2024-056 The Department of Children, Youth, and Families did not have adequate internal controls over and did not comply with requirements to ensure payments to child care providers for the Child Care and Development Fund Cluster programs were allowable and properly supported. Assistance Listing Number and Title: 93.575 Child Care and Development Block Grant 93.575 COVID-19 Child Care and Development Block Grant 93.596 Child Care Mandatory and Matching Funds of the Child Care and Development Fund Federal Grantor Name: U.S. Department of Health and Human Services Federal Award/Contract Number: 2103WACCDF; 2103WACCDD; 2303WACCDF; 2303WACCDD; 2403WACCDM; 2403WACCDD; 2103WACDC6; 2103WACSC6; 2103WACCC5; 2024WACCDD Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Known Questioned Cost Amount: $415,579,473 Prior Year Audit Finding: Yes, Finding 2023-058 Background The Department of Children, Youth, and Families administers the federal Child Care and Development Fund (CCDF) grants to help eligible working families pay for child care and fund improvements to child care quality. In fiscal year 2024, the Department spent about $483.5 million in federal funding. The Department is responsible for establishing policies to ensure payments to providers for child care services are allowable. In fiscal year 2024, the Department spent more than $415 million on monthly child care subsidy payments to child care providers. There are three child care provider types: licensed centers, licensed family homes and licensed exempt providers referred to as Family, Friends and Neighbor providers. The Department uses the Social Service Payment System (SSPS) to process the payments it makes to child care providers. The system allocates payments to various funding sources based on the client’s eligibility. These funding sources include multiple federal programs, multiple CCDF federal grant awards and state funding. The Department uploads the SSPS payment data into the state’s accounting system at a summary level based on the various funding sources. There is always a need to transfer the funding sources for some payments throughout the year to manage federal and state funds properly. In prior audit periods up until fiscal year 2021, the Department prepared supporting documentation for transfers that included details of what payments it was transferring. The purpose of documenting this detail was to maintain proper support for federal expenditures. The Department of Health and Human Services (HHS), which oversees the CCDF program at the federal level, requires recipients to have accounting procedures that are sufficient for tracing grants to a level of expenditure adequate to show that they have used them in accordance with program requirements. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In prior audits, we reported the Department did not have adequate internal controls over and did not comply with requirements to ensure payments to childcare providers were allowable and properly supported. We have reported this condition since 2005. The most recent audit finding numbers were 2023-058, 2022-041, 2021-033, 2020-038, 2019-035, 2018-034, 2017-024, 2016-021, 2015-023, 2014-023, 2013-016, 12-28, 11-23, 10-31, 9-12 and 8-13. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to ensure payments to child care providers for the CCDF programs were allowable and properly supported. In fiscal year 2021, management informed us that the Department changed its grant management practices to process expenditure transfers at the grant level. This new process made the original expenditure coding in SSPS inaccurate and unreliable for testing. As a result, we could not trace the federal funds to a level of expenditure adequate to establish whether the Department spent CCDF funds in accordance with federal and state regulations. Further, this meant we could not test the Department’s payments to child care providers for compliance with activities allowed and cost principles. By processing these adjustments at the fund level, the Department invalidated the transaction-level documentation of the original child care expenditure in SSPS and did not identify the new allocation at the payment level. Additionally, the Department transferred some of these child care expenditures at the fund level more than once, making the underlying data increasingly unreliable with each transfer. We consider these internal control deficiencies to be a material weakness that led to material noncompliance. Cause of Condition The Department is required to maintain sufficient documentation for each payment it makes with federal dollars. The Department’s accounting practices prevent it from meeting this requirement. The Department implemented what management referred to as fund-level accounting. This consisted of making significant accounting adjustments between funding sources in its general ledger without identifying the underlying transactions in the payment system that supported the adjustments. This affected all populations of child care expenditures for every month of the fiscal year. HHS officials informed the Department that these accounting practices do not comply with federal law, but management said they believe they are compliant. Effect of Condition and Questioned Costs By not complying with federal law requirements to maintain adequate supporting documentation for expenditures, the Department made it impossible for our Office to audit the federal dollars it used for payments to child care providers. Because we could not test transaction-level detail, we also could not determine whether the issues we identified in prior audits had improved or worsened, including the Department’s lack of adequate internal controls and significant rate of noncompliance for payments to child care providers. The total amount of known child care payments the Department made with federal CCDF funds in the audit period was $415,579,473. The Department also partially funded these payments with an additional $208,098,727 in state dollars. Because the Department did not comply with HHS requirements to allow for the tracing of grant expenditures to a payment level, we are questioning all $415,579,473 in federal program costs it incurred during the audit period. The payments the Department partially paid with state funds are not included in the federal questioned costs. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Design and implement internal controls to ensure transaction-level data is sufficient to comply with federal law and state rules • Consult with the grantor to discuss whether it should repay the questioned costs identified in the audit Department’s Response The Department has managed the CCDF program since 2019, prior to that it was managed by the Department of Social and Health Services and the Department of Early Learning. The Department implemented grant-level management of all federal funds, including the CCDF grant. The Department allocated the CCDF grants to eligible clients and allowable activities in compliance with 45 CFR 98.67. This process consists of making grant level adjustments between allowable grant sources to properly spend grant dollars within the allowable period of performance and ensure level of effort and matching requirements. The Department’s grant adjustments were processed based on eligible clients and allowable activities and did not include child-level data as required by SAO. The Department received a management decision letter dated October 3, 2023, from HHS for finding 2021-033 (2020-038) which states: “the ACF noted that the auditor raised concern about the Department’s accounting procedures and efforts made to trace expenditures at the transaction-level. As the basis for the finding, the auditor used CFRs (200.53, 200.303, 200.403, 200.410) that do not apply to CCDF. Federal regulations allow Lead Agencies to expend and account for CCDF funds in accordance with their own procedures.” In addition, ACF did not sustain the disallowance of questioned costs and stated: “Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” The ACF recommended, “that the Department work with the auditors to determine an appropriate methodology that can be tested to ensure child care payments comply with Federal regulations.” The Department is committed to collaborating with SAO to determine an appropriate methodology that identifies a sampling unit that can be used to accurately test compliance. The SAO maintained that the program is not auditable without child-level data. During the audit period, the Department did not have the staff and resources to develop and maintain the business process redesign, as well as the information technology initiatives necessary to meet the level of assurance as identified by SAO. In response to the auditor’s recommendations, the Department submitted a budget request for the 2024 supplemental budget. The enacted 2024 supplemental budget included funding to implement the Department’s budget request for funding beginning in state fiscal year 2025 and specified: “Funding in this subsection must be expended with internal controls that provide child-level detail for all transactions, beginning July 1, 2024” Upon receiving funding, the Department is working with a developer to assist with building out the required databases between the Social Service Payment System (SSPS) and the Agency Financial Reporting System (AFRS) to allow transfers between fundings sources to include the child-level data related to the expenditures. The Department looks forward to working with SAO to resolve the child-level data concerns and move forward with auditing the CCDF grant programs. Auditor’s Remarks The level of documentation needed to support grant expenditures is not established by our Office, but in title 45 of the U.S. Code of Federal Regulations and the state’s grant award. During the February 2022 meeting with HHS that the Department referenced in its response, the grantor stated the specific federal law the Department’s accounting procedures were noncompliant with was 45 CFR 98.67. We agree with the HHS management decision that our references to 2 CFR 200.53, 200.303, 200.403 and 200.410 in the 2021 finding were not correct. However, HHS adopted these same requirements in 45 CFR 75.2, 75.303, 75.403 and 75.410, respectfully. These requirements were all in place during the audit period. The proper references were included in the prior year finding and are included in this finding as well. Without adequate transactional level payment data, our Office is unable to perform tests to verify the Department met these requirements. In addition, we also are unable to verify whether the Department complied with matching, level of effort and earmarking requirements, or that required financial information reported to the federal government was accurate. These matters are referenced in separate findings in our report. In its response, the Department references a management decision letter issued October 3, 2023. The finding was partially sustained because the questioned costs identified in the audit would not be disallowed. The management decision states: “The ACF partially sustains the finding and recommendation. The ACF agrees with the auditor that the Department should strengthen internal controls to ensure payments to child care providers are allowable and properly supported.” “The ACF does not sustain a disallowance for the questioned costs in the amount of $271,353,409 representing the entire amount of the CCDF grant award. Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” We are not aware of what procedures ACF performed to conclude expenditures reported by the Department for fiscal year 2024 were spent only for allowable activities, were for allowable costs and met federal cost principles. We questioned all expenditures because, in our judgment, they were unauditable. We reaffirm our finding and will review the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations 45 U.S. Code of Federal Regulations (CFR) Part 75, section 2, Definitions, includes the definition of improper payment. 45 CFR Part 75, section 303, Internal Controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 45 CFR Part 75, section 403, Factors Affecting Allowability of Costs. 45 CFR Part 75, section 410, Collection of Unallowable Costs 45 CFR Part 75, section 516, Audit findings, establishes reporting requirements for audit findings. Title 45 CFR, Section 98.67 – Fiscal requirements, states: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. (b) Unless otherwise specified in this part, contracts that entail the expenditure of CCDF funds shall comply with the laws and procedures generally applicable to expenditures by the contracting agency of its own funds. (c) Fiscal control and accounting procedures shall be sufficient to permit: (1) Preparation of reports required by the Secretary under this subpart and under subpart H; and (2) The tracking of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-057 The Department of Children, Youth, and Families did not have adequate internal controls over and did not comply with matching, level of effort and earmarking requirements for the Child Care and Development Fund Cluster. Assistance Listing Number and Title: 93.575 Child Care and Development Block Grant 93.575 COVID-19 Child Care and Development Block Grant 93.596 Child Care Mandatory and Matching Funds of the Child Care and Development Fund Federal Grantor Name: U.S. Department of Health and Human Services Federal Award/Contract Number: 2103WACCDF; 2103WACCDD; 2303WACCDF; 2303WACCDD; 2403WACCDM; 2403WACCDD; 2103WACDC6; 2103WACSC6; 2103WACCC5; 2024WACCDD Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Matching, Level of Effort, Earmarking Known Questioned Cost Amount: None Prior Year Audit Finding: Yes, Finding 2023-060 Background The Department of Children, Youth, and Families administers the federal Child Care and Development Fund (CCDF) grants to help eligible working families pay for child care and fund improvements to child care quality. In fiscal year 2024, the Department spent about $483.5 million in federal funding. The CCDF consists of three distinct funding sources: Discretionary Fund, Mandatory Fund, and Matching Fund. Additionally, under the Temporary Assistance for Needy Families (TANF) program, the Department may transfer TANF funds to the CCDF, which are then treated as Discretionary Funds. The Department is instructed how to spend this federal money. For the Department to receive its allotted share of the Matching Fund, it must meet the Maintenance of Effort (MOE) requirement and match the federal Matching Fund claimed with state expenditures at the Federal Medical Assistance Percentage rate for the applicable fiscal year. The Department must also meet earmarking requirements for expenditures for administrative and quality activities. The U.S. Department of Health and Human Services (HHS), which oversees the CCDF program at the federal level, requires recipients to have accounting procedures that are sufficient for tracing grants to a level of expenditure adequate to show that they have used them in accordance with program requirements. Department staff run monthly and quarterly expenditure reports from the accounting system to track requirements over matching, level of effort and earmarking for each open grant award. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In prior audits, we reported the Department did not have adequate internal controls over matching, level of effort and earmarking requirements for the CCDF Cluster programs. The prior audit finding numbers were 2023-060, 2022-042, 2021-036, 2020-040 and 2019-037. Description of Condition The Department did not have adequate internal controls over and did not comply with matching, level of effort and earmarking requirements for the CCDF programs. The Department’s accounting records should be used to verify it has met matching, level of effort and earmarking requirements. In fiscal year 2021, management informed us that the Department changed its grant management practices to process expenditure transfers at the grant level. This new process made the original expenditure coding in the payment system inaccurate and unreliable for testing. Without identifying which expenditures it transferred, the Department’s monitoring is insufficient for properly managing matching, level of effort and earmarking requirements. Our Office could not rely on the data supporting the Department’s expenditures or verify that the accounting records were accurate. As a result, we could not trace the federal funds to a level of expenditure adequate to establish whether the Department spent CCDF funds in accordance with federal and state regulations. Further, this meant we could not test the Department’s payments for compliance with matching, level of effort and earmarking requirements. By processing these adjustments at the fund level, the Department invalidated the transaction-level documentation of the original child care expenditure in the payment system and did not identify the new allocation at the payment level. Additionally, the Department transferred some of these child care expenditures more than once at the fund level, making the underlying data increasingly unreliable with each transfer. This condition is also referenced in audit finding 2024-056. We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition The Department is required to maintain sufficient documentation for each payment it makes with federal dollars. The Department’s accounting practices prevent it from meeting this requirement. In fiscal year 2021, the Department informed our Office that it had implemented what management referred to as fund-level accounting. This consisted of making significant accounting adjustments between funding sources in its general ledger without identifying the underlying transactions in the payment system that supported the adjustments. This affected all populations of child care expenditures for every month of the fiscal year. HHS officials informed the Department that these accounting practices do not comply with federal law, but management said they believe they are compliant. Effect of Condition By not complying with federal law requirements to maintain adequate supporting documentation for expenditures, the Department created a condition that made it impossible for our Office to determine if it had met matching, level of effort and earmarking requirements. Recommendations We recommend the Department: • Design and implement internal controls to ensure transaction-level data is sufficient to comply with federal law and state rules • Develop effective ongoing monitoring procedures Department’s Response The Department has managed the CCDF program since 2019, prior to that it was managed by the Department of Social and Health Services and the Department of Early Learning. The Department implemented grant-level management of all federal funds, including the CCDF grant. The Department allocated the CCDF grants to eligible clients and allowable activities in compliance with 45 CFR 98.67. This process consists of making grant level adjustments between allowable grant sources to properly spend grant dollars within the allowable period of performance and ensure level of effort and matching requirements. The Department’s grant adjustments were processed based on eligible clients and allowable activities and did not include child-level data as required by SAO. The Department received a management decision letter dated October 3, 2023, from HHS for finding 2021-033 (2020-038) which states: “the ACF noted that the auditor raised concern about the Department’s accounting procedures and efforts made to trace expenditures at the transaction-level. As the basis for the finding, the auditor used CFRs (200.53, 200.303, 200.403, 200.410) that do not apply to CCDF. Federal regulations allow Lead Agencies to expend and account for CCDF funds in accordance with their own procedures.” In addition, ACF did not sustain the disallowance of questioned costs and stated: “Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” The ACF recommended, “that the Department work with the auditors to determine an appropriate methodology that can be tested to ensure child care payments comply with Federal regulations.” The Department is committed to collaborating with SAO to determine an appropriate methodology that identifies a sampling unit that can be used to accurately test compliance. The SAO maintained that the program is not auditable without child-level data. During the audit period, the Department did not have the staff and resources to develop and maintain the business process redesign, as well as the information technology initiatives necessary to meet the level of assurance as identified by SAO. In response to the auditor’s recommendations, the Department submitted a budget request for the 2024 supplemental budget. The enacted 2024 supplemental budget included funding to implement the Department’s budget request for funding beginning in state fiscal year 2025 and specified: “Funding in this subsection must be expended with internal controls that provide child-level detail for all transactions, beginning July 1, 2024” Upon receiving funding, the Department is working with a developer to assist with building out the required databases between the Social Service Payment System (SSPS) and the Agency Financial Reporting System (AFRS) to allow transfers between fundings sources to include the child-level data related to the expenditures. The Department looks forward to working with SAO to resolve the child-level data concerns and move forward with auditing the CCDF grant programs. Auditor’s Remarks The level of documentation needed to support grant expenditures is not established by our Office, but in title 45 of the U.S. Code of Federal Regulations and the state’s grant award. During the February 2022 meeting with HHS that the Department referenced in its response, the grantor stated the specific federal law the Department’s accounting procedures were noncompliant with was 45 CFR 98.67. We agree with the HHS management decision that our references to 2 CFR 200.53, 200.303, 200.403 and 200.410 in the 2021 finding were not correct. However, HHS adopted these same requirements in 45 CFR 75.2, 75.303, 75.403 and 75.410, respectfully. These requirements were all in place during the audit period. The proper references were included in the prior year finding and are included in this finding as well. Without adequate transactional level payment data, our Office is unable to perform tests to verify the Department met these requirements. In addition, we also are unable to verify whether the Department complied with matching, level of effort and earmarking requirements, or that required financial information reported to the federal government was accurate. These matters are referenced in separate findings in our report. In its response, the Department references a management decision letter issued October 3, 2023. The finding was partially sustained because the questioned costs identified in the audit would not be disallowed. The management decision states: “The ACF partially sustains the finding and recommendation. The ACF agrees with the auditor that the Department should strengthen internal controls to ensure payments to child care providers are allowable and properly supported.” “The ACF does not sustain a disallowance for the questioned costs in the amount of $271,353,409 representing the entire amount of the CCDF grant award. Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” We are not aware of what procedures ACF performed to conclude expenditures reported by the Department for fiscal year 2024 were spent only for allowable activities, were for allowable costs and met federal cost principles. We questioned all expenditures because, in our judgment, they were unauditable. We reaffirm our finding and will review the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations 45 U.S. Code of Federal Regulations (CFR) Part 75, section 303, Internal Controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 45 CFR Part 75, section 516, Audit findings, establishes reporting requirements for audit findings. Title 45 CFR, Section 98.67 – Fiscal requirements, states: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. (b) Unless otherwise specified in this part, contracts that entail the expenditure of CCDF funds shall comply with the laws and procedures generally applicable to expenditures by the contracting agency of its own funds. (c) Fiscal control and accounting procedures shall be sufficient to permit: (1) Preparation of reports required by the Secretary under this subpart and under subpart H; and (2) The tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-058 The Department of Children, Youth, and Families did not have adequate internal controls over and did not comply with period of performance requirements for the Child Care and Development Fund Cluster. Assistance Listing Number and Title: 93.575 Child Care and Development Block Grant 93.575 COVID-19 Child Care and Development Block Grant 93.596 Child Care Mandatory and Matching Funds of the Child Care and Development Fund Federal Grantor Name: U.S. Department of Health and Human Services Federal Award/Contract Number: 2103WACCDF; 2103WACCDD; 2303WACCDF; 2303WACCDD; 2403WACCDM; 2403WACCDD; 2103WACDC6; 2103WACSC6; 2103WACCC5; 2024WACCDD Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Period of Performance Known Questioned Cost Amount: None Prior Year Audit Finding: Yes, Finding 2023-061 Background The Department of Children, Youth, and Families administers the federal Child Care and Development Fund (CCDF) grants to help eligible working families pay for child care and fund improvements to child care quality. In fiscal year 2024, the Department spent about $483.5 million in federal funding. Each federal grant specifies a performance period during which recipients must obligate and liquidate program costs. These periods typically align with the federal fiscal year of October 1 through September 30. Payments for costs charged before a grant’s beginning date or after the ending date are not allowed without the grantor’s prior approval. The CCDF consists of three distinct funding sources: Discretionary Fund, Mandatory Fund, and Matching Fund. Each of these funds has specific period of performance requirements established in federal regulation (45 CFR § 98.60(d)). Recipients must obligate: • Discretionary funds by the end of the succeeding fiscal year after award and must expend them by the end of the third fiscal year after award • Mandatory funds by the end of the fiscal year in which they are awarded if the state also requests matching funds. If the state does not request matching funds for the fiscal year, then the Mandatory Funds are available until liquidated. • Matching funds by the end of the fiscal year in which they are awarded and must liquidate them by the end of the succeeding fiscal year after award During the audit period, the Department also received supplemental funds under the Coronavirus Aid, Relief, and Economic Security and the Coronavirus Response and Relief Supplemental Appropriations Acts. These funds are treated as Discretionary Funds, however, they have their own specific obligation and liquidation timeframes. The U.S. Department of Health and Human Services (HHS), which oversees the CCDF at the federal level, requires recipients to have accounting procedures that are sufficient for tracing grants to a level of expenditure adequate to show that they have used them in accordance with program requirements. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In prior audits, we reported the Department did not have adequate internal controls over period of performance requirements for the CCDF program. The prior finding numbers were 2023-061, 2022-043, 2021-037 and 2020-041. Description of Condition The Department did not have adequate internal controls over and did not comply with period of performance requirements for the CCDF program. Our Office uses the Department’s accounting records to verify it has met the period of performance requirements. In fiscal year 2021, management informed us that the Department changed its grant management practices to process expenditure transfers at the grant level. This new process made the original expenditures coded in the payment system inaccurate and unreliable for audit testing. As a result, we could not trace the federal funds to a level of expenditure adequate to establish whether the Department spent CCDF funds in accordance with federal and state regulations. Further, this meant we could not test the Department’s payments for compliance with period of performance requirements. We also referenced this condition in audit finding 2024 -056. We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition The Department is required to maintain sufficient documentation for each payment it makes with federal dollars. The Department’s accounting practices prevent it from meeting this requirement. The Department implemented what management referred to as fund-level accounting. This consisted of making significant accounting adjustments between funding sources in its general ledger without identifying the underlying transactions in the payment system that supported the adjustments. This affected all populations of child care expenditures for every month of the fiscal year. HHS officials informed the Department that these accounting practices do not comply with federal law, but management said they believe they are compliant. Effect of Condition By not complying with federal law requirements to maintain adequate supporting documentation for expenditures, the Department created a condition that made it impossible for our Office to determine if it materially met the period of performance requirements. Furthermore, without adequate internal controls in place, the Department is at a higher risk of making improper payments with grant funds. Recommendations We recommend the Department: • Design and implement internal controls to ensure transaction-level data is sufficient to comply with federal law and state rules • Develop written policies and procedures over federal period of performance requirements Department’s Response The Department has managed the CCDF program since 2019, prior to that it was managed by the Department of Social and Health Services and the Department of Early Learning. The Department implemented grant-level management of all federal funds, including the CCDF grant. The Department allocated the CCDF grants to eligible clients and allowable activities in compliance with 45 CFR 98.67. This process consists of making grant level adjustments between allowable grant sources to properly spend grant dollars within the allowable period of performance and ensure level of effort and matching requirements. The Department’s grant adjustments were processed based on eligible clients and allowable activities and did not include child-level data as required by SAO. The Department received a management decision letter dated October 3, 2023, from HHS for finding 2021-033 (2020-038) which states: “the ACF noted that the auditor raised concern about the Department’s accounting procedures and efforts made to trace expenditures at the transaction-level. As the basis for the finding, the auditor used CFRs (200.53, 200.303, 200.403, 200.410) that do not apply to CCDF. Federal regulations allow Lead Agencies to expend and account for CCDF funds in accordance with their own procedures.” In addition, ACF did not sustain the disallowance of questioned costs and stated: “Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” The ACF recommended, “that the Department work with the auditors to determine an appropriate methodology that can be tested to ensure child care payments comply with Federal regulations.” The Department is committed to collaborating with SAO to determine an appropriate methodology that identifies a sampling unit that can be used to accurately test compliance. The SAO maintained that the program is not auditable without child-level data. During the audit period, the Department did not have the staff and resources to develop and maintain the business process redesign, as well as the information technology initiatives necessary to meet the level of assurance as identified by SAO. In response to the auditor’s recommendations, the Department submitted a budget request for the 2024 supplemental budget. The enacted 2024 supplemental budget included funding to implement the Department’s budget request for funding beginning in state fiscal year 2025 and specified: “Funding in this subsection must be expended with internal controls that provide child-level detail for all transactions, beginning July 1, 2024” Upon receiving funding, the Department is working with a developer to assist with building out the required databases between the Social Service Payment System (SSPS) and the Agency Financial Reporting System (AFRS) to allow transfers between fundings sources to include the child-level data related to the expenditures. The Department looks forward to working with SAO to resolve the child-level data concerns and move forward with auditing the CCDF grant programs. Auditor’s Remarks The level of documentation needed to support grant expenditures is not established by our Office, but in title 45 of the U.S. Code of Federal Regulations and the state’s grant award. During the February 2022 meeting with HHS that the Department referenced in its response, the grantor stated the specific federal law the Department’s accounting procedures were noncompliant with was 45 CFR 98.67. We agree with the HHS management decision that our references to 2 CFR 200.53, 200.303, 200.403 and 200.410 in the 2021 finding were not correct. However, HHS adopted these same requirements in 45 CFR 75.2, 75.303, 75.403 and 75.410, respectfully. These requirements were all in place during the audit period. The proper references were included in the prior year finding and are included in this finding as well. Without adequate transactional level payment data, our Office is unable to perform tests to verify the Department met these requirements. In addition, we also are unable to verify whether the Department complied with matching, level of effort and earmarking requirements, or that required financial information reported to the federal government was accurate. These matters are referenced in separate findings in our report. In its response, the Department references a management decision letter issued October 3, 2023. The finding was partially sustained because the questioned costs identified in the audit would not be disallowed. The management decision states: “The ACF partially sustains the finding and recommendation. The ACF agrees with the auditor that the Department should strengthen internal controls to ensure payments to child care providers are allowable and properly supported.” “The ACF does not sustain a disallowance for the questioned costs in the amount of $271,353,409 representing the entire amount of the CCDF grant award. Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” We are not aware of what procedures ACF performed to conclude expenditures reported by the Department for fiscal year 2024 were spent only for allowable activities, were for allowable costs and met federal cost principles. We questioned all expenditures because, in our judgment, they were unauditable. We reaffirm our finding and will review the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations 45 U.S. Code of Federal Regulations (CFR) Part 75, section 303, Internal Controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 45 CFR Part 75, section 516, Audit findings, establishes reporting requirements for audit findings. Title 45 CFR, Section 98.60 – Availability of funds, states in part: (d) The following obligation and liquidation provisions apply to States and Territories: (1) Discretionary Fund allotments shall be obligated in the fiscal year in which funds are awarded or in the succeeding fiscal year. Unliquidated obligations as of the end of the succeeding fiscal year shall be liquidated within one year. (2) (i) Mandatory Funds for States requesting Matching Funds per § 98.55 shall be obligated in the fiscal year in which the funds are granted and are available until expended. (ii)Mandatory Funds for States that do not request Matching Funds are available until expended. (4) Both the Federal and non-Federal share of the Matching Fund shall be obligated in the fiscal year in which the funds are granted and liquidated no later than the end of the succeeding fiscal year. Title 45 CFR, Section 98.67 – Fiscal requirements, states: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. (b) Unless otherwise specified in this part, contracts that entail the expenditure of CCDF funds shall comply with the laws and procedures generally applicable to expenditures by the contracting agency of its own funds. (c) Fiscal control and accounting procedures shall be sufficient to permit: (1) Preparation of reports required by the Secretary under this subpart and under subpart H; and (2) The tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-059 The Department of Children, Youth, and Families did not have adequate internal controls over and did not comply with financial reporting requirements for the Child Care and Development Fund Cluster. Assistance Listing Number and Title: 93.575 Child Care and Development Block Grant 93.575 COVID-19 Child Care and Development Block Grant 93.596 Child Care Mandatory and Matching Funds of the Child Care and Development Fund Federal Grantor Name: U.S. Department of Health and Human Services Federal Award/Contract Number: 2103WACCDF; 2103WACCDD; 2303WACCDF; 2303WACCDD; 2403WACCDM; 2403WACCDD; 2103WACDC6; 2103WACSC6; 2103WACCC5; 2024WACCDD Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Reporting Known Questioned Cost Amount: None Prior Year Audit Finding: Yes, Finding 2023-062 Background The Department of Children, Youth, and Families administers the federal Child Care and Development Fund (CCDF) grants to help eligible working families pay for child care and fund improvements to child care quality. In fiscal year 2024, the Department spent about $483.5 million in federal funding. The Department is required to submit a quarterly ACF-696 financial report for each open grant. These reports contain information on expenditures for three CCDF funding sources: the Mandatory Fund, the Matching Fund, and the Discretionary Fund. The Department uses CCDF expenditures recorded in the state’s accounting system to compile and support the ACF-696 report. The U.S. Department of Health and Human Services (HHS), which oversees the CCF program at the federal level, requires recipients to have accounting procedures that are sufficient for tracing grants to a level of expenditure adequate to show that they have used them in accordance with program requirements. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In prior audits, we reported the Department did not have adequate internal controls over financial reporting requirements for the CCDF program. The prior finding numbers were 2023-062, 2022-044 and 2021-038. Description of Condition The Department did not have adequate internal controls over and did not comply with financial reporting requirements for the CCDF program. The Department’s accounting records must provide and support the financial information reported on ACF-696 reports. During the audit period, the Department’s grant management practice was to process expenditure transfers at the fund level without identifying which expenditures it transferred. Therefore, we could not rely on the data supporting the Department’s reported ACF-696 expenditures, and could not test whether the reports were accurate and complete. We also referenced this condition in audit finding 2024-056. We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition The Department is required to maintain sufficient documentation for each payment it makes using federal dollars. The Department’s accounting practices prevent it from meeting this requirement. In fiscal year 2021, the Department informed our Office that it had implemented what management referred to as fund-level accounting. This consisted of making significant accounting adjustments between funding sources in its general ledger without identifying the underlying transactions in the payment system that supported them. This affected all populations of child care expenditures for every month of the fiscal year. HHS officials informed the Department that these accounting practices do not comply with federal law, but management said they believe they are compliant. Effect of Condition By not complying with federal law requirements to maintain adequate supporting documentation for expenditures, the Department created a condition that made it impossible for our Office to audit the CCDF program expenditures reported on the ACF-696 financial report. Recommendation We recommend the Department design and implement internal controls to ensure the ACF-696 report is supported with transaction-level data that is sufficient to comply with federal law and state rules. Department’s Response The Department has managed the CCDF program since 2019, prior to that it was managed by the Department of Social and Health Services and the Department of Early Learning. The Department implemented grant-level management of all federal funds, including the CCDF grant. The Department allocated the CCDF grants to eligible clients and allowable activities in compliance with 45 CFR 98.67. This process consists of making grant level adjustments between allowable grant sources to properly spend grant dollars within the allowable period of performance and ensure level of effort and matching requirements. The Department’s grant adjustments were processed based on eligible clients and allowable activities and did not include child-level data as required by SAO. The Department received a management decision letter dated October 3, 2023, from HHS for finding 2021-033 (2020-038) which states: “the ACF noted that the auditor raised concern about the Department’s accounting procedures and efforts made to trace expenditures at the transaction-level. As the basis for the finding, the auditor used CFRs (200.53, 200.303, 200.403, 200.410) that do not apply to CCDF. Federal regulations allow Lead Agencies to expend and account for CCDF funds in accordance with their own procedures.” In addition, ACF did not sustain the disallowance of questioned costs and stated: “Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” The ACF recommended, “that the Department work with the auditors to determine an appropriate methodology that can be tested to ensure child care payments comply with Federal regulations.” The Department is committed to collaborating with SAO to determine an appropriate methodology that identifies a sampling unit that can be used to accurately test compliance. The SAO maintained that the program is not auditable without child-level data. During the audit period, the Department did not have the staff and resources to develop and maintain the business process redesign, as well as the information technology initiatives necessary to meet the level of assurance as identified by SAO. In response to the auditor’s recommendations, the Department submitted a budget request for the 2024 supplemental budget. The enacted 2024 supplemental budget included funding to implement the Department’s budget request for funding beginning in state fiscal year 2025 and specified: “Funding in this subsection must be expended with internal controls that provide child-level detail for all transactions, beginning July 1, 2024” Upon receiving funding, the Department is working with a developer to assist with building out the required databases between the Social Service Payment System (SSPS) and the Agency Financial Reporting System (AFRS) to allow transfers between fundings sources to include the child-level data related to the expenditures. The Department looks forward to working with SAO to resolve the child-level data concerns and move forward with auditing the CCDF grant programs. Auditor’s Remarks The level of documentation needed to support grant expenditures is not established by our Office, but in title 45 of the U.S. Code of Federal Regulations and the state’s grant award. During the February 2022 meeting with HHS that the Department referenced in its response, the grantor stated the specific federal law the Department’s accounting procedures were noncompliant with was 45 CFR 98.67. We agree with the HHS management decision that our references to 2 CFR 200.53, 200.303, 200.403 and 200.410 in the 2021 finding were not correct. However, HHS adopted these same requirements in 45 CFR 75.2, 75.303, 75.403 and 75.410, respectfully. These requirements were all in place during the audit period. The proper references were included in the prior year finding and are included in this finding as well. Without adequate transactional level payment data, our Office is unable to perform tests to verify the Department met these requirements. In addition, we also are unable to verify whether the Department complied with matching, level of effort and earmarking requirements, or that required financial information reported to the federal government was accurate. These matters are referenced in separate findings in our report. In its response, the Department references a management decision letter issued October 3, 2023. The finding was partially sustained because the questioned costs identified in the audit would not be disallowed. The management decision states: “The ACF partially sustains the finding and recommendation. The ACF agrees with the auditor that the Department should strengthen internal controls to ensure payments to child care providers are allowable and properly supported.” “The ACF does not sustain a disallowance for the questioned costs in the amount of $271,353,409 representing the entire amount of the CCDF grant award. Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” We are not aware of what procedures ACF performed to conclude expenditures reported by the Department for fiscal year 2024 were spent only for allowable activities, were for allowable costs and met federal cost principles. We questioned all expenditures because, in our judgment, they were unauditable. We reaffirm our finding and will review the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations 45 U.S. Code of Federal Regulations (CFR) Part 75, section 303, Internal Controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 45 CFR Part 75, section 516, Audit findings, establishes reporting requirements for audit findings. Title 45 CFR, Section 98.67 – Fiscal requirements, states: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. (b) Unless otherwise specified in this part, contracts that entail the expenditure of CCDF funds shall comply with the laws and procedures generally applicable to expenditures by the contracting agency of its own funds. (c) Fiscal control and accounting procedures shall be sufficient to permit: (1) Preparation of reports required by the Secretary under this subpart and under subpart H; and (2) The tracking of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-056 The Department of Children, Youth, and Families did not have adequate internal controls over and did not comply with requirements to ensure payments to child care providers for the Child Care and Development Fund Cluster programs were allowable and properly supported. Assistance Listing Number and Title: 93.575 Child Care and Development Block Grant 93.575 COVID-19 Child Care and Development Block Grant 93.596 Child Care Mandatory and Matching Funds of the Child Care and Development Fund Federal Grantor Name: U.S. Department of Health and Human Services Federal Award/Contract Number: 2103WACCDF; 2103WACCDD; 2303WACCDF; 2303WACCDD; 2403WACCDM; 2403WACCDD; 2103WACDC6; 2103WACSC6; 2103WACCC5; 2024WACCDD Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Known Questioned Cost Amount: $415,579,473 Prior Year Audit Finding: Yes, Finding 2023-058 Background The Department of Children, Youth, and Families administers the federal Child Care and Development Fund (CCDF) grants to help eligible working families pay for child care and fund improvements to child care quality. In fiscal year 2024, the Department spent about $483.5 million in federal funding. The Department is responsible for establishing policies to ensure payments to providers for child care services are allowable. In fiscal year 2024, the Department spent more than $415 million on monthly child care subsidy payments to child care providers. There are three child care provider types: licensed centers, licensed family homes and licensed exempt providers referred to as Family, Friends and Neighbor providers. The Department uses the Social Service Payment System (SSPS) to process the payments it makes to child care providers. The system allocates payments to various funding sources based on the client’s eligibility. These funding sources include multiple federal programs, multiple CCDF federal grant awards and state funding. The Department uploads the SSPS payment data into the state’s accounting system at a summary level based on the various funding sources. There is always a need to transfer the funding sources for some payments throughout the year to manage federal and state funds properly. In prior audit periods up until fiscal year 2021, the Department prepared supporting documentation for transfers that included details of what payments it was transferring. The purpose of documenting this detail was to maintain proper support for federal expenditures. The Department of Health and Human Services (HHS), which oversees the CCDF program at the federal level, requires recipients to have accounting procedures that are sufficient for tracing grants to a level of expenditure adequate to show that they have used them in accordance with program requirements. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In prior audits, we reported the Department did not have adequate internal controls over and did not comply with requirements to ensure payments to childcare providers were allowable and properly supported. We have reported this condition since 2005. The most recent audit finding numbers were 2023-058, 2022-041, 2021-033, 2020-038, 2019-035, 2018-034, 2017-024, 2016-021, 2015-023, 2014-023, 2013-016, 12-28, 11-23, 10-31, 9-12 and 8-13. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to ensure payments to child care providers for the CCDF programs were allowable and properly supported. In fiscal year 2021, management informed us that the Department changed its grant management practices to process expenditure transfers at the grant level. This new process made the original expenditure coding in SSPS inaccurate and unreliable for testing. As a result, we could not trace the federal funds to a level of expenditure adequate to establish whether the Department spent CCDF funds in accordance with federal and state regulations. Further, this meant we could not test the Department’s payments to child care providers for compliance with activities allowed and cost principles. By processing these adjustments at the fund level, the Department invalidated the transaction-level documentation of the original child care expenditure in SSPS and did not identify the new allocation at the payment level. Additionally, the Department transferred some of these child care expenditures at the fund level more than once, making the underlying data increasingly unreliable with each transfer. We consider these internal control deficiencies to be a material weakness that led to material noncompliance. Cause of Condition The Department is required to maintain sufficient documentation for each payment it makes with federal dollars. The Department’s accounting practices prevent it from meeting this requirement. The Department implemented what management referred to as fund-level accounting. This consisted of making significant accounting adjustments between funding sources in its general ledger without identifying the underlying transactions in the payment system that supported the adjustments. This affected all populations of child care expenditures for every month of the fiscal year. HHS officials informed the Department that these accounting practices do not comply with federal law, but management said they believe they are compliant. Effect of Condition and Questioned Costs By not complying with federal law requirements to maintain adequate supporting documentation for expenditures, the Department made it impossible for our Office to audit the federal dollars it used for payments to child care providers. Because we could not test transaction-level detail, we also could not determine whether the issues we identified in prior audits had improved or worsened, including the Department’s lack of adequate internal controls and significant rate of noncompliance for payments to child care providers. The total amount of known child care payments the Department made with federal CCDF funds in the audit period was $415,579,473. The Department also partially funded these payments with an additional $208,098,727 in state dollars. Because the Department did not comply with HHS requirements to allow for the tracing of grant expenditures to a payment level, we are questioning all $415,579,473 in federal program costs it incurred during the audit period. The payments the Department partially paid with state funds are not included in the federal questioned costs. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Design and implement internal controls to ensure transaction-level data is sufficient to comply with federal law and state rules • Consult with the grantor to discuss whether it should repay the questioned costs identified in the audit Department’s Response The Department has managed the CCDF program since 2019, prior to that it was managed by the Department of Social and Health Services and the Department of Early Learning. The Department implemented grant-level management of all federal funds, including the CCDF grant. The Department allocated the CCDF grants to eligible clients and allowable activities in compliance with 45 CFR 98.67. This process consists of making grant level adjustments between allowable grant sources to properly spend grant dollars within the allowable period of performance and ensure level of effort and matching requirements. The Department’s grant adjustments were processed based on eligible clients and allowable activities and did not include child-level data as required by SAO. The Department received a management decision letter dated October 3, 2023, from HHS for finding 2021-033 (2020-038) which states: “the ACF noted that the auditor raised concern about the Department’s accounting procedures and efforts made to trace expenditures at the transaction-level. As the basis for the finding, the auditor used CFRs (200.53, 200.303, 200.403, 200.410) that do not apply to CCDF. Federal regulations allow Lead Agencies to expend and account for CCDF funds in accordance with their own procedures.” In addition, ACF did not sustain the disallowance of questioned costs and stated: “Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” The ACF recommended, “that the Department work with the auditors to determine an appropriate methodology that can be tested to ensure child care payments comply with Federal regulations.” The Department is committed to collaborating with SAO to determine an appropriate methodology that identifies a sampling unit that can be used to accurately test compliance. The SAO maintained that the program is not auditable without child-level data. During the audit period, the Department did not have the staff and resources to develop and maintain the business process redesign, as well as the information technology initiatives necessary to meet the level of assurance as identified by SAO. In response to the auditor’s recommendations, the Department submitted a budget request for the 2024 supplemental budget. The enacted 2024 supplemental budget included funding to implement the Department’s budget request for funding beginning in state fiscal year 2025 and specified: “Funding in this subsection must be expended with internal controls that provide child-level detail for all transactions, beginning July 1, 2024” Upon receiving funding, the Department is working with a developer to assist with building out the required databases between the Social Service Payment System (SSPS) and the Agency Financial Reporting System (AFRS) to allow transfers between fundings sources to include the child-level data related to the expenditures. The Department looks forward to working with SAO to resolve the child-level data concerns and move forward with auditing the CCDF grant programs. Auditor’s Remarks The level of documentation needed to support grant expenditures is not established by our Office, but in title 45 of the U.S. Code of Federal Regulations and the state’s grant award. During the February 2022 meeting with HHS that the Department referenced in its response, the grantor stated the specific federal law the Department’s accounting procedures were noncompliant with was 45 CFR 98.67. We agree with the HHS management decision that our references to 2 CFR 200.53, 200.303, 200.403 and 200.410 in the 2021 finding were not correct. However, HHS adopted these same requirements in 45 CFR 75.2, 75.303, 75.403 and 75.410, respectfully. These requirements were all in place during the audit period. The proper references were included in the prior year finding and are included in this finding as well. Without adequate transactional level payment data, our Office is unable to perform tests to verify the Department met these requirements. In addition, we also are unable to verify whether the Department complied with matching, level of effort and earmarking requirements, or that required financial information reported to the federal government was accurate. These matters are referenced in separate findings in our report. In its response, the Department references a management decision letter issued October 3, 2023. The finding was partially sustained because the questioned costs identified in the audit would not be disallowed. The management decision states: “The ACF partially sustains the finding and recommendation. The ACF agrees with the auditor that the Department should strengthen internal controls to ensure payments to child care providers are allowable and properly supported.” “The ACF does not sustain a disallowance for the questioned costs in the amount of $271,353,409 representing the entire amount of the CCDF grant award. Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” We are not aware of what procedures ACF performed to conclude expenditures reported by the Department for fiscal year 2024 were spent only for allowable activities, were for allowable costs and met federal cost principles. We questioned all expenditures because, in our judgment, they were unauditable. We reaffirm our finding and will review the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations 45 U.S. Code of Federal Regulations (CFR) Part 75, section 2, Definitions, includes the definition of improper payment. 45 CFR Part 75, section 303, Internal Controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 45 CFR Part 75, section 403, Factors Affecting Allowability of Costs. 45 CFR Part 75, section 410, Collection of Unallowable Costs 45 CFR Part 75, section 516, Audit findings, establishes reporting requirements for audit findings. Title 45 CFR, Section 98.67 – Fiscal requirements, states: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. (b) Unless otherwise specified in this part, contracts that entail the expenditure of CCDF funds shall comply with the laws and procedures generally applicable to expenditures by the contracting agency of its own funds. (c) Fiscal control and accounting procedures shall be sufficient to permit: (1) Preparation of reports required by the Secretary under this subpart and under subpart H; and (2) The tracking of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-057 The Department of Children, Youth, and Families did not have adequate internal controls over and did not comply with matching, level of effort and earmarking requirements for the Child Care and Development Fund Cluster. Assistance Listing Number and Title: 93.575 Child Care and Development Block Grant 93.575 COVID-19 Child Care and Development Block Grant 93.596 Child Care Mandatory and Matching Funds of the Child Care and Development Fund Federal Grantor Name: U.S. Department of Health and Human Services Federal Award/Contract Number: 2103WACCDF; 2103WACCDD; 2303WACCDF; 2303WACCDD; 2403WACCDM; 2403WACCDD; 2103WACDC6; 2103WACSC6; 2103WACCC5; 2024WACCDD Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Matching, Level of Effort, Earmarking Known Questioned Cost Amount: None Prior Year Audit Finding: Yes, Finding 2023-060 Background The Department of Children, Youth, and Families administers the federal Child Care and Development Fund (CCDF) grants to help eligible working families pay for child care and fund improvements to child care quality. In fiscal year 2024, the Department spent about $483.5 million in federal funding. The CCDF consists of three distinct funding sources: Discretionary Fund, Mandatory Fund, and Matching Fund. Additionally, under the Temporary Assistance for Needy Families (TANF) program, the Department may transfer TANF funds to the CCDF, which are then treated as Discretionary Funds. The Department is instructed how to spend this federal money. For the Department to receive its allotted share of the Matching Fund, it must meet the Maintenance of Effort (MOE) requirement and match the federal Matching Fund claimed with state expenditures at the Federal Medical Assistance Percentage rate for the applicable fiscal year. The Department must also meet earmarking requirements for expenditures for administrative and quality activities. The U.S. Department of Health and Human Services (HHS), which oversees the CCDF program at the federal level, requires recipients to have accounting procedures that are sufficient for tracing grants to a level of expenditure adequate to show that they have used them in accordance with program requirements. Department staff run monthly and quarterly expenditure reports from the accounting system to track requirements over matching, level of effort and earmarking for each open grant award. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In prior audits, we reported the Department did not have adequate internal controls over matching, level of effort and earmarking requirements for the CCDF Cluster programs. The prior audit finding numbers were 2023-060, 2022-042, 2021-036, 2020-040 and 2019-037. Description of Condition The Department did not have adequate internal controls over and did not comply with matching, level of effort and earmarking requirements for the CCDF programs. The Department’s accounting records should be used to verify it has met matching, level of effort and earmarking requirements. In fiscal year 2021, management informed us that the Department changed its grant management practices to process expenditure transfers at the grant level. This new process made the original expenditure coding in the payment system inaccurate and unreliable for testing. Without identifying which expenditures it transferred, the Department’s monitoring is insufficient for properly managing matching, level of effort and earmarking requirements. Our Office could not rely on the data supporting the Department’s expenditures or verify that the accounting records were accurate. As a result, we could not trace the federal funds to a level of expenditure adequate to establish whether the Department spent CCDF funds in accordance with federal and state regulations. Further, this meant we could not test the Department’s payments for compliance with matching, level of effort and earmarking requirements. By processing these adjustments at the fund level, the Department invalidated the transaction-level documentation of the original child care expenditure in the payment system and did not identify the new allocation at the payment level. Additionally, the Department transferred some of these child care expenditures more than once at the fund level, making the underlying data increasingly unreliable with each transfer. This condition is also referenced in audit finding 2024-056. We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition The Department is required to maintain sufficient documentation for each payment it makes with federal dollars. The Department’s accounting practices prevent it from meeting this requirement. In fiscal year 2021, the Department informed our Office that it had implemented what management referred to as fund-level accounting. This consisted of making significant accounting adjustments between funding sources in its general ledger without identifying the underlying transactions in the payment system that supported the adjustments. This affected all populations of child care expenditures for every month of the fiscal year. HHS officials informed the Department that these accounting practices do not comply with federal law, but management said they believe they are compliant. Effect of Condition By not complying with federal law requirements to maintain adequate supporting documentation for expenditures, the Department created a condition that made it impossible for our Office to determine if it had met matching, level of effort and earmarking requirements. Recommendations We recommend the Department: • Design and implement internal controls to ensure transaction-level data is sufficient to comply with federal law and state rules • Develop effective ongoing monitoring procedures Department’s Response The Department has managed the CCDF program since 2019, prior to that it was managed by the Department of Social and Health Services and the Department of Early Learning. The Department implemented grant-level management of all federal funds, including the CCDF grant. The Department allocated the CCDF grants to eligible clients and allowable activities in compliance with 45 CFR 98.67. This process consists of making grant level adjustments between allowable grant sources to properly spend grant dollars within the allowable period of performance and ensure level of effort and matching requirements. The Department’s grant adjustments were processed based on eligible clients and allowable activities and did not include child-level data as required by SAO. The Department received a management decision letter dated October 3, 2023, from HHS for finding 2021-033 (2020-038) which states: “the ACF noted that the auditor raised concern about the Department’s accounting procedures and efforts made to trace expenditures at the transaction-level. As the basis for the finding, the auditor used CFRs (200.53, 200.303, 200.403, 200.410) that do not apply to CCDF. Federal regulations allow Lead Agencies to expend and account for CCDF funds in accordance with their own procedures.” In addition, ACF did not sustain the disallowance of questioned costs and stated: “Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” The ACF recommended, “that the Department work with the auditors to determine an appropriate methodology that can be tested to ensure child care payments comply with Federal regulations.” The Department is committed to collaborating with SAO to determine an appropriate methodology that identifies a sampling unit that can be used to accurately test compliance. The SAO maintained that the program is not auditable without child-level data. During the audit period, the Department did not have the staff and resources to develop and maintain the business process redesign, as well as the information technology initiatives necessary to meet the level of assurance as identified by SAO. In response to the auditor’s recommendations, the Department submitted a budget request for the 2024 supplemental budget. The enacted 2024 supplemental budget included funding to implement the Department’s budget request for funding beginning in state fiscal year 2025 and specified: “Funding in this subsection must be expended with internal controls that provide child-level detail for all transactions, beginning July 1, 2024” Upon receiving funding, the Department is working with a developer to assist with building out the required databases between the Social Service Payment System (SSPS) and the Agency Financial Reporting System (AFRS) to allow transfers between fundings sources to include the child-level data related to the expenditures. The Department looks forward to working with SAO to resolve the child-level data concerns and move forward with auditing the CCDF grant programs. Auditor’s Remarks The level of documentation needed to support grant expenditures is not established by our Office, but in title 45 of the U.S. Code of Federal Regulations and the state’s grant award. During the February 2022 meeting with HHS that the Department referenced in its response, the grantor stated the specific federal law the Department’s accounting procedures were noncompliant with was 45 CFR 98.67. We agree with the HHS management decision that our references to 2 CFR 200.53, 200.303, 200.403 and 200.410 in the 2021 finding were not correct. However, HHS adopted these same requirements in 45 CFR 75.2, 75.303, 75.403 and 75.410, respectfully. These requirements were all in place during the audit period. The proper references were included in the prior year finding and are included in this finding as well. Without adequate transactional level payment data, our Office is unable to perform tests to verify the Department met these requirements. In addition, we also are unable to verify whether the Department complied with matching, level of effort and earmarking requirements, or that required financial information reported to the federal government was accurate. These matters are referenced in separate findings in our report. In its response, the Department references a management decision letter issued October 3, 2023. The finding was partially sustained because the questioned costs identified in the audit would not be disallowed. The management decision states: “The ACF partially sustains the finding and recommendation. The ACF agrees with the auditor that the Department should strengthen internal controls to ensure payments to child care providers are allowable and properly supported.” “The ACF does not sustain a disallowance for the questioned costs in the amount of $271,353,409 representing the entire amount of the CCDF grant award. Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” We are not aware of what procedures ACF performed to conclude expenditures reported by the Department for fiscal year 2024 were spent only for allowable activities, were for allowable costs and met federal cost principles. We questioned all expenditures because, in our judgment, they were unauditable. We reaffirm our finding and will review the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations 45 U.S. Code of Federal Regulations (CFR) Part 75, section 303, Internal Controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 45 CFR Part 75, section 516, Audit findings, establishes reporting requirements for audit findings. Title 45 CFR, Section 98.67 – Fiscal requirements, states: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. (b) Unless otherwise specified in this part, contracts that entail the expenditure of CCDF funds shall comply with the laws and procedures generally applicable to expenditures by the contracting agency of its own funds. (c) Fiscal control and accounting procedures shall be sufficient to permit: (1) Preparation of reports required by the Secretary under this subpart and under subpart H; and (2) The tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-058 The Department of Children, Youth, and Families did not have adequate internal controls over and did not comply with period of performance requirements for the Child Care and Development Fund Cluster. Assistance Listing Number and Title: 93.575 Child Care and Development Block Grant 93.575 COVID-19 Child Care and Development Block Grant 93.596 Child Care Mandatory and Matching Funds of the Child Care and Development Fund Federal Grantor Name: U.S. Department of Health and Human Services Federal Award/Contract Number: 2103WACCDF; 2103WACCDD; 2303WACCDF; 2303WACCDD; 2403WACCDM; 2403WACCDD; 2103WACDC6; 2103WACSC6; 2103WACCC5; 2024WACCDD Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Period of Performance Known Questioned Cost Amount: None Prior Year Audit Finding: Yes, Finding 2023-061 Background The Department of Children, Youth, and Families administers the federal Child Care and Development Fund (CCDF) grants to help eligible working families pay for child care and fund improvements to child care quality. In fiscal year 2024, the Department spent about $483.5 million in federal funding. Each federal grant specifies a performance period during which recipients must obligate and liquidate program costs. These periods typically align with the federal fiscal year of October 1 through September 30. Payments for costs charged before a grant’s beginning date or after the ending date are not allowed without the grantor’s prior approval. The CCDF consists of three distinct funding sources: Discretionary Fund, Mandatory Fund, and Matching Fund. Each of these funds has specific period of performance requirements established in federal regulation (45 CFR § 98.60(d)). Recipients must obligate: • Discretionary funds by the end of the succeeding fiscal year after award and must expend them by the end of the third fiscal year after award • Mandatory funds by the end of the fiscal year in which they are awarded if the state also requests matching funds. If the state does not request matching funds for the fiscal year, then the Mandatory Funds are available until liquidated. • Matching funds by the end of the fiscal year in which they are awarded and must liquidate them by the end of the succeeding fiscal year after award During the audit period, the Department also received supplemental funds under the Coronavirus Aid, Relief, and Economic Security and the Coronavirus Response and Relief Supplemental Appropriations Acts. These funds are treated as Discretionary Funds, however, they have their own specific obligation and liquidation timeframes. The U.S. Department of Health and Human Services (HHS), which oversees the CCDF at the federal level, requires recipients to have accounting procedures that are sufficient for tracing grants to a level of expenditure adequate to show that they have used them in accordance with program requirements. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In prior audits, we reported the Department did not have adequate internal controls over period of performance requirements for the CCDF program. The prior finding numbers were 2023-061, 2022-043, 2021-037 and 2020-041. Description of Condition The Department did not have adequate internal controls over and did not comply with period of performance requirements for the CCDF program. Our Office uses the Department’s accounting records to verify it has met the period of performance requirements. In fiscal year 2021, management informed us that the Department changed its grant management practices to process expenditure transfers at the grant level. This new process made the original expenditures coded in the payment system inaccurate and unreliable for audit testing. As a result, we could not trace the federal funds to a level of expenditure adequate to establish whether the Department spent CCDF funds in accordance with federal and state regulations. Further, this meant we could not test the Department’s payments for compliance with period of performance requirements. We also referenced this condition in audit finding 2024 -056. We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition The Department is required to maintain sufficient documentation for each payment it makes with federal dollars. The Department’s accounting practices prevent it from meeting this requirement. The Department implemented what management referred to as fund-level accounting. This consisted of making significant accounting adjustments between funding sources in its general ledger without identifying the underlying transactions in the payment system that supported the adjustments. This affected all populations of child care expenditures for every month of the fiscal year. HHS officials informed the Department that these accounting practices do not comply with federal law, but management said they believe they are compliant. Effect of Condition By not complying with federal law requirements to maintain adequate supporting documentation for expenditures, the Department created a condition that made it impossible for our Office to determine if it materially met the period of performance requirements. Furthermore, without adequate internal controls in place, the Department is at a higher risk of making improper payments with grant funds. Recommendations We recommend the Department: • Design and implement internal controls to ensure transaction-level data is sufficient to comply with federal law and state rules • Develop written policies and procedures over federal period of performance requirements Department’s Response The Department has managed the CCDF program since 2019, prior to that it was managed by the Department of Social and Health Services and the Department of Early Learning. The Department implemented grant-level management of all federal funds, including the CCDF grant. The Department allocated the CCDF grants to eligible clients and allowable activities in compliance with 45 CFR 98.67. This process consists of making grant level adjustments between allowable grant sources to properly spend grant dollars within the allowable period of performance and ensure level of effort and matching requirements. The Department’s grant adjustments were processed based on eligible clients and allowable activities and did not include child-level data as required by SAO. The Department received a management decision letter dated October 3, 2023, from HHS for finding 2021-033 (2020-038) which states: “the ACF noted that the auditor raised concern about the Department’s accounting procedures and efforts made to trace expenditures at the transaction-level. As the basis for the finding, the auditor used CFRs (200.53, 200.303, 200.403, 200.410) that do not apply to CCDF. Federal regulations allow Lead Agencies to expend and account for CCDF funds in accordance with their own procedures.” In addition, ACF did not sustain the disallowance of questioned costs and stated: “Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” The ACF recommended, “that the Department work with the auditors to determine an appropriate methodology that can be tested to ensure child care payments comply with Federal regulations.” The Department is committed to collaborating with SAO to determine an appropriate methodology that identifies a sampling unit that can be used to accurately test compliance. The SAO maintained that the program is not auditable without child-level data. During the audit period, the Department did not have the staff and resources to develop and maintain the business process redesign, as well as the information technology initiatives necessary to meet the level of assurance as identified by SAO. In response to the auditor’s recommendations, the Department submitted a budget request for the 2024 supplemental budget. The enacted 2024 supplemental budget included funding to implement the Department’s budget request for funding beginning in state fiscal year 2025 and specified: “Funding in this subsection must be expended with internal controls that provide child-level detail for all transactions, beginning July 1, 2024” Upon receiving funding, the Department is working with a developer to assist with building out the required databases between the Social Service Payment System (SSPS) and the Agency Financial Reporting System (AFRS) to allow transfers between fundings sources to include the child-level data related to the expenditures. The Department looks forward to working with SAO to resolve the child-level data concerns and move forward with auditing the CCDF grant programs. Auditor’s Remarks The level of documentation needed to support grant expenditures is not established by our Office, but in title 45 of the U.S. Code of Federal Regulations and the state’s grant award. During the February 2022 meeting with HHS that the Department referenced in its response, the grantor stated the specific federal law the Department’s accounting procedures were noncompliant with was 45 CFR 98.67. We agree with the HHS management decision that our references to 2 CFR 200.53, 200.303, 200.403 and 200.410 in the 2021 finding were not correct. However, HHS adopted these same requirements in 45 CFR 75.2, 75.303, 75.403 and 75.410, respectfully. These requirements were all in place during the audit period. The proper references were included in the prior year finding and are included in this finding as well. Without adequate transactional level payment data, our Office is unable to perform tests to verify the Department met these requirements. In addition, we also are unable to verify whether the Department complied with matching, level of effort and earmarking requirements, or that required financial information reported to the federal government was accurate. These matters are referenced in separate findings in our report. In its response, the Department references a management decision letter issued October 3, 2023. The finding was partially sustained because the questioned costs identified in the audit would not be disallowed. The management decision states: “The ACF partially sustains the finding and recommendation. The ACF agrees with the auditor that the Department should strengthen internal controls to ensure payments to child care providers are allowable and properly supported.” “The ACF does not sustain a disallowance for the questioned costs in the amount of $271,353,409 representing the entire amount of the CCDF grant award. Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” We are not aware of what procedures ACF performed to conclude expenditures reported by the Department for fiscal year 2024 were spent only for allowable activities, were for allowable costs and met federal cost principles. We questioned all expenditures because, in our judgment, they were unauditable. We reaffirm our finding and will review the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations 45 U.S. Code of Federal Regulations (CFR) Part 75, section 303, Internal Controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 45 CFR Part 75, section 516, Audit findings, establishes reporting requirements for audit findings. Title 45 CFR, Section 98.60 – Availability of funds, states in part: (d) The following obligation and liquidation provisions apply to States and Territories: (1) Discretionary Fund allotments shall be obligated in the fiscal year in which funds are awarded or in the succeeding fiscal year. Unliquidated obligations as of the end of the succeeding fiscal year shall be liquidated within one year. (2) (i) Mandatory Funds for States requesting Matching Funds per § 98.55 shall be obligated in the fiscal year in which the funds are granted and are available until expended. (ii)Mandatory Funds for States that do not request Matching Funds are available until expended. (4) Both the Federal and non-Federal share of the Matching Fund shall be obligated in the fiscal year in which the funds are granted and liquidated no later than the end of the succeeding fiscal year. Title 45 CFR, Section 98.67 – Fiscal requirements, states: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. (b) Unless otherwise specified in this part, contracts that entail the expenditure of CCDF funds shall comply with the laws and procedures generally applicable to expenditures by the contracting agency of its own funds. (c) Fiscal control and accounting procedures shall be sufficient to permit: (1) Preparation of reports required by the Secretary under this subpart and under subpart H; and (2) The tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-059 The Department of Children, Youth, and Families did not have adequate internal controls over and did not comply with financial reporting requirements for the Child Care and Development Fund Cluster. Assistance Listing Number and Title: 93.575 Child Care and Development Block Grant 93.575 COVID-19 Child Care and Development Block Grant 93.596 Child Care Mandatory and Matching Funds of the Child Care and Development Fund Federal Grantor Name: U.S. Department of Health and Human Services Federal Award/Contract Number: 2103WACCDF; 2103WACCDD; 2303WACCDF; 2303WACCDD; 2403WACCDM; 2403WACCDD; 2103WACDC6; 2103WACSC6; 2103WACCC5; 2024WACCDD Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Reporting Known Questioned Cost Amount: None Prior Year Audit Finding: Yes, Finding 2023-062 Background The Department of Children, Youth, and Families administers the federal Child Care and Development Fund (CCDF) grants to help eligible working families pay for child care and fund improvements to child care quality. In fiscal year 2024, the Department spent about $483.5 million in federal funding. The Department is required to submit a quarterly ACF-696 financial report for each open grant. These reports contain information on expenditures for three CCDF funding sources: the Mandatory Fund, the Matching Fund, and the Discretionary Fund. The Department uses CCDF expenditures recorded in the state’s accounting system to compile and support the ACF-696 report. The U.S. Department of Health and Human Services (HHS), which oversees the CCF program at the federal level, requires recipients to have accounting procedures that are sufficient for tracing grants to a level of expenditure adequate to show that they have used them in accordance with program requirements. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In prior audits, we reported the Department did not have adequate internal controls over financial reporting requirements for the CCDF program. The prior finding numbers were 2023-062, 2022-044 and 2021-038. Description of Condition The Department did not have adequate internal controls over and did not comply with financial reporting requirements for the CCDF program. The Department’s accounting records must provide and support the financial information reported on ACF-696 reports. During the audit period, the Department’s grant management practice was to process expenditure transfers at the fund level without identifying which expenditures it transferred. Therefore, we could not rely on the data supporting the Department’s reported ACF-696 expenditures, and could not test whether the reports were accurate and complete. We also referenced this condition in audit finding 2024-056. We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition The Department is required to maintain sufficient documentation for each payment it makes using federal dollars. The Department’s accounting practices prevent it from meeting this requirement. In fiscal year 2021, the Department informed our Office that it had implemented what management referred to as fund-level accounting. This consisted of making significant accounting adjustments between funding sources in its general ledger without identifying the underlying transactions in the payment system that supported them. This affected all populations of child care expenditures for every month of the fiscal year. HHS officials informed the Department that these accounting practices do not comply with federal law, but management said they believe they are compliant. Effect of Condition By not complying with federal law requirements to maintain adequate supporting documentation for expenditures, the Department created a condition that made it impossible for our Office to audit the CCDF program expenditures reported on the ACF-696 financial report. Recommendation We recommend the Department design and implement internal controls to ensure the ACF-696 report is supported with transaction-level data that is sufficient to comply with federal law and state rules. Department’s Response The Department has managed the CCDF program since 2019, prior to that it was managed by the Department of Social and Health Services and the Department of Early Learning. The Department implemented grant-level management of all federal funds, including the CCDF grant. The Department allocated the CCDF grants to eligible clients and allowable activities in compliance with 45 CFR 98.67. This process consists of making grant level adjustments between allowable grant sources to properly spend grant dollars within the allowable period of performance and ensure level of effort and matching requirements. The Department’s grant adjustments were processed based on eligible clients and allowable activities and did not include child-level data as required by SAO. The Department received a management decision letter dated October 3, 2023, from HHS for finding 2021-033 (2020-038) which states: “the ACF noted that the auditor raised concern about the Department’s accounting procedures and efforts made to trace expenditures at the transaction-level. As the basis for the finding, the auditor used CFRs (200.53, 200.303, 200.403, 200.410) that do not apply to CCDF. Federal regulations allow Lead Agencies to expend and account for CCDF funds in accordance with their own procedures.” In addition, ACF did not sustain the disallowance of questioned costs and stated: “Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” The ACF recommended, “that the Department work with the auditors to determine an appropriate methodology that can be tested to ensure child care payments comply with Federal regulations.” The Department is committed to collaborating with SAO to determine an appropriate methodology that identifies a sampling unit that can be used to accurately test compliance. The SAO maintained that the program is not auditable without child-level data. During the audit period, the Department did not have the staff and resources to develop and maintain the business process redesign, as well as the information technology initiatives necessary to meet the level of assurance as identified by SAO. In response to the auditor’s recommendations, the Department submitted a budget request for the 2024 supplemental budget. The enacted 2024 supplemental budget included funding to implement the Department’s budget request for funding beginning in state fiscal year 2025 and specified: “Funding in this subsection must be expended with internal controls that provide child-level detail for all transactions, beginning July 1, 2024” Upon receiving funding, the Department is working with a developer to assist with building out the required databases between the Social Service Payment System (SSPS) and the Agency Financial Reporting System (AFRS) to allow transfers between fundings sources to include the child-level data related to the expenditures. The Department looks forward to working with SAO to resolve the child-level data concerns and move forward with auditing the CCDF grant programs. Auditor’s Remarks The level of documentation needed to support grant expenditures is not established by our Office, but in title 45 of the U.S. Code of Federal Regulations and the state’s grant award. During the February 2022 meeting with HHS that the Department referenced in its response, the grantor stated the specific federal law the Department’s accounting procedures were noncompliant with was 45 CFR 98.67. We agree with the HHS management decision that our references to 2 CFR 200.53, 200.303, 200.403 and 200.410 in the 2021 finding were not correct. However, HHS adopted these same requirements in 45 CFR 75.2, 75.303, 75.403 and 75.410, respectfully. These requirements were all in place during the audit period. The proper references were included in the prior year finding and are included in this finding as well. Without adequate transactional level payment data, our Office is unable to perform tests to verify the Department met these requirements. In addition, we also are unable to verify whether the Department complied with matching, level of effort and earmarking requirements, or that required financial information reported to the federal government was accurate. These matters are referenced in separate findings in our report. In its response, the Department references a management decision letter issued October 3, 2023. The finding was partially sustained because the questioned costs identified in the audit would not be disallowed. The management decision states: “The ACF partially sustains the finding and recommendation. The ACF agrees with the auditor that the Department should strengthen internal controls to ensure payments to child care providers are allowable and properly supported.” “The ACF does not sustain a disallowance for the questioned costs in the amount of $271,353,409 representing the entire amount of the CCDF grant award. Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” We are not aware of what procedures ACF performed to conclude expenditures reported by the Department for fiscal year 2024 were spent only for allowable activities, were for allowable costs and met federal cost principles. We questioned all expenditures because, in our judgment, they were unauditable. We reaffirm our finding and will review the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations 45 U.S. Code of Federal Regulations (CFR) Part 75, section 303, Internal Controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 45 CFR Part 75, section 516, Audit findings, establishes reporting requirements for audit findings. Title 45 CFR, Section 98.67 – Fiscal requirements, states: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. (b) Unless otherwise specified in this part, contracts that entail the expenditure of CCDF funds shall comply with the laws and procedures generally applicable to expenditures by the contracting agency of its own funds. (c) Fiscal control and accounting procedures shall be sufficient to permit: (1) Preparation of reports required by the Secretary under this subpart and under subpart H; and (2) The tracking of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-056 The Department of Children, Youth, and Families did not have adequate internal controls over and did not comply with requirements to ensure payments to child care providers for the Child Care and Development Fund Cluster programs were allowable and properly supported. Assistance Listing Number and Title: 93.575 Child Care and Development Block Grant 93.575 COVID-19 Child Care and Development Block Grant 93.596 Child Care Mandatory and Matching Funds of the Child Care and Development Fund Federal Grantor Name: U.S. Department of Health and Human Services Federal Award/Contract Number: 2103WACCDF; 2103WACCDD; 2303WACCDF; 2303WACCDD; 2403WACCDM; 2403WACCDD; 2103WACDC6; 2103WACSC6; 2103WACCC5; 2024WACCDD Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Known Questioned Cost Amount: $415,579,473 Prior Year Audit Finding: Yes, Finding 2023-058 Background The Department of Children, Youth, and Families administers the federal Child Care and Development Fund (CCDF) grants to help eligible working families pay for child care and fund improvements to child care quality. In fiscal year 2024, the Department spent about $483.5 million in federal funding. The Department is responsible for establishing policies to ensure payments to providers for child care services are allowable. In fiscal year 2024, the Department spent more than $415 million on monthly child care subsidy payments to child care providers. There are three child care provider types: licensed centers, licensed family homes and licensed exempt providers referred to as Family, Friends and Neighbor providers. The Department uses the Social Service Payment System (SSPS) to process the payments it makes to child care providers. The system allocates payments to various funding sources based on the client’s eligibility. These funding sources include multiple federal programs, multiple CCDF federal grant awards and state funding. The Department uploads the SSPS payment data into the state’s accounting system at a summary level based on the various funding sources. There is always a need to transfer the funding sources for some payments throughout the year to manage federal and state funds properly. In prior audit periods up until fiscal year 2021, the Department prepared supporting documentation for transfers that included details of what payments it was transferring. The purpose of documenting this detail was to maintain proper support for federal expenditures. The Department of Health and Human Services (HHS), which oversees the CCDF program at the federal level, requires recipients to have accounting procedures that are sufficient for tracing grants to a level of expenditure adequate to show that they have used them in accordance with program requirements. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In prior audits, we reported the Department did not have adequate internal controls over and did not comply with requirements to ensure payments to childcare providers were allowable and properly supported. We have reported this condition since 2005. The most recent audit finding numbers were 2023-058, 2022-041, 2021-033, 2020-038, 2019-035, 2018-034, 2017-024, 2016-021, 2015-023, 2014-023, 2013-016, 12-28, 11-23, 10-31, 9-12 and 8-13. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to ensure payments to child care providers for the CCDF programs were allowable and properly supported. In fiscal year 2021, management informed us that the Department changed its grant management practices to process expenditure transfers at the grant level. This new process made the original expenditure coding in SSPS inaccurate and unreliable for testing. As a result, we could not trace the federal funds to a level of expenditure adequate to establish whether the Department spent CCDF funds in accordance with federal and state regulations. Further, this meant we could not test the Department’s payments to child care providers for compliance with activities allowed and cost principles. By processing these adjustments at the fund level, the Department invalidated the transaction-level documentation of the original child care expenditure in SSPS and did not identify the new allocation at the payment level. Additionally, the Department transferred some of these child care expenditures at the fund level more than once, making the underlying data increasingly unreliable with each transfer. We consider these internal control deficiencies to be a material weakness that led to material noncompliance. Cause of Condition The Department is required to maintain sufficient documentation for each payment it makes with federal dollars. The Department’s accounting practices prevent it from meeting this requirement. The Department implemented what management referred to as fund-level accounting. This consisted of making significant accounting adjustments between funding sources in its general ledger without identifying the underlying transactions in the payment system that supported the adjustments. This affected all populations of child care expenditures for every month of the fiscal year. HHS officials informed the Department that these accounting practices do not comply with federal law, but management said they believe they are compliant. Effect of Condition and Questioned Costs By not complying with federal law requirements to maintain adequate supporting documentation for expenditures, the Department made it impossible for our Office to audit the federal dollars it used for payments to child care providers. Because we could not test transaction-level detail, we also could not determine whether the issues we identified in prior audits had improved or worsened, including the Department’s lack of adequate internal controls and significant rate of noncompliance for payments to child care providers. The total amount of known child care payments the Department made with federal CCDF funds in the audit period was $415,579,473. The Department also partially funded these payments with an additional $208,098,727 in state dollars. Because the Department did not comply with HHS requirements to allow for the tracing of grant expenditures to a payment level, we are questioning all $415,579,473 in federal program costs it incurred during the audit period. The payments the Department partially paid with state funds are not included in the federal questioned costs. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Design and implement internal controls to ensure transaction-level data is sufficient to comply with federal law and state rules • Consult with the grantor to discuss whether it should repay the questioned costs identified in the audit Department’s Response The Department has managed the CCDF program since 2019, prior to that it was managed by the Department of Social and Health Services and the Department of Early Learning. The Department implemented grant-level management of all federal funds, including the CCDF grant. The Department allocated the CCDF grants to eligible clients and allowable activities in compliance with 45 CFR 98.67. This process consists of making grant level adjustments between allowable grant sources to properly spend grant dollars within the allowable period of performance and ensure level of effort and matching requirements. The Department’s grant adjustments were processed based on eligible clients and allowable activities and did not include child-level data as required by SAO. The Department received a management decision letter dated October 3, 2023, from HHS for finding 2021-033 (2020-038) which states: “the ACF noted that the auditor raised concern about the Department’s accounting procedures and efforts made to trace expenditures at the transaction-level. As the basis for the finding, the auditor used CFRs (200.53, 200.303, 200.403, 200.410) that do not apply to CCDF. Federal regulations allow Lead Agencies to expend and account for CCDF funds in accordance with their own procedures.” In addition, ACF did not sustain the disallowance of questioned costs and stated: “Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” The ACF recommended, “that the Department work with the auditors to determine an appropriate methodology that can be tested to ensure child care payments comply with Federal regulations.” The Department is committed to collaborating with SAO to determine an appropriate methodology that identifies a sampling unit that can be used to accurately test compliance. The SAO maintained that the program is not auditable without child-level data. During the audit period, the Department did not have the staff and resources to develop and maintain the business process redesign, as well as the information technology initiatives necessary to meet the level of assurance as identified by SAO. In response to the auditor’s recommendations, the Department submitted a budget request for the 2024 supplemental budget. The enacted 2024 supplemental budget included funding to implement the Department’s budget request for funding beginning in state fiscal year 2025 and specified: “Funding in this subsection must be expended with internal controls that provide child-level detail for all transactions, beginning July 1, 2024” Upon receiving funding, the Department is working with a developer to assist with building out the required databases between the Social Service Payment System (SSPS) and the Agency Financial Reporting System (AFRS) to allow transfers between fundings sources to include the child-level data related to the expenditures. The Department looks forward to working with SAO to resolve the child-level data concerns and move forward with auditing the CCDF grant programs. Auditor’s Remarks The level of documentation needed to support grant expenditures is not established by our Office, but in title 45 of the U.S. Code of Federal Regulations and the state’s grant award. During the February 2022 meeting with HHS that the Department referenced in its response, the grantor stated the specific federal law the Department’s accounting procedures were noncompliant with was 45 CFR 98.67. We agree with the HHS management decision that our references to 2 CFR 200.53, 200.303, 200.403 and 200.410 in the 2021 finding were not correct. However, HHS adopted these same requirements in 45 CFR 75.2, 75.303, 75.403 and 75.410, respectfully. These requirements were all in place during the audit period. The proper references were included in the prior year finding and are included in this finding as well. Without adequate transactional level payment data, our Office is unable to perform tests to verify the Department met these requirements. In addition, we also are unable to verify whether the Department complied with matching, level of effort and earmarking requirements, or that required financial information reported to the federal government was accurate. These matters are referenced in separate findings in our report. In its response, the Department references a management decision letter issued October 3, 2023. The finding was partially sustained because the questioned costs identified in the audit would not be disallowed. The management decision states: “The ACF partially sustains the finding and recommendation. The ACF agrees with the auditor that the Department should strengthen internal controls to ensure payments to child care providers are allowable and properly supported.” “The ACF does not sustain a disallowance for the questioned costs in the amount of $271,353,409 representing the entire amount of the CCDF grant award. Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” We are not aware of what procedures ACF performed to conclude expenditures reported by the Department for fiscal year 2024 were spent only for allowable activities, were for allowable costs and met federal cost principles. We questioned all expenditures because, in our judgment, they were unauditable. We reaffirm our finding and will review the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations 45 U.S. Code of Federal Regulations (CFR) Part 75, section 2, Definitions, includes the definition of improper payment. 45 CFR Part 75, section 303, Internal Controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 45 CFR Part 75, section 403, Factors Affecting Allowability of Costs. 45 CFR Part 75, section 410, Collection of Unallowable Costs 45 CFR Part 75, section 516, Audit findings, establishes reporting requirements for audit findings. Title 45 CFR, Section 98.67 – Fiscal requirements, states: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. (b) Unless otherwise specified in this part, contracts that entail the expenditure of CCDF funds shall comply with the laws and procedures generally applicable to expenditures by the contracting agency of its own funds. (c) Fiscal control and accounting procedures shall be sufficient to permit: (1) Preparation of reports required by the Secretary under this subpart and under subpart H; and (2) The tracking of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-057 The Department of Children, Youth, and Families did not have adequate internal controls over and did not comply with matching, level of effort and earmarking requirements for the Child Care and Development Fund Cluster. Assistance Listing Number and Title: 93.575 Child Care and Development Block Grant 93.575 COVID-19 Child Care and Development Block Grant 93.596 Child Care Mandatory and Matching Funds of the Child Care and Development Fund Federal Grantor Name: U.S. Department of Health and Human Services Federal Award/Contract Number: 2103WACCDF; 2103WACCDD; 2303WACCDF; 2303WACCDD; 2403WACCDM; 2403WACCDD; 2103WACDC6; 2103WACSC6; 2103WACCC5; 2024WACCDD Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Matching, Level of Effort, Earmarking Known Questioned Cost Amount: None Prior Year Audit Finding: Yes, Finding 2023-060 Background The Department of Children, Youth, and Families administers the federal Child Care and Development Fund (CCDF) grants to help eligible working families pay for child care and fund improvements to child care quality. In fiscal year 2024, the Department spent about $483.5 million in federal funding. The CCDF consists of three distinct funding sources: Discretionary Fund, Mandatory Fund, and Matching Fund. Additionally, under the Temporary Assistance for Needy Families (TANF) program, the Department may transfer TANF funds to the CCDF, which are then treated as Discretionary Funds. The Department is instructed how to spend this federal money. For the Department to receive its allotted share of the Matching Fund, it must meet the Maintenance of Effort (MOE) requirement and match the federal Matching Fund claimed with state expenditures at the Federal Medical Assistance Percentage rate for the applicable fiscal year. The Department must also meet earmarking requirements for expenditures for administrative and quality activities. The U.S. Department of Health and Human Services (HHS), which oversees the CCDF program at the federal level, requires recipients to have accounting procedures that are sufficient for tracing grants to a level of expenditure adequate to show that they have used them in accordance with program requirements. Department staff run monthly and quarterly expenditure reports from the accounting system to track requirements over matching, level of effort and earmarking for each open grant award. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In prior audits, we reported the Department did not have adequate internal controls over matching, level of effort and earmarking requirements for the CCDF Cluster programs. The prior audit finding numbers were 2023-060, 2022-042, 2021-036, 2020-040 and 2019-037. Description of Condition The Department did not have adequate internal controls over and did not comply with matching, level of effort and earmarking requirements for the CCDF programs. The Department’s accounting records should be used to verify it has met matching, level of effort and earmarking requirements. In fiscal year 2021, management informed us that the Department changed its grant management practices to process expenditure transfers at the grant level. This new process made the original expenditure coding in the payment system inaccurate and unreliable for testing. Without identifying which expenditures it transferred, the Department’s monitoring is insufficient for properly managing matching, level of effort and earmarking requirements. Our Office could not rely on the data supporting the Department’s expenditures or verify that the accounting records were accurate. As a result, we could not trace the federal funds to a level of expenditure adequate to establish whether the Department spent CCDF funds in accordance with federal and state regulations. Further, this meant we could not test the Department’s payments for compliance with matching, level of effort and earmarking requirements. By processing these adjustments at the fund level, the Department invalidated the transaction-level documentation of the original child care expenditure in the payment system and did not identify the new allocation at the payment level. Additionally, the Department transferred some of these child care expenditures more than once at the fund level, making the underlying data increasingly unreliable with each transfer. This condition is also referenced in audit finding 2024-056. We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition The Department is required to maintain sufficient documentation for each payment it makes with federal dollars. The Department’s accounting practices prevent it from meeting this requirement. In fiscal year 2021, the Department informed our Office that it had implemented what management referred to as fund-level accounting. This consisted of making significant accounting adjustments between funding sources in its general ledger without identifying the underlying transactions in the payment system that supported the adjustments. This affected all populations of child care expenditures for every month of the fiscal year. HHS officials informed the Department that these accounting practices do not comply with federal law, but management said they believe they are compliant. Effect of Condition By not complying with federal law requirements to maintain adequate supporting documentation for expenditures, the Department created a condition that made it impossible for our Office to determine if it had met matching, level of effort and earmarking requirements. Recommendations We recommend the Department: • Design and implement internal controls to ensure transaction-level data is sufficient to comply with federal law and state rules • Develop effective ongoing monitoring procedures Department’s Response The Department has managed the CCDF program since 2019, prior to that it was managed by the Department of Social and Health Services and the Department of Early Learning. The Department implemented grant-level management of all federal funds, including the CCDF grant. The Department allocated the CCDF grants to eligible clients and allowable activities in compliance with 45 CFR 98.67. This process consists of making grant level adjustments between allowable grant sources to properly spend grant dollars within the allowable period of performance and ensure level of effort and matching requirements. The Department’s grant adjustments were processed based on eligible clients and allowable activities and did not include child-level data as required by SAO. The Department received a management decision letter dated October 3, 2023, from HHS for finding 2021-033 (2020-038) which states: “the ACF noted that the auditor raised concern about the Department’s accounting procedures and efforts made to trace expenditures at the transaction-level. As the basis for the finding, the auditor used CFRs (200.53, 200.303, 200.403, 200.410) that do not apply to CCDF. Federal regulations allow Lead Agencies to expend and account for CCDF funds in accordance with their own procedures.” In addition, ACF did not sustain the disallowance of questioned costs and stated: “Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” The ACF recommended, “that the Department work with the auditors to determine an appropriate methodology that can be tested to ensure child care payments comply with Federal regulations.” The Department is committed to collaborating with SAO to determine an appropriate methodology that identifies a sampling unit that can be used to accurately test compliance. The SAO maintained that the program is not auditable without child-level data. During the audit period, the Department did not have the staff and resources to develop and maintain the business process redesign, as well as the information technology initiatives necessary to meet the level of assurance as identified by SAO. In response to the auditor’s recommendations, the Department submitted a budget request for the 2024 supplemental budget. The enacted 2024 supplemental budget included funding to implement the Department’s budget request for funding beginning in state fiscal year 2025 and specified: “Funding in this subsection must be expended with internal controls that provide child-level detail for all transactions, beginning July 1, 2024” Upon receiving funding, the Department is working with a developer to assist with building out the required databases between the Social Service Payment System (SSPS) and the Agency Financial Reporting System (AFRS) to allow transfers between fundings sources to include the child-level data related to the expenditures. The Department looks forward to working with SAO to resolve the child-level data concerns and move forward with auditing the CCDF grant programs. Auditor’s Remarks The level of documentation needed to support grant expenditures is not established by our Office, but in title 45 of the U.S. Code of Federal Regulations and the state’s grant award. During the February 2022 meeting with HHS that the Department referenced in its response, the grantor stated the specific federal law the Department’s accounting procedures were noncompliant with was 45 CFR 98.67. We agree with the HHS management decision that our references to 2 CFR 200.53, 200.303, 200.403 and 200.410 in the 2021 finding were not correct. However, HHS adopted these same requirements in 45 CFR 75.2, 75.303, 75.403 and 75.410, respectfully. These requirements were all in place during the audit period. The proper references were included in the prior year finding and are included in this finding as well. Without adequate transactional level payment data, our Office is unable to perform tests to verify the Department met these requirements. In addition, we also are unable to verify whether the Department complied with matching, level of effort and earmarking requirements, or that required financial information reported to the federal government was accurate. These matters are referenced in separate findings in our report. In its response, the Department references a management decision letter issued October 3, 2023. The finding was partially sustained because the questioned costs identified in the audit would not be disallowed. The management decision states: “The ACF partially sustains the finding and recommendation. The ACF agrees with the auditor that the Department should strengthen internal controls to ensure payments to child care providers are allowable and properly supported.” “The ACF does not sustain a disallowance for the questioned costs in the amount of $271,353,409 representing the entire amount of the CCDF grant award. Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” We are not aware of what procedures ACF performed to conclude expenditures reported by the Department for fiscal year 2024 were spent only for allowable activities, were for allowable costs and met federal cost principles. We questioned all expenditures because, in our judgment, they were unauditable. We reaffirm our finding and will review the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations 45 U.S. Code of Federal Regulations (CFR) Part 75, section 303, Internal Controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 45 CFR Part 75, section 516, Audit findings, establishes reporting requirements for audit findings. Title 45 CFR, Section 98.67 – Fiscal requirements, states: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. (b) Unless otherwise specified in this part, contracts that entail the expenditure of CCDF funds shall comply with the laws and procedures generally applicable to expenditures by the contracting agency of its own funds. (c) Fiscal control and accounting procedures shall be sufficient to permit: (1) Preparation of reports required by the Secretary under this subpart and under subpart H; and (2) The tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-058 The Department of Children, Youth, and Families did not have adequate internal controls over and did not comply with period of performance requirements for the Child Care and Development Fund Cluster. Assistance Listing Number and Title: 93.575 Child Care and Development Block Grant 93.575 COVID-19 Child Care and Development Block Grant 93.596 Child Care Mandatory and Matching Funds of the Child Care and Development Fund Federal Grantor Name: U.S. Department of Health and Human Services Federal Award/Contract Number: 2103WACCDF; 2103WACCDD; 2303WACCDF; 2303WACCDD; 2403WACCDM; 2403WACCDD; 2103WACDC6; 2103WACSC6; 2103WACCC5; 2024WACCDD Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Period of Performance Known Questioned Cost Amount: None Prior Year Audit Finding: Yes, Finding 2023-061 Background The Department of Children, Youth, and Families administers the federal Child Care and Development Fund (CCDF) grants to help eligible working families pay for child care and fund improvements to child care quality. In fiscal year 2024, the Department spent about $483.5 million in federal funding. Each federal grant specifies a performance period during which recipients must obligate and liquidate program costs. These periods typically align with the federal fiscal year of October 1 through September 30. Payments for costs charged before a grant’s beginning date or after the ending date are not allowed without the grantor’s prior approval. The CCDF consists of three distinct funding sources: Discretionary Fund, Mandatory Fund, and Matching Fund. Each of these funds has specific period of performance requirements established in federal regulation (45 CFR § 98.60(d)). Recipients must obligate: • Discretionary funds by the end of the succeeding fiscal year after award and must expend them by the end of the third fiscal year after award • Mandatory funds by the end of the fiscal year in which they are awarded if the state also requests matching funds. If the state does not request matching funds for the fiscal year, then the Mandatory Funds are available until liquidated. • Matching funds by the end of the fiscal year in which they are awarded and must liquidate them by the end of the succeeding fiscal year after award During the audit period, the Department also received supplemental funds under the Coronavirus Aid, Relief, and Economic Security and the Coronavirus Response and Relief Supplemental Appropriations Acts. These funds are treated as Discretionary Funds, however, they have their own specific obligation and liquidation timeframes. The U.S. Department of Health and Human Services (HHS), which oversees the CCDF at the federal level, requires recipients to have accounting procedures that are sufficient for tracing grants to a level of expenditure adequate to show that they have used them in accordance with program requirements. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In prior audits, we reported the Department did not have adequate internal controls over period of performance requirements for the CCDF program. The prior finding numbers were 2023-061, 2022-043, 2021-037 and 2020-041. Description of Condition The Department did not have adequate internal controls over and did not comply with period of performance requirements for the CCDF program. Our Office uses the Department’s accounting records to verify it has met the period of performance requirements. In fiscal year 2021, management informed us that the Department changed its grant management practices to process expenditure transfers at the grant level. This new process made the original expenditures coded in the payment system inaccurate and unreliable for audit testing. As a result, we could not trace the federal funds to a level of expenditure adequate to establish whether the Department spent CCDF funds in accordance with federal and state regulations. Further, this meant we could not test the Department’s payments for compliance with period of performance requirements. We also referenced this condition in audit finding 2024 -056. We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition The Department is required to maintain sufficient documentation for each payment it makes with federal dollars. The Department’s accounting practices prevent it from meeting this requirement. The Department implemented what management referred to as fund-level accounting. This consisted of making significant accounting adjustments between funding sources in its general ledger without identifying the underlying transactions in the payment system that supported the adjustments. This affected all populations of child care expenditures for every month of the fiscal year. HHS officials informed the Department that these accounting practices do not comply with federal law, but management said they believe they are compliant. Effect of Condition By not complying with federal law requirements to maintain adequate supporting documentation for expenditures, the Department created a condition that made it impossible for our Office to determine if it materially met the period of performance requirements. Furthermore, without adequate internal controls in place, the Department is at a higher risk of making improper payments with grant funds. Recommendations We recommend the Department: • Design and implement internal controls to ensure transaction-level data is sufficient to comply with federal law and state rules • Develop written policies and procedures over federal period of performance requirements Department’s Response The Department has managed the CCDF program since 2019, prior to that it was managed by the Department of Social and Health Services and the Department of Early Learning. The Department implemented grant-level management of all federal funds, including the CCDF grant. The Department allocated the CCDF grants to eligible clients and allowable activities in compliance with 45 CFR 98.67. This process consists of making grant level adjustments between allowable grant sources to properly spend grant dollars within the allowable period of performance and ensure level of effort and matching requirements. The Department’s grant adjustments were processed based on eligible clients and allowable activities and did not include child-level data as required by SAO. The Department received a management decision letter dated October 3, 2023, from HHS for finding 2021-033 (2020-038) which states: “the ACF noted that the auditor raised concern about the Department’s accounting procedures and efforts made to trace expenditures at the transaction-level. As the basis for the finding, the auditor used CFRs (200.53, 200.303, 200.403, 200.410) that do not apply to CCDF. Federal regulations allow Lead Agencies to expend and account for CCDF funds in accordance with their own procedures.” In addition, ACF did not sustain the disallowance of questioned costs and stated: “Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” The ACF recommended, “that the Department work with the auditors to determine an appropriate methodology that can be tested to ensure child care payments comply with Federal regulations.” The Department is committed to collaborating with SAO to determine an appropriate methodology that identifies a sampling unit that can be used to accurately test compliance. The SAO maintained that the program is not auditable without child-level data. During the audit period, the Department did not have the staff and resources to develop and maintain the business process redesign, as well as the information technology initiatives necessary to meet the level of assurance as identified by SAO. In response to the auditor’s recommendations, the Department submitted a budget request for the 2024 supplemental budget. The enacted 2024 supplemental budget included funding to implement the Department’s budget request for funding beginning in state fiscal year 2025 and specified: “Funding in this subsection must be expended with internal controls that provide child-level detail for all transactions, beginning July 1, 2024” Upon receiving funding, the Department is working with a developer to assist with building out the required databases between the Social Service Payment System (SSPS) and the Agency Financial Reporting System (AFRS) to allow transfers between fundings sources to include the child-level data related to the expenditures. The Department looks forward to working with SAO to resolve the child-level data concerns and move forward with auditing the CCDF grant programs. Auditor’s Remarks The level of documentation needed to support grant expenditures is not established by our Office, but in title 45 of the U.S. Code of Federal Regulations and the state’s grant award. During the February 2022 meeting with HHS that the Department referenced in its response, the grantor stated the specific federal law the Department’s accounting procedures were noncompliant with was 45 CFR 98.67. We agree with the HHS management decision that our references to 2 CFR 200.53, 200.303, 200.403 and 200.410 in the 2021 finding were not correct. However, HHS adopted these same requirements in 45 CFR 75.2, 75.303, 75.403 and 75.410, respectfully. These requirements were all in place during the audit period. The proper references were included in the prior year finding and are included in this finding as well. Without adequate transactional level payment data, our Office is unable to perform tests to verify the Department met these requirements. In addition, we also are unable to verify whether the Department complied with matching, level of effort and earmarking requirements, or that required financial information reported to the federal government was accurate. These matters are referenced in separate findings in our report. In its response, the Department references a management decision letter issued October 3, 2023. The finding was partially sustained because the questioned costs identified in the audit would not be disallowed. The management decision states: “The ACF partially sustains the finding and recommendation. The ACF agrees with the auditor that the Department should strengthen internal controls to ensure payments to child care providers are allowable and properly supported.” “The ACF does not sustain a disallowance for the questioned costs in the amount of $271,353,409 representing the entire amount of the CCDF grant award. Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” We are not aware of what procedures ACF performed to conclude expenditures reported by the Department for fiscal year 2024 were spent only for allowable activities, were for allowable costs and met federal cost principles. We questioned all expenditures because, in our judgment, they were unauditable. We reaffirm our finding and will review the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations 45 U.S. Code of Federal Regulations (CFR) Part 75, section 303, Internal Controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 45 CFR Part 75, section 516, Audit findings, establishes reporting requirements for audit findings. Title 45 CFR, Section 98.60 – Availability of funds, states in part: (d) The following obligation and liquidation provisions apply to States and Territories: (1) Discretionary Fund allotments shall be obligated in the fiscal year in which funds are awarded or in the succeeding fiscal year. Unliquidated obligations as of the end of the succeeding fiscal year shall be liquidated within one year. (2) (i) Mandatory Funds for States requesting Matching Funds per § 98.55 shall be obligated in the fiscal year in which the funds are granted and are available until expended. (ii)Mandatory Funds for States that do not request Matching Funds are available until expended. (4) Both the Federal and non-Federal share of the Matching Fund shall be obligated in the fiscal year in which the funds are granted and liquidated no later than the end of the succeeding fiscal year. Title 45 CFR, Section 98.67 – Fiscal requirements, states: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. (b) Unless otherwise specified in this part, contracts that entail the expenditure of CCDF funds shall comply with the laws and procedures generally applicable to expenditures by the contracting agency of its own funds. (c) Fiscal control and accounting procedures shall be sufficient to permit: (1) Preparation of reports required by the Secretary under this subpart and under subpart H; and (2) The tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-059 The Department of Children, Youth, and Families did not have adequate internal controls over and did not comply with financial reporting requirements for the Child Care and Development Fund Cluster. Assistance Listing Number and Title: 93.575 Child Care and Development Block Grant 93.575 COVID-19 Child Care and Development Block Grant 93.596 Child Care Mandatory and Matching Funds of the Child Care and Development Fund Federal Grantor Name: U.S. Department of Health and Human Services Federal Award/Contract Number: 2103WACCDF; 2103WACCDD; 2303WACCDF; 2303WACCDD; 2403WACCDM; 2403WACCDD; 2103WACDC6; 2103WACSC6; 2103WACCC5; 2024WACCDD Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Reporting Known Questioned Cost Amount: None Prior Year Audit Finding: Yes, Finding 2023-062 Background The Department of Children, Youth, and Families administers the federal Child Care and Development Fund (CCDF) grants to help eligible working families pay for child care and fund improvements to child care quality. In fiscal year 2024, the Department spent about $483.5 million in federal funding. The Department is required to submit a quarterly ACF-696 financial report for each open grant. These reports contain information on expenditures for three CCDF funding sources: the Mandatory Fund, the Matching Fund, and the Discretionary Fund. The Department uses CCDF expenditures recorded in the state’s accounting system to compile and support the ACF-696 report. The U.S. Department of Health and Human Services (HHS), which oversees the CCF program at the federal level, requires recipients to have accounting procedures that are sufficient for tracing grants to a level of expenditure adequate to show that they have used them in accordance with program requirements. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In prior audits, we reported the Department did not have adequate internal controls over financial reporting requirements for the CCDF program. The prior finding numbers were 2023-062, 2022-044 and 2021-038. Description of Condition The Department did not have adequate internal controls over and did not comply with financial reporting requirements for the CCDF program. The Department’s accounting records must provide and support the financial information reported on ACF-696 reports. During the audit period, the Department’s grant management practice was to process expenditure transfers at the fund level without identifying which expenditures it transferred. Therefore, we could not rely on the data supporting the Department’s reported ACF-696 expenditures, and could not test whether the reports were accurate and complete. We also referenced this condition in audit finding 2024-056. We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition The Department is required to maintain sufficient documentation for each payment it makes using federal dollars. The Department’s accounting practices prevent it from meeting this requirement. In fiscal year 2021, the Department informed our Office that it had implemented what management referred to as fund-level accounting. This consisted of making significant accounting adjustments between funding sources in its general ledger without identifying the underlying transactions in the payment system that supported them. This affected all populations of child care expenditures for every month of the fiscal year. HHS officials informed the Department that these accounting practices do not comply with federal law, but management said they believe they are compliant. Effect of Condition By not complying with federal law requirements to maintain adequate supporting documentation for expenditures, the Department created a condition that made it impossible for our Office to audit the CCDF program expenditures reported on the ACF-696 financial report. Recommendation We recommend the Department design and implement internal controls to ensure the ACF-696 report is supported with transaction-level data that is sufficient to comply with federal law and state rules. Department’s Response The Department has managed the CCDF program since 2019, prior to that it was managed by the Department of Social and Health Services and the Department of Early Learning. The Department implemented grant-level management of all federal funds, including the CCDF grant. The Department allocated the CCDF grants to eligible clients and allowable activities in compliance with 45 CFR 98.67. This process consists of making grant level adjustments between allowable grant sources to properly spend grant dollars within the allowable period of performance and ensure level of effort and matching requirements. The Department’s grant adjustments were processed based on eligible clients and allowable activities and did not include child-level data as required by SAO. The Department received a management decision letter dated October 3, 2023, from HHS for finding 2021-033 (2020-038) which states: “the ACF noted that the auditor raised concern about the Department’s accounting procedures and efforts made to trace expenditures at the transaction-level. As the basis for the finding, the auditor used CFRs (200.53, 200.303, 200.403, 200.410) that do not apply to CCDF. Federal regulations allow Lead Agencies to expend and account for CCDF funds in accordance with their own procedures.” In addition, ACF did not sustain the disallowance of questioned costs and stated: “Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” The ACF recommended, “that the Department work with the auditors to determine an appropriate methodology that can be tested to ensure child care payments comply with Federal regulations.” The Department is committed to collaborating with SAO to determine an appropriate methodology that identifies a sampling unit that can be used to accurately test compliance. The SAO maintained that the program is not auditable without child-level data. During the audit period, the Department did not have the staff and resources to develop and maintain the business process redesign, as well as the information technology initiatives necessary to meet the level of assurance as identified by SAO. In response to the auditor’s recommendations, the Department submitted a budget request for the 2024 supplemental budget. The enacted 2024 supplemental budget included funding to implement the Department’s budget request for funding beginning in state fiscal year 2025 and specified: “Funding in this subsection must be expended with internal controls that provide child-level detail for all transactions, beginning July 1, 2024” Upon receiving funding, the Department is working with a developer to assist with building out the required databases between the Social Service Payment System (SSPS) and the Agency Financial Reporting System (AFRS) to allow transfers between fundings sources to include the child-level data related to the expenditures. The Department looks forward to working with SAO to resolve the child-level data concerns and move forward with auditing the CCDF grant programs. Auditor’s Remarks The level of documentation needed to support grant expenditures is not established by our Office, but in title 45 of the U.S. Code of Federal Regulations and the state’s grant award. During the February 2022 meeting with HHS that the Department referenced in its response, the grantor stated the specific federal law the Department’s accounting procedures were noncompliant with was 45 CFR 98.67. We agree with the HHS management decision that our references to 2 CFR 200.53, 200.303, 200.403 and 200.410 in the 2021 finding were not correct. However, HHS adopted these same requirements in 45 CFR 75.2, 75.303, 75.403 and 75.410, respectfully. These requirements were all in place during the audit period. The proper references were included in the prior year finding and are included in this finding as well. Without adequate transactional level payment data, our Office is unable to perform tests to verify the Department met these requirements. In addition, we also are unable to verify whether the Department complied with matching, level of effort and earmarking requirements, or that required financial information reported to the federal government was accurate. These matters are referenced in separate findings in our report. In its response, the Department references a management decision letter issued October 3, 2023. The finding was partially sustained because the questioned costs identified in the audit would not be disallowed. The management decision states: “The ACF partially sustains the finding and recommendation. The ACF agrees with the auditor that the Department should strengthen internal controls to ensure payments to child care providers are allowable and properly supported.” “The ACF does not sustain a disallowance for the questioned costs in the amount of $271,353,409 representing the entire amount of the CCDF grant award. Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” We are not aware of what procedures ACF performed to conclude expenditures reported by the Department for fiscal year 2024 were spent only for allowable activities, were for allowable costs and met federal cost principles. We questioned all expenditures because, in our judgment, they were unauditable. We reaffirm our finding and will review the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations 45 U.S. Code of Federal Regulations (CFR) Part 75, section 303, Internal Controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 45 CFR Part 75, section 516, Audit findings, establishes reporting requirements for audit findings. Title 45 CFR, Section 98.67 – Fiscal requirements, states: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. (b) Unless otherwise specified in this part, contracts that entail the expenditure of CCDF funds shall comply with the laws and procedures generally applicable to expenditures by the contracting agency of its own funds. (c) Fiscal control and accounting procedures shall be sufficient to permit: (1) Preparation of reports required by the Secretary under this subpart and under subpart H; and (2) The tracking of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-056 The Department of Children, Youth, and Families did not have adequate internal controls over and did not comply with requirements to ensure payments to child care providers for the Child Care and Development Fund Cluster programs were allowable and properly supported. Assistance Listing Number and Title: 93.575 Child Care and Development Block Grant 93.575 COVID-19 Child Care and Development Block Grant 93.596 Child Care Mandatory and Matching Funds of the Child Care and Development Fund Federal Grantor Name: U.S. Department of Health and Human Services Federal Award/Contract Number: 2103WACCDF; 2103WACCDD; 2303WACCDF; 2303WACCDD; 2403WACCDM; 2403WACCDD; 2103WACDC6; 2103WACSC6; 2103WACCC5; 2024WACCDD Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Known Questioned Cost Amount: $415,579,473 Prior Year Audit Finding: Yes, Finding 2023-058 Background The Department of Children, Youth, and Families administers the federal Child Care and Development Fund (CCDF) grants to help eligible working families pay for child care and fund improvements to child care quality. In fiscal year 2024, the Department spent about $483.5 million in federal funding. The Department is responsible for establishing policies to ensure payments to providers for child care services are allowable. In fiscal year 2024, the Department spent more than $415 million on monthly child care subsidy payments to child care providers. There are three child care provider types: licensed centers, licensed family homes and licensed exempt providers referred to as Family, Friends and Neighbor providers. The Department uses the Social Service Payment System (SSPS) to process the payments it makes to child care providers. The system allocates payments to various funding sources based on the client’s eligibility. These funding sources include multiple federal programs, multiple CCDF federal grant awards and state funding. The Department uploads the SSPS payment data into the state’s accounting system at a summary level based on the various funding sources. There is always a need to transfer the funding sources for some payments throughout the year to manage federal and state funds properly. In prior audit periods up until fiscal year 2021, the Department prepared supporting documentation for transfers that included details of what payments it was transferring. The purpose of documenting this detail was to maintain proper support for federal expenditures. The Department of Health and Human Services (HHS), which oversees the CCDF program at the federal level, requires recipients to have accounting procedures that are sufficient for tracing grants to a level of expenditure adequate to show that they have used them in accordance with program requirements. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In prior audits, we reported the Department did not have adequate internal controls over and did not comply with requirements to ensure payments to childcare providers were allowable and properly supported. We have reported this condition since 2005. The most recent audit finding numbers were 2023-058, 2022-041, 2021-033, 2020-038, 2019-035, 2018-034, 2017-024, 2016-021, 2015-023, 2014-023, 2013-016, 12-28, 11-23, 10-31, 9-12 and 8-13. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to ensure payments to child care providers for the CCDF programs were allowable and properly supported. In fiscal year 2021, management informed us that the Department changed its grant management practices to process expenditure transfers at the grant level. This new process made the original expenditure coding in SSPS inaccurate and unreliable for testing. As a result, we could not trace the federal funds to a level of expenditure adequate to establish whether the Department spent CCDF funds in accordance with federal and state regulations. Further, this meant we could not test the Department’s payments to child care providers for compliance with activities allowed and cost principles. By processing these adjustments at the fund level, the Department invalidated the transaction-level documentation of the original child care expenditure in SSPS and did not identify the new allocation at the payment level. Additionally, the Department transferred some of these child care expenditures at the fund level more than once, making the underlying data increasingly unreliable with each transfer. We consider these internal control deficiencies to be a material weakness that led to material noncompliance. Cause of Condition The Department is required to maintain sufficient documentation for each payment it makes with federal dollars. The Department’s accounting practices prevent it from meeting this requirement. The Department implemented what management referred to as fund-level accounting. This consisted of making significant accounting adjustments between funding sources in its general ledger without identifying the underlying transactions in the payment system that supported the adjustments. This affected all populations of child care expenditures for every month of the fiscal year. HHS officials informed the Department that these accounting practices do not comply with federal law, but management said they believe they are compliant. Effect of Condition and Questioned Costs By not complying with federal law requirements to maintain adequate supporting documentation for expenditures, the Department made it impossible for our Office to audit the federal dollars it used for payments to child care providers. Because we could not test transaction-level detail, we also could not determine whether the issues we identified in prior audits had improved or worsened, including the Department’s lack of adequate internal controls and significant rate of noncompliance for payments to child care providers. The total amount of known child care payments the Department made with federal CCDF funds in the audit period was $415,579,473. The Department also partially funded these payments with an additional $208,098,727 in state dollars. Because the Department did not comply with HHS requirements to allow for the tracing of grant expenditures to a payment level, we are questioning all $415,579,473 in federal program costs it incurred during the audit period. The payments the Department partially paid with state funds are not included in the federal questioned costs. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Design and implement internal controls to ensure transaction-level data is sufficient to comply with federal law and state rules • Consult with the grantor to discuss whether it should repay the questioned costs identified in the audit Department’s Response The Department has managed the CCDF program since 2019, prior to that it was managed by the Department of Social and Health Services and the Department of Early Learning. The Department implemented grant-level management of all federal funds, including the CCDF grant. The Department allocated the CCDF grants to eligible clients and allowable activities in compliance with 45 CFR 98.67. This process consists of making grant level adjustments between allowable grant sources to properly spend grant dollars within the allowable period of performance and ensure level of effort and matching requirements. The Department’s grant adjustments were processed based on eligible clients and allowable activities and did not include child-level data as required by SAO. The Department received a management decision letter dated October 3, 2023, from HHS for finding 2021-033 (2020-038) which states: “the ACF noted that the auditor raised concern about the Department’s accounting procedures and efforts made to trace expenditures at the transaction-level. As the basis for the finding, the auditor used CFRs (200.53, 200.303, 200.403, 200.410) that do not apply to CCDF. Federal regulations allow Lead Agencies to expend and account for CCDF funds in accordance with their own procedures.” In addition, ACF did not sustain the disallowance of questioned costs and stated: “Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” The ACF recommended, “that the Department work with the auditors to determine an appropriate methodology that can be tested to ensure child care payments comply with Federal regulations.” The Department is committed to collaborating with SAO to determine an appropriate methodology that identifies a sampling unit that can be used to accurately test compliance. The SAO maintained that the program is not auditable without child-level data. During the audit period, the Department did not have the staff and resources to develop and maintain the business process redesign, as well as the information technology initiatives necessary to meet the level of assurance as identified by SAO. In response to the auditor’s recommendations, the Department submitted a budget request for the 2024 supplemental budget. The enacted 2024 supplemental budget included funding to implement the Department’s budget request for funding beginning in state fiscal year 2025 and specified: “Funding in this subsection must be expended with internal controls that provide child-level detail for all transactions, beginning July 1, 2024” Upon receiving funding, the Department is working with a developer to assist with building out the required databases between the Social Service Payment System (SSPS) and the Agency Financial Reporting System (AFRS) to allow transfers between fundings sources to include the child-level data related to the expenditures. The Department looks forward to working with SAO to resolve the child-level data concerns and move forward with auditing the CCDF grant programs. Auditor’s Remarks The level of documentation needed to support grant expenditures is not established by our Office, but in title 45 of the U.S. Code of Federal Regulations and the state’s grant award. During the February 2022 meeting with HHS that the Department referenced in its response, the grantor stated the specific federal law the Department’s accounting procedures were noncompliant with was 45 CFR 98.67. We agree with the HHS management decision that our references to 2 CFR 200.53, 200.303, 200.403 and 200.410 in the 2021 finding were not correct. However, HHS adopted these same requirements in 45 CFR 75.2, 75.303, 75.403 and 75.410, respectfully. These requirements were all in place during the audit period. The proper references were included in the prior year finding and are included in this finding as well. Without adequate transactional level payment data, our Office is unable to perform tests to verify the Department met these requirements. In addition, we also are unable to verify whether the Department complied with matching, level of effort and earmarking requirements, or that required financial information reported to the federal government was accurate. These matters are referenced in separate findings in our report. In its response, the Department references a management decision letter issued October 3, 2023. The finding was partially sustained because the questioned costs identified in the audit would not be disallowed. The management decision states: “The ACF partially sustains the finding and recommendation. The ACF agrees with the auditor that the Department should strengthen internal controls to ensure payments to child care providers are allowable and properly supported.” “The ACF does not sustain a disallowance for the questioned costs in the amount of $271,353,409 representing the entire amount of the CCDF grant award. Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” We are not aware of what procedures ACF performed to conclude expenditures reported by the Department for fiscal year 2024 were spent only for allowable activities, were for allowable costs and met federal cost principles. We questioned all expenditures because, in our judgment, they were unauditable. We reaffirm our finding and will review the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations 45 U.S. Code of Federal Regulations (CFR) Part 75, section 2, Definitions, includes the definition of improper payment. 45 CFR Part 75, section 303, Internal Controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 45 CFR Part 75, section 403, Factors Affecting Allowability of Costs. 45 CFR Part 75, section 410, Collection of Unallowable Costs 45 CFR Part 75, section 516, Audit findings, establishes reporting requirements for audit findings. Title 45 CFR, Section 98.67 – Fiscal requirements, states: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. (b) Unless otherwise specified in this part, contracts that entail the expenditure of CCDF funds shall comply with the laws and procedures generally applicable to expenditures by the contracting agency of its own funds. (c) Fiscal control and accounting procedures shall be sufficient to permit: (1) Preparation of reports required by the Secretary under this subpart and under subpart H; and (2) The tracking of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-057 The Department of Children, Youth, and Families did not have adequate internal controls over and did not comply with matching, level of effort and earmarking requirements for the Child Care and Development Fund Cluster. Assistance Listing Number and Title: 93.575 Child Care and Development Block Grant 93.575 COVID-19 Child Care and Development Block Grant 93.596 Child Care Mandatory and Matching Funds of the Child Care and Development Fund Federal Grantor Name: U.S. Department of Health and Human Services Federal Award/Contract Number: 2103WACCDF; 2103WACCDD; 2303WACCDF; 2303WACCDD; 2403WACCDM; 2403WACCDD; 2103WACDC6; 2103WACSC6; 2103WACCC5; 2024WACCDD Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Matching, Level of Effort, Earmarking Known Questioned Cost Amount: None Prior Year Audit Finding: Yes, Finding 2023-060 Background The Department of Children, Youth, and Families administers the federal Child Care and Development Fund (CCDF) grants to help eligible working families pay for child care and fund improvements to child care quality. In fiscal year 2024, the Department spent about $483.5 million in federal funding. The CCDF consists of three distinct funding sources: Discretionary Fund, Mandatory Fund, and Matching Fund. Additionally, under the Temporary Assistance for Needy Families (TANF) program, the Department may transfer TANF funds to the CCDF, which are then treated as Discretionary Funds. The Department is instructed how to spend this federal money. For the Department to receive its allotted share of the Matching Fund, it must meet the Maintenance of Effort (MOE) requirement and match the federal Matching Fund claimed with state expenditures at the Federal Medical Assistance Percentage rate for the applicable fiscal year. The Department must also meet earmarking requirements for expenditures for administrative and quality activities. The U.S. Department of Health and Human Services (HHS), which oversees the CCDF program at the federal level, requires recipients to have accounting procedures that are sufficient for tracing grants to a level of expenditure adequate to show that they have used them in accordance with program requirements. Department staff run monthly and quarterly expenditure reports from the accounting system to track requirements over matching, level of effort and earmarking for each open grant award. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In prior audits, we reported the Department did not have adequate internal controls over matching, level of effort and earmarking requirements for the CCDF Cluster programs. The prior audit finding numbers were 2023-060, 2022-042, 2021-036, 2020-040 and 2019-037. Description of Condition The Department did not have adequate internal controls over and did not comply with matching, level of effort and earmarking requirements for the CCDF programs. The Department’s accounting records should be used to verify it has met matching, level of effort and earmarking requirements. In fiscal year 2021, management informed us that the Department changed its grant management practices to process expenditure transfers at the grant level. This new process made the original expenditure coding in the payment system inaccurate and unreliable for testing. Without identifying which expenditures it transferred, the Department’s monitoring is insufficient for properly managing matching, level of effort and earmarking requirements. Our Office could not rely on the data supporting the Department’s expenditures or verify that the accounting records were accurate. As a result, we could not trace the federal funds to a level of expenditure adequate to establish whether the Department spent CCDF funds in accordance with federal and state regulations. Further, this meant we could not test the Department’s payments for compliance with matching, level of effort and earmarking requirements. By processing these adjustments at the fund level, the Department invalidated the transaction-level documentation of the original child care expenditure in the payment system and did not identify the new allocation at the payment level. Additionally, the Department transferred some of these child care expenditures more than once at the fund level, making the underlying data increasingly unreliable with each transfer. This condition is also referenced in audit finding 2024-056. We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition The Department is required to maintain sufficient documentation for each payment it makes with federal dollars. The Department’s accounting practices prevent it from meeting this requirement. In fiscal year 2021, the Department informed our Office that it had implemented what management referred to as fund-level accounting. This consisted of making significant accounting adjustments between funding sources in its general ledger without identifying the underlying transactions in the payment system that supported the adjustments. This affected all populations of child care expenditures for every month of the fiscal year. HHS officials informed the Department that these accounting practices do not comply with federal law, but management said they believe they are compliant. Effect of Condition By not complying with federal law requirements to maintain adequate supporting documentation for expenditures, the Department created a condition that made it impossible for our Office to determine if it had met matching, level of effort and earmarking requirements. Recommendations We recommend the Department: • Design and implement internal controls to ensure transaction-level data is sufficient to comply with federal law and state rules • Develop effective ongoing monitoring procedures Department’s Response The Department has managed the CCDF program since 2019, prior to that it was managed by the Department of Social and Health Services and the Department of Early Learning. The Department implemented grant-level management of all federal funds, including the CCDF grant. The Department allocated the CCDF grants to eligible clients and allowable activities in compliance with 45 CFR 98.67. This process consists of making grant level adjustments between allowable grant sources to properly spend grant dollars within the allowable period of performance and ensure level of effort and matching requirements. The Department’s grant adjustments were processed based on eligible clients and allowable activities and did not include child-level data as required by SAO. The Department received a management decision letter dated October 3, 2023, from HHS for finding 2021-033 (2020-038) which states: “the ACF noted that the auditor raised concern about the Department’s accounting procedures and efforts made to trace expenditures at the transaction-level. As the basis for the finding, the auditor used CFRs (200.53, 200.303, 200.403, 200.410) that do not apply to CCDF. Federal regulations allow Lead Agencies to expend and account for CCDF funds in accordance with their own procedures.” In addition, ACF did not sustain the disallowance of questioned costs and stated: “Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” The ACF recommended, “that the Department work with the auditors to determine an appropriate methodology that can be tested to ensure child care payments comply with Federal regulations.” The Department is committed to collaborating with SAO to determine an appropriate methodology that identifies a sampling unit that can be used to accurately test compliance. The SAO maintained that the program is not auditable without child-level data. During the audit period, the Department did not have the staff and resources to develop and maintain the business process redesign, as well as the information technology initiatives necessary to meet the level of assurance as identified by SAO. In response to the auditor’s recommendations, the Department submitted a budget request for the 2024 supplemental budget. The enacted 2024 supplemental budget included funding to implement the Department’s budget request for funding beginning in state fiscal year 2025 and specified: “Funding in this subsection must be expended with internal controls that provide child-level detail for all transactions, beginning July 1, 2024” Upon receiving funding, the Department is working with a developer to assist with building out the required databases between the Social Service Payment System (SSPS) and the Agency Financial Reporting System (AFRS) to allow transfers between fundings sources to include the child-level data related to the expenditures. The Department looks forward to working with SAO to resolve the child-level data concerns and move forward with auditing the CCDF grant programs. Auditor’s Remarks The level of documentation needed to support grant expenditures is not established by our Office, but in title 45 of the U.S. Code of Federal Regulations and the state’s grant award. During the February 2022 meeting with HHS that the Department referenced in its response, the grantor stated the specific federal law the Department’s accounting procedures were noncompliant with was 45 CFR 98.67. We agree with the HHS management decision that our references to 2 CFR 200.53, 200.303, 200.403 and 200.410 in the 2021 finding were not correct. However, HHS adopted these same requirements in 45 CFR 75.2, 75.303, 75.403 and 75.410, respectfully. These requirements were all in place during the audit period. The proper references were included in the prior year finding and are included in this finding as well. Without adequate transactional level payment data, our Office is unable to perform tests to verify the Department met these requirements. In addition, we also are unable to verify whether the Department complied with matching, level of effort and earmarking requirements, or that required financial information reported to the federal government was accurate. These matters are referenced in separate findings in our report. In its response, the Department references a management decision letter issued October 3, 2023. The finding was partially sustained because the questioned costs identified in the audit would not be disallowed. The management decision states: “The ACF partially sustains the finding and recommendation. The ACF agrees with the auditor that the Department should strengthen internal controls to ensure payments to child care providers are allowable and properly supported.” “The ACF does not sustain a disallowance for the questioned costs in the amount of $271,353,409 representing the entire amount of the CCDF grant award. Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” We are not aware of what procedures ACF performed to conclude expenditures reported by the Department for fiscal year 2024 were spent only for allowable activities, were for allowable costs and met federal cost principles. We questioned all expenditures because, in our judgment, they were unauditable. We reaffirm our finding and will review the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations 45 U.S. Code of Federal Regulations (CFR) Part 75, section 303, Internal Controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 45 CFR Part 75, section 516, Audit findings, establishes reporting requirements for audit findings. Title 45 CFR, Section 98.67 – Fiscal requirements, states: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. (b) Unless otherwise specified in this part, contracts that entail the expenditure of CCDF funds shall comply with the laws and procedures generally applicable to expenditures by the contracting agency of its own funds. (c) Fiscal control and accounting procedures shall be sufficient to permit: (1) Preparation of reports required by the Secretary under this subpart and under subpart H; and (2) The tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-058 The Department of Children, Youth, and Families did not have adequate internal controls over and did not comply with period of performance requirements for the Child Care and Development Fund Cluster. Assistance Listing Number and Title: 93.575 Child Care and Development Block Grant 93.575 COVID-19 Child Care and Development Block Grant 93.596 Child Care Mandatory and Matching Funds of the Child Care and Development Fund Federal Grantor Name: U.S. Department of Health and Human Services Federal Award/Contract Number: 2103WACCDF; 2103WACCDD; 2303WACCDF; 2303WACCDD; 2403WACCDM; 2403WACCDD; 2103WACDC6; 2103WACSC6; 2103WACCC5; 2024WACCDD Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Period of Performance Known Questioned Cost Amount: None Prior Year Audit Finding: Yes, Finding 2023-061 Background The Department of Children, Youth, and Families administers the federal Child Care and Development Fund (CCDF) grants to help eligible working families pay for child care and fund improvements to child care quality. In fiscal year 2024, the Department spent about $483.5 million in federal funding. Each federal grant specifies a performance period during which recipients must obligate and liquidate program costs. These periods typically align with the federal fiscal year of October 1 through September 30. Payments for costs charged before a grant’s beginning date or after the ending date are not allowed without the grantor’s prior approval. The CCDF consists of three distinct funding sources: Discretionary Fund, Mandatory Fund, and Matching Fund. Each of these funds has specific period of performance requirements established in federal regulation (45 CFR § 98.60(d)). Recipients must obligate: • Discretionary funds by the end of the succeeding fiscal year after award and must expend them by the end of the third fiscal year after award • Mandatory funds by the end of the fiscal year in which they are awarded if the state also requests matching funds. If the state does not request matching funds for the fiscal year, then the Mandatory Funds are available until liquidated. • Matching funds by the end of the fiscal year in which they are awarded and must liquidate them by the end of the succeeding fiscal year after award During the audit period, the Department also received supplemental funds under the Coronavirus Aid, Relief, and Economic Security and the Coronavirus Response and Relief Supplemental Appropriations Acts. These funds are treated as Discretionary Funds, however, they have their own specific obligation and liquidation timeframes. The U.S. Department of Health and Human Services (HHS), which oversees the CCDF at the federal level, requires recipients to have accounting procedures that are sufficient for tracing grants to a level of expenditure adequate to show that they have used them in accordance with program requirements. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In prior audits, we reported the Department did not have adequate internal controls over period of performance requirements for the CCDF program. The prior finding numbers were 2023-061, 2022-043, 2021-037 and 2020-041. Description of Condition The Department did not have adequate internal controls over and did not comply with period of performance requirements for the CCDF program. Our Office uses the Department’s accounting records to verify it has met the period of performance requirements. In fiscal year 2021, management informed us that the Department changed its grant management practices to process expenditure transfers at the grant level. This new process made the original expenditures coded in the payment system inaccurate and unreliable for audit testing. As a result, we could not trace the federal funds to a level of expenditure adequate to establish whether the Department spent CCDF funds in accordance with federal and state regulations. Further, this meant we could not test the Department’s payments for compliance with period of performance requirements. We also referenced this condition in audit finding 2024 -056. We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition The Department is required to maintain sufficient documentation for each payment it makes with federal dollars. The Department’s accounting practices prevent it from meeting this requirement. The Department implemented what management referred to as fund-level accounting. This consisted of making significant accounting adjustments between funding sources in its general ledger without identifying the underlying transactions in the payment system that supported the adjustments. This affected all populations of child care expenditures for every month of the fiscal year. HHS officials informed the Department that these accounting practices do not comply with federal law, but management said they believe they are compliant. Effect of Condition By not complying with federal law requirements to maintain adequate supporting documentation for expenditures, the Department created a condition that made it impossible for our Office to determine if it materially met the period of performance requirements. Furthermore, without adequate internal controls in place, the Department is at a higher risk of making improper payments with grant funds. Recommendations We recommend the Department: • Design and implement internal controls to ensure transaction-level data is sufficient to comply with federal law and state rules • Develop written policies and procedures over federal period of performance requirements Department’s Response The Department has managed the CCDF program since 2019, prior to that it was managed by the Department of Social and Health Services and the Department of Early Learning. The Department implemented grant-level management of all federal funds, including the CCDF grant. The Department allocated the CCDF grants to eligible clients and allowable activities in compliance with 45 CFR 98.67. This process consists of making grant level adjustments between allowable grant sources to properly spend grant dollars within the allowable period of performance and ensure level of effort and matching requirements. The Department’s grant adjustments were processed based on eligible clients and allowable activities and did not include child-level data as required by SAO. The Department received a management decision letter dated October 3, 2023, from HHS for finding 2021-033 (2020-038) which states: “the ACF noted that the auditor raised concern about the Department’s accounting procedures and efforts made to trace expenditures at the transaction-level. As the basis for the finding, the auditor used CFRs (200.53, 200.303, 200.403, 200.410) that do not apply to CCDF. Federal regulations allow Lead Agencies to expend and account for CCDF funds in accordance with their own procedures.” In addition, ACF did not sustain the disallowance of questioned costs and stated: “Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” The ACF recommended, “that the Department work with the auditors to determine an appropriate methodology that can be tested to ensure child care payments comply with Federal regulations.” The Department is committed to collaborating with SAO to determine an appropriate methodology that identifies a sampling unit that can be used to accurately test compliance. The SAO maintained that the program is not auditable without child-level data. During the audit period, the Department did not have the staff and resources to develop and maintain the business process redesign, as well as the information technology initiatives necessary to meet the level of assurance as identified by SAO. In response to the auditor’s recommendations, the Department submitted a budget request for the 2024 supplemental budget. The enacted 2024 supplemental budget included funding to implement the Department’s budget request for funding beginning in state fiscal year 2025 and specified: “Funding in this subsection must be expended with internal controls that provide child-level detail for all transactions, beginning July 1, 2024” Upon receiving funding, the Department is working with a developer to assist with building out the required databases between the Social Service Payment System (SSPS) and the Agency Financial Reporting System (AFRS) to allow transfers between fundings sources to include the child-level data related to the expenditures. The Department looks forward to working with SAO to resolve the child-level data concerns and move forward with auditing the CCDF grant programs. Auditor’s Remarks The level of documentation needed to support grant expenditures is not established by our Office, but in title 45 of the U.S. Code of Federal Regulations and the state’s grant award. During the February 2022 meeting with HHS that the Department referenced in its response, the grantor stated the specific federal law the Department’s accounting procedures were noncompliant with was 45 CFR 98.67. We agree with the HHS management decision that our references to 2 CFR 200.53, 200.303, 200.403 and 200.410 in the 2021 finding were not correct. However, HHS adopted these same requirements in 45 CFR 75.2, 75.303, 75.403 and 75.410, respectfully. These requirements were all in place during the audit period. The proper references were included in the prior year finding and are included in this finding as well. Without adequate transactional level payment data, our Office is unable to perform tests to verify the Department met these requirements. In addition, we also are unable to verify whether the Department complied with matching, level of effort and earmarking requirements, or that required financial information reported to the federal government was accurate. These matters are referenced in separate findings in our report. In its response, the Department references a management decision letter issued October 3, 2023. The finding was partially sustained because the questioned costs identified in the audit would not be disallowed. The management decision states: “The ACF partially sustains the finding and recommendation. The ACF agrees with the auditor that the Department should strengthen internal controls to ensure payments to child care providers are allowable and properly supported.” “The ACF does not sustain a disallowance for the questioned costs in the amount of $271,353,409 representing the entire amount of the CCDF grant award. Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” We are not aware of what procedures ACF performed to conclude expenditures reported by the Department for fiscal year 2024 were spent only for allowable activities, were for allowable costs and met federal cost principles. We questioned all expenditures because, in our judgment, they were unauditable. We reaffirm our finding and will review the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations 45 U.S. Code of Federal Regulations (CFR) Part 75, section 303, Internal Controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 45 CFR Part 75, section 516, Audit findings, establishes reporting requirements for audit findings. Title 45 CFR, Section 98.60 – Availability of funds, states in part: (d) The following obligation and liquidation provisions apply to States and Territories: (1) Discretionary Fund allotments shall be obligated in the fiscal year in which funds are awarded or in the succeeding fiscal year. Unliquidated obligations as of the end of the succeeding fiscal year shall be liquidated within one year. (2) (i) Mandatory Funds for States requesting Matching Funds per § 98.55 shall be obligated in the fiscal year in which the funds are granted and are available until expended. (ii)Mandatory Funds for States that do not request Matching Funds are available until expended. (4) Both the Federal and non-Federal share of the Matching Fund shall be obligated in the fiscal year in which the funds are granted and liquidated no later than the end of the succeeding fiscal year. Title 45 CFR, Section 98.67 – Fiscal requirements, states: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. (b) Unless otherwise specified in this part, contracts that entail the expenditure of CCDF funds shall comply with the laws and procedures generally applicable to expenditures by the contracting agency of its own funds. (c) Fiscal control and accounting procedures shall be sufficient to permit: (1) Preparation of reports required by the Secretary under this subpart and under subpart H; and (2) The tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-059 The Department of Children, Youth, and Families did not have adequate internal controls over and did not comply with financial reporting requirements for the Child Care and Development Fund Cluster. Assistance Listing Number and Title: 93.575 Child Care and Development Block Grant 93.575 COVID-19 Child Care and Development Block Grant 93.596 Child Care Mandatory and Matching Funds of the Child Care and Development Fund Federal Grantor Name: U.S. Department of Health and Human Services Federal Award/Contract Number: 2103WACCDF; 2103WACCDD; 2303WACCDF; 2303WACCDD; 2403WACCDM; 2403WACCDD; 2103WACDC6; 2103WACSC6; 2103WACCC5; 2024WACCDD Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Reporting Known Questioned Cost Amount: None Prior Year Audit Finding: Yes, Finding 2023-062 Background The Department of Children, Youth, and Families administers the federal Child Care and Development Fund (CCDF) grants to help eligible working families pay for child care and fund improvements to child care quality. In fiscal year 2024, the Department spent about $483.5 million in federal funding. The Department is required to submit a quarterly ACF-696 financial report for each open grant. These reports contain information on expenditures for three CCDF funding sources: the Mandatory Fund, the Matching Fund, and the Discretionary Fund. The Department uses CCDF expenditures recorded in the state’s accounting system to compile and support the ACF-696 report. The U.S. Department of Health and Human Services (HHS), which oversees the CCF program at the federal level, requires recipients to have accounting procedures that are sufficient for tracing grants to a level of expenditure adequate to show that they have used them in accordance with program requirements. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In prior audits, we reported the Department did not have adequate internal controls over financial reporting requirements for the CCDF program. The prior finding numbers were 2023-062, 2022-044 and 2021-038. Description of Condition The Department did not have adequate internal controls over and did not comply with financial reporting requirements for the CCDF program. The Department’s accounting records must provide and support the financial information reported on ACF-696 reports. During the audit period, the Department’s grant management practice was to process expenditure transfers at the fund level without identifying which expenditures it transferred. Therefore, we could not rely on the data supporting the Department’s reported ACF-696 expenditures, and could not test whether the reports were accurate and complete. We also referenced this condition in audit finding 2024-056. We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition The Department is required to maintain sufficient documentation for each payment it makes using federal dollars. The Department’s accounting practices prevent it from meeting this requirement. In fiscal year 2021, the Department informed our Office that it had implemented what management referred to as fund-level accounting. This consisted of making significant accounting adjustments between funding sources in its general ledger without identifying the underlying transactions in the payment system that supported them. This affected all populations of child care expenditures for every month of the fiscal year. HHS officials informed the Department that these accounting practices do not comply with federal law, but management said they believe they are compliant. Effect of Condition By not complying with federal law requirements to maintain adequate supporting documentation for expenditures, the Department created a condition that made it impossible for our Office to audit the CCDF program expenditures reported on the ACF-696 financial report. Recommendation We recommend the Department design and implement internal controls to ensure the ACF-696 report is supported with transaction-level data that is sufficient to comply with federal law and state rules. Department’s Response The Department has managed the CCDF program since 2019, prior to that it was managed by the Department of Social and Health Services and the Department of Early Learning. The Department implemented grant-level management of all federal funds, including the CCDF grant. The Department allocated the CCDF grants to eligible clients and allowable activities in compliance with 45 CFR 98.67. This process consists of making grant level adjustments between allowable grant sources to properly spend grant dollars within the allowable period of performance and ensure level of effort and matching requirements. The Department’s grant adjustments were processed based on eligible clients and allowable activities and did not include child-level data as required by SAO. The Department received a management decision letter dated October 3, 2023, from HHS for finding 2021-033 (2020-038) which states: “the ACF noted that the auditor raised concern about the Department’s accounting procedures and efforts made to trace expenditures at the transaction-level. As the basis for the finding, the auditor used CFRs (200.53, 200.303, 200.403, 200.410) that do not apply to CCDF. Federal regulations allow Lead Agencies to expend and account for CCDF funds in accordance with their own procedures.” In addition, ACF did not sustain the disallowance of questioned costs and stated: “Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” The ACF recommended, “that the Department work with the auditors to determine an appropriate methodology that can be tested to ensure child care payments comply with Federal regulations.” The Department is committed to collaborating with SAO to determine an appropriate methodology that identifies a sampling unit that can be used to accurately test compliance. The SAO maintained that the program is not auditable without child-level data. During the audit period, the Department did not have the staff and resources to develop and maintain the business process redesign, as well as the information technology initiatives necessary to meet the level of assurance as identified by SAO. In response to the auditor’s recommendations, the Department submitted a budget request for the 2024 supplemental budget. The enacted 2024 supplemental budget included funding to implement the Department’s budget request for funding beginning in state fiscal year 2025 and specified: “Funding in this subsection must be expended with internal controls that provide child-level detail for all transactions, beginning July 1, 2024” Upon receiving funding, the Department is working with a developer to assist with building out the required databases between the Social Service Payment System (SSPS) and the Agency Financial Reporting System (AFRS) to allow transfers between fundings sources to include the child-level data related to the expenditures. The Department looks forward to working with SAO to resolve the child-level data concerns and move forward with auditing the CCDF grant programs. Auditor’s Remarks The level of documentation needed to support grant expenditures is not established by our Office, but in title 45 of the U.S. Code of Federal Regulations and the state’s grant award. During the February 2022 meeting with HHS that the Department referenced in its response, the grantor stated the specific federal law the Department’s accounting procedures were noncompliant with was 45 CFR 98.67. We agree with the HHS management decision that our references to 2 CFR 200.53, 200.303, 200.403 and 200.410 in the 2021 finding were not correct. However, HHS adopted these same requirements in 45 CFR 75.2, 75.303, 75.403 and 75.410, respectfully. These requirements were all in place during the audit period. The proper references were included in the prior year finding and are included in this finding as well. Without adequate transactional level payment data, our Office is unable to perform tests to verify the Department met these requirements. In addition, we also are unable to verify whether the Department complied with matching, level of effort and earmarking requirements, or that required financial information reported to the federal government was accurate. These matters are referenced in separate findings in our report. In its response, the Department references a management decision letter issued October 3, 2023. The finding was partially sustained because the questioned costs identified in the audit would not be disallowed. The management decision states: “The ACF partially sustains the finding and recommendation. The ACF agrees with the auditor that the Department should strengthen internal controls to ensure payments to child care providers are allowable and properly supported.” “The ACF does not sustain a disallowance for the questioned costs in the amount of $271,353,409 representing the entire amount of the CCDF grant award. Although the Department’s internal controls were lacking, the ACF has not identified any funds that were expended on ineligible activities.” We are not aware of what procedures ACF performed to conclude expenditures reported by the Department for fiscal year 2024 were spent only for allowable activities, were for allowable costs and met federal cost principles. We questioned all expenditures because, in our judgment, they were unauditable. We reaffirm our finding and will review the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations 45 U.S. Code of Federal Regulations (CFR) Part 75, section 303, Internal Controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 45 CFR Part 75, section 516, Audit findings, establishes reporting requirements for audit findings. Title 45 CFR, Section 98.67 – Fiscal requirements, states: (a) Lead Agencies shall expend and account for CCDF funds in accordance with their own laws and procedures for expending and accounting for their own funds. (b) Unless otherwise specified in this part, contracts that entail the expenditure of CCDF funds shall comply with the laws and procedures generally applicable to expenditures by the contracting agency of its own funds. (c) Fiscal control and accounting procedures shall be sufficient to permit: (1) Preparation of reports required by the Secretary under this subpart and under subpart H; and (2) The tracking of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provisions of this part. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
Finding 2024-004 (Repeat finding 2023-004) – U.S. Department of Health and Human Services – COVID-19 – Maternal, Infant, and Early Childhood Home Visiting, 93.870 Material Weakness, Material Noncompliance – Allowable Costs/Activities Compliance Requirement: Allowable Costs/Activities Criteria – Per 2 CFR Part 200, Subpart E (2 CFR Section 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 Section 200.308(e)(3). Condition – Prepaid gift cards for grocery and gas were purchased in bulk and recorded as federal expenses. However, not all cards were distributed to eligible beneficiaries as of June 30, 2024 and, therefore, should not have been expensed as not all criteria for allowable costs had been met. Cause – Current processes of the Organization record the purchase of gift cards as an expense, prior to all allowable cost requirements being met. Effect – By reporting federal expenses prior to meeting all criteria for allowable costs, the Organization runs the risk that amounts may be determined as unallowed by the federal awarding agency and the Organization may have to return the federal funds. Questioned Costs – Approximately $130,660 in expenses were reported that had not yet met all of the allowable cost criteria to be considered federal expenses. Context – The Organization distributed prepaid gift cards to eligible beneficiaries as needed throughout the year ended June 30, 2024. However, not all of the prepaid gift cards had been distributed by June 30, 2024. Recommendation – We recommend the Organization improve policies and procedures to record the purchase of gift cards as a prepaid transaction and only expense these items when all allowable cost criteria are met. Management’s Response – Management concurs with the finding, see Corrective Action Plan.
Finding 2024-004 (Repeat finding 2023-004) – U.S. Department of Health and Human Services – COVID-19 – Maternal, Infant, and Early Childhood Home Visiting, 93.870 Material Weakness, Material Noncompliance – Allowable Costs/Activities Compliance Requirement: Allowable Costs/Activities Criteria – Per 2 CFR Part 200, Subpart E (2 CFR Section 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 Section 200.308(e)(3). Condition – Prepaid gift cards for grocery and gas were purchased in bulk and recorded as federal expenses. However, not all cards were distributed to eligible beneficiaries as of June 30, 2024 and, therefore, should not have been expensed as not all criteria for allowable costs had been met. Cause – Current processes of the Organization record the purchase of gift cards as an expense, prior to all allowable cost requirements being met. Effect – By reporting federal expenses prior to meeting all criteria for allowable costs, the Organization runs the risk that amounts may be determined as unallowed by the federal awarding agency and the Organization may have to return the federal funds. Questioned Costs – Approximately $130,660 in expenses were reported that had not yet met all of the allowable cost criteria to be considered federal expenses. Context – The Organization distributed prepaid gift cards to eligible beneficiaries as needed throughout the year ended June 30, 2024. However, not all of the prepaid gift cards had been distributed by June 30, 2024. Recommendation – We recommend the Organization improve policies and procedures to record the purchase of gift cards as a prepaid transaction and only expense these items when all allowable cost criteria are met. Management’s Response – Management concurs with the finding, see Corrective Action Plan.
CONDITION: The District did not comply with the laws and regulations related to its participation in it’s various federal grant program reporting requirements. Personnel did not complete and submit the required ‘quarterly cash on hand reports’ and ‘final expenditure report’ (FER) for the grant programs based on supporting accurate general ledger expenditures as required by Section 2 CFR 200.403(g) of the Uniform Guidance. This is a repeat finding from (2023-002) from the previous fiscal year. CRITERIA: The PA Department of Education (PDE) and Section 2 CFR 200.403(g) of the Uniform Guidance requires the completion and submission of a ‘quarterly cash on hand report’ quarterly as needed and a ‘final expenditure report’ (FER) at the conclusion of each grant program year (including any carryover period) based on information contained in the School District’s financial management system and supported by all underlying documentation. EFFECT: The District was not in compliance with the PA Department of Education (PDE) and Section 2 CFR 200.403(g) of the Uniform Guidance financial reporting requirements relative to its participation the ESSER and ARP ESSER grant programs that require submission of ‘quarterly cash on hand reports’ and a ‘final expenditure report’ (FER) based on supporting accurate financial management system expenditures. CAUSE: The District experienced turnover in key business office personnel during the last three fiscal years, which resulted in errors in posting federal expenditures to the appropriate general ledger account codes. This further lead to inaccurate reporting as outlined above. QUESTIONED COST: None RECOMMENDATION: I recommend that the District re-file the required federal program ‘final expenditure reports’, if possible, based on accurate financial information obtained from the District’s financial management system after any corrections are made, in order to 1) comply with PDE and Uniform Guidance reporting requirements for the District’s applicable federal programs, and 2) to avoid any sanctions from PDE as a result of not filing these reports properly with accurate general ledger detail in a timely manner. All further federal grant reporting should be completed based on accurate general ledger expenditures. VIEW OF RESPONSIBLE OFFICIALS: See Correction Action Plan
CONDITION: The District did not comply with the laws and regulations related to its participation in it’s various federal grant program reporting requirements. Personnel did not complete and submit the required ‘quarterly cash on hand reports’ and ‘final expenditure report’ (FER) for the grant programs based on supporting accurate general ledger expenditures as required by Section 2 CFR 200.403(g) of the Uniform Guidance. This is a repeat finding from (2023-002) from the previous fiscal year. CRITERIA: The PA Department of Education (PDE) and Section 2 CFR 200.403(g) of the Uniform Guidance requires the completion and submission of a ‘quarterly cash on hand report’ quarterly as needed and a ‘final expenditure report’ (FER) at the conclusion of each grant program year (including any carryover period) based on information contained in the School District’s financial management system and supported by all underlying documentation. EFFECT: The District was not in compliance with the PA Department of Education (PDE) and Section 2 CFR 200.403(g) of the Uniform Guidance financial reporting requirements relative to its participation the ESSER and ARP ESSER grant programs that require submission of ‘quarterly cash on hand reports’ and a ‘final expenditure report’ (FER) based on supporting accurate financial management system expenditures. CAUSE: The District experienced turnover in key business office personnel during the last three fiscal years, which resulted in errors in posting federal expenditures to the appropriate general ledger account codes. This further lead to inaccurate reporting as outlined above. QUESTIONED COST: None RECOMMENDATION: I recommend that the District re-file the required federal program ‘final expenditure reports’, if possible, based on accurate financial information obtained from the District’s financial management system after any corrections are made, in order to 1) comply with PDE and Uniform Guidance reporting requirements for the District’s applicable federal programs, and 2) to avoid any sanctions from PDE as a result of not filing these reports properly with accurate general ledger detail in a timely manner. All further federal grant reporting should be completed based on accurate general ledger expenditures. VIEW OF RESPONSIBLE OFFICIALS: See Correction Action Plan
CONDITION: The District did not comply with the laws and regulations related to its participation in it’s various federal grant program reporting requirements. Personnel did not complete and submit the required ‘quarterly cash on hand reports’ and ‘final expenditure report’ (FER) for the grant programs based on supporting accurate general ledger expenditures as required by Section 2 CFR 200.403(g) of the Uniform Guidance. This is a repeat finding from (2023-002) from the previous fiscal year. CRITERIA: The PA Department of Education (PDE) and Section 2 CFR 200.403(g) of the Uniform Guidance requires the completion and submission of a ‘quarterly cash on hand report’ quarterly as needed and a ‘final expenditure report’ (FER) at the conclusion of each grant program year (including any carryover period) based on information contained in the School District’s financial management system and supported by all underlying documentation. EFFECT: The District was not in compliance with the PA Department of Education (PDE) and Section 2 CFR 200.403(g) of the Uniform Guidance financial reporting requirements relative to its participation the ESSER and ARP ESSER grant programs that require submission of ‘quarterly cash on hand reports’ and a ‘final expenditure report’ (FER) based on supporting accurate financial management system expenditures. CAUSE: The District experienced turnover in key business office personnel during the last three fiscal years, which resulted in errors in posting federal expenditures to the appropriate general ledger account codes. This further lead to inaccurate reporting as outlined above. QUESTIONED COST: None RECOMMENDATION: I recommend that the District re-file the required federal program ‘final expenditure reports’, if possible, based on accurate financial information obtained from the District’s financial management system after any corrections are made, in order to 1) comply with PDE and Uniform Guidance reporting requirements for the District’s applicable federal programs, and 2) to avoid any sanctions from PDE as a result of not filing these reports properly with accurate general ledger detail in a timely manner. All further federal grant reporting should be completed based on accurate general ledger expenditures. VIEW OF RESPONSIBLE OFFICIALS: See Correction Action Plan
FA 2024-001 Strengthen Controls over Expenditures Compliance Requirements: Activities Allowed or Unallowed Allowable Costs/Cost Principes Internal Control Impact: Material Weakness Compliance Impact: Material Noncompliance Federal Awarding Agency: U.S. Department of Education Pass-Through Entity: Georgia Department of Education Assistance Listing Number and Title: COVID-19 – 84.425D - Elementary and Secondary School Emergency Relief Fund COVID-19 – 84.425U - American Rescue Plan Elementary and Secondary School Emergency Relief Fund Federal Award Number: S425D210012 (Year: 2021), S425U210012 (Year: 2021) Questioned Costs: $72,595.67 Description: A review of expenditures charged to the Elementary and Secondary School Emergency Relief Fund programs revealed that the School District’s internal control procedures were not operating appropriately to ensure that expenditures were properly recorded. Background: On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act was designed to mitigate the economic effects of the COVID-19 pandemic in a variety of ways, including providing additional funding for local educational agencies (LEAs) navigating the impact of the COVID-19 outbreak. Provisions included in Title VIII of the CARES Act created the Education Stabilization Fund to provide financial resources to educational entities to prevent, prepare for, and respond to coronavirus. The CARES Act allocated $30.75 billion, the Coronavirus Response and Relief Supplemental Appropriations Act allocated an additional $81.9 billion, and the American Rescue Plan Act added $165.1 billion in funding to the Education Stabilization Fund. Multiple Education Stabilization Fund subprograms were created and allotted funding through the various COVID-19-related legislation. Of these programs, the Elementary and Secondary School Emergency Relief (ESSER) Fund was created to address the impact that COVID-19 has had, and continues to have, on elementary and secondary schools across the nation. ESSER funding was granted to the Georgia Department of Education (GaDOE) by the U.S. Department of Education (ED). GaDOE is responsible for distributing funds to LEAs and overseeing the expenditure of funds by LEAs. ESSER funds totaling $1,128,574.33 were expended and reported on the Seminole County School District’s Schedule of Expenditures of Federal Awards (SEFA) for fiscal year 2024. Criteria: As a recipient of federal awards, the School District is required to establish and maintain effective internal control over federal awards that provides reasonable assurance of managing the federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards pursuant to Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Section 200.303 – Internal Controls. Additionally, provisions included in the Uniform Guidance, Section 200.403 – Factors Affecting Allowability of Costs state that “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… (f) Not be included as a cost or used to meet the cost sharing or matching requirements of any other federally-financed program in either the current or a prior period, (g) Be adequately documented…” Condition: Auditors performed a review of expenditure activity associated with ESSER to determine if appropriate internal controls were implemented and applicable compliance requirements were met. It was noted that expenditures for personnel services were overstated by $72,595.67 due to the duplication of salary and benefits expenditures in the general ledger. As a result, duplicate federal reimbursement funding was also requested and received for those unallowable expenditures. Questioned Costs: Known questioned costs of $72,595.67 were identified for unallowable expenditures that were reimbursed through ESSER programs. These known questioned costs related to expenditures that were not tested as part of a sample, and therefore, should not be projected to a population to determine likely questioned costs. Cause: In discussing this deficiency with management, they stated that the School District payroll accruals recorded in the general ledger were duplicated due to oversight causing salary and benefits expense charged to the ESSER program to be overstated. Effect: The School District is not in compliance with the Uniform Guidance and the U.S. Department of Education (ED) guidance related to the ESSER program. Failure to ensure that appropriate controls exist may expose the School District to unnecessary financial strains and shortages as the grantor and/or pass-through entity may require the School District to return funds associated with the unallowable expenditures. Recommendation: The School District should review current internal control procedures related to ESSER program expenditures. Where vulnerable, the School District should develop and/or modify its policies and procedures to ensure that duplicate reimbursements are not sought from ESSER programs for the same expenditures. Furthermore, management should develop and implement a monitoring process to ensure that controls are operating appropriately. Views of Responsible Officials: We concur with this finding.
FA 2024-001 Strengthen Controls over Expenditures Compliance Requirements: Activities Allowed or Unallowed Allowable Costs/Cost Principes Internal Control Impact: Material Weakness Compliance Impact: Material Noncompliance Federal Awarding Agency: U.S. Department of Education Pass-Through Entity: Georgia Department of Education Assistance Listing Number and Title: COVID-19 – 84.425D - Elementary and Secondary School Emergency Relief Fund COVID-19 – 84.425U - American Rescue Plan Elementary and Secondary School Emergency Relief Fund Federal Award Number: S425D210012 (Year: 2021), S425U210012 (Year: 2021) Questioned Costs: $72,595.67 Description: A review of expenditures charged to the Elementary and Secondary School Emergency Relief Fund programs revealed that the School District’s internal control procedures were not operating appropriately to ensure that expenditures were properly recorded. Background: On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act was designed to mitigate the economic effects of the COVID-19 pandemic in a variety of ways, including providing additional funding for local educational agencies (LEAs) navigating the impact of the COVID-19 outbreak. Provisions included in Title VIII of the CARES Act created the Education Stabilization Fund to provide financial resources to educational entities to prevent, prepare for, and respond to coronavirus. The CARES Act allocated $30.75 billion, the Coronavirus Response and Relief Supplemental Appropriations Act allocated an additional $81.9 billion, and the American Rescue Plan Act added $165.1 billion in funding to the Education Stabilization Fund. Multiple Education Stabilization Fund subprograms were created and allotted funding through the various COVID-19-related legislation. Of these programs, the Elementary and Secondary School Emergency Relief (ESSER) Fund was created to address the impact that COVID-19 has had, and continues to have, on elementary and secondary schools across the nation. ESSER funding was granted to the Georgia Department of Education (GaDOE) by the U.S. Department of Education (ED). GaDOE is responsible for distributing funds to LEAs and overseeing the expenditure of funds by LEAs. ESSER funds totaling $1,128,574.33 were expended and reported on the Seminole County School District’s Schedule of Expenditures of Federal Awards (SEFA) for fiscal year 2024. Criteria: As a recipient of federal awards, the School District is required to establish and maintain effective internal control over federal awards that provides reasonable assurance of managing the federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards pursuant to Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Section 200.303 – Internal Controls. Additionally, provisions included in the Uniform Guidance, Section 200.403 – Factors Affecting Allowability of Costs state that “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… (f) Not be included as a cost or used to meet the cost sharing or matching requirements of any other federally-financed program in either the current or a prior period, (g) Be adequately documented…” Condition: Auditors performed a review of expenditure activity associated with ESSER to determine if appropriate internal controls were implemented and applicable compliance requirements were met. It was noted that expenditures for personnel services were overstated by $72,595.67 due to the duplication of salary and benefits expenditures in the general ledger. As a result, duplicate federal reimbursement funding was also requested and received for those unallowable expenditures. Questioned Costs: Known questioned costs of $72,595.67 were identified for unallowable expenditures that were reimbursed through ESSER programs. These known questioned costs related to expenditures that were not tested as part of a sample, and therefore, should not be projected to a population to determine likely questioned costs. Cause: In discussing this deficiency with management, they stated that the School District payroll accruals recorded in the general ledger were duplicated due to oversight causing salary and benefits expense charged to the ESSER program to be overstated. Effect: The School District is not in compliance with the Uniform Guidance and the U.S. Department of Education (ED) guidance related to the ESSER program. Failure to ensure that appropriate controls exist may expose the School District to unnecessary financial strains and shortages as the grantor and/or pass-through entity may require the School District to return funds associated with the unallowable expenditures. Recommendation: The School District should review current internal control procedures related to ESSER program expenditures. Where vulnerable, the School District should develop and/or modify its policies and procedures to ensure that duplicate reimbursements are not sought from ESSER programs for the same expenditures. Furthermore, management should develop and implement a monitoring process to ensure that controls are operating appropriately. Views of Responsible Officials: We concur with this finding.
FA 2024-001 Improve Controls over Employee Compensation Compliance Requirement: Allowable Costs/Cost Principles Internal Control Impact: Significant Deficiency Compliance Impact: Nonmaterial Noncompliance Federal Awarding Agency: U.S. Department of Agriculture Pass-Through Entity: Georgia Department of Education AL Numbers and Title: 10.553 – School Breakfast Program 10.555 – National School Lunch Program COVID-19 – 10.555 – National School Lunch Program Federal Award Number: 245GA324N1199 (Year: 2024) 225GA324N1099 (Year: 2024) Questioned Costs: $102,234 Repeat of Prior Year Finding: 2023-004 Description: The policies and procedures of the School District were insufficient to provide adequate internal controls over the employee compensation process as it relates to the Child Nutrition Cluster. Background Information: The Child Nutrition Cluster (CNC) is comprised of various programs that are intended to assist states in administering and overseeing food service program operators that provide healthful, nutritious meals to eligible children in public and non-profit private schools, residential childcare institutions, and summer programs. This Cluster of programs also fosters healthy eating habits in children by providing fresh fruits and fresh vegetables to children attending elementary and secondary schools and encourages the domestic consumption of nutritious agricultural commodities. CNC funding was granted to the Georgia Department of Education (GaDOE) by the U.S. Department of Agriculture. GaDOE is responsible for distributing funds to local educational agencies (LEAs) and overseeing the various CNC programs. CNC funds totaling $58,647,091.23 were expended and reported on the DeKalb County Board of Education’s Schedule of Expenditures of Federal Awards (SEFA) for fiscal year 2024. Criteria: As a recipient of federal awards, the School District is required to establish and maintain effective internal control over federal awards that provides reasonable assurance of managing the federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards pursuant to Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Section 200.303 – Internal Controls. Provisions included in the Uniform Guidance, Section 200.403 – Factors Affecting Allowability of Costs state that “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… (g) Be adequately documented…” Furthermore, provisions included in the Uniform Guidance, Section 200.430 – Compensation-Personal Services prescribe standards for documentation of personnel expenses and state, in part, that “(a) … Costs for compensation are allowable to the extent that they satisfy… specific requirements…, and that the total compensation for individual employees: (1) is reasonable for the services rendered and conforms to the established written policy of the non-Federal entity consistently applied to both Federal and non-Federal activities; (2) Follows an appointment made in accordance with a non-Federal entity’s laws and/or rules or written policies and meets the requirements of Federal statute, where applicable; and (3) Is determined and supported as provided in paragraph (i)…, [as follows:] (i) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity…” Condition: A sample of 60 employees was randomly selected for testing using a non-statistical sampling approach. These employees were reviewed to determine if internal controls were properly functioning, and applicable compliance requirements were met. The following deficiencies were noted: • One employee who no longer worked for the School District received salary payments totaling $8,715. • Two employees did not have any of the required certifications, or comparable documentation, to support their salary payments totaling $48,837. • One employee was missing required certifications, or comparable documentation, to support a portion of their salary payments totaling $8,128. • One employee’s salary in the amount of $2,671 was incorrectly charged to the federal program for one pay period. • Documentation of additional pay totaling $33,883 could not be located for 14 employees. Questioned Costs: Upon testing a sample of $1,399,390 in personnel services expenditures, known questioned costs of $102,234 were identified for payroll charges not supported by adequate documentation. Using the total personnel services expenditure population of $18,999,516 (excluding benefits payments), we project the likely questioned costs to be approximately $1,388,035. The following Assistance Listing Numbers were affected by known and likely questioned costs: 10.553 and 10.555. Cause: A lack of oversight by personnel in the Office of Federal Grants and Program Compliance led to noncompliance with the requirements of the Uniform Guidance in relation to charging of personnel costs to a federal program. Effect: The School District is not in compliance with the Uniform Guidance and GaDOE guidance. Failure to pay employees with CNC funds the appropriate amount and/or maintain documentation supporting those payments could result in the expenditure of funds for unallowable purposes. This may also expose the School District to unnecessary financial strains and shortages within the CNC funds as ED or GaDOE may require the School District to return funds associated with improperly documented expenditures. Recommendation: The School District should evaluate their internal control process related to the approval and retention of documentation to support employee compensation payments. Where vulnerable, the School District should develop and/or modify its policies and procedures to ensure that CNC employees are paid appropriately. Furthermore, management should develop and implement a monitoring process to ensure that these procedures are functioning properly. Views of Responsible Officials: We concur with this finding.
FA 2024-001 Improve Controls over Employee Compensation Compliance Requirement: Allowable Costs/Cost Principles Internal Control Impact: Significant Deficiency Compliance Impact: Nonmaterial Noncompliance Federal Awarding Agency: U.S. Department of Agriculture Pass-Through Entity: Georgia Department of Education AL Numbers and Title: 10.553 – School Breakfast Program 10.555 – National School Lunch Program COVID-19 – 10.555 – National School Lunch Program Federal Award Number: 245GA324N1199 (Year: 2024) 225GA324N1099 (Year: 2024) Questioned Costs: $102,234 Repeat of Prior Year Finding: 2023-004 Description: The policies and procedures of the School District were insufficient to provide adequate internal controls over the employee compensation process as it relates to the Child Nutrition Cluster. Background Information: The Child Nutrition Cluster (CNC) is comprised of various programs that are intended to assist states in administering and overseeing food service program operators that provide healthful, nutritious meals to eligible children in public and non-profit private schools, residential childcare institutions, and summer programs. This Cluster of programs also fosters healthy eating habits in children by providing fresh fruits and fresh vegetables to children attending elementary and secondary schools and encourages the domestic consumption of nutritious agricultural commodities. CNC funding was granted to the Georgia Department of Education (GaDOE) by the U.S. Department of Agriculture. GaDOE is responsible for distributing funds to local educational agencies (LEAs) and overseeing the various CNC programs. CNC funds totaling $58,647,091.23 were expended and reported on the DeKalb County Board of Education’s Schedule of Expenditures of Federal Awards (SEFA) for fiscal year 2024. Criteria: As a recipient of federal awards, the School District is required to establish and maintain effective internal control over federal awards that provides reasonable assurance of managing the federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards pursuant to Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Section 200.303 – Internal Controls. Provisions included in the Uniform Guidance, Section 200.403 – Factors Affecting Allowability of Costs state that “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… (g) Be adequately documented…” Furthermore, provisions included in the Uniform Guidance, Section 200.430 – Compensation-Personal Services prescribe standards for documentation of personnel expenses and state, in part, that “(a) … Costs for compensation are allowable to the extent that they satisfy… specific requirements…, and that the total compensation for individual employees: (1) is reasonable for the services rendered and conforms to the established written policy of the non-Federal entity consistently applied to both Federal and non-Federal activities; (2) Follows an appointment made in accordance with a non-Federal entity’s laws and/or rules or written policies and meets the requirements of Federal statute, where applicable; and (3) Is determined and supported as provided in paragraph (i)…, [as follows:] (i) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity…” Condition: A sample of 60 employees was randomly selected for testing using a non-statistical sampling approach. These employees were reviewed to determine if internal controls were properly functioning, and applicable compliance requirements were met. The following deficiencies were noted: • One employee who no longer worked for the School District received salary payments totaling $8,715. • Two employees did not have any of the required certifications, or comparable documentation, to support their salary payments totaling $48,837. • One employee was missing required certifications, or comparable documentation, to support a portion of their salary payments totaling $8,128. • One employee’s salary in the amount of $2,671 was incorrectly charged to the federal program for one pay period. • Documentation of additional pay totaling $33,883 could not be located for 14 employees. Questioned Costs: Upon testing a sample of $1,399,390 in personnel services expenditures, known questioned costs of $102,234 were identified for payroll charges not supported by adequate documentation. Using the total personnel services expenditure population of $18,999,516 (excluding benefits payments), we project the likely questioned costs to be approximately $1,388,035. The following Assistance Listing Numbers were affected by known and likely questioned costs: 10.553 and 10.555. Cause: A lack of oversight by personnel in the Office of Federal Grants and Program Compliance led to noncompliance with the requirements of the Uniform Guidance in relation to charging of personnel costs to a federal program. Effect: The School District is not in compliance with the Uniform Guidance and GaDOE guidance. Failure to pay employees with CNC funds the appropriate amount and/or maintain documentation supporting those payments could result in the expenditure of funds for unallowable purposes. This may also expose the School District to unnecessary financial strains and shortages within the CNC funds as ED or GaDOE may require the School District to return funds associated with improperly documented expenditures. Recommendation: The School District should evaluate their internal control process related to the approval and retention of documentation to support employee compensation payments. Where vulnerable, the School District should develop and/or modify its policies and procedures to ensure that CNC employees are paid appropriately. Furthermore, management should develop and implement a monitoring process to ensure that these procedures are functioning properly. Views of Responsible Officials: We concur with this finding.
FA 2024-001 Improve Controls over Employee Compensation Compliance Requirement: Allowable Costs/Cost Principles Internal Control Impact: Significant Deficiency Compliance Impact: Nonmaterial Noncompliance Federal Awarding Agency: U.S. Department of Agriculture Pass-Through Entity: Georgia Department of Education AL Numbers and Title: 10.553 – School Breakfast Program 10.555 – National School Lunch Program COVID-19 – 10.555 – National School Lunch Program Federal Award Number: 245GA324N1199 (Year: 2024) 225GA324N1099 (Year: 2024) Questioned Costs: $102,234 Repeat of Prior Year Finding: 2023-004 Description: The policies and procedures of the School District were insufficient to provide adequate internal controls over the employee compensation process as it relates to the Child Nutrition Cluster. Background Information: The Child Nutrition Cluster (CNC) is comprised of various programs that are intended to assist states in administering and overseeing food service program operators that provide healthful, nutritious meals to eligible children in public and non-profit private schools, residential childcare institutions, and summer programs. This Cluster of programs also fosters healthy eating habits in children by providing fresh fruits and fresh vegetables to children attending elementary and secondary schools and encourages the domestic consumption of nutritious agricultural commodities. CNC funding was granted to the Georgia Department of Education (GaDOE) by the U.S. Department of Agriculture. GaDOE is responsible for distributing funds to local educational agencies (LEAs) and overseeing the various CNC programs. CNC funds totaling $58,647,091.23 were expended and reported on the DeKalb County Board of Education’s Schedule of Expenditures of Federal Awards (SEFA) for fiscal year 2024. Criteria: As a recipient of federal awards, the School District is required to establish and maintain effective internal control over federal awards that provides reasonable assurance of managing the federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards pursuant to Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Section 200.303 – Internal Controls. Provisions included in the Uniform Guidance, Section 200.403 – Factors Affecting Allowability of Costs state that “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… (g) Be adequately documented…” Furthermore, provisions included in the Uniform Guidance, Section 200.430 – Compensation-Personal Services prescribe standards for documentation of personnel expenses and state, in part, that “(a) … Costs for compensation are allowable to the extent that they satisfy… specific requirements…, and that the total compensation for individual employees: (1) is reasonable for the services rendered and conforms to the established written policy of the non-Federal entity consistently applied to both Federal and non-Federal activities; (2) Follows an appointment made in accordance with a non-Federal entity’s laws and/or rules or written policies and meets the requirements of Federal statute, where applicable; and (3) Is determined and supported as provided in paragraph (i)…, [as follows:] (i) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity…” Condition: A sample of 60 employees was randomly selected for testing using a non-statistical sampling approach. These employees were reviewed to determine if internal controls were properly functioning, and applicable compliance requirements were met. The following deficiencies were noted: • One employee who no longer worked for the School District received salary payments totaling $8,715. • Two employees did not have any of the required certifications, or comparable documentation, to support their salary payments totaling $48,837. • One employee was missing required certifications, or comparable documentation, to support a portion of their salary payments totaling $8,128. • One employee’s salary in the amount of $2,671 was incorrectly charged to the federal program for one pay period. • Documentation of additional pay totaling $33,883 could not be located for 14 employees. Questioned Costs: Upon testing a sample of $1,399,390 in personnel services expenditures, known questioned costs of $102,234 were identified for payroll charges not supported by adequate documentation. Using the total personnel services expenditure population of $18,999,516 (excluding benefits payments), we project the likely questioned costs to be approximately $1,388,035. The following Assistance Listing Numbers were affected by known and likely questioned costs: 10.553 and 10.555. Cause: A lack of oversight by personnel in the Office of Federal Grants and Program Compliance led to noncompliance with the requirements of the Uniform Guidance in relation to charging of personnel costs to a federal program. Effect: The School District is not in compliance with the Uniform Guidance and GaDOE guidance. Failure to pay employees with CNC funds the appropriate amount and/or maintain documentation supporting those payments could result in the expenditure of funds for unallowable purposes. This may also expose the School District to unnecessary financial strains and shortages within the CNC funds as ED or GaDOE may require the School District to return funds associated with improperly documented expenditures. Recommendation: The School District should evaluate their internal control process related to the approval and retention of documentation to support employee compensation payments. Where vulnerable, the School District should develop and/or modify its policies and procedures to ensure that CNC employees are paid appropriately. Furthermore, management should develop and implement a monitoring process to ensure that these procedures are functioning properly. Views of Responsible Officials: We concur with this finding.
Reference Number: 2024-012 Prior Year Finding: No Federal Agency: U.S. Department of Labor State Agency: Executive Office of Labor and Workforce Development Federal Program: WIOA Cluster Assistance Listing Number: 17.258, 17.259, 17.278 Award Number and Year: AA-38535-22-55-A-25 (7/1/2022 – 6/30/2025) Compliance Requirement: Allowable Costs/Cost Principles Type of Finding: Significant Deficiency in Internal Control Over Compliance, Other Matters Criteria or specific requirement: Compliance: 2 CFR section 200.403 states, in part, 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), 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. Control: Per 2 CFR section 200.303(a), a non-Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should comply 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). Condition: The Executive Office of Labor and Workforce Development (Department) was unable to provide documentation to support a negative expenditure adjustment made to the program. Context: The Department was unable to provide documentation supporting one of three negative expenditure adjustments selected for testing. The adjustment was for an expenditure correction for $174,735 and auditors could not verify its accuracy nor that the adjustment had been reviewed and approved. Cause: The Agency’s procedures were not sufficient to ensure that expenditure adjustments were properly supported and documented. Internal controls did not detect or prevent the errors. Effect: Failure to maintain supporting documentation of expenditure adjustments could result in unallowable costs being charged to the program. Questioned costs: Undetermined. Recommendation: We recommend the Agency review and enhance procedures and controls to ensure that costs charged to the program are allowable, approved, and accounted for properly in the Commonwealth’s accounting system. Views of Responsible Officials: There is no disagreement with the finding.
Reference Number: 2024-012 Prior Year Finding: No Federal Agency: U.S. Department of Labor State Agency: Executive Office of Labor and Workforce Development Federal Program: WIOA Cluster Assistance Listing Number: 17.258, 17.259, 17.278 Award Number and Year: AA-38535-22-55-A-25 (7/1/2022 – 6/30/2025) Compliance Requirement: Allowable Costs/Cost Principles Type of Finding: Significant Deficiency in Internal Control Over Compliance, Other Matters Criteria or specific requirement: Compliance: 2 CFR section 200.403 states, in part, 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), 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. Control: Per 2 CFR section 200.303(a), a non-Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should comply 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). Condition: The Executive Office of Labor and Workforce Development (Department) was unable to provide documentation to support a negative expenditure adjustment made to the program. Context: The Department was unable to provide documentation supporting one of three negative expenditure adjustments selected for testing. The adjustment was for an expenditure correction for $174,735 and auditors could not verify its accuracy nor that the adjustment had been reviewed and approved. Cause: The Agency’s procedures were not sufficient to ensure that expenditure adjustments were properly supported and documented. Internal controls did not detect or prevent the errors. Effect: Failure to maintain supporting documentation of expenditure adjustments could result in unallowable costs being charged to the program. Questioned costs: Undetermined. Recommendation: We recommend the Agency review and enhance procedures and controls to ensure that costs charged to the program are allowable, approved, and accounted for properly in the Commonwealth’s accounting system. Views of Responsible Officials: There is no disagreement with the finding.
Reference Number: 2024-012 Prior Year Finding: No Federal Agency: U.S. Department of Labor State Agency: Executive Office of Labor and Workforce Development Federal Program: WIOA Cluster Assistance Listing Number: 17.258, 17.259, 17.278 Award Number and Year: AA-38535-22-55-A-25 (7/1/2022 – 6/30/2025) Compliance Requirement: Allowable Costs/Cost Principles Type of Finding: Significant Deficiency in Internal Control Over Compliance, Other Matters Criteria or specific requirement: Compliance: 2 CFR section 200.403 states, in part, 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), 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. Control: Per 2 CFR section 200.303(a), a non-Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should comply 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). Condition: The Executive Office of Labor and Workforce Development (Department) was unable to provide documentation to support a negative expenditure adjustment made to the program. Context: The Department was unable to provide documentation supporting one of three negative expenditure adjustments selected for testing. The adjustment was for an expenditure correction for $174,735 and auditors could not verify its accuracy nor that the adjustment had been reviewed and approved. Cause: The Agency’s procedures were not sufficient to ensure that expenditure adjustments were properly supported and documented. Internal controls did not detect or prevent the errors. Effect: Failure to maintain supporting documentation of expenditure adjustments could result in unallowable costs being charged to the program. Questioned costs: Undetermined. Recommendation: We recommend the Agency review and enhance procedures and controls to ensure that costs charged to the program are allowable, approved, and accounted for properly in the Commonwealth’s accounting system. Views of Responsible Officials: There is no disagreement with the finding.
Reference Number: 2024-039 Prior Year Finding: No Federal Agency: U.S. Department of Homeland Security State Agency: Massachusetts Emergency Management Agency (Agency) Federal Program: COVID-19 - Disaster Grants – Public Assistance (Presidentially Declared Disasters) Assistance Listing Number: 97.036 Award Number and Year: FEMA-4496-DR (1/20/2020 and continuing) Compliance Requirement: Allowable Costs / Cost Principles Type of Finding: Significant Deficiency in Internal Control Over Compliance, Other Matters Criteria or specific requirement: Compliance: 2 CFR section 200.403 states, in part, 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), 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. Control: Per 2 CFR section 200.303(a), a non-Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should comply 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). Condition: The Agency was unable to provide documentation to support the allowability, approval, and proper accounting of expenditures charged to the program. Context: Forty invoices were selected for testing and the following exceptions were noted: • For 4 of 40 invoices, support could not be provided to verify that the invoices had been charged to the correct general ledger codes and that the costs were allowable under the program. • For 3 of 40 invoices, payment details could not be verified because support did not include the check amount or the check date. • For 5 of 40 invoices, there was no evidence of approval of the purchase order or invoice. Cause: The Agency’s procedures were not sufficient to ensure that expenditures charged to the program were allowable, approved, and accounted for properly in the Commonwealth’s accounting system. Internal controls did not detect or prevent the errors. Effect: Unallowable costs could be charged to the program. Questioned costs: Undetermined. Recommendation: We recommend the Agency review and enhance procedures and controls to ensure that costs charged to the program are allowable, approved, and accounted for properly in the Commonwealth’s accounting system. Views of Responsible Officials: There is no disagreement with the finding.
Reference Number: 2024-039 Prior Year Finding: No Federal Agency: U.S. Department of Homeland Security State Agency: Massachusetts Emergency Management Agency (Agency) Federal Program: COVID-19 - Disaster Grants – Public Assistance (Presidentially Declared Disasters) Assistance Listing Number: 97.036 Award Number and Year: FEMA-4496-DR (1/20/2020 and continuing) Compliance Requirement: Allowable Costs / Cost Principles Type of Finding: Significant Deficiency in Internal Control Over Compliance, Other Matters Criteria or specific requirement: Compliance: 2 CFR section 200.403 states, in part, 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), 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. Control: Per 2 CFR section 200.303(a), a non-Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should comply 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). Condition: The Agency was unable to provide documentation to support the allowability, approval, and proper accounting of expenditures charged to the program. Context: Forty invoices were selected for testing and the following exceptions were noted: • For 4 of 40 invoices, support could not be provided to verify that the invoices had been charged to the correct general ledger codes and that the costs were allowable under the program. • For 3 of 40 invoices, payment details could not be verified because support did not include the check amount or the check date. • For 5 of 40 invoices, there was no evidence of approval of the purchase order or invoice. Cause: The Agency’s procedures were not sufficient to ensure that expenditures charged to the program were allowable, approved, and accounted for properly in the Commonwealth’s accounting system. Internal controls did not detect or prevent the errors. Effect: Unallowable costs could be charged to the program. Questioned costs: Undetermined. Recommendation: We recommend the Agency review and enhance procedures and controls to ensure that costs charged to the program are allowable, approved, and accounted for properly in the Commonwealth’s accounting system. Views of Responsible Officials: There is no disagreement with the finding.
2024-004 Compliance and Significant Deficiency in Internal Control over compliance with Activities Allowed or Unallowed, Allowable Cost/Cost Principles U.S. Department of Education Passed through NYS Department of Education Program Name: Education Stabilization Fund AL#: 84.425U Condition: In accordance with C.R. 170.2 of the Commissioner’s Regulations, the District requires Purchase Orders to be established to encumber the approved budget items for each expenditure code. The complete bill packet including the Purchase Order, receiving slip, and invoice is submitted for authorization of payment. For the ARP Summer Enrichment Grant, Purchase Orders were created after the dates of service. Criteria: As a recipient of federal awards, the District is required to establish and maintain effective internal controls over federal awards in accordance with 2CFR Part 200, Uniform Administrative Requirements, Costs Principles, and Audit Requirements for Federal Awards (Uniform Guidance) Section 200.303 – Internal Controls. Provisions included in section 200.403 – Factors Affecting Allowability of Costs states that 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), 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. (h) Cost must be incurred during the approved budget period. Context: 1 item representing the total population was selected for testing. A Purchase Order was initiated on 1/25/24 for an invoice dated 8/9/23 Questioned Costs are $19,960. Cause: The District did not have sufficient internal controls in place to ensure that Purchase Orders are created in accordance C.R. 170.2 of the Commissioner’s Regulations. When the invoices were received, a Purchase Order was required to be able to pay the vendor. Effect: The District is not in compliance with the requirements of the Education Stabilization Fund program with respect to Activities Allowed or Unallowed and Allowable Costs. Identification of a Repeat Finding This is a repeat finding from the immediate previous audit, 2023-007 Recommendation: We recommend that the District’s written procedures addressing internal controls with respect to program requirements be followed to ensure the District is in compliance at all times. View of Responsible Officials: Highland Falls-Fort Montgomery Central School District’s management concurs with this finding. The District is in the process of implementing procedures to ensure that compliance is maintained in the future. Please refer to the corrective action plan .
Assistance Listing: 84.351 C.A.R.E. Condition: Cleveland Play House does not have adequate documentation to support all charges to the federal program. Of the 40 payroll charges tested, 2 did not have adequate documentation. Criteria: 2 CFR 200.430(i) states that charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. 2 CFR 200.403(g) states that for costs to be allowed under Federal awards, they must be adequately documented. Cause: Due to significant organizational turnover in fiscal years 2022, 2023, and 2024, certain individuals did not have expense reimbursements requested based on actual hours worked on grant related activities. Although management maintained authorized time cards during each pay period, expense reimbursements were requested in a greater amount than hours actually worked on the grant. Effect: Cleveland Play House did not have adequate documentation to support all costs charged to the federal program. In addition, an ineffective financial management system could lead to incorrect identification of costs charged to a federal program and an inability to substantiate that doublecharging did not occur. Repeat finding: This is a repeat finding, refer to 2022-002 and 2023-002. Questioned costs: Payroll: $3,846 Recommendation: We continue to recommend that Cleveland Play House develop a policy and procedure to ensure that all hours submitted for federal reimbursement are supported with timesheets that are approved by a supervisor. Views of responsible officials: Management concurs with this recommendation. See also corrective action plan.
Finding 2024-007 - Material Weakness: Allowable Costs and Activities – Compliance and Control Finding ALN 84.116 – Fund for the Improvement of Postsecondary Education Federal Agency: U.S. Department of Education Federal Award Numbers: P116Z230322 and P116Z220015 Pass-Through Entity: None Criteria Or Specific Requirement: 2 CFR section 200.403 requires adequate documentation for allowable activities and costs and 2 CFR section 200.403(e) requires charges to the grant to be in accordance with generally accepted accounting principles (GAAP). Uniform Guidance requires that controls over compliance be properly designed, in place and operating effectively to ensure compliance with the requirements of the federal programs. Condition: We noted through procedures performed that costs were not supported by adequate documentation and costs were not charged to the grant in accordance with GAAP. Internal controls designed for this federal program did not detect these errors. Cause: Controls over compliance put in place by management were not operating effectively as it relates to these compliance requirements. Effect: The possibility exists that noncompliance with federal requirements could go undetected without proper controls over compliance. Questioned Costs: $34,890 of known questioned costs were identified in our testing sample Likely questioned costs exceed $25,000. Context: In a sample of 40 individual costs charged to the grant, the following occurred: • A charge of $3,000 was recorded against the grant but was supported by documentation totaling only $621. • A charge of $32,511 was recorded as an expense to the grant, although the amount related to prepaid costs for future services or benefits that had not yet been incurred. • In addition, 31 individual costs in the sample lacked appropriate review and approval for the charges applied to the grant. Identification As A Repeat Finding: Not applicable Recommendation: We recommend that management review the internal controls over allowable costs and activities to ensure the control is designed to ensure the correct amount of salaries are charged to the grant based on the approved time and effort certifications. Views Of Responsible Officials: All expenses must be supported by documentation and comply with Generally Accepted Accounting Principles (GAAP) standards. A pre-review checklist will be required for all charges against FIPSE grants. Prepaid items must be recorded in the prepaid ledger and amortized appropriately. Documentation will be retained in alignment with the University Record Retention policy. Management will implement a formal review and approval process to ensure that all allowable costs are verified for compliance with applicable regulations and approved by designated personnel prior to reimbursement or payment.
Finding 2024-007 - Material Weakness: Allowable Costs and Activities – Compliance and Control Finding ALN 84.116 – Fund for the Improvement of Postsecondary Education Federal Agency: U.S. Department of Education Federal Award Numbers: P116Z230322 and P116Z220015 Pass-Through Entity: None Criteria Or Specific Requirement: 2 CFR section 200.403 requires adequate documentation for allowable activities and costs and 2 CFR section 200.403(e) requires charges to the grant to be in accordance with generally accepted accounting principles (GAAP). Uniform Guidance requires that controls over compliance be properly designed, in place and operating effectively to ensure compliance with the requirements of the federal programs. Condition: We noted through procedures performed that costs were not supported by adequate documentation and costs were not charged to the grant in accordance with GAAP. Internal controls designed for this federal program did not detect these errors. Cause: Controls over compliance put in place by management were not operating effectively as it relates to these compliance requirements. Effect: The possibility exists that noncompliance with federal requirements could go undetected without proper controls over compliance. Questioned Costs: $34,890 of known questioned costs were identified in our testing sample Likely questioned costs exceed $25,000. Context: In a sample of 40 individual costs charged to the grant, the following occurred: • A charge of $3,000 was recorded against the grant but was supported by documentation totaling only $621. • A charge of $32,511 was recorded as an expense to the grant, although the amount related to prepaid costs for future services or benefits that had not yet been incurred. • In addition, 31 individual costs in the sample lacked appropriate review and approval for the charges applied to the grant. Identification As A Repeat Finding: Not applicable Recommendation: We recommend that management review the internal controls over allowable costs and activities to ensure the control is designed to ensure the correct amount of salaries are charged to the grant based on the approved time and effort certifications. Views Of Responsible Officials: All expenses must be supported by documentation and comply with Generally Accepted Accounting Principles (GAAP) standards. A pre-review checklist will be required for all charges against FIPSE grants. Prepaid items must be recorded in the prepaid ledger and amortized appropriately. Documentation will be retained in alignment with the University Record Retention policy. Management will implement a formal review and approval process to ensure that all allowable costs are verified for compliance with applicable regulations and approved by designated personnel prior to reimbursement or payment.
Finding No. 2024-034 Federal Awarding Agency: U.S. Department of Defense (USDOD) Impact: Significant Deficiency, Noncompliance AL Number and Title: 12.401 National Guard Military Operations and Maintenance Projects (NGMOMP) Federal Award Number: W91ZRU-20-2-1001, W91ZRU-21-2-1001, W91ZRU-22-2-1001, W91ZRU-23-2-1001, W91ZRU-24-2-1001 Applicable Compliance Requirement: Matching, Level of Effort, Earmarking Condition: The State’s accounting system was not updated for changes to the FFY 24 federally certified Facilities Inventory and Support Plan (FISP), which is used to allocate costs to the NGMOMP program. Context: The FISP is USDOD’s federal registry of real property inventory and includes detailed information of all federal/state owned and state operated Army National Guard (ARNG) facilities within the state. All ARNG facilities are owned by, leased for, or licensed to the State. As a result, the State operates and maintains all ARNG facilities. The FISP identifies the level of federal reimbursement authorized for each real property facility through support codes. National Guard Regulations (NGR) Pamphlet 420-10, Chapter 7, provides the support codes with the corresponding federal funding level percentage (i.e. 100 percent, 75 percent, 50 percent, or no support provided). The FISP is annually updated and certified to identify new facilities, changes in funding support, or facilities no longer supported by USDOD. The certified FISP is provided to DMVA management for tracking of ARNG facilities and determining the appropriate funding levels. DMVA management tracks the facilities using location codes in the State’s accounting system. The appropriate federal and State funding level is assigned to each location code. In FY 24 there were expenditures for 139 facility location codes. The audit reviewed all 139 facilities and found 11 (eight percent) had expenditures allocated at a higher federal rate than authorized in the FISP and one of the 11 locations was not listed on the FISP. Cause: DMVA’s procedures were insufficient to ensure the FISP was reviewed annually to identify changes in the facility support codes that require coding changes in the State’s accounting system. DMVA management also applied a higher reimbursement rate based on misinterpretation of multi-use facilities. Criteria: Title 2 CFR 200.303(a) requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards. Title 2 CFR 200.403 requires costs to be necessary, reasonable, and allocable to the federal award, and to conform to any limitations or exclusions in the federal awards as to types or amount of cost items. NGR 5-1 Section 5-4, dated May 28, 2010, states that when there is an identified cost share in an agreement, the grantor shall reimburse the grantee only for the grantor’s percentage share of the total allowable costs. NGR 420-10, Policy and Guidance for ARNG Facilities Program, dated September 2019, states the rate of reimbursement to the State for all authorized charges shall be based on the FISP support codes for the facility generating the expenditure. Effect: Failing to update the State’s accounting system resulted in DMVA management overcharging expenditures to the federal program. Noncompliance with federal regulations may result in the federal awarding agency imposing additional conditions or taking corrective action, including withholding/terminating funding. Questioned Costs: AL 12.401: $88,984 Recommendation: DMVA’s Division of Administrative Services (DAS) director and the Army Guard Facilities Maintenance director should strengthen procedures to ensure the State’s accounting system is updated annually based on revisions to the certified FISP and ensure the proper codes are used for multi-use facilities. Views of Responsible Officials: Management agrees with this finding.
Finding No. 2024-036 Federal Awarding Agency: U.S. Department of Homeland Security (USDHS) Impact: Significant Deficiency, Noncompliance AL Number and Title: 97.036 Disaster Grants – Public Assistance (Presidentially Declared Disasters) 97.036 Disaster Grants – Public Assistance (Presidentially Declared Disasters) – COVID-19 Federal Award Number: 4413DRAKP00000001, 4533DRAKP00000001, 4585DRAKP00000001, 4646DRAKP00000001, 4667DRAKP00000001 Applicable Compliance Requirement: Allowable Costs/Cost Principles Condition: A review of 25 FY 24 Disaster Grants payments found that 14 payments (56 percent) lacked required supporting documentation. Specifically, six payments lacked pay policy and/or fringe benefit calculations and eight payments lacked procurement contracts that included all federal requirements. Additionally, two of the eight payments lacked a complete or signed contract on file. Context: The Federal Emergency Management Agency (FEMA) reimburses force account labor based on actual hourly rates plus the cost of the employee’s actual fringe benefits. The applicant is required to submit the following documentation to support labor costs claimed: summary of actual costs for completed work, individual information (such as name, job title, type of employee, days and hours worked, pay rate and fringe benefit rate, and a description of work performed), fringe benefit calculation, and pay policy. FEMA determines the eligibility of overtime, premium pay, and compensatory time costs based on the applicant’s pre-disaster written pay policy. Six of the 25 transactions included force account labor that was not supported by a pay policy or benefit calculation. FEMA provides public assistance funding for contract costs based on the terms of the contract if the applicant meets federal procurement and contracting requirements. The applicant must include required provisions detailed in Title 2 CFR 200.327 in all contracts awarded and maintain oversight to ensure that contractors perform according to the conditions and specifications of the contract. FEMA reimburses funding for contract costs based on the terms of the contract if the applicant meets federal procurement and contract requirements. Eight of the 25 transactions included contractor payments and, based on review of the contract, not all federally required provisions were included. Two of the eight were not supported by a signed contract. According to DMVA management, contractors were utilized to provide project management of the federal disasters due to an increased workload and a lack of available DMVA staff. Contractors were tasked with gathering the required documents to ensure projects were administered in accordance with FEMA requirements. Cause: Division of Homeland Security and Emergency Management (DHSEM) lacked written procedures for monitoring contractors. Also, due to staff turnover and an increase in workload, DHSEM management did not adequately monitor contractor’s work. Specifically, to ensure the contractor verified the contracts awarded by subrecipients included federal requirements, final signed contracts were provided to the state, and required documentation was received for the reimbursement of subrecipient force account labor costs. Criteria: Title 2 CFR 200.403(g) requires costs to be adequately documented. FEMA’s guidance for administering the program is detailed in the Public Assistance Program and Policy Guide (PAPPG), 2018, which requires labor costs to be supported by specific documentation: summary of actual costs for completed work; for each individual: name, job title and function, type of employee, days and hours worked, pay rates and fringe benefit rate, and description of work performed; fringe benefit calculations; and pay policy. The PAPPG also requires contracts to include the required provisions in Title 2 CFR 200.327 and Homeland Security Acquisition Regulation Class Deviation 15-01 clauses in all contracts awarded. Title 2 CFR 200.303(a) requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards. Effect: Lack of fringe benefit calculations and pay policy may result in FEMA limiting public assistance funding to the applicant non-discretionary, uniformly applied pay rates. Inadequate documentation may result in unallowable costs. Noncompliance with federal regulations may result in the federal awarding agency imposing additional conditions or taking corrective action, including additional reporting requirements or withholding/terminating funding. Questioned Costs: AL - 97.036: $96,758 AL - 97.036 COVID-19: $2,159 Recommendation: DHSEM’s director should develop written procedures for adequately monitoring DMVA contractors to ensure all federally required documentation is obtained to support reimbursements to subrecipients. Views of Responsible Officials: Management agrees with this finding.
Finding No. 2024-036 Federal Awarding Agency: U.S. Department of Homeland Security (USDHS) Impact: Significant Deficiency, Noncompliance AL Number and Title: 97.036 Disaster Grants – Public Assistance (Presidentially Declared Disasters) 97.036 Disaster Grants – Public Assistance (Presidentially Declared Disasters) – COVID-19 Federal Award Number: 4413DRAKP00000001, 4533DRAKP00000001, 4585DRAKP00000001, 4646DRAKP00000001, 4667DRAKP00000001 Applicable Compliance Requirement: Allowable Costs/Cost Principles Condition: A review of 25 FY 24 Disaster Grants payments found that 14 payments (56 percent) lacked required supporting documentation. Specifically, six payments lacked pay policy and/or fringe benefit calculations and eight payments lacked procurement contracts that included all federal requirements. Additionally, two of the eight payments lacked a complete or signed contract on file. Context: The Federal Emergency Management Agency (FEMA) reimburses force account labor based on actual hourly rates plus the cost of the employee’s actual fringe benefits. The applicant is required to submit the following documentation to support labor costs claimed: summary of actual costs for completed work, individual information (such as name, job title, type of employee, days and hours worked, pay rate and fringe benefit rate, and a description of work performed), fringe benefit calculation, and pay policy. FEMA determines the eligibility of overtime, premium pay, and compensatory time costs based on the applicant’s pre-disaster written pay policy. Six of the 25 transactions included force account labor that was not supported by a pay policy or benefit calculation. FEMA provides public assistance funding for contract costs based on the terms of the contract if the applicant meets federal procurement and contracting requirements. The applicant must include required provisions detailed in Title 2 CFR 200.327 in all contracts awarded and maintain oversight to ensure that contractors perform according to the conditions and specifications of the contract. FEMA reimburses funding for contract costs based on the terms of the contract if the applicant meets federal procurement and contract requirements. Eight of the 25 transactions included contractor payments and, based on review of the contract, not all federally required provisions were included. Two of the eight were not supported by a signed contract. According to DMVA management, contractors were utilized to provide project management of the federal disasters due to an increased workload and a lack of available DMVA staff. Contractors were tasked with gathering the required documents to ensure projects were administered in accordance with FEMA requirements. Cause: Division of Homeland Security and Emergency Management (DHSEM) lacked written procedures for monitoring contractors. Also, due to staff turnover and an increase in workload, DHSEM management did not adequately monitor contractor’s work. Specifically, to ensure the contractor verified the contracts awarded by subrecipients included federal requirements, final signed contracts were provided to the state, and required documentation was received for the reimbursement of subrecipient force account labor costs. Criteria: Title 2 CFR 200.403(g) requires costs to be adequately documented. FEMA’s guidance for administering the program is detailed in the Public Assistance Program and Policy Guide (PAPPG), 2018, which requires labor costs to be supported by specific documentation: summary of actual costs for completed work; for each individual: name, job title and function, type of employee, days and hours worked, pay rates and fringe benefit rate, and description of work performed; fringe benefit calculations; and pay policy. The PAPPG also requires contracts to include the required provisions in Title 2 CFR 200.327 and Homeland Security Acquisition Regulation Class Deviation 15-01 clauses in all contracts awarded. Title 2 CFR 200.303(a) requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards. Effect: Lack of fringe benefit calculations and pay policy may result in FEMA limiting public assistance funding to the applicant non-discretionary, uniformly applied pay rates. Inadequate documentation may result in unallowable costs. Noncompliance with federal regulations may result in the federal awarding agency imposing additional conditions or taking corrective action, including additional reporting requirements or withholding/terminating funding. Questioned Costs: AL - 97.036: $96,758 AL - 97.036 COVID-19: $2,159 Recommendation: DHSEM’s director should develop written procedures for adequately monitoring DMVA contractors to ensure all federally required documentation is obtained to support reimbursements to subrecipients. Views of Responsible Officials: Management agrees with this finding.
FA 2024-001 Strengthen Controls over Expenditures Compliance Requirements: Activities Allowed or Unallowed Allowable Costs/Cost Principles Procurement and Suspension and Debarment Internal Control Impact: Significant Deficiency Compliance Impact: Nonmaterial Noncompliance Federal Awarding Agency: U.S. Department of Agriculture Pass-Through Entity: Georgia Department of Education AL Numbers and Titles: 10.553 – School Breakfast Program 10.555 – National School Lunch Program Federal Award Numbers: 225GA324N1099 (Year: 2024), 245GA324N1199 (Year 2024) Questioned Costs: $77,285 Repeat of Prior Year Finding: FA 2023-001 Description: A review of expenditures charged to the Child Nutrition Cluster revealed that the School District’s internal control procedures were not operating appropriately to ensure that expenditures were reviewed and approved and that the School District’s procurement and suspension and debarment procedures were followed. Background Information: The Child Nutrition Cluster (CNC) is comprised of various programs that are intended to assist states in administering and overseeing food service program operators that provide healthful, nutritious meals to eligible children in public and non-profit private schools, residential child care institutions, and summer programs. This Cluster of programs also fosters healthy eating habits in children by providing fresh fruits and fresh vegetables to children attending elementary and secondary schools and encourages the domestic consumption of nutritious agricultural commodities. CNC funding was granted to the Georgia Department of Education (GaDOE) by the U.S. Department of Agriculture. GaDOE is responsible for distributing funds to local educational agencies (LEAs) and overseeing the various CNC programs. CNC funds totaling $2,251,765 were expended and reported on the Berrien County Board of Education’s Schedule of Expenditures of Federal Awards (SEFA) for fiscal year 2024. Criteria: As a recipient of federal awards, the School District is required to establish and maintain effective internal control over federal awards that provides reasonable assurance of managing the federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards pursuant to Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Section 200.303 – Internal Controls. Provisions included in the Uniform Guidance, Section 200.403 – Factors Affecting Allowability of Costs state that “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… (g) Be adequately documented…” Additionally, provisions included in the Uniform Guidance, Section 200.318 – General Procurement Standards state in part that “(a) the non-Federal entity must use its own documented procurement procedures which reflect applicable State, local, and tribal laws and regulations and… (b) non-Federal entities must maintain oversight to ensure that contractors perform in accordance with the terms, conditions, and specifications of their contracts or purchase orders.” In addition, provisions included in the Uniform Guidance, Section 200.320 – Methods of Procurement to Be Followed provide guidance for procurement through small purchase procedures and state “If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources.” Condition: A sample of 60 expenditures was randomly selected for testing using a non-statistical sampling approach. These expenditures were reviewed to determine if appropriate internal controls were implemented and applicable compliance requirements were met. The following deficiencies were noted: • For three expenditures, evidence of review and approval was not reflected within the voucher package. • For seven expenditures, there was no verification of receipt of goods documented in the voucher package. Additionally, auditor reviewed 40 of these same expenditures and a sample of 20 additional expenditures, which was randomly selected for testing using a non-statistical sampling approach, to determine if procurement transactions complied with the School District’s procurement procedures and proper oversight was maintained to ensure that contractors were performing according to their contracts. The following deficiencies were noted: • Evidence of review and approval was not reflected within the voucher package for five additional expenditures. • For 19 expenditures paid to four different vendors, documentation could not be provided to support the entity’s verification that the vendors were not suspended or debarred or otherwise excluded from participating in the transactions. • One vendor contract expired mid-year and no renewal or extension was initiated. Questioned Costs: Known questioned costs of $77,285 were identified for procurement transactions that did not follow the School District’s procurement procedures and were incurred under an expired contract for which no renewal or extension was initiated. These known questioned costs related to all expenditures occurring after contract expiration, and therefore, should not be projected to a population to determine likely questioned costs. Cause: When discussing the issues noted with management, they said the program director was new and was unaware of the compliance requirements. Effect: The School District is not in compliance with the Uniform Guidance and GaDOE guidance related to CNC. Failure to ensure that expenditures are appropriately approved and procedures to address procurement and suspension and debarment compliance requirements are implemented exposes the School District to unnecessary risk of error and misuse of federal funds and could result in the expenditure of federal funds for unallowable purposes and/or with unqualified vendors. In addition, this deficiency could lead to the return of funding associated with unallowable expenditures. Recommendation: The School District should review current internal control procedures related to CNC. Where vulnerable, the School District should develop and/or modify its policies and procedures to ensure that all expenditures reflect evidence of review and approval, required procurement methods are properly identified and followed, and required procurement and suspension and debarment documentation is properly identified, safeguarded, and retained. In addition, management should develop a monitoring process to ensure that these procedures are operating appropriately. Views of Responsible Officials: We concur with this finding.
FA 2024-001 Strengthen Controls over Expenditures Compliance Requirements: Activities Allowed or Unallowed Allowable Costs/Cost Principles Procurement and Suspension and Debarment Internal Control Impact: Significant Deficiency Compliance Impact: Nonmaterial Noncompliance Federal Awarding Agency: U.S. Department of Agriculture Pass-Through Entity: Georgia Department of Education AL Numbers and Titles: 10.553 – School Breakfast Program 10.555 – National School Lunch Program Federal Award Numbers: 225GA324N1099 (Year: 2024), 245GA324N1199 (Year 2024) Questioned Costs: $77,285 Repeat of Prior Year Finding: FA 2023-001 Description: A review of expenditures charged to the Child Nutrition Cluster revealed that the School District’s internal control procedures were not operating appropriately to ensure that expenditures were reviewed and approved and that the School District’s procurement and suspension and debarment procedures were followed. Background Information: The Child Nutrition Cluster (CNC) is comprised of various programs that are intended to assist states in administering and overseeing food service program operators that provide healthful, nutritious meals to eligible children in public and non-profit private schools, residential child care institutions, and summer programs. This Cluster of programs also fosters healthy eating habits in children by providing fresh fruits and fresh vegetables to children attending elementary and secondary schools and encourages the domestic consumption of nutritious agricultural commodities. CNC funding was granted to the Georgia Department of Education (GaDOE) by the U.S. Department of Agriculture. GaDOE is responsible for distributing funds to local educational agencies (LEAs) and overseeing the various CNC programs. CNC funds totaling $2,251,765 were expended and reported on the Berrien County Board of Education’s Schedule of Expenditures of Federal Awards (SEFA) for fiscal year 2024. Criteria: As a recipient of federal awards, the School District is required to establish and maintain effective internal control over federal awards that provides reasonable assurance of managing the federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards pursuant to Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Section 200.303 – Internal Controls. Provisions included in the Uniform Guidance, Section 200.403 – Factors Affecting Allowability of Costs state that “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… (g) Be adequately documented…” Additionally, provisions included in the Uniform Guidance, Section 200.318 – General Procurement Standards state in part that “(a) the non-Federal entity must use its own documented procurement procedures which reflect applicable State, local, and tribal laws and regulations and… (b) non-Federal entities must maintain oversight to ensure that contractors perform in accordance with the terms, conditions, and specifications of their contracts or purchase orders.” In addition, provisions included in the Uniform Guidance, Section 200.320 – Methods of Procurement to Be Followed provide guidance for procurement through small purchase procedures and state “If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources.” Condition: A sample of 60 expenditures was randomly selected for testing using a non-statistical sampling approach. These expenditures were reviewed to determine if appropriate internal controls were implemented and applicable compliance requirements were met. The following deficiencies were noted: • For three expenditures, evidence of review and approval was not reflected within the voucher package. • For seven expenditures, there was no verification of receipt of goods documented in the voucher package. Additionally, auditor reviewed 40 of these same expenditures and a sample of 20 additional expenditures, which was randomly selected for testing using a non-statistical sampling approach, to determine if procurement transactions complied with the School District’s procurement procedures and proper oversight was maintained to ensure that contractors were performing according to their contracts. The following deficiencies were noted: • Evidence of review and approval was not reflected within the voucher package for five additional expenditures. • For 19 expenditures paid to four different vendors, documentation could not be provided to support the entity’s verification that the vendors were not suspended or debarred or otherwise excluded from participating in the transactions. • One vendor contract expired mid-year and no renewal or extension was initiated. Questioned Costs: Known questioned costs of $77,285 were identified for procurement transactions that did not follow the School District’s procurement procedures and were incurred under an expired contract for which no renewal or extension was initiated. These known questioned costs related to all expenditures occurring after contract expiration, and therefore, should not be projected to a population to determine likely questioned costs. Cause: When discussing the issues noted with management, they said the program director was new and was unaware of the compliance requirements. Effect: The School District is not in compliance with the Uniform Guidance and GaDOE guidance related to CNC. Failure to ensure that expenditures are appropriately approved and procedures to address procurement and suspension and debarment compliance requirements are implemented exposes the School District to unnecessary risk of error and misuse of federal funds and could result in the expenditure of federal funds for unallowable purposes and/or with unqualified vendors. In addition, this deficiency could lead to the return of funding associated with unallowable expenditures. Recommendation: The School District should review current internal control procedures related to CNC. Where vulnerable, the School District should develop and/or modify its policies and procedures to ensure that all expenditures reflect evidence of review and approval, required procurement methods are properly identified and followed, and required procurement and suspension and debarment documentation is properly identified, safeguarded, and retained. In addition, management should develop a monitoring process to ensure that these procedures are operating appropriately. Views of Responsible Officials: We concur with this finding.
Federal Agency: U.S. Department of Veterans Affairs Federal Program Name: Supportive Services for Veteran Families Assistance Listing Number: 64.033 Federal Award Identification Number and Year: 12-NC-050 Award Period: September 30, 2022 through September 30, 2024 - Type of Finding: Material Weakness in Internal Control over Compliance and Other Matters Criteria or specific requirement: Per 2 CFR Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), §200.403 Factors affecting allowability of costs, costs must be necessary, reasonable, and adequately documented. Condition: During testing of the underlying expenditure details, we noted that the payroll reports provided by the Corporation did not agree with the underlying grant expenditure records. Specifically, the underlying payroll reports were less than what was charged to the grant. Questioned costs: $6,004 Context: During our testing we reviewed the underlying expenditure details. We compared the payroll reports provided by the Corporation to the underlying grant expenditure records. Our review identified a discrepancy where the payroll detail was $6,004 less than the amount charged to the grant. This discrepancy indicates a potential issue with internal controls over the reconciliation process for payroll costs. Cause: The discrepancy was due to inadequate internal controls over the reconciliation of payroll reports to the grant expenditures. The client did not have a process in place to ensure that payroll costs charged to the grant were supported by detailed payroll records. Effect: As a result, there is a risk that unallowable costs were charged to the grant, which could lead to noncompliance with federal requirements and potential disallowance of costs. Recommendation: We recommend that the Corporation implement internal controls over the reconciliation of payroll reports to grant expenditures. This should include regular reconciliations and reviews to ensure that all payroll costs charged to the grant are adequately supported by detailed payroll records. Views of responsible officials: Management agrees with the above finding. A payroll salary reconciliation report will be completed after each payroll issued and will be verified against the grant reports, accounting system class coding and employee-specific payroll file(s). Printed reports will be maintained on file in the Finance Department for historical reference.
Federal Agency: U.S. Department of Veterans Affairs Federal Program Name: Supportive Services for Veteran Families Assistance Listing Number: 64.033 Federal Award Identification Number and Year: 12-NC-050 Award Period: September 30, 2022 through September 30, 2024 - Type of Finding: Material Weakness in Internal Control over Compliance and Other Matters Criteria or specific requirement: Per 2 CFR 200.302(b)(3), non-Federal entities must maintain records that adequately identify the source and application of funds for federally-funded activities. Additionally, 2 CFR 200.403(g) requires that costs must be adequately documented to be allowable under Federal awards. Condition: During testing of allowable costs, we identified cash disbursements that lacked adequate supporting documentation. Specifically, these disbursements were made without proof of payment and corresponding invoice support. Questioned costs: $16,576 Context: As part of our audit procedures, we selected a sample of cash disbursements to ensure compliance with federal regulations. The sample included transactions from various periods within the award year. During the review, it was noted that disbursements totaling $15,754 did not have the required supporting documentation, such as proof of payment and corresponding invoices. This finding indicates potential systemic issues within the accounts payable process that could affect the overall compliance with federal awards. Cause: The lack of supporting documentation appears to be due to weaknesses in the internal controls over the accounts payable process. The Corporation did not have a process in place to ensure that expenditures charged to the grant were supported by proof of payment and corresponding invoice support. Effect: There is a risk that unallowable costs were charged to the grant, which could lead to noncompliance with federal requirements and potential disallowance of costs. Recommendation: We recommend that the Corporation strengthen its internal controls over cash disbursements. This should include retention of payments supported by valid invoices and proof of payment documentation as well as periodic internal audits to ensure compliance with the documentation requirements. Views of responsible officials: Management agrees with the above finding. All purchase-related supporting documentation will be transitioned to paper files to eliminate confusion created by the electronic record-keeping system, and to ensure that all staff requiring access to such documentation can immediately and easily retrieve them. Records will be maintained in the Finance Department office for seven years.
Criteria or Specific Requirement: In accordance with 2 CFR 200.403(h), costs must be incurred during the approved budget period or period of performance, unless specifically authorized otherwise by the federal awarding agency. Charging costs incurred outside the period of performance is unallowable and does not comply with federal cost principles. Condition: During our testing of payroll expenditures charged to the federal award, it was determined that Solvista Health claimed reimbursement for payroll costs incurred outside the approved period of performance. Specifically, for one grant, payroll expenditures were claimed for time worked between June 26, 2023 and June 30, 2023, although the awards period of performance began on July 1, 2023. Additionally, for another grant tested, payroll expenditures were claimed for time worked between October 30, 2023 and October 31, 2023, despite the award’s period of performance not beginning until November 1, 2023. Context: Actual payroll expenditures submitted included payroll expenditures that were outside the period of performance, which overstated the payroll expenditures applied to the grant. Questioned Costs: $7,522 consisting of payroll expenditures submitted for reimbursement for expenditures incurred outside of the approved period of performance. Cause: Solvista Health did not have adequate controls to ensure that expenditures charged to the federal program were incurred within the period of performance. Effect: Solvista Health claimed reimbursement for payroll costs incurred outside of the approved period of performance, resulting in unallowable costs being charged to this award. Identification as a Repeat Finding: Not a repeat finding. Recommendation: We recommend Solvista Health design and implement controls to ensure that expenditures submitted for reimbursement under federal awards are properly reviewed for compliance with regard to the period of performance requirements.
Criteria or Specific Requirement: In accordance with 2 CFR 200.403(h), costs must be incurred during the approved budget period or period of performance, unless specifically authorized otherwise by the federal awarding agency. Charging costs incurred outside the period of performance is unallowable and does not comply with federal cost principles. Condition: During our testing of payroll expenditures charged to the federal award, it was determined that Solvista Health claimed reimbursement for payroll costs incurred outside the approved period of performance. Specifically, for one grant, payroll expenditures were claimed for time worked between June 26, 2023 and June 30, 2023, although the awards period of performance began on July 1, 2023. Additionally, for another grant tested, payroll expenditures were claimed for time worked between October 30, 2023 and October 31, 2023, despite the award’s period of performance not beginning until November 1, 2023. Context: Actual payroll expenditures submitted included payroll expenditures that were outside the period of performance, which overstated the payroll expenditures applied to the grant. Questioned Costs: $7,522 consisting of payroll expenditures submitted for reimbursement for expenditures incurred outside of the approved period of performance. Cause: Solvista Health did not have adequate controls to ensure that expenditures charged to the federal program were incurred within the period of performance. Effect: Solvista Health claimed reimbursement for payroll costs incurred outside of the approved period of performance, resulting in unallowable costs being charged to this award. Identification as a Repeat Finding: Not a repeat finding. Recommendation: We recommend Solvista Health design and implement controls to ensure that expenditures submitted for reimbursement under federal awards are properly reviewed for compliance with regard to the period of performance requirements.
Criteria or Specific Requirement: In accordance with 2 CFR 200.403(a), costs charged to a federal award must be allowable under the provisions of the cost principles, the terms and conditions of the award, and the approved budget. Additionally, earmarking requirements in the grant agreement and associated budget restrict specific categories of expenditures, including a cap on allowable software costs. Condition: During our testing of expenditures claimed for reimbursement, we noted that Solvista Health incurred and claimed software-related costs in excess of the grant agreement, which explicitly limits allowable software expenditures. Context: The software expenditures submitted exceeded the software costs allowed per the grant agreement. Questioned Costs: $2,814 consisting of exceeded software expenditures submitted for reimbursement. Cause: Solvista Health did not have adequately designed and implemented internal controls related to monitoring of compliance with earmarking requirements specific to software expenditures under the terms of the grant. Effect: Solvista Health exceeded the allowable software cost limit established by the grant. Identification as a Repeat Finding: Not a repeat finding. Recommendation: We recommend that Solvista Health design and implement grant monitoring internal controls to ensure expenditures comply with all earmarking limitations specified in grant agreements and approved budgets. In particular, Solvista Health should implement procedures to track expenditures by budget category and verify compliance prior to submitting reimbursement requests.
Criteria or Specific Requirement: In accordance with 2 CFR 200.403 and 200.405, costs charged to federal awards must be necessary, reasonable, allocable to the program, and adequately documented. Only allowable costs as defined by the terms and conditions of the award and the Uniform Guidance may be charged to the grant. Condition: During our testing of expenditures submitted by Solvista Health for reimbursement, we identified instances where costs were charged to the grant that were not allowable under the Uniform Guidance or the terms of the grant agreement. Specifically, unallowable employee meals were included in travel reimbursement costs. Context: Employees’ meal expenditures were submitted as allowable costs and as travel costs; however employee meals are not an allowable expenditure per the grant agreement. Questioned Costs: $842 consisting of unallowable meal expenditures. Cause: Solvista Health did not have sufficient internal controls implemented to identify unallowed expenditures, which were submitted for reimbursement. Effect: Failure to submit unallowable expenditures for reimbursement may result in noncompliance with the federal awarding agency and may result in the repayment of any unallowable expenditures to the grantor. Identification as a Repeat Finding: Not a repeat finding. Recommendation: We recommend that Solvista Health implement internal controls to ensure review and approval of grant-related expenditures. Additionally, we recommend regular training of staff on allowable cost principles under Uniform Guidance.
Criteria or Specific Requirement: In accordance with 2 CFR 200.403 and 200.405, costs charged to federal awards must be necessary, reasonable, allocable to the program, and adequately documented. Only allowable costs as defined by the terms and conditions of the award and the Uniform Guidance may be charged to the grant. Condition: During our testing of expenditures submitted by Solvista Health for reimbursement, we identified instances where costs were charged to the grant that were not allowable under the Uniform Guidance or the terms of the grant agreement. Specifically, unallowable employee meals were included in travel reimbursement costs. Context: Employees’ meal expenditures were submitted as allowable costs and as travel costs; however employee meals are not an allowable expenditure per the grant agreement. Questioned Costs: $842 consisting of unallowable meal expenditures. Cause: Solvista Health did not have sufficient internal controls implemented to identify unallowed expenditures, which were submitted for reimbursement. Effect: Failure to submit unallowable expenditures for reimbursement may result in noncompliance with the federal awarding agency and may result in the repayment of any unallowable expenditures to the grantor. Identification as a Repeat Finding: Not a repeat finding. Recommendation: We recommend that Solvista Health implement internal controls to ensure review and approval of grant-related expenditures. Additionally, we recommend regular training of staff on allowable cost principles under Uniform Guidance.
Block Grants for Prevention and Treatment of Substance Abuse ALN No. 93.959 U.S. Department of Health and Human Services Opioid STR ALN No. 93.788 U.S. Department of Health and Human Services Criteria or Specific Requirement – Activities Allowed and Unallowed and Cost Principles – 2 CFR Part 200, Subpart E, and Period of Performance – 2 CFR sections 200.308, 200.309, and 200.403(h) Condition – A sample of 80 expenditures were selected from each of the following populations: • ALN No. 93.959 – 1,152 items totaling $1,077,416 • ALN No. 93.788 – 1,222 items totaling $2,537,080 The samples were not, and are not intended to be, statistically valid. Of the 80 expenditures tested from each grant program, the following were determined to lack appropriate supporting documentation to support being charged to grant program: • ALN No. 93.959 - 41 items totaling $25,810, including projected errors over the total population totaling $191,145 • ALN No. 93.788 - 10 items totaling $72,347, including projected errors over the total population totaling $207,012 The Organization did not have adequate supporting documentation demonstrating actual time and effort reporting and lacked evidence of supporting invoices. Cause – The Organization charged budgeted percentages to the grant programs without a system in place to monitor and track that actual time and effort was consistent with budgeted percentages. In addition, the Organization charged expenditures to the grant programs without evidence of supporting invoices. Effect or potential effect – Costs charged to the grant programs could have varied from actual time and effort. In addition, costs charged to the grant could not be supported by actual invoices. Questioned costs – • ALN No. 93.959 - $25,810 • ALN No. 93.788 - $72,347 Context – The Organization did not have a reasonable methodology of allocating costs to these grant programs and did not maintain proper supporting invoices. Identification as a repeat finding, if applicable – Repeat finding (see 2023-003) Recommendation – Management should implement policies and procedures that strengthen internal control over compliance in relation to activities allowed and cost principles. The policy and procedure should be designed to ensure that a reasonable allocation methodology is implemented and followed or that time and effort is certified by the employee on a regular basis. In addition, management should implement a document retention policy consistent with 2 CFR 200.334.
Block Grants for Prevention and Treatment of Substance Abuse ALN No. 93.959 U.S. Department of Health and Human Services Opioid STR ALN No. 93.788 U.S. Department of Health and Human Services Criteria or Specific Requirement – Activities Allowed and Unallowed and Cost Principles – 2 CFR Part 200, Subpart E, and Period of Performance – 2 CFR sections 200.308, 200.309, and 200.403(h) Condition – A sample of 80 expenditures were selected from each of the following populations: • ALN No. 93.959 – 1,152 items totaling $1,077,416 • ALN No. 93.788 – 1,222 items totaling $2,537,080 The samples were not, and are not intended to be, statistically valid. Of the 80 expenditures tested from each grant program, the following were determined to lack appropriate supporting documentation to support being charged to grant program: • ALN No. 93.959 - 41 items totaling $25,810, including projected errors over the total population totaling $191,145 • ALN No. 93.788 - 10 items totaling $72,347, including projected errors over the total population totaling $207,012 The Organization did not have adequate supporting documentation demonstrating actual time and effort reporting and lacked evidence of supporting invoices. Cause – The Organization charged budgeted percentages to the grant programs without a system in place to monitor and track that actual time and effort was consistent with budgeted percentages. In addition, the Organization charged expenditures to the grant programs without evidence of supporting invoices. Effect or potential effect – Costs charged to the grant programs could have varied from actual time and effort. In addition, costs charged to the grant could not be supported by actual invoices. Questioned costs – • ALN No. 93.959 - $25,810 • ALN No. 93.788 - $72,347 Context – The Organization did not have a reasonable methodology of allocating costs to these grant programs and did not maintain proper supporting invoices. Identification as a repeat finding, if applicable – Repeat finding (see 2023-003) Recommendation – Management should implement policies and procedures that strengthen internal control over compliance in relation to activities allowed and cost principles. The policy and procedure should be designed to ensure that a reasonable allocation methodology is implemented and followed or that time and effort is certified by the employee on a regular basis. In addition, management should implement a document retention policy consistent with 2 CFR 200.334.
Condition - The Municipality’s staff was unable to provide officially prepared and certified reports supporting compliance with the filing and submission requirements for reports and financial information, as established by federal award and regulatory agreements. Similarly, reconciliations were not provided between the information used to prepare the required and submitted reports and the formal data recorded in the Municipality’s official accounting system. Due to these conditions, compliance with the reporting requirements established by the federal grantor and effectiveness of related internal controls could not be verified. Based on an analysis prepared by the Municipality of the bank accounts and certain records and subsidiary ledgers designated for managing Community Development Block Grant / Disaster Recovery (CDBG-DR) funds, including transactions during the fiscal year ended June 30, 2024, and subsequent disbursements, a total of $850,079 was either expended or transferred to the General Fund to cover eligible expenditures under the terms permitted by the CDBG-DR program. Criteria - Per the Compliance and Reporting Guidance – Part I: General Guidance – Section D: Uniform Administrative Requirements – Section 10: Reporting: establishes that: All recipients of federal funds must complete financial, performance, and compliance reporting as required and outlined in Part 2 of this guidance. Expenditures may be reported on a cash or accrual basis, as long as the methodology is disclosed and consistently applied. Reporting must be consistent with the definition of expenditures pursuant to 2 CFR 200.1. Recipients should appropriately maintain accounting records for compiling and reporting accurate, compliant financial data, in accordance with appropriate accounting standards and principles. In addition, where appropriate, recipients need to establish controls to ensure completion and timely submission of all mandatory performance and/or compliance reporting. Also, as established in the 2 CFR Section 200.302 (a) of the Uniform Guidance, the non-Federal entity’s financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. In addition, 2 CFR Section 200.403 states that otherwise authorized by statue, costs must be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles, be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the non-Federal entity and be adequately documented. Cause - There is a lack of adequate knowledge and training among personnel assigned to the management and preparation of reports required by this federal award. Additionally, the Municipality did not demonstrate, nor did it provide evidence, that it has designed and implemented an adequate system of procedures and internal controls to monitor the activity, filing, and custody of reports, as required by the federal award and the pass-through entity. These deficiencies limit the Municipality’s ability to document and support compliance with the reporting requirements. Effect - These conditions expose the program to noncompliance with the reporting requirements established in the grant agreement. Furthermore, the Municipality may be at risk of the grantor questioning the allowability and use of federal funds. Recommendation - We recommend that the responsible personnel or department identify, compile, and retain all reports required under the grant agreement, including reconciliations with the Municipality’s official accounting records and subsidiary ledgers. Additionally, it is essential for the Municipality to develop, document, and implement a comprehensive training program, along with written guidelines and procedures, for all personnel involved, directly or indirectly, in the management of these federal funds. Questioned Costs - None