Finding 2024-001:
Internal control deficiency and noncompliance over activities allowed or unallowed, allowable costs/cost principles, reporting, and special tests and provisions related to amounts reimbursed for the project worksheet.
Identification of the federal program:
Assistance Listing Number 97.036:
• COVID-19 – Disaster Grants – Public Assistance (Presidentially Declared Disasters)
• U.S. Department of Homeland Security
• Federal award identification number:
o Application title – 728635 – PPE – JUL 2, 2022 to MAY 11, 2023 (90%)
o Application number – PA-09-CA-4482-PW-03391 (0)
• Federal award year – January 20, 2020 to May 11, 2023
• Pass-through entity – California Governor’s Office of Emergency Services
• Pass-through award identification number – FEMA-4482-DR-CA, Cal OES ID: 073-90741
Criteria or specific requirement (including statutory, regulatory or other citation):
Title 2, Subtitle A, Chapter II, Part 200, Subpart D, 200.303 – Internal controls. The recipient and subrecipient must: (a) Establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the 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).
The Office of Management and Budget Compliance Supplement states the Federal Emergency Management Agency (FEMA) evaluates the eligibility of all costs claimed by the applicant. Not all costs incurred as a result of the incident are eligible. Costs must be:
• Directly tied to the performance of eligible work;
• Adequately documented;
• Reduced by all applicable credits, such as insurance proceeds and salvage values;
• Authorized and not prohibited under federal, state, territorial, tribal, or local government laws or regulations;
• Consistent with applicant’s internal policies, regulations, and procedures that apply uniformly to both federal awards and other activities of the applicant; and
• Necessary and reasonable to accomplish the work properly and efficiently
The Office of Management and Budget Compliance Supplement requires the entity to accurately complete the project application which is used to document the details of the applicant’s project and costs claimed.
The Office of Management and Budget Compliance Supplement states the entity is required to certify that reported costs were incurred in performance of eligible work, that the approved work was completed, that the project is in compliance with the provisions of the FEMA-State Agreement, all grant conditions were met, and that payments for that project were made in accordance with the applicable payment provisions.
The COVID-19 Pandemic: Public Assistance Disposition Requirements for Equipment and Supplies Frequently Asked Questions Version 2 states the following:
• FEMA will only reimburse for supplies purchased based on a justifiable need to be used or distributed by May 11, 2023. If supplies were purchased during the incident/eligibility period but ultimately not needed for pandemic response, those supplies would become part of the applicant’s stock and would be subject to disposition requirements. FEMA reduces funding if the aggregate total of unused residual supplies is greater than $5,000.
Condition:
During our testing over activities allowed or unallowed, allowable costs/cost principles, reporting, and special tests and provisions, we observed management did not have effective internal controls in place to ensure expenditures reported for reimbursement in the FEMA project worksheet were in compliance of the FEMA disposition requirements. This resulted in an overstatement of the amount reimbursed by FEMA.
Cause:
Management did not have effective internal controls in place over the compliance requirement as stated in the criteria or specific requirement section above.
Effect or potential effect:
Management was reimbursed by FEMA for expenditures that were not in compliance with the FEMA disposition requirements which resulted in an overstatement of the amount reimbursed by FEMA. Without sufficient internal controls, other compliance matters could occur in the future.
Questioned costs:
$480,606 – Assistance Listing Number 97.036
• Federal award identification number:
o Application title – 728635 – PPE – JUL 2, 2022 to MAY 11, 2023 (90%)
o Application number – PA-09-CA-4482-PW-03391 (0)
The questioned costs were computed by calculating the difference between the expenditures submitted and reimbursed by FEMA in the amount of $5,966,973 and the corrected expenditures of $5,486,367 related to the supplies project worksheet subject to disposition requirements.
Context:
During our testing over activities allowed or unallowed, allowable costs/cost principles, reporting, and special tests and provisions, we observed one out of three project worksheets had supplies subject to the disposition requirements. We obtained the supporting documentation related to the disposition requirements and observed errors in the calculation related to certain line items being duplicated in the listing (i.e., the entity showed the supplies distributed to the hospital more than once). This resulted in an overstatement of the amount reimbursed by FEMA. This matter was isolated to the one project worksheet as the other two project worksheets did not include supplies. Management’s control regarding the review of the project worksheet did not identify these errors in the project worksheet.
Identification as a repeat finding, if applicable:
No.
Recommendation:
Management should develop and implement effective internal controls to ensure expenditures reported for reimbursement in the FEMA project worksheet are in compliance of the FEMA disposition requirements. Management should refund the questioned costs to FEMA and work with FEMA to determine the extent of additional courses of action. Management should ensure this is performed through the closeout process of the project worksheet with FEMA.
Views of responsible officials:
Management will develop and implement an additional layer of review in future FEMA project worksheet submissions to ensure expenditures reporting for reimbursement in the FEMA project worksheet comply with the FEMA disposition requirements. Management will work with FEMA to refund the questioned costs and discuss the extent of the additional courses of action. Management will ensure this is performed through the closeout process of the project worksheet with FEMA.
Finding 2024-001:
Internal control deficiency and noncompliance over activities allowed or unallowed, allowable costs/cost principles, reporting, and special tests and provisions related to amounts reimbursed for the project worksheet.
Identification of the federal program:
Assistance Listing Number 97.036:
• COVID-19 – Disaster Grants – Public Assistance (Presidentially Declared Disasters)
• U.S. Department of Homeland Security
• Federal award identification number:
o Application title – 728635 – PPE – JUL 2, 2022 to MAY 11, 2023 (90%)
o Application number – PA-09-CA-4482-PW-03391 (0)
• Federal award year – January 20, 2020 to May 11, 2023
• Pass-through entity – California Governor’s Office of Emergency Services
• Pass-through award identification number – FEMA-4482-DR-CA, Cal OES ID: 073-90741
Criteria or specific requirement (including statutory, regulatory or other citation):
Title 2, Subtitle A, Chapter II, Part 200, Subpart D, 200.303 – Internal controls. The recipient and subrecipient must: (a) Establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the 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).
The Office of Management and Budget Compliance Supplement states the Federal Emergency Management Agency (FEMA) evaluates the eligibility of all costs claimed by the applicant. Not all costs incurred as a result of the incident are eligible. Costs must be:
• Directly tied to the performance of eligible work;
• Adequately documented;
• Reduced by all applicable credits, such as insurance proceeds and salvage values;
• Authorized and not prohibited under federal, state, territorial, tribal, or local government laws or regulations;
• Consistent with applicant’s internal policies, regulations, and procedures that apply uniformly to both federal awards and other activities of the applicant; and
• Necessary and reasonable to accomplish the work properly and efficiently
The Office of Management and Budget Compliance Supplement requires the entity to accurately complete the project application which is used to document the details of the applicant’s project and costs claimed.
The Office of Management and Budget Compliance Supplement states the entity is required to certify that reported costs were incurred in performance of eligible work, that the approved work was completed, that the project is in compliance with the provisions of the FEMA-State Agreement, all grant conditions were met, and that payments for that project were made in accordance with the applicable payment provisions.
The COVID-19 Pandemic: Public Assistance Disposition Requirements for Equipment and Supplies Frequently Asked Questions Version 2 states the following:
• FEMA will only reimburse for supplies purchased based on a justifiable need to be used or distributed by May 11, 2023. If supplies were purchased during the incident/eligibility period but ultimately not needed for pandemic response, those supplies would become part of the applicant’s stock and would be subject to disposition requirements. FEMA reduces funding if the aggregate total of unused residual supplies is greater than $5,000.
Condition:
During our testing over activities allowed or unallowed, allowable costs/cost principles, reporting, and special tests and provisions, we observed management did not have effective internal controls in place to ensure expenditures reported for reimbursement in the FEMA project worksheet were in compliance of the FEMA disposition requirements. This resulted in an overstatement of the amount reimbursed by FEMA.
Cause:
Management did not have effective internal controls in place over the compliance requirement as stated in the criteria or specific requirement section above.
Effect or potential effect:
Management was reimbursed by FEMA for expenditures that were not in compliance with the FEMA disposition requirements which resulted in an overstatement of the amount reimbursed by FEMA. Without sufficient internal controls, other compliance matters could occur in the future.
Questioned costs:
$480,606 – Assistance Listing Number 97.036
• Federal award identification number:
o Application title – 728635 – PPE – JUL 2, 2022 to MAY 11, 2023 (90%)
o Application number – PA-09-CA-4482-PW-03391 (0)
The questioned costs were computed by calculating the difference between the expenditures submitted and reimbursed by FEMA in the amount of $5,966,973 and the corrected expenditures of $5,486,367 related to the supplies project worksheet subject to disposition requirements.
Context:
During our testing over activities allowed or unallowed, allowable costs/cost principles, reporting, and special tests and provisions, we observed one out of three project worksheets had supplies subject to the disposition requirements. We obtained the supporting documentation related to the disposition requirements and observed errors in the calculation related to certain line items being duplicated in the listing (i.e., the entity showed the supplies distributed to the hospital more than once). This resulted in an overstatement of the amount reimbursed by FEMA. This matter was isolated to the one project worksheet as the other two project worksheets did not include supplies. Management’s control regarding the review of the project worksheet did not identify these errors in the project worksheet.
Identification as a repeat finding, if applicable:
No.
Recommendation:
Management should develop and implement effective internal controls to ensure expenditures reported for reimbursement in the FEMA project worksheet are in compliance of the FEMA disposition requirements. Management should refund the questioned costs to FEMA and work with FEMA to determine the extent of additional courses of action. Management should ensure this is performed through the closeout process of the project worksheet with FEMA.
Views of responsible officials:
Management will develop and implement an additional layer of review in future FEMA project worksheet submissions to ensure expenditures reporting for reimbursement in the FEMA project worksheet comply with the FEMA disposition requirements. Management will work with FEMA to refund the questioned costs and discuss the extent of the additional courses of action. Management will ensure this is performed through the closeout process of the project worksheet with FEMA.