GRANT FINANCIAL REPORTING AND ACCOUNTING CONTROLS Type of Finding: (E) Material Weakness in Internal Control Over Compliance of Federal Awards, (G) Material Non-Compliance Related to Federal Awards Funding Agency: U.S. Department of Homeland Security Title: Homeland Security and Emergency Management AL #: 97.067 Award #: EMW-2022-SS-00044 EMW-2023-SS-00015 EMW-2024-SS-05231 Award Period: January 1, 2023-March 31, 2025 Compliance Requirement: Reporting Questioned Costs: None Statement of Condition The County did not maintain effective internal controls over grant accounting and financial reporting related to Operation Stonegarden. This issue impacted the Operation Stonegarden expenditures reported on the Schedule of Expenditures of Federal Awards (SEFA). In addition, the required grant financial and performance reporting was not submitted timely or was incomplete. Specifically: [See Table in Original Report] During the audit, grant expenditures and related revenues recorded in the general ledger did not reconcile to supporting drawdown activity and grant reporting support, and did not accurately reflect actual grant activity. As a result, audit adjustments totaling $257,480 were required to correct grant expenditures and revenues. These adjustments also required revision of the SEFA. Criteria Title 2 CFR §200.303 requires non-federal entities to establish and maintain effective internal control over federal awards that provides reasonable assurance of compliance with federal statutes, regulations, and the terms and conditions of federal awards. Award terms / reporting requirements require timely submission of complete and accurate financial and performance reports (e.g., quarterly performance/progress reports and required narrative reports) in accordance with due dates and award conditions. Cause The County did not design and/or consistently perform effective reconciliation and supervisory review controls to ensure consistency among the general ledger, drawdown requests, grant financial/performance reports, and SEFA preparation support. Additionally, grant reporting deadlines and documentation retention requirements were not consistently monitored or enforced. Effect These deficiencies resulted in inaccurate and untimely grant reporting and required audit adjustments to grant expenditures, revenues, and the SEFA. The deficiencies increased the risk of noncompliance with federal reporting requirements, increased the risk that reported amounts and drawdowns were not supported by verified accounting records, and increased the risk of grantor monitoring actions, delayed reimbursements, and other remedies available under award terms. Recommendation We recommend that the County: • Implement formal reconciliation procedures to ensure the general ledger, drawdown requests, grant financial reports, and SEFA are reconciled and reviewed prior to submission. • Establish documented review and approval controls to ensure grant reports are accurate, complete, and submitted timely. • Ensure drawdown requests are supported by verified expenditures recorded in the general ledger. Provide training to staff responsible for grant accounting and reporting to strengthen compliance with federal and state requirements. Views of Responsible Officials Management concurs with the finding. The Operation Stonegarden grants are managed by Broken Arrow Services, LLC, who is contracted with Otero County for this purpose. For future audits, management will refer auditors directly to Broken Arrow Services, LLC for all documentation, (other than the SEFA and general ledger reports), as they maintain the most accurate and up-todate records for all reporting, purchases, and reimbursements. Broken Arrow Services, LLC has communicated to all sub-recipients the importance of submitting reports and invoices in a timely manner so that financial and performance reports can be completed and submitted to DHSEM by the required deadlines each quarter. All late submissions by sub-recipients will be tracked and follow-up efforts will be documented. The SEFA report did not include the expenditures for sub-recipients, and this was an honest oversight that will not be omitted in the future. The Finance Department will continue to prepare the SEFA and provide general ledger reports to the auditors. Finding Resolutions Timeline: Completed. December 18, 2025 Designation Of Employee Position Responsible For Meeting This Deadline: Finance Director
Statement of Condition For the year ended June 30, 2025, the County did not maintain effective controls over subrecipient monitoring related to Operation Stonegarden. Required subrecipient financial and performance reporting support was not consistently obtained, retained, or reviewed in a timely manner. Specifically: • 24 subrecipient reports and supporting submissions were required under the subaward. • The County was able to provide 7 of the 24 requested reports for audit testing. • Of the 7 reports provided, 3 were received more than 20 days after the required submission date. County personnel indicated that subrecipients did not always submit reimbursement requests and required reports timely; however, the County did not consistently document follow-up actions, escalation, or enforcement of subaward reporting requirements to ensure timely and complete subrecipient reporting. Criteria Title 2 CFR §200.331 requires pass-through entities to monitor subrecipient activities to ensure that subrecipients comply with federal statutes, regulations, and the terms and conditions of subawards, including the timely receipt and review of required financial and performance reports. Cause The County did not design and/or consistently perform a formal subrecipient monitoring process, including (1) a standardized tracking and follow-up protocol for late or missing submissions, (2) evidence of timely review of financial and performance information, and (3) documented escalation and corrective action when subrecipients do not comply. As a result, subrecipient oversight relied largely on voluntary compliance by subrecipients, without sufficient County review, enforcement, or documentation of monitoring activities. Effect Required subrecipient reporting, monitoring, and follow-up were not consistently performed and documented. As a result, the County lacked reasonable assurance that subrecipients complied with subaward terms and that subrecipient expenditures and performance information used for County reporting were allowable, supported, timely, and reliable. Given that subrecipient activity is integral to the administration of the County’s major program, these conditions increase the risk that unsupported or noncompliant subrecipient activity may not be identified and corrected timely. Such conditions may require additional corrective actions or increased scrutiny by grantor or oversight agencies. Recommendation We recommend that the County: • Develop and implement written subrecipient monitoring policies and procedures that clearly define reporting requirements and submission deadlines. • Track subrecipient report due dates and document follow-up efforts for late or missing reports. • Review subrecipient financial and performance reports timely and retain documentation evidencing the review to ensure compliance with grant requirements. Consider withholding reimbursement or implementing other corrective actions when subrecipients fail to submit required documentation timely. • Provide training to staff responsible for subrecipient oversight to strengthen monitoring and compliance. Views of Responsible Officials Management concurs with the finding. The Operation Stonegarden grants are managed by Broken Arrow Services, LLC, who is contracted with Otero County for this purpose. Broken Arrow Services, LLC has communicated to all sub-recipients the importance of submitting reports and invoices in a timely manner so that financial and performance reports can be completed and submitted to DHSEM by the required deadlines each quarter. All late submissions by sub-recipients will be tracked and follow-up efforts will be documented. Reimbursement to sub-recipients who are not in compliance will be withheld until all proper SUBRECIPIENT MONITORING PROCESSES AND CONTROLS Type of Finding: (E) Material Weakness in Internal Control Over Compliance of Federal Awards, (G) Material Non-Compliance Related to Federal Awards Funding Agency: U.S. Department of Homeland Security Title: Homeland Security and Emergency Management AL #: 97.067 Award #: EMW-2022-SS-00044 EMW-2023-SS-00015 EMW-2024-SS-05231 Award Period: January 1, 2023-March 31, 2025 Compliance Requirement: Reporting Questioned Costs: None documentation and reporting has been submitted and reviewed for accuracy. Finding Resolutions Timeline: June 30, 2026 Designation Of Employee Position Responsible For Meeting This Deadline: Finance Director