Finding 2022-007 — Lack of Internal Controls and Noncompliance with Subrecipient Monitoring – Emergency Rental Assistance Program (Repeat Finding 2021-013)
FEDERAL AGENCY: U.S. Department of the Treasury
ASSISTANCE LISTING: 21.023
FEDERAL PROGRAM NAME: Emergency Rental Assistance Program
FEDERAL AWARD NUMBER: ERA0174, ERAE0225
FEDERAL AWARD YEAR: 2022
CONTROL CATEGORY: Subrecipient Monitoring
QUESTIONED COSTS: $6,397,374
Condition: During the process of documenting the County’s internal controls regarding federal disbursements for the Emergency Rental Assistance Program (ERA), we noted that Cleveland County has not established the following procedures to ensure compliance with the Subrecipient Monitoring requirements:
• Evaluate subrecipient’s risk of noncompliance for the purposes of determining the appropriate subrecipient monitoring related to the subaward.
• Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, complies with the terms and conditions of the subaward, and achieves performance goals.
Further, while documenting controls over the subrecipient program and administrative expenditures for the ERA1, we noted the following:
• The County was unable to provide supporting documents for the administrative costs of the consultant for this grant totaling $64,800.
• The County was unable to provide supporting documentation of the subrecipient’s administrative expenditures totaling $453,067.
Cause of Condition: Policies and procedures have not been designed and implemented to ensure the County complies with federal laws and regulations and grant agreements; and adequate subrecipient monitoring policies and procedures had not been established by the County prior to entering into agreements with subrecipients.
Effect of Condition: This condition resulted in noncompliance with grant requirements. Also, the subrecipient may not be in compliance with the award terms and there is an increased risk of mismanagement and fraud by the subgrantees.
Recommendation: OSAI recommends the County design and implement internal controls to ensure that it administers current and future ERA grants in accordance with applicable federal laws and grant requirements, including ensuring that grant subrecipients are properly informed of federal requirements related to allowable costs and that subrecipient monitoring procedures are designed and implemented. Subrecipients should be reimbursed for administrative costs based on supporting documentation for actual costs incurred rather than making advance payments for a set percentage of program funds advanced.
Management Response:
Chairman of the Board of County Commissioners: Cleveland County takes the auditor's findings seriously and has already implemented several improvements in documentation, monitoring, and reporting practices. Cleveland County is working toward improvements for fiscal year 2025 and has reconciled billing to align with the contract scope of work. However, we recognize the need for documented internal controls and are committed to addressing all recommendations to ensure compliance and transparency in future programs. The County appreciates the constructive feedback and will continue to refine its processes to better serve its citizens.
Criteria: GAO Standards – Section 2 – Establishing an Effective Internal Control System – OV2.23
states in part:
Objectives of an Entity – Compliance Objectives
Management conducts activities in accordance with applicable laws and regulations. As part of specifying compliance objectives, the entity determines which laws and regulations apply to the entity. Management is expected to set objectives that incorporate these requirements.
2 CFR § 200.332 states in part:
(e) Monitor the activities of a subrecipient as necessary to ensure that the subrecipient complies with Federal statutes, regulations, and the terms and conditions of the subaward. The pass-through entity is responsible for monitoring the overall performance of a subrecipient to ensure that the goals and objectives of the subaward are achieved.
In addition, identify procedures necessary based upon the evaluation of subrecipient risk or specifically required by the terms and conditions of the award, subaward monitoring must include the following:
1. Reviewing financial and programmatic (performance and special reports) required by the Pass-Through Entity (PTE).
The Consolidated Appropriations Act§ Section 501 (c)(5) Use of Funds - Administrative Costs states in part:
(A) IN GENERAL. —Not more than 10 percent of the amount paid to an eligible grantee under this section may be used for administrative costs attributable to providing financial assistance and housing stability services under paragraphs (2) and (3), respectively, including for data collection and reporting requirements related to such funds.
(B) NO OTHER ADMINISTRATIVE COSTS. —Amounts paid under this section shall not be used for any administrative costs other than to the extent allowed under subparagraph (A).
In addition, the U.S. Department of Treasury Emergency Rental Assistance (ERA) FAQ #29 What are the applicable limitations on administrative expenses, states in part:
Under ERAl, not more than 10 percent of the amount paid to a grantee may be used for administrative costs attributable to providing financial assistance and housing stability services to eligible households. Under ERA2, not more than 15 percent of the amount paid to a grantee may be used for administrative costs attributable to providing financial assistance, housing stability services, and other affordable rental housing and eviction
prevention activities.
2 CFR § 200.332 states:
All pass-through entities must:
(a) Ensure that every subaward is clearly identified to the subrecipient as a subaward and includes the following information at the time of the subaward and if any of these data elements change, include the changes in subsequent subaward modification. When some of this information is not available, the pass-through entity must provide the best information available to describe the Federal award and subaward…
(b) Evaluate each subrecipient's risk of noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward for purposes of determining the appropriate subrecipient monitoring described in paragraphs (d) and (e) of this section,…
(c) Consider imposing specific subaward conditions upon a subrecipient if appropriate as described in § 200.208.
(d) Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved.
. . .
(e) Depending upon the pass-through entity's assessment of risk posed by the subrecipient (as described in paragraph (b) of this section), the following monitoring tools may be useful for the pass-through entity to ensure proper accountability and compliance with program requirements and achievement of performance goals
(f) Verify that every subrecipient is audited as required by Subpart F of this part when it is expected that the subrecipient's Federal awards expended during the respective fiscal year equaled or exceeded the threshold set forth in § 200.501.
(g) Consider whether the results of the subrecipient's audits, on-site reviews, or other monitoring indicate conditions that necessitate adjustments to the pass-through entity's own records.
(h) Consider taking enforcement action against noncompliant subrecipients as described in § 200.339 of this part and in program regulations.
Finding 2022-012—Lack of Internal Controls and Noncompliance with Reporting Requirement – Emergency Rental Assistance Program (Repeat Finding 2021-010)
FEDERAL AGENCY: U.S. Department of the Treasury
ASSISTANCE LISTING NO: 21.023
FEDERAL PROGRAM NAME: Emergency Rental Assistance Program
FEDERAL AWARD NUMBER: ERA0174, ERAE0225
FEDERAL AWARD YEAR: 2021
CONTROL CATEGORY: Reporting
QUESTIONED COSTS: $0
Condition: While performing a test over the reporting requirement for the Emergency Rental Assistance Program (ERA), the following was noted:
• July 2021 monthly report for ERA2 was not submitted.
• December 2021 monthly report for ERA2 was not timely submitted.
• First Quarter report (January 2022 – March 2022) for ERA2 was submitted late.
In addition, the County was not consistent in the reporting of expenditures on the quarterly reports. The expenditures were originally reported when the County spent the funds. However, beginning in the fourth quarter of 2021, the County began reporting expenditures when the subrecipient spent the funds rather than when the County spent the funds. This resulted in the following:
• Two (2) of the four (4) quarterly report expenditure amounts reported did not match the supporting documents provided by the County.
• Three (3) of the four (4) quarterly reports reviewed had supporting documentation that did not reconcile to other supporting documentation submitted to the U.S. Department of the Treasury.
Cause of Condition: Policies and procedures have not been designed and implemented to ensure the County complies with federal laws and regulations and grant agreements.
Effect of Condition: This condition resulted in noncompliance with grant requirements.
Recommendation: OSAI recommends the County comply with federal laws and regulations and grant agreements by submitting required reports to the U.S. Department of the Treasury timely. In addition, OSAI recommends the County design and implement a system of internal controls to ensure the accuracy and completeness of information submitted.
Management Response:
Chairman of the Board of County Commissioners: Beginning in October of 2021, the U.S. Department of the Treasury changed the ERA1 and ERA2 reporting requirements. In fact, each quarter of 2021 had various reporting changes. The County changed the manner of reporting which did result in difficulty in reconciling. Previous reports had several changes and had to be re-reconciled and amended. Therefore, it was determined to change to reporting when the sub-recipient spent, rather than the county. The County contacted the U.S. Department of the Treasury, who stated any, and all reports should be corrected in the next reporting cycle, rather than retrospectively. The County agrees that some of the prior County Clerk’s records were not in proper order. The County has a new Clerk in place as of July 1, 2024, and is working diligently to improve processes and procedures to prevent this from occurring again in the future.
Cleveland County takes the auditor's findings seriously and has already implemented several improvements in documentation, monitoring, and reporting practices. Cleveland County is working toward improvements for fiscal year 2025 and has reconciled billing to align with the contract scope of work. However, we recognize the need for documented internal controls and are committed to addressing all recommendations to ensure compliance and transparency in future programs. The County appreciates the constructive feedback and will continue to refine its processes to better serve its citizens.
Criteria: GAO Standards – Section 2 – Establishing an Effective Internal Control System – OV2.23 states in part:
Objectives of an Entity – Compliance Objectives
Management conducts activities in accordance with applicable laws and regulations. As part of specifying compliance objectives, the entity determines which laws and regulations apply to the entity. Management is expected to set objectives that incorporate these requirements.
2 CFR § 200.303(a) Internal Controls reads as follows:
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. 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).
Finding 2022-007 — Lack of Internal Controls and Noncompliance with Subrecipient Monitoring – Emergency Rental Assistance Program (Repeat Finding 2021-013)
FEDERAL AGENCY: U.S. Department of the Treasury
ASSISTANCE LISTING: 21.023
FEDERAL PROGRAM NAME: Emergency Rental Assistance Program
FEDERAL AWARD NUMBER: ERA0174, ERAE0225
FEDERAL AWARD YEAR: 2022
CONTROL CATEGORY: Subrecipient Monitoring
QUESTIONED COSTS: $6,397,374
Condition: During the process of documenting the County’s internal controls regarding federal disbursements for the Emergency Rental Assistance Program (ERA), we noted that Cleveland County has not established the following procedures to ensure compliance with the Subrecipient Monitoring requirements:
• Evaluate subrecipient’s risk of noncompliance for the purposes of determining the appropriate subrecipient monitoring related to the subaward.
• Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, complies with the terms and conditions of the subaward, and achieves performance goals.
Further, while documenting controls over the subrecipient program and administrative expenditures for the ERA1, we noted the following:
• The County was unable to provide supporting documents for the administrative costs of the consultant for this grant totaling $64,800.
• The County was unable to provide supporting documentation of the subrecipient’s administrative expenditures totaling $453,067.
Cause of Condition: Policies and procedures have not been designed and implemented to ensure the County complies with federal laws and regulations and grant agreements; and adequate subrecipient monitoring policies and procedures had not been established by the County prior to entering into agreements with subrecipients.
Effect of Condition: This condition resulted in noncompliance with grant requirements. Also, the subrecipient may not be in compliance with the award terms and there is an increased risk of mismanagement and fraud by the subgrantees.
Recommendation: OSAI recommends the County design and implement internal controls to ensure that it administers current and future ERA grants in accordance with applicable federal laws and grant requirements, including ensuring that grant subrecipients are properly informed of federal requirements related to allowable costs and that subrecipient monitoring procedures are designed and implemented. Subrecipients should be reimbursed for administrative costs based on supporting documentation for actual costs incurred rather than making advance payments for a set percentage of program funds advanced.
Management Response:
Chairman of the Board of County Commissioners: Cleveland County takes the auditor's findings seriously and has already implemented several improvements in documentation, monitoring, and reporting practices. Cleveland County is working toward improvements for fiscal year 2025 and has reconciled billing to align with the contract scope of work. However, we recognize the need for documented internal controls and are committed to addressing all recommendations to ensure compliance and transparency in future programs. The County appreciates the constructive feedback and will continue to refine its processes to better serve its citizens.
Criteria: GAO Standards – Section 2 – Establishing an Effective Internal Control System – OV2.23
states in part:
Objectives of an Entity – Compliance Objectives
Management conducts activities in accordance with applicable laws and regulations. As part of specifying compliance objectives, the entity determines which laws and regulations apply to the entity. Management is expected to set objectives that incorporate these requirements.
2 CFR § 200.332 states in part:
(e) Monitor the activities of a subrecipient as necessary to ensure that the subrecipient complies with Federal statutes, regulations, and the terms and conditions of the subaward. The pass-through entity is responsible for monitoring the overall performance of a subrecipient to ensure that the goals and objectives of the subaward are achieved.
In addition, identify procedures necessary based upon the evaluation of subrecipient risk or specifically required by the terms and conditions of the award, subaward monitoring must include the following:
1. Reviewing financial and programmatic (performance and special reports) required by the Pass-Through Entity (PTE).
The Consolidated Appropriations Act§ Section 501 (c)(5) Use of Funds - Administrative Costs states in part:
(A) IN GENERAL. —Not more than 10 percent of the amount paid to an eligible grantee under this section may be used for administrative costs attributable to providing financial assistance and housing stability services under paragraphs (2) and (3), respectively, including for data collection and reporting requirements related to such funds.
(B) NO OTHER ADMINISTRATIVE COSTS. —Amounts paid under this section shall not be used for any administrative costs other than to the extent allowed under subparagraph (A).
In addition, the U.S. Department of Treasury Emergency Rental Assistance (ERA) FAQ #29 What are the applicable limitations on administrative expenses, states in part:
Under ERAl, not more than 10 percent of the amount paid to a grantee may be used for administrative costs attributable to providing financial assistance and housing stability services to eligible households. Under ERA2, not more than 15 percent of the amount paid to a grantee may be used for administrative costs attributable to providing financial assistance, housing stability services, and other affordable rental housing and eviction
prevention activities.
2 CFR § 200.332 states:
All pass-through entities must:
(a) Ensure that every subaward is clearly identified to the subrecipient as a subaward and includes the following information at the time of the subaward and if any of these data elements change, include the changes in subsequent subaward modification. When some of this information is not available, the pass-through entity must provide the best information available to describe the Federal award and subaward…
(b) Evaluate each subrecipient's risk of noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward for purposes of determining the appropriate subrecipient monitoring described in paragraphs (d) and (e) of this section,…
(c) Consider imposing specific subaward conditions upon a subrecipient if appropriate as described in § 200.208.
(d) Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved.
. . .
(e) Depending upon the pass-through entity's assessment of risk posed by the subrecipient (as described in paragraph (b) of this section), the following monitoring tools may be useful for the pass-through entity to ensure proper accountability and compliance with program requirements and achievement of performance goals
(f) Verify that every subrecipient is audited as required by Subpart F of this part when it is expected that the subrecipient's Federal awards expended during the respective fiscal year equaled or exceeded the threshold set forth in § 200.501.
(g) Consider whether the results of the subrecipient's audits, on-site reviews, or other monitoring indicate conditions that necessitate adjustments to the pass-through entity's own records.
(h) Consider taking enforcement action against noncompliant subrecipients as described in § 200.339 of this part and in program regulations.
Finding 2022-012—Lack of Internal Controls and Noncompliance with Reporting Requirement – Emergency Rental Assistance Program (Repeat Finding 2021-010)
FEDERAL AGENCY: U.S. Department of the Treasury
ASSISTANCE LISTING NO: 21.023
FEDERAL PROGRAM NAME: Emergency Rental Assistance Program
FEDERAL AWARD NUMBER: ERA0174, ERAE0225
FEDERAL AWARD YEAR: 2021
CONTROL CATEGORY: Reporting
QUESTIONED COSTS: $0
Condition: While performing a test over the reporting requirement for the Emergency Rental Assistance Program (ERA), the following was noted:
• July 2021 monthly report for ERA2 was not submitted.
• December 2021 monthly report for ERA2 was not timely submitted.
• First Quarter report (January 2022 – March 2022) for ERA2 was submitted late.
In addition, the County was not consistent in the reporting of expenditures on the quarterly reports. The expenditures were originally reported when the County spent the funds. However, beginning in the fourth quarter of 2021, the County began reporting expenditures when the subrecipient spent the funds rather than when the County spent the funds. This resulted in the following:
• Two (2) of the four (4) quarterly report expenditure amounts reported did not match the supporting documents provided by the County.
• Three (3) of the four (4) quarterly reports reviewed had supporting documentation that did not reconcile to other supporting documentation submitted to the U.S. Department of the Treasury.
Cause of Condition: Policies and procedures have not been designed and implemented to ensure the County complies with federal laws and regulations and grant agreements.
Effect of Condition: This condition resulted in noncompliance with grant requirements.
Recommendation: OSAI recommends the County comply with federal laws and regulations and grant agreements by submitting required reports to the U.S. Department of the Treasury timely. In addition, OSAI recommends the County design and implement a system of internal controls to ensure the accuracy and completeness of information submitted.
Management Response:
Chairman of the Board of County Commissioners: Beginning in October of 2021, the U.S. Department of the Treasury changed the ERA1 and ERA2 reporting requirements. In fact, each quarter of 2021 had various reporting changes. The County changed the manner of reporting which did result in difficulty in reconciling. Previous reports had several changes and had to be re-reconciled and amended. Therefore, it was determined to change to reporting when the sub-recipient spent, rather than the county. The County contacted the U.S. Department of the Treasury, who stated any, and all reports should be corrected in the next reporting cycle, rather than retrospectively. The County agrees that some of the prior County Clerk’s records were not in proper order. The County has a new Clerk in place as of July 1, 2024, and is working diligently to improve processes and procedures to prevent this from occurring again in the future.
Cleveland County takes the auditor's findings seriously and has already implemented several improvements in documentation, monitoring, and reporting practices. Cleveland County is working toward improvements for fiscal year 2025 and has reconciled billing to align with the contract scope of work. However, we recognize the need for documented internal controls and are committed to addressing all recommendations to ensure compliance and transparency in future programs. The County appreciates the constructive feedback and will continue to refine its processes to better serve its citizens.
Criteria: GAO Standards – Section 2 – Establishing an Effective Internal Control System – OV2.23 states in part:
Objectives of an Entity – Compliance Objectives
Management conducts activities in accordance with applicable laws and regulations. As part of specifying compliance objectives, the entity determines which laws and regulations apply to the entity. Management is expected to set objectives that incorporate these requirements.
2 CFR § 200.303(a) Internal Controls reads as follows:
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. 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).