Pass-Through Agency: U.S. Department of the Treasury and Kentucky Department for Local Government Compliance Requirements: Activities Allowed/Unallowed, Allowable Costs/Principles Type of Finding: Noncompliance Amount of Questioned Costs: $214,179 Modified Opinion: Adverse This is a repeat finding and was included in prior year audit report as finding 2020-009. The Clark County Fiscal Court submitted payroll expenses that did not qualify for reimbursement from the U.S. Department of Treasury’s Coronavirus Relief Fund (CRF) passed through from the Commonwealth of Kentucky’s Department of Local Government (DLG). During testing, the following questioned costs were noted, totaling $214,179 for year ended June 30, 2021: • FICA employer match calculation was incorrect on report submitted for reimbursement. When calculating FICA on the report submitted the former treasurer and finance officer did not use what was on the actual payroll summaries, but instead used a calculation in Excel. This calculation didn’t consider employe paid insurances that was not to be included in taxable wages that resulted in an overage request in reimbursement, and • There were several instances of the wrong amount being submitted for retirement for an employee, and • There was one month of payroll (October 2020) that was submitted for reimbursement twice. The prior year audit, which ended June 30, 2020, determined there were questioned costs totaling $19,773 and there were $214,179 for the year ended June 30, 2021, resulting in a total of $233,952 in questioned costs for this grant. The fiscal court did not have controls in place to ensure that staff knew the federal program requirements and did not monitor or review documentation to make sure requirements were followed. 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 $214,179 of questioned costs for the year ended June 30, 2021.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. we’re 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, CFR 200.303 states: “The non-Federal entity must 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 of Local Government for guidance on how to resolve this issue.

Federal Program: 21.019 Coronavirus Relief Fund Award Number and Year: C139 and C2-069 Name of Federal Agency and Pass-Through Agency: U.S. Department of the Treasury and Kentucky Department for Local Government Compliance Requirements: Activities Allowed/Unallowed, Allowable Costs/Principles Type of Finding: Noncompliance Amount of Questioned Costs: $214,179 Modified Opinion: Adverse This is a repeat finding and was included in prior year audit report as finding 2020-008. The fiscal court did not implement adequate internal controls over federal program, CFDA 21.019, Coronavirus Relief Fund. There were no procedures or review processes in place to ensure that compliance requirements were met for this federal program. The fiscal court did not define, maintain, or periodically evaluate the skills and expertise needed among its members to enable them to ask relevant questions of financial staff related to the federal program oversight. Further, the fiscal court did not maintain an organizational structure that facilitated effective reporting and other communications about internal control over compliance among various functions and positions of management. The fiscal court did not have job descriptions for employees managing federal programs nor did they document significant processes that explain the flow of transactions, controls to address key risk areas, and related reporting responsibilities. The fiscal court staff 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 staff 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 in financial reporting, or misappropriation of federal funds due to fraud. Due to the lack of internal controls, the county was noncompliant with federal requirements over CFDA 21.019, resulting in ineligible expenditures. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (Uniform Guidance) §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. Strong internal controls dictate that management should implement procedures to ensure that there is compliance with requirements related to federal funds received and expended, including providing adequate training to staff overseeing these procedures. To ensure these procedures are properly implemented by staff, the procedures should be in writing and easily accessible for staff to refer to while performing their job duties. Further, management should ensure that staff overseeing controls and compliance related to federal funds are continually and adequately trained to allow them to meet internal control and compliance requirements We recommend the fiscal court, in regard to controls over compliance for CFDA 21.019: 1. Implement procedures to ensure that expenditures related to the federal program meet all federal compliance requirements, including documented review procedures to ensure that all federal expenditures are allowable and fall within the correct period of performance, 2. document job descriptions for all employees and significant processes that explain the flow of transactions, controls to address key risk areas, and related reporting responsibilities, and 3. ensure that all employees receive sufficient training in relevant areas to ensure that they develop and retain sufficient and competent personnel to oversee the federal program compliance.

Federal Program: CFDA #21.019 Covid-19 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 Questioned Costs: None The fiscal court did not implement adequate internal controls over federal programs. There were no procedures or review processes in place to ensure that compliance requirements were met for CFDA 21.019, Coronavirus Relief Fund. The fiscal court did not define, maintain, or periodically evaluate the skills and expertise needed among its members to enable them to ask relevant questions of financial staff related to the federal program oversight. Further, the fiscal court did not maintain an organizational structure that facilitated effective reporting and other communications about internal control over compliance among various functions and positions of management. The fiscal court did not have job descriptions for employees managing federal programs nor did they document significant processes that explain the flow of transactions, controls to address key risk areas, and related reporting responsibilities. The fiscal court staff 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 staff 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 in financial reporting, or misappropriation of federal funds due to fraud. Due to the lack of internal controls, the county was noncompliant with federal requirements over CFDA 21.019, resulting in ineligible expenditures, further described in finding 2020-010. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (Uniform Guidance) ?200.303 states: ?[t]he 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.? Strong internal controls dictate that management should implement procedures to ensure that there is compliance with requirements related to federal funds received and expended, including providing adequate training to staff overseeing these procedures. To ensure these procedures are properly implemented by staff, the procedures should be in writing and easily accessible for staff to refer to while performing their job duties. Further, management should ensure that staff overseeing controls and compliance related to federal funds are continually and adequately trained to allow them to meet internal control and compliance requirements. We recommend the fiscal court, in regards to controls over compliance for federal programs: 1. Implement procedures to ensure that expenditures related to the federal program meet all federal compliance requirements, including documented review procedures to ensure that all federal expenditures are allowable and fall within the correct period of performance, 2. Document job descriptions for all employees and significant processes that explain the flow of transactions, controls to address key risk areas, and related reporting responsibilities, and 3. Ensure that all employees receive sufficient training in relevant areas to ensure that they develop, and retain sufficient and competent personnel to oversee the federal program compliance.

Federal Program: 21.019 COVID-19 Coronavirus Relief Fund Award Number and Year: 2100000312, 2020 Name of Federal Agency and Pass-Through Agency: U.S. Department of the Treasury and Kentucky Department for Local Government Compliance Requirements: Activities Allowed/Unallowed Type of Finding: Noncompliance Amount of Questioned Costs: $19,773 The Clark County Fiscal Court submitted payroll expenses that did not qualify for reimbursement from the U.S. Department of Treasury?s Coronavirus Relief Fund (CRF) passed through from the Commonwealth of Kentucky?s Department of Local Government (DLG). During testing, the following questioned costs were noted, totaling $19,773: ? FICA employer match calculation was incorrect on report submitted for reimbursement. When calculating FICA on the report submitted the former treasurer and finance officer did not use what was on the actual payroll summaries, but instead used a calculation in Excel. This calculation didn?t take into account anything that needed to be backed out of FICA and resulting in $668 too much being requested in reimbursement, and ? There was one instance of the wrong amount being submitted for retirement for an employee totaling $19,105 too much requested. FICA Calculation: While comparing the documentation sent to the Department for Local Government (DLG) for reimbursement and payroll summaries the auditor noted that for 27 employees there was a calculation for FICA on the reimbursement report that did not match the payroll summary reports. It was determined that FICA was overstated on the report submitted to DLG for reimbursement in the amount of $668. Retirement Calculation: While comparing the documentation sent to the Department for Local Government (DLG) for reimbursement and payroll summaries the auditor noted that for one employees there was an error on the reimbursement report that did not match the payroll summary reports for the amount of retirement paid by the employer for the employee. It was determined that retirement was overstated on the report submitted to DLG for reimbursement in the amount of $19,105. The fiscal court did not have controls in place to ensure that staff knew the federal program requirements and did not monitor or review documentation to make sure requirements were followed as further described in finding 2020-008. As a result, the Clark County Fiscal Court submitted payroll expenses that did not qualify for reimbursement from the Coronavirus Relief Fund, resulting in $19,773 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, ?[t]he 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 Clark County Fiscal Court contact the Department for Local Government (DLG) for guidance on how to resolve these issues. We also recommend the Clark County Fiscal Court strengthen controls over federal awards by implementing a review process to catch and resolve these matters going forward.