Criteria: 2 CFR 200.431 includes the standards for documentation of fringe benefits. According to 2 CFR 200.431(c), the cost of fringe benefits are allowable, provided such benefits are granted under established written policies. Such benefits should be charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. Additionally, the National Institutes of Health (NIH) Grants Policy Statement section 7.5, Cost Transfers, Overruns, Accelerated and Delayed Expenditures, states that cost transfers to NIH grants that represent corrections of clerical or bookkeeping errors should be accomplished within 90 days of when the error was discovered. The transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official. Documentation must be maintained of cost transfers, pursuant to 2 CFR Part 200.337 and 45 CFR Part 75.364. The recipient should have systems in place to detect such errors within a reasonable time frame; untimely discovery of errors could be an indication of poor internal controls. Frequent errors in recording costs may indicate the need for accounting system improvements, enhanced internal controls, or both. If such errors occur, recipients are encouraged to evaluate the need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence. Lastly, 2 CFR 200.303 requires nonfederal entities to, among other things, 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. Conditions Found: We noted several conditions that existed due to cost transfers that occurred during the fiscal year. While performing procedures related to cost transfers, we noted the University had not followed their ‘Cost Transfer Policy’ which states “Cost transfers for current transactions must occur on a timely basis”. The University’s cost transfer policy defines timely as “occurring no later than two accounting periods after the month end of the date of the original transaction (no later than 90 days total)”. The University did not have an effective system of internal control in place to timely discover errors and get them corrected as we noted seventy-five of our one hundred nineteen transactions sampled cost transfers (totaling $246,869 positive and $66,004 negative) where the cost transfer date was between 91 and 1,002 days past the date the original expenditure was incurred (30 were between 91 and 180 days past, 15 were between 181 and 270 days past, and 30 were greater than 271 days past). While testing cost transfers and adjustments, we noted a transaction recorded to a grant that did not have supporting documentation resulting in the costs being unallowable to the grant: Additionally, we noted a transaction recorded to a grant that was recorded outside of the period of performance resulting in the costs being unallowable to the grant: During the fiscal year, positive cost transfers were approximately $2,815,865 and negative cost transfers were $1,792,678 during fiscal year 2023. While performing procedures related to fringe benefits, we noted one of twenty-five sampled grants (totaling $461,382) where transactions were originally recorded to an incorrect worktag. Management identified the error and a cost transfer was performed to move the fringe benefits to a federal research and development grant. However, the incorrect fringe rate was utilized as the University’s non-sponsored research fringe rate utilized in the original entry is a higher fringe rate than the federally approved fringe rate which resulted in an overcharge to the research and development grant during the University’s fiscal year ended June 30, 2023 for a total overstatement of $26 as noted below: Additionally, we noted fringe benefits were expensed during the University’s fiscal year ended June 30, 2023 for two of twenty-five sampled grants (totaling $461,382) where the labor transaction originated in previous fiscal years. The University booked an adjustment within Workday to correct the fringe benefit charges for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total fringe benefits charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,134 as noted below: Total fringe benefits during fiscal year 2023 totaled approximately $2,673,231.While performing procedures related to indirect costs, we noted indirect costs were expensed during the University’s fiscal year ended June 30, 2023 for two of forty sampled grants (totaling $1,817,264) where indirect costs were originally undercharged during the previous fiscal year. The University booked an adjustment within Workday to correct the indirect costs for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total indirect costs charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,677 as noted below: Total indirect costs during fiscal year 2023 totaled approximately $10,484,419. Questioned Cost: Known questioned costs of $26. Cause and Effect: In discussing these conditions with University management, they stated that during fiscal year 2023, they continued reconciliation procedures related to ‘grant level’ activity as a result of implementing the grants module of Workday during fiscal year 2021. Grant level activity allows them to track the specific budget provided by the individual grant as well as monitor other key compliance requirement aspects. The University continued to process an increased volume of cost transfers and experienced delays in posting necessary cost transfers for identified unallowable costs stemming from the reconciliation efforts. Repeat Finding: A similar finding was reported in prior year audit as finding number 2022-001. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendations: We recommend the University continue its corrective action plan and adjust internal controls as needed to prevent and detect noncompliance with and improve adherence to federal regulations.View of Responsible Official: The University concurs with the finding. As noted in our prior year response, the University continued to have cost transfers in fiscal year 2023 as it reconciled its grants. To limit cost transfers in the future, the following steps have been taken by the University: Additionally, the University is exploring additional functionality within our Workday grants management module to build in additional approvals, specifically for labor, on expense before the expenses are charged to the grant to reduce future cost transfers. In regards to the three transactions noted above (federal award number HHSN272201300021I; federal award number 5R21AG065526-02; and federal award number UH3HD096929), the erroneous charges have been refunded to the federal agency. As part of the University’s corrective action plan, during fiscal year 2023 the sponsored programs accounting team recalculated fringe and indirect costs on all federal grants to ensure the correct expense was recorded to each grant. During this reconciliation process cumulative award to date errors were identified and corrected in fiscal year 2023. The sponsored program accounting team continues to reconcile fringe and indirect costs on cost transfers at the grant level on a periodic basis to ensure accuracy.
Criteria: 2 CFR 200.431 includes the standards for documentation of fringe benefits. According to 2 CFR 200.431(c), the cost of fringe benefits are allowable, provided such benefits are granted under established written policies. Such benefits should be charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. Additionally, the National Institutes of Health (NIH) Grants Policy Statement section 7.5, Cost Transfers, Overruns, Accelerated and Delayed Expenditures, states that cost transfers to NIH grants that represent corrections of clerical or bookkeeping errors should be accomplished within 90 days of when the error was discovered. The transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official. Documentation must be maintained of cost transfers, pursuant to 2 CFR Part 200.337 and 45 CFR Part 75.364. The recipient should have systems in place to detect such errors within a reasonable time frame; untimely discovery of errors could be an indication of poor internal controls. Frequent errors in recording costs may indicate the need for accounting system improvements, enhanced internal controls, or both. If such errors occur, recipients are encouraged to evaluate the need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence. Lastly, 2 CFR 200.303 requires nonfederal entities to, among other things, 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. Conditions Found: We noted several conditions that existed due to cost transfers that occurred during the fiscal year. While performing procedures related to cost transfers, we noted the University had not followed their ‘Cost Transfer Policy’ which states “Cost transfers for current transactions must occur on a timely basis”. The University’s cost transfer policy defines timely as “occurring no later than two accounting periods after the month end of the date of the original transaction (no later than 90 days total)”. The University did not have an effective system of internal control in place to timely discover errors and get them corrected as we noted seventy-five of our one hundred nineteen transactions sampled cost transfers (totaling $246,869 positive and $66,004 negative) where the cost transfer date was between 91 and 1,002 days past the date the original expenditure was incurred (30 were between 91 and 180 days past, 15 were between 181 and 270 days past, and 30 were greater than 271 days past). While testing cost transfers and adjustments, we noted a transaction recorded to a grant that did not have supporting documentation resulting in the costs being unallowable to the grant: Additionally, we noted a transaction recorded to a grant that was recorded outside of the period of performance resulting in the costs being unallowable to the grant: During the fiscal year, positive cost transfers were approximately $2,815,865 and negative cost transfers were $1,792,678 during fiscal year 2023. While performing procedures related to fringe benefits, we noted one of twenty-five sampled grants (totaling $461,382) where transactions were originally recorded to an incorrect worktag. Management identified the error and a cost transfer was performed to move the fringe benefits to a federal research and development grant. However, the incorrect fringe rate was utilized as the University’s non-sponsored research fringe rate utilized in the original entry is a higher fringe rate than the federally approved fringe rate which resulted in an overcharge to the research and development grant during the University’s fiscal year ended June 30, 2023 for a total overstatement of $26 as noted below: Additionally, we noted fringe benefits were expensed during the University’s fiscal year ended June 30, 2023 for two of twenty-five sampled grants (totaling $461,382) where the labor transaction originated in previous fiscal years. The University booked an adjustment within Workday to correct the fringe benefit charges for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total fringe benefits charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,134 as noted below: Total fringe benefits during fiscal year 2023 totaled approximately $2,673,231.While performing procedures related to indirect costs, we noted indirect costs were expensed during the University’s fiscal year ended June 30, 2023 for two of forty sampled grants (totaling $1,817,264) where indirect costs were originally undercharged during the previous fiscal year. The University booked an adjustment within Workday to correct the indirect costs for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total indirect costs charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,677 as noted below: Total indirect costs during fiscal year 2023 totaled approximately $10,484,419. Questioned Cost: Known questioned costs of $26. Cause and Effect: In discussing these conditions with University management, they stated that during fiscal year 2023, they continued reconciliation procedures related to ‘grant level’ activity as a result of implementing the grants module of Workday during fiscal year 2021. Grant level activity allows them to track the specific budget provided by the individual grant as well as monitor other key compliance requirement aspects. The University continued to process an increased volume of cost transfers and experienced delays in posting necessary cost transfers for identified unallowable costs stemming from the reconciliation efforts. Repeat Finding: A similar finding was reported in prior year audit as finding number 2022-001. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendations: We recommend the University continue its corrective action plan and adjust internal controls as needed to prevent and detect noncompliance with and improve adherence to federal regulations.View of Responsible Official: The University concurs with the finding. As noted in our prior year response, the University continued to have cost transfers in fiscal year 2023 as it reconciled its grants. To limit cost transfers in the future, the following steps have been taken by the University: Additionally, the University is exploring additional functionality within our Workday grants management module to build in additional approvals, specifically for labor, on expense before the expenses are charged to the grant to reduce future cost transfers. In regards to the three transactions noted above (federal award number HHSN272201300021I; federal award number 5R21AG065526-02; and federal award number UH3HD096929), the erroneous charges have been refunded to the federal agency. As part of the University’s corrective action plan, during fiscal year 2023 the sponsored programs accounting team recalculated fringe and indirect costs on all federal grants to ensure the correct expense was recorded to each grant. During this reconciliation process cumulative award to date errors were identified and corrected in fiscal year 2023. The sponsored program accounting team continues to reconcile fringe and indirect costs on cost transfers at the grant level on a periodic basis to ensure accuracy.
Criteria: 2 CFR 200.431 includes the standards for documentation of fringe benefits. According to 2 CFR 200.431(c), the cost of fringe benefits are allowable, provided such benefits are granted under established written policies. Such benefits should be charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. Additionally, the National Institutes of Health (NIH) Grants Policy Statement section 7.5, Cost Transfers, Overruns, Accelerated and Delayed Expenditures, states that cost transfers to NIH grants that represent corrections of clerical or bookkeeping errors should be accomplished within 90 days of when the error was discovered. The transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official. Documentation must be maintained of cost transfers, pursuant to 2 CFR Part 200.337 and 45 CFR Part 75.364. The recipient should have systems in place to detect such errors within a reasonable time frame; untimely discovery of errors could be an indication of poor internal controls. Frequent errors in recording costs may indicate the need for accounting system improvements, enhanced internal controls, or both. If such errors occur, recipients are encouraged to evaluate the need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence. Lastly, 2 CFR 200.303 requires nonfederal entities to, among other things, 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. Conditions Found: We noted several conditions that existed due to cost transfers that occurred during the fiscal year. While performing procedures related to cost transfers, we noted the University had not followed their ‘Cost Transfer Policy’ which states “Cost transfers for current transactions must occur on a timely basis”. The University’s cost transfer policy defines timely as “occurring no later than two accounting periods after the month end of the date of the original transaction (no later than 90 days total)”. The University did not have an effective system of internal control in place to timely discover errors and get them corrected as we noted seventy-five of our one hundred nineteen transactions sampled cost transfers (totaling $246,869 positive and $66,004 negative) where the cost transfer date was between 91 and 1,002 days past the date the original expenditure was incurred (30 were between 91 and 180 days past, 15 were between 181 and 270 days past, and 30 were greater than 271 days past). While testing cost transfers and adjustments, we noted a transaction recorded to a grant that did not have supporting documentation resulting in the costs being unallowable to the grant: Additionally, we noted a transaction recorded to a grant that was recorded outside of the period of performance resulting in the costs being unallowable to the grant: During the fiscal year, positive cost transfers were approximately $2,815,865 and negative cost transfers were $1,792,678 during fiscal year 2023. While performing procedures related to fringe benefits, we noted one of twenty-five sampled grants (totaling $461,382) where transactions were originally recorded to an incorrect worktag. Management identified the error and a cost transfer was performed to move the fringe benefits to a federal research and development grant. However, the incorrect fringe rate was utilized as the University’s non-sponsored research fringe rate utilized in the original entry is a higher fringe rate than the federally approved fringe rate which resulted in an overcharge to the research and development grant during the University’s fiscal year ended June 30, 2023 for a total overstatement of $26 as noted below: Additionally, we noted fringe benefits were expensed during the University’s fiscal year ended June 30, 2023 for two of twenty-five sampled grants (totaling $461,382) where the labor transaction originated in previous fiscal years. The University booked an adjustment within Workday to correct the fringe benefit charges for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total fringe benefits charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,134 as noted below: Total fringe benefits during fiscal year 2023 totaled approximately $2,673,231.While performing procedures related to indirect costs, we noted indirect costs were expensed during the University’s fiscal year ended June 30, 2023 for two of forty sampled grants (totaling $1,817,264) where indirect costs were originally undercharged during the previous fiscal year. The University booked an adjustment within Workday to correct the indirect costs for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total indirect costs charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,677 as noted below: Total indirect costs during fiscal year 2023 totaled approximately $10,484,419. Questioned Cost: Known questioned costs of $26. Cause and Effect: In discussing these conditions with University management, they stated that during fiscal year 2023, they continued reconciliation procedures related to ‘grant level’ activity as a result of implementing the grants module of Workday during fiscal year 2021. Grant level activity allows them to track the specific budget provided by the individual grant as well as monitor other key compliance requirement aspects. The University continued to process an increased volume of cost transfers and experienced delays in posting necessary cost transfers for identified unallowable costs stemming from the reconciliation efforts. Repeat Finding: A similar finding was reported in prior year audit as finding number 2022-001. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendations: We recommend the University continue its corrective action plan and adjust internal controls as needed to prevent and detect noncompliance with and improve adherence to federal regulations.View of Responsible Official: The University concurs with the finding. As noted in our prior year response, the University continued to have cost transfers in fiscal year 2023 as it reconciled its grants. To limit cost transfers in the future, the following steps have been taken by the University: Additionally, the University is exploring additional functionality within our Workday grants management module to build in additional approvals, specifically for labor, on expense before the expenses are charged to the grant to reduce future cost transfers. In regards to the three transactions noted above (federal award number HHSN272201300021I; federal award number 5R21AG065526-02; and federal award number UH3HD096929), the erroneous charges have been refunded to the federal agency. As part of the University’s corrective action plan, during fiscal year 2023 the sponsored programs accounting team recalculated fringe and indirect costs on all federal grants to ensure the correct expense was recorded to each grant. During this reconciliation process cumulative award to date errors were identified and corrected in fiscal year 2023. The sponsored program accounting team continues to reconcile fringe and indirect costs on cost transfers at the grant level on a periodic basis to ensure accuracy.
Criteria: 2 CFR 200.431 includes the standards for documentation of fringe benefits. According to 2 CFR 200.431(c), the cost of fringe benefits are allowable, provided such benefits are granted under established written policies. Such benefits should be charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. Additionally, the National Institutes of Health (NIH) Grants Policy Statement section 7.5, Cost Transfers, Overruns, Accelerated and Delayed Expenditures, states that cost transfers to NIH grants that represent corrections of clerical or bookkeeping errors should be accomplished within 90 days of when the error was discovered. The transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official. Documentation must be maintained of cost transfers, pursuant to 2 CFR Part 200.337 and 45 CFR Part 75.364. The recipient should have systems in place to detect such errors within a reasonable time frame; untimely discovery of errors could be an indication of poor internal controls. Frequent errors in recording costs may indicate the need for accounting system improvements, enhanced internal controls, or both. If such errors occur, recipients are encouraged to evaluate the need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence. Lastly, 2 CFR 200.303 requires nonfederal entities to, among other things, 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. Conditions Found: We noted several conditions that existed due to cost transfers that occurred during the fiscal year. While performing procedures related to cost transfers, we noted the University had not followed their ‘Cost Transfer Policy’ which states “Cost transfers for current transactions must occur on a timely basis”. The University’s cost transfer policy defines timely as “occurring no later than two accounting periods after the month end of the date of the original transaction (no later than 90 days total)”. The University did not have an effective system of internal control in place to timely discover errors and get them corrected as we noted seventy-five of our one hundred nineteen transactions sampled cost transfers (totaling $246,869 positive and $66,004 negative) where the cost transfer date was between 91 and 1,002 days past the date the original expenditure was incurred (30 were between 91 and 180 days past, 15 were between 181 and 270 days past, and 30 were greater than 271 days past). While testing cost transfers and adjustments, we noted a transaction recorded to a grant that did not have supporting documentation resulting in the costs being unallowable to the grant: Additionally, we noted a transaction recorded to a grant that was recorded outside of the period of performance resulting in the costs being unallowable to the grant: During the fiscal year, positive cost transfers were approximately $2,815,865 and negative cost transfers were $1,792,678 during fiscal year 2023. While performing procedures related to fringe benefits, we noted one of twenty-five sampled grants (totaling $461,382) where transactions were originally recorded to an incorrect worktag. Management identified the error and a cost transfer was performed to move the fringe benefits to a federal research and development grant. However, the incorrect fringe rate was utilized as the University’s non-sponsored research fringe rate utilized in the original entry is a higher fringe rate than the federally approved fringe rate which resulted in an overcharge to the research and development grant during the University’s fiscal year ended June 30, 2023 for a total overstatement of $26 as noted below: Additionally, we noted fringe benefits were expensed during the University’s fiscal year ended June 30, 2023 for two of twenty-five sampled grants (totaling $461,382) where the labor transaction originated in previous fiscal years. The University booked an adjustment within Workday to correct the fringe benefit charges for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total fringe benefits charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,134 as noted below: Total fringe benefits during fiscal year 2023 totaled approximately $2,673,231.While performing procedures related to indirect costs, we noted indirect costs were expensed during the University’s fiscal year ended June 30, 2023 for two of forty sampled grants (totaling $1,817,264) where indirect costs were originally undercharged during the previous fiscal year. The University booked an adjustment within Workday to correct the indirect costs for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total indirect costs charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,677 as noted below: Total indirect costs during fiscal year 2023 totaled approximately $10,484,419. Questioned Cost: Known questioned costs of $26. Cause and Effect: In discussing these conditions with University management, they stated that during fiscal year 2023, they continued reconciliation procedures related to ‘grant level’ activity as a result of implementing the grants module of Workday during fiscal year 2021. Grant level activity allows them to track the specific budget provided by the individual grant as well as monitor other key compliance requirement aspects. The University continued to process an increased volume of cost transfers and experienced delays in posting necessary cost transfers for identified unallowable costs stemming from the reconciliation efforts. Repeat Finding: A similar finding was reported in prior year audit as finding number 2022-001. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendations: We recommend the University continue its corrective action plan and adjust internal controls as needed to prevent and detect noncompliance with and improve adherence to federal regulations.View of Responsible Official: The University concurs with the finding. As noted in our prior year response, the University continued to have cost transfers in fiscal year 2023 as it reconciled its grants. To limit cost transfers in the future, the following steps have been taken by the University: Additionally, the University is exploring additional functionality within our Workday grants management module to build in additional approvals, specifically for labor, on expense before the expenses are charged to the grant to reduce future cost transfers. In regards to the three transactions noted above (federal award number HHSN272201300021I; federal award number 5R21AG065526-02; and federal award number UH3HD096929), the erroneous charges have been refunded to the federal agency. As part of the University’s corrective action plan, during fiscal year 2023 the sponsored programs accounting team recalculated fringe and indirect costs on all federal grants to ensure the correct expense was recorded to each grant. During this reconciliation process cumulative award to date errors were identified and corrected in fiscal year 2023. The sponsored program accounting team continues to reconcile fringe and indirect costs on cost transfers at the grant level on a periodic basis to ensure accuracy.
Criteria: 2 CFR 200.431 includes the standards for documentation of fringe benefits. According to 2 CFR 200.431(c), the cost of fringe benefits are allowable, provided such benefits are granted under established written policies. Such benefits should be charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. Additionally, the National Institutes of Health (NIH) Grants Policy Statement section 7.5, Cost Transfers, Overruns, Accelerated and Delayed Expenditures, states that cost transfers to NIH grants that represent corrections of clerical or bookkeeping errors should be accomplished within 90 days of when the error was discovered. The transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official. Documentation must be maintained of cost transfers, pursuant to 2 CFR Part 200.337 and 45 CFR Part 75.364. The recipient should have systems in place to detect such errors within a reasonable time frame; untimely discovery of errors could be an indication of poor internal controls. Frequent errors in recording costs may indicate the need for accounting system improvements, enhanced internal controls, or both. If such errors occur, recipients are encouraged to evaluate the need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence. Lastly, 2 CFR 200.303 requires nonfederal entities to, among other things, 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. Conditions Found: We noted several conditions that existed due to cost transfers that occurred during the fiscal year. While performing procedures related to cost transfers, we noted the University had not followed their ‘Cost Transfer Policy’ which states “Cost transfers for current transactions must occur on a timely basis”. The University’s cost transfer policy defines timely as “occurring no later than two accounting periods after the month end of the date of the original transaction (no later than 90 days total)”. The University did not have an effective system of internal control in place to timely discover errors and get them corrected as we noted seventy-five of our one hundred nineteen transactions sampled cost transfers (totaling $246,869 positive and $66,004 negative) where the cost transfer date was between 91 and 1,002 days past the date the original expenditure was incurred (30 were between 91 and 180 days past, 15 were between 181 and 270 days past, and 30 were greater than 271 days past). While testing cost transfers and adjustments, we noted a transaction recorded to a grant that did not have supporting documentation resulting in the costs being unallowable to the grant: Additionally, we noted a transaction recorded to a grant that was recorded outside of the period of performance resulting in the costs being unallowable to the grant: During the fiscal year, positive cost transfers were approximately $2,815,865 and negative cost transfers were $1,792,678 during fiscal year 2023. While performing procedures related to fringe benefits, we noted one of twenty-five sampled grants (totaling $461,382) where transactions were originally recorded to an incorrect worktag. Management identified the error and a cost transfer was performed to move the fringe benefits to a federal research and development grant. However, the incorrect fringe rate was utilized as the University’s non-sponsored research fringe rate utilized in the original entry is a higher fringe rate than the federally approved fringe rate which resulted in an overcharge to the research and development grant during the University’s fiscal year ended June 30, 2023 for a total overstatement of $26 as noted below: Additionally, we noted fringe benefits were expensed during the University’s fiscal year ended June 30, 2023 for two of twenty-five sampled grants (totaling $461,382) where the labor transaction originated in previous fiscal years. The University booked an adjustment within Workday to correct the fringe benefit charges for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total fringe benefits charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,134 as noted below: Total fringe benefits during fiscal year 2023 totaled approximately $2,673,231.While performing procedures related to indirect costs, we noted indirect costs were expensed during the University’s fiscal year ended June 30, 2023 for two of forty sampled grants (totaling $1,817,264) where indirect costs were originally undercharged during the previous fiscal year. The University booked an adjustment within Workday to correct the indirect costs for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total indirect costs charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,677 as noted below: Total indirect costs during fiscal year 2023 totaled approximately $10,484,419. Questioned Cost: Known questioned costs of $26. Cause and Effect: In discussing these conditions with University management, they stated that during fiscal year 2023, they continued reconciliation procedures related to ‘grant level’ activity as a result of implementing the grants module of Workday during fiscal year 2021. Grant level activity allows them to track the specific budget provided by the individual grant as well as monitor other key compliance requirement aspects. The University continued to process an increased volume of cost transfers and experienced delays in posting necessary cost transfers for identified unallowable costs stemming from the reconciliation efforts. Repeat Finding: A similar finding was reported in prior year audit as finding number 2022-001. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendations: We recommend the University continue its corrective action plan and adjust internal controls as needed to prevent and detect noncompliance with and improve adherence to federal regulations.View of Responsible Official: The University concurs with the finding. As noted in our prior year response, the University continued to have cost transfers in fiscal year 2023 as it reconciled its grants. To limit cost transfers in the future, the following steps have been taken by the University: Additionally, the University is exploring additional functionality within our Workday grants management module to build in additional approvals, specifically for labor, on expense before the expenses are charged to the grant to reduce future cost transfers. In regards to the three transactions noted above (federal award number HHSN272201300021I; federal award number 5R21AG065526-02; and federal award number UH3HD096929), the erroneous charges have been refunded to the federal agency. As part of the University’s corrective action plan, during fiscal year 2023 the sponsored programs accounting team recalculated fringe and indirect costs on all federal grants to ensure the correct expense was recorded to each grant. During this reconciliation process cumulative award to date errors were identified and corrected in fiscal year 2023. The sponsored program accounting team continues to reconcile fringe and indirect costs on cost transfers at the grant level on a periodic basis to ensure accuracy.
Criteria: 2 CFR 200.431 includes the standards for documentation of fringe benefits. According to 2 CFR 200.431(c), the cost of fringe benefits are allowable, provided such benefits are granted under established written policies. Such benefits should be charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. Additionally, the National Institutes of Health (NIH) Grants Policy Statement section 7.5, Cost Transfers, Overruns, Accelerated and Delayed Expenditures, states that cost transfers to NIH grants that represent corrections of clerical or bookkeeping errors should be accomplished within 90 days of when the error was discovered. The transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official. Documentation must be maintained of cost transfers, pursuant to 2 CFR Part 200.337 and 45 CFR Part 75.364. The recipient should have systems in place to detect such errors within a reasonable time frame; untimely discovery of errors could be an indication of poor internal controls. Frequent errors in recording costs may indicate the need for accounting system improvements, enhanced internal controls, or both. If such errors occur, recipients are encouraged to evaluate the need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence. Lastly, 2 CFR 200.303 requires nonfederal entities to, among other things, 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. Conditions Found: We noted several conditions that existed due to cost transfers that occurred during the fiscal year. While performing procedures related to cost transfers, we noted the University had not followed their ‘Cost Transfer Policy’ which states “Cost transfers for current transactions must occur on a timely basis”. The University’s cost transfer policy defines timely as “occurring no later than two accounting periods after the month end of the date of the original transaction (no later than 90 days total)”. The University did not have an effective system of internal control in place to timely discover errors and get them corrected as we noted seventy-five of our one hundred nineteen transactions sampled cost transfers (totaling $246,869 positive and $66,004 negative) where the cost transfer date was between 91 and 1,002 days past the date the original expenditure was incurred (30 were between 91 and 180 days past, 15 were between 181 and 270 days past, and 30 were greater than 271 days past). While testing cost transfers and adjustments, we noted a transaction recorded to a grant that did not have supporting documentation resulting in the costs being unallowable to the grant: Additionally, we noted a transaction recorded to a grant that was recorded outside of the period of performance resulting in the costs being unallowable to the grant: During the fiscal year, positive cost transfers were approximately $2,815,865 and negative cost transfers were $1,792,678 during fiscal year 2023. While performing procedures related to fringe benefits, we noted one of twenty-five sampled grants (totaling $461,382) where transactions were originally recorded to an incorrect worktag. Management identified the error and a cost transfer was performed to move the fringe benefits to a federal research and development grant. However, the incorrect fringe rate was utilized as the University’s non-sponsored research fringe rate utilized in the original entry is a higher fringe rate than the federally approved fringe rate which resulted in an overcharge to the research and development grant during the University’s fiscal year ended June 30, 2023 for a total overstatement of $26 as noted below: Additionally, we noted fringe benefits were expensed during the University’s fiscal year ended June 30, 2023 for two of twenty-five sampled grants (totaling $461,382) where the labor transaction originated in previous fiscal years. The University booked an adjustment within Workday to correct the fringe benefit charges for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total fringe benefits charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,134 as noted below: Total fringe benefits during fiscal year 2023 totaled approximately $2,673,231.While performing procedures related to indirect costs, we noted indirect costs were expensed during the University’s fiscal year ended June 30, 2023 for two of forty sampled grants (totaling $1,817,264) where indirect costs were originally undercharged during the previous fiscal year. The University booked an adjustment within Workday to correct the indirect costs for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total indirect costs charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,677 as noted below: Total indirect costs during fiscal year 2023 totaled approximately $10,484,419. Questioned Cost: Known questioned costs of $26. Cause and Effect: In discussing these conditions with University management, they stated that during fiscal year 2023, they continued reconciliation procedures related to ‘grant level’ activity as a result of implementing the grants module of Workday during fiscal year 2021. Grant level activity allows them to track the specific budget provided by the individual grant as well as monitor other key compliance requirement aspects. The University continued to process an increased volume of cost transfers and experienced delays in posting necessary cost transfers for identified unallowable costs stemming from the reconciliation efforts. Repeat Finding: A similar finding was reported in prior year audit as finding number 2022-001. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendations: We recommend the University continue its corrective action plan and adjust internal controls as needed to prevent and detect noncompliance with and improve adherence to federal regulations.View of Responsible Official: The University concurs with the finding. As noted in our prior year response, the University continued to have cost transfers in fiscal year 2023 as it reconciled its grants. To limit cost transfers in the future, the following steps have been taken by the University: Additionally, the University is exploring additional functionality within our Workday grants management module to build in additional approvals, specifically for labor, on expense before the expenses are charged to the grant to reduce future cost transfers. In regards to the three transactions noted above (federal award number HHSN272201300021I; federal award number 5R21AG065526-02; and federal award number UH3HD096929), the erroneous charges have been refunded to the federal agency. As part of the University’s corrective action plan, during fiscal year 2023 the sponsored programs accounting team recalculated fringe and indirect costs on all federal grants to ensure the correct expense was recorded to each grant. During this reconciliation process cumulative award to date errors were identified and corrected in fiscal year 2023. The sponsored program accounting team continues to reconcile fringe and indirect costs on cost transfers at the grant level on a periodic basis to ensure accuracy.
Criteria: 2 CFR 200.431 includes the standards for documentation of fringe benefits. According to 2 CFR 200.431(c), the cost of fringe benefits are allowable, provided such benefits are granted under established written policies. Such benefits should be charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. Additionally, the National Institutes of Health (NIH) Grants Policy Statement section 7.5, Cost Transfers, Overruns, Accelerated and Delayed Expenditures, states that cost transfers to NIH grants that represent corrections of clerical or bookkeeping errors should be accomplished within 90 days of when the error was discovered. The transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official. Documentation must be maintained of cost transfers, pursuant to 2 CFR Part 200.337 and 45 CFR Part 75.364. The recipient should have systems in place to detect such errors within a reasonable time frame; untimely discovery of errors could be an indication of poor internal controls. Frequent errors in recording costs may indicate the need for accounting system improvements, enhanced internal controls, or both. If such errors occur, recipients are encouraged to evaluate the need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence. Lastly, 2 CFR 200.303 requires nonfederal entities to, among other things, 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. Conditions Found: We noted several conditions that existed due to cost transfers that occurred during the fiscal year. While performing procedures related to cost transfers, we noted the University had not followed their ‘Cost Transfer Policy’ which states “Cost transfers for current transactions must occur on a timely basis”. The University’s cost transfer policy defines timely as “occurring no later than two accounting periods after the month end of the date of the original transaction (no later than 90 days total)”. The University did not have an effective system of internal control in place to timely discover errors and get them corrected as we noted seventy-five of our one hundred nineteen transactions sampled cost transfers (totaling $246,869 positive and $66,004 negative) where the cost transfer date was between 91 and 1,002 days past the date the original expenditure was incurred (30 were between 91 and 180 days past, 15 were between 181 and 270 days past, and 30 were greater than 271 days past). While testing cost transfers and adjustments, we noted a transaction recorded to a grant that did not have supporting documentation resulting in the costs being unallowable to the grant: Additionally, we noted a transaction recorded to a grant that was recorded outside of the period of performance resulting in the costs being unallowable to the grant: During the fiscal year, positive cost transfers were approximately $2,815,865 and negative cost transfers were $1,792,678 during fiscal year 2023. While performing procedures related to fringe benefits, we noted one of twenty-five sampled grants (totaling $461,382) where transactions were originally recorded to an incorrect worktag. Management identified the error and a cost transfer was performed to move the fringe benefits to a federal research and development grant. However, the incorrect fringe rate was utilized as the University’s non-sponsored research fringe rate utilized in the original entry is a higher fringe rate than the federally approved fringe rate which resulted in an overcharge to the research and development grant during the University’s fiscal year ended June 30, 2023 for a total overstatement of $26 as noted below: Additionally, we noted fringe benefits were expensed during the University’s fiscal year ended June 30, 2023 for two of twenty-five sampled grants (totaling $461,382) where the labor transaction originated in previous fiscal years. The University booked an adjustment within Workday to correct the fringe benefit charges for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total fringe benefits charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,134 as noted below: Total fringe benefits during fiscal year 2023 totaled approximately $2,673,231.While performing procedures related to indirect costs, we noted indirect costs were expensed during the University’s fiscal year ended June 30, 2023 for two of forty sampled grants (totaling $1,817,264) where indirect costs were originally undercharged during the previous fiscal year. The University booked an adjustment within Workday to correct the indirect costs for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total indirect costs charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,677 as noted below: Total indirect costs during fiscal year 2023 totaled approximately $10,484,419. Questioned Cost: Known questioned costs of $26. Cause and Effect: In discussing these conditions with University management, they stated that during fiscal year 2023, they continued reconciliation procedures related to ‘grant level’ activity as a result of implementing the grants module of Workday during fiscal year 2021. Grant level activity allows them to track the specific budget provided by the individual grant as well as monitor other key compliance requirement aspects. The University continued to process an increased volume of cost transfers and experienced delays in posting necessary cost transfers for identified unallowable costs stemming from the reconciliation efforts. Repeat Finding: A similar finding was reported in prior year audit as finding number 2022-001. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendations: We recommend the University continue its corrective action plan and adjust internal controls as needed to prevent and detect noncompliance with and improve adherence to federal regulations.View of Responsible Official: The University concurs with the finding. As noted in our prior year response, the University continued to have cost transfers in fiscal year 2023 as it reconciled its grants. To limit cost transfers in the future, the following steps have been taken by the University: Additionally, the University is exploring additional functionality within our Workday grants management module to build in additional approvals, specifically for labor, on expense before the expenses are charged to the grant to reduce future cost transfers. In regards to the three transactions noted above (federal award number HHSN272201300021I; federal award number 5R21AG065526-02; and federal award number UH3HD096929), the erroneous charges have been refunded to the federal agency. As part of the University’s corrective action plan, during fiscal year 2023 the sponsored programs accounting team recalculated fringe and indirect costs on all federal grants to ensure the correct expense was recorded to each grant. During this reconciliation process cumulative award to date errors were identified and corrected in fiscal year 2023. The sponsored program accounting team continues to reconcile fringe and indirect costs on cost transfers at the grant level on a periodic basis to ensure accuracy.
Criteria: 2 CFR 200.431 includes the standards for documentation of fringe benefits. According to 2 CFR 200.431(c), the cost of fringe benefits are allowable, provided such benefits are granted under established written policies. Such benefits should be charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. Additionally, the National Institutes of Health (NIH) Grants Policy Statement section 7.5, Cost Transfers, Overruns, Accelerated and Delayed Expenditures, states that cost transfers to NIH grants that represent corrections of clerical or bookkeeping errors should be accomplished within 90 days of when the error was discovered. The transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official. Documentation must be maintained of cost transfers, pursuant to 2 CFR Part 200.337 and 45 CFR Part 75.364. The recipient should have systems in place to detect such errors within a reasonable time frame; untimely discovery of errors could be an indication of poor internal controls. Frequent errors in recording costs may indicate the need for accounting system improvements, enhanced internal controls, or both. If such errors occur, recipients are encouraged to evaluate the need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence. Lastly, 2 CFR 200.303 requires nonfederal entities to, among other things, 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. Conditions Found: We noted several conditions that existed due to cost transfers that occurred during the fiscal year. While performing procedures related to cost transfers, we noted the University had not followed their ‘Cost Transfer Policy’ which states “Cost transfers for current transactions must occur on a timely basis”. The University’s cost transfer policy defines timely as “occurring no later than two accounting periods after the month end of the date of the original transaction (no later than 90 days total)”. The University did not have an effective system of internal control in place to timely discover errors and get them corrected as we noted seventy-five of our one hundred nineteen transactions sampled cost transfers (totaling $246,869 positive and $66,004 negative) where the cost transfer date was between 91 and 1,002 days past the date the original expenditure was incurred (30 were between 91 and 180 days past, 15 were between 181 and 270 days past, and 30 were greater than 271 days past). While testing cost transfers and adjustments, we noted a transaction recorded to a grant that did not have supporting documentation resulting in the costs being unallowable to the grant: Additionally, we noted a transaction recorded to a grant that was recorded outside of the period of performance resulting in the costs being unallowable to the grant: During the fiscal year, positive cost transfers were approximately $2,815,865 and negative cost transfers were $1,792,678 during fiscal year 2023. While performing procedures related to fringe benefits, we noted one of twenty-five sampled grants (totaling $461,382) where transactions were originally recorded to an incorrect worktag. Management identified the error and a cost transfer was performed to move the fringe benefits to a federal research and development grant. However, the incorrect fringe rate was utilized as the University’s non-sponsored research fringe rate utilized in the original entry is a higher fringe rate than the federally approved fringe rate which resulted in an overcharge to the research and development grant during the University’s fiscal year ended June 30, 2023 for a total overstatement of $26 as noted below: Additionally, we noted fringe benefits were expensed during the University’s fiscal year ended June 30, 2023 for two of twenty-five sampled grants (totaling $461,382) where the labor transaction originated in previous fiscal years. The University booked an adjustment within Workday to correct the fringe benefit charges for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total fringe benefits charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,134 as noted below: Total fringe benefits during fiscal year 2023 totaled approximately $2,673,231.While performing procedures related to indirect costs, we noted indirect costs were expensed during the University’s fiscal year ended June 30, 2023 for two of forty sampled grants (totaling $1,817,264) where indirect costs were originally undercharged during the previous fiscal year. The University booked an adjustment within Workday to correct the indirect costs for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total indirect costs charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,677 as noted below: Total indirect costs during fiscal year 2023 totaled approximately $10,484,419. Questioned Cost: Known questioned costs of $26. Cause and Effect: In discussing these conditions with University management, they stated that during fiscal year 2023, they continued reconciliation procedures related to ‘grant level’ activity as a result of implementing the grants module of Workday during fiscal year 2021. Grant level activity allows them to track the specific budget provided by the individual grant as well as monitor other key compliance requirement aspects. The University continued to process an increased volume of cost transfers and experienced delays in posting necessary cost transfers for identified unallowable costs stemming from the reconciliation efforts. Repeat Finding: A similar finding was reported in prior year audit as finding number 2022-001. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendations: We recommend the University continue its corrective action plan and adjust internal controls as needed to prevent and detect noncompliance with and improve adherence to federal regulations.View of Responsible Official: The University concurs with the finding. As noted in our prior year response, the University continued to have cost transfers in fiscal year 2023 as it reconciled its grants. To limit cost transfers in the future, the following steps have been taken by the University: Additionally, the University is exploring additional functionality within our Workday grants management module to build in additional approvals, specifically for labor, on expense before the expenses are charged to the grant to reduce future cost transfers. In regards to the three transactions noted above (federal award number HHSN272201300021I; federal award number 5R21AG065526-02; and federal award number UH3HD096929), the erroneous charges have been refunded to the federal agency. As part of the University’s corrective action plan, during fiscal year 2023 the sponsored programs accounting team recalculated fringe and indirect costs on all federal grants to ensure the correct expense was recorded to each grant. During this reconciliation process cumulative award to date errors were identified and corrected in fiscal year 2023. The sponsored program accounting team continues to reconcile fringe and indirect costs on cost transfers at the grant level on a periodic basis to ensure accuracy.
Criteria: 2 CFR 200.431 includes the standards for documentation of fringe benefits. According to 2 CFR 200.431(c), the cost of fringe benefits are allowable, provided such benefits are granted under established written policies. Such benefits should be charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. Additionally, the National Institutes of Health (NIH) Grants Policy Statement section 7.5, Cost Transfers, Overruns, Accelerated and Delayed Expenditures, states that cost transfers to NIH grants that represent corrections of clerical or bookkeeping errors should be accomplished within 90 days of when the error was discovered. The transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official. Documentation must be maintained of cost transfers, pursuant to 2 CFR Part 200.337 and 45 CFR Part 75.364. The recipient should have systems in place to detect such errors within a reasonable time frame; untimely discovery of errors could be an indication of poor internal controls. Frequent errors in recording costs may indicate the need for accounting system improvements, enhanced internal controls, or both. If such errors occur, recipients are encouraged to evaluate the need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence. Lastly, 2 CFR 200.303 requires nonfederal entities to, among other things, 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. Conditions Found: We noted several conditions that existed due to cost transfers that occurred during the fiscal year. While performing procedures related to cost transfers, we noted the University had not followed their ‘Cost Transfer Policy’ which states “Cost transfers for current transactions must occur on a timely basis”. The University’s cost transfer policy defines timely as “occurring no later than two accounting periods after the month end of the date of the original transaction (no later than 90 days total)”. The University did not have an effective system of internal control in place to timely discover errors and get them corrected as we noted seventy-five of our one hundred nineteen transactions sampled cost transfers (totaling $246,869 positive and $66,004 negative) where the cost transfer date was between 91 and 1,002 days past the date the original expenditure was incurred (30 were between 91 and 180 days past, 15 were between 181 and 270 days past, and 30 were greater than 271 days past). While testing cost transfers and adjustments, we noted a transaction recorded to a grant that did not have supporting documentation resulting in the costs being unallowable to the grant: Additionally, we noted a transaction recorded to a grant that was recorded outside of the period of performance resulting in the costs being unallowable to the grant: During the fiscal year, positive cost transfers were approximately $2,815,865 and negative cost transfers were $1,792,678 during fiscal year 2023. While performing procedures related to fringe benefits, we noted one of twenty-five sampled grants (totaling $461,382) where transactions were originally recorded to an incorrect worktag. Management identified the error and a cost transfer was performed to move the fringe benefits to a federal research and development grant. However, the incorrect fringe rate was utilized as the University’s non-sponsored research fringe rate utilized in the original entry is a higher fringe rate than the federally approved fringe rate which resulted in an overcharge to the research and development grant during the University’s fiscal year ended June 30, 2023 for a total overstatement of $26 as noted below: Additionally, we noted fringe benefits were expensed during the University’s fiscal year ended June 30, 2023 for two of twenty-five sampled grants (totaling $461,382) where the labor transaction originated in previous fiscal years. The University booked an adjustment within Workday to correct the fringe benefit charges for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total fringe benefits charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,134 as noted below: Total fringe benefits during fiscal year 2023 totaled approximately $2,673,231.While performing procedures related to indirect costs, we noted indirect costs were expensed during the University’s fiscal year ended June 30, 2023 for two of forty sampled grants (totaling $1,817,264) where indirect costs were originally undercharged during the previous fiscal year. The University booked an adjustment within Workday to correct the indirect costs for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total indirect costs charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,677 as noted below: Total indirect costs during fiscal year 2023 totaled approximately $10,484,419. Questioned Cost: Known questioned costs of $26. Cause and Effect: In discussing these conditions with University management, they stated that during fiscal year 2023, they continued reconciliation procedures related to ‘grant level’ activity as a result of implementing the grants module of Workday during fiscal year 2021. Grant level activity allows them to track the specific budget provided by the individual grant as well as monitor other key compliance requirement aspects. The University continued to process an increased volume of cost transfers and experienced delays in posting necessary cost transfers for identified unallowable costs stemming from the reconciliation efforts. Repeat Finding: A similar finding was reported in prior year audit as finding number 2022-001. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendations: We recommend the University continue its corrective action plan and adjust internal controls as needed to prevent and detect noncompliance with and improve adherence to federal regulations.View of Responsible Official: The University concurs with the finding. As noted in our prior year response, the University continued to have cost transfers in fiscal year 2023 as it reconciled its grants. To limit cost transfers in the future, the following steps have been taken by the University: Additionally, the University is exploring additional functionality within our Workday grants management module to build in additional approvals, specifically for labor, on expense before the expenses are charged to the grant to reduce future cost transfers. In regards to the three transactions noted above (federal award number HHSN272201300021I; federal award number 5R21AG065526-02; and federal award number UH3HD096929), the erroneous charges have been refunded to the federal agency. As part of the University’s corrective action plan, during fiscal year 2023 the sponsored programs accounting team recalculated fringe and indirect costs on all federal grants to ensure the correct expense was recorded to each grant. During this reconciliation process cumulative award to date errors were identified and corrected in fiscal year 2023. The sponsored program accounting team continues to reconcile fringe and indirect costs on cost transfers at the grant level on a periodic basis to ensure accuracy.
Criteria: 2 CFR 200.431 includes the standards for documentation of fringe benefits. According to 2 CFR 200.431(c), the cost of fringe benefits are allowable, provided such benefits are granted under established written policies. Such benefits should be charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. Additionally, the National Institutes of Health (NIH) Grants Policy Statement section 7.5, Cost Transfers, Overruns, Accelerated and Delayed Expenditures, states that cost transfers to NIH grants that represent corrections of clerical or bookkeeping errors should be accomplished within 90 days of when the error was discovered. The transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official. Documentation must be maintained of cost transfers, pursuant to 2 CFR Part 200.337 and 45 CFR Part 75.364. The recipient should have systems in place to detect such errors within a reasonable time frame; untimely discovery of errors could be an indication of poor internal controls. Frequent errors in recording costs may indicate the need for accounting system improvements, enhanced internal controls, or both. If such errors occur, recipients are encouraged to evaluate the need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence. Lastly, 2 CFR 200.303 requires nonfederal entities to, among other things, 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. Conditions Found: We noted several conditions that existed due to cost transfers that occurred during the fiscal year. While performing procedures related to cost transfers, we noted the University had not followed their ‘Cost Transfer Policy’ which states “Cost transfers for current transactions must occur on a timely basis”. The University’s cost transfer policy defines timely as “occurring no later than two accounting periods after the month end of the date of the original transaction (no later than 90 days total)”. The University did not have an effective system of internal control in place to timely discover errors and get them corrected as we noted seventy-five of our one hundred nineteen transactions sampled cost transfers (totaling $246,869 positive and $66,004 negative) where the cost transfer date was between 91 and 1,002 days past the date the original expenditure was incurred (30 were between 91 and 180 days past, 15 were between 181 and 270 days past, and 30 were greater than 271 days past). While testing cost transfers and adjustments, we noted a transaction recorded to a grant that did not have supporting documentation resulting in the costs being unallowable to the grant: Additionally, we noted a transaction recorded to a grant that was recorded outside of the period of performance resulting in the costs being unallowable to the grant: During the fiscal year, positive cost transfers were approximately $2,815,865 and negative cost transfers were $1,792,678 during fiscal year 2023. While performing procedures related to fringe benefits, we noted one of twenty-five sampled grants (totaling $461,382) where transactions were originally recorded to an incorrect worktag. Management identified the error and a cost transfer was performed to move the fringe benefits to a federal research and development grant. However, the incorrect fringe rate was utilized as the University’s non-sponsored research fringe rate utilized in the original entry is a higher fringe rate than the federally approved fringe rate which resulted in an overcharge to the research and development grant during the University’s fiscal year ended June 30, 2023 for a total overstatement of $26 as noted below: Additionally, we noted fringe benefits were expensed during the University’s fiscal year ended June 30, 2023 for two of twenty-five sampled grants (totaling $461,382) where the labor transaction originated in previous fiscal years. The University booked an adjustment within Workday to correct the fringe benefit charges for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total fringe benefits charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,134 as noted below: Total fringe benefits during fiscal year 2023 totaled approximately $2,673,231.While performing procedures related to indirect costs, we noted indirect costs were expensed during the University’s fiscal year ended June 30, 2023 for two of forty sampled grants (totaling $1,817,264) where indirect costs were originally undercharged during the previous fiscal year. The University booked an adjustment within Workday to correct the indirect costs for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total indirect costs charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,677 as noted below: Total indirect costs during fiscal year 2023 totaled approximately $10,484,419. Questioned Cost: Known questioned costs of $26. Cause and Effect: In discussing these conditions with University management, they stated that during fiscal year 2023, they continued reconciliation procedures related to ‘grant level’ activity as a result of implementing the grants module of Workday during fiscal year 2021. Grant level activity allows them to track the specific budget provided by the individual grant as well as monitor other key compliance requirement aspects. The University continued to process an increased volume of cost transfers and experienced delays in posting necessary cost transfers for identified unallowable costs stemming from the reconciliation efforts. Repeat Finding: A similar finding was reported in prior year audit as finding number 2022-001. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendations: We recommend the University continue its corrective action plan and adjust internal controls as needed to prevent and detect noncompliance with and improve adherence to federal regulations.View of Responsible Official: The University concurs with the finding. As noted in our prior year response, the University continued to have cost transfers in fiscal year 2023 as it reconciled its grants. To limit cost transfers in the future, the following steps have been taken by the University: Additionally, the University is exploring additional functionality within our Workday grants management module to build in additional approvals, specifically for labor, on expense before the expenses are charged to the grant to reduce future cost transfers. In regards to the three transactions noted above (federal award number HHSN272201300021I; federal award number 5R21AG065526-02; and federal award number UH3HD096929), the erroneous charges have been refunded to the federal agency. As part of the University’s corrective action plan, during fiscal year 2023 the sponsored programs accounting team recalculated fringe and indirect costs on all federal grants to ensure the correct expense was recorded to each grant. During this reconciliation process cumulative award to date errors were identified and corrected in fiscal year 2023. The sponsored program accounting team continues to reconcile fringe and indirect costs on cost transfers at the grant level on a periodic basis to ensure accuracy.
Criteria: 2 CFR 200.431 includes the standards for documentation of fringe benefits. According to 2 CFR 200.431(c), the cost of fringe benefits are allowable, provided such benefits are granted under established written policies. Such benefits should be charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. Additionally, the National Institutes of Health (NIH) Grants Policy Statement section 7.5, Cost Transfers, Overruns, Accelerated and Delayed Expenditures, states that cost transfers to NIH grants that represent corrections of clerical or bookkeeping errors should be accomplished within 90 days of when the error was discovered. The transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official. Documentation must be maintained of cost transfers, pursuant to 2 CFR Part 200.337 and 45 CFR Part 75.364. The recipient should have systems in place to detect such errors within a reasonable time frame; untimely discovery of errors could be an indication of poor internal controls. Frequent errors in recording costs may indicate the need for accounting system improvements, enhanced internal controls, or both. If such errors occur, recipients are encouraged to evaluate the need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence. Lastly, 2 CFR 200.303 requires nonfederal entities to, among other things, 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. Conditions Found: We noted several conditions that existed due to cost transfers that occurred during the fiscal year. While performing procedures related to cost transfers, we noted the University had not followed their ‘Cost Transfer Policy’ which states “Cost transfers for current transactions must occur on a timely basis”. The University’s cost transfer policy defines timely as “occurring no later than two accounting periods after the month end of the date of the original transaction (no later than 90 days total)”. The University did not have an effective system of internal control in place to timely discover errors and get them corrected as we noted seventy-five of our one hundred nineteen transactions sampled cost transfers (totaling $246,869 positive and $66,004 negative) where the cost transfer date was between 91 and 1,002 days past the date the original expenditure was incurred (30 were between 91 and 180 days past, 15 were between 181 and 270 days past, and 30 were greater than 271 days past). While testing cost transfers and adjustments, we noted a transaction recorded to a grant that did not have supporting documentation resulting in the costs being unallowable to the grant: Additionally, we noted a transaction recorded to a grant that was recorded outside of the period of performance resulting in the costs being unallowable to the grant: During the fiscal year, positive cost transfers were approximately $2,815,865 and negative cost transfers were $1,792,678 during fiscal year 2023. While performing procedures related to fringe benefits, we noted one of twenty-five sampled grants (totaling $461,382) where transactions were originally recorded to an incorrect worktag. Management identified the error and a cost transfer was performed to move the fringe benefits to a federal research and development grant. However, the incorrect fringe rate was utilized as the University’s non-sponsored research fringe rate utilized in the original entry is a higher fringe rate than the federally approved fringe rate which resulted in an overcharge to the research and development grant during the University’s fiscal year ended June 30, 2023 for a total overstatement of $26 as noted below: Additionally, we noted fringe benefits were expensed during the University’s fiscal year ended June 30, 2023 for two of twenty-five sampled grants (totaling $461,382) where the labor transaction originated in previous fiscal years. The University booked an adjustment within Workday to correct the fringe benefit charges for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total fringe benefits charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,134 as noted below: Total fringe benefits during fiscal year 2023 totaled approximately $2,673,231.While performing procedures related to indirect costs, we noted indirect costs were expensed during the University’s fiscal year ended June 30, 2023 for two of forty sampled grants (totaling $1,817,264) where indirect costs were originally undercharged during the previous fiscal year. The University booked an adjustment within Workday to correct the indirect costs for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total indirect costs charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,677 as noted below: Total indirect costs during fiscal year 2023 totaled approximately $10,484,419. Questioned Cost: Known questioned costs of $26. Cause and Effect: In discussing these conditions with University management, they stated that during fiscal year 2023, they continued reconciliation procedures related to ‘grant level’ activity as a result of implementing the grants module of Workday during fiscal year 2021. Grant level activity allows them to track the specific budget provided by the individual grant as well as monitor other key compliance requirement aspects. The University continued to process an increased volume of cost transfers and experienced delays in posting necessary cost transfers for identified unallowable costs stemming from the reconciliation efforts. Repeat Finding: A similar finding was reported in prior year audit as finding number 2022-001. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendations: We recommend the University continue its corrective action plan and adjust internal controls as needed to prevent and detect noncompliance with and improve adherence to federal regulations.View of Responsible Official: The University concurs with the finding. As noted in our prior year response, the University continued to have cost transfers in fiscal year 2023 as it reconciled its grants. To limit cost transfers in the future, the following steps have been taken by the University: Additionally, the University is exploring additional functionality within our Workday grants management module to build in additional approvals, specifically for labor, on expense before the expenses are charged to the grant to reduce future cost transfers. In regards to the three transactions noted above (federal award number HHSN272201300021I; federal award number 5R21AG065526-02; and federal award number UH3HD096929), the erroneous charges have been refunded to the federal agency. As part of the University’s corrective action plan, during fiscal year 2023 the sponsored programs accounting team recalculated fringe and indirect costs on all federal grants to ensure the correct expense was recorded to each grant. During this reconciliation process cumulative award to date errors were identified and corrected in fiscal year 2023. The sponsored program accounting team continues to reconcile fringe and indirect costs on cost transfers at the grant level on a periodic basis to ensure accuracy.
Criteria: 2 CFR 200.431 includes the standards for documentation of fringe benefits. According to 2 CFR 200.431(c), the cost of fringe benefits are allowable, provided such benefits are granted under established written policies. Such benefits should be charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. Additionally, the National Institutes of Health (NIH) Grants Policy Statement section 7.5, Cost Transfers, Overruns, Accelerated and Delayed Expenditures, states that cost transfers to NIH grants that represent corrections of clerical or bookkeeping errors should be accomplished within 90 days of when the error was discovered. The transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official. Documentation must be maintained of cost transfers, pursuant to 2 CFR Part 200.337 and 45 CFR Part 75.364. The recipient should have systems in place to detect such errors within a reasonable time frame; untimely discovery of errors could be an indication of poor internal controls. Frequent errors in recording costs may indicate the need for accounting system improvements, enhanced internal controls, or both. If such errors occur, recipients are encouraged to evaluate the need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence. Lastly, 2 CFR 200.303 requires nonfederal entities to, among other things, 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. Conditions Found: We noted several conditions that existed due to cost transfers that occurred during the fiscal year. While performing procedures related to cost transfers, we noted the University had not followed their ‘Cost Transfer Policy’ which states “Cost transfers for current transactions must occur on a timely basis”. The University’s cost transfer policy defines timely as “occurring no later than two accounting periods after the month end of the date of the original transaction (no later than 90 days total)”. The University did not have an effective system of internal control in place to timely discover errors and get them corrected as we noted seventy-five of our one hundred nineteen transactions sampled cost transfers (totaling $246,869 positive and $66,004 negative) where the cost transfer date was between 91 and 1,002 days past the date the original expenditure was incurred (30 were between 91 and 180 days past, 15 were between 181 and 270 days past, and 30 were greater than 271 days past). While testing cost transfers and adjustments, we noted a transaction recorded to a grant that did not have supporting documentation resulting in the costs being unallowable to the grant: Additionally, we noted a transaction recorded to a grant that was recorded outside of the period of performance resulting in the costs being unallowable to the grant: During the fiscal year, positive cost transfers were approximately $2,815,865 and negative cost transfers were $1,792,678 during fiscal year 2023. While performing procedures related to fringe benefits, we noted one of twenty-five sampled grants (totaling $461,382) where transactions were originally recorded to an incorrect worktag. Management identified the error and a cost transfer was performed to move the fringe benefits to a federal research and development grant. However, the incorrect fringe rate was utilized as the University’s non-sponsored research fringe rate utilized in the original entry is a higher fringe rate than the federally approved fringe rate which resulted in an overcharge to the research and development grant during the University’s fiscal year ended June 30, 2023 for a total overstatement of $26 as noted below: Additionally, we noted fringe benefits were expensed during the University’s fiscal year ended June 30, 2023 for two of twenty-five sampled grants (totaling $461,382) where the labor transaction originated in previous fiscal years. The University booked an adjustment within Workday to correct the fringe benefit charges for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total fringe benefits charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,134 as noted below: Total fringe benefits during fiscal year 2023 totaled approximately $2,673,231.While performing procedures related to indirect costs, we noted indirect costs were expensed during the University’s fiscal year ended June 30, 2023 for two of forty sampled grants (totaling $1,817,264) where indirect costs were originally undercharged during the previous fiscal year. The University booked an adjustment within Workday to correct the indirect costs for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total indirect costs charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,677 as noted below: Total indirect costs during fiscal year 2023 totaled approximately $10,484,419. Questioned Cost: Known questioned costs of $26. Cause and Effect: In discussing these conditions with University management, they stated that during fiscal year 2023, they continued reconciliation procedures related to ‘grant level’ activity as a result of implementing the grants module of Workday during fiscal year 2021. Grant level activity allows them to track the specific budget provided by the individual grant as well as monitor other key compliance requirement aspects. The University continued to process an increased volume of cost transfers and experienced delays in posting necessary cost transfers for identified unallowable costs stemming from the reconciliation efforts. Repeat Finding: A similar finding was reported in prior year audit as finding number 2022-001. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendations: We recommend the University continue its corrective action plan and adjust internal controls as needed to prevent and detect noncompliance with and improve adherence to federal regulations.View of Responsible Official: The University concurs with the finding. As noted in our prior year response, the University continued to have cost transfers in fiscal year 2023 as it reconciled its grants. To limit cost transfers in the future, the following steps have been taken by the University: Additionally, the University is exploring additional functionality within our Workday grants management module to build in additional approvals, specifically for labor, on expense before the expenses are charged to the grant to reduce future cost transfers. In regards to the three transactions noted above (federal award number HHSN272201300021I; federal award number 5R21AG065526-02; and federal award number UH3HD096929), the erroneous charges have been refunded to the federal agency. As part of the University’s corrective action plan, during fiscal year 2023 the sponsored programs accounting team recalculated fringe and indirect costs on all federal grants to ensure the correct expense was recorded to each grant. During this reconciliation process cumulative award to date errors were identified and corrected in fiscal year 2023. The sponsored program accounting team continues to reconcile fringe and indirect costs on cost transfers at the grant level on a periodic basis to ensure accuracy.
Criteria: 2 CFR 200.431 includes the standards for documentation of fringe benefits. According to 2 CFR 200.431(c), the cost of fringe benefits are allowable, provided such benefits are granted under established written policies. Such benefits should be charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. Additionally, the National Institutes of Health (NIH) Grants Policy Statement section 7.5, Cost Transfers, Overruns, Accelerated and Delayed Expenditures, states that cost transfers to NIH grants that represent corrections of clerical or bookkeeping errors should be accomplished within 90 days of when the error was discovered. The transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official. Documentation must be maintained of cost transfers, pursuant to 2 CFR Part 200.337 and 45 CFR Part 75.364. The recipient should have systems in place to detect such errors within a reasonable time frame; untimely discovery of errors could be an indication of poor internal controls. Frequent errors in recording costs may indicate the need for accounting system improvements, enhanced internal controls, or both. If such errors occur, recipients are encouraged to evaluate the need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence. Lastly, 2 CFR 200.303 requires nonfederal entities to, among other things, 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. Conditions Found: We noted several conditions that existed due to cost transfers that occurred during the fiscal year. While performing procedures related to cost transfers, we noted the University had not followed their ‘Cost Transfer Policy’ which states “Cost transfers for current transactions must occur on a timely basis”. The University’s cost transfer policy defines timely as “occurring no later than two accounting periods after the month end of the date of the original transaction (no later than 90 days total)”. The University did not have an effective system of internal control in place to timely discover errors and get them corrected as we noted seventy-five of our one hundred nineteen transactions sampled cost transfers (totaling $246,869 positive and $66,004 negative) where the cost transfer date was between 91 and 1,002 days past the date the original expenditure was incurred (30 were between 91 and 180 days past, 15 were between 181 and 270 days past, and 30 were greater than 271 days past). While testing cost transfers and adjustments, we noted a transaction recorded to a grant that did not have supporting documentation resulting in the costs being unallowable to the grant: Additionally, we noted a transaction recorded to a grant that was recorded outside of the period of performance resulting in the costs being unallowable to the grant: During the fiscal year, positive cost transfers were approximately $2,815,865 and negative cost transfers were $1,792,678 during fiscal year 2023. While performing procedures related to fringe benefits, we noted one of twenty-five sampled grants (totaling $461,382) where transactions were originally recorded to an incorrect worktag. Management identified the error and a cost transfer was performed to move the fringe benefits to a federal research and development grant. However, the incorrect fringe rate was utilized as the University’s non-sponsored research fringe rate utilized in the original entry is a higher fringe rate than the federally approved fringe rate which resulted in an overcharge to the research and development grant during the University’s fiscal year ended June 30, 2023 for a total overstatement of $26 as noted below: Additionally, we noted fringe benefits were expensed during the University’s fiscal year ended June 30, 2023 for two of twenty-five sampled grants (totaling $461,382) where the labor transaction originated in previous fiscal years. The University booked an adjustment within Workday to correct the fringe benefit charges for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total fringe benefits charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,134 as noted below: Total fringe benefits during fiscal year 2023 totaled approximately $2,673,231.While performing procedures related to indirect costs, we noted indirect costs were expensed during the University’s fiscal year ended June 30, 2023 for two of forty sampled grants (totaling $1,817,264) where indirect costs were originally undercharged during the previous fiscal year. The University booked an adjustment within Workday to correct the indirect costs for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total indirect costs charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,677 as noted below: Total indirect costs during fiscal year 2023 totaled approximately $10,484,419. Questioned Cost: Known questioned costs of $26. Cause and Effect: In discussing these conditions with University management, they stated that during fiscal year 2023, they continued reconciliation procedures related to ‘grant level’ activity as a result of implementing the grants module of Workday during fiscal year 2021. Grant level activity allows them to track the specific budget provided by the individual grant as well as monitor other key compliance requirement aspects. The University continued to process an increased volume of cost transfers and experienced delays in posting necessary cost transfers for identified unallowable costs stemming from the reconciliation efforts. Repeat Finding: A similar finding was reported in prior year audit as finding number 2022-001. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendations: We recommend the University continue its corrective action plan and adjust internal controls as needed to prevent and detect noncompliance with and improve adherence to federal regulations.View of Responsible Official: The University concurs with the finding. As noted in our prior year response, the University continued to have cost transfers in fiscal year 2023 as it reconciled its grants. To limit cost transfers in the future, the following steps have been taken by the University: Additionally, the University is exploring additional functionality within our Workday grants management module to build in additional approvals, specifically for labor, on expense before the expenses are charged to the grant to reduce future cost transfers. In regards to the three transactions noted above (federal award number HHSN272201300021I; federal award number 5R21AG065526-02; and federal award number UH3HD096929), the erroneous charges have been refunded to the federal agency. As part of the University’s corrective action plan, during fiscal year 2023 the sponsored programs accounting team recalculated fringe and indirect costs on all federal grants to ensure the correct expense was recorded to each grant. During this reconciliation process cumulative award to date errors were identified and corrected in fiscal year 2023. The sponsored program accounting team continues to reconcile fringe and indirect costs on cost transfers at the grant level on a periodic basis to ensure accuracy.
Criteria: 2 CFR 200.431 includes the standards for documentation of fringe benefits. According to 2 CFR 200.431(c), the cost of fringe benefits are allowable, provided such benefits are granted under established written policies. Such benefits should be charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. Additionally, the National Institutes of Health (NIH) Grants Policy Statement section 7.5, Cost Transfers, Overruns, Accelerated and Delayed Expenditures, states that cost transfers to NIH grants that represent corrections of clerical or bookkeeping errors should be accomplished within 90 days of when the error was discovered. The transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official. Documentation must be maintained of cost transfers, pursuant to 2 CFR Part 200.337 and 45 CFR Part 75.364. The recipient should have systems in place to detect such errors within a reasonable time frame; untimely discovery of errors could be an indication of poor internal controls. Frequent errors in recording costs may indicate the need for accounting system improvements, enhanced internal controls, or both. If such errors occur, recipients are encouraged to evaluate the need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence. Lastly, 2 CFR 200.303 requires nonfederal entities to, among other things, 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. Conditions Found: We noted several conditions that existed due to cost transfers that occurred during the fiscal year. While performing procedures related to cost transfers, we noted the University had not followed their ‘Cost Transfer Policy’ which states “Cost transfers for current transactions must occur on a timely basis”. The University’s cost transfer policy defines timely as “occurring no later than two accounting periods after the month end of the date of the original transaction (no later than 90 days total)”. The University did not have an effective system of internal control in place to timely discover errors and get them corrected as we noted seventy-five of our one hundred nineteen transactions sampled cost transfers (totaling $246,869 positive and $66,004 negative) where the cost transfer date was between 91 and 1,002 days past the date the original expenditure was incurred (30 were between 91 and 180 days past, 15 were between 181 and 270 days past, and 30 were greater than 271 days past). While testing cost transfers and adjustments, we noted a transaction recorded to a grant that did not have supporting documentation resulting in the costs being unallowable to the grant: Additionally, we noted a transaction recorded to a grant that was recorded outside of the period of performance resulting in the costs being unallowable to the grant: During the fiscal year, positive cost transfers were approximately $2,815,865 and negative cost transfers were $1,792,678 during fiscal year 2023. While performing procedures related to fringe benefits, we noted one of twenty-five sampled grants (totaling $461,382) where transactions were originally recorded to an incorrect worktag. Management identified the error and a cost transfer was performed to move the fringe benefits to a federal research and development grant. However, the incorrect fringe rate was utilized as the University’s non-sponsored research fringe rate utilized in the original entry is a higher fringe rate than the federally approved fringe rate which resulted in an overcharge to the research and development grant during the University’s fiscal year ended June 30, 2023 for a total overstatement of $26 as noted below: Additionally, we noted fringe benefits were expensed during the University’s fiscal year ended June 30, 2023 for two of twenty-five sampled grants (totaling $461,382) where the labor transaction originated in previous fiscal years. The University booked an adjustment within Workday to correct the fringe benefit charges for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total fringe benefits charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,134 as noted below: Total fringe benefits during fiscal year 2023 totaled approximately $2,673,231.While performing procedures related to indirect costs, we noted indirect costs were expensed during the University’s fiscal year ended June 30, 2023 for two of forty sampled grants (totaling $1,817,264) where indirect costs were originally undercharged during the previous fiscal year. The University booked an adjustment within Workday to correct the indirect costs for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total indirect costs charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,677 as noted below: Total indirect costs during fiscal year 2023 totaled approximately $10,484,419. Questioned Cost: Known questioned costs of $26. Cause and Effect: In discussing these conditions with University management, they stated that during fiscal year 2023, they continued reconciliation procedures related to ‘grant level’ activity as a result of implementing the grants module of Workday during fiscal year 2021. Grant level activity allows them to track the specific budget provided by the individual grant as well as monitor other key compliance requirement aspects. The University continued to process an increased volume of cost transfers and experienced delays in posting necessary cost transfers for identified unallowable costs stemming from the reconciliation efforts. Repeat Finding: A similar finding was reported in prior year audit as finding number 2022-001. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendations: We recommend the University continue its corrective action plan and adjust internal controls as needed to prevent and detect noncompliance with and improve adherence to federal regulations.View of Responsible Official: The University concurs with the finding. As noted in our prior year response, the University continued to have cost transfers in fiscal year 2023 as it reconciled its grants. To limit cost transfers in the future, the following steps have been taken by the University: Additionally, the University is exploring additional functionality within our Workday grants management module to build in additional approvals, specifically for labor, on expense before the expenses are charged to the grant to reduce future cost transfers. In regards to the three transactions noted above (federal award number HHSN272201300021I; federal award number 5R21AG065526-02; and federal award number UH3HD096929), the erroneous charges have been refunded to the federal agency. As part of the University’s corrective action plan, during fiscal year 2023 the sponsored programs accounting team recalculated fringe and indirect costs on all federal grants to ensure the correct expense was recorded to each grant. During this reconciliation process cumulative award to date errors were identified and corrected in fiscal year 2023. The sponsored program accounting team continues to reconcile fringe and indirect costs on cost transfers at the grant level on a periodic basis to ensure accuracy.
Criteria: 2 CFR 200.431 includes the standards for documentation of fringe benefits. According to 2 CFR 200.431(c), the cost of fringe benefits are allowable, provided such benefits are granted under established written policies. Such benefits should be charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. Additionally, the National Institutes of Health (NIH) Grants Policy Statement section 7.5, Cost Transfers, Overruns, Accelerated and Delayed Expenditures, states that cost transfers to NIH grants that represent corrections of clerical or bookkeeping errors should be accomplished within 90 days of when the error was discovered. The transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official. Documentation must be maintained of cost transfers, pursuant to 2 CFR Part 200.337 and 45 CFR Part 75.364. The recipient should have systems in place to detect such errors within a reasonable time frame; untimely discovery of errors could be an indication of poor internal controls. Frequent errors in recording costs may indicate the need for accounting system improvements, enhanced internal controls, or both. If such errors occur, recipients are encouraged to evaluate the need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence. Lastly, 2 CFR 200.303 requires nonfederal entities to, among other things, 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. Conditions Found: We noted several conditions that existed due to cost transfers that occurred during the fiscal year. While performing procedures related to cost transfers, we noted the University had not followed their ‘Cost Transfer Policy’ which states “Cost transfers for current transactions must occur on a timely basis”. The University’s cost transfer policy defines timely as “occurring no later than two accounting periods after the month end of the date of the original transaction (no later than 90 days total)”. The University did not have an effective system of internal control in place to timely discover errors and get them corrected as we noted seventy-five of our one hundred nineteen transactions sampled cost transfers (totaling $246,869 positive and $66,004 negative) where the cost transfer date was between 91 and 1,002 days past the date the original expenditure was incurred (30 were between 91 and 180 days past, 15 were between 181 and 270 days past, and 30 were greater than 271 days past). While testing cost transfers and adjustments, we noted a transaction recorded to a grant that did not have supporting documentation resulting in the costs being unallowable to the grant: Additionally, we noted a transaction recorded to a grant that was recorded outside of the period of performance resulting in the costs being unallowable to the grant: During the fiscal year, positive cost transfers were approximately $2,815,865 and negative cost transfers were $1,792,678 during fiscal year 2023. While performing procedures related to fringe benefits, we noted one of twenty-five sampled grants (totaling $461,382) where transactions were originally recorded to an incorrect worktag. Management identified the error and a cost transfer was performed to move the fringe benefits to a federal research and development grant. However, the incorrect fringe rate was utilized as the University’s non-sponsored research fringe rate utilized in the original entry is a higher fringe rate than the federally approved fringe rate which resulted in an overcharge to the research and development grant during the University’s fiscal year ended June 30, 2023 for a total overstatement of $26 as noted below: Additionally, we noted fringe benefits were expensed during the University’s fiscal year ended June 30, 2023 for two of twenty-five sampled grants (totaling $461,382) where the labor transaction originated in previous fiscal years. The University booked an adjustment within Workday to correct the fringe benefit charges for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total fringe benefits charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,134 as noted below: Total fringe benefits during fiscal year 2023 totaled approximately $2,673,231.While performing procedures related to indirect costs, we noted indirect costs were expensed during the University’s fiscal year ended June 30, 2023 for two of forty sampled grants (totaling $1,817,264) where indirect costs were originally undercharged during the previous fiscal year. The University booked an adjustment within Workday to correct the indirect costs for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total indirect costs charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,677 as noted below: Total indirect costs during fiscal year 2023 totaled approximately $10,484,419. Questioned Cost: Known questioned costs of $26. Cause and Effect: In discussing these conditions with University management, they stated that during fiscal year 2023, they continued reconciliation procedures related to ‘grant level’ activity as a result of implementing the grants module of Workday during fiscal year 2021. Grant level activity allows them to track the specific budget provided by the individual grant as well as monitor other key compliance requirement aspects. The University continued to process an increased volume of cost transfers and experienced delays in posting necessary cost transfers for identified unallowable costs stemming from the reconciliation efforts. Repeat Finding: A similar finding was reported in prior year audit as finding number 2022-001. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendations: We recommend the University continue its corrective action plan and adjust internal controls as needed to prevent and detect noncompliance with and improve adherence to federal regulations.View of Responsible Official: The University concurs with the finding. As noted in our prior year response, the University continued to have cost transfers in fiscal year 2023 as it reconciled its grants. To limit cost transfers in the future, the following steps have been taken by the University: Additionally, the University is exploring additional functionality within our Workday grants management module to build in additional approvals, specifically for labor, on expense before the expenses are charged to the grant to reduce future cost transfers. In regards to the three transactions noted above (federal award number HHSN272201300021I; federal award number 5R21AG065526-02; and federal award number UH3HD096929), the erroneous charges have been refunded to the federal agency. As part of the University’s corrective action plan, during fiscal year 2023 the sponsored programs accounting team recalculated fringe and indirect costs on all federal grants to ensure the correct expense was recorded to each grant. During this reconciliation process cumulative award to date errors were identified and corrected in fiscal year 2023. The sponsored program accounting team continues to reconcile fringe and indirect costs on cost transfers at the grant level on a periodic basis to ensure accuracy.
Criteria: 2 CFR 200.431 includes the standards for documentation of fringe benefits. According to 2 CFR 200.431(c), the cost of fringe benefits are allowable, provided such benefits are granted under established written policies. Such benefits should be charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. Additionally, the National Institutes of Health (NIH) Grants Policy Statement section 7.5, Cost Transfers, Overruns, Accelerated and Delayed Expenditures, states that cost transfers to NIH grants that represent corrections of clerical or bookkeeping errors should be accomplished within 90 days of when the error was discovered. The transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official. Documentation must be maintained of cost transfers, pursuant to 2 CFR Part 200.337 and 45 CFR Part 75.364. The recipient should have systems in place to detect such errors within a reasonable time frame; untimely discovery of errors could be an indication of poor internal controls. Frequent errors in recording costs may indicate the need for accounting system improvements, enhanced internal controls, or both. If such errors occur, recipients are encouraged to evaluate the need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence. Lastly, 2 CFR 200.303 requires nonfederal entities to, among other things, 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. Conditions Found: We noted several conditions that existed due to cost transfers that occurred during the fiscal year. While performing procedures related to cost transfers, we noted the University had not followed their ‘Cost Transfer Policy’ which states “Cost transfers for current transactions must occur on a timely basis”. The University’s cost transfer policy defines timely as “occurring no later than two accounting periods after the month end of the date of the original transaction (no later than 90 days total)”. The University did not have an effective system of internal control in place to timely discover errors and get them corrected as we noted seventy-five of our one hundred nineteen transactions sampled cost transfers (totaling $246,869 positive and $66,004 negative) where the cost transfer date was between 91 and 1,002 days past the date the original expenditure was incurred (30 were between 91 and 180 days past, 15 were between 181 and 270 days past, and 30 were greater than 271 days past). While testing cost transfers and adjustments, we noted a transaction recorded to a grant that did not have supporting documentation resulting in the costs being unallowable to the grant: Additionally, we noted a transaction recorded to a grant that was recorded outside of the period of performance resulting in the costs being unallowable to the grant: During the fiscal year, positive cost transfers were approximately $2,815,865 and negative cost transfers were $1,792,678 during fiscal year 2023. While performing procedures related to fringe benefits, we noted one of twenty-five sampled grants (totaling $461,382) where transactions were originally recorded to an incorrect worktag. Management identified the error and a cost transfer was performed to move the fringe benefits to a federal research and development grant. However, the incorrect fringe rate was utilized as the University’s non-sponsored research fringe rate utilized in the original entry is a higher fringe rate than the federally approved fringe rate which resulted in an overcharge to the research and development grant during the University’s fiscal year ended June 30, 2023 for a total overstatement of $26 as noted below: Additionally, we noted fringe benefits were expensed during the University’s fiscal year ended June 30, 2023 for two of twenty-five sampled grants (totaling $461,382) where the labor transaction originated in previous fiscal years. The University booked an adjustment within Workday to correct the fringe benefit charges for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total fringe benefits charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,134 as noted below: Total fringe benefits during fiscal year 2023 totaled approximately $2,673,231.While performing procedures related to indirect costs, we noted indirect costs were expensed during the University’s fiscal year ended June 30, 2023 for two of forty sampled grants (totaling $1,817,264) where indirect costs were originally undercharged during the previous fiscal year. The University booked an adjustment within Workday to correct the indirect costs for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total indirect costs charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,677 as noted below: Total indirect costs during fiscal year 2023 totaled approximately $10,484,419. Questioned Cost: Known questioned costs of $26. Cause and Effect: In discussing these conditions with University management, they stated that during fiscal year 2023, they continued reconciliation procedures related to ‘grant level’ activity as a result of implementing the grants module of Workday during fiscal year 2021. Grant level activity allows them to track the specific budget provided by the individual grant as well as monitor other key compliance requirement aspects. The University continued to process an increased volume of cost transfers and experienced delays in posting necessary cost transfers for identified unallowable costs stemming from the reconciliation efforts. Repeat Finding: A similar finding was reported in prior year audit as finding number 2022-001. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendations: We recommend the University continue its corrective action plan and adjust internal controls as needed to prevent and detect noncompliance with and improve adherence to federal regulations.View of Responsible Official: The University concurs with the finding. As noted in our prior year response, the University continued to have cost transfers in fiscal year 2023 as it reconciled its grants. To limit cost transfers in the future, the following steps have been taken by the University: Additionally, the University is exploring additional functionality within our Workday grants management module to build in additional approvals, specifically for labor, on expense before the expenses are charged to the grant to reduce future cost transfers. In regards to the three transactions noted above (federal award number HHSN272201300021I; federal award number 5R21AG065526-02; and federal award number UH3HD096929), the erroneous charges have been refunded to the federal agency. As part of the University’s corrective action plan, during fiscal year 2023 the sponsored programs accounting team recalculated fringe and indirect costs on all federal grants to ensure the correct expense was recorded to each grant. During this reconciliation process cumulative award to date errors were identified and corrected in fiscal year 2023. The sponsored program accounting team continues to reconcile fringe and indirect costs on cost transfers at the grant level on a periodic basis to ensure accuracy.
Criteria: 2 CFR 200.431 includes the standards for documentation of fringe benefits. According to 2 CFR 200.431(c), the cost of fringe benefits are allowable, provided such benefits are granted under established written policies. Such benefits should be charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. Additionally, the National Institutes of Health (NIH) Grants Policy Statement section 7.5, Cost Transfers, Overruns, Accelerated and Delayed Expenditures, states that cost transfers to NIH grants that represent corrections of clerical or bookkeeping errors should be accomplished within 90 days of when the error was discovered. The transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official. Documentation must be maintained of cost transfers, pursuant to 2 CFR Part 200.337 and 45 CFR Part 75.364. The recipient should have systems in place to detect such errors within a reasonable time frame; untimely discovery of errors could be an indication of poor internal controls. Frequent errors in recording costs may indicate the need for accounting system improvements, enhanced internal controls, or both. If such errors occur, recipients are encouraged to evaluate the need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence. Lastly, 2 CFR 200.303 requires nonfederal entities to, among other things, 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. Conditions Found: We noted several conditions that existed due to cost transfers that occurred during the fiscal year. While performing procedures related to cost transfers, we noted the University had not followed their ‘Cost Transfer Policy’ which states “Cost transfers for current transactions must occur on a timely basis”. The University’s cost transfer policy defines timely as “occurring no later than two accounting periods after the month end of the date of the original transaction (no later than 90 days total)”. The University did not have an effective system of internal control in place to timely discover errors and get them corrected as we noted seventy-five of our one hundred nineteen transactions sampled cost transfers (totaling $246,869 positive and $66,004 negative) where the cost transfer date was between 91 and 1,002 days past the date the original expenditure was incurred (30 were between 91 and 180 days past, 15 were between 181 and 270 days past, and 30 were greater than 271 days past). While testing cost transfers and adjustments, we noted a transaction recorded to a grant that did not have supporting documentation resulting in the costs being unallowable to the grant: Additionally, we noted a transaction recorded to a grant that was recorded outside of the period of performance resulting in the costs being unallowable to the grant: During the fiscal year, positive cost transfers were approximately $2,815,865 and negative cost transfers were $1,792,678 during fiscal year 2023. While performing procedures related to fringe benefits, we noted one of twenty-five sampled grants (totaling $461,382) where transactions were originally recorded to an incorrect worktag. Management identified the error and a cost transfer was performed to move the fringe benefits to a federal research and development grant. However, the incorrect fringe rate was utilized as the University’s non-sponsored research fringe rate utilized in the original entry is a higher fringe rate than the federally approved fringe rate which resulted in an overcharge to the research and development grant during the University’s fiscal year ended June 30, 2023 for a total overstatement of $26 as noted below: Additionally, we noted fringe benefits were expensed during the University’s fiscal year ended June 30, 2023 for two of twenty-five sampled grants (totaling $461,382) where the labor transaction originated in previous fiscal years. The University booked an adjustment within Workday to correct the fringe benefit charges for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total fringe benefits charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,134 as noted below: Total fringe benefits during fiscal year 2023 totaled approximately $2,673,231.While performing procedures related to indirect costs, we noted indirect costs were expensed during the University’s fiscal year ended June 30, 2023 for two of forty sampled grants (totaling $1,817,264) where indirect costs were originally undercharged during the previous fiscal year. The University booked an adjustment within Workday to correct the indirect costs for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total indirect costs charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,677 as noted below: Total indirect costs during fiscal year 2023 totaled approximately $10,484,419. Questioned Cost: Known questioned costs of $26. Cause and Effect: In discussing these conditions with University management, they stated that during fiscal year 2023, they continued reconciliation procedures related to ‘grant level’ activity as a result of implementing the grants module of Workday during fiscal year 2021. Grant level activity allows them to track the specific budget provided by the individual grant as well as monitor other key compliance requirement aspects. The University continued to process an increased volume of cost transfers and experienced delays in posting necessary cost transfers for identified unallowable costs stemming from the reconciliation efforts. Repeat Finding: A similar finding was reported in prior year audit as finding number 2022-001. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendations: We recommend the University continue its corrective action plan and adjust internal controls as needed to prevent and detect noncompliance with and improve adherence to federal regulations.View of Responsible Official: The University concurs with the finding. As noted in our prior year response, the University continued to have cost transfers in fiscal year 2023 as it reconciled its grants. To limit cost transfers in the future, the following steps have been taken by the University: Additionally, the University is exploring additional functionality within our Workday grants management module to build in additional approvals, specifically for labor, on expense before the expenses are charged to the grant to reduce future cost transfers. In regards to the three transactions noted above (federal award number HHSN272201300021I; federal award number 5R21AG065526-02; and federal award number UH3HD096929), the erroneous charges have been refunded to the federal agency. As part of the University’s corrective action plan, during fiscal year 2023 the sponsored programs accounting team recalculated fringe and indirect costs on all federal grants to ensure the correct expense was recorded to each grant. During this reconciliation process cumulative award to date errors were identified and corrected in fiscal year 2023. The sponsored program accounting team continues to reconcile fringe and indirect costs on cost transfers at the grant level on a periodic basis to ensure accuracy.
Criteria: 2 CFR 200.431 includes the standards for documentation of fringe benefits. According to 2 CFR 200.431(c), the cost of fringe benefits are allowable, provided such benefits are granted under established written policies. Such benefits should be charged as direct or indirect costs in accordance with the non-Federal entity’s accounting practices. Additionally, the National Institutes of Health (NIH) Grants Policy Statement section 7.5, Cost Transfers, Overruns, Accelerated and Delayed Expenditures, states that cost transfers to NIH grants that represent corrections of clerical or bookkeeping errors should be accomplished within 90 days of when the error was discovered. The transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official. Documentation must be maintained of cost transfers, pursuant to 2 CFR Part 200.337 and 45 CFR Part 75.364. The recipient should have systems in place to detect such errors within a reasonable time frame; untimely discovery of errors could be an indication of poor internal controls. Frequent errors in recording costs may indicate the need for accounting system improvements, enhanced internal controls, or both. If such errors occur, recipients are encouraged to evaluate the need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence. Lastly, 2 CFR 200.303 requires nonfederal entities to, among other things, 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. Conditions Found: We noted several conditions that existed due to cost transfers that occurred during the fiscal year. While performing procedures related to cost transfers, we noted the University had not followed their ‘Cost Transfer Policy’ which states “Cost transfers for current transactions must occur on a timely basis”. The University’s cost transfer policy defines timely as “occurring no later than two accounting periods after the month end of the date of the original transaction (no later than 90 days total)”. The University did not have an effective system of internal control in place to timely discover errors and get them corrected as we noted seventy-five of our one hundred nineteen transactions sampled cost transfers (totaling $246,869 positive and $66,004 negative) where the cost transfer date was between 91 and 1,002 days past the date the original expenditure was incurred (30 were between 91 and 180 days past, 15 were between 181 and 270 days past, and 30 were greater than 271 days past). While testing cost transfers and adjustments, we noted a transaction recorded to a grant that did not have supporting documentation resulting in the costs being unallowable to the grant: Additionally, we noted a transaction recorded to a grant that was recorded outside of the period of performance resulting in the costs being unallowable to the grant: During the fiscal year, positive cost transfers were approximately $2,815,865 and negative cost transfers were $1,792,678 during fiscal year 2023. While performing procedures related to fringe benefits, we noted one of twenty-five sampled grants (totaling $461,382) where transactions were originally recorded to an incorrect worktag. Management identified the error and a cost transfer was performed to move the fringe benefits to a federal research and development grant. However, the incorrect fringe rate was utilized as the University’s non-sponsored research fringe rate utilized in the original entry is a higher fringe rate than the federally approved fringe rate which resulted in an overcharge to the research and development grant during the University’s fiscal year ended June 30, 2023 for a total overstatement of $26 as noted below: Additionally, we noted fringe benefits were expensed during the University’s fiscal year ended June 30, 2023 for two of twenty-five sampled grants (totaling $461,382) where the labor transaction originated in previous fiscal years. The University booked an adjustment within Workday to correct the fringe benefit charges for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total fringe benefits charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,134 as noted below: Total fringe benefits during fiscal year 2023 totaled approximately $2,673,231.While performing procedures related to indirect costs, we noted indirect costs were expensed during the University’s fiscal year ended June 30, 2023 for two of forty sampled grants (totaling $1,817,264) where indirect costs were originally undercharged during the previous fiscal year. The University booked an adjustment within Workday to correct the indirect costs for the life of the grant. This resulted in the SEFA being overstated during the University’s fiscal year ended June 30, 2023. We noted the total indirect costs charged for the life of the grants was allowable and within the period of performance. These overstatements to the SEFA for the University’s fiscal year 2023 was for a total of $3,677 as noted below: Total indirect costs during fiscal year 2023 totaled approximately $10,484,419. Questioned Cost: Known questioned costs of $26. Cause and Effect: In discussing these conditions with University management, they stated that during fiscal year 2023, they continued reconciliation procedures related to ‘grant level’ activity as a result of implementing the grants module of Workday during fiscal year 2021. Grant level activity allows them to track the specific budget provided by the individual grant as well as monitor other key compliance requirement aspects. The University continued to process an increased volume of cost transfers and experienced delays in posting necessary cost transfers for identified unallowable costs stemming from the reconciliation efforts. Repeat Finding: A similar finding was reported in prior year audit as finding number 2022-001. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendations: We recommend the University continue its corrective action plan and adjust internal controls as needed to prevent and detect noncompliance with and improve adherence to federal regulations.View of Responsible Official: The University concurs with the finding. As noted in our prior year response, the University continued to have cost transfers in fiscal year 2023 as it reconciled its grants. To limit cost transfers in the future, the following steps have been taken by the University: Additionally, the University is exploring additional functionality within our Workday grants management module to build in additional approvals, specifically for labor, on expense before the expenses are charged to the grant to reduce future cost transfers. In regards to the three transactions noted above (federal award number HHSN272201300021I; federal award number 5R21AG065526-02; and federal award number UH3HD096929), the erroneous charges have been refunded to the federal agency. As part of the University’s corrective action plan, during fiscal year 2023 the sponsored programs accounting team recalculated fringe and indirect costs on all federal grants to ensure the correct expense was recorded to each grant. During this reconciliation process cumulative award to date errors were identified and corrected in fiscal year 2023. The sponsored program accounting team continues to reconcile fringe and indirect costs on cost transfers at the grant level on a periodic basis to ensure accuracy.
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.
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.
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.
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 2023-040 (See Finding Reference Number 2023-012) FEDERAL PROGRAMS (ALN – 93.568) LOW-INCOME HOME ENERGY ASSISTANCE (ALN – 93.568) COVID-19 – LOW-INCOME HOME ENERGY ASSISTANCE U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES AWARD NUMBERS 2101PRLIEA; 2201PRLIEA; 2301PRLIEA; 2001PRLIEA; 2001PRE5C3 (Federal Award Years: 2020 through 2023) ADMINISTRATION ADMINISTRATION FOR SOCIOECONOMIC DEVELOPMENT OF THE FAMILY (ADSEF, BY ITS SPANISH ACRONYM) COMPLIANCE REQUIREMENT ELIGIBILITY // REPORTING TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS CRITERIA Uniform Guidance at 2 CFR 200.334, Record retention requirements, establishes that: 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. Further, in §200.337, Access to records, requires in (a) Records of recipients and subrecipients. The Federal agency or pass-through entity, Inspectors General, the Comptroller General of the United States, or any of their authorized representatives must have the right of access to any records of the recipient or subrecipient pertinent to the Federal award to perform audits, execute site visits, or for any other official use. This right also includes timely and reasonable access to the recipient's or subrecipient's personnel for the purpose of interviewing and discussion related to such documents or the Federal award in general. STATEMENT OF CONDITION As part of our audit procedures for eligibility requirements, we selected forty (40) participants from a population of 27,038 who were eligible for the crisis subsidy program. Of the sample of participants, only eight (8) files were submitted to us for evaluation. This represents a scope limitation. In relation to the requirement of Performance Reporting and Special reporting, we requested the applicable reports submitted during the fiscal year 2022-2023, the reports submitted for our review were applicable for the fiscal year 2023-2024. This represents a scope limitation. QUESTIONED COSTS No questioned costs identified. PERSPECTIVE INFORMATION This is a systemic deficiency. ADSEF was unable to demonstrate compliance with these compliance requirements. STATEMENT OF CAUSE ADSEF does not have an adequate process to identify participants' files within a reasonable timeframe for auditing. In addition, ADSEF does not have adequate controls and safeguards over the reports submitted to the Federal government. POSSIBLE ASSERTED EFFECT We were unable to obtain evidence of compliance with the eligibility and reporting requirements because the information in the files and applicable reports was not available for review. IDENTIFICATION OF REPEAT FINDING No reported as prior audit finding. RECOMMENDATIONS We recommend that management establish an appropriate mechanism to identify participants' files within a reasonable time. In addition, improve its system for filing reports submitted to the Federal government.
FINDING REFERENCE NUMBER 2023-040 (See Finding Reference Number 2023-012) FEDERAL PROGRAMS (ALN – 93.568) LOW-INCOME HOME ENERGY ASSISTANCE (ALN – 93.568) COVID-19 – LOW-INCOME HOME ENERGY ASSISTANCE U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES AWARD NUMBERS 2101PRLIEA; 2201PRLIEA; 2301PRLIEA; 2001PRLIEA; 2001PRE5C3 (Federal Award Years: 2020 through 2023) ADMINISTRATION ADMINISTRATION FOR SOCIOECONOMIC DEVELOPMENT OF THE FAMILY (ADSEF, BY ITS SPANISH ACRONYM) COMPLIANCE REQUIREMENT ELIGIBILITY // REPORTING TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS CRITERIA Uniform Guidance at 2 CFR 200.334, Record retention requirements, establishes that: 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. Further, in §200.337, Access to records, requires in (a) Records of recipients and subrecipients. The Federal agency or pass-through entity, Inspectors General, the Comptroller General of the United States, or any of their authorized representatives must have the right of access to any records of the recipient or subrecipient pertinent to the Federal award to perform audits, execute site visits, or for any other official use. This right also includes timely and reasonable access to the recipient's or subrecipient's personnel for the purpose of interviewing and discussion related to such documents or the Federal award in general. STATEMENT OF CONDITION As part of our audit procedures for eligibility requirements, we selected forty (40) participants from a population of 27,038 who were eligible for the crisis subsidy program. Of the sample of participants, only eight (8) files were submitted to us for evaluation. This represents a scope limitation. In relation to the requirement of Performance Reporting and Special reporting, we requested the applicable reports submitted during the fiscal year 2022-2023, the reports submitted for our review were applicable for the fiscal year 2023-2024. This represents a scope limitation. QUESTIONED COSTS No questioned costs identified. PERSPECTIVE INFORMATION This is a systemic deficiency. ADSEF was unable to demonstrate compliance with these compliance requirements. STATEMENT OF CAUSE ADSEF does not have an adequate process to identify participants' files within a reasonable timeframe for auditing. In addition, ADSEF does not have adequate controls and safeguards over the reports submitted to the Federal government. POSSIBLE ASSERTED EFFECT We were unable to obtain evidence of compliance with the eligibility and reporting requirements because the information in the files and applicable reports was not available for review. IDENTIFICATION OF REPEAT FINDING No reported as prior audit finding. RECOMMENDATIONS We recommend that management establish an appropriate mechanism to identify participants' files within a reasonable time. In addition, improve its system for filing reports submitted to the Federal government.
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.