CITY OF MILAN

Inaccurate Grant Reporting (Material Weakness) Assistance Listing: 10.766 Federal Program: Community Facilities Loans and Grants Condition: During our audit, the City did not identify and report federal expenditures related to Community Facilities Loans and Grants (Assistance Listing 10.766) on the originally issued SEFA for the year ended June 30, 2024. As a result, the SEFA did not include the expenditures associated with Assistance Listing 10.766, which affected the completeness of the SEFA and the related major program determination. The underlying loan and loan activity were properly recorded and disclosed in the basic financial statements. The deficiency was limited to the identification and reporting of the federal award on the SEFA, which in turn affected major program determination for single-audit purposes. Criteria: In accordance with 2 CFR §200.510(b) and 2 CFR §200.518, the City is responsible for preparing a complete and accurate SEFA that includes all federal awards expended during the fiscal year, including loan programs, and for identifying federal programs and determining which programs are major for purposes of the Uniform Guidance single audit. Cause: Management’s SEFA preparation and review procedures were not sufficiently designed and/or operating effectively to: 1) identify all federal programs and Assistance Listings applicable to the City’s activities, including loan programs; and 2) ensure amounts recorded in the general ledger and related financial statement balances were appropriately evaluated for federal award classification and SEFA inclusion (including evaluating whether activity recorded as loans payable/receivable or related loan activity represented federal awards expended for SEFA reporting). Effect: The omission of Assistance Listing 10.766 from the originally issued SEFA caused: 1) total federal expenditures reported on the SEFA to be understated; and 2) an error in the identification and reporting of the City’s federal award activity, which could affect the auditor’s understanding of the City’s federal award universe and the overall major program risk assessment and determination under Uniform Guidance. Questioned Cost: None Repeat Finding: Yes Recommendation: We recommend that the City strengthen internal control over compliance related to SEFA preparation and Uniform Guidance single-audit reporting by implementing procedures to ensure all federal programs are identified and properly reported on the SEFA, including loan programs. Such procedures should include at a minimum: 1) maintaining a complete listing of all federal programs (by Assistance Listing, awarding agency/pass-through entity, and award/loan identifiers) applicable to the fiscal year; 2) performing a formal annual SEFA planning process that includes inquiry of finance and program personnel and review of grant/loan agreements and communications from federal/pass-through entities to identify all federal awards; 3) incorporating targeted procedures to identify federal loan programs and related expenditures/loan balances that must be included on the SEFA, including reconciliation of loan activity and balances to SEFA amounts and required SEFA disclosures; and 4) performing an independent review of the draft SEFA and the major program determination to confirm completeness and accuracy prior to issuance. Response: The City will strengthen internal controls over SEFA identification and preparation to ensure compliance with Uniform Guidance single-audit requirements. The City will also implement enhanced review and communication procedures with external auditors, as the condition was significantly impacted by deficiencies in the auditors’ evaluation and classification of major programs during the audit process.