The Arizona Department of Education’s Health and Nutrition Services Division (Division) did not perform all required monitoring procedures, resulting in an increased risk that $63.9 million of program monies the Division awarded to subrecipients during fiscal year 2024 may not be spent in accordance with the award terms, program requirements, and federal regulations Assistance Listings number(s) and name(s): 10.558 Child and Adult Care Food Program Award number(s) and year(s): 237237AZ300AZ3 October 1, 2022 through September 30, 2023 247AZ300AZ3 October 1, 2023 through September 30, 2024 Federal agency: U.S. Department of Agriculture Compliance requirement(s): Subrecipient Monitoring Questioned costs: None Condition The Division awarded $63.9 million to 322 subrecipients during fiscal year 2024, or 99.3% of the Division’s total program expenditures, but did not perform all the required monitoring of its subrecipients’ activities. While the Division did conduct on-site monitoring visits of subrecipients in accordance with its risk-assessment plan, it did not always obtain and review the responses to its written questionnaires from its subrecipients. For example, for 30 of the 40 subrecipients we tested, the Division did not review the submitted monitoring questionnaires to verify the accuracy of responses. Additionally, 10 of the 40 subrecipients we tested did not respond to the Division’s monitoring questionnaire at all, and the Division never followed up with these subrecipients. These questionnaires are designed to capture essential information from each subrecipient, including confirmation of total federal expenditures from all sources in addition to the program and whether the subrecipient is required to have a single audit performed. As a result, the Division did not determine whether required single audits were performed or, if applicable, whether the subrecipients took timely and appropriate action on all deficiencies noted. Effect The Division’s not verifying subrecipient single audits were conducted may result in the Division’s not following up on and ensuring corrective action is taken on audit findings that could potentially affect the program and/or issue management decisions for audit findings pertaining to the federal award. Further, there is an increased risk that $63.9 million of program monies the Division awarded to subrecipients may not be spent in accordance with the award terms, program requirements, and federal regulations. If monies are spent inconsistent with program requirements, those who intended to benefit from the program may not receive all the services or other benefits they otherwise would have received. Finally, the Arizona Department of Education is at risk that this finding applies to other federal programs it administers. Cause The Division’s written policies and procedures lacked requirements to obtain, review, verify, and analyze the subrecipient-monitoring questionnaires to confirm that those subrecipients required to obtain a single audit had a single audit completed, or to review those single audit reports for findings related to the program and issue management decisions when applicable. Criteria Federal regulation requires the Division to monitor subrecipients, which includes (2 CFR §200.332[e-f]): X Verifying single audits were conducted timely. X Following up on and ensuring corrective action is taken on audit findings that could potentially affect the program. X Issuing a management decision for audit findings pertaining to the federal award. Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with applicable laws, regulations, and terms of the award (2 CFR §200.303). Recommendations to the Division 1. Perform all required monitoring of its subrecipients, including reviewing completed questionnaires submitted by its subrecipients to ensure they are complying with single audit requirements. If a single audit was completed for a subrecipient, ensure corrective action is taken on audit findings that could affect the program, and issue management decisions, as applicable. 2. Update and implement written policies and procedures that require the Division to obtain all subrecipient-monitoring questionnaires, document its review of each subrecipient’s submitted questionnaire, follow up on and ensure corrective action is taken on audit findings that could potentially affect the program, and issue management decisions pertaining to the federal award. 3. Train personnel responsible for reviewing monitoring questionnaires on the updated policies and procedures. Views of responsible officials State management concurs with this finding. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials regarding these recommendations. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy.
The Arizona Office of Economic Opportunity did not ensure conference meals, graphic design services, and promotional item costs were appropriate, necessary, and managed to minimize charges and may be required to return $90,015 of WIOA Cluster funds Cluster name(s): WIOA Cluster Assistance Listings number(s) and name(s): 17.258 WIOA Adult Program 17.259 WIOA Youth Activities 17.278 WIOA Dislocated Worker Formula Grants Award number(s) and year(s): AA-34755-20-55-A-4 April 1, 2020 to June 30, 2023 AA-36307-21-55-A-4 April 1, 2021 to June 30, 2024 AA-38516-22-55-A-4 April 1, 2022 to June 30, 2025 23A55AW000049-01-00 July 1, 2023 to June 30, 2026 Federal agency: U.S. Department of Labor Compliance requirement(s): Not applicable Questioned costs: $90,015 Condition Contrary to federal regulations and the Department of Economic Security’s (DES) policy, the Arizona Office of Economic Opportunity (Office) paid for meals and promotional items provided to conference participants using WIOA Dislocated Worker Formula Grants federal program (WIOA federal program) funds without ensuring that the costs were appropriate, necessary, and managed to minimize charges to the federal award. Specifically, the Office hosted a 2-day Workforce Summit (Summit) conference in June 2024 and spent: X $61,038 on meals for 300 attendees over 2 days for lunch buffets, snacks, and beverages with an average attendee cost of $102 per person per day. X $25,302 for graphic design services without documenting how the services benefited the Summit. Office management reported the services were used to develop Summit communications and materials. X $3,675 on other promotional items, including pens, notebooks, lanyards, clips, vinyl pouches, and flyers, without maintaining evidence, such as photos, that the items displayed the required branding or funding tagline required by DES policies. The Office spent $5,066,045—including the questioned costs of $90,015—or nearly 5% of the State’s total $104,973,072 WIOA Cluster expenditures for the year ended June 30, 2024. We did not audit the WIOA Cluster for fiscal year 2024 because the Cluster did not meet the major federal program criteria. However, during fieldwork for the performance audit and sunset review of the Office, our contract auditors identified the above $90,015 unallowable costs charged to the WIOA federal program. Effect The Office’s paying for Summit costs without ensuring that they were appropriate, necessary, and managed to minimize charges to the federal award increased the risk that those who were intended to benefit from the program may not receive all the benefits they otherwise would have received. Consequently, the Office and/or DES may be required to return monies to the federal agency in accordance with federal requirements.1 Cause Office staff responsible for reviewing and approving Summit expenditures lacked sufficient guidance to identify unallowable costs because the Office lacked documented procedures, including a standardized review process, to ensure that costs charged to the WIOA federal program were allowable. DES passed WIOA federal program funds to the Office through an interagency service agreement (ISA) subaward but did not include conference-specific requirements imposed by federal regulations or additional requirements that DES imposed regarding promotional materials. Further, DES monitors the Office’s WIOA federal program expenditures during an annual desk review that takes place in May or June following the end of the prior fiscal year. DES management reported DES did not review any 2024 Summit costs since they will be subject to review during the May 2026 desk review. The review was scheduled almost 2 years after the unallowable costs were incurred because they were included in the Office’s July 2024 reimbursement request, which fell at the beginning of fiscal year 2025. Criteria Federal regulations and the Department’s Notice of Award for the WIOA federal program require the Office to sponsor conferences primarily to disseminate technical information. Further, the Office must exercise discretion and judgment in ensuring that conference costs are appropriate, necessary, and managed to minimize charges to the federal award. Allowable costs may include facility rental, speakers’ fees, registration fees, meals and refreshments, and other incidental expenses, unless further restricted by the terms and conditions of the federal award (2 CFR §200.432). 1 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). In addition, DES’ policy requires that all promotional material must include a specific funding source tagline and the State brand.2 Further, federal regulations require DES to: X Evaluate the Office’s fraud risk and risk of noncompliance with its ISA subaward to determine the appropriate subrecipient monitoring procedures (2 CFR §200.332[c]). X Ensure its subaward with the Office includes all requirements imposed by federal statutes, regulations, and the terms and conditions of the federal award and any additional requirements that DES imposes on the Office to meet its responsibilities under the federal award (2 CFR §200.332[b][2] and [3]). Finally, federal regulations require establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations to the Office 1. Ensure Summit costs charged to the WIOA federal program are appropriate, necessary, and managed to minimize charges to the federal award. 2. Develop and implement written procedures, including a standardized review process, to ensure that costs charged to the WIOA federal program are allowable prior to requesting reimbursement from DES. 3. Work with federal grantor and/or DES to resolve the $90,015 of questioned costs associated with the 2024 Summit and any subsequently held Summits. Recommendations to DES 4. Amend its ISA subaward with the Office to include conference-specific requirements imposed by federal regulations and additional requirements that DES imposed regarding promotional materials. 5. Adjust its monitoring procedures over the Office’s activities, which may include more frequent desk reviews of reimbursed costs, based on DES’ evaluation of the Office’s risk of noncompliance with federal regulations and DES’ notice of award for the WIOA federal program. 6. Provide Office staff responsible for reviewing and approving Summit expenditures with training and technical assistance on conference-related requirements. 2 Arizona Department of Economic Security. (2023). Workforce Innovation and Opportunity Act Policy Manual Title I-B, Chapter 3, Section 102.01 (C). Retrieved 4/8/2026 from https://des.az.gov/sites/default/files/media/Allowable-Costs-Fiscal-Policy-Section-100.pdf?time=1775665811357 Views of responsible officials State management concurs with this finding. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials regarding these recommendations. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy.
The Department of Economic Security could not support information reported to the federal agency and we were unable to determine whether the expenditures were appropriate Assistance Listings number(s) and name(s): 21.023 COVID-19 – Emergency Rental Assistance Program Award number(s) and year(s): ERA2-0165 May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirement(s): Reporting Questioned costs: Not applicable Condition Contrary to federal regulations and guidance, for information it reported to the federal agency for its Emergency Rental Assistance Program (ERAP) 2 award, the Department of Economic Security—Child and Community Services Division (Division) did not retain documentation to support information reported to the federal agency.1 Specifically, for the 2 quarterly reports we selected for test work, we found that the Division did not retain documentation, such as system reports, queries, or screenshots, to support the performance reporting information it reported in its 2 reports as required.2,3 Specifically, we found that the Division did not retain any support for the ERAP 2 quarter 4 compliance report (December 2023) and had only partial support for the ERAP 2 quarter 1 compliance report (March 2024) submitted to the grantor. Effect The Division’s failure to retain associated documentation for audit purposes resulted in us being unable to determine whether the reports were complete and accurate. Also, it results in the federal agency being unable to rely on the reports to monitor the Division’s program administration, including its compliance with program requirements and ability to prevent and detect fraud, and to evaluate the program’s success. 1 The ERAP was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). 2 The U.S. Department of the Treasury published reporting guidance for the required monthly, quarterly, final reporting, and closeout reports (U.S. Department of the Treasury. [2022]. Reporting Guidance—Emergency Rental Assistance Program, Version 3.4. Monthly, Quarterly, and Final Reporting. Retrieved 10/17/2025 from https://home.treasury.gov/system/files/136/ERA-Reporting-Guidance-v2.pdf). 3 On October 6, 2023, the U.S. Department of the Treasury published ERAP 2 Treasury Portal User Guide, which included a recommendation for ERAP recipients to take screenshots of portal screens as the downloadable PDF documents display only key components of the overall report (U.S. Department of the Treasury. [2025]. Emergency Rental Assistance Program (ERA2) Treasury Portal User Guide, Version 4.0. Retrieved 10/17/2025 from https://home.treasury.gov/system/files/136/ERA2-Portal-Users-Guide.pdf). Cause The Division did not follow its policies and procedures to retain documentation to support the information it included in its 2 reports. Criteria For quarterly financial and compliance reports, federal guidance requires the Division to report information, such as the administrative cost ratio, housing stability services ratio, and system for prioritizing assistance so that the federal agency can monitor performance and compliance. Further, the Division’s policies and procedures require the Division to retain all records relating to a federal award for a period of at least 5 years after all funds allocated to the State have been expended, which generally exceeds the federal regulation requirement to retain all records relating to a federal award for a period of 3 years from the date of its submission of the final expenditure report (2 CFR §200.334). Lastly, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations to the Division 1. Prepare and retain detailed documentation, such as system reports, queries, or screenshots, to support the program information it reports to the federal agency. 2. Follow its policies and procedures to retain all records relating to a federal award for a period of 5 years after all funds are expended. This finding is similar to prior-year finding 2023-107 and was initially reported in fiscal year 2022. Views of responsible officials State management concurs with this finding. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials regarding these recommendations. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy.
The Department of Economic Security failed to perform required subrecipient monitoring, increasing the risk that $9.3 million may have been spent inconsistent with program requirements Assistance Listings number(s) and name(s): 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Award number(s) and year(s): None Federal agency: U.S. Department of the Treasury Compliance requirement(s): Subrecipient monitoring Questioned costs: Unknown Condition The Department of Economic Security (DES) awarded $9.3 million to 13 subrecipients during fiscal year 2024, or 16.3% of DES’ $56.9 million of total federal expenditures for this federal program, but failed to include required information in its subawards to subrecipients and perform required monitoring. Specifically, DES: X Did not include information required by federal regulations in its subawards to subrecipients for 4 of 4 subrecipients tested. This included missing federal award identification information and any additional requirements DES imposed on the subrecipients to meet its responsibilities under the federal award. X Did not perform the required monitoring of the subrecipients’ activities or compliance with the award terms and program requirements for all 13 subrecipients. Effect DES’ failure to include required information in its subawards to subrecipients and perform required monitoring increased the risk that the $9.3 million of program monies DES awarded to subrecipients may not have been spent in accordance with the award terms and program or contract requirements. If monies were spent inconsistent with program and contract requirements, those intended to benefit from the program may not receive all the services or other benefits they otherwise would have received. Cause DES lacked entity-wide subrecipient-monitoring policies and procedures for its divisions to follow and instead relied on each division to design and implement its own subrecipient-monitoring procedures. However, the Child and Community Services Division (CCSD) personnel responsible for notifying and monitoring subrecipients reported they were either not aware of the subrecipient-monitoring requirements or did not follow its subrecipient-monitoring policies and procedures, as follows: X The CCSD personnel responsible for monitoring 6 subrecipients reported that they were not aware of the program’s subrecipient-monitoring requirements because of the program manager being on extended leave, turnover in staff knowledgeable of these requirements, and lack of established policies and procedures over monitoring the program’s subrecipients’ activities. Further, neither DES nor the CCSD personnel responsible for identifying subrecipients provided guidance to CCSD personnel responsible for subrecipient monitoring. X The CCSD personnel responsible for monitoring 7 subrecipients reported that they did not follow CCSD’s procedures for monitoring the program’s subrecipients’ activities because they were short staffed and prioritized monitoring other federal and State grants’ subrecipients’ activities. Criteria Federal regulation requires DES to ensure that every subaward is clearly identified to the subrecipient as a subaward by including in its award terms with subrecipients information necessary for the subrecipient to administer the program in accordance with federal requirements. Required information includes federal award identification, all requirements of the subaward, any additional requirements DES imposes on the subrecipient for DES to meet its responsibilities under the federal award, indirect cost rate, and audit and closeout requirements. Further, federal regulation requires DES to monitor subrecipients, which includes required monitoring procedures for (2 CFR §200.332): X Assessing the risk of each subrecipient’s noncompliance and performing monitoring activities based on those risk assessments, such as providing training or technical assistance on program-related matters and performing on-site reviews, selective audits, and/or other monitoring procedures. X Reviewing financial and performance reports. X Verifying single audits were conducted timely. X Following up on and ensuring corrective action is taken on audit findings that could potentially affect the program. X Issuing a management decision for audit findings pertaining to the federal award. Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations to DES 1. Include information required by federal regulations in its subawards to subrecipients, including federal award identification information and any additional requirements DES imposed on the subrecipients to meet its responsibilities under the federal award. 2. Perform required monitoring of its subrecipients and their compliance with the award terms and program requirements. Develop, implement, and train all divisions on entity-wide written subrecipient-monitoring policies and procedures requiring all divisions to: 3. Ensure that every subaward is clearly identified to the subrecipient as a subaward by including in its award terms with subrecipients information necessary for the subrecipient to administer the program in accordance with federal requirements. Required information includes federal award identification, all requirements of the subaward, any additional requirements the DES imposes on the subrecipient for the DES to meet its responsibilities under the federal award, indirect cost rate, and audit and closeout requirements. 4. Assess the risk of each subrecipient’s noncompliance and carry out monitoring activities based on those risk assessments such as providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures. 5. Review financial and performance reports. 6. Verify subrecipients receive timely single audits, if required; follow up on and ensure that corrective action is taken on any audit findings that could potentially affect the program; and issue management decisions for any audit findings pertaining to the federal award. 7. Maintain documentation of monitoring procedures demonstrating they were performed, including the monitoring procedures’ results and any DES actions taken, if appropriate. 8. Allocate sufficient resources, such as staffing, to comply with the award terms and program requirements, and designate individuals within each division to perform necessary subrecipient-monitoring procedures. This finding is similar to prior-year finding 2023-106 and was initially reported in fiscal year 2023. Views of responsible officials State management concurs with this finding. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials regarding these recommendations. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy.
The Department of Economic Security made unallowable benefits payments totaling $64,131, increasing the risk that the program applicants received utility and rental payments for which they were not entitled Assistance Listings number(s) and name(s): 21.023 COVID-19 – Emergency Rental Assistance Program Award number(s) and year(s): ERA2-0165 May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirement(s): Activities allowed or unallowed, allowable costs/cost principles, and eligibility Questioned costs: $37,901 Assistance Listings number(s) and name(s): 21.027 COVID-19 – Coronavirus State and Local Fiscal Recovery Funds Award number(s) and year(s): None Federal agency: U.S. Department of the Treasury Compliance requirement(s): Activities allowed or unallowed, allowable costs/cost principles Questioned costs: $26,230 Total questioned costs: $64,131 Condition Contrary to federal regulations and its policies and procedures, the Department of Economic Security—Child and Community Services Division (Division) made unallowable benefits payments totaling $64,131 during fiscal year 2024 to rental assistance program applicants for the Emergency Rental Assistance Program (ERAP) and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) federal programs.1 1 The Arizona Department of Economic Security’s ERAP was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. The initial program is referred to as ERAP 1. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). Further, the Arizona Department of Economic Security’s ERAP was extended through the federal Coronavirus State and Local Fiscal Recovery Funds, an American Rescue Plan Act of 2021 program (Public Law 117-2), as administered by the Arizona Governor’s Office. The Department of Economic Security began operating the program on July 1, 2022 (State of Arizona, Office of the Governor and Department of Economic Security Interagency Service Agreement No. ISA-DES-ARPA-021623-01). Specifically, for 14 of 60 ERAP and 7 of 60 CSLFRF benefit payments tested, we found that the Division made unallowable benefits payments of $37,901 for ERAP and $26,230 for CSLFRF to or on behalf of ineligible program applicants or those who lacked required eligibility documentation and for other inappropriate costs, as follows: X The Division inappropriately paid $43,607 of benefit payments to or on behalf of 9 ineligible program applicants, including: y $36,622 paid to or on behalf of 7 program applicants who did not reside in an eligible Maricopa County service area at the time of application ($29,647 for 6 ERAP program applicants and $6,975 for 1 CSLFRF applicant). y $6,300 paid to or on behalf of 1 CSLFRF applicant who previously received ERAP payments and was thus ineligible. y $685 paid to or on behalf of 1 ERAP program applicant whose income exceeded allowable program limits. X The Division inappropriately paid $14,815 of benefit payments to or on behalf of 10 program applicants, including: y $8,640 paid to or on behalf of 1 CSLFRF applicant for a lease buyout, which is an unallowed activity under Division policies. y $3,959 paid to or on behalf of 5 program applicants for rental arrears—rent not paid by the date specified in the lease agreement—payments exceeding the allowable 1-time, lump sum payments ($3,121 for 3 ERAP applicants and $838 for 2 CSLFRF applicants). y $2,216 paid to or on behalf of 4 program applicants for rental assistance exceeding the amount documented on the lease ($2,210 for 3 ERAP applicants and $6 for 1 CSLFRF applicant). X The Division inappropriately paid $5,709 of benefit payments to or on behalf of 2 program applicants without obtaining required documentation to support they were eligible to receive them, including: y $5,709 paid to or on behalf of 2 program applicants without required proof of income, a lease agreement, and other documentation supporting household size and the reimbursement of late penalties and fees related to rent and/or utility account bills ($2,238 for 1 ERAP program applicant and $3,471 for 1 CSLFRF applicant). Effect The Division’s making unallowable benefits payments to ineligible program applicants or without required documentation increases the risk that the program applicants received utility and rental payments for which they were not entitled. Also, the Division’s paying for inappropriate costs spent inconsistent with program requirements increases the risk that those who were intended to benefit from the program may not receive all the benefits they otherwise would have received. Consequently, the Division may be required to return these monies to the federal agency in accordance with federal requirements.2 During fiscal year 2024, the Division paid $44.2 million in benefit payments to or on behalf of program applicants requesting emergency rental and utility assistance for these 2 federal programs, as illustrated in Table 1 below, and is at risk that more of its benefit payment expenditures are inappropriate than those identified in our sample. Cause Division management reported that personnel responsible for evaluating program applications and determining program applicants’ eligibility and allowability of related costs fell behind on reviewing applications and did not have time to perform thorough evaluations, including making appropriate eligibility determinations, obtaining required documentation, or ensuring costs were allowable, because of the large quantity of program applications and staffing shortages due to employee turnover. Further, Division management reported that it did not detect and correct inaccurate eligibility determinations because its policies and procedures did not require 2 Federal Uniform Guidance audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). adjudicators to perform a postreview of the benefits subsystem’s automated review of eligibility requirements, such as verifying the income thresholds and geographical location aligned with the Division’s written policies and procedures and were supported by required documentation. Criteria Federal regulations require costs to be reasonable and adequately documented to be allowable under federal awards, and the Division’s written policies and procedures require certain documentation to support eligibility requirements related to where the applicant lives and their income.3,4,5 Specifically, Division policy requires a program application evaluation to ensure complete and reasonable documentation is obtained, including lease agreements; any bills related to utility accounts; and proof of income, household size, eligible service area residency, and risk of homelessness or housing instability. Also, the Division’s policies prohibit benefit payments for lease buy-offs and prohibit incomplete applications to be acted upon until applicants provide the required information and documentation to complete their applications. Finally, the Division also must establish and maintain effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations to the Division 1. Ensure benefit payments are for allowable costs paid to or on behalf of eligible program applicants. 2. Update existing policies and procedures to include a postreview of the benefits subsystem’s automated review of eligibility requirements, such as verifying the income thresholds and geographic location aligned with the Division’s written policies and procedures and were supported by required documentation. The Division should correct any inaccurate eligibility determinations identified during the postreview. 3. Allocate sufficient staffing resources to perform a thorough evaluation of program benefits applications and provide training on eligibility requirements and allowable benefit payments. 3 Federal Uniform Guidance cost principles require costs to be adequately documented (2 CFR 200.403[g]) and reasonable (2 CFR 200.404). In determining the reasonableness of a given cost, consideration must be given to several factors including requirements imposed by federal laws and regulations and the terms and conditions of the federal award (2 CFR 200.404[b]). 4 U.S. Department of the Treasury published guidance to assist grantees in ERAP administration, including a requirement for ERAP grantees to establish policies and procedures to govern the implementation of their ERAP programs consistent with the ERAP statutes and U.S. Department of the Treasury FAQs (U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions, Revised March 5, 2024. Retrieved 10/16/2025 from https://home.treasury.gov/system/files?file=136/ERA-FAQs03052024.pdf). 5 To be eligible for program benefits, individuals had to have filed, received, and been deemed eligible in accordance with the Division’s written policies and procedures. The benefit payments consisted of rent and/or utility payments for past due amounts (a 1-time lump sum payment) and for 3 months of payments on each reapplication up to a total of 18 months. Applicants must provide proof of income or self-attestation of no income and cannot earn an income that is above the area median income as determined by the HUD income limits (Section 8) set at 80% AMI (Area Median Income). These limits are updated annually and can be viewed at https://www.huduser.gov/portal/datasets/il. html#year2024. Further, applicants who live in Maricopa County must reside in Phoenix or Mesa. Rental applications must include a housing agreement with the applicant’s name and current rental address. Utility assistance applications must include bills or invoices or outstanding payments. Applications are reviewed by adjudicators who ensure the documentation for proof of residence, proof of income, housing agreement, any bills related to utility accounts, and proof of risk of homelessness or housing instability are complete and reasonable. Any decisions made contrary to policy must include a rationale for the decision in the supporting documentation for the application (Department of Economic Security Emergency Rental Assistance Program Policy, Rev 8 [7/1/2022] and Rev 9 [4/1/2023]). 4. Work with the federal agencies to resolve the $64,131 of program monies that were spent in violation of federal regulations and its policies and procedures and that may need to be returned to the federal agencies. This finding is similar to prior-year finding 2023-105 and was initially reported in fiscal year 2023. Views of responsible officials State management concurs with this finding. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials regarding these recommendations. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy.
Four State agencies did not perform required subrecipient monitoring procedures, increasing the risk that program monies may have been misused and not spent in accordance with the award terms Assistance Listings number(s) and name(s): 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery (SLFRF) Funds Award number(s) and year(s): None Federal agency: U.S. Department of the Treasury Compliance requirement(s): Subrecipient monitoring Questioned costs: $1,623,846 Condition Contrary to federal regulation, the Arizona Department of Housing (ADOH), Arizona Department of Water Resources (ADWR), Arizona Office of Tourism (AOT), and Industrial Commission of Arizona (ICA) did not perform the required monitoring of their subrecipients’ activities or compliance with the award terms and program requirements. Specifically, we found that 4 of 10 State agencies we tested did not perform the various and required monitoring procedures identified in Table 1 below and Tables 2 through 4, page 129. In addition, as of the report date, April 23, 2026, the Governor’s Office of Strategic Planning and Budgeting (OSPB) took appropriate action by identifying and self-reporting to us $1,623,846 of expenditures for 8 SLFRF program subrecipients, who were awarded monies prior to fiscal year 2024, and may not have spent the monies in accordance with program requirements.1 Specifically, based on our fiscal year 2023 audit recommendations in finding 2023-102, OSPB performed missing risk assessments for subrecipients awarded monies during fiscal years 2022 and 2023. As a result of these assessments, OSPB conducted additional onsite monitoring or desk reviews based on those results and identified $1,623,846 in questionable costs by its subrecipients. Additionally, OSPB identified several of these questioned costs as potentially fraudulent or inappropriate and forwarded this information to the Attorney General’s Office for further review. We selected OSPB as part of the 10 State agencies tested during fiscal year 2024. Of 24 OSPB subrecipients we tested, we did not identify any deficiencies with OSPB performing the required monitoring of their subrecipients’ activities or compliance with the award terms and program requirement during fiscal year 2024. In total during fiscal year 2024, there were 14 State agencies that paid $270.2 million to subrecipients, as shown in Table 5 below, or 56.2% of the State’s $480.4 million total federal expenditures for this program. Effect The 4 State agencies’ lack of required monitoring increased the risk that the $41.4 million of program monies they paid to 131 subrecipients may have been misused and not spent in accordance with the award terms and program requirements as shown in Table 5, page 130. If monies are spent inconsistent with program requirements, those who were intended to benefit from the program may not receive all the services or other benefits they otherwise would have received. ADOH, ADWR, AOT, and ICA are at risk that this finding applies to other federal programs they administer. Further, OSPB’s previously identified expenses that may not have been spent in accordance with program requirements may result in OSPB being required to return up to $1,623,846 of program monies to the federal agency in accordance with Uniform Guidance requirements.2 Cause Despite subrecipient monitoring requirements being included in the federal regulations, 4 State agencies did not develop and/or implement sufficient subrecipient monitoring policies and procedures to comply with federal regulations. Specifically, X ADOH’s management reported that its policies and procedures did not contain clear criteria for when single audits should be obtained and the process for conducting risk assessments. X ADWR’s management reported that it lacked policies and procedures for obtaining single audits and conducting risk assessments. X AOT’s management reported that it performed only limited monitoring procedures for subrecipients who expended more than $750,000 of AOT awards during the year. Additionally, AOT’s management reported that it misunderstood the detailed transactions required to substantiate the $50,214 in payroll expenditures. X ICA’s management reported that there was a misunderstanding on which State agency was responsible for performing the subrecipient monitoring of the monies it passed through to subrecipients and consequently did not develop all the necessary subrecipient monitoring policies and procedures. Further, OSPB previously reported that it hired additional staff in fiscal year 2023 to begin addressing audit finding issues noted in prior years and began performing required risk assessments in fiscal year 2024. 2 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, OSPB, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take action, as directed by the federal awarding agencies (2 CFR §200.521). Criteria Federal regulation requires State agencies to monitor subrecipients, which includes required monitoring procedures, as follows (2 CFR §200.332): X Assess the risk of each subrecipient’s noncompliance and perform monitoring activities based on those risk assessments. Based on risk, additional monitoring procedures could include providing training or technical assistance on program-related matters, performing site visits, and/or other monitoring procedures. X Review financial and performance reports. X Verify single audits were conducted timely; following up on and ensuring corrective action is taken on audit findings that could potentially affect the program; and issuing a management decision for audit findings pertaining to the federal award. X Include required information in subrecipient subaward agreements, including required federal award information; requirements imposed by federal statutes, regulations, and the terms and conditions of the federal award; any additional requirements that the pass-through entity imposes, and a requirement that the subrecipient permit the pass-through entity to access the subrecipient’s records and financial statements to fulfill its monitoring requirements. In addition, the State’s subrecipient monitoring policies and procedures require State agencies to consider and assess risk of each subrecipient and carry out required and various other monitoring procedures based on those risk assessments.3 Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations to ADOH, ADWR, AOT, and ICA Work with the State’s Office of Strategic Planning and Budgeting to either update or develop and implement policies and procedures and train responsible staff to perform required monitoring of their subrecipients to ensure compliance with award terms and program requirements, including procedures to: 1. Assess the risk of each subrecipient’s noncompliance and perform additional monitoring procedures based on those risk assessments such as reviewing financial and performance reports, providing training or technical assistance on program-related matters, performing site visits, and/or other monitoring procedures. (ADOH, ADWR, and ICA) 2. Verify subrecipients receive timely single audits, follow up on and ensure that corrective action is taken on audit findings that could potentially affect the program, and issue management decisions for audit findings pertaining to the federal award. (ADOH, ADWR, AOT, and ICA) 3 Arizona Department of Administration Office of Grants and Federal Resources. (2018). Grants Management Manual – Grantor, Chapter 8: Award Monitoring. Retrieved 10/29/2025 from https://ospb.az.gov/sites/default/files/2026-01/Arizona%20Grants%20Management%20 Grantor%20Manual%20Edition%202022.pdf 3. Request and view supporting transaction details prior to paying subrecipients for payroll costs to verify they meet the requirements of the award terms and program requirements. (AOT) 4. Establish subaward agreements with subrecipients communicating allowable uses of program monies and other information required by federal regulations prior to distributing program monies. (ICA) Recommendations to OSPB 5. Work with the federal agency and the subrecipients to resolve the $1,623,846 of program monies that may have been spent in violation of its federal award terms and that may need to be returned to the federal agency. 6. Continue to assess the risk of each subrecipient’s noncompliance and perform additional monitoring procedures based on those risk assessments such as reviewing financial and performance reports, providing training or technical assistance on program-related matters, performing site visits, and/or other monitoring procedures to ensure questioned costs are timely identified and remedied. This finding is similar to prior-year finding 2023-102 and was initially reported in fiscal year 2022. Views of responsible officials State management concurs with this finding. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials regarding these recommendations. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy.
The Governor’s Office of Strategic Planning and Budgeting inaccurately reported $33.1 million expenditures to the federal agency and may be required to return excess monies reported Assistance Listings number(s) and name(s): 21.027 COVID-19—Coronavirus State and Local Fiscal Recovery Funds Award number(s) and year(s): None Federal agency: U.S. Department of the Treasury Compliance requirement(s): Reporting Questioned costs: Not applicable Condition The Governor’s Office of Strategic Planning and Budgeting (OSPB) administration inaccurately reported $33.1 million of program expenditures as of June 30, 2024, to the federal agency in its quarterly reports when compared to the State’s records. Upon our analysis of all projects within the 4 quarterly reports, we found a total cumulative overstatement of program expenditures of $33.1 million reported as of June 30, 2024. Additionally, we tested 2 of 4 quarterly reports and found that OSPB inaccurately reported 23 of 126 projects totaling $16.5 million in expenditures during fiscal year 2024. The $16.5 million represents over 9% of the $181.4 million of program expenditures we tested for fiscal year 2024. Effect OSPB’s reporting inaccurate program information results in the federal agency being unable to rely on the reports to monitor OSPB’s program administration, including its compliance with program requirements and ability to prevent and detect fraud, and to evaluate the program’s success. Further, there is a risk that OSPB may be required to return excess monies reported as spent to the federal agency if the expenditures have not been fully reconciled at the end of the program, which occurs during fiscal year 2027. 1 Cause OSPB staff responsible for preparing the reports did not compile the reports from the State’s accounting records, which are the official record of expenditures made for the program, and instead compiled them from OSPB’s internal grants management system that had not been reconciled to the State’s accounting records for accuracy. OSPB’s management reported that 1 The Coronavirus State and Local Fiscal Recovery Funds Frequently Asked Questions as of April 29, 2025, indicate that recipients may expend funds to cover administrative closeout costs until the final Project and Expenditure Report is due on April 30, 2027. Further, funds not expended by the applicable deadline must be returned to the U.S. Treasury. Retrieved 2/20/2026 from https://home.treasury.gov/system/ files/136/SLFRF-Final-Rule-FAQ.pdf they developed and began implementing a procedure to reconcile the quarterly reports to the State’s accounting records near the end of fiscal year 2024. However, this procedure was not fully implemented and would not be reflected in quarterly reports until fiscal year 2025. Criteria Federal law, regulation, and guidance requires OSPB to quarterly accurately report its cumulative obligations and expenditures by type, such as contracts, grants, loans, direct payments, and transfers to other governmental entities, beginning December 2020.2 Accordingly, OSPB’s policies and procedures, including federal reporting templates, provide instructions for employees to follow to meet these reporting requirements. Also, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms and conditions (2 CFR §200.303). Recommendations to OSPB 1. Report accurate and complete program information to the federal agency. 2. Implement procedures requiring employees to reconcile expenditure amounts to the State’s accounting records and investigate and resolve any differences prior to submitting the report to the federal agency. 3. Perform a reconciliation for reports OSPB has already submitted to the federal agency to identify those that contain errors, and revise and resubmit those reports if practicable or notify the federal agency of these reporting errors. This finding is similar to prior-year finding 2023-103 and was initially reported in fiscal year 2022. Views of responsible officials State management concurs with this finding. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials regarding these recommendations. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 2 The American Rescue Plan Act established the State and Local Fiscal Recovery Fund (SLFRF) and was enacted March 11, 2021. Federal interim guidance for implementing SLFRF was established by the U.S. Treasury in May 2021 and finalized in January 2022 in effect until April 1, 2022. All the U.S. Treasury’s SLFRF guidance was finalized in the Federal Register (FR) on January 27, 2022 (FR Vol. 87, No. 18, Doc. 2022-00292) and became effective on April 1, 2022. Retrieved 10/14/2025 from https://home.treasury.gov/system/files/136/FRF-Interim-Final- Rule.pdf
The Arizona Department of Education did not monitor procedures of charter schools with relationships with charter management organizations, risking funds not being spent in accordance with the award terms and program requirements, and reduced future awards Assistance Listings number(s) and name(s): 84.010 Title I Grants to Local Educational Agencies 84.367 Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants)* *referred to as Title II Award number(s) and year(s): S010A200003 July 1, 2020 through September 30, 2023 S010A210003 July 1, 2021 through September 30, 2023 S010A220003 July 1, 2022 through September 30, 2023 S010A230003 July 1, 2023 through September 30, 2024 S367A210049 July 1, 2021 through September 30, 2023 S367A220049 July 1, 2022 through September 30, 2023 S367A230049 July 1, 2023 through September 30, 2024 Federal agency: U.S. Department of Education Compliance requirement(s): Special tests and provisions Questioned costs: Unknown Condition The Arizona Department of Education’s Grants Management Department (Department) disbursed over $59 million and over $6.8 million in Title I and Title II funds, respectively, to 242 Title I and 233 Title II charter school local educational agencies (LEAs) during fiscal year 2024 but did not perform certain monitoring procedures required by the U.S. Department of Education. Specifically, the Department did not identify which of the 242 Title I and 233 Title II charter school LEAs receiving federal grant monies had relationships with charter management organizations (CMOs) in order to perform additional required monitoring to assess the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties at these charter schools.1 1 The term “charter management organization” means a nonprofit organization that operates or manages a network of charter schools linked by centralized support, operations, and oversight (20 USC 7221i[3]). Retrieved 11/11/2025 from https://www.law.cornell.edu/uscode/ text/20/7221i#2 Effect The Department’s not identifying or performing additional monitoring of charter schools with relationships with CMOs increases the risk that funds allocated to these charter school LEAs may not have been spent in accordance with the award terms and program requirements and could result in the U.S. Department of Education reducing future awards.2 Further, if monies were spent inconsistently with program requirements, those who were intended to benefit from the program may not have received all the services or other benefits they otherwise would have received. Additionally, the Department is at risk that this finding applies to other federal programs it administers. Cause The Department’s documented program policies and procedures for monitoring LEAs did not differentiate between regular LEAs, charter schools without CMOs, or charter schools with relationships with CMOs and did not include specific procedures to assess the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties. The Department reported that it began incorporating policy changes into grant administration and monitoring policies in early 2024; however, these policies were not completed until May 2024 and did not become effective until fiscal year 2025. Criteria Federal regulations require the Department to monitor subrecipients, including charter schools, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. Those federal regulations also provide that monitoring procedures may include reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures (2 CFR §200.332[b and d]) As part of these monitoring responsibilities, the U.S. Department of Education requires the Department to monitor charter schools with relationships with CMOs and assess the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties.3,4 Also, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). 2 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 On September 28, 2015, the U.S. Department of Education issued a letter to State Educational Agencies (SEAs) reminding them of their role in helping to ensure that federal funds accessed by public charter schools are used for intended, appropriate purposes, and provided additional resources for states, and specifically SEAs, to consult as they consider improvements to their monitoring and oversight procedures for charter schools (U.S. Department of Education. [2015, September]. Letter to SEAs. Retrieved 11/18/2025 from https://oese.ed.gov/files/2020/07/ finalsignedcsp.pdf 4 On September 29, 2016, the U.S. Department of Education’s Office of Inspector General issued an audit report on charter schools with CMOs and identified risks such as conflicts of interest, related-party transactions, or insufficient segregation of duties (U.S. Department of Education. [2016, September]. Nationwide Assessment of Charter and Education Management Organizations. Retrieved 11/18/2025 from https://oig.ed. gov/sites/default/files/reports/2023-11/a02m0012.pdf Recommendations to the Department 1. Perform annual monitoring over charter schools with relationships with CMOs, including performing risk-assessment procedures over the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties, and carry out monitoring activities based on those risk assessments such as reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures. 2. Implement revisions to existing LEA-monitoring policies and procedures and train employees to identify charter schools that have relationships with CMOs and to then assess and design monitoring procedures over conflicts of interest, related-party transactions, or insufficient segregation of duties. This finding is similar to prior-year finding 2023-125 and was initially reported in fiscal year 2023. Views of responsible officials State management concurs with this finding. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials regarding these recommendations. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy.
The Arizona Department of Education failed to report complete, accurate information on the federal reporting system, risking transparent reporting on its federal programs’ subawards Assistance Listings number(s) and name(s): 84.010 Title I Grants to Local Educational Agencies Award number(s) and year(s): S010A200003 July 1, 2020 through September 30, 2023 S010A210003 July 1, 2021 through September 30, 2023 S010A220003 July 1, 2022 through September 30, 2023 S010A230003 July 1, 2023 through September 30, 2024 Assistance Listings number(s) and name(s): 84.367 Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants) Award number(s) and year(s): S367A210049 July 1, 2021 through September 30, 2023 S367A220049 July 1, 2022 through September 30, 2023 S367A230049 July 1, 2023 through September 30, 2024 Assistance Listings number(s) and name(s): 84.425D COVID-19 – Education Stabilization Fund - Elementary and Secondary School Emergency Relief (ESSER) Fund 84.425U COVID-19 - Education Stabilization Fund - American Rescue Plan - Elementary and Secondary School Emergency Relief (ARP ESSER) Award number(s) and year(s): S425D210038 January 5, 2021 through September 30, 2023 S425U210038-21C March 24, 2021 through September 30, 2026 Federal agency: U.S. Department of Education Compliance requirement(s): Reporting Questioned costs: Not applicable Condition Contrary to federal laws and regulations and the State of Arizona Accounting Manual, the Arizona Department of Education (ADE) failed to report complete and accurate information on the federal government’s reporting system for nearly $5.3 million, $887,450, and over $11.8 million in subawards it made to local education agencies (LEAs) under the Assistance Listings numbers 84.0101 (Title I), 84.367 (Title II), and 84.425D/U (ESSER) programs, respectively, during fiscal year 2024. As shown in the bullets and Table 1 below, we tested a total sample of 8 subawards for the Title I program at ADE and found that, for 8 subawards, ADE failed to report the following: X Any required information about the subawards, including the subaward organization names and subaward amounts and terms for 3 subawards tested, totaling $289,225. X Required information within the time frame for 5 subawards tested, totaling nearly $5 million, resulting in the reports being submitted between 20 and 21 months late. As shown in the bullets and Table 2 below, we tested a total sample of 9 subawards for Title II program at ADE and found that, for 9 subawards, ADE failed to report the following: X Any required information about the subawards, including the subaward organization names and subaward amounts and terms for 3 subawards tested, totaling $118,651. X Required information within the time frame for 6 subawards tested, totaling $768,799, resulting in the reports being submitted 21 months late. As shown in the bullets below and page 165 and Table 3, page 163, we tested a total sample of 16 subawards for ESSER program at ADE and found that, for 16 subawards, ADE failed to report the following: X Any required information about the subawards, including the subaward organization names and subaward amounts and terms for 3 subawards tested, totaling $8.0 million. X Required information within the time frame for 13 subawards tested, totaling $3.8 million, resulting in the report being submitted between 20 and 37 months late. X Accurate key elements for 2 subawards tested, totaling $303,740, that included incorrect subawards obligation dates. Effect The State’s stakeholders and the public did not have access to transparent and timely information about ADE’s federal subaward spending decisions on USAspending.gov as required by federal laws and regulations. Additionally, ADE is at risk that this finding applies to other federal programs it administers. ADE is at risk of not transparently reporting expenditures to subrecipients for these federal programs during fiscal year 2024, as shown in Table 4, page 164. Cause Although the programs’ reporting requirements were provided as additional award terms and conditions on the federal agency’s website, and the State of Arizona Accounting Manual instructed State departments to follow them, ADE did not require independent reviews of the reports for accuracy and completeness prior to uploading subaward data to the federal government’s reporting system. In addition, ADE did not require a post review to verify that the subaward data it uploaded to the federal government’s reporting system was complete and correctly displayed. Therefore, ADE was unaware of the errors. Criteria The Federal Funding Accountability and Transparency Act (FFATA) and federal Uniform Guidance regulations require ADE as a direct recipient of federal awards, to report certain information about each subaward action equaling or exceeding $30,000 in federal monies on the federal government’s reporting system no later than month-end of the month following the subaward action so that the information can be displayed to the public on USAspending.gov.1 Specifically, the federal Uniform Guidance requires ADE to report the subrecipient organization’s name, award amount, award term, and other information about the subaward, if applicable, for each subaward action equaling or exceeding the $30,000 threshold (2 CFR §170.320 and Appendix A to Part 170). Additionally, the State of Arizona Accounting Manual requires ADE to perform this reporting 1 The FFATA of 2006 (Public Law 109-282), as amended by section 6202 of Public Law 110-252, was enacted to provide the public with transparency on federal award spending to hold the recipient government accountable for each spending decision and to help reduce wasteful spending of federal monies. As such, federal Uniform Guidance requires reporting at sam.gov for federal awards.2 Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations to ADE 1. Immediately report on the federal government’s reporting system the required information for its subawards for these 3 programs, including reviewing, correcting, and/or resubmitting any inaccurately reported information. 2. Follow the State of Arizona Accounting Manual for reporting subaward actions equaling or exceeding $30,000 no later than month-end of the month following the subaward action, as required by the FFATA and federal Uniform Guidance, which may include providing training to ADE staff responsible for reporting ADE’s subaward actions to the federal government’s reporting system. Implement procedures requiring independent reviews to: 3. Ensure the subaward data is complete and accurate prior to uploading it to the federal government’s reporting system. 4. Verify that the subaward data it uploaded to the federal government’s reporting system was complete and correctly displayed. This finding is similar to prior-year finding 2023-126 and was initially reported in fiscal year 2021. Views of responsible officials State management concurs with this finding. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials regarding these recommendations. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 2 State of Arizona’s Department of Administration, General Accounting Office. (2022). State of Arizona Accounting Manual: 7045, FFATA and the DATA Act. Retrieved 12/11/2025 from https://gao.az.gov/sites/default/files/2022-08/7045%20FFATA%20and%20the%20DATA%20Act%20 220523.pdf
The Arizona Department of Education failed to follow State law for $30.2 million of goods and services purchases and risks not receiving the most advantageous prices Assistance Listings number(s) and name(s): 84.425U COVID-19-Education Stabilization Fund-American Rescue Plan - Elementary and Secondary School Emergency Relief (ARP ESSER) Award number(s) and year(s): S425U210038-21C March 24, 2021 through September 30, 2026 Federal agency: U.S. Department of Education Compliance requirement(s): Procurement Questioned costs: $13,604,457 Condition The Arizona Department of Education (ADE) and Arizona Department of Administration took appropriate action by reporting to us and the Arizona Attorney General an instance of potential fraud. As part of our review, we determined that contrary to federal regulation, State law, and the Arizona Procurement Code, ADE’s Procurement Division (Division) failed to follow State law and related administrative rules when procuring $30.2 million of goods or services from third-party vendors, of which $13.6 million was spent during fiscal year 2024. Specifically, the Division did not obtain proper approvals and/or prepare written determinations for exceptions to using competitive procurement methods for 7 of 8 vendors we tested as follows: X For 6 vendors, the Division did not obtain approval from the State Procurement Officer to use noncompetitive procurements or prepare written determinations for exceptions to competition when awarding contracts for $27.2 million of goods or services, such as student diagnostic assessments, of which $13.5 million was spent during fiscal year 2024. Specifically, the Division used a Request for Grant Application noncompetitive method, which is used when ADE is seeking to provide financial or other assistance to another entity. X For 1 vendor, the Division issued a noncompetitive waiver to award a contract totaling $3 million without obtaining written approval from the State Procurement Officer. ADE spent nearly $121,000 during fiscal year 2024 with this vendor. Effect The Division’s failure to follow State law and related administrative rules for procuring goods and services increased ADE’s risk of not receiving the most advantageous price for the $37.3 million paid to 57 vendors for goods and services purchased with federal monies during fiscal year 2024, thereby increasing the risk of wasting federal monies. If ADE could have obtained these goods or services at a lower cost, these savings could have been used in other areas to benefit the State and its residents, such as diagnostic and learning loss assessments. Finally, ADE is at risk that this finding applies to other federal programs it administers. Cause The Division reported that it had limited time to obligate monies within the program period. However, we found that ADE had at least 4 months to conduct a competitive solicitation for the goods and services. ADE also reported that because of procurement staff turnover, ADE is unable to justify the procurement decisions reflected in the items we tested. ADE’s policies lacked procedures to obtain approval from the State Procurement Officer and to prepare written determinations for exceptions to using competitive procurement methods, such as noncompetitive waivers, when purchasing goods and services from third-party vendors, as required by the Arizona Procurement Code. Criteria Federal regulation requires ADE to follow the same policies and procedures it uses for nonfederal procurements (2 CFR § 200.317). State law and the Arizona Procurement Code require ADE to conduct all procurements in accordance with established thresholds, methods, and documentation standards, including approval from the State Procurement Officer for noncompetitive procurements, and further require written determinations for exceptions to competition, such as noncompetitive waivers, and that such determinations include sufficient justification, approvals, and supporting documentation.1,2 Further, federal regulation also requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations to the Division 1. Follow federal regulation, State law, and the Arizona Procurement Code for procurements related to federal grant awards. 1 A.R.S. Title 41, Ch. 23, and the Arizona Administrative Code Title 2, Ch. 7, R2-7-101. 2 State of Arizona, Department of Administration Procurement. (2022). Arizona Procurement Code. Retrieved 3/5/2026 from https://spo.az.gov/ sites/default/files/2025-05/Arizona%20Procurement%20Code_11-22_0.pdf 2. Update and implement policies and procedures and responsible employees to use competitive procurement methods or otherwise obtain approval from the State Procurement Officer and to prepare written determinations for exceptions to using competitive procurement methods, such as noncompetitive waivers, when purchasing goods and services from third-party vendors. Views of responsible officials State management concurs with this finding. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials regarding these recommendations. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy.
The Department of Economic Security failed to report complete, accurate information on the federal reporting system, risking transparent reporting on CCDF Cluster subawards Cluster name(s): CCDF Cluster Assistance Listings number(s) and name(s): 93.575 Child Care and Development Block Grant 93.575 COVID-19 Child Care and Development Block Grant 93.596 Child Care Mandatory and Matching Funds of the Child Care and Development Fund 93.596 COVID-19 Child Care Mandatory and Matching Funds of the Child Care and Development Fund Award number(s) and year(s): 2101AZCCC5 October 1, 2020 through September 30, 2023 2101AZCDC6 October 1, 2020 through September 30, 2024 2101AZCSC6 October 1, 2020 through September 30, 2023 2201AZCCDD October 1, 2021 through September 30, 2024 2301AZCCDD October 1, 2022 through September 30, 2025 2301AZCCDF October 1, 2022 through September 30, 2025 2401AZCCDD October 1, 2023 through September 30, 2026 Federal agency: U.S. Department of Health and Human Services Compliance requirement(s): Reporting Questioned costs: Not applicable Condition Contrary to federal laws and regulations and the State of Arizona Accounting Manual (SAAM), the Department of Economic Security—Child and Community Services Division (Division) failed to report complete and accurate information on the federal government’s reporting system for $52.6 million in subawards that were made to 1 State agency and 5 subrecipients under assistance listings number 93.575. As shown in Table 1, page 149, we tested a total sample of 10 subawards for this cluster at the Division and found that for 7 subawards, the Department failed to report the correct subaward amounts, totaling $52.6 million, including 1 subaward totaling $12.8 million that was terminated during fiscal year 2023 and should have been removed. Of the $52.6 million, the Division reported $39.1 million less than the total for 2 subawards and $13.5 million more than the total for 5 subcontracts. Effect The State’s stakeholders and the public did not have access to transparent, timely, and accurate information about the Division’s federal award spending decisions on USAspending.gov as required by federal laws and regulations. Additionally, the Division is at risk that this finding applies to other federal programs it administers. During fiscal year 2024, the Division spent $103.2 million of federal monies related to these subawards, or 17.7% of the State’s total $581.7 million expended, for this cluster. Cause Although the cluster’s reporting requirements were provided as additional award terms and conditions on the federal agency’s website, and the SAAM instructed State departments to follow them, Division staff responsible for reporting required subaward information on the federal government’s reporting system did not follow them. Division staff were not always aware of new contracts or contract amendments that contained Federal Funding Accountability and Transparency Act (FFATA) reporting requirements, and the Division lacked written procedures during fiscal year 2024 to confirm that the Division’s contracts team communicated all new contracts and contract amendments in the Arizona Procurement Portal (APP). Criteria The FFATA and federal Uniform Guidance regulations require the Division, as a direct recipient of federal awards, to report certain information about each subaward action equaling or exceeding $30,000 in federal monies on the federal government’s reporting system no later than monthend of the month following the subaward action so that the information can be displayed to the public on USAspending.gov.1 Specifically, the federal Uniform Guidance requires the Division to report the subrecipient organization’s name, award amount, award term, and other information about the subaward, if applicable, for each subaward action equaling or exceeding the $30,000 threshold (2 CFR §170.220 and Appendix A to part 170). Additionally, the SAAM requires the Division to perform this reporting for federal awards.2 Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms (45 CFR §75.303). Recommendations to the Division 1. Immediately report on the federal government’s reporting system the required information for its subawards for this cluster, including reviewing, correcting, and/or resubmitting any inaccurately reported information. 2. Follow the SAAM for reporting subaward actions equaling or exceeding $30,000 no later than month-end of the month following the subaward action, as required by the FFATA and federal Uniform Guidance, which may require providing training to Division staff responsible for reporting the Division’s subaward actions to the federal government’s reporting system. 3. Develop and implement written policies and procedures requiring Division staff responsible for FFATA reporting requirements to confirm that the Division’s contracts team communicates all new contracts and contract amendments in the APP. This finding is similar to prior-year finding 2023-112 and was initially reported in fiscal year 2023. Views of responsible officials State management concurs with this finding. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials regarding these recommendations. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 The FFATA of 2006 (Public Law 109-282), as amended by section 6202 of Public Law 110-252, was enacted to provide the public with transparency on federal award spending to hold the recipient government accountable for each spending decision and to help reduce wasteful spending of federal monies. As such, federal Uniform Guidance requires reporting on the U.S. General Services Administration website at https://sam.gov/fsrs 2 State of Arizona’s Department of Administration, General Accounting Office. (2022). SAAM: 7045, FFATA and the DATA Act. Retrieved 10/28/2025 from https://gao.az.gov/sites/default/files/2022-08/7045%20FFATA%20and%20the%20DATA%20Act%20220523.pdf
The Department of Economic Security did not retain supporting documentation for its provider’s expenditures and may be required to return nearly $2.9 million to the federal agency Cluster name(s): CCDF Cluster Assistance Listings number(s) and name(s): 93.575 Child Care and Development Block Grant 93.575 COVID-19 - Child Care and Development Block Grant 93.596 Child Care Mandatory and Matching Funds of the Child Care and Development Fund 93.596 COVID-19 - Child Care Mandatory and Matching Funds of the Child Care and Development Fund Award number(s) and year(s): 2101AZCCC5 October 1, 2020 through September 30, 2023 2101AZCDC6 October 1, 2020 through September 30, 2024 2101AZCSC6 October 1, 2020 through September 30, 2023 2201AZCCDD October 1, 2021 through September 30, 2024 2301AZCCDD October 1, 2022 through September 30, 2025 2301AZCCDF October 1, 2022 through September 30, 2025 2401AZCCDD October 1, 2023 through September 30, 2026 Federal agency: U.S. Department of Health and Human Services Compliance requirement(s): Activities allowed or unallowed and allowable costs/cost principles Questioned costs: $2,880,442 Condition The Department of Economic Security (DES) provided $374 million to childcare providers during fiscal year 2024, or 64 percent of the State’s nearly $582 million total federal expenditures for this federal program, and contrary to federal regulations, DES did not always retain documentation to support its provider’s expenditures. Specifically, DES could not provide supporting documentation, such as a signed childcare provider payment form certifying that the charges for services provided to individuals were full and complete, for 1 of 40 provider payments selected for test work totaling $181,703. We expanded testing to include all 126 payments DES made to this provider during fiscal year 2024 and determined amounts totaling $2,880,442 were unsupported. Effect DES’ failure to retain supporting documentation increased the risk that the $2,880,442 paid to the provider may not have been spent in accordance with the award terms and conditions. Consequently, DES may be required to return these monies to the federal agency in accordance with federal requirements.1 Further, the federal agency may not be able to rely on the records to effectively monitor DES’ program administration, including its compliance with program requirements, ability to prevent and detect fraud, and evaluate the program’s success. Cause DES personnel reported that the childcare provider was authorized to enter payment information directly in DES’ benefits system, and DES lacked a process to ensure that a signed childcare provider payment form was received prior to paying the provider. Although DES’ procedures require the provider to print the form, sign a statement certifying that the charges for services provided to individuals were full and complete, and send it to DES as supporting documentation for the information entered into the benefits system, DES lacked policies and procedures to ensure signed childcare provider payment forms were received prior to payment. Criteria Federal regulation requires that a cost be adequately documented and supported to be allowable under federal awards (45 CFR §75.403[g]). Federal regulation and DES’ records management policies and procedures also require DES to retain all records related to a federal program for a period of 3 years from the date the program’s final report was submitted to the federal awarding agency or passthrough grantor (45 CFR §75.361). Finally, DES also must establish and maintain effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (45 CFR §75.303). Recommendations to DES 1. Follow federal regulations and DES’ records-management policies and procedures to retain all records relating to a federal award, including signed childcare provider payment forms, for a period of 3 years from the date of its submission of the final expenditure report. 2. Develop and implement policies and procedures to require signed childcare provider payment forms certifying that, prior to payment, the charges for services provided to individuals were full and complete. This finding is similar to prior-year finding 2023-111 and was initially reported in fiscal year 2023. Views of responsible officials State management concurs with this finding. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials regarding these recommendations. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 U.S. Department of Health and Human Services audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, DES, takes appropriate and timely corrective action (45 CFR §75.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (45 CFR §75.521).
Other auditors’ federal award findings The other auditors who audited the Arizona Health Care Cost Containment System (AHCCCS) reported this finding. AHCCCS’ initial findings of credible and willful fraud by soberliving providers across the State resulted in the suspension of more than 300 providers Assistance Listings number(s) and name(s): 93.778 Medical Assistance Program (Medicaid; Title XIX) *part of the Medicaid Cluster 93.778 COVID-19 - Medical Assistance Program (Medicaid; Title XIX) Award number(s) and year(s): 11-W-00275/09 July 1, 2023 through June 30, 2024 Federal agency: U.S. Department of Health and Human Services Compliance requirement(s): Special Tests and Provisions – Utilization Control and Program Integrity Questioned costs: Unknown Condition The AHCCCS Office of Inspector General and the Arizona Attorney General’s Office became aware of potential fraudulent billing practices including significant increases in billing for outpatient behavioral health services. These circumstances triggered a multi-agency review and investigation of potential fraud, waste, and abuse. Ultimately, this led AHCCCS to connect the irregular billing of these services with alleged criminal activity targeting Indigenous peoples and other vulnerable Arizonans. In May 2023, AHCCCS announced its initial findings of credible and willful fraud by sober-living providers across the State. Since then, AHCCCS has suspended more than 300 providers. These provider suspensions are known as the Credible Allegations of Fraud (CAF) suspensions. The CAF payment suspensions noted above are associated with wide-ranging investigations into fraudulent Medicaid billing by the named providers. The investigations are ongoing. However, AHCCCS believes that credible evidence has been established that individuals were targeted and aggressively recruited with false promises of food, treatment, and housing, only to be taken to locations where providers billed for services that were not provided or were not appropriate or necessary. For example, providers billed for: X Excessive hours of service in a 24-hour period for a single member. X Multiple services for the same member at the same time. X AHCCCS members who were not physically present (“ghost billing”). X Services after a member’s date of death. X Services that were not medically necessary. Under 42 CFR §455.23 and the terms of the Provider Participation Agreement, AHCCCS may suspend payments to a provider if a CAF has been identified. Providers are informed of the reason for their suspension in a Notice of CAF Suspension. CAF suspensions are based on preliminary findings of reliable indicia of fraud and may be lifted if AHCCCS determines there is no fraud occurring and/or good cause has been established under 42 CFR §455.23. Upon the conclusion of an investigation, AHCCCS may terminate a provider and/or lift their suspension at that time. At the point a referral is made and payment is suspended, only a preliminary investigation has been conducted, and no total overpayment or amount of improper payments made to the provider has been identified. At the conclusion of the investigation, AHCCCS will terminate a provider’s enrollment and require repayment of the identified overpayment. The investigation is ongoing, and AHCCCS is not currently able to estimate a total overpayment or amount of improper payments made to the providers. Therefore, we are unable to estimate any questioned costs related to the fraud allegations. Effect In May 2023, AHCCCS announced its initial findings of credible and willful fraud by sober-living providers across the State. Since then, AHCCCS has suspended more than 300 providers. Once a credible allegation of fraud determination is made, AHCCCS is required to suspend all payments to a provider unless there is good cause not to while investigations are conducted. The credible allegation of fraud determination results from the agency’s preliminary investigation, and the agency must then make a fraud referral to the Arizona Attorney General’s Healthcare Fraud and Abuse Section or a federal law enforcement agency for a full investigation. During this time, providers may continue to bill AHCCCS for services provided, but any reimbursement to these providers is withheld pending the outcome of further investigation. Under State statute, providers are entitled to appeal a suspension placed by AHCCCS. AHCCCS is working closely with the Arizona Attorney General’s Healthcare Fraud and Abuse Section, the Federal Bureau of Investigation (FBI), the U.S. Department of Health and Human Services (HHS), the U.S. Attorney’s Office, the Internal Revenue Service (IRS), and local and tribal law enforcement to disrupt organized bad actors, apprehend them, and prosecute them to full extent allowed by law. At present, the investigation is ongoing, and a determination of the amount of fraud or improper payments, potential recovery from the providers, or amount that may be due back to the federal government cannot be made at this time as AHCCCS is still in the process of investigating and working with the Attorney General’s Office for prosecution of substantiated claims, which is a highly complex and manual process and can take many years to finalize. As a result, we have issued a qualified opinion on the basic financial statements as of and for the year ended June 30, 2024. As a result of this matter, we have concluded that AHCCCS did not comply with the compliance requirements and have issued a qualified opinion on compliance. This is deemed to be a material weakness in internal control over compliance. Cause The fraud was a result of several bad actors colluding against the program. AHCCCS did not have complementary controls in place to detect unnecessary utilization of care and services in a timely manner. Additionally, AHCCCS did not have sufficient procedures for the ongoing pre- and post-payment review of behavioral health claims. AHCCCS’ claims-processing system uses the Centers for Medicare & Medicaid Services (CMS) required claim-edit protocols to look for improperly billed claims as noted in the National Correct Coding Initiative (NCCI), and such edit protocols are updated regularly per CMS requirements. However, AHCCCS could have implemented additional controls that may have detected these issues more timely. While not required by CMS, AHCCCS did not have sufficient edits to restrict the inappropriate use of per diem codes or restrict some behavioral health codes from being billed for the same member on the same date of service. Further, AHCCCS did not have sufficient controls in which claims were reviewed by a medical professional pre- and post-payment to assess if the claim was medically necessary and to assess if the codes being used were excessive and age appropriate. Criteria AHCCCS is required to provide methods and procedures to safeguard against unnecessary utilization of care and services. In addition, AHCCCS must have (1) methods of determining criteria for identifying suspected fraud cases; (2) methods for investigating these cases; and (3) procedures developed in cooperation with legal authorities for referring Credible Allegations of Fraud (CAF) cases to law enforcement officials (42 CFR parts 455, 456, and 1002). Credible allegations of provider fraud must be referred to the State Medicaid Fraud Control Unit (MFCU) or an appropriate law enforcement agency in states with no certified MFCU (42 CFR §455.21). AHCCCS must establish and use written criteria for evaluating the appropriateness and quality of Medicaid services. AHCCCS must have procedures for the ongoing post-payment review, on a sample basis, of the need for, and the quality and timeliness of, Medicaid services. AHCCCS may conduct this review directly or may contract with an independent entity (42 CFR §§456.5, 456.22, and 456.23). Recommendations to AHCCCS 1. Continue its investigations and refer CAF cases to law enforcement officials. 2. Continue to work with CMS to determine what, if any, amounts may be required to be remitted to CMS. 3. Review and enhance existing policies and procedures and related controls to ensure sufficient processes and controls are in place to timely detect unnecessary utilization of care and services and to prevent fraud. For example, AHCCCS could implement additional edits to restrict the inappropriate use of per diem codes or restrict some behavioral health codes from being billed for the same member on the same date of service. 4. Add additional controls in which claims are reviewed by a medical professional pre- and post- payment to assess if the claim was medically necessary and to assess if the codes being used were excessive and age appropriate. 5. Continue to examine the existing Medicaid payment system and continue to implement system-wide improvements. These improvements should include the establishment of additional reporting to flag concerning claims for prepayment review, setting of billing thresholds, and establishing prepayment review for various behavioral health claim types. 6. Establish sufficient controls in which claims are reviewed by a medical processional pre- and post-payment to assess if the claim was medically necessary and to assess if the codes being used were excessive and age appropriate. This finding is similar to prior-year finding 2023-130 and was initially reported in fiscal year 2022. Views of responsible officials State management concurs in part with the finding. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials regarding these recommendations. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy.
The Department of Health Services failed to report complete, accurate information on the federal reporting system, risking transparent reporting on 2 federal programs’ subawards Assistance Listings number(s) and name(s): 93.268 Immunization Cooperative Agreements 93.268 COVID-19 - Immunization Cooperative Agreements Award number(s) and year(s): 5 NH23IP922599-05-00 July 1, 2019 through December 31, 2024 6 NH23IP922599-05-01 July 1, 2019 through December 31, 2024 6 NH23IP922599-05-02 July 1, 2019 through December 31, 2024 6 NH23IP922599-05-03 July 1, 2019 through December 31, 2024 6 NH23IP922599-05-04 July 1, 2019 through December 31, 2024 Assistance Listings number(s) and name(s): 93.323 Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) 93.323 COVID-19 - Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) Award number(s) and year(s): 6 NU50CK000511-05-01 August 1, 2019 through July 31, 2024 6 NU50CK000511-02-16 August 1, 2019 through July 31, 2026 6 NU50CK000511-05-07 August 1, 2019 through July 31, 2027 6 NU50CK000511-05-13 August 1, 2019 through July 31, 2027 6 NU50CK000511-05-15 August 1, 2019 through July 31, 2027 6 NU50CK000511-05-16 August 1, 2019 through July 31, 2027 Federal agency: U.S. Department of Health and Human Services Compliance requirement(s): Reporting Questioned costs: Not applicable Condition Contrary to federal laws and regulations and the State’s accounting manual, the Department of Health Services (DHS) failed to report complete and accurate information on the federal government’s reporting system for nearly $17.3 million and $6.0 million in subawards it made to subrecipients under the Immunization Cooperative Agreements program (Immunization) and Epidemiology and Laboratory Capacity for Infectious Diseases program (ELC), respectively, during fiscal year 2024. As shown in the bullets and Table 1 below, we tested a total sample of 27 subawards for the Immunization program at DHS and found that, for 26 subawards, DHS failed to report the following: X Any required information about the subawards, including the subaward organization names and subaward amounts and terms, for 26 subawards tested, totaling over $17 million. X Required information within the time frame for 1 subaward tested, totaling $212,203, resulting in the report being submitted approximately 3 months late. X Accurate key elements for 1 subaward tested, totaling $212,203, that included incorrect subaward obligation dates. As discussed in the bullets and Table 2 below, we tested a total sample of 7 subawards for DHS’ ELC program and found that DHS failed to report the following: X Any required information about the subawards, including the subaward organization names and subaward amounts and terms, for 4 ELC subawards totaling $712,848. X Required information within the time frame for 3 ELC subawards totaling $5.3 million, resulting in the reports being submitted between 1 to 5 months late. X Accurate key elements for 2 ELC subawards totaling over $5.2 million, which included incorrect subaward obligation dates. Effect The State’s stakeholders and the public did not have access to transparent and timely information about DHS’ federal award spending decisions on USAspending.gov as required by federal laws and regulations. Additionally, DHS is at risk that this finding applies to other federal programs it administers. DHS is at risk of not transparently reporting expenditures to subrecipients for these 2 federal programs during fiscal year 2024, as shown in Table 3 below. Cause Although the programs’ reporting requirements were provided as additional award terms and conditions on the federal agency’s website, and the State’s accounting manual instructed State departments to follow them, DHS lacked procedures to communicate new subawards and modifications and did not require independent reviews. Specifically, the DHS’ program administrators did not always communicate new and modified subawards to the employee responsible for reporting to the federal government’s reporting system. In addition, DHS did not require independent reviews of the reports for accuracy and completeness prior to uploading subaward data to the federal government’s reporting system and did not require a post-upload review to verify that the subaward data it uploaded was complete and correctly displayed. Therefore, DHS was unaware of the errors. Criteria The Federal Funding Accountability and Transparency Act (FFATA) and federal Uniform Guidance regulations require DHS as a direct recipient of federal awards, to report certain information about each subaward action equaling or exceeding $30,000 in federal monies on the federal government’s reporting system no later than month-end of the month following the subaward action so that the information can be displayed to the public on USAspending.gov.1 Specifically, the federal Uniform Guidance requires DHS to report the subrecipient organization’s name, award amount, award term, and other information about the subaward, if applicable, for each subaward action equaling or exceeding the $30,000 threshold (2 CFR §170.320 and Appendix A to Part 170). Additionally, the State’s accounting manual requires DHS to perform this reporting for federal awards.2 Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (45 CFR §75.303). Recommendations to DHS 1. Immediately report on the federal government’s reporting system the required information for its subawards for these 2 programs, including reviewing, correcting, and/or resubmitting any inaccurate reported information. 2. Follow the State’s accounting manual for reporting subaward actions equaling or exceeding $30,000 no later than month-end of the month following the subaward action, as required by the FFATA and federal Uniform Guidance, which may include providing training to DHS staff responsible for reporting DHS’ subaward actions to the federal government’s reporting system. 3. Implement a procedure for DHS program administrators to communicate subaward activities, such as new subawards or modifications to existing subawards, to those employees responsible for reporting the DHS’ subaward actions to the federal government’s reporting system. Implement procedures requiring independent reviews to: 4. Ensure the subaward data is complete and accurate prior to uploading it to the federal government’s reporting system. 5. Verify that the subaward data it uploaded to the federal government’s reporting system was complete and correctly displayed. This finding is similar to prior-year finding 2023-121 and was initially reported in fiscal year 2022. 1 The FFATA of 2006 (Public Law 109-282), as amended by section 6202 of Public Law 110-252, was enacted to provide the public with transparency on federal award spending to hold the recipient government accountable for each spending decision and to help reduce wasteful spending of federal monies. As such, federal Uniform Guidance requires reporting at http://www.sam.gov/ 2 State of Arizona’s Department of Administration, General Accounting Office. (2022). State of Arizona Accounting Manual: 7045, FFATA and the DATA Act. Retrieved 12/11/2025 from https://gao.az.gov/sites/default/files/2022-08/7045%20FFATA%20and%20the%20DATA%20Act%20 220523.pdf Views of responsible officials State management concurs with this finding. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials regarding these recommendations. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy.
Other auditors’ federal award findings The other auditors who audited the Arizona Health Care Cost Containment System (AHCCCS) reported this finding. AHCCCS did not follow up in a timely manner for certain deferred member investigations, increasing the risk of AHCCCS making unnecessary payments and compromising its ability to investigate cases Assistance Listings number(s) and name(s): 93.767 Children’s Health Insurance Program 93.767 COVID-19 – Children’s Health Insurance Program 93.778 Medical Assistance Program (Medicaid; Title XIX) *part of the Medicaid Cluster 93.778 COVID-19 - Medical Assistance Program (Medicaid; Title XIX) Award number(s) and year(s): 11-W-00275/09 July 1, 2023 through June 30, 2024 21-W-00064/09 July 1, 2023 through June 30, 2024 Federal agency: U.S. Department of Health and Human Services Compliance requirement(s): Special Tests and Provisions – Utilization Control and Program Integrity Questioned costs: Unknown Condition AHCCCS did not follow up in a timely manner for certain deferred member investigations. In a population of 1,494 member and provider cases with identified credible allegations of provider and member fraud assigned during fiscal year 2024, we conducted a nonstatistical sample of 40 member and provider investigations to ascertain if AHCCCS performed a preliminary investigation of potential incidents of fraud or abuse committed by members and providers on a timely basis. We also reviewed to ensure AHCCCS was following up on any deferred member and provider cases in a timely manner. In our sample of 40 member and provider investigations, we noted that for 39 of 40 member investigations in which the investigation had been deferred, AHCCCS did not follow up in a timely manner and in accordance with their internal policy on those deferred investigations. Effect Untimely followup on fraud or abuse incident investigations could result in AHCCCS making unnecessary payments and compromise its ability to investigate cases. This is deemed to be a material weakness in internal control over compliance. Cause Management has reported to us that insufficient investigative staff and increased volumes of provider and member investigations impacted AHCCCS’ ability to investigate and follow up on potential fraud or abuse incidents in a timely manner. In fiscal year 2023, the process of holding quarterly reviews of deferred cases did not occur due to resources being diverted to focus on Strike Force activities involved in addressing the Behavioral Health (BH) crisis. Additionally, the AHCCCS Office of Inspector General (OIG) announced a reorganization in December 2023 that resulted in permanent transitions to other teams for several staff. Teams were given time to finalize cases and move items to other investigators to limit disruption to cases. By April 2024, after the Strike Force initiative had been unwound and the member team structure changes for personnel were finalized, the member team restated its process of quarterly deferred case reviews. At the first review in April 2024, cases in the deferred backlog that were not completed in the time frame set for the reviews were postponed to the next quarterly review in July. Criteria AHCCCS is required to provide methods and procedures to safeguard against unnecessary utilization of care and services. In addition, AHCCCS must have (1) methods of determining criteria for identifying suspected fraud cases; (2) methods for investigating these cases; and (3) procedures developed in cooperation with legal authorities for referring CAF cases to law enforcement officials (42 CFR parts 455, 456, and 1002). Credible allegations of provider fraud must be referred to the state MFCU or an appropriate law enforcement agency in states with no certified MFCU (42 CFR §455.21). Additionally, in accordance with AHCCCS policy, the OIG is required to regularly follow up on deferred investigations and provide updates at least every 90 days to the State MFCU. Recommendations to AHCCCS 1. Conduct a workload/cost analysis to evaluate whether its funding and staffing levels are sufficient to timely investigate member and provider fraud or abuse incidents. 2. Reassign staff/resources to deferred member/provider investigations. 3. Follow its existing policy, which includes clear time frames in which follow up on deferred investigation occurs. This finding is similar to prior-year finding 2023-131 and was initially reported in fiscal year 2023. Views of responsible officials State management concurs with the finding. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials regarding these recommendations. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy.
Other auditors’ federal award findings The other auditors who audited the Arizona Health Care Cost Containment System (AHCCCS) reported this finding. AHCCCS did not timely return nearly $5.4 million of the federal share of fraud and abuse recoupments Assistance Listings number(s) and name(s): 93.767 Children’s Health Insurance Program 93.767 COVID-19 - Children’s Health Insurance Program 93.778 Medical Assistance Program (Medicaid; Title XIX) *part of the Medicaid Cluster 93.778 COVID-19 - Medical Assistance Program (Medicaid; Title XIX) Award number(s) and year(s): 11-W-00275/09 July 1, 2023 through June 30, 2024 21-W-00064/09 July 1, 2023 through June 30, 2024 Federal agency: U.S. Department of Health and Human Services Compliance requirement: Special Tests and Provisions – Refunding of Federal Share of Medicaid Overpayments to Providers Questioned costs: $111,638 (93.767) and $5,245,026 (93.778) Total questioned costs: $5,356,664 Condition AHCCCS did not return the federal share of fraud and abuse recoupments back to the CMS in a timely manner. In a population of 4,117 member and provider cases during fiscal year 2024, we conducted a nonstatistical sample of 60 member and 60 provider investigations to ascertain if AHCCCS had properly remitted to CMS any recoupments as a result of the investigations. For 1 of 60 provider fraud cases, we noted AHCCCS did not timely return the federal share of fraud and abuse recoupments back to CMS. We then obtained from AHCCCS OIG a detail of all recoupments received during the period July 1, 2022 through June 30, 2024, noting a total of 392 unique OIG cases for which recoupments were received. Of this total of 392 cases, 136 cases were identified for which the federal share of the total recoupment amount was not properly reported on the CMS-64 report, and therefore, the funds were not properly remitted to CMS for a total of $5,356,664. Effect Recoupments were not reported and repaid timely to CMS. This is deemed to be a material weakness in internal control over compliance. Cause Management has reported to us that this was a result of staffing turnover as well as a breakdown of inter and intradepartmental communication and collaboration between AHCCCS OIG and the Division of Business and Finance. Criteria 42 CFR 433 Subpart F outlines the requirements State Medicaid Agencies (SMAs) are to follow related to refunding the federal share of Medicaid overpayments made to providers. Pursuant to 1903(d)(2)(C) of the Act (the Act) (42 USC 1396b), states have up to 1 year from the date of discovery of the overpayment to recover or attempt to recover the overpayment before the federal share must be refunded to CMS regardless of whether recovery is made from the provider. Recommendations to AHCCCS 1. Timely report and remit recoupments to CMS. 2. Review and update their policies and procedures to ensure the federal share of any recoveries are reported and remitted to CMS timely. 3. Enhance communications between divisions to facilitate and ensure the timely and accurate communication on recoveries. This finding is similar to prior-year finding 2023-132 and was initially reported in fiscal year 2023. Views of responsible officials State management concurs with the finding. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials regarding these recommendations. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy.
The Department of Emergency and Military Affairs’ Emergency Management Division did not always retain documentation supporting payroll, increasing the risk that $103,045 may not have been spent in accordance with award terms and conditions Assistance Listings number(s) and name(s): 97.042 Emergency Management Performance Grants Award number(s) and year(s): EMF-2021-EP-0016-S01 October 1, 2020 through September 30, 2023 EMF-2021-EP-0018-S01 October 1, 2020 through June 30, 2025 EMF-2022-EP-0009-S01 October 1, 2021 through September 30, 2025 EMF-2023-EP-0008-S01 October 1, 2022 through September 30, 2025 Federal agency: U.S. Department of Homeland Security Compliance requirement(s): Activities Allowed or Unallowed/Allowable Costs/Cost Principles Questioned costs: $103,045 Condition Contrary to federal regulations and its policy, the Department of Emergency and Military Affairs’ Emergency Management Division (Division) did not always retain documentation supporting the payroll costs it charged to the program. Specifically, the Division did not retain personnel action forms supporting and approving employees’ pay rates and/or authorization to work on the program for 5 of 40 employees we tested totaling $103,045, as follows: X $95,080 for 2 employees’ annual payroll costs lacked supported pay rates and authorization to work on the program. These employees transferred to other State agencies after the fiscal year ended, and contrary to Division policy and federal regulation, the Division did not retain their personnel records. X $7,965 for 3 employees annual payroll costs lacked supported pay rates. Previous personnel action forms authorized these 3 employees to work on the program. Effect The Division’s failure to retain documentation supporting payroll costs increased the risk that $103,045 may not have been spent in accordance with award terms and conditions. Consequently, the Division may be required to return monies to the federal agency in accordance with federal requirements.1 The Division’s $1.7 million overall program payroll costs paid to 76 employees, or 23% of $7.3 million total program costs during fiscal year 2024, are at an increased risk of not being spent in accordance with the award terms and conditions. Finally, the Division is at risk that this finding applies to other federal programs it administers. Cause The Division’s Administrative Services Office (Office) was not trained on or aware of Division policy requirements to prepare personnel action forms authorizing all employee pay rate changes and program assignments and to retain the records of employees who subsequently transferred to another State agency. Criteria Federal regulation requires the Division to maintain records for salaries and wages charged to federal awards that accurately reflect the work performed to ensure they are accurate, allowable, and properly allocated (2 CFR §200.430 [g][1][i]) and retain these records for a period of 3 years from the date the program’s final report was submitted to the federal awarding agency or passthrough grantor (2 CFR §200.334). In addition, the Department of Emergency and Military Affairs’ policy requires the Division to prepare and retain for 5 years after an employee’s termination all the employee’s employment records, including personnel action forms authorizing employee pay rate changes and program assignments. It also requires the Division to retain necessary personnel records of employees who transfer to another State agency for no less than 5 years.2 Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). 1 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Division, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 2 State of Arizona, Department of Emergency and Military Affairs. (2007). DEMA Directive 20.1: State Human Resources Administration, Sections 1.3: The Official Personnel File, 1.5: Employees Transferring to Another State Agency. Recommendations to the Division 1. Retain documentation for all payroll costs, including personnel action forms, to demonstrate employees’ salaries and wages are authorized to be charged to the federal program and spent in accordance with the program’s award terms and conditions. 2. Review the fiscal year 2024 payroll costs for the program to ensure they were properly supported and spent in accordance with the award terms and conditions and coordinate with the U.S. Department of Homeland Security, as necessary, to adjust future federal reimbursement requests or repay any unallowable costs the Division charged to the program. 3. Implement its written policy and train employees to prepare and retain for no less than 5 years the personnel action forms authorizing all employee pay rate changes and program assignments, including those who transfer to another state agency. Views of responsible officials State management concurs with this finding. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials regarding these recommendations. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy.
The Department of Emergency and Military Affairs’ Emergency Management Division (Division) did not retain adequate documentation supporting reimbursement requests, matching requirements, and financial reports, risking the Division receiving monies it was not entitled to Assistance Listings number(s) and name(s): 97.042 Emergency Management Performance Grants Award number(s) and year(s): EMF-2021-EP-0016-S01 October 1, 2020 through September 30, 2023 EMF-2021-EP-0018-S01 October 1, 2020 through June 30, 2025 EMF-2022-EP-0009-S01 October 1, 2021 through September 30, 2025 EMF-2023-EP-0008-S01 October 1, 2022 through September 30, 2025 Federal agency: U.S. Department of Homeland Security Compliance requirement(s): Cash management, matching, and reporting Questioned costs: Unknown Condition Contrary to federal regulations, the Division did not retain adequate documentation supporting reimbursement requests, matching requirements, and financial reports as follows: X Cash management For 4 of 5 requests for reimbursement we tested, the Division did not retain adequate documentation to support the amounts requested for reimbursement from the federal agency. The Division used documentation provided by its subrecipients to calculate the amount to both reimburse the subrecipient and request from the federal government. However, while the Division provided documentation of the invoices paid under their requests for reimbursement, they were unable to indicate which invoice applied to the respective request for reimbursement. X Matching The Division was unable to demonstrate through its reimbursement requests or other supporting documentation how it used nonfederal funds for at least 50% of the total project cost. X Reporting The Division did not retain documentation supporting 3 of 3 Federal Financial Reports (FFR) we tested, as follows: y For the 2023 quarter 4 FFR, the Division could only provide an unapproved draft copy and could not demonstrate that it submitted the FFR to the federal agency. y For the 2024 quarter 1 FFR and the annual FFR, the Division did not retain underlying general ledger data or other records to support costs reported, including indirect costs calculated from an approved indirect cost rate agreement. Effect The Division’s failure to retain adequate documentation supporting reimbursement requests, matching requirements, and financial reports resulted in our being unable to determine whether the reimbursements were appropriate, matching requirements were met, and the reports were complete and accurate. There is also an increased risk that Division could receive federal monies to which it is not entitled. Also, if matching requirements are not met, the Division may be required to return program monies to the federal agency in accordance with federal requirements.1 Further, the federal agency is unable to rely on the financial reports to monitor the Division’s program administration, including its compliance with program requirements and ability to prevent and detect fraud, and evaluate the program’s success. Finally, the Division is at risk that this finding applies to other federal programs it administers. Cause The Division reported that turnover of staff who previously prepared documentation to support reimbursement requests, matching requirements, and financial reports and submitted the reimbursement requests and financial reports resulted in the Division’s inability to locate the supporting documentation for the reports, including the applicable indirect cost agreement, or explain how to reconcile a large number of invoices that were provided to the reimbursement requests tested. The Division also did not have formal policies and procedures requiring an independent review to ensure the accuracy and completeness of the information included in the reports, and the retention of all documentation supporting data included in its reports. Consequently, only 2 of the 3 reports we tested were reviewed and approved prior to submitting the reports to the federal agency. 1 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient takes appropriate and timely corrective action (2 CFR §200.513(c)). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). Criteria Federal regulation requires the Division to retain all public records, including financial records and supporting documentation, related to a federal program for a period of 3 years from the date the program’s final report was submitted to the federal awarding agency or pass-through grantor (2 CFR §200.334). In addition, federal regulation requires the Division to submit its quarterly reports no later than 30 days after the reporting period (2 CFR §200.328). Federal regulation also requires the Division to use the reimbursement method to administer the program, whereby the Division is reimbursed with federal program monies only after it spends its own monies for authorized program purposes and requests reimbursement from the federal grantor (2 CFR §200.305[B][3]). Also, the program’s grant agreement requires the Division to match 50% of the approved project costs from nonfederal sources. Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations to the Division 1. Retain documentation for all reimbursement requests, matching requirements, and financial reports, such as the underlying general ledger data, approved indirect cost rate agreements, or information provided by its subrecipients for a period of 3 years from the date the program’s final report is submitted to the federal agency. 2. Review the reports identified above to ensure they were accurate. If any inaccuracies are identified, work with the federal grantor to correct these reports. 3. Develop and implement written policies and procedures over the preparation of reimbursement requests and financial reports, and the monitoring of the Division’s matching requirements as well as the retention of these records. The Division should train responsible staff on these policies and to perform an independent review of these documents to ensure accuracy and completeness prior to submission to the federal agency. 4. Allocate sufficient resources, such as staffing, to comply with the award terms and program requirements over reimbursement requests, matching requirements, and financial reports. Views of responsible officials State management concurs with this finding. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials regarding these recommendations. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy.
The University of Arizona did not support salary and employee-related expenses costs of over $4.8 million that it may be required to repay to the federal agency Cluster name(s): Research and Development Cluster Assistance Listings number(s) and name(s): Various Award number(s) and year(s): Various, 2024 Federal agency: Various Compliance requirement(s): Allowable costs/cost principles Questioned costs: $4,849,561 Condition Contrary to federal regulation and the University of Arizona’s (University) policies and procedures, the University did not properly support the distribution of salary and employee-related expenses (ERE) costs of $4,849,561 to ensure they were accurate, allowable, and properly allocated to the Research and Development Cluster during fiscal year 2024. Specifically, principal investigators or supervisors who had knowledge of work performed on the federally funded Research and Development Cluster projects either did not review and approve effort certification reports or approved them late. We tested 17 employees’ salary and ERE costs charged to the Research and Development Cluster and found that principal investigators or supervisors:1 X Did not approve 3 effort-certification reports for 2 employees. X Did not approve 5 effort-certification reports for 5 employees within the required 30 working-day time frame. Reports were approved between 4 and 35 days late. Further, we obtained a report from the University’s financial system of outstanding effortcertification reports for fiscal year 2024 and found 240 reports supporting salary and ERE costs that were charged to the Research and Development Cluster were not approved, as shown in Table 1, page 184. 1 ERE are determined by applying the appropriate percentage to actual salary expense. Benefits provided to employees, which may include health, dental, long-term disability, retirement, unemployment compensation, qualified tuition remission—employee, termination leave, employee wellness, FICA taxes, workers compensation, and liability insurance. Employees are charged a flat fringe benefit rate regardless of participation. University of Arizona. ERE Rates Overview and FAQs. Retrieved 11/28/25 from https://finance.arizona.edu/accounting/ere-rates/ overview Effect The University’s not approving the effort-certification reports or approving them late increased the risk that the University received $4,849,561 in Research and Development Cluster monies it was not entitled to and may be required to repay to the federal agency. In fact, for 1 of the employees for whom a principal investigator failed to approve effort-certification reports, the University informed us that it improperly paid this former employee $99,762 of salary and ERE for approximately 1 year and 10 months past the employee’s resignation date in June 2023. The University placed a hold on the former employee’s Arizona State Retirement System (ASRS) account and reclaimed the employee’s and employer’s ASRS contribution amounts, resulting in a recovery of $21,648. The University’s improper payments to the former employee resulted in a net loss of $78,114 to the University as of June 30, 2025.2 However, the University reimbursed the Research and Development Cluster by transferring the costs to State appropriated funds for local funding of departments in May 2025; therefore, no questioned cost resulted from this instance of noncompliance. Finally, the University is at risk that this finding applies to other federal programs it administers. 2 Arizona Auditor General. (2025). Report on Internal Control and on Compliance Year Ended June 30, 2025. Retrieved 02/9/2026 from https:// www.azauditor.gov/sites/default/files/2026-02/UniversityofArizonaJune30_2025ReportonInternalControlandonCompliance.pdf Cause Despite periodic notifications by the University’s Sponsored Projects Services, the principal investigators or supervisors either did not review and approve effort certification reports or approved the effort certification reports after the 30-working-day requirement because the policies and procedures for effort certification do not contain enforcement actions for noncompliance. In addition, the University’s policies and procedures did not provide separate time frames for the 2 required effort-certification report reviews, including the fiscal officers and principal investigators or supervisors, to approve the effort-certification reports. For example, for 2 effort-certification reports we tested that were 5 and 17 days late, the principal investigators were given limited time to complete their reviews after the fiscal officers approved the reports in 26 and 28 working days, respectively. Criteria Federal regulation requires the University to base charges to federal awards for salaries on records that accurately reflect the work performed. These records must comply with the University’s established accounting policies and procedures. Federal regulation also allows budget estimates to be used for interim accounting purposes, provided that the University’s system of internal controls includes processes to perform periodic after-the-fact reviews of interim charges made to a federal award based on budget estimates. All necessary adjustments must be made so that the final amount charged to the federal award is accurate, allowable, and properly allocated (2 CFR §200.430[g][1]). University policies and procedures require the University to perform periodic after-the-fact reviews of effort certification reports that include budgeted percentages charged to the federal awarding agency and the distribution of salary and ERE costs based on budgeted percentages amongst all applicable federal awards. These policies and procedures require a fiscal officer to perform the first review and approval of the effort-certification report in the University’s financial system. Then, the principal investigators of federally sponsored projects should approve the effort-certification reports of all employees who are paid fully or partially from federal sources for work performed on a project. If the principal investigator does not have specific knowledge of the work performed, then a direct supervisor who has knowledge of work performed should approve the report. Effort-certification reports are due within 30 working days of the document-creation date in the University’s financial system.3,4 Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). 3 University of Arizona. Research & Partnerships – Effort Reporting Policy. Retrieved 11/18/2025 from https://research.arizona.edu/researchsupport 4 University of Arizona. Research & Partnerships – Effort Reporting Procedure. Retrieved 11/18/2025 from https://research.arizona.edu/ research-support Recommendations to the University 1. The principal investigators or supervisors should approve the effort-certification reports within the required 30-working-day time frame. The University should improve its written policies and procedures over effort-certification to include: 2. Enforcement actions when principal investigators or supervisors do not approve the effort certifications within the required time frame. 3. Establish separate time frames in the approval process over effort-certification reports for fiscal officers and principal investigators and supervisors. Views of responsible officials University management concurs with this finding. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials regarding these recommendations. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy.