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2023-026 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used for only allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Prior Year Audit Finding: Yes, Finding 2022-018 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic and its negative economic effects. Washington has received about $4.4 billion of SLFRF funds from the U.S. Department of the Treasury (Department). Federal law stipulate that states may use SLFRF funds to: • Support public health expenditures, including COVID-19 prevention and mitigation efforts • Address negative economic impacts caused by the public health emergency • Replace lost public sector revenue • Provide premium pay for essential workers • Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department’s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant’s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than use the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that recipients can use to provide government services. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculations or the standard allowance. Washington received $2.2 billion of its total $4.4 billion SLFRF allocation in May 2022. When received, the funds were accounted for in the state’s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 to various state transportation-related accounts. According to the Office of Financial Management, these distributions compensated for revenue loss in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019, and they were to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation-related accounts on the state’s fiscal year 2023 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Office did not have adequate internal controls over and did not comply with requirements to ensure SLFRF funds were used for only allowable activities. The prior finding number was 2022-018. Description of Condition The Office did not have adequate internal controls over and did not comply with requirements to ensure SLFRF funds were used for only allowable activities. While recipients are allowed to use SLFRF funds to replace lost public sector revenues, the state was required to identify actual expenditures that were provided for government services. At the time of audit, the state had not identified such expenditures. Rather, the state asserted that all expenditures in the transportation accounts receiving the SLFRF funds were appropriated for government services, so there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. Cause of Condition Office management does not agree that federal requirements and the Department’s final rule required the state to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office’s position that all expenditures in the transportation-related accounts were for government services, so the state had sufficient expenditures to meet the grant requirement. During the last audit, the Office contacted the Department for guidance on the matter. The Department has maintained a FAQ document for the SLFRF program, and the answer to question 13.15, states in part, “recipients should not deviate from their established practices and policies regarding the incurrence of cost, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient’s own funds.” A Department representative acknowledged this FAQ guidance, and said the Department does not have additional, specific requirements about how recipients should internally track their use of SLFRF funds for revenue replacement. At the time of this audit, the Office had not received the Department’s management decision regarding the prior audit finding. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify that the costs the Office charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant’s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF program, the Office did not comply with federal requirements. Therefore, we are questioning the $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: • Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the state’s fiscal year 2023 SEFA • Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF program and are adequately documented, while also documenting the details of this review • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response The Office does not concur with the audit finding. The state of Washington implemented internal controls and created Fund 706 to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. Following U.S. Department of Treasury guidance and instructions, the state of Washington determined there was approximately $3 billion in revenue loss. The state, through legislation, approved the transfer of $300 million from the SLFRF account to various state transportation accounts under the revenue loss provision. Each transportation account that received SLFRF funds was established in statute and is for a specific “government service” purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Treasury FAQ 3.2 states that “Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.” We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. The Office disagrees that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. Questioned costs, if any, could have been identified through appropriate and relevant audit procedures. The Office continues to work with U.S. Treasury, through the Management Decision process, to ensure no questioned costs are required to be repaid. Auditor’s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. This is consistent with the State’s practice for recording expenditures for all other federal programs. Because the Office did not identify specific expenditures for the SLFRF program in the accounting system, we were unable to test SLFRF expenditures from the State’s transportation accounts. The expenditures for the State coded to the Office’s SLFRF account (706) did not include the distributions mentioned by the Office in its response, above, and therefore there was no expenditure activity for our Office to test for compliance. We reaffirm our finding and will follow-up on the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) 1. Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. 2. Records that identify adequately the source of the application of funds for federally funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation Title 2 CFR Part 200, Uniform Guidance, section 410, Collection of unallowable costs, establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200, Uniform Guidance, section 403, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-026 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used for only allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Prior Year Audit Finding: Yes, Finding 2022-018 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic and its negative economic effects. Washington has received about $4.4 billion of SLFRF funds from the U.S. Department of the Treasury (Department). Federal law stipulate that states may use SLFRF funds to: • Support public health expenditures, including COVID-19 prevention and mitigation efforts • Address negative economic impacts caused by the public health emergency • Replace lost public sector revenue • Provide premium pay for essential workers • Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department’s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant’s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than use the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that recipients can use to provide government services. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculations or the standard allowance. Washington received $2.2 billion of its total $4.4 billion SLFRF allocation in May 2022. When received, the funds were accounted for in the state’s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 to various state transportation-related accounts. According to the Office of Financial Management, these distributions compensated for revenue loss in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019, and they were to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation-related accounts on the state’s fiscal year 2023 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Office did not have adequate internal controls over and did not comply with requirements to ensure SLFRF funds were used for only allowable activities. The prior finding number was 2022-018. Description of Condition The Office did not have adequate internal controls over and did not comply with requirements to ensure SLFRF funds were used for only allowable activities. While recipients are allowed to use SLFRF funds to replace lost public sector revenues, the state was required to identify actual expenditures that were provided for government services. At the time of audit, the state had not identified such expenditures. Rather, the state asserted that all expenditures in the transportation accounts receiving the SLFRF funds were appropriated for government services, so there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. Cause of Condition Office management does not agree that federal requirements and the Department’s final rule required the state to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office’s position that all expenditures in the transportation-related accounts were for government services, so the state had sufficient expenditures to meet the grant requirement. During the last audit, the Office contacted the Department for guidance on the matter. The Department has maintained a FAQ document for the SLFRF program, and the answer to question 13.15, states in part, “recipients should not deviate from their established practices and policies regarding the incurrence of cost, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient’s own funds.” A Department representative acknowledged this FAQ guidance, and said the Department does not have additional, specific requirements about how recipients should internally track their use of SLFRF funds for revenue replacement. At the time of this audit, the Office had not received the Department’s management decision regarding the prior audit finding. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify that the costs the Office charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant’s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF program, the Office did not comply with federal requirements. Therefore, we are questioning the $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: • Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the state’s fiscal year 2023 SEFA • Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF program and are adequately documented, while also documenting the details of this review • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response The Office does not concur with the audit finding. The state of Washington implemented internal controls and created Fund 706 to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. Following U.S. Department of Treasury guidance and instructions, the state of Washington determined there was approximately $3 billion in revenue loss. The state, through legislation, approved the transfer of $300 million from the SLFRF account to various state transportation accounts under the revenue loss provision. Each transportation account that received SLFRF funds was established in statute and is for a specific “government service” purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Treasury FAQ 3.2 states that “Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.” We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. The Office disagrees that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. Questioned costs, if any, could have been identified through appropriate and relevant audit procedures. The Office continues to work with U.S. Treasury, through the Management Decision process, to ensure no questioned costs are required to be repaid. Auditor’s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. This is consistent with the State’s practice for recording expenditures for all other federal programs. Because the Office did not identify specific expenditures for the SLFRF program in the accounting system, we were unable to test SLFRF expenditures from the State’s transportation accounts. The expenditures for the State coded to the Office’s SLFRF account (706) did not include the distributions mentioned by the Office in its response, above, and therefore there was no expenditure activity for our Office to test for compliance. We reaffirm our finding and will follow-up on the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) 1. Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. 2. Records that identify adequately the source of the application of funds for federally funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation Title 2 CFR Part 200, Uniform Guidance, section 410, Collection of unallowable costs, establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200, Uniform Guidance, section 403, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-026 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used for only allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Prior Year Audit Finding: Yes, Finding 2022-018 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic and its negative economic effects. Washington has received about $4.4 billion of SLFRF funds from the U.S. Department of the Treasury (Department). Federal law stipulate that states may use SLFRF funds to: • Support public health expenditures, including COVID-19 prevention and mitigation efforts • Address negative economic impacts caused by the public health emergency • Replace lost public sector revenue • Provide premium pay for essential workers • Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department’s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant’s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than use the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that recipients can use to provide government services. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculations or the standard allowance. Washington received $2.2 billion of its total $4.4 billion SLFRF allocation in May 2022. When received, the funds were accounted for in the state’s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 to various state transportation-related accounts. According to the Office of Financial Management, these distributions compensated for revenue loss in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019, and they were to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation-related accounts on the state’s fiscal year 2023 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Office did not have adequate internal controls over and did not comply with requirements to ensure SLFRF funds were used for only allowable activities. The prior finding number was 2022-018. Description of Condition The Office did not have adequate internal controls over and did not comply with requirements to ensure SLFRF funds were used for only allowable activities. While recipients are allowed to use SLFRF funds to replace lost public sector revenues, the state was required to identify actual expenditures that were provided for government services. At the time of audit, the state had not identified such expenditures. Rather, the state asserted that all expenditures in the transportation accounts receiving the SLFRF funds were appropriated for government services, so there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. Cause of Condition Office management does not agree that federal requirements and the Department’s final rule required the state to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office’s position that all expenditures in the transportation-related accounts were for government services, so the state had sufficient expenditures to meet the grant requirement. During the last audit, the Office contacted the Department for guidance on the matter. The Department has maintained a FAQ document for the SLFRF program, and the answer to question 13.15, states in part, “recipients should not deviate from their established practices and policies regarding the incurrence of cost, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient’s own funds.” A Department representative acknowledged this FAQ guidance, and said the Department does not have additional, specific requirements about how recipients should internally track their use of SLFRF funds for revenue replacement. At the time of this audit, the Office had not received the Department’s management decision regarding the prior audit finding. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify that the costs the Office charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant’s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF program, the Office did not comply with federal requirements. Therefore, we are questioning the $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: • Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the state’s fiscal year 2023 SEFA • Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF program and are adequately documented, while also documenting the details of this review • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response The Office does not concur with the audit finding. The state of Washington implemented internal controls and created Fund 706 to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. Following U.S. Department of Treasury guidance and instructions, the state of Washington determined there was approximately $3 billion in revenue loss. The state, through legislation, approved the transfer of $300 million from the SLFRF account to various state transportation accounts under the revenue loss provision. Each transportation account that received SLFRF funds was established in statute and is for a specific “government service” purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Treasury FAQ 3.2 states that “Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.” We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. The Office disagrees that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. Questioned costs, if any, could have been identified through appropriate and relevant audit procedures. The Office continues to work with U.S. Treasury, through the Management Decision process, to ensure no questioned costs are required to be repaid. Auditor’s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. This is consistent with the State’s practice for recording expenditures for all other federal programs. Because the Office did not identify specific expenditures for the SLFRF program in the accounting system, we were unable to test SLFRF expenditures from the State’s transportation accounts. The expenditures for the State coded to the Office’s SLFRF account (706) did not include the distributions mentioned by the Office in its response, above, and therefore there was no expenditure activity for our Office to test for compliance. We reaffirm our finding and will follow-up on the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) 1. Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. 2. Records that identify adequately the source of the application of funds for federally funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation Title 2 CFR Part 200, Uniform Guidance, section 410, Collection of unallowable costs, establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200, Uniform Guidance, section 403, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-026 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used for only allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Prior Year Audit Finding: Yes, Finding 2022-018 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic and its negative economic effects. Washington has received about $4.4 billion of SLFRF funds from the U.S. Department of the Treasury (Department). Federal law stipulate that states may use SLFRF funds to: • Support public health expenditures, including COVID-19 prevention and mitigation efforts • Address negative economic impacts caused by the public health emergency • Replace lost public sector revenue • Provide premium pay for essential workers • Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department’s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant’s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than use the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that recipients can use to provide government services. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculations or the standard allowance. Washington received $2.2 billion of its total $4.4 billion SLFRF allocation in May 2022. When received, the funds were accounted for in the state’s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 to various state transportation-related accounts. According to the Office of Financial Management, these distributions compensated for revenue loss in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019, and they were to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation-related accounts on the state’s fiscal year 2023 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Office did not have adequate internal controls over and did not comply with requirements to ensure SLFRF funds were used for only allowable activities. The prior finding number was 2022-018. Description of Condition The Office did not have adequate internal controls over and did not comply with requirements to ensure SLFRF funds were used for only allowable activities. While recipients are allowed to use SLFRF funds to replace lost public sector revenues, the state was required to identify actual expenditures that were provided for government services. At the time of audit, the state had not identified such expenditures. Rather, the state asserted that all expenditures in the transportation accounts receiving the SLFRF funds were appropriated for government services, so there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. Cause of Condition Office management does not agree that federal requirements and the Department’s final rule required the state to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office’s position that all expenditures in the transportation-related accounts were for government services, so the state had sufficient expenditures to meet the grant requirement. During the last audit, the Office contacted the Department for guidance on the matter. The Department has maintained a FAQ document for the SLFRF program, and the answer to question 13.15, states in part, “recipients should not deviate from their established practices and policies regarding the incurrence of cost, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient’s own funds.” A Department representative acknowledged this FAQ guidance, and said the Department does not have additional, specific requirements about how recipients should internally track their use of SLFRF funds for revenue replacement. At the time of this audit, the Office had not received the Department’s management decision regarding the prior audit finding. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify that the costs the Office charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant’s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF program, the Office did not comply with federal requirements. Therefore, we are questioning the $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: • Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the state’s fiscal year 2023 SEFA • Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF program and are adequately documented, while also documenting the details of this review • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response The Office does not concur with the audit finding. The state of Washington implemented internal controls and created Fund 706 to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. Following U.S. Department of Treasury guidance and instructions, the state of Washington determined there was approximately $3 billion in revenue loss. The state, through legislation, approved the transfer of $300 million from the SLFRF account to various state transportation accounts under the revenue loss provision. Each transportation account that received SLFRF funds was established in statute and is for a specific “government service” purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Treasury FAQ 3.2 states that “Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.” We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. The Office disagrees that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. Questioned costs, if any, could have been identified through appropriate and relevant audit procedures. The Office continues to work with U.S. Treasury, through the Management Decision process, to ensure no questioned costs are required to be repaid. Auditor’s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. This is consistent with the State’s practice for recording expenditures for all other federal programs. Because the Office did not identify specific expenditures for the SLFRF program in the accounting system, we were unable to test SLFRF expenditures from the State’s transportation accounts. The expenditures for the State coded to the Office’s SLFRF account (706) did not include the distributions mentioned by the Office in its response, above, and therefore there was no expenditure activity for our Office to test for compliance. We reaffirm our finding and will follow-up on the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) 1. Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. 2. Records that identify adequately the source of the application of funds for federally funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation Title 2 CFR Part 200, Uniform Guidance, section 410, Collection of unallowable costs, establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200, Uniform Guidance, section 403, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-026 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used for only allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Prior Year Audit Finding: Yes, Finding 2022-018 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic and its negative economic effects. Washington has received about $4.4 billion of SLFRF funds from the U.S. Department of the Treasury (Department). Federal law stipulate that states may use SLFRF funds to: • Support public health expenditures, including COVID-19 prevention and mitigation efforts • Address negative economic impacts caused by the public health emergency • Replace lost public sector revenue • Provide premium pay for essential workers • Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department’s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant’s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than use the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that recipients can use to provide government services. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculations or the standard allowance. Washington received $2.2 billion of its total $4.4 billion SLFRF allocation in May 2022. When received, the funds were accounted for in the state’s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 to various state transportation-related accounts. According to the Office of Financial Management, these distributions compensated for revenue loss in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019, and they were to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation-related accounts on the state’s fiscal year 2023 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Office did not have adequate internal controls over and did not comply with requirements to ensure SLFRF funds were used for only allowable activities. The prior finding number was 2022-018. Description of Condition The Office did not have adequate internal controls over and did not comply with requirements to ensure SLFRF funds were used for only allowable activities. While recipients are allowed to use SLFRF funds to replace lost public sector revenues, the state was required to identify actual expenditures that were provided for government services. At the time of audit, the state had not identified such expenditures. Rather, the state asserted that all expenditures in the transportation accounts receiving the SLFRF funds were appropriated for government services, so there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. Cause of Condition Office management does not agree that federal requirements and the Department’s final rule required the state to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office’s position that all expenditures in the transportation-related accounts were for government services, so the state had sufficient expenditures to meet the grant requirement. During the last audit, the Office contacted the Department for guidance on the matter. The Department has maintained a FAQ document for the SLFRF program, and the answer to question 13.15, states in part, “recipients should not deviate from their established practices and policies regarding the incurrence of cost, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient’s own funds.” A Department representative acknowledged this FAQ guidance, and said the Department does not have additional, specific requirements about how recipients should internally track their use of SLFRF funds for revenue replacement. At the time of this audit, the Office had not received the Department’s management decision regarding the prior audit finding. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify that the costs the Office charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant’s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF program, the Office did not comply with federal requirements. Therefore, we are questioning the $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: • Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the state’s fiscal year 2023 SEFA • Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF program and are adequately documented, while also documenting the details of this review • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response The Office does not concur with the audit finding. The state of Washington implemented internal controls and created Fund 706 to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. Following U.S. Department of Treasury guidance and instructions, the state of Washington determined there was approximately $3 billion in revenue loss. The state, through legislation, approved the transfer of $300 million from the SLFRF account to various state transportation accounts under the revenue loss provision. Each transportation account that received SLFRF funds was established in statute and is for a specific “government service” purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Treasury FAQ 3.2 states that “Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.” We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. The Office disagrees that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. Questioned costs, if any, could have been identified through appropriate and relevant audit procedures. The Office continues to work with U.S. Treasury, through the Management Decision process, to ensure no questioned costs are required to be repaid. Auditor’s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. This is consistent with the State’s practice for recording expenditures for all other federal programs. Because the Office did not identify specific expenditures for the SLFRF program in the accounting system, we were unable to test SLFRF expenditures from the State’s transportation accounts. The expenditures for the State coded to the Office’s SLFRF account (706) did not include the distributions mentioned by the Office in its response, above, and therefore there was no expenditure activity for our Office to test for compliance. We reaffirm our finding and will follow-up on the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) 1. Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. 2. Records that identify adequately the source of the application of funds for federally funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation Title 2 CFR Part 200, Uniform Guidance, section 410, Collection of unallowable costs, establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200, Uniform Guidance, section 403, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-026 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used for only allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Prior Year Audit Finding: Yes, Finding 2022-018 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic and its negative economic effects. Washington has received about $4.4 billion of SLFRF funds from the U.S. Department of the Treasury (Department). Federal law stipulate that states may use SLFRF funds to: • Support public health expenditures, including COVID-19 prevention and mitigation efforts • Address negative economic impacts caused by the public health emergency • Replace lost public sector revenue • Provide premium pay for essential workers • Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department’s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant’s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than use the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that recipients can use to provide government services. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculations or the standard allowance. Washington received $2.2 billion of its total $4.4 billion SLFRF allocation in May 2022. When received, the funds were accounted for in the state’s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 to various state transportation-related accounts. According to the Office of Financial Management, these distributions compensated for revenue loss in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019, and they were to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation-related accounts on the state’s fiscal year 2023 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Office did not have adequate internal controls over and did not comply with requirements to ensure SLFRF funds were used for only allowable activities. The prior finding number was 2022-018. Description of Condition The Office did not have adequate internal controls over and did not comply with requirements to ensure SLFRF funds were used for only allowable activities. While recipients are allowed to use SLFRF funds to replace lost public sector revenues, the state was required to identify actual expenditures that were provided for government services. At the time of audit, the state had not identified such expenditures. Rather, the state asserted that all expenditures in the transportation accounts receiving the SLFRF funds were appropriated for government services, so there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. Cause of Condition Office management does not agree that federal requirements and the Department’s final rule required the state to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office’s position that all expenditures in the transportation-related accounts were for government services, so the state had sufficient expenditures to meet the grant requirement. During the last audit, the Office contacted the Department for guidance on the matter. The Department has maintained a FAQ document for the SLFRF program, and the answer to question 13.15, states in part, “recipients should not deviate from their established practices and policies regarding the incurrence of cost, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient’s own funds.” A Department representative acknowledged this FAQ guidance, and said the Department does not have additional, specific requirements about how recipients should internally track their use of SLFRF funds for revenue replacement. At the time of this audit, the Office had not received the Department’s management decision regarding the prior audit finding. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify that the costs the Office charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant’s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF program, the Office did not comply with federal requirements. Therefore, we are questioning the $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: • Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the state’s fiscal year 2023 SEFA • Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF program and are adequately documented, while also documenting the details of this review • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response The Office does not concur with the audit finding. The state of Washington implemented internal controls and created Fund 706 to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. Following U.S. Department of Treasury guidance and instructions, the state of Washington determined there was approximately $3 billion in revenue loss. The state, through legislation, approved the transfer of $300 million from the SLFRF account to various state transportation accounts under the revenue loss provision. Each transportation account that received SLFRF funds was established in statute and is for a specific “government service” purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Treasury FAQ 3.2 states that “Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.” We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. The Office disagrees that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. Questioned costs, if any, could have been identified through appropriate and relevant audit procedures. The Office continues to work with U.S. Treasury, through the Management Decision process, to ensure no questioned costs are required to be repaid. Auditor’s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. This is consistent with the State’s practice for recording expenditures for all other federal programs. Because the Office did not identify specific expenditures for the SLFRF program in the accounting system, we were unable to test SLFRF expenditures from the State’s transportation accounts. The expenditures for the State coded to the Office’s SLFRF account (706) did not include the distributions mentioned by the Office in its response, above, and therefore there was no expenditure activity for our Office to test for compliance. We reaffirm our finding and will follow-up on the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) 1. Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. 2. Records that identify adequately the source of the application of funds for federally funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation Title 2 CFR Part 200, Uniform Guidance, section 410, Collection of unallowable costs, establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200, Uniform Guidance, section 403, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
FINDING REFERENCE NUMBER 2023-029 (See Finding Reference Number 2023-001) FEDERAL PROGRAM (ALN – 10.542) PANDEMIC EBT FOOD BENEFITS (P-EBT) U.S. DEPARTMENT OF AGRICULTURE AWARD NUMBERS 221PR456S9032; 2301PR456S9032 (Federal Award Years: 2022 through 2023) ADMINISTRATION ADMINISTRATION FOR SOCIOECONOMIC DEVELOPMENT OF THE FAMILY (ADSEF, BY ITS SPANISH ACRONYM) COMPLIANCE REQUIREMENT ACTIVITIES ALLOWED OR UNALLOWED // REPORTING TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS CRITERIA Uniform Guidance at 2 CFR 200 §200.302, Financial Management, establishes that: “(a) Each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State's funds. All recipient and subrecipient financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award. (See § 200.450). (b) The recipient's and subrecipient's financial management system must provide for the following (see §§ 200.334, 200.335, 200.336, and 200.337): (1) Identification of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, Federal award identification number, year the Federal award was issued, and name of the Federal agency or pass-through entity. (2) Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements in §§ 200.328 and 200.329. When a Federal agency or pass-through entity requires reporting on an accrual basis from a recipient or subrecipient that maintains its records other than on an accrual basis, the recipient or subrecipient must not be required to establish an accrual accounting system. This recipient or subrecipient may develop accrual data for its reports based on an analysis of the documentation on hand. (3) Maintaining records that sufficiently identify the amount, source, and expenditure of Federal funds for Federal awards. These records must contain information necessary to identify Federal awards, authorizations, financial obligations, unobligated balances, as well as assets, expenditures, income, and interest. All records must be supported by source documentation. … (6) Written procedures to implement the requirements of § 200.305. (7) Written procedures for determining the allowability of costs in accordance with subpart E and the terms and conditions of the Federal award. STATEMENT OF CONDITION As part of our internal control procedures for the financial management system, allowable activities and reporting requirements, we found the following deficiencies: • Of ten (10) expenditure accounting transactions, three (3) were selected for documentation review. It was found that a transaction posted in August 2022 for $193,642,697.32 included $54,195,406.92, corresponding to benefit payrolls for May 2022, which had previously been claimed in June 2022. They subsequently adjusted the expenditure reported for this amount. • All expenditure transactions are coded under the ID number PANDEMICEBT-B22; although, in the SF-778 report for the quarter ended June 30, 2023, for the grant award period for 2023, expenditures in the amount of $29,606,939 were reported as incurred. This data does not agree with the accounting information of PRIFAS. QUESTIONED COSTS No questioned costs identified. PERSPECTIVE INFORMATION This is a systematic deficiency. After conducting several interviews, we were able to identify the staff responsible for validating the benefit payrolls. This person told us these benefit payrolls were processed via email, which indicated that the information submitted was preliminary. However, the finance staff proceeded with the adjustment in the accounting system. We conducted interviews to determine if anything had been modified in the benefit payroll processing process. To prevent this situation from happening again, they told us it wasn't necessary because it hasn't happened again. Procedures and internal controls manuals should provide for and ensure the segregation of duties, and the reconciliation of financial information reported to federal agencies against the accounting records used to prepare financial statements and SEFA. ADSEF failure to support reported amounts with verifiable documentation and the absence of independent review increases the risk of inaccurate or misstated financial data being reported to the federal awarding agency. STATEMENT OF CAUSE ADSEF has not established an adequate control procedure to identify duplicate claims before they are filed and recorded. During our interviews and understanding of the internal controls over financial reporting, we noted that only one person prepares, submits and certifies the SF-425 reports. No proper segregation of duties exists, that allows for validation of all accounting data before submitting the reports. In addition, the procedures manual for preparing reports does not establish a clear process for obtaining information, validating it, recording it, preparing it, and reporting it, as well as the responsibilities and segregation of duties to ensure that the reported information is consistent with ADSEF's accounting records. ADSEF lacks internal controls that allow for the timely validation and reconciliation of financial information. Furthermore, they lack a written procedures manual detailing the processes to follow in obtaining accounting data and reporting it to the federal government, ensuring that the responsibility does not fall on a single individual. POSSIBLE ASSERTED EFFECT The failure to have an internal control procedure that identifies standard documentation or forms, personnel responsible for validating the information included, and controls payroll and benefit expenses and other previously claimed expenses allowed for the recognition and claim of an expense incurred twice. ADSEF is not ensuring that the reports are accurate and traceable to the accounting database used to prepare their financial reports to the Federal Agencies and their financial statements. IDENTIFICATION OF REPEAT FINDING No reported as prior audit finding. RECOMMENDATIONS We recommend that management establish an adequate internal controls process that identifies documentation, personnel responsible, authorizations, and validations that can prevent this situation from recurring. In addition, we recommend management to establish written procedures and internal controls manuals to provide and document the segregation of duties related to the reporting compliance requirement.
FINDING REFERENCE NUMBER 2023-032 (See Finding Reference Number 2023-004) FEDERAL PROGRAMS (ALN – 10.566) NUTRITION ASSISTANCE FOR PUERTO RICO U.S. DEPARTMENT OF AGRICULTURE (ALN – 93.558) TEMPORARY ASSISTANCE FOR NEEDY FAMILIES (TANF) (ALN – 93.560) PAYMENT TO TERRITORIES – ADULT (ALN – 93.568) LOW-INCOME HOME ENERGY ASSISTANCE U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES AWARD NUMBERS 211PR426S7003/4; 221PR426S7003/4; 231PR426S7003/4 (Federal Award Years: 2021 through 2023) 2021G996117; 2022G996117; 2023996117 (Federal Award Years: 2021 through 2023) 2022G9922PT; 2301PRTABD (Federal Award Years: 2022 through 2023) 2201PRLIEA; 2301PRLIEA (Federal Award Years: 2022 through 2023) ADMINISTRATION ADMINISTRATION FOR SOCIOECONOMIC DEVELOPMENT OF THE FAMILY (ADSEF, BY ITS SPANISH ACRONYM) COMPLIANCE REQUIREMENT ALLOWABLE COSTS/COSTS PRINCIPLES TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS CRITERIA Uniform Guidance at 2 CFR 200 §200.302, Financial Management, establishes that: “(a) Each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State's funds. All recipient and subrecipient financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award. (See § 200.450). (b) The recipient's and subrecipient's financial management system must provide for the following (see §§ 200.334, 200.335, 200.336, and 200.337): (1) Identification of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, Federal award identification number, year the Federal award was issued, and name of the Federal agency or pass-through entity. (2) Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements in §§ 200.328 and 200.329. When a Federal agency or pass-through entity requires reporting on an accrual basis from a recipient or subrecipient that maintains its records other than on an accrual basis, the recipient or subrecipient must not be required to establish an accrual accounting system. This recipient or subrecipient may develop accrual data for its reports based on an analysis of the documentation on hand. (3) Maintaining records that sufficiently identify the amount, source, and expenditure of Federal funds for Federal awards. These records must contain information necessary to identify Federal awards, authorizations, financial obligations, unobligated balances, as well as assets, expenditures, income, and interest. All records must be supported by source documentation. (4) Effective control over and accountability for all funds, property, and assets. The recipient or subrecipient must safeguard all assets and ensure they are used solely for authorized purposes. See § 200.303. (5) Comparison of expenditures with budget amounts for each Federal award. (6) Written procedures to implement the requirements of § 200.305. (7) Written procedures for determining the allowability of costs in accordance with subpart E and the terms and conditions of the Federal award.” STATEMENT OF CONDITION As part of our audit procedures, we conducted an analysis of the process used to distribute administrative costs among the various programs administered by ADSEF. Administrative expenses are distributed based on a methodology called "Random Moment Sampling" (RMS). We identified the following deficiencies in the implementation and execution of this process: i. There is no written procedure that outlines the process for applying this formula for distributing administrative expenses. ii. There is no standardized monitoring or communication to ensure that employees who are required to complete this form are fully assigned to the roles subject to this process. In other words, the Human Resources Department or the Appointments Office do not communicate periodically or whenever a staff change occurs, in order to adjust the population subject to this questionnaire. iii. Among the options provided for responding to the RMS survey, three options are not assigned to a Federal program. These options include licenses; other types of work not directly tied to a Federal program function for which administrative expenses can be allocated. According to the State Plan, 3,300 questionnaires will be administered for functions performed by employees who are not at the central level, and 300 for employees who are at the central level. Two quarters of the Fiscal Year 2022-2023 were observed, in which these three options represented between 33% and 22% for local offices and 29% at the central level. Because these options are not tied to a Federal program function, they reduce the percentage to zero and redistribute the percentage among Federal programs. QUESTIONED COSTS None. PERSPECTIVE INFORMATION We consider this deficiency a systemic problem. This allocation of administrative expenses is made quarterly; however, the adjustment in the accounting system (PRIFAS) is not necessarily made in the same period. The administrative expenses of each program contain the redistribution of expenses not assigned to a Federal program. STATEMENT OF CAUSE ADSEF does not have a written procedure establishing the process for implementing and monitoring the execution of this methodology. Additionally, among the responses regarding functions performed, time may be allocated to functions not related to Federal programs. POSSIBLE ASSERTED EFFECT They lack a standardized process that ensures that the methodology used allocates reasonable administrative costs among Federal programs, ensures that the distribution base is complete, and is periodically monitored. Furthermore, by redistributing the percentage of responses not directly related to a Federal program function, administrative costs could be claimed from Federal programs that should likely be allocated to state funds. IDENTIFICATION OF REPEAT FINDING No reported as prior audit finding. RECOMMENDATIONS We recommend that management establish a written internal control procedure that provides certainty, monitoring frequency, data validation, and responsibilities for those responsible for executing this process. Additionally, it should be considered that there are functions performed by the personnel in charge of answering the RMS that are not directly linked to a Federal program and should be assigned to state funds.
FINDING REFERENCE NUMBER 2023-032 (See Finding Reference Number 2023-004) FEDERAL PROGRAMS (ALN – 10.566) NUTRITION ASSISTANCE FOR PUERTO RICO U.S. DEPARTMENT OF AGRICULTURE (ALN – 93.558) TEMPORARY ASSISTANCE FOR NEEDY FAMILIES (TANF) (ALN – 93.560) PAYMENT TO TERRITORIES – ADULT (ALN – 93.568) LOW-INCOME HOME ENERGY ASSISTANCE U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES AWARD NUMBERS 211PR426S7003/4; 221PR426S7003/4; 231PR426S7003/4 (Federal Award Years: 2021 through 2023) 2021G996117; 2022G996117; 2023996117 (Federal Award Years: 2021 through 2023) 2022G9922PT; 2301PRTABD (Federal Award Years: 2022 through 2023) 2201PRLIEA; 2301PRLIEA (Federal Award Years: 2022 through 2023) ADMINISTRATION ADMINISTRATION FOR SOCIOECONOMIC DEVELOPMENT OF THE FAMILY (ADSEF, BY ITS SPANISH ACRONYM) COMPLIANCE REQUIREMENT ALLOWABLE COSTS/COSTS PRINCIPLES TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS CRITERIA Uniform Guidance at 2 CFR 200 §200.302, Financial Management, establishes that: “(a) Each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State's funds. All recipient and subrecipient financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award. (See § 200.450). (b) The recipient's and subrecipient's financial management system must provide for the following (see §§ 200.334, 200.335, 200.336, and 200.337): (1) Identification of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, Federal award identification number, year the Federal award was issued, and name of the Federal agency or pass-through entity. (2) Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements in §§ 200.328 and 200.329. When a Federal agency or pass-through entity requires reporting on an accrual basis from a recipient or subrecipient that maintains its records other than on an accrual basis, the recipient or subrecipient must not be required to establish an accrual accounting system. This recipient or subrecipient may develop accrual data for its reports based on an analysis of the documentation on hand. (3) Maintaining records that sufficiently identify the amount, source, and expenditure of Federal funds for Federal awards. These records must contain information necessary to identify Federal awards, authorizations, financial obligations, unobligated balances, as well as assets, expenditures, income, and interest. All records must be supported by source documentation. (4) Effective control over and accountability for all funds, property, and assets. The recipient or subrecipient must safeguard all assets and ensure they are used solely for authorized purposes. See § 200.303. (5) Comparison of expenditures with budget amounts for each Federal award. (6) Written procedures to implement the requirements of § 200.305. (7) Written procedures for determining the allowability of costs in accordance with subpart E and the terms and conditions of the Federal award.” STATEMENT OF CONDITION As part of our audit procedures, we conducted an analysis of the process used to distribute administrative costs among the various programs administered by ADSEF. Administrative expenses are distributed based on a methodology called "Random Moment Sampling" (RMS). We identified the following deficiencies in the implementation and execution of this process: i. There is no written procedure that outlines the process for applying this formula for distributing administrative expenses. ii. There is no standardized monitoring or communication to ensure that employees who are required to complete this form are fully assigned to the roles subject to this process. In other words, the Human Resources Department or the Appointments Office do not communicate periodically or whenever a staff change occurs, in order to adjust the population subject to this questionnaire. iii. Among the options provided for responding to the RMS survey, three options are not assigned to a Federal program. These options include licenses; other types of work not directly tied to a Federal program function for which administrative expenses can be allocated. According to the State Plan, 3,300 questionnaires will be administered for functions performed by employees who are not at the central level, and 300 for employees who are at the central level. Two quarters of the Fiscal Year 2022-2023 were observed, in which these three options represented between 33% and 22% for local offices and 29% at the central level. Because these options are not tied to a Federal program function, they reduce the percentage to zero and redistribute the percentage among Federal programs. QUESTIONED COSTS None. PERSPECTIVE INFORMATION We consider this deficiency a systemic problem. This allocation of administrative expenses is made quarterly; however, the adjustment in the accounting system (PRIFAS) is not necessarily made in the same period. The administrative expenses of each program contain the redistribution of expenses not assigned to a Federal program. STATEMENT OF CAUSE ADSEF does not have a written procedure establishing the process for implementing and monitoring the execution of this methodology. Additionally, among the responses regarding functions performed, time may be allocated to functions not related to Federal programs. POSSIBLE ASSERTED EFFECT They lack a standardized process that ensures that the methodology used allocates reasonable administrative costs among Federal programs, ensures that the distribution base is complete, and is periodically monitored. Furthermore, by redistributing the percentage of responses not directly related to a Federal program function, administrative costs could be claimed from Federal programs that should likely be allocated to state funds. IDENTIFICATION OF REPEAT FINDING No reported as prior audit finding. RECOMMENDATIONS We recommend that management establish a written internal control procedure that provides certainty, monitoring frequency, data validation, and responsibilities for those responsible for executing this process. Additionally, it should be considered that there are functions performed by the personnel in charge of answering the RMS that are not directly linked to a Federal program and should be assigned to state funds.
FINDING REFERENCE NUMBER 2023-032 (See Finding Reference Number 2023-004) FEDERAL PROGRAMS (ALN – 10.566) NUTRITION ASSISTANCE FOR PUERTO RICO U.S. DEPARTMENT OF AGRICULTURE (ALN – 93.558) TEMPORARY ASSISTANCE FOR NEEDY FAMILIES (TANF) (ALN – 93.560) PAYMENT TO TERRITORIES – ADULT (ALN – 93.568) LOW-INCOME HOME ENERGY ASSISTANCE U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES AWARD NUMBERS 211PR426S7003/4; 221PR426S7003/4; 231PR426S7003/4 (Federal Award Years: 2021 through 2023) 2021G996117; 2022G996117; 2023996117 (Federal Award Years: 2021 through 2023) 2022G9922PT; 2301PRTABD (Federal Award Years: 2022 through 2023) 2201PRLIEA; 2301PRLIEA (Federal Award Years: 2022 through 2023) ADMINISTRATION ADMINISTRATION FOR SOCIOECONOMIC DEVELOPMENT OF THE FAMILY (ADSEF, BY ITS SPANISH ACRONYM) COMPLIANCE REQUIREMENT ALLOWABLE COSTS/COSTS PRINCIPLES TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS CRITERIA Uniform Guidance at 2 CFR 200 §200.302, Financial Management, establishes that: “(a) Each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State's funds. All recipient and subrecipient financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award. (See § 200.450). (b) The recipient's and subrecipient's financial management system must provide for the following (see §§ 200.334, 200.335, 200.336, and 200.337): (1) Identification of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, Federal award identification number, year the Federal award was issued, and name of the Federal agency or pass-through entity. (2) Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements in §§ 200.328 and 200.329. When a Federal agency or pass-through entity requires reporting on an accrual basis from a recipient or subrecipient that maintains its records other than on an accrual basis, the recipient or subrecipient must not be required to establish an accrual accounting system. This recipient or subrecipient may develop accrual data for its reports based on an analysis of the documentation on hand. (3) Maintaining records that sufficiently identify the amount, source, and expenditure of Federal funds for Federal awards. These records must contain information necessary to identify Federal awards, authorizations, financial obligations, unobligated balances, as well as assets, expenditures, income, and interest. All records must be supported by source documentation. (4) Effective control over and accountability for all funds, property, and assets. The recipient or subrecipient must safeguard all assets and ensure they are used solely for authorized purposes. See § 200.303. (5) Comparison of expenditures with budget amounts for each Federal award. (6) Written procedures to implement the requirements of § 200.305. (7) Written procedures for determining the allowability of costs in accordance with subpart E and the terms and conditions of the Federal award.” STATEMENT OF CONDITION As part of our audit procedures, we conducted an analysis of the process used to distribute administrative costs among the various programs administered by ADSEF. Administrative expenses are distributed based on a methodology called "Random Moment Sampling" (RMS). We identified the following deficiencies in the implementation and execution of this process: i. There is no written procedure that outlines the process for applying this formula for distributing administrative expenses. ii. There is no standardized monitoring or communication to ensure that employees who are required to complete this form are fully assigned to the roles subject to this process. In other words, the Human Resources Department or the Appointments Office do not communicate periodically or whenever a staff change occurs, in order to adjust the population subject to this questionnaire. iii. Among the options provided for responding to the RMS survey, three options are not assigned to a Federal program. These options include licenses; other types of work not directly tied to a Federal program function for which administrative expenses can be allocated. According to the State Plan, 3,300 questionnaires will be administered for functions performed by employees who are not at the central level, and 300 for employees who are at the central level. Two quarters of the Fiscal Year 2022-2023 were observed, in which these three options represented between 33% and 22% for local offices and 29% at the central level. Because these options are not tied to a Federal program function, they reduce the percentage to zero and redistribute the percentage among Federal programs. QUESTIONED COSTS None. PERSPECTIVE INFORMATION We consider this deficiency a systemic problem. This allocation of administrative expenses is made quarterly; however, the adjustment in the accounting system (PRIFAS) is not necessarily made in the same period. The administrative expenses of each program contain the redistribution of expenses not assigned to a Federal program. STATEMENT OF CAUSE ADSEF does not have a written procedure establishing the process for implementing and monitoring the execution of this methodology. Additionally, among the responses regarding functions performed, time may be allocated to functions not related to Federal programs. POSSIBLE ASSERTED EFFECT They lack a standardized process that ensures that the methodology used allocates reasonable administrative costs among Federal programs, ensures that the distribution base is complete, and is periodically monitored. Furthermore, by redistributing the percentage of responses not directly related to a Federal program function, administrative costs could be claimed from Federal programs that should likely be allocated to state funds. IDENTIFICATION OF REPEAT FINDING No reported as prior audit finding. RECOMMENDATIONS We recommend that management establish a written internal control procedure that provides certainty, monitoring frequency, data validation, and responsibilities for those responsible for executing this process. Additionally, it should be considered that there are functions performed by the personnel in charge of answering the RMS that are not directly linked to a Federal program and should be assigned to state funds.
FINDING REFERENCE NUMBER 2023-032 (See Finding Reference Number 2023-004) FEDERAL PROGRAMS (ALN – 10.566) NUTRITION ASSISTANCE FOR PUERTO RICO U.S. DEPARTMENT OF AGRICULTURE (ALN – 93.558) TEMPORARY ASSISTANCE FOR NEEDY FAMILIES (TANF) (ALN – 93.560) PAYMENT TO TERRITORIES – ADULT (ALN – 93.568) LOW-INCOME HOME ENERGY ASSISTANCE U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES AWARD NUMBERS 211PR426S7003/4; 221PR426S7003/4; 231PR426S7003/4 (Federal Award Years: 2021 through 2023) 2021G996117; 2022G996117; 2023996117 (Federal Award Years: 2021 through 2023) 2022G9922PT; 2301PRTABD (Federal Award Years: 2022 through 2023) 2201PRLIEA; 2301PRLIEA (Federal Award Years: 2022 through 2023) ADMINISTRATION ADMINISTRATION FOR SOCIOECONOMIC DEVELOPMENT OF THE FAMILY (ADSEF, BY ITS SPANISH ACRONYM) COMPLIANCE REQUIREMENT ALLOWABLE COSTS/COSTS PRINCIPLES TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS CRITERIA Uniform Guidance at 2 CFR 200 §200.302, Financial Management, establishes that: “(a) Each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State's funds. All recipient and subrecipient financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award. (See § 200.450). (b) The recipient's and subrecipient's financial management system must provide for the following (see §§ 200.334, 200.335, 200.336, and 200.337): (1) Identification of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, Federal award identification number, year the Federal award was issued, and name of the Federal agency or pass-through entity. (2) Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements in §§ 200.328 and 200.329. When a Federal agency or pass-through entity requires reporting on an accrual basis from a recipient or subrecipient that maintains its records other than on an accrual basis, the recipient or subrecipient must not be required to establish an accrual accounting system. This recipient or subrecipient may develop accrual data for its reports based on an analysis of the documentation on hand. (3) Maintaining records that sufficiently identify the amount, source, and expenditure of Federal funds for Federal awards. These records must contain information necessary to identify Federal awards, authorizations, financial obligations, unobligated balances, as well as assets, expenditures, income, and interest. All records must be supported by source documentation. (4) Effective control over and accountability for all funds, property, and assets. The recipient or subrecipient must safeguard all assets and ensure they are used solely for authorized purposes. See § 200.303. (5) Comparison of expenditures with budget amounts for each Federal award. (6) Written procedures to implement the requirements of § 200.305. (7) Written procedures for determining the allowability of costs in accordance with subpart E and the terms and conditions of the Federal award.” STATEMENT OF CONDITION As part of our audit procedures, we conducted an analysis of the process used to distribute administrative costs among the various programs administered by ADSEF. Administrative expenses are distributed based on a methodology called "Random Moment Sampling" (RMS). We identified the following deficiencies in the implementation and execution of this process: i. There is no written procedure that outlines the process for applying this formula for distributing administrative expenses. ii. There is no standardized monitoring or communication to ensure that employees who are required to complete this form are fully assigned to the roles subject to this process. In other words, the Human Resources Department or the Appointments Office do not communicate periodically or whenever a staff change occurs, in order to adjust the population subject to this questionnaire. iii. Among the options provided for responding to the RMS survey, three options are not assigned to a Federal program. These options include licenses; other types of work not directly tied to a Federal program function for which administrative expenses can be allocated. According to the State Plan, 3,300 questionnaires will be administered for functions performed by employees who are not at the central level, and 300 for employees who are at the central level. Two quarters of the Fiscal Year 2022-2023 were observed, in which these three options represented between 33% and 22% for local offices and 29% at the central level. Because these options are not tied to a Federal program function, they reduce the percentage to zero and redistribute the percentage among Federal programs. QUESTIONED COSTS None. PERSPECTIVE INFORMATION We consider this deficiency a systemic problem. This allocation of administrative expenses is made quarterly; however, the adjustment in the accounting system (PRIFAS) is not necessarily made in the same period. The administrative expenses of each program contain the redistribution of expenses not assigned to a Federal program. STATEMENT OF CAUSE ADSEF does not have a written procedure establishing the process for implementing and monitoring the execution of this methodology. Additionally, among the responses regarding functions performed, time may be allocated to functions not related to Federal programs. POSSIBLE ASSERTED EFFECT They lack a standardized process that ensures that the methodology used allocates reasonable administrative costs among Federal programs, ensures that the distribution base is complete, and is periodically monitored. Furthermore, by redistributing the percentage of responses not directly related to a Federal program function, administrative costs could be claimed from Federal programs that should likely be allocated to state funds. IDENTIFICATION OF REPEAT FINDING No reported as prior audit finding. RECOMMENDATIONS We recommend that management establish a written internal control procedure that provides certainty, monitoring frequency, data validation, and responsibilities for those responsible for executing this process. Additionally, it should be considered that there are functions performed by the personnel in charge of answering the RMS that are not directly linked to a Federal program and should be assigned to state funds.
FINDING REFERENCE NUMBER 2023-033 (See Finding Reference Number 2023-005) FEDERAL PROGRAMS (ALN – 10.566) NUTRITION ASSISTANCE FOR PUERTO RICO U.S. DEPARTMENT OF AGRICULTURE (ALN – 93.558) TEMPORARY ASSISTANCE FOR NEEDY FAMILIES (TANF) U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES AWARD NUMBERS 211PR426S7003/4; 221PR426S7003/4; 231PR426S7003/4 (Federal Award Years: 2021 through 2023) 2021G990229 (TANF – COVID-19) (Federal Award Year: 2021) 2022G996117; 2023996117 (Federal Award Years: 2022 through 2023) ADMINISTRATION ADMINISTRATION FOR SOCIOECONOMIC DEVELOPMENT OF THE FAMILY (ADSEF, BY ITS SPANISH ACRONYM) COMPLIANCE REQUIREMENT ALLOWABLE COSTS/COSTS PRINCIPLES TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS CRITERIA Uniform Guidance at 2 CFR 200 §200.302, Financial Management, establishes that: “(a) Each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State's funds. All recipient and subrecipient financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award. (See § 200.450). (b) The recipient's and subrecipient's financial management system must provide for the following (see §§ 200.334, 200.335, 200.336, and 200.337): (1) Identification of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, Federal award identification number, year the Federal award was issued, and name of the Federal agency or pass-through entity. (2) Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements in §§ 200.328 and 200.329. When a Federal agency or pass-through entity requires reporting on an accrual basis from a recipient or subrecipient that maintains its records other than on an accrual basis, the recipient or subrecipient must not be required to establish an accrual accounting system. This recipient or subrecipient may develop accrual data for its reports based on an analysis of the documentation on hand. (3) Maintaining records that sufficiently identify the amount, source, and expenditure of Federal funds for Federal awards. These records must contain information necessary to identify Federal awards, authorizations, financial obligations, unobligated balances, as well as assets, expenditures, income, and interest. All records must be supported by source documentation. … (6) Written procedures to implement the requirements of § 200.305. (7) Written procedures for determining the allowability of costs in accordance with subpart E and the terms and conditions of the Federal award.” In addition, 45 CFR 260.31 (b)(1), defines what non-recurrent, short-term (NRST) benefits are. In relation to Pandemic Emergency Assistance Fund (PEAF), the regulation establishes that: “NRST benefits, like all NRSTs under TANF, must: be designed to deal with a specific crisis situation or episode of need; not be intended to meet on-going needs; and not extend beyond four months; and (as explained in the instructions for reporting on line 15 of the ACF-196R) NRSTs paid for with PEAF funds: must only include expenditures such as emergency assistance and diversion payments, emergency housing and short-term homelessness assistance, emergency food aid, short-term utilities payments, burial assistance, clothing allowances, and back-to-school payments; and may not include tax credits, child care, transportation, or short-term education and training.” STATEMENT OF CONDITION As part of our audit procedures over transactions related to emissions of benefits for the TANF program, we selected five (5) transactions, from a population of fifty-three (53) emissions made during the fiscal year. We noted the following deficiencies: i. An emission of benefits for $16,236,447.24 related to PEAF funding was made. We request evidence of an established manual or guide that defines or identifies the need that would be addressed with the issuance of these funds, and the subsequent monitoring of the usage. ii. An emission of benefits for $3,633,800 was made related to a bonus. The documentation for this issuance includes an authorization letter establishing a benefit of $800 per child between the ages of 5 and 17 years and 11 months, serving a population of 4,492 participants, for a total of $3,593,600. Later, another authorization letter added $37,000 but did not specify the number of children included in this amendment. The sum of both authorizations is $3,630,600; however, the amount reflected in PRIFAS is $3,633,800. According to the EBT document related to this issuance, the amount issued was $3,596,800 and indicates that the number of participants benefited was 4,974, giving an average benefit of $723.12. In this EBT document, beneficiaries are distributed by region; however, there are 5 beneficiaries who are not assigned to a region, for a total of $4,000. iii. An emission of $1,988,000 was made related to an incentive for some beneficiaries. In accordance with an authorization letter, the benefit included $3,500 per participants who worked or participated in an activity leading to employment for 3 months or more. In accordance with the State Plan, active recipients may receive a 6-months period Work Incentive Bonus payment. Per the authorization letter the benefit of $3,500 was issued to 522 participants, for a total of $1,827,000; another authorization letter increased $3,500 in funds. This amount does not agree with the PRIFAS amount of $1,988,000. ADSEF is allowed to claim 16.80% of indirect costs. As part of our audit procedures over the Nutrition Assistance for Puerto Rico and TANF program, we selected some transactions to evaluate the compliance with the indirect costs claims. The TANF program reported four (4) transactions related to indirect costs, and for the Nutrition Assistance for Puerto Rico five (5) transactions were reported. We requested evidence of two (2) transactions for the TANF program and one (1) for the Nutrition Assistance for Puerto Rico, no evidence of class object was provided in order to ascertain that only allowable expenditure transactions were considered in the calculation and claim of indirect costs. QUESTIONED COSTS None. PERSPECTIVE INFORMATION We consider this deficiency a systemic problem. There are no processes to reconcile PRIFAS information with emissions reported in EBT, nor to claim indirect costs. STATEMENT OF CAUSE ADSEF does not have a process for validating EBT issuances with PRIFAS, and this reconciliation is not performed periodically to detect any errors or missing information when accounting for transactions. POSSIBLE ASSERTED EFFECT The PRIFAS accounting system is not reconciled with EBT reports. This process is not stipulated as part of the internal controls required to ensure that the records used to prepare the financial statement, SEFA, and Federal reports are reconciled, and any discrepancies are identified. In addition, indirect costs calculation may include unallowable costs and not be detected timely. IDENTIFICATION OF REPEAT FINDING No reported as prior audit finding. RECOMMENDATIONS We recommend that management establish internal control processes to reconcile PRIFAS and the various sources of information used for reporting. Additionally, maintain clear records of indirect costs claimed and awarded.
FINDING REFERENCE NUMBER 2023-033 (See Finding Reference Number 2023-005) FEDERAL PROGRAMS (ALN – 10.566) NUTRITION ASSISTANCE FOR PUERTO RICO U.S. DEPARTMENT OF AGRICULTURE (ALN – 93.558) TEMPORARY ASSISTANCE FOR NEEDY FAMILIES (TANF) U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES AWARD NUMBERS 211PR426S7003/4; 221PR426S7003/4; 231PR426S7003/4 (Federal Award Years: 2021 through 2023) 2021G990229 (TANF – COVID-19) (Federal Award Year: 2021) 2022G996117; 2023996117 (Federal Award Years: 2022 through 2023) ADMINISTRATION ADMINISTRATION FOR SOCIOECONOMIC DEVELOPMENT OF THE FAMILY (ADSEF, BY ITS SPANISH ACRONYM) COMPLIANCE REQUIREMENT ALLOWABLE COSTS/COSTS PRINCIPLES TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS CRITERIA Uniform Guidance at 2 CFR 200 §200.302, Financial Management, establishes that: “(a) Each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State's funds. All recipient and subrecipient financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award. (See § 200.450). (b) The recipient's and subrecipient's financial management system must provide for the following (see §§ 200.334, 200.335, 200.336, and 200.337): (1) Identification of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, Federal award identification number, year the Federal award was issued, and name of the Federal agency or pass-through entity. (2) Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements in §§ 200.328 and 200.329. When a Federal agency or pass-through entity requires reporting on an accrual basis from a recipient or subrecipient that maintains its records other than on an accrual basis, the recipient or subrecipient must not be required to establish an accrual accounting system. This recipient or subrecipient may develop accrual data for its reports based on an analysis of the documentation on hand. (3) Maintaining records that sufficiently identify the amount, source, and expenditure of Federal funds for Federal awards. These records must contain information necessary to identify Federal awards, authorizations, financial obligations, unobligated balances, as well as assets, expenditures, income, and interest. All records must be supported by source documentation. … (6) Written procedures to implement the requirements of § 200.305. (7) Written procedures for determining the allowability of costs in accordance with subpart E and the terms and conditions of the Federal award.” In addition, 45 CFR 260.31 (b)(1), defines what non-recurrent, short-term (NRST) benefits are. In relation to Pandemic Emergency Assistance Fund (PEAF), the regulation establishes that: “NRST benefits, like all NRSTs under TANF, must: be designed to deal with a specific crisis situation or episode of need; not be intended to meet on-going needs; and not extend beyond four months; and (as explained in the instructions for reporting on line 15 of the ACF-196R) NRSTs paid for with PEAF funds: must only include expenditures such as emergency assistance and diversion payments, emergency housing and short-term homelessness assistance, emergency food aid, short-term utilities payments, burial assistance, clothing allowances, and back-to-school payments; and may not include tax credits, child care, transportation, or short-term education and training.” STATEMENT OF CONDITION As part of our audit procedures over transactions related to emissions of benefits for the TANF program, we selected five (5) transactions, from a population of fifty-three (53) emissions made during the fiscal year. We noted the following deficiencies: i. An emission of benefits for $16,236,447.24 related to PEAF funding was made. We request evidence of an established manual or guide that defines or identifies the need that would be addressed with the issuance of these funds, and the subsequent monitoring of the usage. ii. An emission of benefits for $3,633,800 was made related to a bonus. The documentation for this issuance includes an authorization letter establishing a benefit of $800 per child between the ages of 5 and 17 years and 11 months, serving a population of 4,492 participants, for a total of $3,593,600. Later, another authorization letter added $37,000 but did not specify the number of children included in this amendment. The sum of both authorizations is $3,630,600; however, the amount reflected in PRIFAS is $3,633,800. According to the EBT document related to this issuance, the amount issued was $3,596,800 and indicates that the number of participants benefited was 4,974, giving an average benefit of $723.12. In this EBT document, beneficiaries are distributed by region; however, there are 5 beneficiaries who are not assigned to a region, for a total of $4,000. iii. An emission of $1,988,000 was made related to an incentive for some beneficiaries. In accordance with an authorization letter, the benefit included $3,500 per participants who worked or participated in an activity leading to employment for 3 months or more. In accordance with the State Plan, active recipients may receive a 6-months period Work Incentive Bonus payment. Per the authorization letter the benefit of $3,500 was issued to 522 participants, for a total of $1,827,000; another authorization letter increased $3,500 in funds. This amount does not agree with the PRIFAS amount of $1,988,000. ADSEF is allowed to claim 16.80% of indirect costs. As part of our audit procedures over the Nutrition Assistance for Puerto Rico and TANF program, we selected some transactions to evaluate the compliance with the indirect costs claims. The TANF program reported four (4) transactions related to indirect costs, and for the Nutrition Assistance for Puerto Rico five (5) transactions were reported. We requested evidence of two (2) transactions for the TANF program and one (1) for the Nutrition Assistance for Puerto Rico, no evidence of class object was provided in order to ascertain that only allowable expenditure transactions were considered in the calculation and claim of indirect costs. QUESTIONED COSTS None. PERSPECTIVE INFORMATION We consider this deficiency a systemic problem. There are no processes to reconcile PRIFAS information with emissions reported in EBT, nor to claim indirect costs. STATEMENT OF CAUSE ADSEF does not have a process for validating EBT issuances with PRIFAS, and this reconciliation is not performed periodically to detect any errors or missing information when accounting for transactions. POSSIBLE ASSERTED EFFECT The PRIFAS accounting system is not reconciled with EBT reports. This process is not stipulated as part of the internal controls required to ensure that the records used to prepare the financial statement, SEFA, and Federal reports are reconciled, and any discrepancies are identified. In addition, indirect costs calculation may include unallowable costs and not be detected timely. IDENTIFICATION OF REPEAT FINDING No reported as prior audit finding. RECOMMENDATIONS We recommend that management establish internal control processes to reconcile PRIFAS and the various sources of information used for reporting. Additionally, maintain clear records of indirect costs claimed and awarded.
FINDING REFERENCE NUMBER 2023-034 (See Finding Reference Number 2023-006) FEDERAL PROGRAMS (ALN – 93.556) MARYLEE ALLEN PROMOTING SAFE AND STABLE FAMILIES (ALN – 93.556) COVID-19 – MARYLEE ALLEN PROMOTING SAFE AND STABLE FAMILIES (ALN – 93.667) SOCIAL SERVICES BLOCK GRANT U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES AWARD NUMBERS 2101PRFPSS; 2101PRFPSC; 2101PRFPCV; 2202PRFPCV; 2203PRFPSS (Federal Award Years: 2021 through 2023) 2111PRSOSR; 2211PRSOSR (Federal Award Years: 2021 through 2023) ADMINISTRATION ADMINISTRATION FOR FAMILIES AND CHILDREN (ADFAN, BY ITS SPANISH ACRONYM) COMPLIANCE REQUIREMENT ALLOWABLE COSTS/COSTS PRINCIPLES // CASH MANAGEMENT TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS CRITERIA Uniform Guidance at 2 CFR 200 §200.302, Financial Management, establishes that: “(a) Each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State's funds. All recipient and subrecipient financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award. (See § 200.450). (b) The recipient's and subrecipient's financial management system must provide for the following (see §§ 200.334, 200.335, 200.336, and 200.337): … (6) Written procedures to implement the requirements of § 200.305. (7) Written procedures for determining the allowability of costs in accordance with subpart E and the terms and conditions of the Federal award.” STATEMENT OF CONDITION As part of our audit procedures, we verified the requirements for the written procedures policies, and we didn’t obtain by ADFAN the required documentation. This represents a scope limitation. QUESTIONED COSTS None. PERSPECTIVE INFORMATION This deficiency is a systemic problem that is related to lack of proper training, segregation of duties and written policies and procedures. STATEMENT OF CAUSE ADFAN has not established a work plan to maintain the written procedures policies required by the Uniform Guidance. POSSIBLE ASSERTED EFFECT The absence of written procedures may lead to inconsistent program implementation, unclear assignment of responsibilities, and inadequate oversight. This increases the risk of noncompliance with applicable regulations, inefficiencies in operations, and reduced effectiveness in achieving program objectives. IDENTIFICATION OF REPEAT FINDING No reported as prior audit finding. RECOMMENDATIONS We recommend that ADFAN develop, formalize, and implement comprehensive written procedures for the programs to comply with the Uniform Guidance. These procedures should clearly define roles and responsibilities, establish operational workflows, and include mechanisms for monitoring and compliance. Doing so will help ensure consistency in program execution, accountability, and alignment with regulatory and performance requirements.
FINDING REFERENCE NUMBER 2023-034 (See Finding Reference Number 2023-006) FEDERAL PROGRAMS (ALN – 93.556) MARYLEE ALLEN PROMOTING SAFE AND STABLE FAMILIES (ALN – 93.556) COVID-19 – MARYLEE ALLEN PROMOTING SAFE AND STABLE FAMILIES (ALN – 93.667) SOCIAL SERVICES BLOCK GRANT U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES AWARD NUMBERS 2101PRFPSS; 2101PRFPSC; 2101PRFPCV; 2202PRFPCV; 2203PRFPSS (Federal Award Years: 2021 through 2023) 2111PRSOSR; 2211PRSOSR (Federal Award Years: 2021 through 2023) ADMINISTRATION ADMINISTRATION FOR FAMILIES AND CHILDREN (ADFAN, BY ITS SPANISH ACRONYM) COMPLIANCE REQUIREMENT ALLOWABLE COSTS/COSTS PRINCIPLES // CASH MANAGEMENT TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS CRITERIA Uniform Guidance at 2 CFR 200 §200.302, Financial Management, establishes that: “(a) Each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State's funds. All recipient and subrecipient financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award. (See § 200.450). (b) The recipient's and subrecipient's financial management system must provide for the following (see §§ 200.334, 200.335, 200.336, and 200.337): … (6) Written procedures to implement the requirements of § 200.305. (7) Written procedures for determining the allowability of costs in accordance with subpart E and the terms and conditions of the Federal award.” STATEMENT OF CONDITION As part of our audit procedures, we verified the requirements for the written procedures policies, and we didn’t obtain by ADFAN the required documentation. This represents a scope limitation. QUESTIONED COSTS None. PERSPECTIVE INFORMATION This deficiency is a systemic problem that is related to lack of proper training, segregation of duties and written policies and procedures. STATEMENT OF CAUSE ADFAN has not established a work plan to maintain the written procedures policies required by the Uniform Guidance. POSSIBLE ASSERTED EFFECT The absence of written procedures may lead to inconsistent program implementation, unclear assignment of responsibilities, and inadequate oversight. This increases the risk of noncompliance with applicable regulations, inefficiencies in operations, and reduced effectiveness in achieving program objectives. IDENTIFICATION OF REPEAT FINDING No reported as prior audit finding. RECOMMENDATIONS We recommend that ADFAN develop, formalize, and implement comprehensive written procedures for the programs to comply with the Uniform Guidance. These procedures should clearly define roles and responsibilities, establish operational workflows, and include mechanisms for monitoring and compliance. Doing so will help ensure consistency in program execution, accountability, and alignment with regulatory and performance requirements.
FINDING REFERENCE NUMBER 2023-034 (See Finding Reference Number 2023-006) FEDERAL PROGRAMS (ALN – 93.556) MARYLEE ALLEN PROMOTING SAFE AND STABLE FAMILIES (ALN – 93.556) COVID-19 – MARYLEE ALLEN PROMOTING SAFE AND STABLE FAMILIES (ALN – 93.667) SOCIAL SERVICES BLOCK GRANT U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES AWARD NUMBERS 2101PRFPSS; 2101PRFPSC; 2101PRFPCV; 2202PRFPCV; 2203PRFPSS (Federal Award Years: 2021 through 2023) 2111PRSOSR; 2211PRSOSR (Federal Award Years: 2021 through 2023) ADMINISTRATION ADMINISTRATION FOR FAMILIES AND CHILDREN (ADFAN, BY ITS SPANISH ACRONYM) COMPLIANCE REQUIREMENT ALLOWABLE COSTS/COSTS PRINCIPLES // CASH MANAGEMENT TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS CRITERIA Uniform Guidance at 2 CFR 200 §200.302, Financial Management, establishes that: “(a) Each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State's funds. All recipient and subrecipient financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award. (See § 200.450). (b) The recipient's and subrecipient's financial management system must provide for the following (see §§ 200.334, 200.335, 200.336, and 200.337): … (6) Written procedures to implement the requirements of § 200.305. (7) Written procedures for determining the allowability of costs in accordance with subpart E and the terms and conditions of the Federal award.” STATEMENT OF CONDITION As part of our audit procedures, we verified the requirements for the written procedures policies, and we didn’t obtain by ADFAN the required documentation. This represents a scope limitation. QUESTIONED COSTS None. PERSPECTIVE INFORMATION This deficiency is a systemic problem that is related to lack of proper training, segregation of duties and written policies and procedures. STATEMENT OF CAUSE ADFAN has not established a work plan to maintain the written procedures policies required by the Uniform Guidance. POSSIBLE ASSERTED EFFECT The absence of written procedures may lead to inconsistent program implementation, unclear assignment of responsibilities, and inadequate oversight. This increases the risk of noncompliance with applicable regulations, inefficiencies in operations, and reduced effectiveness in achieving program objectives. IDENTIFICATION OF REPEAT FINDING No reported as prior audit finding. RECOMMENDATIONS We recommend that ADFAN develop, formalize, and implement comprehensive written procedures for the programs to comply with the Uniform Guidance. These procedures should clearly define roles and responsibilities, establish operational workflows, and include mechanisms for monitoring and compliance. Doing so will help ensure consistency in program execution, accountability, and alignment with regulatory and performance requirements.
FINDING REFERENCE NUMBER 2023-049 (See Finding Reference Number 2023-020) FEDERAL PROGRAM (ALN – 10.566) NUTRITION ASSISTANCE FOR PUERTO RICO U.S. DEPARTMENT OF AGRICULTURE AWARD NUMBERS 221PR426S7003/4; 231PR426S7003/4 (Federal Award Years: 2021 through 2023) 211PR476V1003/4 – ARPA (Federal Award Years: March 11, 2021 through September 30, 2025) ADMINISTRATION ADMINISTRATION FOR SOCIOECONOMIC DEVELOPMENT OF THE FAMILY (ADSEF, BY ITS SPANISH ACRONYM) COMPLIANCE REQUIREMENT REPORTING TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS CRITERIA Uniform Guidance at 2 CFR § 200.302, Financial Management, establishes that (a) each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State's funds. All recipient and subrecipient financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award. See § 200.450. In section (b), the recipient's and subrecipient's financial management system must provide for the following (see §§ 200.334, 200.335, 200.336, and 200.337): … (6) written procedures to implement the requirements of § 200.305 and (7) written procedures for determining the allowability of costs in accordance with subpart E and the terms and conditions of the Federal award. The 2 CFR §200.303 (a) establishes that the recipient and subrecipient must: establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). STATEMENT OF CONDITION As part of our audit procedures over internal controls and compliance for reporting requirements, we selected two reports that closed during our fiscal year audit. With respect with the Grant Award 221PR426S7003 and 221PR426S7004 we noted the following deficiency: • The auditee was unable to provide supporting documentation for the administrative expenditures that reconcile the figures reported with the PRIFAS accounting system. • In addition, for all the Federal awards mentioned above, based on internal control interviews, we found that there is no designated individual responsible for independently reviewing the reports prior to submission to ensure accuracy and consistency with source data. QUESTIONED COSTS No questioned costs identified. PERSPECTIVE INFORMATION This deficiency is a systemic problem. Procedures and internal controls manuals should provide for and ensure the segregation of duties, and the reconciliation of financial information reported to Federal agencies against the accounting records used to prepare financial statement and SEFA. ADSEF failure to support reported amounts with verifiable documentation and the absence of independent review increases the risk of inaccurate or misstated financial data being reported to the Federal awarding agency. STATEMENT OF CAUSE During our interviews and understanding of the internal controls over financial reporting, we noted that only one person prepares, submits and certifies the required reports. No proper segregation of duties exists, that allows for validation of all accounting data before submitting the reports. In addition, the procedures manual for preparing reports does not establish a clear process for obtaining information, validating it, recording it, preparing it, and reporting it, as well as the responsibilities and segregation of duties to ensure that the reported information is consistent with ADSEF's accounting records. Furthermore, they lack a written procedures manual detailing the processes to follow in obtaining accounting data and reporting it to the Federal government, ensuring that the responsibility does not fall on a single individual. POSSIBLE ASSERTED EFFECT ADSEF does not ensure that the reports are accurate and traceable to the accounting database used to prepare their financial reports to the Federal Agencies and their financial statement. IDENTIFICATION OF REPEAT FINDING No reported as prior audit finding. RECOMMENDATIONS We recommend ADSEF establish written internal controls and specific procedures to ensure that all reported amounts are fully supported and reconciled with the PRIFAS accounting system and to assign responsibility to a designated official to review and approve all reports prior to submission to the Federal agency. Implement internal controls to maintain adequate documentation supporting all financial data reported.
FINDING REFERENCE NUMBER 2023-051 (See Finding Reference Number 2023-021) FEDERAL PROGRAM (ALN – 93.568) LOW-INCOME HOME ENERGY ASSISTANCE U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES AWARD NUMBERS 2101PRLIEA (Federal Award Years: 2021 through 2023) ADMINISTRATION ADMINISTRATION FOR SOCIOECONOMIC DEVELOPMENT OF THE FAMILY (ADSEF, BY ITS SPANISH ACRONYM) COMPLIANCE REQUIREMENT REPORTING TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS CRITERIA Uniform Guidance at 2 CFR § 200.302, Financial Management, establishes that: (a) Each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State's funds. All recipient and subrecipient financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award. (See § 200.450.) (b) The recipient's and subrecipient's financial management system must provide for the following (see §§ 200.334, 200.335, 200.336, and 200.337): (1) Identification of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, Federal award identification number, year the Federal award was issued, and name of the Federal agency or pass-through entity. (2) Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements in §§ 200.328 and 200.329. When a Federal agency or pass-through entity requires reporting on an accrual basis from a recipient or subrecipient that maintains its records other than on an accrual basis, the recipient or subrecipient must not be required to establish an accrual accounting system. This recipient or subrecipient may develop accrual data for its reports based on an analysis of the documentation on hand. (3) Maintaining records that sufficiently identify the amount, source, and expenditure of Federal funds for Federal awards. These records must contain information necessary to identify Federal awards, authorizations, financial obligations, unobligated balances, as well as assets, expenditures, income, and interest. All records must be supported by source documentation. (4) Effective control over and accountability for all funds, property, and assets. The recipient or subrecipient must safeguard all assets and ensure they are used solely for authorized purposes. See § 200.303. … (6) Written procedures to implement the requirements of § 200.305 and (7) Written procedures for determining the allowability of costs in accordance with subpart E and the terms and conditions of the Federal award. STATEMENT OF CONDITION As part of our audit procedures over the reporting requirement for LIHEAP program, we selected two reports submitted during our fiscal year. We noted that the administrative expenditures do not reconcile with the accounting information from PRIFAS. In addition, for the amount of encumbrances of $11,032,784.51, the amount of $9,943,769.52 was not supported by a detail. QUESTIONED COSTS No questioned costs identified. PERSPECTIVE INFORMATION This is a systematic deficiency. Procedures and internal controls manuals should provide for and ensure the segregation of duties, and the reconciliation of financial information reported to federal agencies against the accounting records used to prepare financial statements and SEFA. ADSEF failure to support reported amounts with verifiable documentation and the absence of independent review increases the risk of inaccurate or misstated financial data being reported to the Federal awarding agency. STATEMENT OF CAUSE During our interviews and understanding of the internal controls over financial reporting, we noted that only one person prepares, submits and certifies the SF– 425 reports. No proper segregation of duties exists, that allows for validation of all accounting data before submitting the reports. In addition, the procedures manual for preparing reports does not establish a clear process for obtaining information, validating it, recording it, preparing it, and reporting it, as well as the responsibilities and segregation of duties to ensure that the reported information is consistent with ADSEF's accounting records. ADSEF lacks internal controls that allow for the timely validation and reconciliation of financial information. Furthermore, they lack a written procedures manual detailing the processes to follow in obtaining accounting data and reporting it to the Federal government, ensuring that the responsibility does not fall on a single individual. POSSIBLE ASSERTED EFFECT ADSEF does not ensure that the reports are accurate and traceable to the accounting database used to prepare their financial reports to the Federal Agencies and their financial statement. IDENTIFICATION OF REPEAT FINDING No reported as prior audit finding. RECOMMENDATIONS We recommend ADSEF to establish written procedures and internal controls manuals to provide and document the segregation of duties related to the reporting compliance requirement.
FINDING REFERENCE NUMBER 2023-052 FEDERAL PROGRAM (ALN – 93.558) TEMPORARY ASSISTANCE FOR NEEDY FAMILIES (TANF) U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES AWARD NUMBERS 2021G996117; 2022G996117; 2023996117 (Federal Award Years: 2021 through 2023) ADMINISTRATION ADMINISTRATION FOR SOCIOECONOMIC DEVELOPMENT OF THE FAMILY (ADSEF, BY ITS SPANISH ACRONYM) COMPLIANCE REQUIREMENT REPORTING – PERFORMANCE TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS CRITERIA In accordance with 45 CFR, Subtitle B, Chapter II, Part 265.7, states that: (a) Each State's quarterly reports [the TANF Data Report, the TANF Financial Report (or Territorial Financial Report), the SSP-MOE Data Report, and the Work Outcomes of TANF Exciters Report] must be complete and accurate and filed by the due date. (b) For a disaggregated data report, “a complete and accurate report” means that: (1) The reported data accurately reflects information available to the State in case records, financial records, and automated data systems, and includes correction of the quarterly data by the end of the fiscal year reporting period; (2) The data are free from computational errors and are internally consistent (e.g., items that should add to totals do so); (3) The State reports data for all required elements (i.e., no data is missing); (4) (i) The State provides data on all families; or (ii) If the State opts to use sampling, the State reports data on all families selected in a sample that meets the specification and procedures in the TANF Sampling Manual (except for families listed in error); and (5) Where estimates are necessary (e.g., some types of assistance may require cost estimates), the State uses reasonable methods to develop these estimates. (c) For an aggregated data report, “a complete and accurate report” means that: (1) The reported data accurately reflects information available to the State in case records, financial records, and automated data systems; (2) The data are free from computational errors and are internally consistent (e.g., items that should add to totals do so); (3) The State reports data on all applicable elements; and (4) Monthly totals are unduplicated counts for all families (e.g., the number of families and the number of out-of-wedlock births are unduplicated counts). In addition, 2 CFR § 200.302 (a) establishes that each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State's funds. All recipient and subrecipient financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award. See § 200.450. In section (b) the recipient's and subrecipient's financial management system must provide for the following (see §§ 200.334, 200.335, 200.336, and 200.337): (6) written procedures to implement the requirements of § 200.305 and (7) written procedures for determining the allowability of costs in accordance with subpart E and the terms and conditions of the Federal award. STATEMENT OF CONDITION As part of our procedures for understanding internal controls for the preparation of ACF-199 reports, we request a procedures manual on how these reports are processed and the personnel responsible for each process. ADSEF did not provide us with a manual describing the data collection process, how the information provided by the regions is validated, and the individuals responsible for submitting the reports. To evaluate compliance with the reported data, the quarter ending June 2023 was selected. From this period, forty (40) participants were selected. ADSEF was required to provide us with the corresponding participant worksheet appendix and the physical file to corroborate the information included in the report. ADSEF provided us with evidence of the hand-completed forms; however, we were not provided with the physical files to validate the information included in each document. This represents a scope limitation. QUESTIONED COSTS No questioned costs identified. PERSPECTIVE INFORMATION This is a systemic deficiency. After sample selection, ADSEF did not demonstrate a control structure that would allow the files to be located within a reasonable period of time. STATEMENT OF CAUSE ADSEF does not maintain an internal control structure for participant files that allows each file to be located within a reasonable period of time. Additionally, they do not have internal control procedure manuals that allow for the validation of the process they carry out and the individuals responsible for compiling, validating, and submitting this report. POSSIBLE ASSERTED EFFECT ADSEF may be including data in this report that has not been corroborated with the participants' physical records. The lack of a uniform process for archiving participant records prevented them from providing us with evidence of the requested records. IDENTIFICATION OF REPEAT FINDING No reported as prior audit finding. RECOMMENDATIONS We recommend that management establish internal control procedures manuals that clearly outline the processes to be followed for data collection, recording, and reporting. Additionally, standardize the way documents related to participant files are filed.
FINDING REFERENCE NUMBER 2023-054 (See Finding Reference Number 2023-023) FEDERAL PROGRAMS (ALN – 93.556) MARYLEE ALLEN PROMOTING SAFE AND STABLE FAMILIES (ALN – 93.667) SOCIAL SERVICES BLOCK GRANT U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES AWARD NUMBERS 2101PRFPSS (Federal Award Years: 2021 through 2022) 2211PRSOSR (Federal Award Years: 2021 through 2022) ADMINISTRATION ADMINISTRATION FOR FAMILIES AND CHILDREN (ADFAN, BY ITS SPANISH ACRONYM) COMPLIANCE REQUIREMENT REPORTING TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS CRITERIA Uniform Guidance at 2 CFR § 200.302 (a) establishes that each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State's funds. All recipient and subrecipient financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award. See § 200.450. In addition, the SF-425 Federal Financial Report requires the reporting of financial activities related to Federal awards. The accounting basis used for reporting expenditures (whether cash or accrual) must align with the accounting system employed by the recipient organization. The 2 CFR § 200.302 (b), establish that the recipient's and subrecipient's financial management system must provide for the following (see §§ 200.334, 200.335, 200.336, and 200.337): (6) written procedures to implement the requirements of § 200.305 and (7) written procedures for determining the allowability of costs in accordance with subpart E and the terms and conditions of the Federal award. The 2 CFR section 200.328(c) establishes that the recipient or subrecipient must submit financial reports as required by the Federal award. Reports submitted annually by the recipient or subrecipient must be due no later than 90 calendar days after the reporting period. Reports submitted quarterly or semiannually must be due no later than 30 calendar days after the reporting period. The 2 CFR §200.303 (a) establishes that the recipient and subrecipient must: establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). STATEMENT OF CONDITION As part of our audit procedures over internal controls and compliance for reporting requirements, we selected the Grants Awards 2101PRFPSS and 2111PRSOSR, which closes in the audit period from July 2022 to June 2023, to validate the recorded amounts. Upon evaluating the report for the Grant Award 2101PRFPSS, we found the following deficiencies: (1) The total Federal expenditure reported on line (e) does not match the database provided by the PRDF. (2) The matching expenditure on line (j) does not match the database provided by the PRDF, and (3) The report was not submitted within the established deadline, and an extension was granted to settle and report the funds until March 31, 2023, and they submitted on August 10, 2023. For both Grants Awards we found the following deficiencies: (4) The accounting basis should be Cash Basis instead of Accrual Basis, according to the accounting system used. Additionally, they provided a Procedures Manual for the Finance and Budget Divisions, approved in 2009 and delivered in Word format, which states that the accounting basis is “accrual”, even though their current system operates on a cash basis. (5) During the internal control’s interviews, we found that there is no designated person responsible for reviewing the information entered by the preparer. QUESTIONED COSTS No questioned costs identified. PERSPECTIVE INFORMATION This deficiency is a systemic problem. Procedures and internal controls manuals should provide for and ensure the segregation of duties, training, and the reconciliation of financial information reported to Federal agencies against the accounting records used to prepare financial statement and SEFA. STATEMENT OF CAUSE ADFAN does not have internal controls to effectively review the process and comply with the reporting requirements. The absence of effective internal controls at ADFAN to review processes and ensure compliance with reporting requirements can be attributed to inadequate organizational structure and insufficiently defined roles and responsibilities. There is no designated individual or team responsible for overseeing the accuracy and completeness of financial data entered reports. As mentioned above in the statement of condition, this responsibility falls under one person and does not have segregation of duties. This gap in accountability stems from a lack of internal review and insufficient oversight mechanisms, which restrains the organization's ability to ensure that reports are fully aligned with the required compliance standards. Additionally, there is a lack of training or resources dedicated to maintaining and monitoring compliance which contributes to the failure in reporting requirements. POSSIBLE ASSERTED EFFECT ADFAN does not ensure that the reports are accurate and traceable to the accounting database used to prepare their financial reports for the Federal Agencies and their financial statement. IDENTIFICATION OF REPEAT FINDING No reported as prior audit finding. RECOMMENDATIONS We recommend that ADFAN ensures the SF– 425 is completed using the appropriate accounting basis consistent with the organization’s financial system. Additionally, ADFAN should establish and implement internal control procedures that include formal review process to verify the accuracy and completeness of the reported information and designate responsible personnel for the review and approval of reports prior to submission to ensure compliance with Federal reporting requirements.
FINDING REFERENCE NUMBER 2023-054 (See Finding Reference Number 2023-023) FEDERAL PROGRAMS (ALN – 93.556) MARYLEE ALLEN PROMOTING SAFE AND STABLE FAMILIES (ALN – 93.667) SOCIAL SERVICES BLOCK GRANT U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES AWARD NUMBERS 2101PRFPSS (Federal Award Years: 2021 through 2022) 2211PRSOSR (Federal Award Years: 2021 through 2022) ADMINISTRATION ADMINISTRATION FOR FAMILIES AND CHILDREN (ADFAN, BY ITS SPANISH ACRONYM) COMPLIANCE REQUIREMENT REPORTING TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS CRITERIA Uniform Guidance at 2 CFR § 200.302 (a) establishes that each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State's funds. All recipient and subrecipient financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award. See § 200.450. In addition, the SF-425 Federal Financial Report requires the reporting of financial activities related to Federal awards. The accounting basis used for reporting expenditures (whether cash or accrual) must align with the accounting system employed by the recipient organization. The 2 CFR § 200.302 (b), establish that the recipient's and subrecipient's financial management system must provide for the following (see §§ 200.334, 200.335, 200.336, and 200.337): (6) written procedures to implement the requirements of § 200.305 and (7) written procedures for determining the allowability of costs in accordance with subpart E and the terms and conditions of the Federal award. The 2 CFR section 200.328(c) establishes that the recipient or subrecipient must submit financial reports as required by the Federal award. Reports submitted annually by the recipient or subrecipient must be due no later than 90 calendar days after the reporting period. Reports submitted quarterly or semiannually must be due no later than 30 calendar days after the reporting period. The 2 CFR §200.303 (a) establishes that the recipient and subrecipient must: establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). STATEMENT OF CONDITION As part of our audit procedures over internal controls and compliance for reporting requirements, we selected the Grants Awards 2101PRFPSS and 2111PRSOSR, which closes in the audit period from July 2022 to June 2023, to validate the recorded amounts. Upon evaluating the report for the Grant Award 2101PRFPSS, we found the following deficiencies: (1) The total Federal expenditure reported on line (e) does not match the database provided by the PRDF. (2) The matching expenditure on line (j) does not match the database provided by the PRDF, and (3) The report was not submitted within the established deadline, and an extension was granted to settle and report the funds until March 31, 2023, and they submitted on August 10, 2023. For both Grants Awards we found the following deficiencies: (4) The accounting basis should be Cash Basis instead of Accrual Basis, according to the accounting system used. Additionally, they provided a Procedures Manual for the Finance and Budget Divisions, approved in 2009 and delivered in Word format, which states that the accounting basis is “accrual”, even though their current system operates on a cash basis. (5) During the internal control’s interviews, we found that there is no designated person responsible for reviewing the information entered by the preparer. QUESTIONED COSTS No questioned costs identified. PERSPECTIVE INFORMATION This deficiency is a systemic problem. Procedures and internal controls manuals should provide for and ensure the segregation of duties, training, and the reconciliation of financial information reported to Federal agencies against the accounting records used to prepare financial statement and SEFA. STATEMENT OF CAUSE ADFAN does not have internal controls to effectively review the process and comply with the reporting requirements. The absence of effective internal controls at ADFAN to review processes and ensure compliance with reporting requirements can be attributed to inadequate organizational structure and insufficiently defined roles and responsibilities. There is no designated individual or team responsible for overseeing the accuracy and completeness of financial data entered reports. As mentioned above in the statement of condition, this responsibility falls under one person and does not have segregation of duties. This gap in accountability stems from a lack of internal review and insufficient oversight mechanisms, which restrains the organization's ability to ensure that reports are fully aligned with the required compliance standards. Additionally, there is a lack of training or resources dedicated to maintaining and monitoring compliance which contributes to the failure in reporting requirements. POSSIBLE ASSERTED EFFECT ADFAN does not ensure that the reports are accurate and traceable to the accounting database used to prepare their financial reports for the Federal Agencies and their financial statement. IDENTIFICATION OF REPEAT FINDING No reported as prior audit finding. RECOMMENDATIONS We recommend that ADFAN ensures the SF– 425 is completed using the appropriate accounting basis consistent with the organization’s financial system. Additionally, ADFAN should establish and implement internal control procedures that include formal review process to verify the accuracy and completeness of the reported information and designate responsible personnel for the review and approval of reports prior to submission to ensure compliance with Federal reporting requirements.
FINDING REFERENCE NUMBER 2023-056 (See Finding Reference Number 2023-025) FEDERAL PROGRAMS (ALN – 93.558) TEMPORARY ASSISTANCE FOR NEEDY FAMILIES (TANF) (ALN – 93.560) PAYMENT TO TERRITORIES – ADULT U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES AWARD NUMBERS 2021G996117; 2022G996117; 2023996117 (Federal Award Years: 2021 through 2023) 2022G9922PT; 2301PRTABD (Federal Award Years: 2022 through 2023) ADMINISTRATION ADMINISTRATION FOR SOCIOECONOMIC DEVELOPMENT OF THE FAMILY (ADSEF, BY ITS SPANISH ACRONYM) COMPLIANCE REQUIREMENT REPORTING – FINANCIAL TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS CRITERIA The 2 CFR 200 §200.302, Financial Management, establishes that: “(a) Each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State's funds. All recipient and subrecipient financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award. See § 200.450. (b) The recipient's and subrecipient's financial management system must provide for the following (see §§ 200.334, 200.335, 200.336, and 200.337): (1) Identification of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, Federal award identification number, year the Federal award was issued, and name of the Federal agency or pass-through entity. (2) Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements in §§ 200.328 and 200.329. When a Federal agency or pass-through entity requires reporting on an accrual basis from a recipient or subrecipient that maintains its records other than on an accrual basis, the recipient or subrecipient must not be required to establish an accrual accounting system. This recipient or subrecipient may develop accrual data for its reports based on an analysis of the documentation on hand. (3) Maintaining records that sufficiently identify the amount, source, and expenditure of Federal funds for Federal awards. These records must contain information necessary to identify Federal awards, authorizations, financial obligations, unobligated balances, as well as assets, expenditures, income, and interest. All records must be supported by source documentation. (4) Effective control over and accountability for all funds, property, and assets. The recipient or subrecipient must safeguard all assets and ensure they are used solely for authorized purposes. See § 200.303. … (6) Written procedures to implement the requirements of § 200.305 and (7) Written procedures for determining the allowability of costs in accordance with subpart E and the terms and conditions of the Federal award. STATEMENT OF CONDITION As part of our audit procedures over the reporting requirement for TANF and Payment to Territories – Adult programs, we selected two reports submitted during our fiscal year. We found the following deficiencies: i. Administrative expenditures related to both programs are recorded under the same accounting account number, and the assistance listing number of TANF. That is, in PRIFAS, the administrative expenditures of both programs are not segregated by grant award and assistance listing number. ii. The ACF-196TR reports report expenditures under both programs that are not reconciled with the PRIFAS accounting system, specifically in administrative expenditures. We requested evidence of the expenditures incurred or details that were used to prepare the reports; this information was not available, and it was generated upon our request. iii. In both reports evaluated, the amounts reported on lines 2 and 3, related to the amounts that the TANF program transfers to two other federal programs, are recorded inconsistently. During the quarters from October to June, these lines report the amount of the budget that is allowed to be transferred, without validating whether the Federal programs incurred any expenditures. In the quarterly report of September, the expenditure for these lines is reported based on the amount of drawdowns incurred. This practice is inconsistent and does not reflect the actual expenditure incurred. iv. In the quarterly report of June 2023, an expenditure of $3,733,668 was reported on line 5(a). According to PRIFAS, the reported expenditure was $1,988,000. QUESTIONED COSTS Undetermined. PERSPECTIVE INFORMATION This is a systematic deficiency. Procedures and internal controls manuals should provide for and ensure the segregation of duties, and the reconciliation of financial information reported to federal agencies against the accounting records used to prepare financial statements and SEFA. In addition, the financial management system should provide to account separately the administrative expenditures incurred among all Federal programs administered. ADSEF failure to support reported amounts with verifiable documentation and the absence of independent review increases the risk of inaccurate or misstated financial data being reported to the federal awarding agency. STATEMENT OF CAUSE During our interviews and understanding of the internal controls over financial reporting, we noted that only one person prepares, submits and certifies the ACF-196TR reports. No proper segregation of duties exists, that allows for validation of all accounting data before submitting the reports. In addition, the procedures manual for preparing reports does not establish a clear process for obtaining information, validating it, recording it, preparing it, and reporting it, as well as the responsibilities and segregation of duties to ensure that the reported information is consistent with ADSEF's accounting records. PRIFAS accounting data base as configured, does not provide for the administrative expenditures incurred from the TANF and Payment to Territories – Adult program to be segregated. ADSEF lacks internal controls that allow for the timely validation and reconciliation of financial information. Furthermore, they lack a written procedures manual detailing the processes to follow in obtaining accounting data and reporting it to the federal government, ensuring that the responsibility does not fall on a single individual. POSSIBLE ASSERTED EFFECT ADSEF does not ensure that the reports are accurate and traceable to the accounting database used to prepare their financial reports to the Federal Agencies and their financial statement. IDENTIFICATION OF REPEAT FINDING No reported as prior audit finding. RECOMMENDATIONS We recommend ADSEF to establish written procedures and internal controls manuals to provide and document the segregation of duties related to the reporting compliance requirement. Additionally, work with the Puerto Rico Department of the Treasury to provide accounting records to segregate the administrative expenditures of both programs.
FINDING REFERENCE NUMBER 2023-056 (See Finding Reference Number 2023-025) FEDERAL PROGRAMS (ALN – 93.558) TEMPORARY ASSISTANCE FOR NEEDY FAMILIES (TANF) (ALN – 93.560) PAYMENT TO TERRITORIES – ADULT U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES AWARD NUMBERS 2021G996117; 2022G996117; 2023996117 (Federal Award Years: 2021 through 2023) 2022G9922PT; 2301PRTABD (Federal Award Years: 2022 through 2023) ADMINISTRATION ADMINISTRATION FOR SOCIOECONOMIC DEVELOPMENT OF THE FAMILY (ADSEF, BY ITS SPANISH ACRONYM) COMPLIANCE REQUIREMENT REPORTING – FINANCIAL TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS CRITERIA The 2 CFR 200 §200.302, Financial Management, establishes that: “(a) Each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State's funds. All recipient and subrecipient financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award. See § 200.450. (b) The recipient's and subrecipient's financial management system must provide for the following (see §§ 200.334, 200.335, 200.336, and 200.337): (1) Identification of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, Federal award identification number, year the Federal award was issued, and name of the Federal agency or pass-through entity. (2) Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements in §§ 200.328 and 200.329. When a Federal agency or pass-through entity requires reporting on an accrual basis from a recipient or subrecipient that maintains its records other than on an accrual basis, the recipient or subrecipient must not be required to establish an accrual accounting system. This recipient or subrecipient may develop accrual data for its reports based on an analysis of the documentation on hand. (3) Maintaining records that sufficiently identify the amount, source, and expenditure of Federal funds for Federal awards. These records must contain information necessary to identify Federal awards, authorizations, financial obligations, unobligated balances, as well as assets, expenditures, income, and interest. All records must be supported by source documentation. (4) Effective control over and accountability for all funds, property, and assets. The recipient or subrecipient must safeguard all assets and ensure they are used solely for authorized purposes. See § 200.303. … (6) Written procedures to implement the requirements of § 200.305 and (7) Written procedures for determining the allowability of costs in accordance with subpart E and the terms and conditions of the Federal award. STATEMENT OF CONDITION As part of our audit procedures over the reporting requirement for TANF and Payment to Territories – Adult programs, we selected two reports submitted during our fiscal year. We found the following deficiencies: i. Administrative expenditures related to both programs are recorded under the same accounting account number, and the assistance listing number of TANF. That is, in PRIFAS, the administrative expenditures of both programs are not segregated by grant award and assistance listing number. ii. The ACF-196TR reports report expenditures under both programs that are not reconciled with the PRIFAS accounting system, specifically in administrative expenditures. We requested evidence of the expenditures incurred or details that were used to prepare the reports; this information was not available, and it was generated upon our request. iii. In both reports evaluated, the amounts reported on lines 2 and 3, related to the amounts that the TANF program transfers to two other federal programs, are recorded inconsistently. During the quarters from October to June, these lines report the amount of the budget that is allowed to be transferred, without validating whether the Federal programs incurred any expenditures. In the quarterly report of September, the expenditure for these lines is reported based on the amount of drawdowns incurred. This practice is inconsistent and does not reflect the actual expenditure incurred. iv. In the quarterly report of June 2023, an expenditure of $3,733,668 was reported on line 5(a). According to PRIFAS, the reported expenditure was $1,988,000. QUESTIONED COSTS Undetermined. PERSPECTIVE INFORMATION This is a systematic deficiency. Procedures and internal controls manuals should provide for and ensure the segregation of duties, and the reconciliation of financial information reported to federal agencies against the accounting records used to prepare financial statements and SEFA. In addition, the financial management system should provide to account separately the administrative expenditures incurred among all Federal programs administered. ADSEF failure to support reported amounts with verifiable documentation and the absence of independent review increases the risk of inaccurate or misstated financial data being reported to the federal awarding agency. STATEMENT OF CAUSE During our interviews and understanding of the internal controls over financial reporting, we noted that only one person prepares, submits and certifies the ACF-196TR reports. No proper segregation of duties exists, that allows for validation of all accounting data before submitting the reports. In addition, the procedures manual for preparing reports does not establish a clear process for obtaining information, validating it, recording it, preparing it, and reporting it, as well as the responsibilities and segregation of duties to ensure that the reported information is consistent with ADSEF's accounting records. PRIFAS accounting data base as configured, does not provide for the administrative expenditures incurred from the TANF and Payment to Territories – Adult program to be segregated. ADSEF lacks internal controls that allow for the timely validation and reconciliation of financial information. Furthermore, they lack a written procedures manual detailing the processes to follow in obtaining accounting data and reporting it to the federal government, ensuring that the responsibility does not fall on a single individual. POSSIBLE ASSERTED EFFECT ADSEF does not ensure that the reports are accurate and traceable to the accounting database used to prepare their financial reports to the Federal Agencies and their financial statement. IDENTIFICATION OF REPEAT FINDING No reported as prior audit finding. RECOMMENDATIONS We recommend ADSEF to establish written procedures and internal controls manuals to provide and document the segregation of duties related to the reporting compliance requirement. Additionally, work with the Puerto Rico Department of the Treasury to provide accounting records to segregate the administrative expenditures of both programs.
FINDING NO: 2023-062 STATE AGENCY: State of Oklahoma FEDERAL AGENCY: U.S. Department of the Treasury ALN: 21.019 FEDERAL PROGRAM NAME: Coronavirus Relief Fund (CRF) FEDERAL AWARD NUMBER: N/A FEDERAL AWARD YEAR: 2023 CONTROL CATEGORY: Reporting QUESTIONED COSTS: $0 Criteria: 2 CFR §200.303 - Internal controls states in part, “The Non-Federal entity must: (a) 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.” 2 CFR §200.334 – Record retention Requirements states in part, “The recipient and subrecipient must retain all Federal award records for three years from the date of submission of their final financial report. For awards that are renewed quarterly or annually, the recipient and subrecipient must retain records for three years from the date of submission of their quarterly or annual financial report, respectively. Records to be retained include but are not limited to, financial records, supporting documentation, and statistical records.” 2 CFR §200.336 – Methods for collection, transmission, and storage of information states, “When practicable, the Federal agency or pass-through entity and the recipient or subrecipient must collect, transmit, and store Federal award information in open and machine-readable formats. A machine-readable format is a format in a standard computer language (not English text) that can be read automatically by a computer system. Upon request, the Federal agency or pass-through entity must always provide or accept paper versions of Federal award information to and from the recipient or subrecipient. The Federal agency or pass-through entity must not require additional copies of Federal award information submitted in paper versions. The recipient or subrecipient does not need to create and retain paper copies when original records are electronic and cannot be altered. In addition, the recipient or subrecipient may substitute electronic versions of original paper records through duplication or other forms of electronic conversion, provided that the procedures are subject to periodic quality control reviews. Quality control reviews must ensure that electronic conversion procedures provide safeguards against the alteration of records and assurance that records remain in a format that is readable by a computer system.” Condition and Context: The CARES FORWARD team for State of Oklahoma was unable to provide the full quarterly Financial Progress Report (FPR) for 7/1/2022 to 9/30/2022 (cycle 10) before the reporting portal was closed. However, for the summary page that was provided, we noted that the current quarter expenditures were reported as $28,415,019.58. We reconciled the Financial Progress Report to the Schedule of Expenditures of Federal Awards (SEFA) for AL #21.019, by removing the interest revenue from our SEFA calculation, since interest is not required to be reported on the Financial Progress Report. The net result was SEFA expenditures totaled $29,220,392 ($30,422,641-$1,202,249) for SFY 2023, based on this being the last quarter of the CRF grant. Cause: The CARES FORWARD team reported obligations and expenditures based on the funds being transferred from the Oklahoma State Treasurer to the Executive Office of the State of Oklahoma, and not when the funds were obligated or expended by an entity other than the State of Oklahoma. In addition, human error occurred when recording some expenditures to certain cost categories. Lastly, the CARES FORWARD team failed to retain a copy of the entire cycle 10 Financial Progress Report. Effect: Expenditures for the cycle 10 Financial Progress Report were understated by $805,372.42. Further, the State of Oklahoma did not comply with 2 CFR §200.334. Recommendation: We recommend the State of Oklahoma continue to work to strengthen the controls over financial reporting of federal grant awards to ensure the amounts are accurately reported. Also, we recommend the State of Oklahoma ensure they retain all quarterly Financial Progress Reports for a period of three years from the date of submission. Views of Responsible Official(s) Contact Person: Brandy Manek Anticipated Completion Date: September 2022 Corrective Action Planned: The State of Oklahoma/Office of Management and Enterprise Services agrees with this finding. See corrective action plan located in the corrective action plan section of the report.
FINDING NO: 2023-062 STATE AGENCY: State of Oklahoma FEDERAL AGENCY: U.S. Department of the Treasury ALN: 21.019 FEDERAL PROGRAM NAME: Coronavirus Relief Fund (CRF) FEDERAL AWARD NUMBER: N/A FEDERAL AWARD YEAR: 2023 CONTROL CATEGORY: Reporting QUESTIONED COSTS: $0 Criteria: 2 CFR §200.303 - Internal controls states in part, “The Non-Federal entity must: (a) 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.” 2 CFR §200.334 – Record retention Requirements states in part, “The recipient and subrecipient must retain all Federal award records for three years from the date of submission of their final financial report. For awards that are renewed quarterly or annually, the recipient and subrecipient must retain records for three years from the date of submission of their quarterly or annual financial report, respectively. Records to be retained include but are not limited to, financial records, supporting documentation, and statistical records.” 2 CFR §200.336 – Methods for collection, transmission, and storage of information states, “When practicable, the Federal agency or pass-through entity and the recipient or subrecipient must collect, transmit, and store Federal award information in open and machine-readable formats. A machine-readable format is a format in a standard computer language (not English text) that can be read automatically by a computer system. Upon request, the Federal agency or pass-through entity must always provide or accept paper versions of Federal award information to and from the recipient or subrecipient. The Federal agency or pass-through entity must not require additional copies of Federal award information submitted in paper versions. The recipient or subrecipient does not need to create and retain paper copies when original records are electronic and cannot be altered. In addition, the recipient or subrecipient may substitute electronic versions of original paper records through duplication or other forms of electronic conversion, provided that the procedures are subject to periodic quality control reviews. Quality control reviews must ensure that electronic conversion procedures provide safeguards against the alteration of records and assurance that records remain in a format that is readable by a computer system.” Condition and Context: The CARES FORWARD team for State of Oklahoma was unable to provide the full quarterly Financial Progress Report (FPR) for 7/1/2022 to 9/30/2022 (cycle 10) before the reporting portal was closed. However, for the summary page that was provided, we noted that the current quarter expenditures were reported as $28,415,019.58. We reconciled the Financial Progress Report to the Schedule of Expenditures of Federal Awards (SEFA) for AL #21.019, by removing the interest revenue from our SEFA calculation, since interest is not required to be reported on the Financial Progress Report. The net result was SEFA expenditures totaled $29,220,392 ($30,422,641-$1,202,249) for SFY 2023, based on this being the last quarter of the CRF grant. Cause: The CARES FORWARD team reported obligations and expenditures based on the funds being transferred from the Oklahoma State Treasurer to the Executive Office of the State of Oklahoma, and not when the funds were obligated or expended by an entity other than the State of Oklahoma. In addition, human error occurred when recording some expenditures to certain cost categories. Lastly, the CARES FORWARD team failed to retain a copy of the entire cycle 10 Financial Progress Report. Effect: Expenditures for the cycle 10 Financial Progress Report were understated by $805,372.42. Further, the State of Oklahoma did not comply with 2 CFR §200.334. Recommendation: We recommend the State of Oklahoma continue to work to strengthen the controls over financial reporting of federal grant awards to ensure the amounts are accurately reported. Also, we recommend the State of Oklahoma ensure they retain all quarterly Financial Progress Reports for a period of three years from the date of submission. Views of Responsible Official(s) Contact Person: Brandy Manek Anticipated Completion Date: September 2022 Corrective Action Planned: The State of Oklahoma/Office of Management and Enterprise Services agrees with this finding. See corrective action plan located in the corrective action plan section of the report.
FINDING NO: 2023-062 STATE AGENCY: State of Oklahoma FEDERAL AGENCY: U.S. Department of the Treasury ALN: 21.019 FEDERAL PROGRAM NAME: Coronavirus Relief Fund (CRF) FEDERAL AWARD NUMBER: N/A FEDERAL AWARD YEAR: 2023 CONTROL CATEGORY: Reporting QUESTIONED COSTS: $0 Criteria: 2 CFR §200.303 - Internal controls states in part, “The Non-Federal entity must: (a) 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.” 2 CFR §200.334 – Record retention Requirements states in part, “The recipient and subrecipient must retain all Federal award records for three years from the date of submission of their final financial report. For awards that are renewed quarterly or annually, the recipient and subrecipient must retain records for three years from the date of submission of their quarterly or annual financial report, respectively. Records to be retained include but are not limited to, financial records, supporting documentation, and statistical records.” 2 CFR §200.336 – Methods for collection, transmission, and storage of information states, “When practicable, the Federal agency or pass-through entity and the recipient or subrecipient must collect, transmit, and store Federal award information in open and machine-readable formats. A machine-readable format is a format in a standard computer language (not English text) that can be read automatically by a computer system. Upon request, the Federal agency or pass-through entity must always provide or accept paper versions of Federal award information to and from the recipient or subrecipient. The Federal agency or pass-through entity must not require additional copies of Federal award information submitted in paper versions. The recipient or subrecipient does not need to create and retain paper copies when original records are electronic and cannot be altered. In addition, the recipient or subrecipient may substitute electronic versions of original paper records through duplication or other forms of electronic conversion, provided that the procedures are subject to periodic quality control reviews. Quality control reviews must ensure that electronic conversion procedures provide safeguards against the alteration of records and assurance that records remain in a format that is readable by a computer system.” Condition and Context: The CARES FORWARD team for State of Oklahoma was unable to provide the full quarterly Financial Progress Report (FPR) for 7/1/2022 to 9/30/2022 (cycle 10) before the reporting portal was closed. However, for the summary page that was provided, we noted that the current quarter expenditures were reported as $28,415,019.58. We reconciled the Financial Progress Report to the Schedule of Expenditures of Federal Awards (SEFA) for AL #21.019, by removing the interest revenue from our SEFA calculation, since interest is not required to be reported on the Financial Progress Report. The net result was SEFA expenditures totaled $29,220,392 ($30,422,641-$1,202,249) for SFY 2023, based on this being the last quarter of the CRF grant. Cause: The CARES FORWARD team reported obligations and expenditures based on the funds being transferred from the Oklahoma State Treasurer to the Executive Office of the State of Oklahoma, and not when the funds were obligated or expended by an entity other than the State of Oklahoma. In addition, human error occurred when recording some expenditures to certain cost categories. Lastly, the CARES FORWARD team failed to retain a copy of the entire cycle 10 Financial Progress Report. Effect: Expenditures for the cycle 10 Financial Progress Report were understated by $805,372.42. Further, the State of Oklahoma did not comply with 2 CFR §200.334. Recommendation: We recommend the State of Oklahoma continue to work to strengthen the controls over financial reporting of federal grant awards to ensure the amounts are accurately reported. Also, we recommend the State of Oklahoma ensure they retain all quarterly Financial Progress Reports for a period of three years from the date of submission. Views of Responsible Official(s) Contact Person: Brandy Manek Anticipated Completion Date: September 2022 Corrective Action Planned: The State of Oklahoma/Office of Management and Enterprise Services agrees with this finding. See corrective action plan located in the corrective action plan section of the report.
FINDING NO: 2023-062 STATE AGENCY: State of Oklahoma FEDERAL AGENCY: U.S. Department of the Treasury ALN: 21.019 FEDERAL PROGRAM NAME: Coronavirus Relief Fund (CRF) FEDERAL AWARD NUMBER: N/A FEDERAL AWARD YEAR: 2023 CONTROL CATEGORY: Reporting QUESTIONED COSTS: $0 Criteria: 2 CFR §200.303 - Internal controls states in part, “The Non-Federal entity must: (a) 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.” 2 CFR §200.334 – Record retention Requirements states in part, “The recipient and subrecipient must retain all Federal award records for three years from the date of submission of their final financial report. For awards that are renewed quarterly or annually, the recipient and subrecipient must retain records for three years from the date of submission of their quarterly or annual financial report, respectively. Records to be retained include but are not limited to, financial records, supporting documentation, and statistical records.” 2 CFR §200.336 – Methods for collection, transmission, and storage of information states, “When practicable, the Federal agency or pass-through entity and the recipient or subrecipient must collect, transmit, and store Federal award information in open and machine-readable formats. A machine-readable format is a format in a standard computer language (not English text) that can be read automatically by a computer system. Upon request, the Federal agency or pass-through entity must always provide or accept paper versions of Federal award information to and from the recipient or subrecipient. The Federal agency or pass-through entity must not require additional copies of Federal award information submitted in paper versions. The recipient or subrecipient does not need to create and retain paper copies when original records are electronic and cannot be altered. In addition, the recipient or subrecipient may substitute electronic versions of original paper records through duplication or other forms of electronic conversion, provided that the procedures are subject to periodic quality control reviews. Quality control reviews must ensure that electronic conversion procedures provide safeguards against the alteration of records and assurance that records remain in a format that is readable by a computer system.” Condition and Context: The CARES FORWARD team for State of Oklahoma was unable to provide the full quarterly Financial Progress Report (FPR) for 7/1/2022 to 9/30/2022 (cycle 10) before the reporting portal was closed. However, for the summary page that was provided, we noted that the current quarter expenditures were reported as $28,415,019.58. We reconciled the Financial Progress Report to the Schedule of Expenditures of Federal Awards (SEFA) for AL #21.019, by removing the interest revenue from our SEFA calculation, since interest is not required to be reported on the Financial Progress Report. The net result was SEFA expenditures totaled $29,220,392 ($30,422,641-$1,202,249) for SFY 2023, based on this being the last quarter of the CRF grant. Cause: The CARES FORWARD team reported obligations and expenditures based on the funds being transferred from the Oklahoma State Treasurer to the Executive Office of the State of Oklahoma, and not when the funds were obligated or expended by an entity other than the State of Oklahoma. In addition, human error occurred when recording some expenditures to certain cost categories. Lastly, the CARES FORWARD team failed to retain a copy of the entire cycle 10 Financial Progress Report. Effect: Expenditures for the cycle 10 Financial Progress Report were understated by $805,372.42. Further, the State of Oklahoma did not comply with 2 CFR §200.334. Recommendation: We recommend the State of Oklahoma continue to work to strengthen the controls over financial reporting of federal grant awards to ensure the amounts are accurately reported. Also, we recommend the State of Oklahoma ensure they retain all quarterly Financial Progress Reports for a period of three years from the date of submission. Views of Responsible Official(s) Contact Person: Brandy Manek Anticipated Completion Date: September 2022 Corrective Action Planned: The State of Oklahoma/Office of Management and Enterprise Services agrees with this finding. See corrective action plan located in the corrective action plan section of the report.
FINDING 2022-004 Subject: Staffing for Adequate Fire and Emergency Response (SAFER) - Cash Management Federal Agency: Department of Homeland Security Federal Program: Staffing for Adequate Fire and Emergency Response (SAFER) Assistance Listings Number: 97.083 Federal Award Number and Year (or Other Identifying Number): EMW-2019-FF-00944 Compliance Requirement: Cash Management Audit Findings: Material Weakness, Modified Opinion Condition and Context The Township submits request for reimbursements to the Federal Emergency Management Agency of the Department of Homeland Security. The reimbursement method of cash management requires the Township to retain supporting documentation that shows the costs for which reimbursement was requested were paid prior to the reimbursement date. The Township was awarded a SAFER grant to increase the number of firefighters and was approved for personnel and fringe benefits costs, which includes health insurance, for nine additional firefighters. The Township is self-insured and would make payments to third-party administrators and other benefit coordinators. The Township would pay a large dollar amount at the end of each year to its selfinsurance benefit coordinators for the next year's benefit, and then additional payments throughout the year as needed for employee's medical claim coverage. These payments were made from various Township funds and the Payroll Deductions fund. Additionally, the payroll deductions for health insurance, including those for employees paid from the grant, would accumulate in the Payroll Deductions fund, and be used for payments to the benefit coordinators as needed and the payment of the next year's required funding. The amount submitted for reimbursement for health insurance benefits were based upon a calculation. The Township did not have supporting documentation for the calculation of those benefits that were claimed. In addition, the health insurance benefits claimed for reimbursement were not paid out of the SAFER Grant Fund and were not at a transaction level in the ledger. The health insurance benefit submitted for reimbursement could not be tied to a specific payment; thus, we were unable to determine the Township's compliance for the health benefit reimbursements being incurred and paid prior to the Township's request for reimbursement. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) 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 200.302 states in part: "(a) Each state must expend and account for the Federal award in accordance with state laws and procedures for expending and accounting for the state's own funds. In addition, the state's and the other non-Federal entity's financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. See also ? 200.450. (b) The financial management system of each non-Federal entity must provide for the following (see also ?? 200.334, 200.335, 200.336, and 200.337): (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, Federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (2) Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements set forth in ?? 200.328 and 200.329. If a Federal awarding agency requires reporting on an accrual basis from a recipient that maintains its records on other than an accrual basis, the recipient must not be required to establish an accrual accounting system. This recipient may develop accrual data for its reports on the basis of an analysis of the documentation on hand. Similarly, a pass-through entity must not require a subrecipient to establish an accrual accounting system and must allow the subrecipient to develop accrual data for its reports on the basis of an analysis of the documentation on hand. (3) Records that identify adequately the source and application of funds for federallyfunded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. (4) Effective control over, and accountability for, all funds, property, and other assets. The non-Federal entity must adequately safeguard all assets and assure that they are used solely for authorized purposes. See ? 200.303. . . ." Cause A system of internal controls was not designed or implemented by management of the Township which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect management's expectation of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, health insurance benefits were requested for reimbursement without adequate supporting documentation that the amount was paid prior to the request. Noncompliance with the grant agreement and the cash management compliance requirement could result in the loss of future federal funds to the Township. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the Township establish a proper system of internal controls and develop policies and procedures to ensure expenses are paid prior to requesting reimbursement. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2022-004 Subject: Staffing for Adequate Fire and Emergency Response (SAFER) - Cash Management Federal Agency: Department of Homeland Security Federal Program: Staffing for Adequate Fire and Emergency Response (SAFER) Assistance Listings Number: 97.083 Federal Award Number and Year (or Other Identifying Number): EMW-2019-FF-00944 Compliance Requirement: Cash Management Audit Findings: Material Weakness, Modified Opinion Condition and Context The Township submits request for reimbursements to the Federal Emergency Management Agency of the Department of Homeland Security. The reimbursement method of cash management requires the Township to retain supporting documentation that shows the costs for which reimbursement was requested were paid prior to the reimbursement date. The Township was awarded a SAFER grant to increase the number of firefighters and was approved for personnel and fringe benefits costs, which includes health insurance, for nine additional firefighters. The Township is self-insured and would make payments to third-party administrators and other benefit coordinators. The Township would pay a large dollar amount at the end of each year to its selfinsurance benefit coordinators for the next year's benefit, and then additional payments throughout the year as needed for employee's medical claim coverage. These payments were made from various Township funds and the Payroll Deductions fund. Additionally, the payroll deductions for health insurance, including those for employees paid from the grant, would accumulate in the Payroll Deductions fund, and be used for payments to the benefit coordinators as needed and the payment of the next year's required funding. The amount submitted for reimbursement for health insurance benefits were based upon a calculation. The Township did not have supporting documentation for the calculation of those benefits that were claimed. In addition, the health insurance benefits claimed for reimbursement were not paid out of the SAFER Grant Fund and were not at a transaction level in the ledger. The health insurance benefit submitted for reimbursement could not be tied to a specific payment; thus, we were unable to determine the Township's compliance for the health benefit reimbursements being incurred and paid prior to the Township's request for reimbursement. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) 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 200.302 states in part: "(a) Each state must expend and account for the Federal award in accordance with state laws and procedures for expending and accounting for the state's own funds. In addition, the state's and the other non-Federal entity's financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. See also ? 200.450. (b) The financial management system of each non-Federal entity must provide for the following (see also ?? 200.334, 200.335, 200.336, and 200.337): (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, Federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (2) Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements set forth in ?? 200.328 and 200.329. If a Federal awarding agency requires reporting on an accrual basis from a recipient that maintains its records on other than an accrual basis, the recipient must not be required to establish an accrual accounting system. This recipient may develop accrual data for its reports on the basis of an analysis of the documentation on hand. Similarly, a pass-through entity must not require a subrecipient to establish an accrual accounting system and must allow the subrecipient to develop accrual data for its reports on the basis of an analysis of the documentation on hand. (3) Records that identify adequately the source and application of funds for federallyfunded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. (4) Effective control over, and accountability for, all funds, property, and other assets. The non-Federal entity must adequately safeguard all assets and assure that they are used solely for authorized purposes. See ? 200.303. . . ." Cause A system of internal controls was not designed or implemented by management of the Township which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect management's expectation of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, health insurance benefits were requested for reimbursement without adequate supporting documentation that the amount was paid prior to the request. Noncompliance with the grant agreement and the cash management compliance requirement could result in the loss of future federal funds to the Township. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the Township establish a proper system of internal controls and develop policies and procedures to ensure expenses are paid prior to requesting reimbursement. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
2022-018 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used only for allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Background The Coronavirus State and Local Fiscal Recovery Fund (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic or its negative economic effects. Washington has received approximately $4.4 billion of SLFRF money from the U.S. Department of the Treasury (Department). Federal law stipulates that states may use SLFRF funds to: ? Support public health expenditures, including COVID-19 prevention and mitigation efforts ? Address negative economic impacts caused by the public health emergency ? Replace lost public sector revenue ? Provide premium pay for essential workers ? Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department?s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant?s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than used the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that can be used to provide government services by a recipient. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculation or the standard allowance. Washington received the first half ($2.2 billion) of its total $4.4 billion SLFRF allocation in May of 2021. When received, the funds were accounted for in the state?s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 into various state transportation-related accounts. According to the Office, the purpose of these distributions was to compensate for revenue losses in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019 and to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation related accounts on the State?s fiscal year 2022 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls and did not comply with requirements related to the SLFRF revenue loss provision. While SLFRF funds are allowed to replace lost public sector revenues, the State was required to identify actual expenditures that were provided for government services. At the time of audit, the State had not identified such expenditures. Rather, the state asserted that all expenditures in the Transportation accounts receiving the SLFRF funds were appropriated for government services and, therefore, there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office does not believe federal requirements and the Department?s final rule required the State to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office?s position that all expenditures in the Transportation related accounts were for government services and, therefore, the state had sufficient expenditures to meet the grant requirement. During the audit, the Office contacted the Department to obtain guidance on the matter. The Office cited the Department?s FAQ Question 13.15, which states in part, ?recipients should not deviate from their established practices and policies regarding the incurrence of costs, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient?s own funds.? A Department representative acknowledged this FAQ and said the Department does not have additional specific requirements about how recipients should internally track their use of SLFRF funds used for revenue replacement. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify costs charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant?s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF, the Office did not comply with federal requirements. Therefore, we are questioning $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: ? Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the State?s fiscal year 2022 SEFA ? Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF and are adequately documented, while also documenting the details of this review ? Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office?s Response The Office does not concur with the audit finding. The state of Washington created a separate fund to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. The state, through legislation, approved the transfer from the SLFRF account to various state transportation accounts. Each transportation account that received SLFRF funds was established in statute and is for a specific ?government service? purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Department of Treasury FAQ 3.2 states that ?Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.? We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. We disagree that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. The following table lists the accounts and the amounts received from SLFRF during fiscal year 2022. We know all expenditures in these accounts are for government services, and therefore are allowable costs for the program. Account Authority Amount transferred from Account 706 (CSLFRF) 1 Account 039 - Aeronautics Account RCW 82.42.090 $ 388,500.00 2 Account 081 - State Patrol Highway Account RCW 46.68.030 $ 6,179,000.00 3 Account 082 - Motorcycle Safety Education Account RCW 46.68.065 $ 9,000.00 4 Fund 099 - Puget Sound Capital Construction Account RCW 47.60.505 $ 1,446,000.00 5 Account 09H - Transportation Partnership Account RCW 46.68.290 $ 19,773,500.00 6 Account 102 - Rural Arterial Trust Account RCW 36.79.020 $ 1,546,000.00 7 Account 106 - Highway Safety Account RCW 46.68.060 $ 4,109,500.00 8 Account 108 - Motor Vehicle Account RCW 46.68.070 $ 49,708,000.00 9 Fund 109 - Puget Sound Ferry Operations Account RCW 47.60.530 $ 42,983,000.00 10 Fund 16J - State Route Number 520 Corridor Account RCW 47.56.875 $ 29,783,500.00 11 Account 17P - SR520 Civil Penalties Account RCW 47.56.876 $ 2,721,000.00 12 Account 144 - Transportation Improvement Account RCW 47.26.084 $ 7,922,000.00 13 Account 186 - County Arterial Preservation Acct RCW 46.68.090 $ 969,500.00 14 Account 20H - Connecting Washington Account RCW 46.68.395 $ 33,831,500.00 15 Account 215 - Special Category C Account RCW 46.68.090 $ 1,987,500.00 16 Account 218 - Multimodal Transportation Account RCW 47.66.070 $ 57,805,500.00 17 Account 511 - Tacoma Narrows Toll Bridge Account RCW 47.56.165 $ 7,853,500.00 18 Account 550 - Transportation 2003 Account RCW 46.68.280 $ 14,340,500.00 19 Account 595 - I-405 and SR-167 Express Toll Lanes Acct RCW 47.56.884 $ 16,446,500.00 20 Account 780 - School Zone Safety Account RCW 46.61.440 $ 196,500.00 $ 300,000,000.00 We requested that the auditors perform testing of the entire population of expenditures in the transportation accounts for compliance. Questioned costs, if any, could have been identified through relevant audit procedures. During multiple trainings offered by the U.S. Treasury, there has been communication that the grantor will be working with grant recipients through ongoing desk audits to ensure no questioned costs are required to be repaid. The Office will work with the legislature to ensure SLFRF funds can be tracked separately from other funds. Auditor?s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. Furthermore, that is the practice used by the State for all other federal programs. We appreciate that the Office will make efforts to work with the Legislature to ensure future SLFRF funds can be tracked separately from other funds. We reaffirm our finding and will follow-up on the Office?s corrective actions in the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (3) Records that identify adequately the source of the application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. Title U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 403, Factors affecting allowability of costs, states in part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
2022-018 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used only for allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Background The Coronavirus State and Local Fiscal Recovery Fund (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic or its negative economic effects. Washington has received approximately $4.4 billion of SLFRF money from the U.S. Department of the Treasury (Department). Federal law stipulates that states may use SLFRF funds to: ? Support public health expenditures, including COVID-19 prevention and mitigation efforts ? Address negative economic impacts caused by the public health emergency ? Replace lost public sector revenue ? Provide premium pay for essential workers ? Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department?s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant?s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than used the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that can be used to provide government services by a recipient. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculation or the standard allowance. Washington received the first half ($2.2 billion) of its total $4.4 billion SLFRF allocation in May of 2021. When received, the funds were accounted for in the state?s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 into various state transportation-related accounts. According to the Office, the purpose of these distributions was to compensate for revenue losses in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019 and to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation related accounts on the State?s fiscal year 2022 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls and did not comply with requirements related to the SLFRF revenue loss provision. While SLFRF funds are allowed to replace lost public sector revenues, the State was required to identify actual expenditures that were provided for government services. At the time of audit, the State had not identified such expenditures. Rather, the state asserted that all expenditures in the Transportation accounts receiving the SLFRF funds were appropriated for government services and, therefore, there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office does not believe federal requirements and the Department?s final rule required the State to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office?s position that all expenditures in the Transportation related accounts were for government services and, therefore, the state had sufficient expenditures to meet the grant requirement. During the audit, the Office contacted the Department to obtain guidance on the matter. The Office cited the Department?s FAQ Question 13.15, which states in part, ?recipients should not deviate from their established practices and policies regarding the incurrence of costs, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient?s own funds.? A Department representative acknowledged this FAQ and said the Department does not have additional specific requirements about how recipients should internally track their use of SLFRF funds used for revenue replacement. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify costs charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant?s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF, the Office did not comply with federal requirements. Therefore, we are questioning $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: ? Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the State?s fiscal year 2022 SEFA ? Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF and are adequately documented, while also documenting the details of this review ? Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office?s Response The Office does not concur with the audit finding. The state of Washington created a separate fund to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. The state, through legislation, approved the transfer from the SLFRF account to various state transportation accounts. Each transportation account that received SLFRF funds was established in statute and is for a specific ?government service? purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Department of Treasury FAQ 3.2 states that ?Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.? We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. We disagree that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. The following table lists the accounts and the amounts received from SLFRF during fiscal year 2022. We know all expenditures in these accounts are for government services, and therefore are allowable costs for the program. Account Authority Amount transferred from Account 706 (CSLFRF) 1 Account 039 - Aeronautics Account RCW 82.42.090 $ 388,500.00 2 Account 081 - State Patrol Highway Account RCW 46.68.030 $ 6,179,000.00 3 Account 082 - Motorcycle Safety Education Account RCW 46.68.065 $ 9,000.00 4 Fund 099 - Puget Sound Capital Construction Account RCW 47.60.505 $ 1,446,000.00 5 Account 09H - Transportation Partnership Account RCW 46.68.290 $ 19,773,500.00 6 Account 102 - Rural Arterial Trust Account RCW 36.79.020 $ 1,546,000.00 7 Account 106 - Highway Safety Account RCW 46.68.060 $ 4,109,500.00 8 Account 108 - Motor Vehicle Account RCW 46.68.070 $ 49,708,000.00 9 Fund 109 - Puget Sound Ferry Operations Account RCW 47.60.530 $ 42,983,000.00 10 Fund 16J - State Route Number 520 Corridor Account RCW 47.56.875 $ 29,783,500.00 11 Account 17P - SR520 Civil Penalties Account RCW 47.56.876 $ 2,721,000.00 12 Account 144 - Transportation Improvement Account RCW 47.26.084 $ 7,922,000.00 13 Account 186 - County Arterial Preservation Acct RCW 46.68.090 $ 969,500.00 14 Account 20H - Connecting Washington Account RCW 46.68.395 $ 33,831,500.00 15 Account 215 - Special Category C Account RCW 46.68.090 $ 1,987,500.00 16 Account 218 - Multimodal Transportation Account RCW 47.66.070 $ 57,805,500.00 17 Account 511 - Tacoma Narrows Toll Bridge Account RCW 47.56.165 $ 7,853,500.00 18 Account 550 - Transportation 2003 Account RCW 46.68.280 $ 14,340,500.00 19 Account 595 - I-405 and SR-167 Express Toll Lanes Acct RCW 47.56.884 $ 16,446,500.00 20 Account 780 - School Zone Safety Account RCW 46.61.440 $ 196,500.00 $ 300,000,000.00 We requested that the auditors perform testing of the entire population of expenditures in the transportation accounts for compliance. Questioned costs, if any, could have been identified through relevant audit procedures. During multiple trainings offered by the U.S. Treasury, there has been communication that the grantor will be working with grant recipients through ongoing desk audits to ensure no questioned costs are required to be repaid. The Office will work with the legislature to ensure SLFRF funds can be tracked separately from other funds. Auditor?s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. Furthermore, that is the practice used by the State for all other federal programs. We appreciate that the Office will make efforts to work with the Legislature to ensure future SLFRF funds can be tracked separately from other funds. We reaffirm our finding and will follow-up on the Office?s corrective actions in the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (3) Records that identify adequately the source of the application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. Title U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 403, Factors affecting allowability of costs, states in part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
2022-018 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used only for allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Background The Coronavirus State and Local Fiscal Recovery Fund (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic or its negative economic effects. Washington has received approximately $4.4 billion of SLFRF money from the U.S. Department of the Treasury (Department). Federal law stipulates that states may use SLFRF funds to: ? Support public health expenditures, including COVID-19 prevention and mitigation efforts ? Address negative economic impacts caused by the public health emergency ? Replace lost public sector revenue ? Provide premium pay for essential workers ? Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department?s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant?s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than used the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that can be used to provide government services by a recipient. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculation or the standard allowance. Washington received the first half ($2.2 billion) of its total $4.4 billion SLFRF allocation in May of 2021. When received, the funds were accounted for in the state?s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 into various state transportation-related accounts. According to the Office, the purpose of these distributions was to compensate for revenue losses in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019 and to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation related accounts on the State?s fiscal year 2022 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls and did not comply with requirements related to the SLFRF revenue loss provision. While SLFRF funds are allowed to replace lost public sector revenues, the State was required to identify actual expenditures that were provided for government services. At the time of audit, the State had not identified such expenditures. Rather, the state asserted that all expenditures in the Transportation accounts receiving the SLFRF funds were appropriated for government services and, therefore, there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office does not believe federal requirements and the Department?s final rule required the State to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office?s position that all expenditures in the Transportation related accounts were for government services and, therefore, the state had sufficient expenditures to meet the grant requirement. During the audit, the Office contacted the Department to obtain guidance on the matter. The Office cited the Department?s FAQ Question 13.15, which states in part, ?recipients should not deviate from their established practices and policies regarding the incurrence of costs, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient?s own funds.? A Department representative acknowledged this FAQ and said the Department does not have additional specific requirements about how recipients should internally track their use of SLFRF funds used for revenue replacement. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify costs charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant?s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF, the Office did not comply with federal requirements. Therefore, we are questioning $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: ? Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the State?s fiscal year 2022 SEFA ? Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF and are adequately documented, while also documenting the details of this review ? Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office?s Response The Office does not concur with the audit finding. The state of Washington created a separate fund to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. The state, through legislation, approved the transfer from the SLFRF account to various state transportation accounts. Each transportation account that received SLFRF funds was established in statute and is for a specific ?government service? purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Department of Treasury FAQ 3.2 states that ?Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.? We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. We disagree that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. The following table lists the accounts and the amounts received from SLFRF during fiscal year 2022. We know all expenditures in these accounts are for government services, and therefore are allowable costs for the program. Account Authority Amount transferred from Account 706 (CSLFRF) 1 Account 039 - Aeronautics Account RCW 82.42.090 $ 388,500.00 2 Account 081 - State Patrol Highway Account RCW 46.68.030 $ 6,179,000.00 3 Account 082 - Motorcycle Safety Education Account RCW 46.68.065 $ 9,000.00 4 Fund 099 - Puget Sound Capital Construction Account RCW 47.60.505 $ 1,446,000.00 5 Account 09H - Transportation Partnership Account RCW 46.68.290 $ 19,773,500.00 6 Account 102 - Rural Arterial Trust Account RCW 36.79.020 $ 1,546,000.00 7 Account 106 - Highway Safety Account RCW 46.68.060 $ 4,109,500.00 8 Account 108 - Motor Vehicle Account RCW 46.68.070 $ 49,708,000.00 9 Fund 109 - Puget Sound Ferry Operations Account RCW 47.60.530 $ 42,983,000.00 10 Fund 16J - State Route Number 520 Corridor Account RCW 47.56.875 $ 29,783,500.00 11 Account 17P - SR520 Civil Penalties Account RCW 47.56.876 $ 2,721,000.00 12 Account 144 - Transportation Improvement Account RCW 47.26.084 $ 7,922,000.00 13 Account 186 - County Arterial Preservation Acct RCW 46.68.090 $ 969,500.00 14 Account 20H - Connecting Washington Account RCW 46.68.395 $ 33,831,500.00 15 Account 215 - Special Category C Account RCW 46.68.090 $ 1,987,500.00 16 Account 218 - Multimodal Transportation Account RCW 47.66.070 $ 57,805,500.00 17 Account 511 - Tacoma Narrows Toll Bridge Account RCW 47.56.165 $ 7,853,500.00 18 Account 550 - Transportation 2003 Account RCW 46.68.280 $ 14,340,500.00 19 Account 595 - I-405 and SR-167 Express Toll Lanes Acct RCW 47.56.884 $ 16,446,500.00 20 Account 780 - School Zone Safety Account RCW 46.61.440 $ 196,500.00 $ 300,000,000.00 We requested that the auditors perform testing of the entire population of expenditures in the transportation accounts for compliance. Questioned costs, if any, could have been identified through relevant audit procedures. During multiple trainings offered by the U.S. Treasury, there has been communication that the grantor will be working with grant recipients through ongoing desk audits to ensure no questioned costs are required to be repaid. The Office will work with the legislature to ensure SLFRF funds can be tracked separately from other funds. Auditor?s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. Furthermore, that is the practice used by the State for all other federal programs. We appreciate that the Office will make efforts to work with the Legislature to ensure future SLFRF funds can be tracked separately from other funds. We reaffirm our finding and will follow-up on the Office?s corrective actions in the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (3) Records that identify adequately the source of the application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. Title U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 403, Factors affecting allowability of costs, states in part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
2022-018 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used only for allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Background The Coronavirus State and Local Fiscal Recovery Fund (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic or its negative economic effects. Washington has received approximately $4.4 billion of SLFRF money from the U.S. Department of the Treasury (Department). Federal law stipulates that states may use SLFRF funds to: ? Support public health expenditures, including COVID-19 prevention and mitigation efforts ? Address negative economic impacts caused by the public health emergency ? Replace lost public sector revenue ? Provide premium pay for essential workers ? Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department?s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant?s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than used the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that can be used to provide government services by a recipient. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculation or the standard allowance. Washington received the first half ($2.2 billion) of its total $4.4 billion SLFRF allocation in May of 2021. When received, the funds were accounted for in the state?s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 into various state transportation-related accounts. According to the Office, the purpose of these distributions was to compensate for revenue losses in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019 and to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation related accounts on the State?s fiscal year 2022 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls and did not comply with requirements related to the SLFRF revenue loss provision. While SLFRF funds are allowed to replace lost public sector revenues, the State was required to identify actual expenditures that were provided for government services. At the time of audit, the State had not identified such expenditures. Rather, the state asserted that all expenditures in the Transportation accounts receiving the SLFRF funds were appropriated for government services and, therefore, there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office does not believe federal requirements and the Department?s final rule required the State to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office?s position that all expenditures in the Transportation related accounts were for government services and, therefore, the state had sufficient expenditures to meet the grant requirement. During the audit, the Office contacted the Department to obtain guidance on the matter. The Office cited the Department?s FAQ Question 13.15, which states in part, ?recipients should not deviate from their established practices and policies regarding the incurrence of costs, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient?s own funds.? A Department representative acknowledged this FAQ and said the Department does not have additional specific requirements about how recipients should internally track their use of SLFRF funds used for revenue replacement. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify costs charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant?s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF, the Office did not comply with federal requirements. Therefore, we are questioning $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: ? Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the State?s fiscal year 2022 SEFA ? Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF and are adequately documented, while also documenting the details of this review ? Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office?s Response The Office does not concur with the audit finding. The state of Washington created a separate fund to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. The state, through legislation, approved the transfer from the SLFRF account to various state transportation accounts. Each transportation account that received SLFRF funds was established in statute and is for a specific ?government service? purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Department of Treasury FAQ 3.2 states that ?Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.? We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. We disagree that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. The following table lists the accounts and the amounts received from SLFRF during fiscal year 2022. We know all expenditures in these accounts are for government services, and therefore are allowable costs for the program. Account Authority Amount transferred from Account 706 (CSLFRF) 1 Account 039 - Aeronautics Account RCW 82.42.090 $ 388,500.00 2 Account 081 - State Patrol Highway Account RCW 46.68.030 $ 6,179,000.00 3 Account 082 - Motorcycle Safety Education Account RCW 46.68.065 $ 9,000.00 4 Fund 099 - Puget Sound Capital Construction Account RCW 47.60.505 $ 1,446,000.00 5 Account 09H - Transportation Partnership Account RCW 46.68.290 $ 19,773,500.00 6 Account 102 - Rural Arterial Trust Account RCW 36.79.020 $ 1,546,000.00 7 Account 106 - Highway Safety Account RCW 46.68.060 $ 4,109,500.00 8 Account 108 - Motor Vehicle Account RCW 46.68.070 $ 49,708,000.00 9 Fund 109 - Puget Sound Ferry Operations Account RCW 47.60.530 $ 42,983,000.00 10 Fund 16J - State Route Number 520 Corridor Account RCW 47.56.875 $ 29,783,500.00 11 Account 17P - SR520 Civil Penalties Account RCW 47.56.876 $ 2,721,000.00 12 Account 144 - Transportation Improvement Account RCW 47.26.084 $ 7,922,000.00 13 Account 186 - County Arterial Preservation Acct RCW 46.68.090 $ 969,500.00 14 Account 20H - Connecting Washington Account RCW 46.68.395 $ 33,831,500.00 15 Account 215 - Special Category C Account RCW 46.68.090 $ 1,987,500.00 16 Account 218 - Multimodal Transportation Account RCW 47.66.070 $ 57,805,500.00 17 Account 511 - Tacoma Narrows Toll Bridge Account RCW 47.56.165 $ 7,853,500.00 18 Account 550 - Transportation 2003 Account RCW 46.68.280 $ 14,340,500.00 19 Account 595 - I-405 and SR-167 Express Toll Lanes Acct RCW 47.56.884 $ 16,446,500.00 20 Account 780 - School Zone Safety Account RCW 46.61.440 $ 196,500.00 $ 300,000,000.00 We requested that the auditors perform testing of the entire population of expenditures in the transportation accounts for compliance. Questioned costs, if any, could have been identified through relevant audit procedures. During multiple trainings offered by the U.S. Treasury, there has been communication that the grantor will be working with grant recipients through ongoing desk audits to ensure no questioned costs are required to be repaid. The Office will work with the legislature to ensure SLFRF funds can be tracked separately from other funds. Auditor?s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. Furthermore, that is the practice used by the State for all other federal programs. We appreciate that the Office will make efforts to work with the Legislature to ensure future SLFRF funds can be tracked separately from other funds. We reaffirm our finding and will follow-up on the Office?s corrective actions in the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (3) Records that identify adequately the source of the application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. Title U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 403, Factors affecting allowability of costs, states in part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
2022-018 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used only for allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Background The Coronavirus State and Local Fiscal Recovery Fund (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic or its negative economic effects. Washington has received approximately $4.4 billion of SLFRF money from the U.S. Department of the Treasury (Department). Federal law stipulates that states may use SLFRF funds to: ? Support public health expenditures, including COVID-19 prevention and mitigation efforts ? Address negative economic impacts caused by the public health emergency ? Replace lost public sector revenue ? Provide premium pay for essential workers ? Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department?s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant?s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than used the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that can be used to provide government services by a recipient. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculation or the standard allowance. Washington received the first half ($2.2 billion) of its total $4.4 billion SLFRF allocation in May of 2021. When received, the funds were accounted for in the state?s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 into various state transportation-related accounts. According to the Office, the purpose of these distributions was to compensate for revenue losses in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019 and to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation related accounts on the State?s fiscal year 2022 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls and did not comply with requirements related to the SLFRF revenue loss provision. While SLFRF funds are allowed to replace lost public sector revenues, the State was required to identify actual expenditures that were provided for government services. At the time of audit, the State had not identified such expenditures. Rather, the state asserted that all expenditures in the Transportation accounts receiving the SLFRF funds were appropriated for government services and, therefore, there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office does not believe federal requirements and the Department?s final rule required the State to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office?s position that all expenditures in the Transportation related accounts were for government services and, therefore, the state had sufficient expenditures to meet the grant requirement. During the audit, the Office contacted the Department to obtain guidance on the matter. The Office cited the Department?s FAQ Question 13.15, which states in part, ?recipients should not deviate from their established practices and policies regarding the incurrence of costs, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient?s own funds.? A Department representative acknowledged this FAQ and said the Department does not have additional specific requirements about how recipients should internally track their use of SLFRF funds used for revenue replacement. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify costs charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant?s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF, the Office did not comply with federal requirements. Therefore, we are questioning $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: ? Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the State?s fiscal year 2022 SEFA ? Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF and are adequately documented, while also documenting the details of this review ? Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office?s Response The Office does not concur with the audit finding. The state of Washington created a separate fund to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. The state, through legislation, approved the transfer from the SLFRF account to various state transportation accounts. Each transportation account that received SLFRF funds was established in statute and is for a specific ?government service? purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Department of Treasury FAQ 3.2 states that ?Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.? We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. We disagree that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. The following table lists the accounts and the amounts received from SLFRF during fiscal year 2022. We know all expenditures in these accounts are for government services, and therefore are allowable costs for the program. Account Authority Amount transferred from Account 706 (CSLFRF) 1 Account 039 - Aeronautics Account RCW 82.42.090 $ 388,500.00 2 Account 081 - State Patrol Highway Account RCW 46.68.030 $ 6,179,000.00 3 Account 082 - Motorcycle Safety Education Account RCW 46.68.065 $ 9,000.00 4 Fund 099 - Puget Sound Capital Construction Account RCW 47.60.505 $ 1,446,000.00 5 Account 09H - Transportation Partnership Account RCW 46.68.290 $ 19,773,500.00 6 Account 102 - Rural Arterial Trust Account RCW 36.79.020 $ 1,546,000.00 7 Account 106 - Highway Safety Account RCW 46.68.060 $ 4,109,500.00 8 Account 108 - Motor Vehicle Account RCW 46.68.070 $ 49,708,000.00 9 Fund 109 - Puget Sound Ferry Operations Account RCW 47.60.530 $ 42,983,000.00 10 Fund 16J - State Route Number 520 Corridor Account RCW 47.56.875 $ 29,783,500.00 11 Account 17P - SR520 Civil Penalties Account RCW 47.56.876 $ 2,721,000.00 12 Account 144 - Transportation Improvement Account RCW 47.26.084 $ 7,922,000.00 13 Account 186 - County Arterial Preservation Acct RCW 46.68.090 $ 969,500.00 14 Account 20H - Connecting Washington Account RCW 46.68.395 $ 33,831,500.00 15 Account 215 - Special Category C Account RCW 46.68.090 $ 1,987,500.00 16 Account 218 - Multimodal Transportation Account RCW 47.66.070 $ 57,805,500.00 17 Account 511 - Tacoma Narrows Toll Bridge Account RCW 47.56.165 $ 7,853,500.00 18 Account 550 - Transportation 2003 Account RCW 46.68.280 $ 14,340,500.00 19 Account 595 - I-405 and SR-167 Express Toll Lanes Acct RCW 47.56.884 $ 16,446,500.00 20 Account 780 - School Zone Safety Account RCW 46.61.440 $ 196,500.00 $ 300,000,000.00 We requested that the auditors perform testing of the entire population of expenditures in the transportation accounts for compliance. Questioned costs, if any, could have been identified through relevant audit procedures. During multiple trainings offered by the U.S. Treasury, there has been communication that the grantor will be working with grant recipients through ongoing desk audits to ensure no questioned costs are required to be repaid. The Office will work with the legislature to ensure SLFRF funds can be tracked separately from other funds. Auditor?s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. Furthermore, that is the practice used by the State for all other federal programs. We appreciate that the Office will make efforts to work with the Legislature to ensure future SLFRF funds can be tracked separately from other funds. We reaffirm our finding and will follow-up on the Office?s corrective actions in the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (3) Records that identify adequately the source of the application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. Title U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 403, Factors affecting allowability of costs, states in part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
2022-018 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used only for allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Background The Coronavirus State and Local Fiscal Recovery Fund (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic or its negative economic effects. Washington has received approximately $4.4 billion of SLFRF money from the U.S. Department of the Treasury (Department). Federal law stipulates that states may use SLFRF funds to: ? Support public health expenditures, including COVID-19 prevention and mitigation efforts ? Address negative economic impacts caused by the public health emergency ? Replace lost public sector revenue ? Provide premium pay for essential workers ? Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department?s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant?s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than used the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that can be used to provide government services by a recipient. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculation or the standard allowance. Washington received the first half ($2.2 billion) of its total $4.4 billion SLFRF allocation in May of 2021. When received, the funds were accounted for in the state?s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 into various state transportation-related accounts. According to the Office, the purpose of these distributions was to compensate for revenue losses in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019 and to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation related accounts on the State?s fiscal year 2022 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls and did not comply with requirements related to the SLFRF revenue loss provision. While SLFRF funds are allowed to replace lost public sector revenues, the State was required to identify actual expenditures that were provided for government services. At the time of audit, the State had not identified such expenditures. Rather, the state asserted that all expenditures in the Transportation accounts receiving the SLFRF funds were appropriated for government services and, therefore, there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office does not believe federal requirements and the Department?s final rule required the State to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office?s position that all expenditures in the Transportation related accounts were for government services and, therefore, the state had sufficient expenditures to meet the grant requirement. During the audit, the Office contacted the Department to obtain guidance on the matter. The Office cited the Department?s FAQ Question 13.15, which states in part, ?recipients should not deviate from their established practices and policies regarding the incurrence of costs, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient?s own funds.? A Department representative acknowledged this FAQ and said the Department does not have additional specific requirements about how recipients should internally track their use of SLFRF funds used for revenue replacement. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify costs charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant?s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF, the Office did not comply with federal requirements. Therefore, we are questioning $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: ? Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the State?s fiscal year 2022 SEFA ? Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF and are adequately documented, while also documenting the details of this review ? Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office?s Response The Office does not concur with the audit finding. The state of Washington created a separate fund to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. The state, through legislation, approved the transfer from the SLFRF account to various state transportation accounts. Each transportation account that received SLFRF funds was established in statute and is for a specific ?government service? purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Department of Treasury FAQ 3.2 states that ?Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.? We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. We disagree that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. The following table lists the accounts and the amounts received from SLFRF during fiscal year 2022. We know all expenditures in these accounts are for government services, and therefore are allowable costs for the program. Account Authority Amount transferred from Account 706 (CSLFRF) 1 Account 039 - Aeronautics Account RCW 82.42.090 $ 388,500.00 2 Account 081 - State Patrol Highway Account RCW 46.68.030 $ 6,179,000.00 3 Account 082 - Motorcycle Safety Education Account RCW 46.68.065 $ 9,000.00 4 Fund 099 - Puget Sound Capital Construction Account RCW 47.60.505 $ 1,446,000.00 5 Account 09H - Transportation Partnership Account RCW 46.68.290 $ 19,773,500.00 6 Account 102 - Rural Arterial Trust Account RCW 36.79.020 $ 1,546,000.00 7 Account 106 - Highway Safety Account RCW 46.68.060 $ 4,109,500.00 8 Account 108 - Motor Vehicle Account RCW 46.68.070 $ 49,708,000.00 9 Fund 109 - Puget Sound Ferry Operations Account RCW 47.60.530 $ 42,983,000.00 10 Fund 16J - State Route Number 520 Corridor Account RCW 47.56.875 $ 29,783,500.00 11 Account 17P - SR520 Civil Penalties Account RCW 47.56.876 $ 2,721,000.00 12 Account 144 - Transportation Improvement Account RCW 47.26.084 $ 7,922,000.00 13 Account 186 - County Arterial Preservation Acct RCW 46.68.090 $ 969,500.00 14 Account 20H - Connecting Washington Account RCW 46.68.395 $ 33,831,500.00 15 Account 215 - Special Category C Account RCW 46.68.090 $ 1,987,500.00 16 Account 218 - Multimodal Transportation Account RCW 47.66.070 $ 57,805,500.00 17 Account 511 - Tacoma Narrows Toll Bridge Account RCW 47.56.165 $ 7,853,500.00 18 Account 550 - Transportation 2003 Account RCW 46.68.280 $ 14,340,500.00 19 Account 595 - I-405 and SR-167 Express Toll Lanes Acct RCW 47.56.884 $ 16,446,500.00 20 Account 780 - School Zone Safety Account RCW 46.61.440 $ 196,500.00 $ 300,000,000.00 We requested that the auditors perform testing of the entire population of expenditures in the transportation accounts for compliance. Questioned costs, if any, could have been identified through relevant audit procedures. During multiple trainings offered by the U.S. Treasury, there has been communication that the grantor will be working with grant recipients through ongoing desk audits to ensure no questioned costs are required to be repaid. The Office will work with the legislature to ensure SLFRF funds can be tracked separately from other funds. Auditor?s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. Furthermore, that is the practice used by the State for all other federal programs. We appreciate that the Office will make efforts to work with the Legislature to ensure future SLFRF funds can be tracked separately from other funds. We reaffirm our finding and will follow-up on the Office?s corrective actions in the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (3) Records that identify adequately the source of the application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. Title U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 403, Factors affecting allowability of costs, states in part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
2022-018 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used only for allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Background The Coronavirus State and Local Fiscal Recovery Fund (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic or its negative economic effects. Washington has received approximately $4.4 billion of SLFRF money from the U.S. Department of the Treasury (Department). Federal law stipulates that states may use SLFRF funds to: ? Support public health expenditures, including COVID-19 prevention and mitigation efforts ? Address negative economic impacts caused by the public health emergency ? Replace lost public sector revenue ? Provide premium pay for essential workers ? Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department?s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant?s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than used the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that can be used to provide government services by a recipient. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculation or the standard allowance. Washington received the first half ($2.2 billion) of its total $4.4 billion SLFRF allocation in May of 2021. When received, the funds were accounted for in the state?s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 into various state transportation-related accounts. According to the Office, the purpose of these distributions was to compensate for revenue losses in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019 and to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation related accounts on the State?s fiscal year 2022 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls and did not comply with requirements related to the SLFRF revenue loss provision. While SLFRF funds are allowed to replace lost public sector revenues, the State was required to identify actual expenditures that were provided for government services. At the time of audit, the State had not identified such expenditures. Rather, the state asserted that all expenditures in the Transportation accounts receiving the SLFRF funds were appropriated for government services and, therefore, there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office does not believe federal requirements and the Department?s final rule required the State to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office?s position that all expenditures in the Transportation related accounts were for government services and, therefore, the state had sufficient expenditures to meet the grant requirement. During the audit, the Office contacted the Department to obtain guidance on the matter. The Office cited the Department?s FAQ Question 13.15, which states in part, ?recipients should not deviate from their established practices and policies regarding the incurrence of costs, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient?s own funds.? A Department representative acknowledged this FAQ and said the Department does not have additional specific requirements about how recipients should internally track their use of SLFRF funds used for revenue replacement. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify costs charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant?s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF, the Office did not comply with federal requirements. Therefore, we are questioning $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: ? Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the State?s fiscal year 2022 SEFA ? Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF and are adequately documented, while also documenting the details of this review ? Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office?s Response The Office does not concur with the audit finding. The state of Washington created a separate fund to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. The state, through legislation, approved the transfer from the SLFRF account to various state transportation accounts. Each transportation account that received SLFRF funds was established in statute and is for a specific ?government service? purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Department of Treasury FAQ 3.2 states that ?Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.? We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. We disagree that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. The following table lists the accounts and the amounts received from SLFRF during fiscal year 2022. We know all expenditures in these accounts are for government services, and therefore are allowable costs for the program. Account Authority Amount transferred from Account 706 (CSLFRF) 1 Account 039 - Aeronautics Account RCW 82.42.090 $ 388,500.00 2 Account 081 - State Patrol Highway Account RCW 46.68.030 $ 6,179,000.00 3 Account 082 - Motorcycle Safety Education Account RCW 46.68.065 $ 9,000.00 4 Fund 099 - Puget Sound Capital Construction Account RCW 47.60.505 $ 1,446,000.00 5 Account 09H - Transportation Partnership Account RCW 46.68.290 $ 19,773,500.00 6 Account 102 - Rural Arterial Trust Account RCW 36.79.020 $ 1,546,000.00 7 Account 106 - Highway Safety Account RCW 46.68.060 $ 4,109,500.00 8 Account 108 - Motor Vehicle Account RCW 46.68.070 $ 49,708,000.00 9 Fund 109 - Puget Sound Ferry Operations Account RCW 47.60.530 $ 42,983,000.00 10 Fund 16J - State Route Number 520 Corridor Account RCW 47.56.875 $ 29,783,500.00 11 Account 17P - SR520 Civil Penalties Account RCW 47.56.876 $ 2,721,000.00 12 Account 144 - Transportation Improvement Account RCW 47.26.084 $ 7,922,000.00 13 Account 186 - County Arterial Preservation Acct RCW 46.68.090 $ 969,500.00 14 Account 20H - Connecting Washington Account RCW 46.68.395 $ 33,831,500.00 15 Account 215 - Special Category C Account RCW 46.68.090 $ 1,987,500.00 16 Account 218 - Multimodal Transportation Account RCW 47.66.070 $ 57,805,500.00 17 Account 511 - Tacoma Narrows Toll Bridge Account RCW 47.56.165 $ 7,853,500.00 18 Account 550 - Transportation 2003 Account RCW 46.68.280 $ 14,340,500.00 19 Account 595 - I-405 and SR-167 Express Toll Lanes Acct RCW 47.56.884 $ 16,446,500.00 20 Account 780 - School Zone Safety Account RCW 46.61.440 $ 196,500.00 $ 300,000,000.00 We requested that the auditors perform testing of the entire population of expenditures in the transportation accounts for compliance. Questioned costs, if any, could have been identified through relevant audit procedures. During multiple trainings offered by the U.S. Treasury, there has been communication that the grantor will be working with grant recipients through ongoing desk audits to ensure no questioned costs are required to be repaid. The Office will work with the legislature to ensure SLFRF funds can be tracked separately from other funds. Auditor?s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. Furthermore, that is the practice used by the State for all other federal programs. We appreciate that the Office will make efforts to work with the Legislature to ensure future SLFRF funds can be tracked separately from other funds. We reaffirm our finding and will follow-up on the Office?s corrective actions in the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (3) Records that identify adequately the source of the application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. Title U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 403, Factors affecting allowability of costs, states in part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
2022-018 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used only for allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Background The Coronavirus State and Local Fiscal Recovery Fund (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic or its negative economic effects. Washington has received approximately $4.4 billion of SLFRF money from the U.S. Department of the Treasury (Department). Federal law stipulates that states may use SLFRF funds to: ? Support public health expenditures, including COVID-19 prevention and mitigation efforts ? Address negative economic impacts caused by the public health emergency ? Replace lost public sector revenue ? Provide premium pay for essential workers ? Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department?s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant?s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than used the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that can be used to provide government services by a recipient. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculation or the standard allowance. Washington received the first half ($2.2 billion) of its total $4.4 billion SLFRF allocation in May of 2021. When received, the funds were accounted for in the state?s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 into various state transportation-related accounts. According to the Office, the purpose of these distributions was to compensate for revenue losses in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019 and to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation related accounts on the State?s fiscal year 2022 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls and did not comply with requirements related to the SLFRF revenue loss provision. While SLFRF funds are allowed to replace lost public sector revenues, the State was required to identify actual expenditures that were provided for government services. At the time of audit, the State had not identified such expenditures. Rather, the state asserted that all expenditures in the Transportation accounts receiving the SLFRF funds were appropriated for government services and, therefore, there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office does not believe federal requirements and the Department?s final rule required the State to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office?s position that all expenditures in the Transportation related accounts were for government services and, therefore, the state had sufficient expenditures to meet the grant requirement. During the audit, the Office contacted the Department to obtain guidance on the matter. The Office cited the Department?s FAQ Question 13.15, which states in part, ?recipients should not deviate from their established practices and policies regarding the incurrence of costs, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient?s own funds.? A Department representative acknowledged this FAQ and said the Department does not have additional specific requirements about how recipients should internally track their use of SLFRF funds used for revenue replacement. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify costs charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant?s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF, the Office did not comply with federal requirements. Therefore, we are questioning $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: ? Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the State?s fiscal year 2022 SEFA ? Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF and are adequately documented, while also documenting the details of this review ? Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office?s Response The Office does not concur with the audit finding. The state of Washington created a separate fund to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. The state, through legislation, approved the transfer from the SLFRF account to various state transportation accounts. Each transportation account that received SLFRF funds was established in statute and is for a specific ?government service? purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Department of Treasury FAQ 3.2 states that ?Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.? We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. We disagree that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. The following table lists the accounts and the amounts received from SLFRF during fiscal year 2022. We know all expenditures in these accounts are for government services, and therefore are allowable costs for the program. Account Authority Amount transferred from Account 706 (CSLFRF) 1 Account 039 - Aeronautics Account RCW 82.42.090 $ 388,500.00 2 Account 081 - State Patrol Highway Account RCW 46.68.030 $ 6,179,000.00 3 Account 082 - Motorcycle Safety Education Account RCW 46.68.065 $ 9,000.00 4 Fund 099 - Puget Sound Capital Construction Account RCW 47.60.505 $ 1,446,000.00 5 Account 09H - Transportation Partnership Account RCW 46.68.290 $ 19,773,500.00 6 Account 102 - Rural Arterial Trust Account RCW 36.79.020 $ 1,546,000.00 7 Account 106 - Highway Safety Account RCW 46.68.060 $ 4,109,500.00 8 Account 108 - Motor Vehicle Account RCW 46.68.070 $ 49,708,000.00 9 Fund 109 - Puget Sound Ferry Operations Account RCW 47.60.530 $ 42,983,000.00 10 Fund 16J - State Route Number 520 Corridor Account RCW 47.56.875 $ 29,783,500.00 11 Account 17P - SR520 Civil Penalties Account RCW 47.56.876 $ 2,721,000.00 12 Account 144 - Transportation Improvement Account RCW 47.26.084 $ 7,922,000.00 13 Account 186 - County Arterial Preservation Acct RCW 46.68.090 $ 969,500.00 14 Account 20H - Connecting Washington Account RCW 46.68.395 $ 33,831,500.00 15 Account 215 - Special Category C Account RCW 46.68.090 $ 1,987,500.00 16 Account 218 - Multimodal Transportation Account RCW 47.66.070 $ 57,805,500.00 17 Account 511 - Tacoma Narrows Toll Bridge Account RCW 47.56.165 $ 7,853,500.00 18 Account 550 - Transportation 2003 Account RCW 46.68.280 $ 14,340,500.00 19 Account 595 - I-405 and SR-167 Express Toll Lanes Acct RCW 47.56.884 $ 16,446,500.00 20 Account 780 - School Zone Safety Account RCW 46.61.440 $ 196,500.00 $ 300,000,000.00 We requested that the auditors perform testing of the entire population of expenditures in the transportation accounts for compliance. Questioned costs, if any, could have been identified through relevant audit procedures. During multiple trainings offered by the U.S. Treasury, there has been communication that the grantor will be working with grant recipients through ongoing desk audits to ensure no questioned costs are required to be repaid. The Office will work with the legislature to ensure SLFRF funds can be tracked separately from other funds. Auditor?s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. Furthermore, that is the practice used by the State for all other federal programs. We appreciate that the Office will make efforts to work with the Legislature to ensure future SLFRF funds can be tracked separately from other funds. We reaffirm our finding and will follow-up on the Office?s corrective actions in the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (3) Records that identify adequately the source of the application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. Title U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 403, Factors affecting allowability of costs, states in part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
2022-018 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used only for allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Background The Coronavirus State and Local Fiscal Recovery Fund (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic or its negative economic effects. Washington has received approximately $4.4 billion of SLFRF money from the U.S. Department of the Treasury (Department). Federal law stipulates that states may use SLFRF funds to: ? Support public health expenditures, including COVID-19 prevention and mitigation efforts ? Address negative economic impacts caused by the public health emergency ? Replace lost public sector revenue ? Provide premium pay for essential workers ? Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department?s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant?s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than used the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that can be used to provide government services by a recipient. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculation or the standard allowance. Washington received the first half ($2.2 billion) of its total $4.4 billion SLFRF allocation in May of 2021. When received, the funds were accounted for in the state?s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 into various state transportation-related accounts. According to the Office, the purpose of these distributions was to compensate for revenue losses in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019 and to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation related accounts on the State?s fiscal year 2022 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls and did not comply with requirements related to the SLFRF revenue loss provision. While SLFRF funds are allowed to replace lost public sector revenues, the State was required to identify actual expenditures that were provided for government services. At the time of audit, the State had not identified such expenditures. Rather, the state asserted that all expenditures in the Transportation accounts receiving the SLFRF funds were appropriated for government services and, therefore, there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office does not believe federal requirements and the Department?s final rule required the State to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office?s position that all expenditures in the Transportation related accounts were for government services and, therefore, the state had sufficient expenditures to meet the grant requirement. During the audit, the Office contacted the Department to obtain guidance on the matter. The Office cited the Department?s FAQ Question 13.15, which states in part, ?recipients should not deviate from their established practices and policies regarding the incurrence of costs, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient?s own funds.? A Department representative acknowledged this FAQ and said the Department does not have additional specific requirements about how recipients should internally track their use of SLFRF funds used for revenue replacement. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify costs charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant?s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF, the Office did not comply with federal requirements. Therefore, we are questioning $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: ? Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the State?s fiscal year 2022 SEFA ? Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF and are adequately documented, while also documenting the details of this review ? Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office?s Response The Office does not concur with the audit finding. The state of Washington created a separate fund to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. The state, through legislation, approved the transfer from the SLFRF account to various state transportation accounts. Each transportation account that received SLFRF funds was established in statute and is for a specific ?government service? purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Department of Treasury FAQ 3.2 states that ?Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.? We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. We disagree that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. The following table lists the accounts and the amounts received from SLFRF during fiscal year 2022. We know all expenditures in these accounts are for government services, and therefore are allowable costs for the program. Account Authority Amount transferred from Account 706 (CSLFRF) 1 Account 039 - Aeronautics Account RCW 82.42.090 $ 388,500.00 2 Account 081 - State Patrol Highway Account RCW 46.68.030 $ 6,179,000.00 3 Account 082 - Motorcycle Safety Education Account RCW 46.68.065 $ 9,000.00 4 Fund 099 - Puget Sound Capital Construction Account RCW 47.60.505 $ 1,446,000.00 5 Account 09H - Transportation Partnership Account RCW 46.68.290 $ 19,773,500.00 6 Account 102 - Rural Arterial Trust Account RCW 36.79.020 $ 1,546,000.00 7 Account 106 - Highway Safety Account RCW 46.68.060 $ 4,109,500.00 8 Account 108 - Motor Vehicle Account RCW 46.68.070 $ 49,708,000.00 9 Fund 109 - Puget Sound Ferry Operations Account RCW 47.60.530 $ 42,983,000.00 10 Fund 16J - State Route Number 520 Corridor Account RCW 47.56.875 $ 29,783,500.00 11 Account 17P - SR520 Civil Penalties Account RCW 47.56.876 $ 2,721,000.00 12 Account 144 - Transportation Improvement Account RCW 47.26.084 $ 7,922,000.00 13 Account 186 - County Arterial Preservation Acct RCW 46.68.090 $ 969,500.00 14 Account 20H - Connecting Washington Account RCW 46.68.395 $ 33,831,500.00 15 Account 215 - Special Category C Account RCW 46.68.090 $ 1,987,500.00 16 Account 218 - Multimodal Transportation Account RCW 47.66.070 $ 57,805,500.00 17 Account 511 - Tacoma Narrows Toll Bridge Account RCW 47.56.165 $ 7,853,500.00 18 Account 550 - Transportation 2003 Account RCW 46.68.280 $ 14,340,500.00 19 Account 595 - I-405 and SR-167 Express Toll Lanes Acct RCW 47.56.884 $ 16,446,500.00 20 Account 780 - School Zone Safety Account RCW 46.61.440 $ 196,500.00 $ 300,000,000.00 We requested that the auditors perform testing of the entire population of expenditures in the transportation accounts for compliance. Questioned costs, if any, could have been identified through relevant audit procedures. During multiple trainings offered by the U.S. Treasury, there has been communication that the grantor will be working with grant recipients through ongoing desk audits to ensure no questioned costs are required to be repaid. The Office will work with the legislature to ensure SLFRF funds can be tracked separately from other funds. Auditor?s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. Furthermore, that is the practice used by the State for all other federal programs. We appreciate that the Office will make efforts to work with the Legislature to ensure future SLFRF funds can be tracked separately from other funds. We reaffirm our finding and will follow-up on the Office?s corrective actions in the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (3) Records that identify adequately the source of the application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. Title U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 403, Factors affecting allowability of costs, states in part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
2022-018 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used only for allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Background The Coronavirus State and Local Fiscal Recovery Fund (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic or its negative economic effects. Washington has received approximately $4.4 billion of SLFRF money from the U.S. Department of the Treasury (Department). Federal law stipulates that states may use SLFRF funds to: ? Support public health expenditures, including COVID-19 prevention and mitigation efforts ? Address negative economic impacts caused by the public health emergency ? Replace lost public sector revenue ? Provide premium pay for essential workers ? Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department?s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant?s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than used the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that can be used to provide government services by a recipient. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculation or the standard allowance. Washington received the first half ($2.2 billion) of its total $4.4 billion SLFRF allocation in May of 2021. When received, the funds were accounted for in the state?s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 into various state transportation-related accounts. According to the Office, the purpose of these distributions was to compensate for revenue losses in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019 and to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation related accounts on the State?s fiscal year 2022 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls and did not comply with requirements related to the SLFRF revenue loss provision. While SLFRF funds are allowed to replace lost public sector revenues, the State was required to identify actual expenditures that were provided for government services. At the time of audit, the State had not identified such expenditures. Rather, the state asserted that all expenditures in the Transportation accounts receiving the SLFRF funds were appropriated for government services and, therefore, there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office does not believe federal requirements and the Department?s final rule required the State to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office?s position that all expenditures in the Transportation related accounts were for government services and, therefore, the state had sufficient expenditures to meet the grant requirement. During the audit, the Office contacted the Department to obtain guidance on the matter. The Office cited the Department?s FAQ Question 13.15, which states in part, ?recipients should not deviate from their established practices and policies regarding the incurrence of costs, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient?s own funds.? A Department representative acknowledged this FAQ and said the Department does not have additional specific requirements about how recipients should internally track their use of SLFRF funds used for revenue replacement. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify costs charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant?s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF, the Office did not comply with federal requirements. Therefore, we are questioning $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: ? Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the State?s fiscal year 2022 SEFA ? Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF and are adequately documented, while also documenting the details of this review ? Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office?s Response The Office does not concur with the audit finding. The state of Washington created a separate fund to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. The state, through legislation, approved the transfer from the SLFRF account to various state transportation accounts. Each transportation account that received SLFRF funds was established in statute and is for a specific ?government service? purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Department of Treasury FAQ 3.2 states that ?Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.? We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. We disagree that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. The following table lists the accounts and the amounts received from SLFRF during fiscal year 2022. We know all expenditures in these accounts are for government services, and therefore are allowable costs for the program. Account Authority Amount transferred from Account 706 (CSLFRF) 1 Account 039 - Aeronautics Account RCW 82.42.090 $ 388,500.00 2 Account 081 - State Patrol Highway Account RCW 46.68.030 $ 6,179,000.00 3 Account 082 - Motorcycle Safety Education Account RCW 46.68.065 $ 9,000.00 4 Fund 099 - Puget Sound Capital Construction Account RCW 47.60.505 $ 1,446,000.00 5 Account 09H - Transportation Partnership Account RCW 46.68.290 $ 19,773,500.00 6 Account 102 - Rural Arterial Trust Account RCW 36.79.020 $ 1,546,000.00 7 Account 106 - Highway Safety Account RCW 46.68.060 $ 4,109,500.00 8 Account 108 - Motor Vehicle Account RCW 46.68.070 $ 49,708,000.00 9 Fund 109 - Puget Sound Ferry Operations Account RCW 47.60.530 $ 42,983,000.00 10 Fund 16J - State Route Number 520 Corridor Account RCW 47.56.875 $ 29,783,500.00 11 Account 17P - SR520 Civil Penalties Account RCW 47.56.876 $ 2,721,000.00 12 Account 144 - Transportation Improvement Account RCW 47.26.084 $ 7,922,000.00 13 Account 186 - County Arterial Preservation Acct RCW 46.68.090 $ 969,500.00 14 Account 20H - Connecting Washington Account RCW 46.68.395 $ 33,831,500.00 15 Account 215 - Special Category C Account RCW 46.68.090 $ 1,987,500.00 16 Account 218 - Multimodal Transportation Account RCW 47.66.070 $ 57,805,500.00 17 Account 511 - Tacoma Narrows Toll Bridge Account RCW 47.56.165 $ 7,853,500.00 18 Account 550 - Transportation 2003 Account RCW 46.68.280 $ 14,340,500.00 19 Account 595 - I-405 and SR-167 Express Toll Lanes Acct RCW 47.56.884 $ 16,446,500.00 20 Account 780 - School Zone Safety Account RCW 46.61.440 $ 196,500.00 $ 300,000,000.00 We requested that the auditors perform testing of the entire population of expenditures in the transportation accounts for compliance. Questioned costs, if any, could have been identified through relevant audit procedures. During multiple trainings offered by the U.S. Treasury, there has been communication that the grantor will be working with grant recipients through ongoing desk audits to ensure no questioned costs are required to be repaid. The Office will work with the legislature to ensure SLFRF funds can be tracked separately from other funds. Auditor?s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. Furthermore, that is the practice used by the State for all other federal programs. We appreciate that the Office will make efforts to work with the Legislature to ensure future SLFRF funds can be tracked separately from other funds. We reaffirm our finding and will follow-up on the Office?s corrective actions in the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (3) Records that identify adequately the source of the application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. Title U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 403, Factors affecting allowability of costs, states in part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
2022-018 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used only for allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Background The Coronavirus State and Local Fiscal Recovery Fund (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic or its negative economic effects. Washington has received approximately $4.4 billion of SLFRF money from the U.S. Department of the Treasury (Department). Federal law stipulates that states may use SLFRF funds to: ? Support public health expenditures, including COVID-19 prevention and mitigation efforts ? Address negative economic impacts caused by the public health emergency ? Replace lost public sector revenue ? Provide premium pay for essential workers ? Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department?s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant?s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than used the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that can be used to provide government services by a recipient. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculation or the standard allowance. Washington received the first half ($2.2 billion) of its total $4.4 billion SLFRF allocation in May of 2021. When received, the funds were accounted for in the state?s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 into various state transportation-related accounts. According to the Office, the purpose of these distributions was to compensate for revenue losses in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019 and to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation related accounts on the State?s fiscal year 2022 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls and did not comply with requirements related to the SLFRF revenue loss provision. While SLFRF funds are allowed to replace lost public sector revenues, the State was required to identify actual expenditures that were provided for government services. At the time of audit, the State had not identified such expenditures. Rather, the state asserted that all expenditures in the Transportation accounts receiving the SLFRF funds were appropriated for government services and, therefore, there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office does not believe federal requirements and the Department?s final rule required the State to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office?s position that all expenditures in the Transportation related accounts were for government services and, therefore, the state had sufficient expenditures to meet the grant requirement. During the audit, the Office contacted the Department to obtain guidance on the matter. The Office cited the Department?s FAQ Question 13.15, which states in part, ?recipients should not deviate from their established practices and policies regarding the incurrence of costs, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient?s own funds.? A Department representative acknowledged this FAQ and said the Department does not have additional specific requirements about how recipients should internally track their use of SLFRF funds used for revenue replacement. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify costs charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant?s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF, the Office did not comply with federal requirements. Therefore, we are questioning $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: ? Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the State?s fiscal year 2022 SEFA ? Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF and are adequately documented, while also documenting the details of this review ? Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office?s Response The Office does not concur with the audit finding. The state of Washington created a separate fund to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. The state, through legislation, approved the transfer from the SLFRF account to various state transportation accounts. Each transportation account that received SLFRF funds was established in statute and is for a specific ?government service? purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Department of Treasury FAQ 3.2 states that ?Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.? We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. We disagree that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. The following table lists the accounts and the amounts received from SLFRF during fiscal year 2022. We know all expenditures in these accounts are for government services, and therefore are allowable costs for the program. Account Authority Amount transferred from Account 706 (CSLFRF) 1 Account 039 - Aeronautics Account RCW 82.42.090 $ 388,500.00 2 Account 081 - State Patrol Highway Account RCW 46.68.030 $ 6,179,000.00 3 Account 082 - Motorcycle Safety Education Account RCW 46.68.065 $ 9,000.00 4 Fund 099 - Puget Sound Capital Construction Account RCW 47.60.505 $ 1,446,000.00 5 Account 09H - Transportation Partnership Account RCW 46.68.290 $ 19,773,500.00 6 Account 102 - Rural Arterial Trust Account RCW 36.79.020 $ 1,546,000.00 7 Account 106 - Highway Safety Account RCW 46.68.060 $ 4,109,500.00 8 Account 108 - Motor Vehicle Account RCW 46.68.070 $ 49,708,000.00 9 Fund 109 - Puget Sound Ferry Operations Account RCW 47.60.530 $ 42,983,000.00 10 Fund 16J - State Route Number 520 Corridor Account RCW 47.56.875 $ 29,783,500.00 11 Account 17P - SR520 Civil Penalties Account RCW 47.56.876 $ 2,721,000.00 12 Account 144 - Transportation Improvement Account RCW 47.26.084 $ 7,922,000.00 13 Account 186 - County Arterial Preservation Acct RCW 46.68.090 $ 969,500.00 14 Account 20H - Connecting Washington Account RCW 46.68.395 $ 33,831,500.00 15 Account 215 - Special Category C Account RCW 46.68.090 $ 1,987,500.00 16 Account 218 - Multimodal Transportation Account RCW 47.66.070 $ 57,805,500.00 17 Account 511 - Tacoma Narrows Toll Bridge Account RCW 47.56.165 $ 7,853,500.00 18 Account 550 - Transportation 2003 Account RCW 46.68.280 $ 14,340,500.00 19 Account 595 - I-405 and SR-167 Express Toll Lanes Acct RCW 47.56.884 $ 16,446,500.00 20 Account 780 - School Zone Safety Account RCW 46.61.440 $ 196,500.00 $ 300,000,000.00 We requested that the auditors perform testing of the entire population of expenditures in the transportation accounts for compliance. Questioned costs, if any, could have been identified through relevant audit procedures. During multiple trainings offered by the U.S. Treasury, there has been communication that the grantor will be working with grant recipients through ongoing desk audits to ensure no questioned costs are required to be repaid. The Office will work with the legislature to ensure SLFRF funds can be tracked separately from other funds. Auditor?s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. Furthermore, that is the practice used by the State for all other federal programs. We appreciate that the Office will make efforts to work with the Legislature to ensure future SLFRF funds can be tracked separately from other funds. We reaffirm our finding and will follow-up on the Office?s corrective actions in the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (3) Records that identify adequately the source of the application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. Title U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 403, Factors affecting allowability of costs, states in part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
2022-018 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used only for allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Background The Coronavirus State and Local Fiscal Recovery Fund (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic or its negative economic effects. Washington has received approximately $4.4 billion of SLFRF money from the U.S. Department of the Treasury (Department). Federal law stipulates that states may use SLFRF funds to: ? Support public health expenditures, including COVID-19 prevention and mitigation efforts ? Address negative economic impacts caused by the public health emergency ? Replace lost public sector revenue ? Provide premium pay for essential workers ? Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department?s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant?s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than used the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that can be used to provide government services by a recipient. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculation or the standard allowance. Washington received the first half ($2.2 billion) of its total $4.4 billion SLFRF allocation in May of 2021. When received, the funds were accounted for in the state?s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 into various state transportation-related accounts. According to the Office, the purpose of these distributions was to compensate for revenue losses in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019 and to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation related accounts on the State?s fiscal year 2022 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls and did not comply with requirements related to the SLFRF revenue loss provision. While SLFRF funds are allowed to replace lost public sector revenues, the State was required to identify actual expenditures that were provided for government services. At the time of audit, the State had not identified such expenditures. Rather, the state asserted that all expenditures in the Transportation accounts receiving the SLFRF funds were appropriated for government services and, therefore, there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office does not believe federal requirements and the Department?s final rule required the State to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office?s position that all expenditures in the Transportation related accounts were for government services and, therefore, the state had sufficient expenditures to meet the grant requirement. During the audit, the Office contacted the Department to obtain guidance on the matter. The Office cited the Department?s FAQ Question 13.15, which states in part, ?recipients should not deviate from their established practices and policies regarding the incurrence of costs, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient?s own funds.? A Department representative acknowledged this FAQ and said the Department does not have additional specific requirements about how recipients should internally track their use of SLFRF funds used for revenue replacement. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify costs charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant?s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF, the Office did not comply with federal requirements. Therefore, we are questioning $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: ? Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the State?s fiscal year 2022 SEFA ? Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF and are adequately documented, while also documenting the details of this review ? Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office?s Response The Office does not concur with the audit finding. The state of Washington created a separate fund to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. The state, through legislation, approved the transfer from the SLFRF account to various state transportation accounts. Each transportation account that received SLFRF funds was established in statute and is for a specific ?government service? purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Department of Treasury FAQ 3.2 states that ?Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.? We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. We disagree that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. The following table lists the accounts and the amounts received from SLFRF during fiscal year 2022. We know all expenditures in these accounts are for government services, and therefore are allowable costs for the program. Account Authority Amount transferred from Account 706 (CSLFRF) 1 Account 039 - Aeronautics Account RCW 82.42.090 $ 388,500.00 2 Account 081 - State Patrol Highway Account RCW 46.68.030 $ 6,179,000.00 3 Account 082 - Motorcycle Safety Education Account RCW 46.68.065 $ 9,000.00 4 Fund 099 - Puget Sound Capital Construction Account RCW 47.60.505 $ 1,446,000.00 5 Account 09H - Transportation Partnership Account RCW 46.68.290 $ 19,773,500.00 6 Account 102 - Rural Arterial Trust Account RCW 36.79.020 $ 1,546,000.00 7 Account 106 - Highway Safety Account RCW 46.68.060 $ 4,109,500.00 8 Account 108 - Motor Vehicle Account RCW 46.68.070 $ 49,708,000.00 9 Fund 109 - Puget Sound Ferry Operations Account RCW 47.60.530 $ 42,983,000.00 10 Fund 16J - State Route Number 520 Corridor Account RCW 47.56.875 $ 29,783,500.00 11 Account 17P - SR520 Civil Penalties Account RCW 47.56.876 $ 2,721,000.00 12 Account 144 - Transportation Improvement Account RCW 47.26.084 $ 7,922,000.00 13 Account 186 - County Arterial Preservation Acct RCW 46.68.090 $ 969,500.00 14 Account 20H - Connecting Washington Account RCW 46.68.395 $ 33,831,500.00 15 Account 215 - Special Category C Account RCW 46.68.090 $ 1,987,500.00 16 Account 218 - Multimodal Transportation Account RCW 47.66.070 $ 57,805,500.00 17 Account 511 - Tacoma Narrows Toll Bridge Account RCW 47.56.165 $ 7,853,500.00 18 Account 550 - Transportation 2003 Account RCW 46.68.280 $ 14,340,500.00 19 Account 595 - I-405 and SR-167 Express Toll Lanes Acct RCW 47.56.884 $ 16,446,500.00 20 Account 780 - School Zone Safety Account RCW 46.61.440 $ 196,500.00 $ 300,000,000.00 We requested that the auditors perform testing of the entire population of expenditures in the transportation accounts for compliance. Questioned costs, if any, could have been identified through relevant audit procedures. During multiple trainings offered by the U.S. Treasury, there has been communication that the grantor will be working with grant recipients through ongoing desk audits to ensure no questioned costs are required to be repaid. The Office will work with the legislature to ensure SLFRF funds can be tracked separately from other funds. Auditor?s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. Furthermore, that is the practice used by the State for all other federal programs. We appreciate that the Office will make efforts to work with the Legislature to ensure future SLFRF funds can be tracked separately from other funds. We reaffirm our finding and will follow-up on the Office?s corrective actions in the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (3) Records that identify adequately the source of the application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. Title U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 403, Factors affecting allowability of costs, states in part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
2022-018 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used only for allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Background The Coronavirus State and Local Fiscal Recovery Fund (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic or its negative economic effects. Washington has received approximately $4.4 billion of SLFRF money from the U.S. Department of the Treasury (Department). Federal law stipulates that states may use SLFRF funds to: ? Support public health expenditures, including COVID-19 prevention and mitigation efforts ? Address negative economic impacts caused by the public health emergency ? Replace lost public sector revenue ? Provide premium pay for essential workers ? Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department?s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant?s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than used the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that can be used to provide government services by a recipient. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculation or the standard allowance. Washington received the first half ($2.2 billion) of its total $4.4 billion SLFRF allocation in May of 2021. When received, the funds were accounted for in the state?s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 into various state transportation-related accounts. According to the Office, the purpose of these distributions was to compensate for revenue losses in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019 and to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation related accounts on the State?s fiscal year 2022 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls and did not comply with requirements related to the SLFRF revenue loss provision. While SLFRF funds are allowed to replace lost public sector revenues, the State was required to identify actual expenditures that were provided for government services. At the time of audit, the State had not identified such expenditures. Rather, the state asserted that all expenditures in the Transportation accounts receiving the SLFRF funds were appropriated for government services and, therefore, there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office does not believe federal requirements and the Department?s final rule required the State to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office?s position that all expenditures in the Transportation related accounts were for government services and, therefore, the state had sufficient expenditures to meet the grant requirement. During the audit, the Office contacted the Department to obtain guidance on the matter. The Office cited the Department?s FAQ Question 13.15, which states in part, ?recipients should not deviate from their established practices and policies regarding the incurrence of costs, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient?s own funds.? A Department representative acknowledged this FAQ and said the Department does not have additional specific requirements about how recipients should internally track their use of SLFRF funds used for revenue replacement. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify costs charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant?s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF, the Office did not comply with federal requirements. Therefore, we are questioning $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: ? Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the State?s fiscal year 2022 SEFA ? Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF and are adequately documented, while also documenting the details of this review ? Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office?s Response The Office does not concur with the audit finding. The state of Washington created a separate fund to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. The state, through legislation, approved the transfer from the SLFRF account to various state transportation accounts. Each transportation account that received SLFRF funds was established in statute and is for a specific ?government service? purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Department of Treasury FAQ 3.2 states that ?Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.? We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. We disagree that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. The following table lists the accounts and the amounts received from SLFRF during fiscal year 2022. We know all expenditures in these accounts are for government services, and therefore are allowable costs for the program. Account Authority Amount transferred from Account 706 (CSLFRF) 1 Account 039 - Aeronautics Account RCW 82.42.090 $ 388,500.00 2 Account 081 - State Patrol Highway Account RCW 46.68.030 $ 6,179,000.00 3 Account 082 - Motorcycle Safety Education Account RCW 46.68.065 $ 9,000.00 4 Fund 099 - Puget Sound Capital Construction Account RCW 47.60.505 $ 1,446,000.00 5 Account 09H - Transportation Partnership Account RCW 46.68.290 $ 19,773,500.00 6 Account 102 - Rural Arterial Trust Account RCW 36.79.020 $ 1,546,000.00 7 Account 106 - Highway Safety Account RCW 46.68.060 $ 4,109,500.00 8 Account 108 - Motor Vehicle Account RCW 46.68.070 $ 49,708,000.00 9 Fund 109 - Puget Sound Ferry Operations Account RCW 47.60.530 $ 42,983,000.00 10 Fund 16J - State Route Number 520 Corridor Account RCW 47.56.875 $ 29,783,500.00 11 Account 17P - SR520 Civil Penalties Account RCW 47.56.876 $ 2,721,000.00 12 Account 144 - Transportation Improvement Account RCW 47.26.084 $ 7,922,000.00 13 Account 186 - County Arterial Preservation Acct RCW 46.68.090 $ 969,500.00 14 Account 20H - Connecting Washington Account RCW 46.68.395 $ 33,831,500.00 15 Account 215 - Special Category C Account RCW 46.68.090 $ 1,987,500.00 16 Account 218 - Multimodal Transportation Account RCW 47.66.070 $ 57,805,500.00 17 Account 511 - Tacoma Narrows Toll Bridge Account RCW 47.56.165 $ 7,853,500.00 18 Account 550 - Transportation 2003 Account RCW 46.68.280 $ 14,340,500.00 19 Account 595 - I-405 and SR-167 Express Toll Lanes Acct RCW 47.56.884 $ 16,446,500.00 20 Account 780 - School Zone Safety Account RCW 46.61.440 $ 196,500.00 $ 300,000,000.00 We requested that the auditors perform testing of the entire population of expenditures in the transportation accounts for compliance. Questioned costs, if any, could have been identified through relevant audit procedures. During multiple trainings offered by the U.S. Treasury, there has been communication that the grantor will be working with grant recipients through ongoing desk audits to ensure no questioned costs are required to be repaid. The Office will work with the legislature to ensure SLFRF funds can be tracked separately from other funds. Auditor?s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. Furthermore, that is the practice used by the State for all other federal programs. We appreciate that the Office will make efforts to work with the Legislature to ensure future SLFRF funds can be tracked separately from other funds. We reaffirm our finding and will follow-up on the Office?s corrective actions in the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (3) Records that identify adequately the source of the application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. Title U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 403, Factors affecting allowability of costs, states in part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
2022-018 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used only for allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Background The Coronavirus State and Local Fiscal Recovery Fund (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic or its negative economic effects. Washington has received approximately $4.4 billion of SLFRF money from the U.S. Department of the Treasury (Department). Federal law stipulates that states may use SLFRF funds to: ? Support public health expenditures, including COVID-19 prevention and mitigation efforts ? Address negative economic impacts caused by the public health emergency ? Replace lost public sector revenue ? Provide premium pay for essential workers ? Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department?s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant?s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than used the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that can be used to provide government services by a recipient. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculation or the standard allowance. Washington received the first half ($2.2 billion) of its total $4.4 billion SLFRF allocation in May of 2021. When received, the funds were accounted for in the state?s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 into various state transportation-related accounts. According to the Office, the purpose of these distributions was to compensate for revenue losses in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019 and to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation related accounts on the State?s fiscal year 2022 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls and did not comply with requirements related to the SLFRF revenue loss provision. While SLFRF funds are allowed to replace lost public sector revenues, the State was required to identify actual expenditures that were provided for government services. At the time of audit, the State had not identified such expenditures. Rather, the state asserted that all expenditures in the Transportation accounts receiving the SLFRF funds were appropriated for government services and, therefore, there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office does not believe federal requirements and the Department?s final rule required the State to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office?s position that all expenditures in the Transportation related accounts were for government services and, therefore, the state had sufficient expenditures to meet the grant requirement. During the audit, the Office contacted the Department to obtain guidance on the matter. The Office cited the Department?s FAQ Question 13.15, which states in part, ?recipients should not deviate from their established practices and policies regarding the incurrence of costs, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient?s own funds.? A Department representative acknowledged this FAQ and said the Department does not have additional specific requirements about how recipients should internally track their use of SLFRF funds used for revenue replacement. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify costs charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant?s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF, the Office did not comply with federal requirements. Therefore, we are questioning $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: ? Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the State?s fiscal year 2022 SEFA ? Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF and are adequately documented, while also documenting the details of this review ? Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office?s Response The Office does not concur with the audit finding. The state of Washington created a separate fund to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. The state, through legislation, approved the transfer from the SLFRF account to various state transportation accounts. Each transportation account that received SLFRF funds was established in statute and is for a specific ?government service? purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Department of Treasury FAQ 3.2 states that ?Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.? We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. We disagree that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. The following table lists the accounts and the amounts received from SLFRF during fiscal year 2022. We know all expenditures in these accounts are for government services, and therefore are allowable costs for the program. Account Authority Amount transferred from Account 706 (CSLFRF) 1 Account 039 - Aeronautics Account RCW 82.42.090 $ 388,500.00 2 Account 081 - State Patrol Highway Account RCW 46.68.030 $ 6,179,000.00 3 Account 082 - Motorcycle Safety Education Account RCW 46.68.065 $ 9,000.00 4 Fund 099 - Puget Sound Capital Construction Account RCW 47.60.505 $ 1,446,000.00 5 Account 09H - Transportation Partnership Account RCW 46.68.290 $ 19,773,500.00 6 Account 102 - Rural Arterial Trust Account RCW 36.79.020 $ 1,546,000.00 7 Account 106 - Highway Safety Account RCW 46.68.060 $ 4,109,500.00 8 Account 108 - Motor Vehicle Account RCW 46.68.070 $ 49,708,000.00 9 Fund 109 - Puget Sound Ferry Operations Account RCW 47.60.530 $ 42,983,000.00 10 Fund 16J - State Route Number 520 Corridor Account RCW 47.56.875 $ 29,783,500.00 11 Account 17P - SR520 Civil Penalties Account RCW 47.56.876 $ 2,721,000.00 12 Account 144 - Transportation Improvement Account RCW 47.26.084 $ 7,922,000.00 13 Account 186 - County Arterial Preservation Acct RCW 46.68.090 $ 969,500.00 14 Account 20H - Connecting Washington Account RCW 46.68.395 $ 33,831,500.00 15 Account 215 - Special Category C Account RCW 46.68.090 $ 1,987,500.00 16 Account 218 - Multimodal Transportation Account RCW 47.66.070 $ 57,805,500.00 17 Account 511 - Tacoma Narrows Toll Bridge Account RCW 47.56.165 $ 7,853,500.00 18 Account 550 - Transportation 2003 Account RCW 46.68.280 $ 14,340,500.00 19 Account 595 - I-405 and SR-167 Express Toll Lanes Acct RCW 47.56.884 $ 16,446,500.00 20 Account 780 - School Zone Safety Account RCW 46.61.440 $ 196,500.00 $ 300,000,000.00 We requested that the auditors perform testing of the entire population of expenditures in the transportation accounts for compliance. Questioned costs, if any, could have been identified through relevant audit procedures. During multiple trainings offered by the U.S. Treasury, there has been communication that the grantor will be working with grant recipients through ongoing desk audits to ensure no questioned costs are required to be repaid. The Office will work with the legislature to ensure SLFRF funds can be tracked separately from other funds. Auditor?s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. Furthermore, that is the practice used by the State for all other federal programs. We appreciate that the Office will make efforts to work with the Legislature to ensure future SLFRF funds can be tracked separately from other funds. We reaffirm our finding and will follow-up on the Office?s corrective actions in the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (3) Records that identify adequately the source of the application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. Title U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 403, Factors affecting allowability of costs, states in part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
2022-018 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used only for allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Background The Coronavirus State and Local Fiscal Recovery Fund (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic or its negative economic effects. Washington has received approximately $4.4 billion of SLFRF money from the U.S. Department of the Treasury (Department). Federal law stipulates that states may use SLFRF funds to: ? Support public health expenditures, including COVID-19 prevention and mitigation efforts ? Address negative economic impacts caused by the public health emergency ? Replace lost public sector revenue ? Provide premium pay for essential workers ? Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department?s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant?s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than used the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that can be used to provide government services by a recipient. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculation or the standard allowance. Washington received the first half ($2.2 billion) of its total $4.4 billion SLFRF allocation in May of 2021. When received, the funds were accounted for in the state?s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 into various state transportation-related accounts. According to the Office, the purpose of these distributions was to compensate for revenue losses in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019 and to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation related accounts on the State?s fiscal year 2022 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls and did not comply with requirements related to the SLFRF revenue loss provision. While SLFRF funds are allowed to replace lost public sector revenues, the State was required to identify actual expenditures that were provided for government services. At the time of audit, the State had not identified such expenditures. Rather, the state asserted that all expenditures in the Transportation accounts receiving the SLFRF funds were appropriated for government services and, therefore, there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office does not believe federal requirements and the Department?s final rule required the State to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office?s position that all expenditures in the Transportation related accounts were for government services and, therefore, the state had sufficient expenditures to meet the grant requirement. During the audit, the Office contacted the Department to obtain guidance on the matter. The Office cited the Department?s FAQ Question 13.15, which states in part, ?recipients should not deviate from their established practices and policies regarding the incurrence of costs, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient?s own funds.? A Department representative acknowledged this FAQ and said the Department does not have additional specific requirements about how recipients should internally track their use of SLFRF funds used for revenue replacement. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify costs charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant?s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF, the Office did not comply with federal requirements. Therefore, we are questioning $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: ? Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the State?s fiscal year 2022 SEFA ? Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF and are adequately documented, while also documenting the details of this review ? Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office?s Response The Office does not concur with the audit finding. The state of Washington created a separate fund to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. The state, through legislation, approved the transfer from the SLFRF account to various state transportation accounts. Each transportation account that received SLFRF funds was established in statute and is for a specific ?government service? purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Department of Treasury FAQ 3.2 states that ?Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.? We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. We disagree that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. The following table lists the accounts and the amounts received from SLFRF during fiscal year 2022. We know all expenditures in these accounts are for government services, and therefore are allowable costs for the program. Account Authority Amount transferred from Account 706 (CSLFRF) 1 Account 039 - Aeronautics Account RCW 82.42.090 $ 388,500.00 2 Account 081 - State Patrol Highway Account RCW 46.68.030 $ 6,179,000.00 3 Account 082 - Motorcycle Safety Education Account RCW 46.68.065 $ 9,000.00 4 Fund 099 - Puget Sound Capital Construction Account RCW 47.60.505 $ 1,446,000.00 5 Account 09H - Transportation Partnership Account RCW 46.68.290 $ 19,773,500.00 6 Account 102 - Rural Arterial Trust Account RCW 36.79.020 $ 1,546,000.00 7 Account 106 - Highway Safety Account RCW 46.68.060 $ 4,109,500.00 8 Account 108 - Motor Vehicle Account RCW 46.68.070 $ 49,708,000.00 9 Fund 109 - Puget Sound Ferry Operations Account RCW 47.60.530 $ 42,983,000.00 10 Fund 16J - State Route Number 520 Corridor Account RCW 47.56.875 $ 29,783,500.00 11 Account 17P - SR520 Civil Penalties Account RCW 47.56.876 $ 2,721,000.00 12 Account 144 - Transportation Improvement Account RCW 47.26.084 $ 7,922,000.00 13 Account 186 - County Arterial Preservation Acct RCW 46.68.090 $ 969,500.00 14 Account 20H - Connecting Washington Account RCW 46.68.395 $ 33,831,500.00 15 Account 215 - Special Category C Account RCW 46.68.090 $ 1,987,500.00 16 Account 218 - Multimodal Transportation Account RCW 47.66.070 $ 57,805,500.00 17 Account 511 - Tacoma Narrows Toll Bridge Account RCW 47.56.165 $ 7,853,500.00 18 Account 550 - Transportation 2003 Account RCW 46.68.280 $ 14,340,500.00 19 Account 595 - I-405 and SR-167 Express Toll Lanes Acct RCW 47.56.884 $ 16,446,500.00 20 Account 780 - School Zone Safety Account RCW 46.61.440 $ 196,500.00 $ 300,000,000.00 We requested that the auditors perform testing of the entire population of expenditures in the transportation accounts for compliance. Questioned costs, if any, could have been identified through relevant audit procedures. During multiple trainings offered by the U.S. Treasury, there has been communication that the grantor will be working with grant recipients through ongoing desk audits to ensure no questioned costs are required to be repaid. The Office will work with the legislature to ensure SLFRF funds can be tracked separately from other funds. Auditor?s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. Furthermore, that is the practice used by the State for all other federal programs. We appreciate that the Office will make efforts to work with the Legislature to ensure future SLFRF funds can be tracked separately from other funds. We reaffirm our finding and will follow-up on the Office?s corrective actions in the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (3) Records that identify adequately the source of the application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. Title U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 403, Factors affecting allowability of costs, states in part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
2022-018 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used only for allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Background The Coronavirus State and Local Fiscal Recovery Fund (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic or its negative economic effects. Washington has received approximately $4.4 billion of SLFRF money from the U.S. Department of the Treasury (Department). Federal law stipulates that states may use SLFRF funds to: ? Support public health expenditures, including COVID-19 prevention and mitigation efforts ? Address negative economic impacts caused by the public health emergency ? Replace lost public sector revenue ? Provide premium pay for essential workers ? Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department?s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant?s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than used the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that can be used to provide government services by a recipient. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculation or the standard allowance. Washington received the first half ($2.2 billion) of its total $4.4 billion SLFRF allocation in May of 2021. When received, the funds were accounted for in the state?s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 into various state transportation-related accounts. According to the Office, the purpose of these distributions was to compensate for revenue losses in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019 and to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation related accounts on the State?s fiscal year 2022 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls and did not comply with requirements related to the SLFRF revenue loss provision. While SLFRF funds are allowed to replace lost public sector revenues, the State was required to identify actual expenditures that were provided for government services. At the time of audit, the State had not identified such expenditures. Rather, the state asserted that all expenditures in the Transportation accounts receiving the SLFRF funds were appropriated for government services and, therefore, there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office does not believe federal requirements and the Department?s final rule required the State to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office?s position that all expenditures in the Transportation related accounts were for government services and, therefore, the state had sufficient expenditures to meet the grant requirement. During the audit, the Office contacted the Department to obtain guidance on the matter. The Office cited the Department?s FAQ Question 13.15, which states in part, ?recipients should not deviate from their established practices and policies regarding the incurrence of costs, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient?s own funds.? A Department representative acknowledged this FAQ and said the Department does not have additional specific requirements about how recipients should internally track their use of SLFRF funds used for revenue replacement. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify costs charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant?s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF, the Office did not comply with federal requirements. Therefore, we are questioning $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: ? Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the State?s fiscal year 2022 SEFA ? Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF and are adequately documented, while also documenting the details of this review ? Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office?s Response The Office does not concur with the audit finding. The state of Washington created a separate fund to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. The state, through legislation, approved the transfer from the SLFRF account to various state transportation accounts. Each transportation account that received SLFRF funds was established in statute and is for a specific ?government service? purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Department of Treasury FAQ 3.2 states that ?Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.? We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. We disagree that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. The following table lists the accounts and the amounts received from SLFRF during fiscal year 2022. We know all expenditures in these accounts are for government services, and therefore are allowable costs for the program. Account Authority Amount transferred from Account 706 (CSLFRF) 1 Account 039 - Aeronautics Account RCW 82.42.090 $ 388,500.00 2 Account 081 - State Patrol Highway Account RCW 46.68.030 $ 6,179,000.00 3 Account 082 - Motorcycle Safety Education Account RCW 46.68.065 $ 9,000.00 4 Fund 099 - Puget Sound Capital Construction Account RCW 47.60.505 $ 1,446,000.00 5 Account 09H - Transportation Partnership Account RCW 46.68.290 $ 19,773,500.00 6 Account 102 - Rural Arterial Trust Account RCW 36.79.020 $ 1,546,000.00 7 Account 106 - Highway Safety Account RCW 46.68.060 $ 4,109,500.00 8 Account 108 - Motor Vehicle Account RCW 46.68.070 $ 49,708,000.00 9 Fund 109 - Puget Sound Ferry Operations Account RCW 47.60.530 $ 42,983,000.00 10 Fund 16J - State Route Number 520 Corridor Account RCW 47.56.875 $ 29,783,500.00 11 Account 17P - SR520 Civil Penalties Account RCW 47.56.876 $ 2,721,000.00 12 Account 144 - Transportation Improvement Account RCW 47.26.084 $ 7,922,000.00 13 Account 186 - County Arterial Preservation Acct RCW 46.68.090 $ 969,500.00 14 Account 20H - Connecting Washington Account RCW 46.68.395 $ 33,831,500.00 15 Account 215 - Special Category C Account RCW 46.68.090 $ 1,987,500.00 16 Account 218 - Multimodal Transportation Account RCW 47.66.070 $ 57,805,500.00 17 Account 511 - Tacoma Narrows Toll Bridge Account RCW 47.56.165 $ 7,853,500.00 18 Account 550 - Transportation 2003 Account RCW 46.68.280 $ 14,340,500.00 19 Account 595 - I-405 and SR-167 Express Toll Lanes Acct RCW 47.56.884 $ 16,446,500.00 20 Account 780 - School Zone Safety Account RCW 46.61.440 $ 196,500.00 $ 300,000,000.00 We requested that the auditors perform testing of the entire population of expenditures in the transportation accounts for compliance. Questioned costs, if any, could have been identified through relevant audit procedures. During multiple trainings offered by the U.S. Treasury, there has been communication that the grantor will be working with grant recipients through ongoing desk audits to ensure no questioned costs are required to be repaid. The Office will work with the legislature to ensure SLFRF funds can be tracked separately from other funds. Auditor?s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. Furthermore, that is the practice used by the State for all other federal programs. We appreciate that the Office will make efforts to work with the Legislature to ensure future SLFRF funds can be tracked separately from other funds. We reaffirm our finding and will follow-up on the Office?s corrective actions in the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (3) Records that identify adequately the source of the application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. Title U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 403, Factors affecting allowability of costs, states in part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
2022-018 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used only for allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Background The Coronavirus State and Local Fiscal Recovery Fund (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic or its negative economic effects. Washington has received approximately $4.4 billion of SLFRF money from the U.S. Department of the Treasury (Department). Federal law stipulates that states may use SLFRF funds to: ? Support public health expenditures, including COVID-19 prevention and mitigation efforts ? Address negative economic impacts caused by the public health emergency ? Replace lost public sector revenue ? Provide premium pay for essential workers ? Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department?s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant?s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than used the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that can be used to provide government services by a recipient. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculation or the standard allowance. Washington received the first half ($2.2 billion) of its total $4.4 billion SLFRF allocation in May of 2021. When received, the funds were accounted for in the state?s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 into various state transportation-related accounts. According to the Office, the purpose of these distributions was to compensate for revenue losses in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019 and to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation related accounts on the State?s fiscal year 2022 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls and did not comply with requirements related to the SLFRF revenue loss provision. While SLFRF funds are allowed to replace lost public sector revenues, the State was required to identify actual expenditures that were provided for government services. At the time of audit, the State had not identified such expenditures. Rather, the state asserted that all expenditures in the Transportation accounts receiving the SLFRF funds were appropriated for government services and, therefore, there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office does not believe federal requirements and the Department?s final rule required the State to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office?s position that all expenditures in the Transportation related accounts were for government services and, therefore, the state had sufficient expenditures to meet the grant requirement. During the audit, the Office contacted the Department to obtain guidance on the matter. The Office cited the Department?s FAQ Question 13.15, which states in part, ?recipients should not deviate from their established practices and policies regarding the incurrence of costs, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient?s own funds.? A Department representative acknowledged this FAQ and said the Department does not have additional specific requirements about how recipients should internally track their use of SLFRF funds used for revenue replacement. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify costs charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant?s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF, the Office did not comply with federal requirements. Therefore, we are questioning $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: ? Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the State?s fiscal year 2022 SEFA ? Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF and are adequately documented, while also documenting the details of this review ? Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office?s Response The Office does not concur with the audit finding. The state of Washington created a separate fund to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. The state, through legislation, approved the transfer from the SLFRF account to various state transportation accounts. Each transportation account that received SLFRF funds was established in statute and is for a specific ?government service? purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Department of Treasury FAQ 3.2 states that ?Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.? We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. We disagree that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. The following table lists the accounts and the amounts received from SLFRF during fiscal year 2022. We know all expenditures in these accounts are for government services, and therefore are allowable costs for the program. Account Authority Amount transferred from Account 706 (CSLFRF) 1 Account 039 - Aeronautics Account RCW 82.42.090 $ 388,500.00 2 Account 081 - State Patrol Highway Account RCW 46.68.030 $ 6,179,000.00 3 Account 082 - Motorcycle Safety Education Account RCW 46.68.065 $ 9,000.00 4 Fund 099 - Puget Sound Capital Construction Account RCW 47.60.505 $ 1,446,000.00 5 Account 09H - Transportation Partnership Account RCW 46.68.290 $ 19,773,500.00 6 Account 102 - Rural Arterial Trust Account RCW 36.79.020 $ 1,546,000.00 7 Account 106 - Highway Safety Account RCW 46.68.060 $ 4,109,500.00 8 Account 108 - Motor Vehicle Account RCW 46.68.070 $ 49,708,000.00 9 Fund 109 - Puget Sound Ferry Operations Account RCW 47.60.530 $ 42,983,000.00 10 Fund 16J - State Route Number 520 Corridor Account RCW 47.56.875 $ 29,783,500.00 11 Account 17P - SR520 Civil Penalties Account RCW 47.56.876 $ 2,721,000.00 12 Account 144 - Transportation Improvement Account RCW 47.26.084 $ 7,922,000.00 13 Account 186 - County Arterial Preservation Acct RCW 46.68.090 $ 969,500.00 14 Account 20H - Connecting Washington Account RCW 46.68.395 $ 33,831,500.00 15 Account 215 - Special Category C Account RCW 46.68.090 $ 1,987,500.00 16 Account 218 - Multimodal Transportation Account RCW 47.66.070 $ 57,805,500.00 17 Account 511 - Tacoma Narrows Toll Bridge Account RCW 47.56.165 $ 7,853,500.00 18 Account 550 - Transportation 2003 Account RCW 46.68.280 $ 14,340,500.00 19 Account 595 - I-405 and SR-167 Express Toll Lanes Acct RCW 47.56.884 $ 16,446,500.00 20 Account 780 - School Zone Safety Account RCW 46.61.440 $ 196,500.00 $ 300,000,000.00 We requested that the auditors perform testing of the entire population of expenditures in the transportation accounts for compliance. Questioned costs, if any, could have been identified through relevant audit procedures. During multiple trainings offered by the U.S. Treasury, there has been communication that the grantor will be working with grant recipients through ongoing desk audits to ensure no questioned costs are required to be repaid. The Office will work with the legislature to ensure SLFRF funds can be tracked separately from other funds. Auditor?s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. Furthermore, that is the practice used by the State for all other federal programs. We appreciate that the Office will make efforts to work with the Legislature to ensure future SLFRF funds can be tracked separately from other funds. We reaffirm our finding and will follow-up on the Office?s corrective actions in the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (3) Records that identify adequately the source of the application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. Title U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 403, Factors affecting allowability of costs, states in part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
2022-018 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used only for allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Background The Coronavirus State and Local Fiscal Recovery Fund (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic or its negative economic effects. Washington has received approximately $4.4 billion of SLFRF money from the U.S. Department of the Treasury (Department). Federal law stipulates that states may use SLFRF funds to: ? Support public health expenditures, including COVID-19 prevention and mitigation efforts ? Address negative economic impacts caused by the public health emergency ? Replace lost public sector revenue ? Provide premium pay for essential workers ? Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department?s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant?s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than used the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that can be used to provide government services by a recipient. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculation or the standard allowance. Washington received the first half ($2.2 billion) of its total $4.4 billion SLFRF allocation in May of 2021. When received, the funds were accounted for in the state?s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 into various state transportation-related accounts. According to the Office, the purpose of these distributions was to compensate for revenue losses in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019 and to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation related accounts on the State?s fiscal year 2022 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls and did not comply with requirements related to the SLFRF revenue loss provision. While SLFRF funds are allowed to replace lost public sector revenues, the State was required to identify actual expenditures that were provided for government services. At the time of audit, the State had not identified such expenditures. Rather, the state asserted that all expenditures in the Transportation accounts receiving the SLFRF funds were appropriated for government services and, therefore, there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office does not believe federal requirements and the Department?s final rule required the State to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office?s position that all expenditures in the Transportation related accounts were for government services and, therefore, the state had sufficient expenditures to meet the grant requirement. During the audit, the Office contacted the Department to obtain guidance on the matter. The Office cited the Department?s FAQ Question 13.15, which states in part, ?recipients should not deviate from their established practices and policies regarding the incurrence of costs, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient?s own funds.? A Department representative acknowledged this FAQ and said the Department does not have additional specific requirements about how recipients should internally track their use of SLFRF funds used for revenue replacement. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify costs charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant?s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF, the Office did not comply with federal requirements. Therefore, we are questioning $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: ? Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the State?s fiscal year 2022 SEFA ? Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF and are adequately documented, while also documenting the details of this review ? Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office?s Response The Office does not concur with the audit finding. The state of Washington created a separate fund to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. The state, through legislation, approved the transfer from the SLFRF account to various state transportation accounts. Each transportation account that received SLFRF funds was established in statute and is for a specific ?government service? purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Department of Treasury FAQ 3.2 states that ?Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.? We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. We disagree that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. The following table lists the accounts and the amounts received from SLFRF during fiscal year 2022. We know all expenditures in these accounts are for government services, and therefore are allowable costs for the program. Account Authority Amount transferred from Account 706 (CSLFRF) 1 Account 039 - Aeronautics Account RCW 82.42.090 $ 388,500.00 2 Account 081 - State Patrol Highway Account RCW 46.68.030 $ 6,179,000.00 3 Account 082 - Motorcycle Safety Education Account RCW 46.68.065 $ 9,000.00 4 Fund 099 - Puget Sound Capital Construction Account RCW 47.60.505 $ 1,446,000.00 5 Account 09H - Transportation Partnership Account RCW 46.68.290 $ 19,773,500.00 6 Account 102 - Rural Arterial Trust Account RCW 36.79.020 $ 1,546,000.00 7 Account 106 - Highway Safety Account RCW 46.68.060 $ 4,109,500.00 8 Account 108 - Motor Vehicle Account RCW 46.68.070 $ 49,708,000.00 9 Fund 109 - Puget Sound Ferry Operations Account RCW 47.60.530 $ 42,983,000.00 10 Fund 16J - State Route Number 520 Corridor Account RCW 47.56.875 $ 29,783,500.00 11 Account 17P - SR520 Civil Penalties Account RCW 47.56.876 $ 2,721,000.00 12 Account 144 - Transportation Improvement Account RCW 47.26.084 $ 7,922,000.00 13 Account 186 - County Arterial Preservation Acct RCW 46.68.090 $ 969,500.00 14 Account 20H - Connecting Washington Account RCW 46.68.395 $ 33,831,500.00 15 Account 215 - Special Category C Account RCW 46.68.090 $ 1,987,500.00 16 Account 218 - Multimodal Transportation Account RCW 47.66.070 $ 57,805,500.00 17 Account 511 - Tacoma Narrows Toll Bridge Account RCW 47.56.165 $ 7,853,500.00 18 Account 550 - Transportation 2003 Account RCW 46.68.280 $ 14,340,500.00 19 Account 595 - I-405 and SR-167 Express Toll Lanes Acct RCW 47.56.884 $ 16,446,500.00 20 Account 780 - School Zone Safety Account RCW 46.61.440 $ 196,500.00 $ 300,000,000.00 We requested that the auditors perform testing of the entire population of expenditures in the transportation accounts for compliance. Questioned costs, if any, could have been identified through relevant audit procedures. During multiple trainings offered by the U.S. Treasury, there has been communication that the grantor will be working with grant recipients through ongoing desk audits to ensure no questioned costs are required to be repaid. The Office will work with the legislature to ensure SLFRF funds can be tracked separately from other funds. Auditor?s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. Furthermore, that is the practice used by the State for all other federal programs. We appreciate that the Office will make efforts to work with the Legislature to ensure future SLFRF funds can be tracked separately from other funds. We reaffirm our finding and will follow-up on the Office?s corrective actions in the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (3) Records that identify adequately the source of the application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. Title U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 403, Factors affecting allowability of costs, states in part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
2022-018 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used only for allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Background The Coronavirus State and Local Fiscal Recovery Fund (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic or its negative economic effects. Washington has received approximately $4.4 billion of SLFRF money from the U.S. Department of the Treasury (Department). Federal law stipulates that states may use SLFRF funds to: ? Support public health expenditures, including COVID-19 prevention and mitigation efforts ? Address negative economic impacts caused by the public health emergency ? Replace lost public sector revenue ? Provide premium pay for essential workers ? Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department?s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant?s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than used the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that can be used to provide government services by a recipient. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculation or the standard allowance. Washington received the first half ($2.2 billion) of its total $4.4 billion SLFRF allocation in May of 2021. When received, the funds were accounted for in the state?s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 into various state transportation-related accounts. According to the Office, the purpose of these distributions was to compensate for revenue losses in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019 and to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation related accounts on the State?s fiscal year 2022 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls and did not comply with requirements related to the SLFRF revenue loss provision. While SLFRF funds are allowed to replace lost public sector revenues, the State was required to identify actual expenditures that were provided for government services. At the time of audit, the State had not identified such expenditures. Rather, the state asserted that all expenditures in the Transportation accounts receiving the SLFRF funds were appropriated for government services and, therefore, there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office does not believe federal requirements and the Department?s final rule required the State to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office?s position that all expenditures in the Transportation related accounts were for government services and, therefore, the state had sufficient expenditures to meet the grant requirement. During the audit, the Office contacted the Department to obtain guidance on the matter. The Office cited the Department?s FAQ Question 13.15, which states in part, ?recipients should not deviate from their established practices and policies regarding the incurrence of costs, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient?s own funds.? A Department representative acknowledged this FAQ and said the Department does not have additional specific requirements about how recipients should internally track their use of SLFRF funds used for revenue replacement. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify costs charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant?s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF, the Office did not comply with federal requirements. Therefore, we are questioning $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: ? Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the State?s fiscal year 2022 SEFA ? Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF and are adequately documented, while also documenting the details of this review ? Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office?s Response The Office does not concur with the audit finding. The state of Washington created a separate fund to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. The state, through legislation, approved the transfer from the SLFRF account to various state transportation accounts. Each transportation account that received SLFRF funds was established in statute and is for a specific ?government service? purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Department of Treasury FAQ 3.2 states that ?Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.? We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. We disagree that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. The following table lists the accounts and the amounts received from SLFRF during fiscal year 2022. We know all expenditures in these accounts are for government services, and therefore are allowable costs for the program. Account Authority Amount transferred from Account 706 (CSLFRF) 1 Account 039 - Aeronautics Account RCW 82.42.090 $ 388,500.00 2 Account 081 - State Patrol Highway Account RCW 46.68.030 $ 6,179,000.00 3 Account 082 - Motorcycle Safety Education Account RCW 46.68.065 $ 9,000.00 4 Fund 099 - Puget Sound Capital Construction Account RCW 47.60.505 $ 1,446,000.00 5 Account 09H - Transportation Partnership Account RCW 46.68.290 $ 19,773,500.00 6 Account 102 - Rural Arterial Trust Account RCW 36.79.020 $ 1,546,000.00 7 Account 106 - Highway Safety Account RCW 46.68.060 $ 4,109,500.00 8 Account 108 - Motor Vehicle Account RCW 46.68.070 $ 49,708,000.00 9 Fund 109 - Puget Sound Ferry Operations Account RCW 47.60.530 $ 42,983,000.00 10 Fund 16J - State Route Number 520 Corridor Account RCW 47.56.875 $ 29,783,500.00 11 Account 17P - SR520 Civil Penalties Account RCW 47.56.876 $ 2,721,000.00 12 Account 144 - Transportation Improvement Account RCW 47.26.084 $ 7,922,000.00 13 Account 186 - County Arterial Preservation Acct RCW 46.68.090 $ 969,500.00 14 Account 20H - Connecting Washington Account RCW 46.68.395 $ 33,831,500.00 15 Account 215 - Special Category C Account RCW 46.68.090 $ 1,987,500.00 16 Account 218 - Multimodal Transportation Account RCW 47.66.070 $ 57,805,500.00 17 Account 511 - Tacoma Narrows Toll Bridge Account RCW 47.56.165 $ 7,853,500.00 18 Account 550 - Transportation 2003 Account RCW 46.68.280 $ 14,340,500.00 19 Account 595 - I-405 and SR-167 Express Toll Lanes Acct RCW 47.56.884 $ 16,446,500.00 20 Account 780 - School Zone Safety Account RCW 46.61.440 $ 196,500.00 $ 300,000,000.00 We requested that the auditors perform testing of the entire population of expenditures in the transportation accounts for compliance. Questioned costs, if any, could have been identified through relevant audit procedures. During multiple trainings offered by the U.S. Treasury, there has been communication that the grantor will be working with grant recipients through ongoing desk audits to ensure no questioned costs are required to be repaid. The Office will work with the legislature to ensure SLFRF funds can be tracked separately from other funds. Auditor?s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. Furthermore, that is the practice used by the State for all other federal programs. We appreciate that the Office will make efforts to work with the Legislature to ensure future SLFRF funds can be tracked separately from other funds. We reaffirm our finding and will follow-up on the Office?s corrective actions in the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (3) Records that identify adequately the source of the application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. Title U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 403, Factors affecting allowability of costs, states in part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
2022-018 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used only for allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Background The Coronavirus State and Local Fiscal Recovery Fund (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic or its negative economic effects. Washington has received approximately $4.4 billion of SLFRF money from the U.S. Department of the Treasury (Department). Federal law stipulates that states may use SLFRF funds to: ? Support public health expenditures, including COVID-19 prevention and mitigation efforts ? Address negative economic impacts caused by the public health emergency ? Replace lost public sector revenue ? Provide premium pay for essential workers ? Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department?s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant?s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than used the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that can be used to provide government services by a recipient. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculation or the standard allowance. Washington received the first half ($2.2 billion) of its total $4.4 billion SLFRF allocation in May of 2021. When received, the funds were accounted for in the state?s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 into various state transportation-related accounts. According to the Office, the purpose of these distributions was to compensate for revenue losses in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019 and to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation related accounts on the State?s fiscal year 2022 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls and did not comply with requirements related to the SLFRF revenue loss provision. While SLFRF funds are allowed to replace lost public sector revenues, the State was required to identify actual expenditures that were provided for government services. At the time of audit, the State had not identified such expenditures. Rather, the state asserted that all expenditures in the Transportation accounts receiving the SLFRF funds were appropriated for government services and, therefore, there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office does not believe federal requirements and the Department?s final rule required the State to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office?s position that all expenditures in the Transportation related accounts were for government services and, therefore, the state had sufficient expenditures to meet the grant requirement. During the audit, the Office contacted the Department to obtain guidance on the matter. The Office cited the Department?s FAQ Question 13.15, which states in part, ?recipients should not deviate from their established practices and policies regarding the incurrence of costs, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient?s own funds.? A Department representative acknowledged this FAQ and said the Department does not have additional specific requirements about how recipients should internally track their use of SLFRF funds used for revenue replacement. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify costs charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant?s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF, the Office did not comply with federal requirements. Therefore, we are questioning $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: ? Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the State?s fiscal year 2022 SEFA ? Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF and are adequately documented, while also documenting the details of this review ? Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office?s Response The Office does not concur with the audit finding. The state of Washington created a separate fund to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. The state, through legislation, approved the transfer from the SLFRF account to various state transportation accounts. Each transportation account that received SLFRF funds was established in statute and is for a specific ?government service? purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Department of Treasury FAQ 3.2 states that ?Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.? We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. We disagree that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. The following table lists the accounts and the amounts received from SLFRF during fiscal year 2022. We know all expenditures in these accounts are for government services, and therefore are allowable costs for the program. Account Authority Amount transferred from Account 706 (CSLFRF) 1 Account 039 - Aeronautics Account RCW 82.42.090 $ 388,500.00 2 Account 081 - State Patrol Highway Account RCW 46.68.030 $ 6,179,000.00 3 Account 082 - Motorcycle Safety Education Account RCW 46.68.065 $ 9,000.00 4 Fund 099 - Puget Sound Capital Construction Account RCW 47.60.505 $ 1,446,000.00 5 Account 09H - Transportation Partnership Account RCW 46.68.290 $ 19,773,500.00 6 Account 102 - Rural Arterial Trust Account RCW 36.79.020 $ 1,546,000.00 7 Account 106 - Highway Safety Account RCW 46.68.060 $ 4,109,500.00 8 Account 108 - Motor Vehicle Account RCW 46.68.070 $ 49,708,000.00 9 Fund 109 - Puget Sound Ferry Operations Account RCW 47.60.530 $ 42,983,000.00 10 Fund 16J - State Route Number 520 Corridor Account RCW 47.56.875 $ 29,783,500.00 11 Account 17P - SR520 Civil Penalties Account RCW 47.56.876 $ 2,721,000.00 12 Account 144 - Transportation Improvement Account RCW 47.26.084 $ 7,922,000.00 13 Account 186 - County Arterial Preservation Acct RCW 46.68.090 $ 969,500.00 14 Account 20H - Connecting Washington Account RCW 46.68.395 $ 33,831,500.00 15 Account 215 - Special Category C Account RCW 46.68.090 $ 1,987,500.00 16 Account 218 - Multimodal Transportation Account RCW 47.66.070 $ 57,805,500.00 17 Account 511 - Tacoma Narrows Toll Bridge Account RCW 47.56.165 $ 7,853,500.00 18 Account 550 - Transportation 2003 Account RCW 46.68.280 $ 14,340,500.00 19 Account 595 - I-405 and SR-167 Express Toll Lanes Acct RCW 47.56.884 $ 16,446,500.00 20 Account 780 - School Zone Safety Account RCW 46.61.440 $ 196,500.00 $ 300,000,000.00 We requested that the auditors perform testing of the entire population of expenditures in the transportation accounts for compliance. Questioned costs, if any, could have been identified through relevant audit procedures. During multiple trainings offered by the U.S. Treasury, there has been communication that the grantor will be working with grant recipients through ongoing desk audits to ensure no questioned costs are required to be repaid. The Office will work with the legislature to ensure SLFRF funds can be tracked separately from other funds. Auditor?s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. Furthermore, that is the practice used by the State for all other federal programs. We appreciate that the Office will make efforts to work with the Legislature to ensure future SLFRF funds can be tracked separately from other funds. We reaffirm our finding and will follow-up on the Office?s corrective actions in the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (3) Records that identify adequately the source of the application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. Title U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 403, Factors affecting allowability of costs, states in part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
2022-018 The Office of Financial Management did not have adequate internal controls over and did not comply with requirements to ensure Coronavirus State and Local Fiscal Recovery Funds were used only for allowable activities. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: None Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $300,000,000 Background The Coronavirus State and Local Fiscal Recovery Fund (SLFRF) provides direct payments to states to respond to the COVID-19 pandemic or its negative economic effects. Washington has received approximately $4.4 billion of SLFRF money from the U.S. Department of the Treasury (Department). Federal law stipulates that states may use SLFRF funds to: ? Support public health expenditures, including COVID-19 prevention and mitigation efforts ? Address negative economic impacts caused by the public health emergency ? Replace lost public sector revenue ? Provide premium pay for essential workers ? Invest in water, sewer, and broadband infrastructure States may only use funds to cover costs incurred during the period of performance, which began on March 3, 2021, and ends on December 31, 2024. Under the Department?s final rule, SLFRF recipients could use funds to replace lost public sector revenue to provide government services. Recipients could elect a one-time standard allowance of $10 million to spend on the provision of government services during the grant?s period of performance. Alternatively, SLFRF recipients could calculate lost revenue based on a formula established by the Department to determine the amount of SLFRF funds that can be used for the provision of government services. Washington chose to calculate its lost revenue rather than used the standard allowance. The calculated amount of revenue loss determines the limit of SLFRF funds that can be used to provide government services by a recipient. For reporting purposes on the Schedule of Expenditures of Federal Awards (SEFA), the aggregate expenditures for all eligible use categories must be reported, not the result of the revenue loss calculation or the standard allowance. Washington received the first half ($2.2 billion) of its total $4.4 billion SLFRF allocation in May of 2021. When received, the funds were accounted for in the state?s Coronavirus State Fiscal Recovery Fund (Fund 706). Washington State Substitute Senate Bill 5165, section 408, included distributions totaling $600 million from Fund 706 into various state transportation-related accounts. According to the Office, the purpose of these distributions was to compensate for revenue losses in state fiscal years 2020 and 2021 relative to revenues collected in state fiscal year 2019 and to be used to maintain government services. The Office attributed $300 million of this as SLFRF expenditures for transportation related accounts on the State?s fiscal year 2022 SEFA. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls and did not comply with requirements related to the SLFRF revenue loss provision. While SLFRF funds are allowed to replace lost public sector revenues, the State was required to identify actual expenditures that were provided for government services. At the time of audit, the State had not identified such expenditures. Rather, the state asserted that all expenditures in the Transportation accounts receiving the SLFRF funds were appropriated for government services and, therefore, there was no doubt as to the allowability of the use of funds. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office does not believe federal requirements and the Department?s final rule required the State to separately identify actual expenditures that equal the amount of SLFRF expenditures claimed. It is the Office?s position that all expenditures in the Transportation related accounts were for government services and, therefore, the state had sufficient expenditures to meet the grant requirement. During the audit, the Office contacted the Department to obtain guidance on the matter. The Office cited the Department?s FAQ Question 13.15, which states in part, ?recipients should not deviate from their established practices and policies regarding the incurrence of costs, and that they should expend and account for the funds in accordance with laws and procedures for expending and accounting for the recipient?s own funds.? A Department representative acknowledged this FAQ and said the Department does not have additional specific requirements about how recipients should internally track their use of SLFRF funds used for revenue replacement. Effect of Condition and Questioned Costs Without a population of actual expenditures to audit, we could not design tests to verify costs charged to the grant were only for allowable activities, met cost principles, and were incurred during the grant?s period of performance. In our judgment, without identifying the specific expenditures charged to the SLFRF, the Office did not comply with federal requirements. Therefore, we are questioning $300 million in costs that were not supported by specifically identified expenditures for government services. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its federal expenditures. Recommendations We recommend the Office: ? Identify the actual government service expenditures that are the basis for the $300 million in SLFRF expenditures recorded on the State?s fiscal year 2022 SEFA ? Review the supporting documentation for the expenditures to ensure they meet compliance requirements for the SLFRF and are adequately documented, while also documenting the details of this review ? Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office?s Response The Office does not concur with the audit finding. The state of Washington created a separate fund to track the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. The state, through legislation, approved the transfer from the SLFRF account to various state transportation accounts. Each transportation account that received SLFRF funds was established in statute and is for a specific ?government service? purpose. Therefore, all payments from those accounts would be considered an actual government service expenditure. The U.S. Department of Treasury FAQ 3.2 states that ?Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.? We reaffirm that all expenditures from the transportation accounts that received the SLFRF funds were used to maintain government services. The State Administrative and Accounting Manual requires all state agencies to establish internal controls over payments for goods and services, including ensuring payments are lawful and for proper purposes, reviewing payments to ensure they are supported, as well as documenting the review of all payments. State agencies continued to follow their established internal controls to ensure expenditures from the transportation accounts were proper and allowable. Additionally, the Office followed consistent policies and practices regarding the incurrence of costs in the transportation accounts for both non-SLFRF and SLFRF funds, which complied with federal guidance. We disagree that the total amount of lost revenue transferred to the transportation accounts should be considered questioned costs because the auditors were unable to design tests for compliance. The following table lists the accounts and the amounts received from SLFRF during fiscal year 2022. We know all expenditures in these accounts are for government services, and therefore are allowable costs for the program. Account Authority Amount transferred from Account 706 (CSLFRF) 1 Account 039 - Aeronautics Account RCW 82.42.090 $ 388,500.00 2 Account 081 - State Patrol Highway Account RCW 46.68.030 $ 6,179,000.00 3 Account 082 - Motorcycle Safety Education Account RCW 46.68.065 $ 9,000.00 4 Fund 099 - Puget Sound Capital Construction Account RCW 47.60.505 $ 1,446,000.00 5 Account 09H - Transportation Partnership Account RCW 46.68.290 $ 19,773,500.00 6 Account 102 - Rural Arterial Trust Account RCW 36.79.020 $ 1,546,000.00 7 Account 106 - Highway Safety Account RCW 46.68.060 $ 4,109,500.00 8 Account 108 - Motor Vehicle Account RCW 46.68.070 $ 49,708,000.00 9 Fund 109 - Puget Sound Ferry Operations Account RCW 47.60.530 $ 42,983,000.00 10 Fund 16J - State Route Number 520 Corridor Account RCW 47.56.875 $ 29,783,500.00 11 Account 17P - SR520 Civil Penalties Account RCW 47.56.876 $ 2,721,000.00 12 Account 144 - Transportation Improvement Account RCW 47.26.084 $ 7,922,000.00 13 Account 186 - County Arterial Preservation Acct RCW 46.68.090 $ 969,500.00 14 Account 20H - Connecting Washington Account RCW 46.68.395 $ 33,831,500.00 15 Account 215 - Special Category C Account RCW 46.68.090 $ 1,987,500.00 16 Account 218 - Multimodal Transportation Account RCW 47.66.070 $ 57,805,500.00 17 Account 511 - Tacoma Narrows Toll Bridge Account RCW 47.56.165 $ 7,853,500.00 18 Account 550 - Transportation 2003 Account RCW 46.68.280 $ 14,340,500.00 19 Account 595 - I-405 and SR-167 Express Toll Lanes Acct RCW 47.56.884 $ 16,446,500.00 20 Account 780 - School Zone Safety Account RCW 46.61.440 $ 196,500.00 $ 300,000,000.00 We requested that the auditors perform testing of the entire population of expenditures in the transportation accounts for compliance. Questioned costs, if any, could have been identified through relevant audit procedures. During multiple trainings offered by the U.S. Treasury, there has been communication that the grantor will be working with grant recipients through ongoing desk audits to ensure no questioned costs are required to be repaid. The Office will work with the legislature to ensure SLFRF funds can be tracked separately from other funds. Auditor?s Remarks We believe that the federal requirement is that SLFRF recipients must separately identify actual expenditures that equal the amount of SLFRF expenditures stated on the Schedule of Expenditures of Federal Awards. Furthermore, that is the practice used by the State for all other federal programs. We appreciate that the Office will make efforts to work with the Legislature to ensure future SLFRF funds can be tracked separately from other funds. We reaffirm our finding and will follow-up on the Office?s corrective actions in the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 302, Financial management, states in part: The financial management system of each non-Federal entity must provide for the following (see also 200.334, 200.335, 200.336, and 200.337) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (3) Records that identify adequately the source of the application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. Title U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 403, Factors affecting allowability of costs, states in part: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.