Lack of Internal Controls and Noncompliance with Subrecipient Monitoring Requirement – Emergency Rental Assistance Program (Repeat Finding – 2021-002) FEDERAL AGENCY: U.S. Department of the Treasury ASSISTANCE LISTING: 21.023 FEDERAL PROGRAM NAME: Emergency Rental Assistance Program FEDERAL AWARD NUMBER: ERAE0514, ERAE0418 FEDERAL AWARD YEAR: 2022 CONTROL CATEGORY: Subrecipient Monitoring QUESTIONED COSTS: $13,241,928 Condition: During the process of documenting the County’s internal controls regarding federal disbursements, we noted that Oklahoma County has not established the following procedures to ensure compliance with the Subrecipient Monitoring requirements: • Identify the award and applicable requirements to the subrecipients. • Evaluate each subrecipient’s risk of noncompliance for purposes of determining the appropriate subrecipient monitoring related to the subaward (2 CFR section 200.332(b)). • Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, complies with the terms and conditions of the subaward, and achieves performance goals (2 CFR sections 200.332(d) through (f)). Further, when performing tests over compliance of the federal grant, it was noted that the County did not perform any subrecipient monitoring procedures. In addition, subaward agreements were not designed to ensure the subrecipients understand and use the funds in accordance with federal regulations, and terms and conditions of the subaward. Cause of Condition: Policies and procedures have not been designed and implemented to ensure the County complies with federal laws and regulations and grant agreements. Effect of Condition: This condition resulted in noncompliance with federal laws and regulations and grant agreements. Recommendation: OSAI recommends the County comply with federal laws and regulations and grant agreements by creating award agreements that are designed and implemented to ensure Subrecipient Monitoring is performed. Management Response: Chairman of the Board of County Commissioners: Oklahoma County will comply with federal laws and regulations and grant agreements by creating award agreements that are designed and implemented to ensure Subrecipient Monitoring is performed. Criteria: GAO Standards – Section 2 – Establishing an Effective Internal Control System – OV2.23 states in part: Objectives of an Entity – Compliance Objectives Management conducts activities in accordance with applicable laws and regulations. As part of specifying compliance objectives, the entity determines which laws and regulations apply to the entity. Management is expected to set objectives that incorporate these requirements. 2 CFR § 200.303(a) Internal Controls reads as follows: The non-Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). 2 CFR § 200.332 states: All pass-through entities must: (a) Ensure that every subaward is clearly identified to the subrecipient as a subaward and includes the following information at the time of the subaward and if any of these data elements change, include the changes in subsequent subaward modification. When some of this information is not available, the pass-through entity must provide the best information available to describe the Federal award and subaward… (b) Evaluate each subrecipient's risk of noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward for purposes of determining the appropriate subrecipient monitoring described in paragraphs (d) and (e) of this section, . . . (c) Consider imposing specific subaward conditions upon a subrecipient if appropriate as described in § 200.208. (d) Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. … (e) Depending upon the pass-through entity's assessment of risk posed by the subrecipient (as described in paragraph (b) of this section), the following monitoring tools may be useful for the pass-through entity to ensure proper accountability and compliance with program requirements and achievement of performance goals (f) Verify that every subrecipient is audited as required by Subpart F of this part when it is expected that the subrecipient's Federal awards expended during the respective fiscal year equaled or exceeded the threshold set forth in § 200.501. (g) Consider whether the results of the subrecipient's audits, on-site reviews, or other monitoring indicate conditions that necessitate adjustments to the pass-through entity's own records. (h) Consider taking enforcement action against noncompliant subrecipients as described in § 200.339 of this part and in program regulations.
Condition: The Municipality failed to identify, within their records, a list of transactions, nor could provide supporting documentation for the disbursement of $373,670 of program funds. Several inconsistencies between the disbursement and supporting documentation were observed for disbursements totaling $8,579. A total of $373,670 of program funds were transferred to other accounts of the Municipality. The Municipality did not provide us with supporting documentation for transactions totaling $373,670, therefore, we could not ascertain that these transactions complied with program regulations. Context: The Municipality received $758,218 of program funds during the fiscal year ended on June 30, 2022. A total of $1,526,593 was included in the schedule of expenditures of federal awards (SEFA) as program expenses. The Municipality did not provide sufficient and appropriate documentation for $373,670 of program expenses. This represents 24% of the expenses reported in the SEFA. The following situations were observed for disbursements totaling $8,579: Context, continued: Situation Number of transactions with situation Disbursement was made before the receipt of the related invoice 1 Duplicity of payments for the same invoice 2 Disbursement was made without the receipt of the related invoice nor the signoff of all required personnel. 1 Program regulation states that local governments are required to use payments from the Fund to cover: 1) Necessary expenditures incurred due to the public health emergency with respect to the Coronavirus Disease 2019 (Covid-19), 2) Costs that were not accounted in the governments’ most recently approved budget as of March 27, 2020, and 3) Costs that were incurred during the period that begins on March 1, 2020; and ends on December 31, 2021. Program Closure Report reminds the Municipality that as per 2 C.F.R. 200 and applicable federal regulations to the CRF Program, documentation that serves as evidence of any eligible expenditure reported under the CRF Program should be preserved and maintained for at least five years. We could not ascertain that these disbursements complied with program regulations. The Coronavirus Relief Fund is authorized by the Cares Act, Pub. L. No. 116-136, Division A, Title V (2020) (codified as 42 USC 81 et seq.) as amended by the Consolidated Appropriations Act, 201, Pub. L. No. 116-260 Division N, Title X, Section 1001. Criteria: Uniform Guidance states in 2 CFR 200.403 that otherwise authorized by statue, costs must be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles, be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the non-Federal entity and be adequately documented. As per 2 CFR 200.302 the other non-Federal entity’s financial management system must provide for the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the federal statues, regulations, and the terms and conditions of the Federal Award. Cause: The Municipality failed to provide documentation that served as evidence of eligible expenses for the CRF program for expenses totaling $373,670. The Municipality applied inconsistent internal control and program procedures to disbursement transactions totaling $8,579. Effect: Remedies for noncompliance are described in 2 CFR 200.339. Grantor may impose additional conditions as described in 2 CRF 200.208 or take one or more of the actions listed on 2 CRF 200.339 as appropriate in the circumstances. Auditor’s recommendation: The Municipality must strengthen internal controls and procedures to assure that disbursement of program funds is properly documented and allowed under program regulations. The Municipality must ensure that all documentation that serves as evidence for eligible expenses be preserved and maintained for at least five years. Views of Responsible officials and corrective actions: Evidence of AAFAF Funds closeout report was provided, there is no issue. Auditor Comments: The Coronavirus Relief Fund (CRF) Transfer Agreement – Assistance Program to Municipalities establishes the following on its grant agreement: 2.3 Recordkeeping: Transferee will maintain its books and records in a manner that will provide Transferor with sufficient detail to review Transferee’s receipts and expenditures relating to the Transfer. Transferee will make such records available for review by Transferor or its agent or designee upon reasonable notice during the Transfer Period and for five (5) years after the termination or expiration of this Agreement. 5.2 Compliance Audit Requirements E.: As applicable, Transferees required to have an audit must ensure the audits are performed in accordance with Generally Accepted Auditing Standards (GAAS) and Government Auditing Standards. The Assistance Program to Municipalities Program Closure Report that management refers to states the following: “Receipt of this notification means that your municipality does not need to provide further notifications or Use of Funds reports since the Program has been closed for your municipality. Your municipality is advised that all documentation that serves as evidence of any eligible expenditure reported under the CRF Program should be preserved and maintained for at least five (5) years, as indicated by federal regulation 2 C.F.R. 200 and applicable federal regulations to the CRF Program. Additionally, please be advised that your municipality will continue to be subject to revisions or audits by local, state or federal agencies pertaining to the use of funds in accordance with federal regulations applicable to the CRF program or the federal regulations regarding Federal Awards, 2 C.F.R. 200. Therefore, your municipality should expect and be prepared for a formal audit by the Government of Puerto Rico or by any pertinent federal agency”. Appendix XI to Part 200 – Compliance Supplement identifies Allowable Costs/Cost Principle as a compliance requirement. Except where otherwise authorized by statue, cost must meet the following general criteria in order to be allowable under federal awards: (1) Be necessary and reasonable for the performance of the federal award and be allocable thereto under the principles in 2 CFR Part 200, Subpart E., and (2) be adequately documented, among other things. The Assistance Program to Municipalities Program Closure Report does not constitute a list of transactions nor adequate supporting documentation of the transactions totaling $373,670. It also does not explain the inconsistencies in supporting documentation observed for disbursements totaling $8,579. Audit Status: Unresolved
Condition: The Municipality could not provide supporting documentation for the disbursement of $173,454 of program funds. These disbursements were accounted for as increase in the due from other funds account. We could not ascertain that the disbursements of $173,454 complied with program regulations. Context: The Municipality received $123,938 of program funds during the fiscal year ended on June 30, 2022. A total of $173,454 of program funds were disbursed without sufficient and appropriate documentation. These funds were disbursed as electronic transfers to other municipal accounts and were accounted for as increases in the due from other funds account. The Municipality repaid during the current year the amount of $447,816 related to last year’s disbursements to the due from other funds account. As of June 30, 2022 the balance of the due from other funds account is $555,110. Program regulation states that costs must be directly tied to the performance of eligible work; adequately documented; reduced by all applicable credits, such as insurance proceeds and salvage values; authorized and not prohibited under Federal or State government laws or regulation; consistent with the applicant’s internal policies, regulations, and procedures that apply uniformly to both Federal awards and other activities of the applicant; and necessary and reasonable to accomplish the work properly and efficiently. We could not ascertain that these disbursements complied with program regulations. The Public Assistance Program is authorized under the Robert T. Stafford Disaster Relief and Emergency assistance Act, as Amended (Stafford Act). Assistance is provided so that communities can quickly respond to and recover from major disasters or emergencies declared by the President. The Municipality has approved grants for the Hurricane Irma and Maria disasters declared on September 2017 (disasters 3384EMPR, 4336 DRPR and 4339 DRPR). The program approves funding for debris removal, emergency protective measures, and the restoration of disaster-damaged, publicly owned facilities. It also encourages protection of damaged facilities from future incidents by providing assistance for hazard mitigation measures. Criteria: Uniform Guidance states in 2 CFR 200.403 that otherwise authorized by statue, costs must be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles, be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the non-Federal entity and be adequately documented. As per 2 CFR 200.302 the other non-Federal entity’s financial management system must provide for the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the federal statues, regulations, and the terms and conditions of the Federal Award. As per 44 CFR section 206.201 and 206.203, the public assistance program provides grant funding for emergency protective measures and debris removal (Emergency Work) and for permanent restoration of damaged facilities, including cost-effective hazard mitigation to protect facilities from future damage (Permanent Work). Cause: The Municipality applied inconsistent program procedures to the three disbursement transactions totaling $173,454. Effect: Remedies for noncompliance are described in 2 CFR 200.339. Grantor may impose additional conditions as described in 2 CRF 200.208 or take one or more of the actions listed on 2 CRF 200.339 as appropriate in the circumstances. Program regulations provide for recovery of assistance and penalty provisions on 44 CFR Part 206. Auditor’s recommendation: The Municipality must strengthen internal controls and procedures to assure that disbursement of program funds are properly documented, can be directly tied to the performance of eligible work, and is allowed under program regulations. Views of Responsible officials and corrective actions: The Municipality Administration is committed to identify the control of deficiency that allowed for the deficiency to happen. Additionally, the administration is committed to implementing the correct control structure to prevent the situation from happening in the future. The Municipality Management will continue the search of supporting documentation of the highlighted transactions. New proposed control structure to be evaluated by Municipality for adequacy. Audit Status: In process of completion.
Finding 2022-007 — Lack of Internal Controls and Noncompliance with Subrecipient Monitoring – Emergency Rental Assistance Program (Repeat Finding 2021-013) FEDERAL AGENCY: U.S. Department of the Treasury ASSISTANCE LISTING: 21.023 FEDERAL PROGRAM NAME: Emergency Rental Assistance Program FEDERAL AWARD NUMBER: ERA0174, ERAE0225 FEDERAL AWARD YEAR: 2022 CONTROL CATEGORY: Subrecipient Monitoring QUESTIONED COSTS: $6,397,374 Condition: During the process of documenting the County’s internal controls regarding federal disbursements for the Emergency Rental Assistance Program (ERA), we noted that Cleveland County has not established the following procedures to ensure compliance with the Subrecipient Monitoring requirements: • Evaluate subrecipient’s risk of noncompliance for the purposes of determining the appropriate subrecipient monitoring related to the subaward. • Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, complies with the terms and conditions of the subaward, and achieves performance goals. Further, while documenting controls over the subrecipient program and administrative expenditures for the ERA1, we noted the following: • The County was unable to provide supporting documents for the administrative costs of the consultant for this grant totaling $64,800. • The County was unable to provide supporting documentation of the subrecipient’s administrative expenditures totaling $453,067. Cause of Condition: Policies and procedures have not been designed and implemented to ensure the County complies with federal laws and regulations and grant agreements; and adequate subrecipient monitoring policies and procedures had not been established by the County prior to entering into agreements with subrecipients. Effect of Condition: This condition resulted in noncompliance with grant requirements. Also, the subrecipient may not be in compliance with the award terms and there is an increased risk of mismanagement and fraud by the subgrantees. Recommendation: OSAI recommends the County design and implement internal controls to ensure that it administers current and future ERA grants in accordance with applicable federal laws and grant requirements, including ensuring that grant subrecipients are properly informed of federal requirements related to allowable costs and that subrecipient monitoring procedures are designed and implemented. Subrecipients should be reimbursed for administrative costs based on supporting documentation for actual costs incurred rather than making advance payments for a set percentage of program funds advanced. Management Response: Chairman of the Board of County Commissioners: Cleveland County takes the auditor's findings seriously and has already implemented several improvements in documentation, monitoring, and reporting practices. Cleveland County is working toward improvements for fiscal year 2025 and has reconciled billing to align with the contract scope of work. However, we recognize the need for documented internal controls and are committed to addressing all recommendations to ensure compliance and transparency in future programs. The County appreciates the constructive feedback and will continue to refine its processes to better serve its citizens. Criteria: GAO Standards – Section 2 – Establishing an Effective Internal Control System – OV2.23 states in part: Objectives of an Entity – Compliance Objectives Management conducts activities in accordance with applicable laws and regulations. As part of specifying compliance objectives, the entity determines which laws and regulations apply to the entity. Management is expected to set objectives that incorporate these requirements. 2 CFR § 200.332 states in part: (e) Monitor the activities of a subrecipient as necessary to ensure that the subrecipient complies with Federal statutes, regulations, and the terms and conditions of the subaward. The pass-through entity is responsible for monitoring the overall performance of a subrecipient to ensure that the goals and objectives of the subaward are achieved. In addition, identify procedures necessary based upon the evaluation of subrecipient risk or specifically required by the terms and conditions of the award, subaward monitoring must include the following: 1. Reviewing financial and programmatic (performance and special reports) required by the Pass-Through Entity (PTE). The Consolidated Appropriations Act§ Section 501 (c)(5) Use of Funds - Administrative Costs states in part: (A) IN GENERAL. —Not more than 10 percent of the amount paid to an eligible grantee under this section may be used for administrative costs attributable to providing financial assistance and housing stability services under paragraphs (2) and (3), respectively, including for data collection and reporting requirements related to such funds. (B) NO OTHER ADMINISTRATIVE COSTS. —Amounts paid under this section shall not be used for any administrative costs other than to the extent allowed under subparagraph (A). In addition, the U.S. Department of Treasury Emergency Rental Assistance (ERA) FAQ #29 What are the applicable limitations on administrative expenses, states in part: Under ERAl, not more than 10 percent of the amount paid to a grantee may be used for administrative costs attributable to providing financial assistance and housing stability services to eligible households. Under ERA2, not more than 15 percent of the amount paid to a grantee may be used for administrative costs attributable to providing financial assistance, housing stability services, and other affordable rental housing and eviction prevention activities. 2 CFR § 200.332 states: All pass-through entities must: (a) Ensure that every subaward is clearly identified to the subrecipient as a subaward and includes the following information at the time of the subaward and if any of these data elements change, include the changes in subsequent subaward modification. When some of this information is not available, the pass-through entity must provide the best information available to describe the Federal award and subaward… (b) Evaluate each subrecipient's risk of noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward for purposes of determining the appropriate subrecipient monitoring described in paragraphs (d) and (e) of this section,… (c) Consider imposing specific subaward conditions upon a subrecipient if appropriate as described in § 200.208. (d) Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. . . . (e) Depending upon the pass-through entity's assessment of risk posed by the subrecipient (as described in paragraph (b) of this section), the following monitoring tools may be useful for the pass-through entity to ensure proper accountability and compliance with program requirements and achievement of performance goals (f) Verify that every subrecipient is audited as required by Subpart F of this part when it is expected that the subrecipient's Federal awards expended during the respective fiscal year equaled or exceeded the threshold set forth in § 200.501. (g) Consider whether the results of the subrecipient's audits, on-site reviews, or other monitoring indicate conditions that necessitate adjustments to the pass-through entity's own records. (h) Consider taking enforcement action against noncompliant subrecipients as described in § 200.339 of this part and in program regulations.