2018-002 The Organization had inadequate internal controls for ensuring compliance with federal requirements for cash management, suspension and debarment, and subrecipient monitoring.
Assistance Listing Number and Title: 93.959 Block Grants to Prevention
and Treatment of Substance Abuse
Federal Grantor Name: U.S. Department of Health and Human Services
Federal Award/Contract Number: N/A
Pass-through Entity Name: Washington State Department of Social and Health Services
Pass-through Award/Contract Number: 1669-58046
Known Questioned Cost Amount: $73,361
Prior Year Audit Finding: Yes for Suspension and Debarment
and Subrecipient Monitoring, Finding 2017-002
Description of Condition
The Substance Abuse Prevention and Treatment Block Grant (SABG) program awards funds to states, territories and one Indian tribe for planning, implementing and evaluating activities that prevent and treat substance abuse. During fiscal year 2018, the Organization spent $972,943 in SABG funds. The Organization passed through all of these funds to nine subrecipients.
Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls.
Cash Management
The Organization is required by its award’s terms and conditions to pay for eligible and allowable costs before requesting reimbursement. The Organization is also required to maintain documentation supporting its reimbursement requests and costs charged to the program. The documentation should be sufficient to demonstrate compliance with program requirements.
Our audit found the Organization’s internal controls were inadequate for demonstrating it had paid for program costs before requesting reimbursement.
We consider this deficiency in internal controls to be a material weakness that led to material noncompliance.
Suspension and Debarment
Federal requirements prohibit recipients from contracting with or making subawards to parties suspended or debarred from doing business with the federal government. Whenever the Organization enters into contracts or purchases goods or services that it expects to equal or exceed $25,000, and for all subawards regardless of award amount, paid all or in part with federal funds, it must verify the contractors and subrecipients are not suspended or debarred or otherwise excluded from participating in federal programs. The Organization may verify this by obtaining a written certification from the contractor or subrecipient, adding a clause or condition into the contract that states the contractor or subrecipient is not suspended or debarred, or checking for exclusion records in the U.S. General Services Administration’s System for Award Management at SAM.gov. The Organization must verify this before entering into the contract and before making subawards, and must maintain documentation demonstrating compliance with this federal requirement.
Our audit found the Organization did not have adequate controls to verify that all nine subrecipients were not suspended or debarred from participating in federal programs.
We consider this deficiency in internal controls to be a material weakness that led to material noncompliance.
Subrecipient Monitoring
When the Organization passes on federal funds to subrecipients, federal regulations require the Organization to ensure every subaward agreement clearly identifies that it is a federal award and includes the applicable federal requirements. Federal regulations require the Organization to include 14 federal award identification elements in each subaward agreement. Further, the Organization is required to evaluate every subrecipient’s risk of noncompliance with federal requirements to determine the appropriate level of subrecipient monitoring. Subrecipient monitoring requirements include ensuring compliance with program requirements, ensuring the subrecipient receives a federal single audit when required, following up and ensuring the subrecipient takes timely and appropriate action on all audit findings, and issuing a management decision as required.
The Organization did not have internal controls in place for ensuring compliance with subrecipient monitoring requirements. Specifically, the Organization did not have adequate controls for ensuring subaward agreements included the required contract elements, and for ensuring it completed and documented the required risk assessments. Further, the Organization did not monitor subrecipients’ activities to provide reasonable assurance that they administered the subawards in compliance with the subaward’s terms and conditions. Additionally, the Organization did not ensure that subrecipients received federal single audits when required, that subrecipients took timely and appropriate action on audit findings, and that the Organization issued a management decision.
We consider this deficiency in internal controls to be a material weakness that led to material noncompliance.
Cause of Condition
The Organization experienced turnover in its staff responsible for managing the program. As a result, current staff were unaware if the Organization met these compliance requirements and were unable to find supporting documentation to demonstrate compliance with these requirements. In addition, staff did not have adequate knowledge and training to identify that incorrect reports were being used for reimbursement requests.
Effect of Condition and Questioned Costs
Cash Management
We examined all 12 reimbursement requests submitted to the awarding agency. For eight of the requests, we identified a total of $73,361 in costs for which the Organization could not provide supporting documentation to demonstrate what these costs were and that it had paid the costs before submitting reimbursement requests. Without supporting documentation, the Organization cannot demonstrate it has effective internal controls to ensure compliance with federal cash management requirements.
Federal regulations require the State Auditor’s Office to report known and likely questioned costs that are more than $25,000 for each type of compliance requirement. We question costs when we find the Organization did not comply with grant regulations and/or when it does not have adequate documentation to support expenditures.
Suspension and Debarment
The Organization did not obtain written certifications, insert clauses into the contracts or check SAM.gov before entering into the contracts to verify the subrecipients were not suspended or debarred.
Without this verification, the Organization increases its risk of providing federal funds to subrecipients that are excluded from participating in federal programs. Any payments it makes to an ineligible party would be unallowable, and the federal grantor could potentially recover them.
We subsequently verified the subrecipients were not suspended or debarred, therefore we are not questioning costs.
Subrecipient Monitoring
We tested all six subawards and found the Organization’s subaward agreements did not include all the required contract elements, including the federal award identification number for all six contracts and the unique entity identifier for one contract. Without this information, the subrecipients are less likely to know that the award is federally funded. This also increases the risk that subrecipients would not know they need to comply with specific program requirements, which could potentially lead them to spend funds for unallowable purposes.
The Organization did not have evidence that it performed its risk assessments for the subrecipients tested. Not performing risk assessments increases the risk that the Organization will not perform the proper level of monitoring for its subrecipients.
The Organization also did not monitor subrecipients’ activities to provide reasonable assurance they administered the subawards in compliance with the
subaward’s terms and conditions. Without adequate monitoring, there is a risk that subrecipients may spend funds for unallowable purposes.
Additionally, the Organization did not verify subrecipients received federal single audits when required, ensure subrecipients took corrective actions for any identified deficiencies, and issue management decisions within six months of audit reports’ issuance for applicable audit findings.
Since the Organization did not monitor its subrecipients, there is no way for it to confirm the subrecipients complied with program requirements, including providing services to eligible participants.
Recommendation
We recommend the Organization establish and maintain internal controls to:
• Ensure it only requests reimbursement for costs that are incurred and paid for before requesting federal reimbursement
• Verify all subrecipients it pays, all or in part with federal funds, are not suspended or debarred from participating in federal programs before making subawards
• Include all required elements in subaward agreements
• Perform and document the required risk assessment sufficiently for management to evaluate the results and monitor subrecipients accordingly
• Perform adequate monitoring of subrecipients to ensure they comply with the subaward’s terms and conditions and only provide funds to eligible participants
• Verify subrecipients receive federal single audits when required and follows up on corrective actions taken for any identified deficiencies related to the federal awards it made to its subrecipients; and issues management decisions within six months of audit report issuance for applicable audit finding
• Maintain documentation to support compliance with program requirements
Organization’s Response
We believe we have strong internal controls with reference to Cash Management, however contracts were written as cost reimbursement but management approved for payment in block amounts. No contracts were ever overpaid. All cash for the year was reconciled to match banking statements and HCA has approved the close out and taken receipt of all remaining funds.
We know that our contracts always included all of the appropriate HCA mandated language regarding debarment, suspension and sub recipient monitoring required. To the best of our knowledge, our Contract Compliance Officer reviewed compliance of all contracts. The recent audit findings do reference that we did not contract with suspended and debarred entities. Due to the closing of the business and subsequent releasing of all employees, records of the particular compliance activities could not be located. We have no corrective action plans because all Behavioral Health Organizations were abolished by state statute, Chapter 325, Washington Laws of 2019, which removed Behavioral Health Organizations from the law effective January 1, 2020. Great Rivers Behavioral Health Organization closed business effective December 31, 2019.
Auditor’s Remarks
We thank the Organization for its cooperation and assistance during the 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.
Title 2 CFR Part 200, Uniform Guidance, section 305, Federal payment, establishes requirements for the method of reimbursement and disbursement of Federal funds by non-federal entities
Title 2 CFR Part 180, OMB Guidelines on Agencies on Governmentwide Department and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689
Title 45 CFR Part 75, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards, section 352, Requirements for pass-through entities, establishes subrecipient monitoring regulations.
2018-002 The Organization had inadequate internal controls for ensuring compliance with federal requirements for cash management, suspension and debarment, and subrecipient monitoring.
Assistance Listing Number and Title: 93.959 Block Grants to Prevention
and Treatment of Substance Abuse
Federal Grantor Name: U.S. Department of Health and Human Services
Federal Award/Contract Number: N/A
Pass-through Entity Name: Washington State Department of Social and Health Services
Pass-through Award/Contract Number: 1669-58046
Known Questioned Cost Amount: $73,361
Prior Year Audit Finding: Yes for Suspension and Debarment
and Subrecipient Monitoring, Finding 2017-002
Description of Condition
The Substance Abuse Prevention and Treatment Block Grant (SABG) program awards funds to states, territories and one Indian tribe for planning, implementing and evaluating activities that prevent and treat substance abuse. During fiscal year 2018, the Organization spent $972,943 in SABG funds. The Organization passed through all of these funds to nine subrecipients.
Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls.
Cash Management
The Organization is required by its award’s terms and conditions to pay for eligible and allowable costs before requesting reimbursement. The Organization is also required to maintain documentation supporting its reimbursement requests and costs charged to the program. The documentation should be sufficient to demonstrate compliance with program requirements.
Our audit found the Organization’s internal controls were inadequate for demonstrating it had paid for program costs before requesting reimbursement.
We consider this deficiency in internal controls to be a material weakness that led to material noncompliance.
Suspension and Debarment
Federal requirements prohibit recipients from contracting with or making subawards to parties suspended or debarred from doing business with the federal government. Whenever the Organization enters into contracts or purchases goods or services that it expects to equal or exceed $25,000, and for all subawards regardless of award amount, paid all or in part with federal funds, it must verify the contractors and subrecipients are not suspended or debarred or otherwise excluded from participating in federal programs. The Organization may verify this by obtaining a written certification from the contractor or subrecipient, adding a clause or condition into the contract that states the contractor or subrecipient is not suspended or debarred, or checking for exclusion records in the U.S. General Services Administration’s System for Award Management at SAM.gov. The Organization must verify this before entering into the contract and before making subawards, and must maintain documentation demonstrating compliance with this federal requirement.
Our audit found the Organization did not have adequate controls to verify that all nine subrecipients were not suspended or debarred from participating in federal programs.
We consider this deficiency in internal controls to be a material weakness that led to material noncompliance.
Subrecipient Monitoring
When the Organization passes on federal funds to subrecipients, federal regulations require the Organization to ensure every subaward agreement clearly identifies that it is a federal award and includes the applicable federal requirements. Federal regulations require the Organization to include 14 federal award identification elements in each subaward agreement. Further, the Organization is required to evaluate every subrecipient’s risk of noncompliance with federal requirements to determine the appropriate level of subrecipient monitoring. Subrecipient monitoring requirements include ensuring compliance with program requirements, ensuring the subrecipient receives a federal single audit when required, following up and ensuring the subrecipient takes timely and appropriate action on all audit findings, and issuing a management decision as required.
The Organization did not have internal controls in place for ensuring compliance with subrecipient monitoring requirements. Specifically, the Organization did not have adequate controls for ensuring subaward agreements included the required contract elements, and for ensuring it completed and documented the required risk assessments. Further, the Organization did not monitor subrecipients’ activities to provide reasonable assurance that they administered the subawards in compliance with the subaward’s terms and conditions. Additionally, the Organization did not ensure that subrecipients received federal single audits when required, that subrecipients took timely and appropriate action on audit findings, and that the Organization issued a management decision.
We consider this deficiency in internal controls to be a material weakness that led to material noncompliance.
Cause of Condition
The Organization experienced turnover in its staff responsible for managing the program. As a result, current staff were unaware if the Organization met these compliance requirements and were unable to find supporting documentation to demonstrate compliance with these requirements. In addition, staff did not have adequate knowledge and training to identify that incorrect reports were being used for reimbursement requests.
Effect of Condition and Questioned Costs
Cash Management
We examined all 12 reimbursement requests submitted to the awarding agency. For eight of the requests, we identified a total of $73,361 in costs for which the Organization could not provide supporting documentation to demonstrate what these costs were and that it had paid the costs before submitting reimbursement requests. Without supporting documentation, the Organization cannot demonstrate it has effective internal controls to ensure compliance with federal cash management requirements.
Federal regulations require the State Auditor’s Office to report known and likely questioned costs that are more than $25,000 for each type of compliance requirement. We question costs when we find the Organization did not comply with grant regulations and/or when it does not have adequate documentation to support expenditures.
Suspension and Debarment
The Organization did not obtain written certifications, insert clauses into the contracts or check SAM.gov before entering into the contracts to verify the subrecipients were not suspended or debarred.
Without this verification, the Organization increases its risk of providing federal funds to subrecipients that are excluded from participating in federal programs. Any payments it makes to an ineligible party would be unallowable, and the federal grantor could potentially recover them.
We subsequently verified the subrecipients were not suspended or debarred, therefore we are not questioning costs.
Subrecipient Monitoring
We tested all six subawards and found the Organization’s subaward agreements did not include all the required contract elements, including the federal award identification number for all six contracts and the unique entity identifier for one contract. Without this information, the subrecipients are less likely to know that the award is federally funded. This also increases the risk that subrecipients would not know they need to comply with specific program requirements, which could potentially lead them to spend funds for unallowable purposes.
The Organization did not have evidence that it performed its risk assessments for the subrecipients tested. Not performing risk assessments increases the risk that the Organization will not perform the proper level of monitoring for its subrecipients.
The Organization also did not monitor subrecipients’ activities to provide reasonable assurance they administered the subawards in compliance with the
subaward’s terms and conditions. Without adequate monitoring, there is a risk that subrecipients may spend funds for unallowable purposes.
Additionally, the Organization did not verify subrecipients received federal single audits when required, ensure subrecipients took corrective actions for any identified deficiencies, and issue management decisions within six months of audit reports’ issuance for applicable audit findings.
Since the Organization did not monitor its subrecipients, there is no way for it to confirm the subrecipients complied with program requirements, including providing services to eligible participants.
Recommendation
We recommend the Organization establish and maintain internal controls to:
• Ensure it only requests reimbursement for costs that are incurred and paid for before requesting federal reimbursement
• Verify all subrecipients it pays, all or in part with federal funds, are not suspended or debarred from participating in federal programs before making subawards
• Include all required elements in subaward agreements
• Perform and document the required risk assessment sufficiently for management to evaluate the results and monitor subrecipients accordingly
• Perform adequate monitoring of subrecipients to ensure they comply with the subaward’s terms and conditions and only provide funds to eligible participants
• Verify subrecipients receive federal single audits when required and follows up on corrective actions taken for any identified deficiencies related to the federal awards it made to its subrecipients; and issues management decisions within six months of audit report issuance for applicable audit finding
• Maintain documentation to support compliance with program requirements
Organization’s Response
We believe we have strong internal controls with reference to Cash Management, however contracts were written as cost reimbursement but management approved for payment in block amounts. No contracts were ever overpaid. All cash for the year was reconciled to match banking statements and HCA has approved the close out and taken receipt of all remaining funds.
We know that our contracts always included all of the appropriate HCA mandated language regarding debarment, suspension and sub recipient monitoring required. To the best of our knowledge, our Contract Compliance Officer reviewed compliance of all contracts. The recent audit findings do reference that we did not contract with suspended and debarred entities. Due to the closing of the business and subsequent releasing of all employees, records of the particular compliance activities could not be located. We have no corrective action plans because all Behavioral Health Organizations were abolished by state statute, Chapter 325, Washington Laws of 2019, which removed Behavioral Health Organizations from the law effective January 1, 2020. Great Rivers Behavioral Health Organization closed business effective December 31, 2019.
Auditor’s Remarks
We thank the Organization for its cooperation and assistance during the 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.
Title 2 CFR Part 200, Uniform Guidance, section 305, Federal payment, establishes requirements for the method of reimbursement and disbursement of Federal funds by non-federal entities
Title 2 CFR Part 180, OMB Guidelines on Agencies on Governmentwide Department and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689
Title 45 CFR Part 75, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards, section 352, Requirements for pass-through entities, establishes subrecipient monitoring regulations.