CITY OF LYNDEN

2020-002 The City lacked adequate internal controls for ensuring it used funds from the Coronavirus Relief Fund for allowable purposes. CFDA Number and Title: COVID-19 20.019 Coronavirus Relief Fund Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: N/A Pass-through Entity Name: WA State Department of Commerce Pass-through Award/Contract Number: DOC#20-6541C-232 Questioned Cost Amount: $149,552 Background The purpose of the Coronavirus Relief Fund program is to provide payments to state, territorial, tribal, and certain eligible local governments to cover necessary expenditures incurred because of the COVID-19 pandemic. The City used Coronavirus Relief Fund program funds to provide assistance payments to local businesses financially affected by COVID-19 and to cover additional costs associated with the health emergency. During fiscal year 2020, the City spent $570,810 in program funds, which covered payroll and supplies. The payroll-related costs included $208,995 for public health and safety employees? wages and $149,552 for non-public health and safety employees? wages. While the City receives federal funds each year, the City usually does not regularly spend more than $750,000 in federal funds, which is the threshold requiring a federal single audit. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established program controls. Recipients can use program funds for payroll-related costs for public employees who perform work in response to the COVID-19 pandemic. Recipients can manage payroll-related costs in two ways. First, recipients need to track and document the actual time their employees spend on work related to COVID-19 and charge the associated payroll costs accordingly. Second, recipients can determine employees are substantially dedicated to COVID-19 efforts and charge 100 percent of those payroll-related costs to the program. For administrative convenience, the U.S. Department of the Treasury considers all public health and safety employees to be substantially dedicated to mitigating or responding to the COVID-19 pandemic. For all other employees, recipients must keep documentation showing that they were either substantially dedicated to COVID-19 or that their work related to COVID-19 was substantially different than their regular job duties. Recipients are responsible for defining what it means for employees to be substantially dedicated to COVID-19-related activities (except for public health and safety employees) or how their work on COVID-19 activities is substantially different than what they normally do. Description of Condition Since the City?s public health and safety employees were considered substantially dedicated to COVID-19-related activities, they were not required to document the actual time they worked on these activities. However, for all other employees, the City did not appropriately track and document the actual time they spent working on COVID-19-related activities. Additionally, the City could not show this work was substantially different than their regular job duties, and that the payroll costs charged to the program were allowable and supported. We consider this internal control deficiency to be a material weakness that led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The City received the new Coronavirus Relief Fund program funds while trying to react quickly to the COVID-19 pandemic and implementing a new accounting system. The City did not dedicate the time and resources for ensuring it followed all of the requirements for this new federal program. Additionally, City staff said it was not aware of the documentation requirements for non-public health and safety employees? payroll charges. Effect of Condition and Questioned Costs Without proper records, the City cannot assure federal grantors that $149,552 in payroll costs charged to the program were accurate and valid. Therefore, we are questioning these costs. Recommendation We recommend the City implement internal control processes for tracking and documenting payroll costs charged to the Coronavirus Relief Fund to ensure they are valid and supported. City?s Response In response to the finding of inadequate documentation regarding the COVID-19 CARES Act funding: The City disagrees with this finding for the reasons that follow. The only issue in question centers specifically on documentation for COVID related labor hours by the City's Non-Public Safety employees. All other areas of CARES Act documentation whether it be invoicing for supplies, business grants or Public Safety employee labor was not found to be an issue or cited in the finding. The audit finding states that the City had an "internal control deficiency". How were our internal controls deficient when all other aspects of our documentation were satisfactory to receive our CARES Act reimbursements and pass audit. Documentation for the Non-Public Safety employees was addressed and documentation including: timesheets, spreadsheets, supervisors emails and follow up explanation as to what the recorded COVID labor time was spent on were all provided. Only to be told later at the time of audit that we (the City) needed to provide more detailed descriptions at the time of initially recording the hours. I remind the State Auditors that at the time the CARES Act funding was initially issued, it was done with limited guidance by the State and Federal authorities. The City did follow the guidelines as best as could be understood, and did in fact diligently document everything from COVID related labor hours to all invoicing surrounding supplies and business grants. All of our documentation submitted to the State was accepted for CARES Act reimbursement. Given that the State came in with more specifically stated requirements after the fact does not mean that the City of Lynden had an internal control deficiency at the time. The City sought from the onset of the CARES Act program to document its actions and be compliant with State and Federal requirements. We therefore disagree that we lacked such controls and failed to properly document our reimbursement request. We understand the State's concern for proper records to assure federal grantors that our costs were valid. Though, when it is clear the City made a high level of effort to document all costs appropriately and when the only complaint seems to center on the sufficiency of details in the given descriptions of work being performed, such a complaint seems not only weak, but minor in scope. For the above stated reasons, we cannot agree that this should rise to the level of a "finding". Auditor?s Remarks We appreciate the City?s commitment to resolve this finding and thank the City for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303 Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. 2 CFR Part 200, Subpart E, cost principles do not apply to the Coronavirus Relief Fund. Therefore, auditors refer to guidance and FAQs from the U.S. Department of the Treasury as the criteria when testing the allowability of costs under the Fund. Guidance and FAQs from both the U.S. Department of the Treasury and the pass-through agency, the Washington State Department of Commerce, can be found at https://www.commerce.wa.gov/serving-communities/local-government/covid-resiliency-grants/. All of these documents speak to the requirements for charging payroll costs to the program.

Finding ref number: 2020-002 Finding caption: The City lacked adequate internal controls for ensuring it used funds from the Coronavirus Relief Fund for allowable purposes. Name, address, and telephone of City contact person: Anthony Burrows, Finance Director 300 4th Street Lynden, WA 98264 (360) 354-2829 Corrective action the auditee plans to take in response to the finding: The City plans to review and enhance its internal control processes surrounding the tracking and documentation of costs in all current and future grants. Please see the City?s response in the attached addendum for the Single Audit. Anticipated date to complete the corrective action: Some review has already occurred and a new tracking form has been created in seamless docs that includes built in email routing to supervisors. Additional reviews will be completed by year end 2021.