HOT SPRINGS COUNTYLocal Government

Criteria An effective internal control structure of an entity will include policies and procedures to: 1. Protect its assets against theft and waste. 2. Ensure compliance with the entity?s policies, procedures, and statutory requirements. 3. Evaluate the performance of personnel to promote efficient operations. 4. Ensure accurate and reliable operating and accounting data. Segregation of duties is a basic, key internal control and often difficult to achieve, especially in a small organization. The concept is that one individual should not be able to handle or dominate transactions for initiation to posting in the general ledger with access to assets and accounting records. Condition The County has a limited number of accounting personnel and accordingly a proper segregation of duties does not exist. Cause Due to the size of the County, as measured by the scope, volume and complexity of the entity?s activities and financial transactions, it is not practical to employ sufficient staff to maintain an adequate segregation of duties at all times. Effect or Potential Effect The potential effect is an increase in the risk of fraud and undetected errors in the processing of financial transactions and material noncompliance with requirements of federal programs. Recommendation We recognize that that is impractical for the entity to employ sufficient staff to achieve complete segregation of duties over all transactions at all times. However, we feel the County Commissioners should be aware of this deficiency in internal control. The County Commissioners should formulate and follow oversight policies and procedures to mitigate the risk of the lack of segregation of duties. Views of Responsible Officials and Planned Corrective Actions See the following page(s) for the County?s response to this finding.

Criteria 2 CFR 200.303 requires that the entity establish and maintain effective internal controls over the Federal award that provides reasonable assurance that the entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Nonfederal entities are required to have certain written policies and procedures surrounding the management of their federal award funding. 2 CFR 200.302 Financial Management, Uniform Guidance require that entities receiving Federal Awards have written policies, ensuring procedures are in place for approval, budget, asset protection and training employees. Condition The County has not adopted policies and procedures to ensure that required internal controls for reporting are in place and operating sufficiently to ensure compliance with Uniform guidance. Questioned Costs None Cause As this is a repeat finding, the County was aware of the requirements, however, they are currently in the process of creating written policies and procedures pursuant to the Uniform Guidance. Effect or Potential Effect The County could be in violation with State and Federal regulations governing Federal awards. Recommendation We recommend that the County continue to work on creating policies and procedures and complete the process in a timely manner. Views of Responsible Officials and Planned Corrective Actions See the following page(s) for the County?s response to this finding.

Finding 2021-001: Segregation of Duties Criteria: An effective internal control structure of an entity will include policies and procedures to: 1. Protect its assets against theft and waste. 2. Ensure compliance with the entity's policies, procedures, and statutory requirements. 3. Evaluate the performance of personnel to promote efficient operations. 4. Ensure accurate and reliable operating and accounting data. One of the primary requirements of an effective system of internal control is the segregation of duties. Segregation of duties provides that one individual not be able to handle transactions from initiation to posting and/or have access to both assets and the accounting records. Separation of duties requires that someone other than the employee responsible for safeguarding the asset must maintain the accounting records for that asset. When an entity separates duties of the employees, it minimizes the probability of an error or irregularity occurring and not being detected on a timely basis. Segregation of duties is a deterrent to fraud as the conduct of fraudulent activity would require collusion with another person to accomplish the act. Statement of Condition: Segregation of duties at all times is not achieved due to the small size of the County's administrative staff. Questioned Costs:$0.00 Cause: Due to the size of your entity as measured by the scope, volume, and complexity of the entity's activities and financial transactions, it is not practical for you to employ sufficient staff to maintain an adequate segregation of duties at all times. Effect or Potential Effect: The potential effect of the internal control deficiency is an increase in the risk of fraud and undetected errors in the processing of financial transactions and material noncompliance with compliance requirements of Federal Programs. Recommendation: We recognize that it is impractical for the entity to employ sufficient staff to achieve complete segregation of duties over all transactions at all times. However, we feel this weakness in internal control should be pointed out to those charged with governance to highlight the significance of strong oversight by the Commissioners. The Commissioners must formulate oversight policies and procedures and perform them conscientiously to mitigate the risk of the lack of segregation of duties.

Finding 2021-002: Lack of Written Policies and Procedures Criteria: The Uniform Guidance requires nonfederal entities that receive federal awards to establish written policies, procedures, and/or standards of conduct, except if excluded in the compliance supplement. There are four basic reasons for creating an internal control system through defining and documenting processes with well-written policies and procedures: 1.Compliance 2.Operational Needs 3.Managing Risks 4.Continuous Improvement Complying with laws and regulations should be a basic function of any entity. Well-defined and documented processes (i.e. procedures, training manuals) along with records that demonstrate process capability can make evident an effective internal control system and compliance to regulations and standards. Another important role of documentation of procedures is to ensure processes fundamental to the entity are properly guided by management, are performed in a consistent way that meets the entity's needs, and that important related information and data are captured and communicated. Documentation of procedures are important for controlling processes, documenting the standard work that was performed, and training employees. Statement of Condition: The County lacks certain written policies and procedures required by the Uniform Guidance. These include: 1.Financial management (200.302) 2.Payment (200.305) 3.General procurement standards (200.318) 4.Competition (200.319) 5.Methods of procurement to be followed (200.320) 6.Compensation - personal services (200.430) 7.Compensation - fringe benefits (200.431) 8.Relocation costs of employees (200.464) 9.Travel costs (200.474) Questioned Costs: $0.00 Cause: The County lacked an understanding of the requirements for written policies and procedures pursuant to the Uniform Guidance. Effect or Potential Effect: The potential effect of the internal control deficiency is an increase in the risk of noncompliance with grant agreements and fraud and undetected errors in the processing of financial transactions relative to federal awards. Recommendation: The County should familiarize themselves with the Uniform Guidance and implement the following: 1.Develop and document all of its significant processes over federal awards. 2.Make the written policies and procedures available to all personnel 3.Ensure the written policies and procedures are accurate, complete, and current at all times 4.Revise policies and procedures for changes in business processes and policies over federal awards 5.Communicate significant changes to all affected personnel immediately to ensure they are aware of any revisions to their responsibilities to the federal award. 6.Document policies and procedures to facilitate training and provide guidelines relative to federal awards for changes in personnel.

Finding 2021-003: Allowable Costs AL #21.019 - Coronavirus Relief Fund Criteria: The County must follow the 2021 Compliance Supplement and the US Department of the Treasury's ("Treasury") guidance for the limitation of use of payments from the Coronavirus Relief Fund ("CRF"). They must also use the Treasury's guidance and Frequently Asked Questions ("FAQ") in final form as published in the Federal Register on January 15, 2021 at 86 FR 4182 and Treasury's Office of Inspector General ("OIG") guidance on reporting and records retention. The County may use CRF payments for any expenses eligible under section 601(d) of the Social Security Act outlined in the Guidance. Fund payments are not required to be used as the source of funding of last resort. Recipients may not use payments from the Fund to cover expenditures for which they will receive reimbursement. Recipients must consider the applicable restrictions and limitation of such other sources of funding. In addition, expenses that have been or will be reimbursed under any federal program, such as the reimbursement by the federal government pursuant to the CARES Act or contributions by States to State unemployment funds, are not eligible uses of Fund payments. Statement of Condition: The County had requested reimbursement for employee wages that were also requested in other grant funding requests. Questioned Costs: The condition results in questioned costs of $31,860. Context: We have tested 100% of the population of wages reported as expenditures of these grant funds. Cause: The County did not have adequate internal controls over recordkeeping of wages expensed in grants to prevent duplication of reporting of wages between grant requests. Effect or Potential Effect: The effect is that the same payroll costs were reported as expended from more than one federal grant program. Accordingly the County was reimbursed grant funds that were unallowable possibly requiring the return of the federal funds to the provider. Recommendation: We suggest the County implement policies and procedures to maintain accurate records for the designation of payroll expenses to grant programs to prevent the reporting and request of reimbursement of the same expenditures from different grant sources in violation of grant terms and regulations.

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