2024-041 - Unsupported FEMA Reimbursements Federal Program 97.036 - FEMA Disaster Grants - Public Assistance (Presidentially Declared Disasters) Award Numbers PW No. 51 (0) and PW No. 34(0) Federal Agency Department of Homeland Security Compliance requirement Allowable Costs/Cost Principles - 2 CFR §200.403 and §200.405 Type of Finding Internal Control over Compliance - Significant Deficiency Compliance - Noncompliance Questioned Costs: $10,254 Criteria In accordance with 2 CFR §200.403 and §200.405, costs charged to federal awards must be necessary, reasonable, allocable, and adequately documented. Reimbursen,ents based on estimated costs must be reconciled to actual expenditures, and any unsupported amounts must be excluded from final claims. Condition The City received FEMA reimbursements totaling $99,548 under PW No. 51 (0) and $5,704 under PW No. 34(0). These reimbursements were based on estimated costs submitted to FEMA. However, during the financial statement audit, the following discrepancies were noted: PW No. 51 (0): Claimed: Labor $1,048; Equipment $1.8,811; Materials $76,559; Contract $3;130 - Total $99,548 Documented: Labor $1,048; Equipment $8,874; Materials $78,966; Contract $3, 130-Total $92,018 Unsupported costs: $7,530 PW No. 34(0): Claimed: Labor $2,374; Equipment $3,330 -Total $5,704 Documented: Equipment $2,980 - Total $2,980 Unsupported costs: $2,724 Cause The City did not reconcile estimated FEMA reimbursements to actual expenditures incurred and failed to maintain adequate supporting documentation for all cost categories. Effect The City may have received federal funds in excess of actual eligible expenditures, resulting in potential noncompliance with federal cost principles and risk of disallowed costs. Recommendation The City should implement procedures to ensure all FEMA reimbursements are supported by actual, documented expenditures. Management should review the unsupported amounts and consult with FEMA regarding potential repayment or adjustments. Views of Responsible Officials Management concurs with the finding. The City acknowledges that FEMA reimbursements were based on estimated costs and that documentation for certain categories was incomplete. The City will strengthen its procedures for reconciling estimated reimbursements to actual expenditures and ensure that all future claims are supported by detailed documentation. Staff will receive training on FEMA cost principles and documentation standards, and the City will consult with FEMA regarding resolution of the questioned costs.
Criteria: As noted in finding 2024-002, an effective internal control system should be designed and clearly documented. A key part of the documentation is the use of documented policies and procedures. The policies and procedures should cover general accounting and operational processes as well as compliance with State and Federal regulations as applicable. Federal regulations impacting the Organization include Title 2 CFR 200.318, Title 2 CFR 200.302(b), Title 2 CFR 200.313(d) and Title 2 CFR 200.403(d) (Factors Affecting Allowability of Costs). Condition: As noted in finding 2024-002, Every Woman's Place, Inc. did not have effective policies in place over payroll cost allocations, non-payroll cost allocations, procurement, gift cards, equipment inventory and other indirect program cost allocations. Cause: The Organization did not develop, design or implement adequate internal control policies over key required processes. Effect: As part of the audit, it was determined that indirect costs listed in the Financial Status Reports (FSR) for various programs passed through from the State of Michigan Department of Health and Human Services may have been erroneously calculated leading to questioned costs. The lack of internal controls could also lead to misstatements of financial activity and related program reports. The lack of such policies and procedures increases the risk of error, omission, fraud and abuse in financial statements and related activities. Context: A program audit was performed by the State of Michigan’s Department of Health and Human Services for the fiscal year ending September 30, 2023 (dated November 21, 2025). Based on additional items noted by the State of Michigan, it was determined that indirect costs appear to have been incorrectly calculated. These items were directly related to the lack of clarity and/or policy of the direct / indirect cost methodology being utilized Questioned Costs: Indirect costs presented on FSRs for the fiscal year ended September 30, 2024, that represent questioned costs is $83,141 Recommendation: The Organization should review accounting policies to ensure that the policies are up-to-date and, if applicable, in compliance with the State and Federal Regulations. The Organization should also adopt a proper allocation methodology for direct and indirect costs and require board-approval and annual certification. View of Responsible Officials and Planned Corrective Actions:
Criteria Per 2 CFR 200.403, for a cost to be allowable under a Federal award, it must be necessary and reasonable for the performance of the award. Furthermore, 2 CFR 200.430(g) requires that charges for salaries and wages be based on records that accurately reflect the work performed. These records must be supported by a system of internal controls which provides reasonable assurance that the charges are accurate, allowable, and properly allocated. Condition Management's calculation for allowable temporary labor costs charged to the Disaster Grants – Public Assistance program (ALN 97.036) included an error in the data file used for the calculations. Total temporary labor costs charged to this award were $12,770,434. This error led to using incorrect wages for temporary workers who worked standard hours and overtime hours on the same day. This error occurred only for workers from one temporary labor vendor based on the formatting of the invoice information from that vendor. As a result, the temporary labor costs claimed for reimbursement for these workers were overstated by $353,420. Cause and Effect Brown Health’s control for reviewing the allowability of temporary labor invoices was not designed to include a detailed reconciliation of vendor provided data. Specifically, the review process did not verify that the wages for workers that had standard and overtime hours were consistent with the underlying invoice, which allowed the error to be undetected. The control deficiency caused Brown Health to claim temporary labor costs in excess of the actual amounts incurred. As a result, the claim was not in compliance with the Federal cost principles, which require costs to be accurate and based on records that correctly reflect the work performed. The overstated portion of the labor costs claimed for reimbursement are considered questioned costs. Questioned costs $353,420 Statistical Sample The sample was not intended to be, and was not, a statistically valid sample. Repeat Finding This is not a repeat finding. Recommendation We recommend that Brown Health management strengthen its internal controls over the review of temporary labor costs to ensure compliance with Federal regulations. Specifically, Brown Health should revise its invoice review procedures to include a detailed reconciliation of hours and wage calculations for temporary labor. Additionally, Brown Health should work with the granting agency to resolve the resulting questioned costs. View of Responsible Officials Brown Health management concurs with this finding. We have already initiated a detailed review to identify and quantify the total amount of the labor cost overstatement. We will report our results to the granting agency and work with them to resolve the questioned costs by May 31, 2026. To prevent recurrence, management will revise our review control of project applications to reconcile the calculation file to invoice support to verify accuracy.
Finding No.: 2024-013 Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Area: Allowable Costs/Cost Principles Area: Procurement and Suspension and Debarment Questioned Costs: $4,594,214 Criteria: 2 CFR 200.403(a) states that federal program expenditures should be necessary and reasonable for the performance of the Federal award in accordance with allowable costs/cost principles requirements and 2 CFR 200.403(g) states that costs should be adequately documented. 2 CFR 200.439(b) states that: (1) Capital expenditures for general purpose equipment, buildings, and land are allowable as direct costs, but only with the prior written approval of the Federal agency or pass-through entity. (2) Capital expenditures for special purpose equipment are allowable as direct costs, provided that items with a unit cost of $10,000 or more have the prior written approval of the Federal agency or pass-through entity. (3) Capital expenditures for improvements to land, buildings, or equipment that materially increase their value or useful life are allowable as a direct cost, but only with the prior written approval of the Federal agency or pass-through entity. 2 CFR 180.300 requires entities entering into a covered transaction with another person at the next lower tier to verify that the person with whom they intend to do business is not excluded or disqualified. Such verification can be made by (a) checking SAM.gov Exclusions, or (b) collecting a certification from that person; or (c) adding a clause or condition to the covered transaction with that person. 2 CFR 180.220 (b) (1) states that a contract for goods and services is a covered transaction if the contract is awarded by a participant in a nonprocurement transaction covered under 2 CFR 180.210, and the contract amount is expected to equal or exceed $25,000. Finding No.: 2024-013, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Area: Allowable Costs/Cost Principles Area: Procurement and Suspension and Debarment Questioned Costs: $4,594,214 Criteria, continued: 2 CFR 200.302 states that each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State’s funds. All recipient and subrecipient financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award. Moreover, the recipient’s and subrecipient’s financial management system must provide for 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. Conditions: 1. For four (or 11%) of thirty-eight items, aggregating $7,792,207 of $11,505,805 in total non-payroll expenditures subjected to allowable costs/cost principles compliance test, deficiencies were noted, as follows: See the Notes to the SEFA for chart/table. For item #s 1 through 4, there is no Authorization to Proceed (ATP) document on file to support that expense was approved prior to being incurred. Finding No.: 2024-013, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Area: Allowable Costs/Cost Principles Area: Procurement and Suspension and Debarment Questioned Costs: $4,594,214 Conditions, continued: 2. For seven (or 88%) of eight items, aggregating $4,061,890 of $4,681,768 of expenditures subjected to procurement and suspension and debarment compliance test, we noted the following: See the Notes to the SEFA for chart/table. For item #s 1 through 3, the General Services Agency (GSA) represented that it performed verification of suspension or debarment from SAM.gov. However, no formal documentation is kept on file to demonstrate compliance at the time of procurement. For item #s 4 through 7, no procurement file was provided to substantiate whether the Department of Administration (DOA) complied with applicable procurement and suspension and debarment requirements. 3. Schedule of Expenditures of Federal Awards (SEFA) was revised subsequently after expenditures were initially determined and tested for suspension and debarment. Based on the revised SEFA, the number of items tested were insufficient to satisfy the minimum required number of items to test. Cause: The Department of Administration (DOA) did not obtain ATP documentation from federal grantor agency as they represented that it is not required since the requirement to obtain such is not explicitly indicated in the grant award. Finding No.: 2024-013, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Area: Allowable Costs/Cost Principles Area: Procurement and Suspension and Debarment Questioned Costs: $4,594,214 Cause, continued: DOA’s new financial management system implemented during the fiscal year has no capability to generate a report of all expenditures procured during the fiscal year and expenditure information from the old financial management system are not completely evident from the migrated expenditure information in the new financial management system, hence, there was difficulty in establishing population that will be subjected to procurement and suspension and debarment test. As there was no efficient alternative way of identifying whether or not costs charged to the program were procured during the fiscal year, and due to the timing of the audit and lack of staffing resources, DOA was unable to provide the procurement files of selected transactions by the agreed audit timeline. This limitation resulted to repeated replacement of sample selections to meet the minimum sample size required for testing. DOA also does not have a formal policy requiring documentation of procedures performed to verify that the person in a covered transaction with whom they intend to do business is not excluded or disqualified. Effect: GovGuam is in noncompliance with applicable allowable costs/cost principles and procurement and suspension and debarment requirements. The reportable questioned cost related to allowable costs/cost principles requirements based on the items identified in Condition #1 above is $3,850,177. The reportable questioned cost related to procurement and suspension and debarment requirements based on the items identified in Condition #2 above is $4,054,514. Only $4,594,214 total questioned cost is reported at this finding as $3,310,477 is reported and included in both Condition #s 1 and 2 above. Identification as a Repeat Finding: 2023-012 Recommendation: DOA management should obtain clarification from federal grantor agency regarding ATP requirement and/or exemption of capital expenditures of the program. Finding No.: 2024-013, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Area: Allowable Costs/Cost Principles Area: Procurement and Suspension and Debarment Questioned Costs: $4,594,214 Recommendation, continued: DOA management should ensure that financial management system in place permits the preparation of report of all expenditures procured during the fiscal year. Responsible personnel should ensure that documentation is adequate to comply with the applicable procurement requirements. Specifically, documentation should indicate the history of procurement, including the solicitation process and rationale for contractors or vendor selection. DOA management should establish formal policy requiring retaining documentation of procedures performed to verify that the person in a covered transaction with whom they intend to do business is not excluded or disqualified. Views of Responsible Officials: Agency disagrees with 2 out of the 3 findings. • Condition 1 regarding the Authorization To Proceed (ATP), as per the Grant and Cooperative Agreement and the Grant Terms and Conditions, it did not state that an ATP is required to begin work on the grant for D20AP00048 and D21AP10145.The Government complies with ATP requirements for grants which mandate such compliance. If the grant is silent, no ATP is required.. • Condition 2 GSA will continue to verify vendor eligibility through SAM.gov prior to contract award. Documentation of the verification will be retained in the procurement file for each transaction. • Condition 3 The necessary controls will be strengthened when the updated Federal Grant module is fully implemented. Auditor’s Response: Our finding remains. Although no ATP may be required, the selected samples did not demonstrate compliance related to obtaining the required written pre-approval as mentioned in the criteria above.
Finding No.: 2024-018 Federal Agency: U.S. Department of the Treasury AL Program: 21.023 Emergency Rental Assistance Federal Award No.: COVID-19 Section 501 of the Consolidated Appropriations Act, 2021 Federal Award No.: COVID-19 Section 3201 of the American Rescue Plan Act, 2021 Area: Eligibility Questioned Costs: $20,769 Criteria: Pursuant to section 501(k)(3)(B) of Division N of the Consolidated Appropriations Act, 2021, and 2 CFR 200.403, when providing ERA1 assistance, the grantee must review the household’s income and sources of assistance to confirm that the ERA1 assistance does not duplicate any other assistance, including federal, state, or local assistance provided for the same costs. Per Emergency Rental Assistance Frequently Asked Questions Revised July 27, 2022, in all cases, grantees must document their policies and procedures for determining household eligibility to include policies and procedures for determining the prioritization of households in compliance with the statute and maintain records of their determinations. Condition: For twelve (or 30%) of forty participants tested, aggregating $53,639 of $7,141,800 in total participant benefits, deficiencies were noted, as follows: See the Notes to the SEFA for chart/table. For item #s 1 through 2, no documentation was on file to support eligibility determination. For item #s 3 through 10, no documentation (e.g. check stubs and/or 1040 forms) was on file to support whether the participant met the income eligibility requirement. Furthermore, for items #s 3 through 8, documentation that determines the eligibility period (e.g. Approved Financial Assistance Form or Continuance of Assistance Approval Form) was not on file. Finding No.: 2024-018, continued Federal Agency: U.S. Department of the Treasury AL Program: 21.023 Emergency Rental Assistance Federal Award No.: COVID-19 Section 501 of the Consolidated Appropriations Act, 2021 Federal Award No.: COVID-19 Section 3201 of the American Rescue Plan Act, 2021 Area: Eligibility Questioned Costs: $20,769 Condition, continued: For item # 11, supporting documentation on file to support whether all members in the household of the participant met the citizenship requirement (e.g. government issued identification card) was incomplete. For item # 12, inconsistent information was identified in the supporting documents such as the date of birth and familial relationships. Cause: The Department of Administration (DOA) could not locate records while physical files are currently being scanned and saved electronically due to the closure of the program. Effect: GovGuam is in noncompliance with applicable eligibility requirements. The reportable questioned cost is $20,769 based on the items identified in Condition above. Recommendation: Responsible personnel should enforce monitoring controls over compliance with applicable eligibility requirements, specifically, retaining sufficient documentation to support eligibility determination. Views of Responsible Officials: The Agency is reviewing the management of Federal Grants to ensure robust handover and succession plans are in place for future programs. The sudden passing of the ERA Program Coordinator directly impacted overall management of the program.
Finding No.: 2024-021 Federal Agency: U.S. Department of the Treasury AL Program: 21.026 Homeowner Assistance Fund Federal Award No.: COVID-19 Section 3206 of the American Rescue Plan Act of 2021 Area: Activities Allowed or Unallowed Area: Allowable Cost/Cost Principles Questioned Costs: $7,874 Criteria: In accordance with the applicable activities allowed or unallowed requirements, institutions must demonstrate that costs incurred are allowable under the relevant program legislation, federal awarding agency regulations, and the terms and conditions of the award and consistent with the purpose of the grant. 2 CFR 200.403(a) states that federal program expenditures should be necessary and reasonable for the performance of the Federal award in accordance with allowable costs/cost principles requirements and 2 CFR 200.403(g) states that costs should be adequately documented. Conditions: 1. For one (or 3%) of twenty-nine items, aggregating $24,864 of $554,280 in total non-payroll expenditures, vendor invoice was not on file: See the Notes to the SEFA for chart/table. 2. For six (or 55%) of eleven items, aggregating $11,179 of $200,650 in total payroll expenditures, deficiencies were noted, as follows: See the Notes to the SEFA for chart/table. For item #s 1 through 4, there were no supporting documents (e.g. timesheet, payroll register, personnel action file) on file to substantiate whether such expenditures were allowable cost of the underlying grant. Finding No.: 2024-021, continued Federal Agency: U.S. Department of the Treasury AL Program: 21.026 Homeowner Assistance Fund Federal Award No.: COVID-19 Section 3206 of the American Rescue Plan Act of 2021 Area: Activities Allowed or Unallowed Area: Allowable Cost/Cost Principles Questioned Costs: $7,874 Conditions, continued: For item # 5, there was no labor cost distribution report on file to substantiate whether such expenditure was allowable costs of the underlying grant. For item # 6, payroll register was not on file. Cause: The Department of Administration (DOA) did not enforce monitoring controls over compliance with applicable activities allowed or unallowed and allowable costs/cost principles requirements, specifically, retaining sufficient documentation to support transactions and ensuring expenditures are necessary and reasonable for the performance of the Federal award. Effect: GovGuam is in noncompliance with activities allowed or unallowed and allowable costs/cost principles requirements. The reportable questioned cost is $7,874 based on the items identified in Conditions above. Recommendation: Responsible personnel should enforce monitoring controls over compliance with applicable activities allowed or unallowed and allowable costs/cost principles requirements, specifically, retaining sufficient documentation to support transactions. Views of Responsible Officials: The Agency disagrees with this finding. Please refer to a letter dated March 31, 2026, regarding Reports on Compliance September 30, 2024. Auditor’s Response: Our finding remains because we were unable to determine compliance with applicable requirements.
Finding No.: 2024-025 Federal Agency: U.S. Department of the Treasury AL Program: 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Section 9901 of the American Rescue Plan Act of 2021 Area: Activities Allowed or Unallowed Area: Allowable Cost/Cost Principles Questioned Costs: $5,617,888 Criteria: In accordance with the applicable activities allowed or unallowed requirements, institutions must demonstrate that costs incurred are allowable under the relevant program legislation, federal awarding agency regulations, and the terms and conditions of the award and consistent with the purpose of the grant. 2 CFR 200.403(a) states that federal program expenditures should be necessary and reasonable for the performance of the Federal award in accordance with allowable costs/cost principles requirements and 2 CFR 200.403(g) states that costs should be adequately documented. Conditions: 1. For fifteen (or 33%) of forty-six items, aggregating $11,525,386 of $36,042,947 in total non-payroll expenditures, deficiencies were noted, as follows: See the Notes to the SEFA for chart/table. Finding No.: 2024-025, continued Federal Agency: U.S. Department of the Treasury AL Program: 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Section 9901 of the American Rescue Plan Act of 2021 Area: Activities Allowed or Unallowed Area: Allowable Cost/Cost Principles Questioned Costs: $5,617,888 Conditions, continued: For item #s 1 through 13, there were no supporting documents (e.g. purchase order, contract, invoice, payment advice) on file to substantiate whether such expenditures were allowable cost of the underlying grant. For item # 14, except for payment advice, there were no other supporting documents (e.g. purchase order, contract, invoice) on file to substantiate whether such expenditures were allowable cost of the underlying grant. For item # 15, payment advice was not on file. 2. For three (or 30%) of ten items, aggregating $16,236 of $11,409,253 in total payroll expenditures, deficiencies were noted, as follows: See the Notes to the SEFA for chart/table. For item # 1, job order number was not indicated in the timesheet, hence, we are unable to ascertain whether such expenditure was allowable cost of the underlying grant. For item # 2, payroll register was unclear or illegible. For item # 3, there were no supporting documents (e.g. timesheet, payroll register, personnel action file) on file to substantiate whether such expenditure was allowable cost of the underlying grant. Cause: The Department of Administration (DOA) did not enforce monitoring controls over compliance with applicable activities allowed or unallowed and allowable costs/cost principles requirements, specifically, retaining sufficient documentation to support transactions and ensuring expenditures are necessary and reasonable for the performance of the Federal award. Finding No.: 2024-025, continued Federal Agency: U.S. Department of the Treasury AL Program: 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Section 9901 of the American Rescue Plan Act of 2021 Area: Activities Allowed or Unallowed Area: Allowable Cost/Cost Principles Questioned Costs: $5,617,888 Effect: GovGuam is in noncompliance with activities allowed or unallowed and allowable costs/cost principles requirements. The reportable questioned cost is $5,617,888 based on the items identified in Conditions above. Recommendation: Responsible personnel should enforce monitoring controls over compliance with applicable activities allowed or unallowed and allowable costs/cost principles requirements, specifically, retaining sufficient documentation to support transactions. Views of Responsible Officials: The Agency disagrees with this finding. Please refer to a letter dated March 31, 2026, regarding Reports on Compliance September 30, 2024. Auditor’s Response: Our finding remains because we were unable to determine compliance with applicable requirements.
Finding No.: 2024-032 Federal Agency: U.S. Environmental Protection Agency AL Program: 66.600 Environmental Protection Consolidated Grants for the Insular Areas - Program Support Area: Activities Allowed or Unallowed Area: Allowable Cost/Cost Principles Questioned Costs: $11,154 Criteria: In accordance with the applicable activities allowed or unallowed requirements, institutions must demonstrate that costs incurred are allowable under the relevant program legislation, federal awarding agency regulations, and the terms and conditions of the award and consistent with the purpose of the grant. 2 CFR 200.403(a) states that federal program expenditures should be necessary and reasonable for the performance of the Federal award in accordance with allowable costs/cost principles requirements and 2 CFR 200.403(g) states that costs should be adequately documented. Condition: For 16 (or 67%) of twenty-four items, aggregating $19,823 of $3,526,794 in total payroll expenditures, deficiencies were noted, as follows: See the Notes to the SEFA for chart/table. For item #s 1 through 15, there were no supporting documents (e.g. timesheet, payroll register, personnel action file) on file to substantiate whether such expenditures were allowable cost of the underlying grant. Finding No.: 2024-032 continued Federal Agency: U.S. Environmental Protection Agency AL Program: 66.600 Environmental Protection Consolidated Grants for the Insular Areas - Program Support Area: Activities Allowed or Unallowed Area: Allowable Cost/Cost Principles Questioned Costs: $11,154 Condition, continued: For item # 16, we were unable to trace the amount tested against the provided supporting documentation. Cause: The Department of Administration (DOA) did not enforce monitoring controls over compliance with applicable activities allowed or unallowed and allowable costs/cost principles requirements, specifically, retaining sufficient documentation to support transactions and ensuring expenditures are necessary and reasonable for the performance of the Federal award. Effect: GovGuam is in noncompliance with activities allowed or unallowed and allowable costs/cost principles requirements. The reportable questioned cost is $11,154 based on the items identified in Condition above. Recommendation: Responsible personnel should enforce monitoring controls over compliance with applicable activities allowed or unallowed and allowable costs/cost principles requirements, specifically, retaining sufficient documentation to support transactions. Views of Responsible Officials: Request to DOA will require immediate collaboration between Guam EPA and DOA to gather, reconcile, and provide all documentation supporting compliance of allowable costs incurred during the federal award period of performance as specified in the terms and conditions of the federal award or in the approved extension.
Finding No.: 2024-040 Federal Agency: U.S. Department of Health and Human Service AL Program: 93.575/93.596 CCDF Cluster Area: Activities Allowed or Unallowed Area: Allowable Cost/Cost Principles Questioned Costs: $3,005 Criteria: In accordance with the applicable activities allowed or unallowed requirements, institutions must demonstrate that costs incurred are allowable under the relevant program legislation, federal awarding agency regulations, and the terms and conditions of the award and consistent with the purpose of the grant. 2 CFR 200.403(a) states that federal program expenditures should be necessary and reasonable for the performance of the Federal award in accordance with allowable costs/cost principles requirements and 2 CFR 200.403(g) states that costs should be adequately documented. Condition: For four (or 11%) of thirty-eight items, aggregating $45,527 of $32,818,949 in total non-payroll expenditures, deficiencies were noted, as follows: See the Notes to the SEFA for chart/table. For item #s 1 through 3, these pertain to transactions migrated from AS400 to D365 system. We were unable to determine whether such expenditures were allowable cost of the underlying grants. We were unable to trace the selected sample to the supporting documents since selected samples could not be traced to AS400 due to insufficient identifier in the migrated information. For item # 4, there was no vendor invoice or other supporting documents on file to substantiate whether such expenditure was allowable costs of the underlying grant. Finding No.: 2024-040, continued Federal Agency: U.S. Department of Health and Human Service AL Program: 93.575/93.596 CCDF Cluster Area: Activities Allowed or Unallowed Area: Allowable Cost/Cost Principles Questioned Costs: $3,005 Cause: The Department of Administration (DOA) did not enforce monitoring controls over compliance with applicable activities allowed or unallowed and allowable costs/cost principles requirements, specifically, retaining sufficient documentation to support transactions and ensuring expenditures are necessary and reasonable for the performance of the Federal award. Additionally, migrated information from AS400 to D355 was incomplete. Effect: GovGuam is in noncompliance with activities allowed or unallowed and allowable costs/cost principles requirements. The reportable questioned cost is $3,005 based on the items identified in Condition above. Recommendation: Responsible personnel should enforce monitoring controls over compliance with applicable activities allowed or unallowed and allowable costs/cost principles requirements, specifically, retaining sufficient documentation to support transactions. Views of Responsible Officials: The Bureau of Child Care Services (BCCS) disagrees with this finding. The questioned transactions relate to a major system migration from the AS400 to the D365 system, which temporarily impacted the traceability of certain records. During this transition, some data identifiers were reformatted to fit the new system's structure. However, this was a synchronization issue rather than a lack of oversight, and BCCS maintains that all costs are allowable, necessary, and reasonable under CCDF requirements. Supporting documents exist and were provided after a subsequent request on February 9, 2026, via One Drive link. Auditor’s Response: Our finding remains because we were unable to determine compliance with applicable requirements. We did not receive subsequent submissions or other documentations to resolve findings cited in the condition above.
Finding No.: 2024-049 Federal Agency: U.S. Department of Homeland Security AL Program: 97.036 Disaster Grants – Public Assistance (Presidentially Declared Disasters) Area: Activities Allowed or Unallowed Area: Allowable Costs/Cost Principles Questioned Costs: $65,621 Criteria: In accordance with the applicable activities allowed or unallowed requirements, institutions must demonstrate that costs incurred are allowable under the relevant program legislation, federal awarding agency regulations, and the terms and conditions of the award and consistent with the purpose of the grant. 2 CFR 200.403(a) states that federal program expenditures should be necessary and reasonable for the performance of the Federal award in accordance with allowable costs/cost principles requirements and 2 CFR 200.403(g) states that costs should be adequately documented. Furthermore, 2 CFR 200.431(c) states that the cost of fringe benefits in the form of employer contributions or expenses for social security; employee life, health, unemployment, and worker’s compensation insurance (except as indicated in 2 CFR 200.447); pension plan costs; and other similar benefits are allowable, provided such benefits are permitted under established written policies. The recipient or subrecipient must allocate fringe benefits to Federal awards and all other activities in a manner consistent with the pattern of benefits attributable to the individuals or group(s) of employees whose salaries and wages are chargeable to such Federal awards and other activities and charged as direct or indirect costs following the recipient’s or subrecipient’s accounting practices. Conditions: 1. For one (or 8%) of twelve items, aggregating $900,119 of $1,109,001 in total non-payroll expenditures, there were no supporting documents (e.g. contracts, vendor invoice, payment advice) on file to substantiate whether expenditure amounting to $61,799 related to federal award no. PA09GU4495PW00061-54 and with voucher no. IJE0027179, was allowable cost of the underlying grant. Finding No.: 2024-049, continued Federal Agency: U.S. Department of Homeland Security AL Program: 97.036 Disaster Grants – Public Assistance (Presidentially Declared Disasters) Area: Activities Allowed or Unallowed Area: Allowable Costs/Cost Principles Questioned Costs: $65,621 Conditions, continued: 2. For three (or 33%) of nine items, aggregating $13,103 of $833,788 in total payroll expenditures, deficiencies were noted, as follows: Item No. See the Notes to the SEFA for chart/table. For item # 1, personnel action file was not on file. For item #s 2 through 3, there were no supporting documents (e.g. timesheet, payroll register, personnel action file) on file to substantiate whether expenditure was allowable cost of the underlying grant. Cause: The Department of Administration (DOA) did not enforce monitoring controls over compliance with applicable activities allowed or unallowed and allowable costs/cost principles requirements, specifically, retaining sufficient documentation to support transactions and ensuring expenditures are necessary and reasonable for the performance of the Federal award. Effect: GovGuam is in noncompliance with activities allowed or unallowed and allowable costs/cost principles requirements. The reportable questioned cost is $65,621 based on the items identified in Conditions above. Recommendation: Responsible personnel should enforce monitoring controls over compliance with applicable activities allowed or unallowed and allowable costs/cost principles requirements, specifically, retaining sufficient documentation to support transactions. Finding No.: 2024-049, continued Federal Agency: U.S. Department of Homeland Security AL Program: 97.036 Disaster Grants – Public Assistance (Presidentially Declared Disasters) Area: Activities Allowed or Unallowed Area: Allowable Costs/Cost Principles Questioned Costs: $65,621 Views of Responsible Officials: Guam Homeland Security (GHS) will make sure that proper supporting documentation is available. GHS will also identify department personnel responsible.
Finding 2024‐005—Period of Performance—SIGNIFICANT DEFICIENCY IN INTERNAL CONTROLS OVER COMPLIANCE AND NONCOMPLIANCE Federal Program: COVID-19 Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) Assistance Listing Number: 21.027 Year(s): 2024 Federal Agency: US Department of Treasury Pass‐Through Agencies: City of Modesto, Sacred Heart Community Service, and Second Harvest of Silicon Valley Criteria—A non-federal entity may charge only allowable costs incurred during the approved budget period of a federal award’s period of performance and any costs incurred before the federal awarding agency or pass-through entity made the federal award that were authorized by the federal awarding agency or pass-through entity (2 CFR sections 200.308, 200.309, and 200.403(h)). A period of performance may contain one or more budget periods. Condition and Context—During testing of the Period of Performance (POP) requirement, 5 selected payroll expenditures totaling $7,983 of a total of 40 selections were incurred prior to the grant's start date as stated in the grant agreement with the pass-through entity, Sacred Heart Community Service. These 5 selections were related to payroll and benefits expenditures and were for the pay period May 19, 2024, to June 1, 2024, whereas the grant start date was June 1, 2024. Although the Division paid for those expenditures after the grant's start date, the underlying expenditure was incurred prior to such date, resulting in noncompliance with the POP compliance requirement and the associated control. There were a total of 42 payroll and benefits transactions totaling $43,861 that were incurred before the grant’s start date. Cause—Management focused on ensuring that the underlying costs were paid for within the grant's approved budget period rather than ensuring that the underlying costs were incurred within that period. Further, management did not obtain authorization from the grantor to charge costs that were incurred before the grant's approved budget period. Effect—The Division will be in noncompliance with its POP compliance requirement and there is risk the grantor will not reimburse the costs incurred. Questioned Cost—$43,861. Repeat Finding from Prior Year—No. Recommendation—We recommend that management take steps to ensure that only costs incurred during the approved budget period of a federal award’s period of performance are charged to the grant and any costs incurred before the federal award was made was authorized by the pass-through entity. View of Responsible Officials—See Corrective Action Plan.
Finding Number: 2024-018 Prior Year Finding Number: 2023-019 Compliance Requirement: Allowable Costs/Cost Principles – Payroll Activities/ Period of Performance Program: U.S. Department of Agriculture Government Department/Agency: Department of Human Services (DHS) Supplemental Nutrition Assistance Program Cluster (SNAP) ALN: 10.561 Award #: Various Award Period: Various Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e., auditee management) establish, document, and maintain internal control designed to ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Management is responsible for establishing and maintaining a system of internal control that should include controls over its activities allowed or unallowed, allowable cost/cost principal process. CFR 200.403(g) states that for costs to be allowed under federal awards, they must be adequately documented. Additionally, salaries and wages charged to Federal awards are subject to the standards of documentation as described by 2 CFR Section 200.430(i) and must be based on records that accurately reflect the work performed. These records must: • Be incorporated into the organization’s official records. • Reasonably reflect the total activity for which the employee is compensated across all grant-related and non-grant related activities (100%); and • Support the distribution of employee salary across multiple activities or cost objectives. Condition – We noted the following: • The SNAP participation report was not properly reconciled to accounting records. • One grant award was overspent by $391,000. No adjustment was made to the SEFA. • During our testing of allowable costs for payroll expenditures incurred throughout the year, we sampled and selected 60 of the 1,806 payroll disbursements and noted the following: o 19 instances in which DHS did not consistently apply the funding allocation. The hours that should have been split 50/50 between federal and local or that should have been 100% local were charged 100% to the program. o 3 instances in which the project code on an employee’s Notice of Personnel Action (NOPA), which is used to record time and effort to the appropriate grant, were expired and had not been updated. o 9 instances in which payroll costs were charged outside of the award’s period of performance. Further, we noted that internal controls identified did not appear to be operating at a level of precision to ensure compliance with the above-mentioned requirements. Cause – DHS does not appear to have adequate policies and procedures to ensure compliance with applicable cost principles and ensure that an appropriate level of review and approval was completed prior to charging costs to a federal program. Effect or Potential Effect – An ineffective control system related to review of transactions to ensure that only allowable costs are allocated to federal programs can lead to noncompliance with federal statutes, regulations, and the provisions of grant agreements that could ultimately lead to disallowed costs for the major programs. Questioned Costs – Not determinable. Given the nature of the finding (e.g. unavailability of supporting documentation), we determined that projecting estimated questioned costs to the entire population was inappropriate. Context – This is a condition identified per review of DHS’ compliance with the specified requirements using a statistically valid sample. The total payroll expenditures charged to the program in fiscal year 2024 were $4,207,231. The amount sampled is $159,098. The known amount of inconsistencies noted is $38,462. The total food stamps expenditure charged to the program in fiscal year 2024 were $72,308,337. The known amount of unreconciled information is $355,108. Recommendation – We recommend that DHS reevaluate and improve internal controls to ensure adherence to federal regulations related to the fiscal administrative requirement for expending and accounting for payroll and to ensure proper and accurate funding allocation of payroll cost. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. DHS has enhanced the internal control policies and processes to ensure compliance with federal requirements and has adopted an electronic system for payroll, replacing manual processes. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report.
Finding Number: 2024-025 Prior Year Finding Number: 2023-029 Compliance Requirement: Allowable Costs/Cost Principles – Payroll Activities Program: U.S. Department of Defense Government Department/Agency: Office of the Adjutant General (OTAG) National Guard Military Operations and Maintenance (O&M) Projects ALN: 12.401 Award #: W9127P-23-2, W9127P-24-2 Award Period: 10/01/2022 – 09/30/2023 10/01/2023 – 09/30/2024 Criteria – CFR 200.403(g) states that for costs to be allowed under Federal awards, they must be adequately documented. Additionally, salaries and wages charged to Federal awards are subject to the standards of documentation as described by 2 CFR Section 200.403(i) and must be based on records that accurately reflect the work performed. These records must: • Be incorporated into the organization’s official records. • Reasonably reflect the total activity for which the employee is compensated across all grant-related and non-grant related activities (100%); and • Support the distribution of employee salary across multiple activities or cost objectives. The Uniform Guidance in 2 CFR 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e., auditee management) establish, document, and maintain internal control designed to ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition – We selected a sample of 60 out of 3,696 payroll transactions and identified the following: • 3 instances where the timesheets for the pay period selected were not provided. • 1 instance in which total hours worked on the employees’ timesheet did not agree with total hours worked as recorded in the payroll register. Further, it does not appear that the controls in place are operating at a level of precision to ensure compliance with the allowable costs/cost principles compliance requirements. Cause – OTAG does not appear to have adequate policies and procedures in place to ensure compliance with applicable cost principles and the required period of performance stipulations. Effect or Potential Effect – OTAG is not in compliance with the stated provisions. Failure to properly review and support expenditures can result in noncompliance with laws and regulations along with loss of funding. Questioned Costs – Below reporting threshold. Context – This is a condition identified per review of OTAG’s compliance with the specified requirements using a statistically valid sample. The total amount of payroll expenditures charged to the program during fiscal year 2024 were $1,669,934 and the total amount of our sample was $52,772. The known amount of the exceptions totaled $11,469. Recommendation – We recommend that OTAG strengthen internal controls by developing and implementing policies and procedures to ensure compliance with Federal requirements related to payroll expenditures, including applicable cost principles and documentation standards. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. OTAG has reviewed the payroll transactions identified during the audit and has initiated corrective measures to strengthen controls over payroll documentation, appendix charging, and period-of-performance compliance. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report.
Finding Number: 2024-030 Prior Year Finding Number: 2023-033 Compliance Requirement: Activities Allowed or Unallowed and Allowable Costs/Cost Principles – Payroll Activities Program: U.S. Department of the Interior Government Department/Agency: Department of Planning and Natural Resources (DPNR) Fish and Wildlife Cluster ALN: 15.605, 15.611 Award #: Various Award Period: Various Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e., auditee management) establish, document, and maintain internal control designed to ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Management is responsible for establishing and maintaining a system of internal control that should include controls over its activities allowed or unallowed and allowable cost/cost principal process. CFR 200.403(g) requires all costs charged to a federal award must be adequately documented. Additionally, salaries and wages charged to Federal awards are subject to the standards of documentation as described by 2 CFR Section 200.430(i) and must be based on records that accurately reflect the work performed. These records must: • Be incorporated into the organization’s official records. • Reasonably reflect the total activity for which the employee is compensated across all grant-related and non-grant related activities (100%); and • Support the distribution of employee salary across multiple activities or cost objectives. Condition – During our testing of allowable costs for payroll expenditures incurred throughout the year, we sampled and selected 60 of 620 payroll disbursements and noted the following: • 1 instance in which the approved timesheet for the pay period selected was not available for review, and there was a variance between the hours reported on the payroll register and the Detail Check History. • 13 instances in which the employee assigned project code documented on the Notice of Personnel Action was not associated with the grant. Additionally, the payroll register reflected a different project code for these transactions. As a result, it does not appear that the controls in place are operating at a level of precision to ensure compliance with the compliance requirement. Cause – DPNR does not appear to have adequate policies and procedures to ensure compliance with applicable cost principles and to ensure that an appropriate level of review and approval was completed prior to charging costs to a federal program. Effect or Potential Effect – An ineffective control system related to review of transactions to ensure that only allowable costs are allocated to federal programs can lead to noncompliance with federal statutes, regulations, and the provisions of grant agreements that could ultimately lead to disallowed costs for the major programs. Questioned Costs – $43,593. Context – This is a condition identified per review of the DPNR’s compliance with the specified requirements using a statistically valid sample. The total payroll expenditures charged to the program in fiscal year 2024 were $1,704,442. The amount sampled is $181,084. The value of transactions with exceptions totaled $43,593. Recommendation – We recommend that DPNR reevaluate and improve internal controls to ensure adherence to federal regulations related to the fiscal administrative requirement for expending and accounting for payroll and to ensure proper and accurate funding allocation of payroll cost. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. DPNR will enhance internal control procedures to include reconciliations and increased review and approval requirements. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report.
Finding Number: 2024-032 Prior Year Finding Number: N/A Compliance Requirement: Activities Allowed or Unallowed and Allowable Costs/Cost Principles – Payroll Activities Program: U.S. Department of the Interior Government Department/Agency: Department of Planning and Natural Resources (DPNR) Economic, Social, and Political Development of the Territories ALN: 15.875 Award #: Various Award Period: Various Criteria - The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e., auditee management) establish, document, and maintain internal control designed to ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Management is responsible for establishing and maintaining a system of internal control that should include controls over its activities allowed or unallowed, allowable cost/cost principal process. CFR 200.403(g) states that for costs to be allowed under federal awards, they must be adequately documented. Additionally, salaries and wages charged to Federal awards are subject to the standards of documentation as described by 2 CFR Section 200.430(i) and must be based on records that accurately reflect the work performed. These records must: • Be incorporated into the organization’s official records. • Reasonably reflect the total activity for which the employee is compensated across all grant-related and non-grant related activities (100%); and • Support the distribution of employee salary across multiple activities or cost objectives. Condition – The payroll expenditures recorded in the Schedule of Expenditures of Federal Awards (SEFA) agree to the payroll expenditures recorded in the accounting system. The summary level payroll transactions recorded in the accounting system could not be reconciled to the transaction level detail obtained from the payroll system. When comparing the two populations, we identified multiple differences that net to a variance of $38,439. Cause – DPNR did not adhere to their internal policies and procedures to ensure the accuracy of the SEFA. Effect or Potential Effect – The SEFA may not be completely and accurately stated. In addition, the lack of established internal control policies and procedures to ensure the SEFA is completely and accurately stated can lead to noncompliance with federal statutes, regulations, and provisions of grant agreements. Questioned Costs – Not determinable. Given the nature of the finding (e.g. unavailability of supporting documentation), we determined that projecting estimated questioned costs to the entire population was inappropriate. Context – This is a condition identified per review of DPNR system’s population completeness over the compliance requirements for the program. Total payroll expenditure charged to the program for the year is $16,218. Recommendation – We recommend that the DPNR develop policies and procedures and enhance existing their existing reconciliation process to ensure completeness and accuracy of the SEFA, and that amounts reported on the SEFA are supported by transaction level detail. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. DPNR will implement enhanced internal control procedures to ensure that payroll expenditures reported on the Schedule of Expenditures of Federal Awards (SEFA) are complete, accurate, and fully supported by transaction-level detail in accordance with Federal statutes and regulations by implementing monthly payroll reconciliations, by developing and enhancing internal controls and procedures, and by providing training to relevant personnel. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report.
Finding Number: 2024-049 Prior Year Finding Number: N/A Compliance Requirement: Activities Allowed or Unallowed and Allowable Costs/Cost Principles – Payroll Activities Program: U.S. Department of the Treasury Government Department/Agency: Office of Management and Budget (OMB) COVID-19 - Coronavirus State and Local Fiscal Recovery Funds ALN: 21.027 Award #: N/A Award Period: 03/03/2021 – 12/31/2024 Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e., auditee management) establish, document, and maintain internal control designed to ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. CFR 200.403(g) states that for costs to be allowed under federal awards, they must be adequately documented. Additionally, salaries and wages charged to Federal awards are subject to the standards of documentation as described by 2 CFR Section 200.430(i) and must be based on records that accurately reflect the work performed. These records must: • Be incorporated into the organization’s official records. • Reasonably reflect the total activity for which the employee is compensated across all grant-related and non-grant related activities (100%); and • Support the distribution of employee salary across multiple activities or cost objectives. Condition – During our testing of allowable costs for payroll expenditures incurred throughout the year, we sampled and selected 60 of 20,245 payroll disbursements, and noted 1 instance in which the fringe benefit calculation did not agree to the fringe benefits reported on the Detail Check History. Further, we noted that internal controls identified did not appear to be operating at a level of precision to ensure compliance with the above-mentioned requirements. Cause – OMB does not appear to have adequate policies and procedures to ensure compliance with applicable cost principles and to ensure that an appropriate level of review and approval was completed prior to charging costs to a federal program. Effect or Potential Effect – An ineffective control system related to review of transactions to ensure that only allowable costs are allocated to federal programs can lead to noncompliance with federal statutes, regulations, and the provisions of grant agreements that could ultimately lead to disallowed costs for the major program. Questioned Costs - Below reporting threshold. Context – This is a condition identified per review of OMB’s compliance with the specified requirements using a statistically valid sample. The total payroll expenditures charged to the program in fiscal year 2024 were $72,688,940. The amount sampled is $68,113,730. The known amount of instances of noncompliance is $7,155, which represents the fringe benefits charged to the program that did not agree with the calculation. Recommendation – We recommend that OMB reevaluate and improve internal controls to ensure adherence to federal regulations related to the fiscal administrative requirement for expending and accounting for payroll and to ensure proper and accurate funding allocation of payroll cost. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. OMB will coordinate with the Department of Finance to communicate the identified discrepancy and will work collaboratively to strengthen review procedures over payroll cost allocations charged to federal programs. In addition, OMB will reevaluate its existing oversight controls to ensure that payroll expenditures charged to federal awards are supported by appropriate documentation and reviewed for compliance with applicable federal requirements. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report.
Finding Number: 2024-053 Prior Year Finding Number: N/A Compliance Requirement: Allowable Costs/Cost Principles – Non-Payroll Activities Program: U.S. Environmental Protection Agency Government Department/Agency: Department of Public Works (DPW) Department of Planning and Natural Resources (DPNR) Construction Grants for Wastewater Treatment Works ALN: 66.418 Award #: Various Award Period: Various Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e., auditee management) establish, document, and maintain internal control designed to ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. In addition, per 2 CFR Section 200.403, Factors Affecting Allowability of Costs, “Except where otherwise authorized by statute, costs must meet the following general criteria to be allowable under federal awards: a. Be necessary and reasonable for the performance of the federal award and be allocable thereto under these principles. b. Conform to any limitations or exclusions set forth in these principles or in the federal award as to types or amounts of cost items. c. Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the non-federal entity. d. Be accorded consistent treatment. A cost may not be assigned to a federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the federal award as an indirect cost. e. Be determined in accordance with generally accepted accounting principles (GAAP), except, for state and local governments and Indian tribes only, as otherwise provided for in this part. f. Not be included as a cost or used to meet cost sharing or matching requirements of any other federally financed program in either the current or a prior period. g. Be adequately documented.” Condition – Expenditures in excess of the award amount totaling $67,068 were reported on the 2024 SEFA. Further, it does not appear that the controls in place are operating at a level of precision to ensure compliance with the allowable costs/cost principles compliance requirements. Cause – The Government did not adhere to their internal policies and procedures to ensure the accuracy of the SEFA. Effect or Potential Effect – The SEFA is not accurately stated. Lack of established internal control policies and procedures to ensure the SEFA is completely and accurately stated can lead to noncompliance with federal statutes, regulations, and provisions of grant agreements. Questioned Costs – $67,078. Context – This is a condition identified per review of the completeness of the non-payroll expenditures population for the program. Recommendation – We recommend that DPNR develop policies and procedures and enhance existing reconciliation process to ensure completeness and accuracy of the SEFA and that amounts reported on the SEFA are not in excess of award amounts. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The Government’s Audit Committee is leading the development of a structured, three-tier policy and procedures framework under the Public Finance Management project. Regular training sessions will be provided to staff involved in grant management to ensure they understand and adhere to compliance requirements with monitoring and evaluation occurring by the OMB Compliance Unit supported by the Government’s Audit Committee, to assess and improve the effectiveness of controls. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report.
Finding Number: 2024-054 Prior Year Finding Number: N/A Compliance Requirement: Allowable Costs/Cost Principles – Payroll Activities Program: U.S. Environmental Protection Agency Government Department/Agency: Department of Public Works (DPW) Department of Planning and Natural Resources (DPNR) Construction Grants for Wastewater Treatment Works ALN: 66.418 Award #: Various Award Period: Various Criteria – CFR 200.403(g) states that for costs to be allowed under Federal awards, they must be adequately documented. Additionally, salaries and wages charged to Federal awards are subject to the standards of documentation as described by 2 CFR Section 200.403(i) and must be based on records that accurately reflect the work performed. These records must: • Be incorporated into the organization’s official records. • Reasonably reflect the total activity for which the employee is compensated across all grant-related and non-grant related activities (100%); and • Support the distribution of employee salary across multiple activities or cost objectives. The Uniform Guidance in 2 CFR 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e., auditee management) establish, document, and maintain internal control designed to ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition – We sampled 6 out of 55 payroll transactions, and noted 4 employee timesheets were not available for review. Cause – DPNR does not appear to have adequate policies and procedures in place to ensure compliance with applicable cost principles and the required period of performance stipulations. Effect or Potential Effect – DPNR is not in compliance with the stated provisions. Failure to properly review and support expenditures can result in noncompliance with laws and regulations along with loss of funding. Questioned Costs – Below reportable threshold. Context – This is a condition identified per review of DPNR’s compliance with the specified requirements using a statistically valid sample. The total amount of payroll expenditures charged to the program during fiscal year 2024 were $44,751 and the total amount of our sample was $5,086. The known amount of the exceptions totaled $3,029. Recommendation – We recommend that DPNR strengthen internal controls to ensure adherence to federal regulations related to the fiscal and administrative requirements for expending and accounting for payroll expenditures. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The Government’s Audit Committee is leading the development of a structured, three-tier policy and procedures framework under the Public Finance Management project. Regular training sessions will be provided to staff involved in grant management to ensure they understand and adhere to compliance requirements with monitoring and evaluation occurring by the OMB Compliance Unit supported by the Government’s Audit Committee, to assess and improve the effectiveness of controls. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report.
Finding Number: 2024-058 Prior Year Finding Number: N/A Compliance Requirement: Allowable Costs/Cost Principles – Payroll Activities Program: U.S. Environmental Protection Agency Government Department/Agency: Department of Planning and Natural Resources (DPNR) Capitalization Grants for Drinking Water State Revolving Fund ALN: 66.468 Award #: Various Award Period: Various Criteria - The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e., auditee management) establish, document, and maintain internal control designed to ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Management is responsible for establishing, documenting and maintaining a system of internal control that should include controls over its activities allowed or unallowed, and the allowable cost/cost principle process. CFR 200.403(g) states that for costs to be allowed under federal awards, they must be adequately documented. Additionally, salaries and wages charged to Federal awards are subject to the standards of documentation as described by 2 CFR Section 200.430(i) and must be based on records that accurately reflect the work performed. These records must: • Be incorporated into the organization’s official records. • Reasonably reflect the total activity for which the employee is compensated across all grant-related and non-grant related activities (100%); and • Support the distribution of employee salary across multiple activities or cost objectives. Condition – During our testing of allowable costs for payroll expenditures incurred throughout the year, we sampled and selected 10 of 91 payroll disbursements. For each of the 10 samples, the employee pay rate documented in the approved Notice of Personnel Action did not agree with the pay rate reflected in the payroll register. As a result, it does not appear that the controls in place are operating at a level of precision to ensure compliance with the compliance requirement. Cause – DPNR does not appear to have adequate policies and procedures to ensure compliance with applicable cost principles and ensure that an appropriate level of review was completed prior to charging costs to a federal program. Effect or Potential Effect – An ineffective control system related to review of transactions to ensure that only allowable costs are allocated to federal programs can lead to noncompliance with federal statutes, regulations, and the provisions of grant agreements that could ultimately lead to disallowed costs for the major program. Questioned Costs – Below reportable threshold. Context – This is a condition identified per review of DPNR’s compliance with the specified requirements using a statistically valid sample. The total payroll expenditures charged to the program in fiscal year 2024 was $132,646. The amount sampled is $18,936. Recommendation – We recommend that DPNR reevaluate and improve internal controls to ensure adherence to federal regulations related to the fiscal administrative requirement for expending and accounting for payroll transactions. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. DPNR will conduct a comprehensive internal review of the payroll transactions identified in the audit sample to determine the cause of the discrepancies between the payroll registers and the Notices of Personnel Action provided during the audit. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report.
Finding Number: 2024-062 Prior Year Finding Number: 2023-049 Compliance Requirement: Allowable Costs/Cost Principles – Payroll Activities Program: U.S. Department of Education Government Department/Agency: Department of Education (VIDE) Special Education Cluster ALN: 84.027 (84.027A and 84.027X) Award #: Various Award Period: Various Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e., auditee management) establish, document, and maintain internal control designed to ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Management is responsible for establishing and maintaining a system of internal control that should include controls over its activities allowed or unallowed, allowable cost/cost principal process. CFR 200.403(g) states that for costs to be allowed under federal awards, they must be adequately documented. Additionally, salaries and wages charged to Federal awards are subject to the standards of documentation as described by 2 CFR Section 200.430(i) and must be based on records that accurately reflect the work performed. These records must: • Be incorporated into the organization’s official records. • Reasonably reflect the total activity for which the employee is compensated across all grant-related and non-grant related activities (100%); and • Support the distribution of employee salary across multiple activities or cost objectives. Furthermore, CFR 200.113 requires that an applicant, recipient, or subrecipient of a Federal award must promptly disclose, in writing, whenever it has credible evidence of the commission of a violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code, or a violation of the civil False Claims Act, in connection with the Federal award (including any activities or subawards thereunder). The disclosure must be made to the Federal agency, the agency's Office of Inspector General, and the pass-through entity (if applicable). Condition – During our testing of allowable costs for payroll expenditures incurred throughout the year, we sampled and selected 40 of 3,392 payroll disbursements and noted the following: • 6 instances where the approved timesheets for the selected pay periods were not available for review. In addition, in 1 of these instances the check detail payment was not available for review. • 1 instance where there was inconsistency between the project code reflected on the check detail and on the NOPA for the selected pay period. • 1 instance where the hours per the timesheet did not agree to the check history detail. As a result, it does not appear that the controls in place are operating at a level of precision to ensure compliance with the compliance requirement. Cause – VIDE does not appear to have adequate policies and procedures to ensure compliance with applicable cost principles and ensure that an appropriate level of review was completed prior to charging costs to a federal program. Effect or Potential Effect – An ineffective control system related to review of transactions to ensure that only allowable costs are allocated to federal programs can lead to noncompliance with federal statutes, regulations, and the provisions of grant agreements that could ultimately lead to disallowed costs for the major programs. Questioned Costs – Below reporting threshold. Context – This is a condition identified per review of VIDE’s compliance with the specified requirements using a statistically valid sample. The total payroll expenditures charged to the program in fiscal year 2024 was $6,233,846. The amount sampled is $88,200. Recommendation – We recommend that VIDE reevaluate and improve internal controls to ensure adherence to federal regulations related to the fiscal administrative requirement for expending and accounting for payroll transactions. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. VIDE is addressing audit findings related to payroll activities by enhancing internal controls to ensure compliance with federal regulations and by providing mandatory training. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report.
Finding Number: 2024-063 Prior Year Finding Number: N/A Compliance Requirement: Allowable Costs/Cost Principles – Indirect Cost Program: U.S. Department of Education Government Department/Agency: Department of Education (VIDE) Special Education Cluster ALN: 84.027 (84.027A and 84.027X) Award #: Various Award Period: Various Criteria - The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e., auditee management) establish, document, and maintain internal control designed to ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Management is responsible for establishing and maintaining a system of internal control that should include controls over its activities allowed or unallowed, allowable cost/cost principal process. CFR 200.403(g) states that for costs to be allowed under federal awards, they must be adequately documented. Additionally, indirect costs charged to the program must be supported by a valid negotiated indirect cost rate agreement or applied using the de minimis rate, and must be allowable, allocable, reasonable, and adequately supported. Condition – During our testing of allowable costs for indirect cost expenditures incurred throughout the year, we sampled and selected 4 transactions out of 13 transactions and noted 4 instances where the check payment details and other related supporting documentation were not available for review. As a result, it does not appear that the controls in place are operating at a level of precision to ensure compliance with the compliance requirement. Cause – VIDE does not appear to have adequate policies and procedures in place to ensure compliance with applicable cost principles and maintenance of underlying documentation. Effect or Potential Effect – Failure to properly review and support expenditures can result in noncompliance with laws and regulations along with loss of funding. Questioned Costs – $94,264. Context – This is a condition identified per review of VIDE’s compliance with the specified requirements using a statistically valid sample. The total indirect cost expenditures charged to program in fiscal year 2024 is $390,164. Total amount sampled is $94,264. The known amount of the instances of noncompliance is $94,264. Recommendation – We recommend that VIDE improve internal controls to ensure adherence to the Federal regulations related to the fiscal and administrative requirements for expending and accounting for indirect costs. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. VIDE will reinforce its procedures for tracking, compiling, and storing documentation related to grant expenditures to ensure compliance with federal regulations. VIDE is scheduling mandatory trainings for all relevant VIDE staff. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report.
Finding Number 2024-068 Prior Year Finding Number: 2023-052 Compliance Requirement: Allowable Costs/Cost Principles – Payroll Activities Program: U.S. Department of Education Government Department/Agency: Department of Education (VIDE) Consolidated Grant to the Outlying Areas ALN: 84.403A Award #: Various Award Period: Various Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e., auditee management) establish, document, and maintain internal control designed to ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Management is responsible for establishing and maintaining a system of internal control that should include controls over its activities allowed or unallowed, allowable cost/cost principal process. CFR 200.403(g) states that for costs to be allowed under federal awards, they must be adequately documented. Additionally, salaries and wages charged to Federal awards are subject to the standards of documentation as described by 2 CFR Section 200.430(i) and must be based on records that accurately reflect the work performed. These records must: • Be incorporated into the organization’s official records. • Reasonably reflect the total activity for which the employee is compensated across all grant-related and non-grant related activities (100%); and • Support the distribution of employee salary across multiple activities or cost objectives. Condition – During our testing of allowable costs for payroll expenditures incurred throughout the year, we sampled and selected 60 of 3,236 payroll disbursements and noted the following: • 4 instances where the approved timesheet for the selected pay period was not available for review. In addition, in 1 of these instances, the NOPA/per diem support was also not available for review. • 1 instance where the project code was not reflected in check detail and NOPA. • 1 instance where the payment support (check detail) and the NOPA/per diem support were not available for review. • 2 instances where recorded timesheet hours did not agree with payroll register. As a result, it does not appear that the controls in place are operating at a level of precision to ensure compliance with the compliance requirement. Cause – VIDE does not appear to have adequate policies and procedures to ensure compliance with applicable cost principles and ensure that an appropriate level of review and approval was completed prior to charging costs to a federal program. Effect or Potential Effect – An ineffective control system related to review of transactions to ensure that only allowable costs are allocated to federal programs can lead to noncompliance with federal statutes, regulations, and the provisions of grant agreements that could ultimately lead to disallowed costs for the major programs. Questioned Costs – Below reporting threshold. Context – This is a condition identified per review of VIDE’s compliance with the specified requirements using a statistically valid sample. The total payroll expenditures charged to the program in fiscal year 2024 was $6,052,527. The amount sampled is $128,721. Recommendation – We recommend that VIDE reevaluate and improve internal controls to ensure adherence to federal regulations related to the fiscal administrative requirement for expending and accounting for payroll and to ensure proper and accurate funding allocation of payroll cost. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. VIDE is addressing audit findings related to payroll activities by enhancing internal controls to ensure compliance with federal regulations and by providing mandatory training. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report.
Finding Number: 2024-069 Prior Year Finding Number: N/A Compliance Requirement: Allowable Costs/Cost Principles – Indirect Cost Program: U.S. Department of Education Government Department/Agency: Department of Education (VIDE) Consolidated Grant to the Outlying Areas ALN: 84.403A Award #: Various Award Period: Various Criteria - The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e., auditee management) establish, document, and maintain internal control designed to ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Management is responsible for establishing and maintaining a system of internal control that should include controls over its activities allowed or unallowed, allowable cost/cost principal process. CFR 200.403(g) states that for costs to be allowed under federal awards, they must be adequately documented. Additionally indirect costs charged to the program must be supported by a valid negotiated indirect cost rate agreement or applied using the de minimis rate, and must be allowable, allocable, reasonable, and adequately supported. Condition – During our testing of allowable costs for indirect cost expenditures incurred throughout the year, we sampled and selected 4 transactions out of the 16 transactions and noted 4 instances where the check payment details and other related supporting documentation were not available for review. As a result, it does not appear that the controls in place are operating at a level of precision to ensure compliance with the compliance requirement. Cause – VIDE does not appear to have adequate policies and procedures in place to ensure compliance with applicable cost principles and maintenance of underlying documentation. Effect or Potential Effect – Failure to properly review and support expenditures can result in noncompliance with laws and regulations along with loss of funding. Questioned Costs – $229,560. Context – This is a condition identified per review of VIDE’s compliance with the specified requirements using a statistically valid sample. The total indirect cost expenditures charged to program in fiscal year 2024 is $801,866. Total amount sampled is $229,560. The known amount of the instances of noncompliance is $229,560. Recommendation – We recommend that VIDE improve internal controls to ensure adherence to the Federal regulations related to the fiscal and administrative requirements for expending and accounting for indirect costs. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. VIDE will reinforce its procedures for tracking, compiling, and storing documentation related to grant expenditures to ensure compliance with federal regulations. VIDE is scheduling mandatory trainings for all relevant VIDE staff. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report.
Finding Number: 2024-074 Prior Year Finding Number: N/A Compliance Requirement: Allowable Costs/Cost Principles – Indirect Cost Program: U.S. Department of Education Government Department/Agency: Department of Education (VIDE) Office of Management and Budget (OMB) COVID-19 – Education Stabilization Fund State Educational Agency (Outlying Areas) (ESF-SEA) ALN: 84.425A Award #: S425A200004, S425A210004 Award Period: 06/22/2020 – 09/30/2022 01/13/2021 – 09/30/2023 COVID-19 – Education Stabilization Fund Governors (Outlying Areas) (ESF Governor) ALN: 84.425H Award #: S425H200003, S425H210003 Award Period: 06/29/2020 – 09/30/2022 01/13/2021 – 09/30/2023 COVID-19 – American Rescue Plan – Outlying Areas State Educational Agency (ARP-OA SEA) ALN: 84.425X Award #: S425X210004 Award Period: 04/08/2021 – 09/30/2024 Criteria - The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e., auditee management) establish, document, and maintain internal control designed to ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Management is responsible for establishing and maintaining a system of internal control that should include controls over its activities allowed or unallowed, allowable cost/cost principal process. CFR 200.403(g) states that for costs to be allowed under federal awards, they must be adequately documented. Additionally indirect costs charged to the program must be supported by a valid negotiated indirect cost rate agreement or applied using the de minimis rate, and must be allowable, allocable, reasonable, and adequately supported. Condition – During our testing of allowable costs for indirect cost expenditures incurred throughout the year, we sampled and selected 3 transactions out of 16 transactions and noted 3 instances where the detailed project expenditure report was not available for review. Further, it does not appear that the controls in place are operating at a level of precision to ensure compliance with the activities allowed or unallowed and allowable costs/cost principles compliance requirements. Cause – VIDE does not appear to have adequate policies and procedures in place to ensure compliance with applicable cost principles and maintenance of underlying documentation. Effect or Potential Effect – Failure to properly review and support expenditures can result in noncompliance with laws and regulations along with loss of funding. Questioned Costs – $637,951. Context – This is a condition identified per review of VIDE’s compliance with the specified requirements using a statistically valid sample. The total indirect cost expenditures charged to program in fiscal year 2024 is $2,539,845. Total amount sampled is $637,951. The known amount of the instances of noncompliance is $637,951. Recommendation – We recommend that VIDE improve internal controls to ensure adherence to the Federal regulations related to the fiscal and administrative requirements for expending and accounting for indirect costs. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. VIDE will reinforce its procedures and controls over grant expenditures and indirect costs and will coordinate to facilitate trainings for all relevant VIDE staff. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report.
Finding Number: 2024-078 Prior Year Finding Number: N/A Compliance Requirement: Allowable Costs/Cost Principles – Payroll Activities Program: U.S. Department of Health and Human Services Government Department/Agency: Department of Health (DOH) Epidemiology and Laboratory Capacity for Infectious Disease ALN: 93.323 Award #: Various Award Period: Various Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e., auditee management) establish, document, and maintain internal control designed to ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Management is responsible for establishing and maintaining a system of internal control that should include controls over its activities allowed or unallowed, allowable cost/cost principle process. CFR 200.403(g) states that for costs to be allowed under federal awards, they must be adequately documented. Additionally, salaries and wages charged to Federal awards are subject to the standards of documentation as described by 2 CFR Section 200.430(i) and must be based on records that accurately reflect the work performed. These records must: • Be incorporated into the organization’s official records; • Reasonably reflect the total activity for which the employee is compensated across all grant-related and non-grant related activities (100%); and • Support the distribution of employee salary across multiple activities or cost objectives. Condition – DOH was unable to reconcile the payroll expense include in the SEFA with the payroll expense in the payroll register. As a result, we were not able to establish the completeness of the population and were unable to perform testing procedures. Cause – DOH does not appear to have adequate policies and procedures in place to review and reconcile program expenditures. Effect or Potential Effect – Lack of proper reconciling information can result in noncompliance with laws and regulation along with loss of funding. Questioned Costs – Not determinable. Given the nature of the finding (e.g. unavailability of supporting documentation), we determined that projecting estimated questioned costs to the entire population was inappropriate. Context – This is a condition identified per review of DOH’s compliance with the specified requirements. Recommendation – We recommend that DOH improve internal controls to ensure program data is reconciled, monitored and retained in order to facilitate adherence to federal regulations and compliance requirements. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The Government’s Audit Committee is leading the development of a structured, three-tier policy and procedures framework under the Public Finance Management project. Regular training sessions will be provided to staff involved in grant management to ensure they understand and adhere to compliance requirements with monitoring and evaluation occurring by the OMB Compliance Unit supported by the Government’s Audit Committee, to assess and improve the effectiveness of controls. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report.
Finding Number: 2024-091 Prior Year Finding Number: 2023-074 Compliance Requirement: Activities Allowed or Unallowed and Allowable Costs/Cost Principles – Non-Payroll Activities Program: U.S. Department of Health and Human Services Government Department/Agency: Department of Human Services (DHS) Social Services Block Grant ALN: 93.667 Award #: Various Award Period: Various Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e., auditee management) establish, document, and maintain internal control designed to ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Management is responsible for establishing and maintaining a system of internal control that should include controls over its activities allowed or unallowed, allowable cost/cost principal process. CFR 200.403(g) states that for costs to be allowed under federal awards, they must be adequately documented. Condition – We sampled 60 of the 362 non-payroll transactions and noted 1 instance where the benefit date and payment are outside of the period under audit. Cause – DHS does not appear to have adequate policies and procedures in place to ensure compliance with applicable cost principles and maintenance of underlying documentation. Effect or Potential Effect - Failure to properly review and support expenditures can result in noncompliance with laws and regulations along with loss of funding. Questioned Costs – $29,985. Context – This is a condition identified per review of compliance with the specified requirements using a statistically valid sample. Total amount of non-payroll expenditures charged to the program in fiscal year 2024 were $2,642,402. Total amount sampled is $918,181. The known amount of the exception is $29,985. Recommendation – We recommend that DHS improve internal controls to ensure adherence to federal regulations related to the fiscal and administrative requirements for expending and accounting for non-payroll expenditures. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. DHS will update policies and procedures to ensure all costs are properly documented and comply with federal allowable cost principles. DHS is committed to addressing the identified issues and maintaining ongoing compliance with federal regulations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report.
Criteria: 2 CFR §200.403 and §200.412–.415 require recipients to utilize consistent and equitable methods for allocating indirect costs to Federal programs. Condition: The Organization was unable to provide adequate supporting documentation to substantiate its allocation of indirect costs to various Federal award programs. Cause: The Organization has not established written policies and procedures regarding the methodology and allocation of indirect costs to Federal programs. Effect: The absence of a formal policy leads to an increased risk of inconsistent or non-compliant cost allocation practices, which may lead to questioned costs, audit findings, or indemnification of Federal awarding agencies. Questioned Costs: None Context: The Organization does not have formal or informal procedures in place to allocate indirect costs to Federal awards and other activities using a specific allocation method set forth in the Uniform Guidance. While performing testing over indirect costs, we proposed adjustments for allocated indirect costs based on rates approved by Federal awarding agencies. Recommendation: We recommend that management establish and implement a comprehensive indirect cost allocation policy that aligns with the requirements of the Uniform Guidance. The policy should clearly define the methodology for calculating, allocating, and applying indirect costs to Federal programs and other activities. Views of Responsible Officials: See management’s view and corrective action plan at the end of this report.
Criteria: 2 CFR §200.403 and §200.430 require all costs charged to Federal awards by recipients to be allowable, allocable, and adequately documented. Specifically, payroll costs must reflect actual time worked and be supported by appropriate review and approval processes. Condition: The Organization was unable to provide sufficient documentary evidence that all payroll-related costs were charged to Federal programs in compliance with the Uniform Guidance requirements. Cause: Due to staff turnover and vacancies, the Organization did not perform regular reconciliations of payroll records to the general ledger and accounting system throughout the year. Effect: Identified controls over the Organization’s compliance with allowed cost requirements for Federal award programs were not functioning as designed. Questioned Costs: None Context: As part of our follow-up procedures required by professional auditing standards with respect to prior year audit findings, we tested whether solutions were implemented by the Organization to address prior year identified deficiencies related to allocating payroll-related costs. Those follow-up procedures did not provide us with documentary evidence to support the assertion that corrective action was taken in the current year. This deficiency was discovered in the prior year as part of testing the Organization’s compliance with allocating indirect costs. The indirect cost allocation compliance requirement was not deemed to be direct and material to the Organization’s major Federal program for the period under audit. Recommendation: The Organization should adhere to its policies and procedures regarding supervisory review of documentation to support the allowability of costs charged to Federal award programs. Furthermore, we recommend that the individual performing reviews of documentation for allowable costs initial or sign off on such support to provide evidence of their actions. In addition, the Organization should review, and possibly revise, its policies and procedures for preventing or detecting and correcting unallowable costs charged to Federal programs to ensure consistent application of those policies and procedures to all costs charged to federal awards. Views of Responsible Officials: See management’s view and corrective action plan at the end of this report.
2024–002 [2022–002]—Unallowable Disbursements Charged to Federal Program Type of Finding: (G) Instance of Noncompliance Related to Federal Awards Funding Agency: U.S. Department of Health and Human Services AL #: 93.231 – Epidemiology and Laboratory Capacity Award #: Various Award Period: 09/30/2021 – 09/29/2026 Estimated Questioned Costs: $7,600 Compliance Requirement: Allowable Costs/Cost Principles Statement of Condition AAIHB distributed gift cards to independent contractors as a gesture of appreciation for working extended hours related to COVID-19 contact tracing efforts. An annual bonus was also paid out to independent contractors that was not included in the signed contract. The total value of the gift cards was approximately $600, and the total value of the bonuses was approximately $7,000. Both were charged to the Epidemiology and Laboratory Capacity grant (AL #93.231). These gift cards and bonuses were provided in addition to their regular compensation. Neither set of disbursements were processed through payroll or formalized in contract terms, and there is no documentation indicating the entity obtained approval from the awarding agency. Criteria In accordance with 2 CFR §200.403, costs charged to federal awards must be necessary, reasonable, allocable, adequately documented, and conform to applicable limitations. To the extent the gift cards constitute promotional gifts, cite 2 CFR §200.421(e)(3). Payments to contractors also should conform to written contract terms and applicable procurement requirements. Contractor payments must align with procurement standards in 2 CFR § 200.318–200.324 and be governed by written contracts. Effect The use of federal funds to provide gift cards or bonuses constitutes an unallowable cost under Uniform Guidance. The questioned amount may be subject to repayment to the awarding agency or passthrough entity. Cause The auditee sought to recognize the extraordinary efforts of independent contractors during and towards the end of the COVID-19 public health response. However, they were unaware that the use of gift cards or bonuses not outlined in the contact for this purpose was inconsistent with Uniform Guidance and lacked prior approval or supporting policy. Recommendation We recommend the auditee discontinue the use of federal funds for gift card distributions or bonuses to contractors. Payments to contractors should be governed by written contracts and comply with applicable procurement standards. If the auditee believes these costs are justifiable, they should consult the awarding agency for a determination and, if necessary, reimburse the federal award. View of Responsible Officials and Corrective Action Plan We acknowledge the finding regarding the use of gift cards and bonus payments to contractors. During the Covid-19 pandemic, our staff and contractors were tasked with responding to urgent and overwhelming public health demands, particularly as the New Mexico Department of Health became overextended. To recognize the efforts and to ensure timely case reporting and investigations for tribal communities, gift cards and bonuses were used as a form of appreciation. Corrective Action Plan Moving forward, we will ensure full compliance with federal grant requirements. Specifically: 1. We will adhere strictly to the cost principles and allowability guidance outlined in federal regulations and the terms of each Notice of Award. 2. In instances where the allowability of an expense is unclear, we will proactively seek guidance and written approval from our Federal Grant Management Officer before incurring the cost. 3. We will provide refresher training to program and fiscal staff on allowable costs under federal awards to prevent recurrence of similar findings. These corrective actions will ensure future expenditures are fully compliant with federal guidelines. Corrective Action Plan Timeline As part of being a continued finding, AAIHB has already ceased the use of gift cards. Going forward we will also discontinue the use of bonuses for contractors. Within the next quarter, Finance and Program Leadership will review current grant guidance, the applicable Notice of Award, and other relevant federal requirements to ensure compliance. To prevent this issue for recurring, whenever there is uncertainty regarding the allowability of a cost, staff will consult Grants Management Officers prior to obligating or expending funds. Designation of Employee Position Responsible for Meeting Deadline Program Managers/Directors, Finance Officer, and Accounting Manager.
Finding No. 2024-002: Activities Allowed or Unallowed and Allowable Costs/Cost Principles – Significant Deficiency in Internal Control over Compliance (Cost Allocation Plan) Federal Program Name: All Pass-through Entity: All Federal Assistance Listing Number: All Criteria In accordance with 2 CFR §200.403 and §200.405, costs charged to federal awards must be adequately documented, allowable, and allocated to programs based on relative benefits received. Organizations allocating shared or indirect costs among multiple funding sources are required to maintain a reasonable, consistently applied, and current cost allocation methodology. Condition The Organization’s cost allocation plan (“CAP”) has not been formally reviewed or updated in several years and does not reflect the current structure of awards and programs. As a result, the Organization could not demonstrate that costs charged to federal awards were consistently allocated in accordance with a current, formally approved methodology. Questioned Costs None. Context The Organization's cost allocation plan had not been formally reviewed or updated since 2015. The outdated plan was utilized during the audit period to allocate shared costs among multiple funding sources and programs. Effect Without a current and formally maintained CAP, there is an increased risk that costs charged to federal awards may not be properly allocated, may not reflect relative benefits received, or may not be consistently applied in accordance with federal requirements. Cause The Organization does not have established procedures requiring periodic review and update of the CAP to ensure it remains current with changes in operations and funding sources. Repeat Finding No Recommendation We recommend that the Organization formally document its cost allocation methodology and establish procedures for periodic review and update of the CAP to ensure it reflects current operations and funding sources. The CAP should be formally approved by governance and retained as support for allocation of shared costs to federal programs. Management’s Response/View of Responsible Officials Management agrees with this finding, see the Corrective Action Plan.
2024-001 – Internal Control over Compliance and Compliance with Activities Allowed or Unallowed and Allowable Costs/Cost Principles Information on Federal Program(s) - Department of Education Assistance Listing Number: 84.351 Assistance Listing Name: Arts in Education National Program Grant Award Number: S351A220007 Award Period: October 1, 2023 to September 30, 2024 Criteria or Specific Requirement – The Uniform Guidance in 2 CFR Section 200.303 requires that non-Federal entities receiving Federal awards (i.e., auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. In addition, per 2 CFR Section 200.403, “Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity. (d) Be accorded consistent treatment. A cost may not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost. (e) Be determined in accordance with generally accepted accounting principles (GAAP). (f) Not be included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or a prior period. (g) Be adequately documented. (h) Cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3).” Condition – In evaluating the Center’s compliance with the requirements of Activities Allowed or Unallowed and Allowable Costs Cost Principles, our test work identified one instance out of a sample of sixty payroll transactions, totaling $66,904.92, in which an employee was not paid according to his (her) contract. For the one exception, the employee was underpaid a total of $0.24. Cause – The Center did not adhere to their internal process to ensure approved salary information was accurately applied. Effect or Potential Effect – Without adequate internal controls in place to ensure costs are properly verified and applied, the Center could inaccurately charge expenditures to the federal program. Questioned Costs – N/A Context – This is a condition based on testing of the Center’s compliance. Based on tested samples, we noted a total underpayment of $0.24. The prevalence of the finding is detailed in the condition section above. The samples were selected using a non-statistical method. Repeat Finding – This is a repeat finding from prior year. This was reported as finding 2023-001 in the 2023 report. Recommendation - We recommend management of the Center strengthen their internal process to ensure that employee salary information recorded in the payroll system is approved, supported by salary documentation in the personnel files, and accurately applied. Views of Responsible Officials – After performing a detailed analysis, the Center’s management identified that the likely net underpayment amounted to $1.32. The likely underpayment was determined by management through examination of the total salary charged to the federal program. The Center’s management agrees with the finding and will strengthen the internal process surrounding the activities allowed or unallowed and allowable costs and will ensure adequate documentation is in place and approved salary rates are consistently and properly applied. See the Center’s corrective action for more details.
2024-001 – Internal Control over Compliance and Compliance with Activities Allowed or Unallowed and Allowable Costs/Cost Principles Information on Federal Program(s) - Department of Education Assistance Listing Number: 84.351 Assistance Listing Name: Arts in Education National Program Grant Award Number: S351A220007 Award Period: October 1, 2023 to September 30, 2024 Criteria or Specific Requirement – The Uniform Guidance in 2 CFR Section 200.303 requires that non-Federal entities receiving Federal awards (i.e., auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. In addition, per 2 CFR Section 200.403, “Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity. (d) Be accorded consistent treatment. A cost may not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost. (e) Be determined in accordance with generally accepted accounting principles (GAAP). (f) Not be included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or a prior period. (g) Be adequately documented. (h) Cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3).” Condition – In evaluating the Center’s compliance with the requirements of Activities Allowed or Unallowed and Allowable Costs Cost Principles, our test work identified one instance out of a sample of sixty payroll transactions, totaling $66,904.92, in which an employee was not paid according to his (her) contract. For the one exception, the employee was underpaid a total of $0.24. Cause – The Center did not adhere to their internal process to ensure approved salary information was accurately applied. Effect or Potential Effect – Without adequate internal controls in place to ensure costs are properly verified and applied, the Center could inaccurately charge expenditures to the federal program. Questioned Costs – N/A Context – This is a condition based on testing of the Center’s compliance. Based on tested samples, we noted a total underpayment of $0.24. The prevalence of the finding is detailed in the condition section above. The samples were selected using a non-statistical method. Repeat Finding – This is a repeat finding from prior year. This was reported as finding 2023-001 in the 2023 report. Recommendation - We recommend management of the Center strengthen their internal process to ensure that employee salary information recorded in the payroll system is approved, supported by salary documentation in the personnel files, and accurately applied. Views of Responsible Officials – After performing a detailed analysis, the Center’s management identified that the likely net underpayment amounted to $1.32. The likely underpayment was determined by management through examination of the total salary charged to the federal program. The Center’s management agrees with the finding and will strengthen the internal process surrounding the activities allowed or unallowed and allowable costs and will ensure adequate documentation is in place and approved salary rates are consistently and properly applied. See the Center’s corrective action for more details.
Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Title: Social Services Block Grant Block Grants for Community Mental Health Services ALN: 93.667 93.958 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: Social Services Block Grant 2401TXSOSR October 1, 2023 – September 30, 2025 Block Grants for Community Mental Health Services 1B09SM085994, 6B09SM085994 October 1, 2021 – September 30, 2023 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR 200.303(a), Health and Human Services Commission (HHSC) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that it is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should be in compliance with guidance in the “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403(h) cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3). Condition: For awards with period of performance beginning dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the first month of the award. For awards with period of performance end dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the last month and after the period of performance end date. We noted the following instances of noncompliance: Social Services Block Grant (SSBG) – Audit procedures included testing 40 sampled transactions from projects with period of performance beginning dates during the fiscal year totaling $5,034. Two of the expenditures, totaling $486, were related to costs incurred prior to the period of performance begin date. The Project Period Start Date per the grant award was October 1, 2023, however costs were incurred on September 6, 2023 and September 11, 2023. Block Grants for Community Mental Health Services (MHBG) – Audit procedures included testing 40 sampled transactions, totaling $1,695,512, from projects with period of performance end dates during the fiscal year for which the obligation had not been paid as of the end of the period of performance. Twelve of the expenditures, totaling $312,929, were not paid within 120 days of the period of performance end date, which is the allowed time period to liquidate obligations. The required liquidation date was December 29, 2023; however, these obligations were paid between January 2, 2024 and April 11, 2024. Questioned costs: Social Services Block Grant: $486 Block Grants for Community Mental Health Services: $312,929 Context: See “Condition.” Cause: The two exceptions for SSBG were related to travel costs where the employee’s supervisor approved the transaction, which was coded to the incorrect grant. For the exceptions noted in the liquidation period testing for MHBG, the late payments are due to the HHSC’s reconciliation and closeout process not being performed in a timely manner. Effect: Ineffective internal controls may result in questioned costs and noncompliance with the terms of the grant. In addition, costs paid with non-federal sources remain in the population which is being included on the schedule of federal expenditures (SEFA) for the current fiscal year. Repeat Finding: 2023-016 Recommendation: HHSC should provide additional training over its review process to ensure that reviewers are verifying that transactions are posted to the proper grant. Additionally, HHSC should verify that all obligations incurred are liquidated during the closeout process and adjustments are not made subsequent to closeout. Views of responsible officials: HHSC concurs with the finding.
Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Title: Social Services Block Grant Block Grants for Community Mental Health Services ALN: 93.667 93.958 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: Social Services Block Grant 2401TXSOSR October 1, 2023 – September 30, 2025 Block Grants for Community Mental Health Services 1B09SM085994, 6B09SM085994 October 1, 2021 – September 30, 2023 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR 200.303(a), Health and Human Services Commission (HHSC) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that it is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should be in compliance with guidance in the “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403(h) cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3). Condition: For awards with period of performance beginning dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the first month of the award. For awards with period of performance end dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the last month and after the period of performance end date. We noted the following instances of noncompliance: Social Services Block Grant (SSBG) – Audit procedures included testing 40 sampled transactions from projects with period of performance beginning dates during the fiscal year totaling $5,034. Two of the expenditures, totaling $486, were related to costs incurred prior to the period of performance begin date. The Project Period Start Date per the grant award was October 1, 2023, however costs were incurred on September 6, 2023 and September 11, 2023. Block Grants for Community Mental Health Services (MHBG) – Audit procedures included testing 40 sampled transactions, totaling $1,695,512, from projects with period of performance end dates during the fiscal year for which the obligation had not been paid as of the end of the period of performance. Twelve of the expenditures, totaling $312,929, were not paid within 120 days of the period of performance end date, which is the allowed time period to liquidate obligations. The required liquidation date was December 29, 2023; however, these obligations were paid between January 2, 2024 and April 11, 2024. Questioned costs: Social Services Block Grant: $486 Block Grants for Community Mental Health Services: $312,929 Context: See “Condition.” Cause: The two exceptions for SSBG were related to travel costs where the employee’s supervisor approved the transaction, which was coded to the incorrect grant. For the exceptions noted in the liquidation period testing for MHBG, the late payments are due to the HHSC’s reconciliation and closeout process not being performed in a timely manner. Effect: Ineffective internal controls may result in questioned costs and noncompliance with the terms of the grant. In addition, costs paid with non-federal sources remain in the population which is being included on the schedule of federal expenditures (SEFA) for the current fiscal year. Repeat Finding: 2023-016 Recommendation: HHSC should provide additional training over its review process to ensure that reviewers are verifying that transactions are posted to the proper grant. Additionally, HHSC should verify that all obligations incurred are liquidated during the closeout process and adjustments are not made subsequent to closeout. Views of responsible officials: HHSC concurs with the finding.
Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Title: Social Services Block Grant Block Grants for Community Mental Health Services ALN: 93.667 93.958 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: Social Services Block Grant 2401TXSOSR October 1, 2023 – September 30, 2025 Block Grants for Community Mental Health Services 1B09SM085994, 6B09SM085994 October 1, 2021 – September 30, 2023 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR 200.303(a), Health and Human Services Commission (HHSC) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that it is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should be in compliance with guidance in the “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403(h) cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3). Condition: For awards with period of performance beginning dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the first month of the award. For awards with period of performance end dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the last month and after the period of performance end date. We noted the following instances of noncompliance: Social Services Block Grant (SSBG) – Audit procedures included testing 40 sampled transactions from projects with period of performance beginning dates during the fiscal year totaling $5,034. Two of the expenditures, totaling $486, were related to costs incurred prior to the period of performance begin date. The Project Period Start Date per the grant award was October 1, 2023, however costs were incurred on September 6, 2023 and September 11, 2023. Block Grants for Community Mental Health Services (MHBG) – Audit procedures included testing 40 sampled transactions, totaling $1,695,512, from projects with period of performance end dates during the fiscal year for which the obligation had not been paid as of the end of the period of performance. Twelve of the expenditures, totaling $312,929, were not paid within 120 days of the period of performance end date, which is the allowed time period to liquidate obligations. The required liquidation date was December 29, 2023; however, these obligations were paid between January 2, 2024 and April 11, 2024. Questioned costs: Social Services Block Grant: $486 Block Grants for Community Mental Health Services: $312,929 Context: See “Condition.” Cause: The two exceptions for SSBG were related to travel costs where the employee’s supervisor approved the transaction, which was coded to the incorrect grant. For the exceptions noted in the liquidation period testing for MHBG, the late payments are due to the HHSC’s reconciliation and closeout process not being performed in a timely manner. Effect: Ineffective internal controls may result in questioned costs and noncompliance with the terms of the grant. In addition, costs paid with non-federal sources remain in the population which is being included on the schedule of federal expenditures (SEFA) for the current fiscal year. Repeat Finding: 2023-016 Recommendation: HHSC should provide additional training over its review process to ensure that reviewers are verifying that transactions are posted to the proper grant. Additionally, HHSC should verify that all obligations incurred are liquidated during the closeout process and adjustments are not made subsequent to closeout. Views of responsible officials: HHSC concurs with the finding.
Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Title: Social Services Block Grant Block Grants for Community Mental Health Services ALN: 93.667 93.958 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: Social Services Block Grant 2401TXSOSR October 1, 2023 – September 30, 2025 Block Grants for Community Mental Health Services 1B09SM085994, 6B09SM085994 October 1, 2021 – September 30, 2023 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR 200.303(a), Health and Human Services Commission (HHSC) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that it is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should be in compliance with guidance in the “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403(h) cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3). Condition: For awards with period of performance beginning dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the first month of the award. For awards with period of performance end dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the last month and after the period of performance end date. We noted the following instances of noncompliance: Social Services Block Grant (SSBG) – Audit procedures included testing 40 sampled transactions from projects with period of performance beginning dates during the fiscal year totaling $5,034. Two of the expenditures, totaling $486, were related to costs incurred prior to the period of performance begin date. The Project Period Start Date per the grant award was October 1, 2023, however costs were incurred on September 6, 2023 and September 11, 2023. Block Grants for Community Mental Health Services (MHBG) – Audit procedures included testing 40 sampled transactions, totaling $1,695,512, from projects with period of performance end dates during the fiscal year for which the obligation had not been paid as of the end of the period of performance. Twelve of the expenditures, totaling $312,929, were not paid within 120 days of the period of performance end date, which is the allowed time period to liquidate obligations. The required liquidation date was December 29, 2023; however, these obligations were paid between January 2, 2024 and April 11, 2024. Questioned costs: Social Services Block Grant: $486 Block Grants for Community Mental Health Services: $312,929 Context: See “Condition.” Cause: The two exceptions for SSBG were related to travel costs where the employee’s supervisor approved the transaction, which was coded to the incorrect grant. For the exceptions noted in the liquidation period testing for MHBG, the late payments are due to the HHSC’s reconciliation and closeout process not being performed in a timely manner. Effect: Ineffective internal controls may result in questioned costs and noncompliance with the terms of the grant. In addition, costs paid with non-federal sources remain in the population which is being included on the schedule of federal expenditures (SEFA) for the current fiscal year. Repeat Finding: 2023-016 Recommendation: HHSC should provide additional training over its review process to ensure that reviewers are verifying that transactions are posted to the proper grant. Additionally, HHSC should verify that all obligations incurred are liquidated during the closeout process and adjustments are not made subsequent to closeout. Views of responsible officials: HHSC concurs with the finding.
Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: U.S. Department of Transportation Federal Program Title: Airport Improvement Program ALN: 20.106 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 3–48–SBGP–148–2022 September 14, 2022 – September 13, 2026 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Department of Transportation (TxDOT) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403, except where otherwise authorized by statute, costs must meet the following criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient. (d) Be accorded consistent treatment. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for State and local governments and Indian Tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing requirements of any other federally – financed program in either the current or a prior period. (g) Be adequately documented. Condition: Audit procedures included a sample of 40 expenditures, totaling $9,426,808, to test allowability with grant awards. We noted that for one of the 40 samples, TxDOT overpaid an invoice to a vendor by $70,000. Upon detection by the vendor, TxDOT corrected the overpayment by reducing a subsequent payment to the vendor by the $70,000. Questioned costs: None Context: See “Condition.” Cause: The amount requested to be reimbursed was manually entered incorrectly in eGrants. TxDOT did not detect the discrepancy during the review and approval process prior to the payment. Effect: Failure to thoroughly review invoices prior to payment may lead to overpayment or underpayment of funds to vendors and potential questioned costs. Repeat Finding: No Recommendation: We recommend that TxDOT provide additional training to individuals performing reviews of expenditures. We also recommend TxDOT establish internal controls to monitor that reviews of expenditures are being completed to the level of detail required by internal policies and procedures. Views of responsible officials: TxDOT AVN agrees with the finding.
Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: U.S. Department of Transportation Federal Program Title: Airport Improvement Program ALN: 20.106 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 3–48–SBGP–148–2022 September 14, 2022 – September 13, 2026 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Department of Transportation (TxDOT) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403, except where otherwise authorized by statute, costs must meet the following criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient. (d) Be accorded consistent treatment. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for State and local governments and Indian Tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing requirements of any other federally – financed program in either the current or a prior period. (g) Be adequately documented. Condition: Audit procedures included a sample of 40 expenditures, totaling $9,426,808, to test allowability with grant awards. We noted that for one of the 40 samples, TxDOT overpaid an invoice to a vendor by $70,000. Upon detection by the vendor, TxDOT corrected the overpayment by reducing a subsequent payment to the vendor by the $70,000. Questioned costs: None Context: See “Condition.” Cause: The amount requested to be reimbursed was manually entered incorrectly in eGrants. TxDOT did not detect the discrepancy during the review and approval process prior to the payment. Effect: Failure to thoroughly review invoices prior to payment may lead to overpayment or underpayment of funds to vendors and potential questioned costs. Repeat Finding: No Recommendation: We recommend that TxDOT provide additional training to individuals performing reviews of expenditures. We also recommend TxDOT establish internal controls to monitor that reviews of expenditures are being completed to the level of detail required by internal policies and procedures. Views of responsible officials: TxDOT AVN agrees with the finding.
Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: U.S. Department of Transportation Federal Program Title: Airport Improvement Program ALN: 20.106 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 3–48–SBGP–148–2022 September 14, 2022 – September 13, 2026 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Department of Transportation (TxDOT) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403, except where otherwise authorized by statute, costs must meet the following criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient. (d) Be accorded consistent treatment. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for State and local governments and Indian Tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing requirements of any other federally – financed program in either the current or a prior period. (g) Be adequately documented. Condition: Audit procedures included a sample of 40 expenditures, totaling $9,426,808, to test allowability with grant awards. We noted that for one of the 40 samples, TxDOT overpaid an invoice to a vendor by $70,000. Upon detection by the vendor, TxDOT corrected the overpayment by reducing a subsequent payment to the vendor by the $70,000. Questioned costs: None Context: See “Condition.” Cause: The amount requested to be reimbursed was manually entered incorrectly in eGrants. TxDOT did not detect the discrepancy during the review and approval process prior to the payment. Effect: Failure to thoroughly review invoices prior to payment may lead to overpayment or underpayment of funds to vendors and potential questioned costs. Repeat Finding: No Recommendation: We recommend that TxDOT provide additional training to individuals performing reviews of expenditures. We also recommend TxDOT establish internal controls to monitor that reviews of expenditures are being completed to the level of detail required by internal policies and procedures. Views of responsible officials: TxDOT AVN agrees with the finding.
Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: U.S. Department of Transportation Federal Program Title: Airport Improvement Program ALN: 20.106 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 3–48–SBGP–148–2022 September 14, 2022 – September 13, 2026 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Department of Transportation (TxDOT) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403, except where otherwise authorized by statute, costs must meet the following criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient. (d) Be accorded consistent treatment. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for State and local governments and Indian Tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing requirements of any other federally – financed program in either the current or a prior period. (g) Be adequately documented. Condition: Audit procedures included a sample of 40 expenditures, totaling $9,426,808, to test allowability with grant awards. We noted that for one of the 40 samples, TxDOT overpaid an invoice to a vendor by $70,000. Upon detection by the vendor, TxDOT corrected the overpayment by reducing a subsequent payment to the vendor by the $70,000. Questioned costs: None Context: See “Condition.” Cause: The amount requested to be reimbursed was manually entered incorrectly in eGrants. TxDOT did not detect the discrepancy during the review and approval process prior to the payment. Effect: Failure to thoroughly review invoices prior to payment may lead to overpayment or underpayment of funds to vendors and potential questioned costs. Repeat Finding: No Recommendation: We recommend that TxDOT provide additional training to individuals performing reviews of expenditures. We also recommend TxDOT establish internal controls to monitor that reviews of expenditures are being completed to the level of detail required by internal policies and procedures. Views of responsible officials: TxDOT AVN agrees with the finding.
Activities Allowed and Unallowed, Allowable Costs/Cost Principles – Indirect Costs Federal Agency: U.S. Department of Labor Federal Program Title: Employment Service Cluster ALN: 17.207, 17.801 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 23555DV000036 – 01, 24555DV000076 – 01 October 1, 2022 – December 31, 2024, October 1, 2023 – December 31, 2025 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Veterans Commission (TVC) must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR section 200.403, except where otherwise authorized by statute, costs must meet the following criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient. (d) Be accorded consistent treatment. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for State and local governments and Indian Tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing requirements of any other federally – financed program in either the current or a prior period. (g) Be adequately documented. Condition: Audit procedures included a sample of five indirect cost expenditures, totaling $1,248,175, incurred during the fiscal year to verify that the rates used were in accordance with the terms and conditions of the award and the amounts claimed were applied to the appropriate base. During our testing, we noted one sample in which an incorrect rate was applied to the base, resulting in $69,481 of unallowed indirect costs. In addition, there was no evidence of review and approval for three of the five expenditures selected for testing, including the expenditure noted in the preceding paragraph. Questioned costs: $69,481 Context: See “Condition.” Cause: Management failed to retain documentation that would support the review and approval of the indirect cost amounts. The exceptions were caused due to high turnover within the agency. Employees who were responsible for the approvals are no longer employed through TVC. Effect: Lack of formal documentation of reviews may result in questioned costs. In addition, failure to maintain adequate documentation pertinent to a federal award may result in noncompliance with grant terms and conditions. Repeat Finding: No Recommendation: We recommend TVC enforce establish document retention processes to ensure it has access to documentation for review in the event of management turnover. In addition, we recommend TVC strengthen its controls over the review of the indirect cost calculations to ensure accuracy of costs being calculated. Views of responsible officials: TVC agrees to the recommendation of improved record retention in the event of management turnover. TVC also agrees to the recommendation of strengthening its internal controls over the review of VES’s grant costs associated with the indirect revenues being calculated.
Activities Allowed and Unallowed, Allowable Costs/Cost Principles – Indirect Costs Federal Agency: U.S. Department of Labor Federal Program Title: Employment Service Cluster ALN: 17.207, 17.801 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 23555DV000036 – 01, 24555DV000076 – 01 October 1, 2022 – December 31, 2024, October 1, 2023 – December 31, 2025 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Veterans Commission (TVC) must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR section 200.403, except where otherwise authorized by statute, costs must meet the following criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient. (d) Be accorded consistent treatment. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for State and local governments and Indian Tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing requirements of any other federally – financed program in either the current or a prior period. (g) Be adequately documented. Condition: Audit procedures included a sample of five indirect cost expenditures, totaling $1,248,175, incurred during the fiscal year to verify that the rates used were in accordance with the terms and conditions of the award and the amounts claimed were applied to the appropriate base. During our testing, we noted one sample in which an incorrect rate was applied to the base, resulting in $69,481 of unallowed indirect costs. In addition, there was no evidence of review and approval for three of the five expenditures selected for testing, including the expenditure noted in the preceding paragraph. Questioned costs: $69,481 Context: See “Condition.” Cause: Management failed to retain documentation that would support the review and approval of the indirect cost amounts. The exceptions were caused due to high turnover within the agency. Employees who were responsible for the approvals are no longer employed through TVC. Effect: Lack of formal documentation of reviews may result in questioned costs. In addition, failure to maintain adequate documentation pertinent to a federal award may result in noncompliance with grant terms and conditions. Repeat Finding: No Recommendation: We recommend TVC enforce establish document retention processes to ensure it has access to documentation for review in the event of management turnover. In addition, we recommend TVC strengthen its controls over the review of the indirect cost calculations to ensure accuracy of costs being calculated. Views of responsible officials: TVC agrees to the recommendation of improved record retention in the event of management turnover. TVC also agrees to the recommendation of strengthening its internal controls over the review of VES’s grant costs associated with the indirect revenues being calculated.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All Federal awarding agency: All Pass-through Entity: All Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses. Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process. Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs. Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits. Repeat finding: This is not a repeat finding. Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness. Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate. Recommendation: We recommend that the Organization: • Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation. • Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance. • Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses. Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All Federal awarding agency: All Pass-through Entity: All Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses. Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process. Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs. Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits. Repeat finding: This is not a repeat finding. Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness. Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate. Recommendation: We recommend that the Organization: • Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation. • Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance. • Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses. Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All Federal awarding agency: All Pass-through Entity: All Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses. Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process. Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs. Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits. Repeat finding: This is not a repeat finding. Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness. Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate. Recommendation: We recommend that the Organization: • Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation. • Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance. • Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses. Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All Federal awarding agency: All Pass-through Entity: All Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses. Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process. Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs. Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits. Repeat finding: This is not a repeat finding. Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness. Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate. Recommendation: We recommend that the Organization: • Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation. • Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance. • Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses. Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All Federal awarding agency: All Pass-through Entity: All Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses. Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process. Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs. Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits. Repeat finding: This is not a repeat finding. Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness. Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate. Recommendation: We recommend that the Organization: • Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation. • Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance. • Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses. Management’s response and corrective action plan (unaudited): See corrective action plan.
Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Title: Social Services Block Grant Block Grants for Community Mental Health Services ALN: 93.667 93.958 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: Social Services Block Grant 2401TXSOSR October 1, 2023 – September 30, 2025 Block Grants for Community Mental Health Services 1B09SM085994, 6B09SM085994 October 1, 2021 – September 30, 2023 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR 200.303(a), Health and Human Services Commission (HHSC) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that it is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should be in compliance with guidance in the “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403(h) cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3). Condition: For awards with period of performance beginning dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the first month of the award. For awards with period of performance end dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the last month and after the period of performance end date. We noted the following instances of noncompliance: Social Services Block Grant (SSBG) – Audit procedures included testing 40 sampled transactions from projects with period of performance beginning dates during the fiscal year totaling $5,034. Two of the expenditures, totaling $486, were related to costs incurred prior to the period of performance begin date. The Project Period Start Date per the grant award was October 1, 2023, however costs were incurred on September 6, 2023 and September 11, 2023. Block Grants for Community Mental Health Services (MHBG) – Audit procedures included testing 40 sampled transactions, totaling $1,695,512, from projects with period of performance end dates during the fiscal year for which the obligation had not been paid as of the end of the period of performance. Twelve of the expenditures, totaling $312,929, were not paid within 120 days of the period of performance end date, which is the allowed time period to liquidate obligations. The required liquidation date was December 29, 2023; however, these obligations were paid between January 2, 2024 and April 11, 2024. Questioned costs: Social Services Block Grant: $486 Block Grants for Community Mental Health Services: $312,929 Context: See “Condition.” Cause: The two exceptions for SSBG were related to travel costs where the employee’s supervisor approved the transaction, which was coded to the incorrect grant. For the exceptions noted in the liquidation period testing for MHBG, the late payments are due to the HHSC’s reconciliation and closeout process not being performed in a timely manner. Effect: Ineffective internal controls may result in questioned costs and noncompliance with the terms of the grant. In addition, costs paid with non-federal sources remain in the population which is being included on the schedule of federal expenditures (SEFA) for the current fiscal year. Repeat Finding: 2023-016 Recommendation: HHSC should provide additional training over its review process to ensure that reviewers are verifying that transactions are posted to the proper grant. Additionally, HHSC should verify that all obligations incurred are liquidated during the closeout process and adjustments are not made subsequent to closeout. Views of responsible officials: HHSC concurs with the finding.
Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Title: Social Services Block Grant Block Grants for Community Mental Health Services ALN: 93.667 93.958 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: Social Services Block Grant 2401TXSOSR October 1, 2023 – September 30, 2025 Block Grants for Community Mental Health Services 1B09SM085994, 6B09SM085994 October 1, 2021 – September 30, 2023 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR 200.303(a), Health and Human Services Commission (HHSC) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that it is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should be in compliance with guidance in the “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403(h) cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3). Condition: For awards with period of performance beginning dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the first month of the award. For awards with period of performance end dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the last month and after the period of performance end date. We noted the following instances of noncompliance: Social Services Block Grant (SSBG) – Audit procedures included testing 40 sampled transactions from projects with period of performance beginning dates during the fiscal year totaling $5,034. Two of the expenditures, totaling $486, were related to costs incurred prior to the period of performance begin date. The Project Period Start Date per the grant award was October 1, 2023, however costs were incurred on September 6, 2023 and September 11, 2023. Block Grants for Community Mental Health Services (MHBG) – Audit procedures included testing 40 sampled transactions, totaling $1,695,512, from projects with period of performance end dates during the fiscal year for which the obligation had not been paid as of the end of the period of performance. Twelve of the expenditures, totaling $312,929, were not paid within 120 days of the period of performance end date, which is the allowed time period to liquidate obligations. The required liquidation date was December 29, 2023; however, these obligations were paid between January 2, 2024 and April 11, 2024. Questioned costs: Social Services Block Grant: $486 Block Grants for Community Mental Health Services: $312,929 Context: See “Condition.” Cause: The two exceptions for SSBG were related to travel costs where the employee’s supervisor approved the transaction, which was coded to the incorrect grant. For the exceptions noted in the liquidation period testing for MHBG, the late payments are due to the HHSC’s reconciliation and closeout process not being performed in a timely manner. Effect: Ineffective internal controls may result in questioned costs and noncompliance with the terms of the grant. In addition, costs paid with non-federal sources remain in the population which is being included on the schedule of federal expenditures (SEFA) for the current fiscal year. Repeat Finding: 2023-016 Recommendation: HHSC should provide additional training over its review process to ensure that reviewers are verifying that transactions are posted to the proper grant. Additionally, HHSC should verify that all obligations incurred are liquidated during the closeout process and adjustments are not made subsequent to closeout. Views of responsible officials: HHSC concurs with the finding.
Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Title: Social Services Block Grant Block Grants for Community Mental Health Services ALN: 93.667 93.958 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: Social Services Block Grant 2401TXSOSR October 1, 2023 – September 30, 2025 Block Grants for Community Mental Health Services 1B09SM085994, 6B09SM085994 October 1, 2021 – September 30, 2023 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR 200.303(a), Health and Human Services Commission (HHSC) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that it is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should be in compliance with guidance in the “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403(h) cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3). Condition: For awards with period of performance beginning dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the first month of the award. For awards with period of performance end dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the last month and after the period of performance end date. We noted the following instances of noncompliance: Social Services Block Grant (SSBG) – Audit procedures included testing 40 sampled transactions from projects with period of performance beginning dates during the fiscal year totaling $5,034. Two of the expenditures, totaling $486, were related to costs incurred prior to the period of performance begin date. The Project Period Start Date per the grant award was October 1, 2023, however costs were incurred on September 6, 2023 and September 11, 2023. Block Grants for Community Mental Health Services (MHBG) – Audit procedures included testing 40 sampled transactions, totaling $1,695,512, from projects with period of performance end dates during the fiscal year for which the obligation had not been paid as of the end of the period of performance. Twelve of the expenditures, totaling $312,929, were not paid within 120 days of the period of performance end date, which is the allowed time period to liquidate obligations. The required liquidation date was December 29, 2023; however, these obligations were paid between January 2, 2024 and April 11, 2024. Questioned costs: Social Services Block Grant: $486 Block Grants for Community Mental Health Services: $312,929 Context: See “Condition.” Cause: The two exceptions for SSBG were related to travel costs where the employee’s supervisor approved the transaction, which was coded to the incorrect grant. For the exceptions noted in the liquidation period testing for MHBG, the late payments are due to the HHSC’s reconciliation and closeout process not being performed in a timely manner. Effect: Ineffective internal controls may result in questioned costs and noncompliance with the terms of the grant. In addition, costs paid with non-federal sources remain in the population which is being included on the schedule of federal expenditures (SEFA) for the current fiscal year. Repeat Finding: 2023-016 Recommendation: HHSC should provide additional training over its review process to ensure that reviewers are verifying that transactions are posted to the proper grant. Additionally, HHSC should verify that all obligations incurred are liquidated during the closeout process and adjustments are not made subsequent to closeout. Views of responsible officials: HHSC concurs with the finding.