2024-028 The Office of Superintendent of Public Instruction did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the Education Stabilization Fund program. Assistance Listing Number and Title: 84.425R COVID-19 Coronavirus Response and Relief Supplemental Appropriations Act, Emergency Assistance to Non-Public Schools (CRRSA EANS) 84.425V COVID-19 American Rescue Plan – Emergency Assistance to Non-Public Schools (ARP EANS) program Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: S425D210015; S425R210012; S425U210015; S425V210012; S425W210049 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Components: Activities Allowed or Unallowed Allowable Costs/Cost Principles Subrecipient Monitoring Known Questioned Cost Amount: $47,322,280 Prior Year Audit Finding: No Background Beginning in March 2020, Congress set aside the Elementary and Secondary School Emergency Relief (ESSER) Fund to address the effect the COVID-19 pandemic has had, and continues to have, on elementary and secondary schools across the nation. Several rounds of funding were distributed to states under the Education Stabilization Fund (ESF) program with the intent to support public and nonpublic schools. The U.S. Department of Education awarded ESF grants to the Office of Financial Management, which then dispersed funds to the Office of Superintendent of Public Instruction, to pass through to Local Education Agencies (LEAs). The U.S. Department of Education awarded ESF program funds to grantees under multiple subprograms of the ESF. An alphabetic character at the end of the 84.425 Assistance Listing Number was used to delineate the specific subprogram. Each subprogram has its own funding requirements and compliance requirements. The objective of the CRRSA EANS (84.425R) and ARP EANS (84.425V) subprograms is to provide governors with a reservation of funds to provide services or assistance to eligible nonpublic schools to address the impact the COVID-19 pandemic has had, and continues to have, on nonpublic school students and teachers in the state. In fiscal year 2024, the state spent more than $600 million in ESFs federal funding. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the ESF program. After the Office distributed EANS funds to nonpublic schools, there was $47,322,281 in ESF program funds remaining that went unobligated. Those funds reverted to the Governor’s office as CRRSA-GEER funds. After the reversion of these funds, the legislature specifically directed the Office to use the resources to fund Transition to Kindergarten programs. During this process, the Office distributed funds to 149 public LEAs but did not issue subawards as required. As a result, it failed to clearly communicate these awards’ terms and conditions to the subrecipients, including the allowable uses of the funds. We consider this internal control deficiency to be a material weakness which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office believed the information that was sent out through other means would cover the required elements it needed to communicate to the LEAs. The Office did not know the amount each LEA would receive as amounts were not predetermined, and the Office used an apportionment process to allocate funds to meet the legislative intent. Effect of Condition and Questioned Costs Without issuing subawards to subrecipients to ensure proper accountability and compliance with federal requirements, the Office cannot ensure all funds were used for allowable activities and properly supported. In addition, without a subaward, the Office could not distribute funds to these subrecipients. Therefore, we are questioning the $47,322,280 that it distributed to these LEAs. 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. Recommendation We recommend the Office: • Establish effective internal controls to ensure that all federal funds it grants to subrecipients are awarded through a subaward that meets federal requirements • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response We distributed these funds through the apportionment process instead of our grants system due to the nature of how the payments were calculated. Our grants system provides a grant award notification via e-mail when the grant is awarded that contains the federal elements required in CFR 200.332. While we did not provide a formal subaward that included all of these elements in one document, we provided most of them using other formal communication, such as through a Gov Delivery e-mail and the School District Accounting Manual. If we use the apportionment process to distribute funds in the future, we will include all of the required federal elements in a separate subaward. Additionally, our communication to school districts included the use of allowable activities for these funds. Therefore, we do not agree that the funds should be questioned as not being allowable or properly supported. Auditor’s Remarks The Office asserts the costs should not be questioned for not being allowable or properly supported. However, without a subaward the Office could not distribute federal funds to these subrecipients, therefore we are questioning the costs consistent with criteria established in 2 CFR 200 (Uniform Guidance). We reaffirm our finding and will review the status of the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 34 U.S. Code of Federal Regulations (CFR) Part 75, Direct grant programs, section 702, Fiscal control and fund accounting procedures, states that a grantee shall use fiscal control and fund accounting procedures that ensure proper disbursement of, and accounting for, Federal funds as required in 2 CFR part 200, subpart D—Post Federal Award Requirements. 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 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 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 332, Requirements for pass-through entities, requires that every subaward is clearly identified to the subrecipient as a subaward and includes the federal identification elements. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 U.S. Code of Federal Regulations (CFR) Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200.403, Uniform Guidance, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-028 The Office of Superintendent of Public Instruction did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the Education Stabilization Fund program. Assistance Listing Number and Title: 84.425R COVID-19 Coronavirus Response and Relief Supplemental Appropriations Act, Emergency Assistance to Non-Public Schools (CRRSA EANS) 84.425V COVID-19 American Rescue Plan – Emergency Assistance to Non-Public Schools (ARP EANS) program Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: S425D210015; S425R210012; S425U210015; S425V210012; S425W210049 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Components: Activities Allowed or Unallowed Allowable Costs/Cost Principles Subrecipient Monitoring Known Questioned Cost Amount: $47,322,280 Prior Year Audit Finding: No Background Beginning in March 2020, Congress set aside the Elementary and Secondary School Emergency Relief (ESSER) Fund to address the effect the COVID-19 pandemic has had, and continues to have, on elementary and secondary schools across the nation. Several rounds of funding were distributed to states under the Education Stabilization Fund (ESF) program with the intent to support public and nonpublic schools. The U.S. Department of Education awarded ESF grants to the Office of Financial Management, which then dispersed funds to the Office of Superintendent of Public Instruction, to pass through to Local Education Agencies (LEAs). The U.S. Department of Education awarded ESF program funds to grantees under multiple subprograms of the ESF. An alphabetic character at the end of the 84.425 Assistance Listing Number was used to delineate the specific subprogram. Each subprogram has its own funding requirements and compliance requirements. The objective of the CRRSA EANS (84.425R) and ARP EANS (84.425V) subprograms is to provide governors with a reservation of funds to provide services or assistance to eligible nonpublic schools to address the impact the COVID-19 pandemic has had, and continues to have, on nonpublic school students and teachers in the state. In fiscal year 2024, the state spent more than $600 million in ESFs federal funding. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the ESF program. After the Office distributed EANS funds to nonpublic schools, there was $47,322,281 in ESF program funds remaining that went unobligated. Those funds reverted to the Governor’s office as CRRSA-GEER funds. After the reversion of these funds, the legislature specifically directed the Office to use the resources to fund Transition to Kindergarten programs. During this process, the Office distributed funds to 149 public LEAs but did not issue subawards as required. As a result, it failed to clearly communicate these awards’ terms and conditions to the subrecipients, including the allowable uses of the funds. We consider this internal control deficiency to be a material weakness which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office believed the information that was sent out through other means would cover the required elements it needed to communicate to the LEAs. The Office did not know the amount each LEA would receive as amounts were not predetermined, and the Office used an apportionment process to allocate funds to meet the legislative intent. Effect of Condition and Questioned Costs Without issuing subawards to subrecipients to ensure proper accountability and compliance with federal requirements, the Office cannot ensure all funds were used for allowable activities and properly supported. In addition, without a subaward, the Office could not distribute funds to these subrecipients. Therefore, we are questioning the $47,322,280 that it distributed to these LEAs. 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. Recommendation We recommend the Office: • Establish effective internal controls to ensure that all federal funds it grants to subrecipients are awarded through a subaward that meets federal requirements • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response We distributed these funds through the apportionment process instead of our grants system due to the nature of how the payments were calculated. Our grants system provides a grant award notification via e-mail when the grant is awarded that contains the federal elements required in CFR 200.332. While we did not provide a formal subaward that included all of these elements in one document, we provided most of them using other formal communication, such as through a Gov Delivery e-mail and the School District Accounting Manual. If we use the apportionment process to distribute funds in the future, we will include all of the required federal elements in a separate subaward. Additionally, our communication to school districts included the use of allowable activities for these funds. Therefore, we do not agree that the funds should be questioned as not being allowable or properly supported. Auditor’s Remarks The Office asserts the costs should not be questioned for not being allowable or properly supported. However, without a subaward the Office could not distribute federal funds to these subrecipients, therefore we are questioning the costs consistent with criteria established in 2 CFR 200 (Uniform Guidance). We reaffirm our finding and will review the status of the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 34 U.S. Code of Federal Regulations (CFR) Part 75, Direct grant programs, section 702, Fiscal control and fund accounting procedures, states that a grantee shall use fiscal control and fund accounting procedures that ensure proper disbursement of, and accounting for, Federal funds as required in 2 CFR part 200, subpart D—Post Federal Award Requirements. 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 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 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 332, Requirements for pass-through entities, requires that every subaward is clearly identified to the subrecipient as a subaward and includes the federal identification elements. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 U.S. Code of Federal Regulations (CFR) Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200.403, Uniform Guidance, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-028 The Office of Superintendent of Public Instruction did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the Education Stabilization Fund program. Assistance Listing Number and Title: 84.425R COVID-19 Coronavirus Response and Relief Supplemental Appropriations Act, Emergency Assistance to Non-Public Schools (CRRSA EANS) 84.425V COVID-19 American Rescue Plan – Emergency Assistance to Non-Public Schools (ARP EANS) program Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: S425D210015; S425R210012; S425U210015; S425V210012; S425W210049 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Components: Activities Allowed or Unallowed Allowable Costs/Cost Principles Subrecipient Monitoring Known Questioned Cost Amount: $47,322,280 Prior Year Audit Finding: No Background Beginning in March 2020, Congress set aside the Elementary and Secondary School Emergency Relief (ESSER) Fund to address the effect the COVID-19 pandemic has had, and continues to have, on elementary and secondary schools across the nation. Several rounds of funding were distributed to states under the Education Stabilization Fund (ESF) program with the intent to support public and nonpublic schools. The U.S. Department of Education awarded ESF grants to the Office of Financial Management, which then dispersed funds to the Office of Superintendent of Public Instruction, to pass through to Local Education Agencies (LEAs). The U.S. Department of Education awarded ESF program funds to grantees under multiple subprograms of the ESF. An alphabetic character at the end of the 84.425 Assistance Listing Number was used to delineate the specific subprogram. Each subprogram has its own funding requirements and compliance requirements. The objective of the CRRSA EANS (84.425R) and ARP EANS (84.425V) subprograms is to provide governors with a reservation of funds to provide services or assistance to eligible nonpublic schools to address the impact the COVID-19 pandemic has had, and continues to have, on nonpublic school students and teachers in the state. In fiscal year 2024, the state spent more than $600 million in ESFs federal funding. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the ESF program. After the Office distributed EANS funds to nonpublic schools, there was $47,322,281 in ESF program funds remaining that went unobligated. Those funds reverted to the Governor’s office as CRRSA-GEER funds. After the reversion of these funds, the legislature specifically directed the Office to use the resources to fund Transition to Kindergarten programs. During this process, the Office distributed funds to 149 public LEAs but did not issue subawards as required. As a result, it failed to clearly communicate these awards’ terms and conditions to the subrecipients, including the allowable uses of the funds. We consider this internal control deficiency to be a material weakness which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office believed the information that was sent out through other means would cover the required elements it needed to communicate to the LEAs. The Office did not know the amount each LEA would receive as amounts were not predetermined, and the Office used an apportionment process to allocate funds to meet the legislative intent. Effect of Condition and Questioned Costs Without issuing subawards to subrecipients to ensure proper accountability and compliance with federal requirements, the Office cannot ensure all funds were used for allowable activities and properly supported. In addition, without a subaward, the Office could not distribute funds to these subrecipients. Therefore, we are questioning the $47,322,280 that it distributed to these LEAs. 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. Recommendation We recommend the Office: • Establish effective internal controls to ensure that all federal funds it grants to subrecipients are awarded through a subaward that meets federal requirements • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response We distributed these funds through the apportionment process instead of our grants system due to the nature of how the payments were calculated. Our grants system provides a grant award notification via e-mail when the grant is awarded that contains the federal elements required in CFR 200.332. While we did not provide a formal subaward that included all of these elements in one document, we provided most of them using other formal communication, such as through a Gov Delivery e-mail and the School District Accounting Manual. If we use the apportionment process to distribute funds in the future, we will include all of the required federal elements in a separate subaward. Additionally, our communication to school districts included the use of allowable activities for these funds. Therefore, we do not agree that the funds should be questioned as not being allowable or properly supported. Auditor’s Remarks The Office asserts the costs should not be questioned for not being allowable or properly supported. However, without a subaward the Office could not distribute federal funds to these subrecipients, therefore we are questioning the costs consistent with criteria established in 2 CFR 200 (Uniform Guidance). We reaffirm our finding and will review the status of the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 34 U.S. Code of Federal Regulations (CFR) Part 75, Direct grant programs, section 702, Fiscal control and fund accounting procedures, states that a grantee shall use fiscal control and fund accounting procedures that ensure proper disbursement of, and accounting for, Federal funds as required in 2 CFR part 200, subpart D—Post Federal Award Requirements. 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 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 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 332, Requirements for pass-through entities, requires that every subaward is clearly identified to the subrecipient as a subaward and includes the federal identification elements. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 U.S. Code of Federal Regulations (CFR) Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200.403, Uniform Guidance, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-028 The Office of Superintendent of Public Instruction did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the Education Stabilization Fund program. Assistance Listing Number and Title: 84.425R COVID-19 Coronavirus Response and Relief Supplemental Appropriations Act, Emergency Assistance to Non-Public Schools (CRRSA EANS) 84.425V COVID-19 American Rescue Plan – Emergency Assistance to Non-Public Schools (ARP EANS) program Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: S425D210015; S425R210012; S425U210015; S425V210012; S425W210049 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Components: Activities Allowed or Unallowed Allowable Costs/Cost Principles Subrecipient Monitoring Known Questioned Cost Amount: $47,322,280 Prior Year Audit Finding: No Background Beginning in March 2020, Congress set aside the Elementary and Secondary School Emergency Relief (ESSER) Fund to address the effect the COVID-19 pandemic has had, and continues to have, on elementary and secondary schools across the nation. Several rounds of funding were distributed to states under the Education Stabilization Fund (ESF) program with the intent to support public and nonpublic schools. The U.S. Department of Education awarded ESF grants to the Office of Financial Management, which then dispersed funds to the Office of Superintendent of Public Instruction, to pass through to Local Education Agencies (LEAs). The U.S. Department of Education awarded ESF program funds to grantees under multiple subprograms of the ESF. An alphabetic character at the end of the 84.425 Assistance Listing Number was used to delineate the specific subprogram. Each subprogram has its own funding requirements and compliance requirements. The objective of the CRRSA EANS (84.425R) and ARP EANS (84.425V) subprograms is to provide governors with a reservation of funds to provide services or assistance to eligible nonpublic schools to address the impact the COVID-19 pandemic has had, and continues to have, on nonpublic school students and teachers in the state. In fiscal year 2024, the state spent more than $600 million in ESFs federal funding. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the ESF program. After the Office distributed EANS funds to nonpublic schools, there was $47,322,281 in ESF program funds remaining that went unobligated. Those funds reverted to the Governor’s office as CRRSA-GEER funds. After the reversion of these funds, the legislature specifically directed the Office to use the resources to fund Transition to Kindergarten programs. During this process, the Office distributed funds to 149 public LEAs but did not issue subawards as required. As a result, it failed to clearly communicate these awards’ terms and conditions to the subrecipients, including the allowable uses of the funds. We consider this internal control deficiency to be a material weakness which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office believed the information that was sent out through other means would cover the required elements it needed to communicate to the LEAs. The Office did not know the amount each LEA would receive as amounts were not predetermined, and the Office used an apportionment process to allocate funds to meet the legislative intent. Effect of Condition and Questioned Costs Without issuing subawards to subrecipients to ensure proper accountability and compliance with federal requirements, the Office cannot ensure all funds were used for allowable activities and properly supported. In addition, without a subaward, the Office could not distribute funds to these subrecipients. Therefore, we are questioning the $47,322,280 that it distributed to these LEAs. 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. Recommendation We recommend the Office: • Establish effective internal controls to ensure that all federal funds it grants to subrecipients are awarded through a subaward that meets federal requirements • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response We distributed these funds through the apportionment process instead of our grants system due to the nature of how the payments were calculated. Our grants system provides a grant award notification via e-mail when the grant is awarded that contains the federal elements required in CFR 200.332. While we did not provide a formal subaward that included all of these elements in one document, we provided most of them using other formal communication, such as through a Gov Delivery e-mail and the School District Accounting Manual. If we use the apportionment process to distribute funds in the future, we will include all of the required federal elements in a separate subaward. Additionally, our communication to school districts included the use of allowable activities for these funds. Therefore, we do not agree that the funds should be questioned as not being allowable or properly supported. Auditor’s Remarks The Office asserts the costs should not be questioned for not being allowable or properly supported. However, without a subaward the Office could not distribute federal funds to these subrecipients, therefore we are questioning the costs consistent with criteria established in 2 CFR 200 (Uniform Guidance). We reaffirm our finding and will review the status of the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 34 U.S. Code of Federal Regulations (CFR) Part 75, Direct grant programs, section 702, Fiscal control and fund accounting procedures, states that a grantee shall use fiscal control and fund accounting procedures that ensure proper disbursement of, and accounting for, Federal funds as required in 2 CFR part 200, subpart D—Post Federal Award Requirements. 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 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 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 332, Requirements for pass-through entities, requires that every subaward is clearly identified to the subrecipient as a subaward and includes the federal identification elements. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 U.S. Code of Federal Regulations (CFR) Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200.403, Uniform Guidance, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-028 The Office of Superintendent of Public Instruction did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the Education Stabilization Fund program. Assistance Listing Number and Title: 84.425R COVID-19 Coronavirus Response and Relief Supplemental Appropriations Act, Emergency Assistance to Non-Public Schools (CRRSA EANS) 84.425V COVID-19 American Rescue Plan – Emergency Assistance to Non-Public Schools (ARP EANS) program Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: S425D210015; S425R210012; S425U210015; S425V210012; S425W210049 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Components: Activities Allowed or Unallowed Allowable Costs/Cost Principles Subrecipient Monitoring Known Questioned Cost Amount: $47,322,280 Prior Year Audit Finding: No Background Beginning in March 2020, Congress set aside the Elementary and Secondary School Emergency Relief (ESSER) Fund to address the effect the COVID-19 pandemic has had, and continues to have, on elementary and secondary schools across the nation. Several rounds of funding were distributed to states under the Education Stabilization Fund (ESF) program with the intent to support public and nonpublic schools. The U.S. Department of Education awarded ESF grants to the Office of Financial Management, which then dispersed funds to the Office of Superintendent of Public Instruction, to pass through to Local Education Agencies (LEAs). The U.S. Department of Education awarded ESF program funds to grantees under multiple subprograms of the ESF. An alphabetic character at the end of the 84.425 Assistance Listing Number was used to delineate the specific subprogram. Each subprogram has its own funding requirements and compliance requirements. The objective of the CRRSA EANS (84.425R) and ARP EANS (84.425V) subprograms is to provide governors with a reservation of funds to provide services or assistance to eligible nonpublic schools to address the impact the COVID-19 pandemic has had, and continues to have, on nonpublic school students and teachers in the state. In fiscal year 2024, the state spent more than $600 million in ESFs federal funding. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the ESF program. After the Office distributed EANS funds to nonpublic schools, there was $47,322,281 in ESF program funds remaining that went unobligated. Those funds reverted to the Governor’s office as CRRSA-GEER funds. After the reversion of these funds, the legislature specifically directed the Office to use the resources to fund Transition to Kindergarten programs. During this process, the Office distributed funds to 149 public LEAs but did not issue subawards as required. As a result, it failed to clearly communicate these awards’ terms and conditions to the subrecipients, including the allowable uses of the funds. We consider this internal control deficiency to be a material weakness which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office believed the information that was sent out through other means would cover the required elements it needed to communicate to the LEAs. The Office did not know the amount each LEA would receive as amounts were not predetermined, and the Office used an apportionment process to allocate funds to meet the legislative intent. Effect of Condition and Questioned Costs Without issuing subawards to subrecipients to ensure proper accountability and compliance with federal requirements, the Office cannot ensure all funds were used for allowable activities and properly supported. In addition, without a subaward, the Office could not distribute funds to these subrecipients. Therefore, we are questioning the $47,322,280 that it distributed to these LEAs. 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. Recommendation We recommend the Office: • Establish effective internal controls to ensure that all federal funds it grants to subrecipients are awarded through a subaward that meets federal requirements • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response We distributed these funds through the apportionment process instead of our grants system due to the nature of how the payments were calculated. Our grants system provides a grant award notification via e-mail when the grant is awarded that contains the federal elements required in CFR 200.332. While we did not provide a formal subaward that included all of these elements in one document, we provided most of them using other formal communication, such as through a Gov Delivery e-mail and the School District Accounting Manual. If we use the apportionment process to distribute funds in the future, we will include all of the required federal elements in a separate subaward. Additionally, our communication to school districts included the use of allowable activities for these funds. Therefore, we do not agree that the funds should be questioned as not being allowable or properly supported. Auditor’s Remarks The Office asserts the costs should not be questioned for not being allowable or properly supported. However, without a subaward the Office could not distribute federal funds to these subrecipients, therefore we are questioning the costs consistent with criteria established in 2 CFR 200 (Uniform Guidance). We reaffirm our finding and will review the status of the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 34 U.S. Code of Federal Regulations (CFR) Part 75, Direct grant programs, section 702, Fiscal control and fund accounting procedures, states that a grantee shall use fiscal control and fund accounting procedures that ensure proper disbursement of, and accounting for, Federal funds as required in 2 CFR part 200, subpart D—Post Federal Award Requirements. 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 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 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 332, Requirements for pass-through entities, requires that every subaward is clearly identified to the subrecipient as a subaward and includes the federal identification elements. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 U.S. Code of Federal Regulations (CFR) Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200.403, Uniform Guidance, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-028 The Office of Superintendent of Public Instruction did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the Education Stabilization Fund program. Assistance Listing Number and Title: 84.425R COVID-19 Coronavirus Response and Relief Supplemental Appropriations Act, Emergency Assistance to Non-Public Schools (CRRSA EANS) 84.425V COVID-19 American Rescue Plan – Emergency Assistance to Non-Public Schools (ARP EANS) program Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: S425D210015; S425R210012; S425U210015; S425V210012; S425W210049 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Components: Activities Allowed or Unallowed Allowable Costs/Cost Principles Subrecipient Monitoring Known Questioned Cost Amount: $47,322,280 Prior Year Audit Finding: No Background Beginning in March 2020, Congress set aside the Elementary and Secondary School Emergency Relief (ESSER) Fund to address the effect the COVID-19 pandemic has had, and continues to have, on elementary and secondary schools across the nation. Several rounds of funding were distributed to states under the Education Stabilization Fund (ESF) program with the intent to support public and nonpublic schools. The U.S. Department of Education awarded ESF grants to the Office of Financial Management, which then dispersed funds to the Office of Superintendent of Public Instruction, to pass through to Local Education Agencies (LEAs). The U.S. Department of Education awarded ESF program funds to grantees under multiple subprograms of the ESF. An alphabetic character at the end of the 84.425 Assistance Listing Number was used to delineate the specific subprogram. Each subprogram has its own funding requirements and compliance requirements. The objective of the CRRSA EANS (84.425R) and ARP EANS (84.425V) subprograms is to provide governors with a reservation of funds to provide services or assistance to eligible nonpublic schools to address the impact the COVID-19 pandemic has had, and continues to have, on nonpublic school students and teachers in the state. In fiscal year 2024, the state spent more than $600 million in ESFs federal funding. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the ESF program. After the Office distributed EANS funds to nonpublic schools, there was $47,322,281 in ESF program funds remaining that went unobligated. Those funds reverted to the Governor’s office as CRRSA-GEER funds. After the reversion of these funds, the legislature specifically directed the Office to use the resources to fund Transition to Kindergarten programs. During this process, the Office distributed funds to 149 public LEAs but did not issue subawards as required. As a result, it failed to clearly communicate these awards’ terms and conditions to the subrecipients, including the allowable uses of the funds. We consider this internal control deficiency to be a material weakness which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office believed the information that was sent out through other means would cover the required elements it needed to communicate to the LEAs. The Office did not know the amount each LEA would receive as amounts were not predetermined, and the Office used an apportionment process to allocate funds to meet the legislative intent. Effect of Condition and Questioned Costs Without issuing subawards to subrecipients to ensure proper accountability and compliance with federal requirements, the Office cannot ensure all funds were used for allowable activities and properly supported. In addition, without a subaward, the Office could not distribute funds to these subrecipients. Therefore, we are questioning the $47,322,280 that it distributed to these LEAs. 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. Recommendation We recommend the Office: • Establish effective internal controls to ensure that all federal funds it grants to subrecipients are awarded through a subaward that meets federal requirements • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response We distributed these funds through the apportionment process instead of our grants system due to the nature of how the payments were calculated. Our grants system provides a grant award notification via e-mail when the grant is awarded that contains the federal elements required in CFR 200.332. While we did not provide a formal subaward that included all of these elements in one document, we provided most of them using other formal communication, such as through a Gov Delivery e-mail and the School District Accounting Manual. If we use the apportionment process to distribute funds in the future, we will include all of the required federal elements in a separate subaward. Additionally, our communication to school districts included the use of allowable activities for these funds. Therefore, we do not agree that the funds should be questioned as not being allowable or properly supported. Auditor’s Remarks The Office asserts the costs should not be questioned for not being allowable or properly supported. However, without a subaward the Office could not distribute federal funds to these subrecipients, therefore we are questioning the costs consistent with criteria established in 2 CFR 200 (Uniform Guidance). We reaffirm our finding and will review the status of the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 34 U.S. Code of Federal Regulations (CFR) Part 75, Direct grant programs, section 702, Fiscal control and fund accounting procedures, states that a grantee shall use fiscal control and fund accounting procedures that ensure proper disbursement of, and accounting for, Federal funds as required in 2 CFR part 200, subpart D—Post Federal Award Requirements. 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 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 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 332, Requirements for pass-through entities, requires that every subaward is clearly identified to the subrecipient as a subaward and includes the federal identification elements. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 U.S. Code of Federal Regulations (CFR) Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200.403, Uniform Guidance, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-028 The Office of Superintendent of Public Instruction did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the Education Stabilization Fund program. Assistance Listing Number and Title: 84.425R COVID-19 Coronavirus Response and Relief Supplemental Appropriations Act, Emergency Assistance to Non-Public Schools (CRRSA EANS) 84.425V COVID-19 American Rescue Plan – Emergency Assistance to Non-Public Schools (ARP EANS) program Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: S425D210015; S425R210012; S425U210015; S425V210012; S425W210049 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Components: Activities Allowed or Unallowed Allowable Costs/Cost Principles Subrecipient Monitoring Known Questioned Cost Amount: $47,322,280 Prior Year Audit Finding: No Background Beginning in March 2020, Congress set aside the Elementary and Secondary School Emergency Relief (ESSER) Fund to address the effect the COVID-19 pandemic has had, and continues to have, on elementary and secondary schools across the nation. Several rounds of funding were distributed to states under the Education Stabilization Fund (ESF) program with the intent to support public and nonpublic schools. The U.S. Department of Education awarded ESF grants to the Office of Financial Management, which then dispersed funds to the Office of Superintendent of Public Instruction, to pass through to Local Education Agencies (LEAs). The U.S. Department of Education awarded ESF program funds to grantees under multiple subprograms of the ESF. An alphabetic character at the end of the 84.425 Assistance Listing Number was used to delineate the specific subprogram. Each subprogram has its own funding requirements and compliance requirements. The objective of the CRRSA EANS (84.425R) and ARP EANS (84.425V) subprograms is to provide governors with a reservation of funds to provide services or assistance to eligible nonpublic schools to address the impact the COVID-19 pandemic has had, and continues to have, on nonpublic school students and teachers in the state. In fiscal year 2024, the state spent more than $600 million in ESFs federal funding. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the ESF program. After the Office distributed EANS funds to nonpublic schools, there was $47,322,281 in ESF program funds remaining that went unobligated. Those funds reverted to the Governor’s office as CRRSA-GEER funds. After the reversion of these funds, the legislature specifically directed the Office to use the resources to fund Transition to Kindergarten programs. During this process, the Office distributed funds to 149 public LEAs but did not issue subawards as required. As a result, it failed to clearly communicate these awards’ terms and conditions to the subrecipients, including the allowable uses of the funds. We consider this internal control deficiency to be a material weakness which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office believed the information that was sent out through other means would cover the required elements it needed to communicate to the LEAs. The Office did not know the amount each LEA would receive as amounts were not predetermined, and the Office used an apportionment process to allocate funds to meet the legislative intent. Effect of Condition and Questioned Costs Without issuing subawards to subrecipients to ensure proper accountability and compliance with federal requirements, the Office cannot ensure all funds were used for allowable activities and properly supported. In addition, without a subaward, the Office could not distribute funds to these subrecipients. Therefore, we are questioning the $47,322,280 that it distributed to these LEAs. 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. Recommendation We recommend the Office: • Establish effective internal controls to ensure that all federal funds it grants to subrecipients are awarded through a subaward that meets federal requirements • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response We distributed these funds through the apportionment process instead of our grants system due to the nature of how the payments were calculated. Our grants system provides a grant award notification via e-mail when the grant is awarded that contains the federal elements required in CFR 200.332. While we did not provide a formal subaward that included all of these elements in one document, we provided most of them using other formal communication, such as through a Gov Delivery e-mail and the School District Accounting Manual. If we use the apportionment process to distribute funds in the future, we will include all of the required federal elements in a separate subaward. Additionally, our communication to school districts included the use of allowable activities for these funds. Therefore, we do not agree that the funds should be questioned as not being allowable or properly supported. Auditor’s Remarks The Office asserts the costs should not be questioned for not being allowable or properly supported. However, without a subaward the Office could not distribute federal funds to these subrecipients, therefore we are questioning the costs consistent with criteria established in 2 CFR 200 (Uniform Guidance). We reaffirm our finding and will review the status of the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 34 U.S. Code of Federal Regulations (CFR) Part 75, Direct grant programs, section 702, Fiscal control and fund accounting procedures, states that a grantee shall use fiscal control and fund accounting procedures that ensure proper disbursement of, and accounting for, Federal funds as required in 2 CFR part 200, subpart D—Post Federal Award Requirements. 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 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 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 332, Requirements for pass-through entities, requires that every subaward is clearly identified to the subrecipient as a subaward and includes the federal identification elements. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 U.S. Code of Federal Regulations (CFR) Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200.403, Uniform Guidance, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-028 The Office of Superintendent of Public Instruction did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the Education Stabilization Fund program. Assistance Listing Number and Title: 84.425R COVID-19 Coronavirus Response and Relief Supplemental Appropriations Act, Emergency Assistance to Non-Public Schools (CRRSA EANS) 84.425V COVID-19 American Rescue Plan – Emergency Assistance to Non-Public Schools (ARP EANS) program Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: S425D210015; S425R210012; S425U210015; S425V210012; S425W210049 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Components: Activities Allowed or Unallowed Allowable Costs/Cost Principles Subrecipient Monitoring Known Questioned Cost Amount: $47,322,280 Prior Year Audit Finding: No Background Beginning in March 2020, Congress set aside the Elementary and Secondary School Emergency Relief (ESSER) Fund to address the effect the COVID-19 pandemic has had, and continues to have, on elementary and secondary schools across the nation. Several rounds of funding were distributed to states under the Education Stabilization Fund (ESF) program with the intent to support public and nonpublic schools. The U.S. Department of Education awarded ESF grants to the Office of Financial Management, which then dispersed funds to the Office of Superintendent of Public Instruction, to pass through to Local Education Agencies (LEAs). The U.S. Department of Education awarded ESF program funds to grantees under multiple subprograms of the ESF. An alphabetic character at the end of the 84.425 Assistance Listing Number was used to delineate the specific subprogram. Each subprogram has its own funding requirements and compliance requirements. The objective of the CRRSA EANS (84.425R) and ARP EANS (84.425V) subprograms is to provide governors with a reservation of funds to provide services or assistance to eligible nonpublic schools to address the impact the COVID-19 pandemic has had, and continues to have, on nonpublic school students and teachers in the state. In fiscal year 2024, the state spent more than $600 million in ESFs federal funding. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the ESF program. After the Office distributed EANS funds to nonpublic schools, there was $47,322,281 in ESF program funds remaining that went unobligated. Those funds reverted to the Governor’s office as CRRSA-GEER funds. After the reversion of these funds, the legislature specifically directed the Office to use the resources to fund Transition to Kindergarten programs. During this process, the Office distributed funds to 149 public LEAs but did not issue subawards as required. As a result, it failed to clearly communicate these awards’ terms and conditions to the subrecipients, including the allowable uses of the funds. We consider this internal control deficiency to be a material weakness which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office believed the information that was sent out through other means would cover the required elements it needed to communicate to the LEAs. The Office did not know the amount each LEA would receive as amounts were not predetermined, and the Office used an apportionment process to allocate funds to meet the legislative intent. Effect of Condition and Questioned Costs Without issuing subawards to subrecipients to ensure proper accountability and compliance with federal requirements, the Office cannot ensure all funds were used for allowable activities and properly supported. In addition, without a subaward, the Office could not distribute funds to these subrecipients. Therefore, we are questioning the $47,322,280 that it distributed to these LEAs. 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. Recommendation We recommend the Office: • Establish effective internal controls to ensure that all federal funds it grants to subrecipients are awarded through a subaward that meets federal requirements • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response We distributed these funds through the apportionment process instead of our grants system due to the nature of how the payments were calculated. Our grants system provides a grant award notification via e-mail when the grant is awarded that contains the federal elements required in CFR 200.332. While we did not provide a formal subaward that included all of these elements in one document, we provided most of them using other formal communication, such as through a Gov Delivery e-mail and the School District Accounting Manual. If we use the apportionment process to distribute funds in the future, we will include all of the required federal elements in a separate subaward. Additionally, our communication to school districts included the use of allowable activities for these funds. Therefore, we do not agree that the funds should be questioned as not being allowable or properly supported. Auditor’s Remarks The Office asserts the costs should not be questioned for not being allowable or properly supported. However, without a subaward the Office could not distribute federal funds to these subrecipients, therefore we are questioning the costs consistent with criteria established in 2 CFR 200 (Uniform Guidance). We reaffirm our finding and will review the status of the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 34 U.S. Code of Federal Regulations (CFR) Part 75, Direct grant programs, section 702, Fiscal control and fund accounting procedures, states that a grantee shall use fiscal control and fund accounting procedures that ensure proper disbursement of, and accounting for, Federal funds as required in 2 CFR part 200, subpart D—Post Federal Award Requirements. 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 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 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 332, Requirements for pass-through entities, requires that every subaward is clearly identified to the subrecipient as a subaward and includes the federal identification elements. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 U.S. Code of Federal Regulations (CFR) Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200.403, Uniform Guidance, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-028 The Office of Superintendent of Public Instruction did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the Education Stabilization Fund program. Assistance Listing Number and Title: 84.425R COVID-19 Coronavirus Response and Relief Supplemental Appropriations Act, Emergency Assistance to Non-Public Schools (CRRSA EANS) 84.425V COVID-19 American Rescue Plan – Emergency Assistance to Non-Public Schools (ARP EANS) program Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: S425D210015; S425R210012; S425U210015; S425V210012; S425W210049 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Components: Activities Allowed or Unallowed Allowable Costs/Cost Principles Subrecipient Monitoring Known Questioned Cost Amount: $47,322,280 Prior Year Audit Finding: No Background Beginning in March 2020, Congress set aside the Elementary and Secondary School Emergency Relief (ESSER) Fund to address the effect the COVID-19 pandemic has had, and continues to have, on elementary and secondary schools across the nation. Several rounds of funding were distributed to states under the Education Stabilization Fund (ESF) program with the intent to support public and nonpublic schools. The U.S. Department of Education awarded ESF grants to the Office of Financial Management, which then dispersed funds to the Office of Superintendent of Public Instruction, to pass through to Local Education Agencies (LEAs). The U.S. Department of Education awarded ESF program funds to grantees under multiple subprograms of the ESF. An alphabetic character at the end of the 84.425 Assistance Listing Number was used to delineate the specific subprogram. Each subprogram has its own funding requirements and compliance requirements. The objective of the CRRSA EANS (84.425R) and ARP EANS (84.425V) subprograms is to provide governors with a reservation of funds to provide services or assistance to eligible nonpublic schools to address the impact the COVID-19 pandemic has had, and continues to have, on nonpublic school students and teachers in the state. In fiscal year 2024, the state spent more than $600 million in ESFs federal funding. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the ESF program. After the Office distributed EANS funds to nonpublic schools, there was $47,322,281 in ESF program funds remaining that went unobligated. Those funds reverted to the Governor’s office as CRRSA-GEER funds. After the reversion of these funds, the legislature specifically directed the Office to use the resources to fund Transition to Kindergarten programs. During this process, the Office distributed funds to 149 public LEAs but did not issue subawards as required. As a result, it failed to clearly communicate these awards’ terms and conditions to the subrecipients, including the allowable uses of the funds. We consider this internal control deficiency to be a material weakness which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office believed the information that was sent out through other means would cover the required elements it needed to communicate to the LEAs. The Office did not know the amount each LEA would receive as amounts were not predetermined, and the Office used an apportionment process to allocate funds to meet the legislative intent. Effect of Condition and Questioned Costs Without issuing subawards to subrecipients to ensure proper accountability and compliance with federal requirements, the Office cannot ensure all funds were used for allowable activities and properly supported. In addition, without a subaward, the Office could not distribute funds to these subrecipients. Therefore, we are questioning the $47,322,280 that it distributed to these LEAs. 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. Recommendation We recommend the Office: • Establish effective internal controls to ensure that all federal funds it grants to subrecipients are awarded through a subaward that meets federal requirements • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response We distributed these funds through the apportionment process instead of our grants system due to the nature of how the payments were calculated. Our grants system provides a grant award notification via e-mail when the grant is awarded that contains the federal elements required in CFR 200.332. While we did not provide a formal subaward that included all of these elements in one document, we provided most of them using other formal communication, such as through a Gov Delivery e-mail and the School District Accounting Manual. If we use the apportionment process to distribute funds in the future, we will include all of the required federal elements in a separate subaward. Additionally, our communication to school districts included the use of allowable activities for these funds. Therefore, we do not agree that the funds should be questioned as not being allowable or properly supported. Auditor’s Remarks The Office asserts the costs should not be questioned for not being allowable or properly supported. However, without a subaward the Office could not distribute federal funds to these subrecipients, therefore we are questioning the costs consistent with criteria established in 2 CFR 200 (Uniform Guidance). We reaffirm our finding and will review the status of the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 34 U.S. Code of Federal Regulations (CFR) Part 75, Direct grant programs, section 702, Fiscal control and fund accounting procedures, states that a grantee shall use fiscal control and fund accounting procedures that ensure proper disbursement of, and accounting for, Federal funds as required in 2 CFR part 200, subpart D—Post Federal Award Requirements. 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 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 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 332, Requirements for pass-through entities, requires that every subaward is clearly identified to the subrecipient as a subaward and includes the federal identification elements. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 U.S. Code of Federal Regulations (CFR) Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200.403, Uniform Guidance, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-028 The Office of Superintendent of Public Instruction did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the Education Stabilization Fund program. Assistance Listing Number and Title: 84.425R COVID-19 Coronavirus Response and Relief Supplemental Appropriations Act, Emergency Assistance to Non-Public Schools (CRRSA EANS) 84.425V COVID-19 American Rescue Plan – Emergency Assistance to Non-Public Schools (ARP EANS) program Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: S425D210015; S425R210012; S425U210015; S425V210012; S425W210049 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Components: Activities Allowed or Unallowed Allowable Costs/Cost Principles Subrecipient Monitoring Known Questioned Cost Amount: $47,322,280 Prior Year Audit Finding: No Background Beginning in March 2020, Congress set aside the Elementary and Secondary School Emergency Relief (ESSER) Fund to address the effect the COVID-19 pandemic has had, and continues to have, on elementary and secondary schools across the nation. Several rounds of funding were distributed to states under the Education Stabilization Fund (ESF) program with the intent to support public and nonpublic schools. The U.S. Department of Education awarded ESF grants to the Office of Financial Management, which then dispersed funds to the Office of Superintendent of Public Instruction, to pass through to Local Education Agencies (LEAs). The U.S. Department of Education awarded ESF program funds to grantees under multiple subprograms of the ESF. An alphabetic character at the end of the 84.425 Assistance Listing Number was used to delineate the specific subprogram. Each subprogram has its own funding requirements and compliance requirements. The objective of the CRRSA EANS (84.425R) and ARP EANS (84.425V) subprograms is to provide governors with a reservation of funds to provide services or assistance to eligible nonpublic schools to address the impact the COVID-19 pandemic has had, and continues to have, on nonpublic school students and teachers in the state. In fiscal year 2024, the state spent more than $600 million in ESFs federal funding. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the ESF program. After the Office distributed EANS funds to nonpublic schools, there was $47,322,281 in ESF program funds remaining that went unobligated. Those funds reverted to the Governor’s office as CRRSA-GEER funds. After the reversion of these funds, the legislature specifically directed the Office to use the resources to fund Transition to Kindergarten programs. During this process, the Office distributed funds to 149 public LEAs but did not issue subawards as required. As a result, it failed to clearly communicate these awards’ terms and conditions to the subrecipients, including the allowable uses of the funds. We consider this internal control deficiency to be a material weakness which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office believed the information that was sent out through other means would cover the required elements it needed to communicate to the LEAs. The Office did not know the amount each LEA would receive as amounts were not predetermined, and the Office used an apportionment process to allocate funds to meet the legislative intent. Effect of Condition and Questioned Costs Without issuing subawards to subrecipients to ensure proper accountability and compliance with federal requirements, the Office cannot ensure all funds were used for allowable activities and properly supported. In addition, without a subaward, the Office could not distribute funds to these subrecipients. Therefore, we are questioning the $47,322,280 that it distributed to these LEAs. 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. Recommendation We recommend the Office: • Establish effective internal controls to ensure that all federal funds it grants to subrecipients are awarded through a subaward that meets federal requirements • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response We distributed these funds through the apportionment process instead of our grants system due to the nature of how the payments were calculated. Our grants system provides a grant award notification via e-mail when the grant is awarded that contains the federal elements required in CFR 200.332. While we did not provide a formal subaward that included all of these elements in one document, we provided most of them using other formal communication, such as through a Gov Delivery e-mail and the School District Accounting Manual. If we use the apportionment process to distribute funds in the future, we will include all of the required federal elements in a separate subaward. Additionally, our communication to school districts included the use of allowable activities for these funds. Therefore, we do not agree that the funds should be questioned as not being allowable or properly supported. Auditor’s Remarks The Office asserts the costs should not be questioned for not being allowable or properly supported. However, without a subaward the Office could not distribute federal funds to these subrecipients, therefore we are questioning the costs consistent with criteria established in 2 CFR 200 (Uniform Guidance). We reaffirm our finding and will review the status of the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 34 U.S. Code of Federal Regulations (CFR) Part 75, Direct grant programs, section 702, Fiscal control and fund accounting procedures, states that a grantee shall use fiscal control and fund accounting procedures that ensure proper disbursement of, and accounting for, Federal funds as required in 2 CFR part 200, subpart D—Post Federal Award Requirements. 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 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 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 332, Requirements for pass-through entities, requires that every subaward is clearly identified to the subrecipient as a subaward and includes the federal identification elements. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 U.S. Code of Federal Regulations (CFR) Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200.403, Uniform Guidance, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-028 The Office of Superintendent of Public Instruction did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the Education Stabilization Fund program. Assistance Listing Number and Title: 84.425R COVID-19 Coronavirus Response and Relief Supplemental Appropriations Act, Emergency Assistance to Non-Public Schools (CRRSA EANS) 84.425V COVID-19 American Rescue Plan – Emergency Assistance to Non-Public Schools (ARP EANS) program Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: S425D210015; S425R210012; S425U210015; S425V210012; S425W210049 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Components: Activities Allowed or Unallowed Allowable Costs/Cost Principles Subrecipient Monitoring Known Questioned Cost Amount: $47,322,280 Prior Year Audit Finding: No Background Beginning in March 2020, Congress set aside the Elementary and Secondary School Emergency Relief (ESSER) Fund to address the effect the COVID-19 pandemic has had, and continues to have, on elementary and secondary schools across the nation. Several rounds of funding were distributed to states under the Education Stabilization Fund (ESF) program with the intent to support public and nonpublic schools. The U.S. Department of Education awarded ESF grants to the Office of Financial Management, which then dispersed funds to the Office of Superintendent of Public Instruction, to pass through to Local Education Agencies (LEAs). The U.S. Department of Education awarded ESF program funds to grantees under multiple subprograms of the ESF. An alphabetic character at the end of the 84.425 Assistance Listing Number was used to delineate the specific subprogram. Each subprogram has its own funding requirements and compliance requirements. The objective of the CRRSA EANS (84.425R) and ARP EANS (84.425V) subprograms is to provide governors with a reservation of funds to provide services or assistance to eligible nonpublic schools to address the impact the COVID-19 pandemic has had, and continues to have, on nonpublic school students and teachers in the state. In fiscal year 2024, the state spent more than $600 million in ESFs federal funding. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the ESF program. After the Office distributed EANS funds to nonpublic schools, there was $47,322,281 in ESF program funds remaining that went unobligated. Those funds reverted to the Governor’s office as CRRSA-GEER funds. After the reversion of these funds, the legislature specifically directed the Office to use the resources to fund Transition to Kindergarten programs. During this process, the Office distributed funds to 149 public LEAs but did not issue subawards as required. As a result, it failed to clearly communicate these awards’ terms and conditions to the subrecipients, including the allowable uses of the funds. We consider this internal control deficiency to be a material weakness which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office believed the information that was sent out through other means would cover the required elements it needed to communicate to the LEAs. The Office did not know the amount each LEA would receive as amounts were not predetermined, and the Office used an apportionment process to allocate funds to meet the legislative intent. Effect of Condition and Questioned Costs Without issuing subawards to subrecipients to ensure proper accountability and compliance with federal requirements, the Office cannot ensure all funds were used for allowable activities and properly supported. In addition, without a subaward, the Office could not distribute funds to these subrecipients. Therefore, we are questioning the $47,322,280 that it distributed to these LEAs. 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. Recommendation We recommend the Office: • Establish effective internal controls to ensure that all federal funds it grants to subrecipients are awarded through a subaward that meets federal requirements • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response We distributed these funds through the apportionment process instead of our grants system due to the nature of how the payments were calculated. Our grants system provides a grant award notification via e-mail when the grant is awarded that contains the federal elements required in CFR 200.332. While we did not provide a formal subaward that included all of these elements in one document, we provided most of them using other formal communication, such as through a Gov Delivery e-mail and the School District Accounting Manual. If we use the apportionment process to distribute funds in the future, we will include all of the required federal elements in a separate subaward. Additionally, our communication to school districts included the use of allowable activities for these funds. Therefore, we do not agree that the funds should be questioned as not being allowable or properly supported. Auditor’s Remarks The Office asserts the costs should not be questioned for not being allowable or properly supported. However, without a subaward the Office could not distribute federal funds to these subrecipients, therefore we are questioning the costs consistent with criteria established in 2 CFR 200 (Uniform Guidance). We reaffirm our finding and will review the status of the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 34 U.S. Code of Federal Regulations (CFR) Part 75, Direct grant programs, section 702, Fiscal control and fund accounting procedures, states that a grantee shall use fiscal control and fund accounting procedures that ensure proper disbursement of, and accounting for, Federal funds as required in 2 CFR part 200, subpart D—Post Federal Award Requirements. 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 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 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 332, Requirements for pass-through entities, requires that every subaward is clearly identified to the subrecipient as a subaward and includes the federal identification elements. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 U.S. Code of Federal Regulations (CFR) Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200.403, Uniform Guidance, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-028 The Office of Superintendent of Public Instruction did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the Education Stabilization Fund program. Assistance Listing Number and Title: 84.425R COVID-19 Coronavirus Response and Relief Supplemental Appropriations Act, Emergency Assistance to Non-Public Schools (CRRSA EANS) 84.425V COVID-19 American Rescue Plan – Emergency Assistance to Non-Public Schools (ARP EANS) program Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: S425D210015; S425R210012; S425U210015; S425V210012; S425W210049 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Components: Activities Allowed or Unallowed Allowable Costs/Cost Principles Subrecipient Monitoring Known Questioned Cost Amount: $47,322,280 Prior Year Audit Finding: No Background Beginning in March 2020, Congress set aside the Elementary and Secondary School Emergency Relief (ESSER) Fund to address the effect the COVID-19 pandemic has had, and continues to have, on elementary and secondary schools across the nation. Several rounds of funding were distributed to states under the Education Stabilization Fund (ESF) program with the intent to support public and nonpublic schools. The U.S. Department of Education awarded ESF grants to the Office of Financial Management, which then dispersed funds to the Office of Superintendent of Public Instruction, to pass through to Local Education Agencies (LEAs). The U.S. Department of Education awarded ESF program funds to grantees under multiple subprograms of the ESF. An alphabetic character at the end of the 84.425 Assistance Listing Number was used to delineate the specific subprogram. Each subprogram has its own funding requirements and compliance requirements. The objective of the CRRSA EANS (84.425R) and ARP EANS (84.425V) subprograms is to provide governors with a reservation of funds to provide services or assistance to eligible nonpublic schools to address the impact the COVID-19 pandemic has had, and continues to have, on nonpublic school students and teachers in the state. In fiscal year 2024, the state spent more than $600 million in ESFs federal funding. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the ESF program. After the Office distributed EANS funds to nonpublic schools, there was $47,322,281 in ESF program funds remaining that went unobligated. Those funds reverted to the Governor’s office as CRRSA-GEER funds. After the reversion of these funds, the legislature specifically directed the Office to use the resources to fund Transition to Kindergarten programs. During this process, the Office distributed funds to 149 public LEAs but did not issue subawards as required. As a result, it failed to clearly communicate these awards’ terms and conditions to the subrecipients, including the allowable uses of the funds. We consider this internal control deficiency to be a material weakness which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office believed the information that was sent out through other means would cover the required elements it needed to communicate to the LEAs. The Office did not know the amount each LEA would receive as amounts were not predetermined, and the Office used an apportionment process to allocate funds to meet the legislative intent. Effect of Condition and Questioned Costs Without issuing subawards to subrecipients to ensure proper accountability and compliance with federal requirements, the Office cannot ensure all funds were used for allowable activities and properly supported. In addition, without a subaward, the Office could not distribute funds to these subrecipients. Therefore, we are questioning the $47,322,280 that it distributed to these LEAs. 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. Recommendation We recommend the Office: • Establish effective internal controls to ensure that all federal funds it grants to subrecipients are awarded through a subaward that meets federal requirements • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response We distributed these funds through the apportionment process instead of our grants system due to the nature of how the payments were calculated. Our grants system provides a grant award notification via e-mail when the grant is awarded that contains the federal elements required in CFR 200.332. While we did not provide a formal subaward that included all of these elements in one document, we provided most of them using other formal communication, such as through a Gov Delivery e-mail and the School District Accounting Manual. If we use the apportionment process to distribute funds in the future, we will include all of the required federal elements in a separate subaward. Additionally, our communication to school districts included the use of allowable activities for these funds. Therefore, we do not agree that the funds should be questioned as not being allowable or properly supported. Auditor’s Remarks The Office asserts the costs should not be questioned for not being allowable or properly supported. However, without a subaward the Office could not distribute federal funds to these subrecipients, therefore we are questioning the costs consistent with criteria established in 2 CFR 200 (Uniform Guidance). We reaffirm our finding and will review the status of the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 34 U.S. Code of Federal Regulations (CFR) Part 75, Direct grant programs, section 702, Fiscal control and fund accounting procedures, states that a grantee shall use fiscal control and fund accounting procedures that ensure proper disbursement of, and accounting for, Federal funds as required in 2 CFR part 200, subpart D—Post Federal Award Requirements. 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 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 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 332, Requirements for pass-through entities, requires that every subaward is clearly identified to the subrecipient as a subaward and includes the federal identification elements. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 U.S. Code of Federal Regulations (CFR) Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200.403, Uniform Guidance, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-028 The Office of Superintendent of Public Instruction did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the Education Stabilization Fund program. Assistance Listing Number and Title: 84.425R COVID-19 Coronavirus Response and Relief Supplemental Appropriations Act, Emergency Assistance to Non-Public Schools (CRRSA EANS) 84.425V COVID-19 American Rescue Plan – Emergency Assistance to Non-Public Schools (ARP EANS) program Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: S425D210015; S425R210012; S425U210015; S425V210012; S425W210049 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Components: Activities Allowed or Unallowed Allowable Costs/Cost Principles Subrecipient Monitoring Known Questioned Cost Amount: $47,322,280 Prior Year Audit Finding: No Background Beginning in March 2020, Congress set aside the Elementary and Secondary School Emergency Relief (ESSER) Fund to address the effect the COVID-19 pandemic has had, and continues to have, on elementary and secondary schools across the nation. Several rounds of funding were distributed to states under the Education Stabilization Fund (ESF) program with the intent to support public and nonpublic schools. The U.S. Department of Education awarded ESF grants to the Office of Financial Management, which then dispersed funds to the Office of Superintendent of Public Instruction, to pass through to Local Education Agencies (LEAs). The U.S. Department of Education awarded ESF program funds to grantees under multiple subprograms of the ESF. An alphabetic character at the end of the 84.425 Assistance Listing Number was used to delineate the specific subprogram. Each subprogram has its own funding requirements and compliance requirements. The objective of the CRRSA EANS (84.425R) and ARP EANS (84.425V) subprograms is to provide governors with a reservation of funds to provide services or assistance to eligible nonpublic schools to address the impact the COVID-19 pandemic has had, and continues to have, on nonpublic school students and teachers in the state. In fiscal year 2024, the state spent more than $600 million in ESFs federal funding. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the ESF program. After the Office distributed EANS funds to nonpublic schools, there was $47,322,281 in ESF program funds remaining that went unobligated. Those funds reverted to the Governor’s office as CRRSA-GEER funds. After the reversion of these funds, the legislature specifically directed the Office to use the resources to fund Transition to Kindergarten programs. During this process, the Office distributed funds to 149 public LEAs but did not issue subawards as required. As a result, it failed to clearly communicate these awards’ terms and conditions to the subrecipients, including the allowable uses of the funds. We consider this internal control deficiency to be a material weakness which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office believed the information that was sent out through other means would cover the required elements it needed to communicate to the LEAs. The Office did not know the amount each LEA would receive as amounts were not predetermined, and the Office used an apportionment process to allocate funds to meet the legislative intent. Effect of Condition and Questioned Costs Without issuing subawards to subrecipients to ensure proper accountability and compliance with federal requirements, the Office cannot ensure all funds were used for allowable activities and properly supported. In addition, without a subaward, the Office could not distribute funds to these subrecipients. Therefore, we are questioning the $47,322,280 that it distributed to these LEAs. 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. Recommendation We recommend the Office: • Establish effective internal controls to ensure that all federal funds it grants to subrecipients are awarded through a subaward that meets federal requirements • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response We distributed these funds through the apportionment process instead of our grants system due to the nature of how the payments were calculated. Our grants system provides a grant award notification via e-mail when the grant is awarded that contains the federal elements required in CFR 200.332. While we did not provide a formal subaward that included all of these elements in one document, we provided most of them using other formal communication, such as through a Gov Delivery e-mail and the School District Accounting Manual. If we use the apportionment process to distribute funds in the future, we will include all of the required federal elements in a separate subaward. Additionally, our communication to school districts included the use of allowable activities for these funds. Therefore, we do not agree that the funds should be questioned as not being allowable or properly supported. Auditor’s Remarks The Office asserts the costs should not be questioned for not being allowable or properly supported. However, without a subaward the Office could not distribute federal funds to these subrecipients, therefore we are questioning the costs consistent with criteria established in 2 CFR 200 (Uniform Guidance). We reaffirm our finding and will review the status of the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 34 U.S. Code of Federal Regulations (CFR) Part 75, Direct grant programs, section 702, Fiscal control and fund accounting procedures, states that a grantee shall use fiscal control and fund accounting procedures that ensure proper disbursement of, and accounting for, Federal funds as required in 2 CFR part 200, subpart D—Post Federal Award Requirements. 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 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 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 332, Requirements for pass-through entities, requires that every subaward is clearly identified to the subrecipient as a subaward and includes the federal identification elements. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 U.S. Code of Federal Regulations (CFR) Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200.403, Uniform Guidance, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-028 The Office of Superintendent of Public Instruction did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the Education Stabilization Fund program. Assistance Listing Number and Title: 84.425R COVID-19 Coronavirus Response and Relief Supplemental Appropriations Act, Emergency Assistance to Non-Public Schools (CRRSA EANS) 84.425V COVID-19 American Rescue Plan – Emergency Assistance to Non-Public Schools (ARP EANS) program Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: S425D210015; S425R210012; S425U210015; S425V210012; S425W210049 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Components: Activities Allowed or Unallowed Allowable Costs/Cost Principles Subrecipient Monitoring Known Questioned Cost Amount: $47,322,280 Prior Year Audit Finding: No Background Beginning in March 2020, Congress set aside the Elementary and Secondary School Emergency Relief (ESSER) Fund to address the effect the COVID-19 pandemic has had, and continues to have, on elementary and secondary schools across the nation. Several rounds of funding were distributed to states under the Education Stabilization Fund (ESF) program with the intent to support public and nonpublic schools. The U.S. Department of Education awarded ESF grants to the Office of Financial Management, which then dispersed funds to the Office of Superintendent of Public Instruction, to pass through to Local Education Agencies (LEAs). The U.S. Department of Education awarded ESF program funds to grantees under multiple subprograms of the ESF. An alphabetic character at the end of the 84.425 Assistance Listing Number was used to delineate the specific subprogram. Each subprogram has its own funding requirements and compliance requirements. The objective of the CRRSA EANS (84.425R) and ARP EANS (84.425V) subprograms is to provide governors with a reservation of funds to provide services or assistance to eligible nonpublic schools to address the impact the COVID-19 pandemic has had, and continues to have, on nonpublic school students and teachers in the state. In fiscal year 2024, the state spent more than $600 million in ESFs federal funding. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the ESF program. After the Office distributed EANS funds to nonpublic schools, there was $47,322,281 in ESF program funds remaining that went unobligated. Those funds reverted to the Governor’s office as CRRSA-GEER funds. After the reversion of these funds, the legislature specifically directed the Office to use the resources to fund Transition to Kindergarten programs. During this process, the Office distributed funds to 149 public LEAs but did not issue subawards as required. As a result, it failed to clearly communicate these awards’ terms and conditions to the subrecipients, including the allowable uses of the funds. We consider this internal control deficiency to be a material weakness which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office believed the information that was sent out through other means would cover the required elements it needed to communicate to the LEAs. The Office did not know the amount each LEA would receive as amounts were not predetermined, and the Office used an apportionment process to allocate funds to meet the legislative intent. Effect of Condition and Questioned Costs Without issuing subawards to subrecipients to ensure proper accountability and compliance with federal requirements, the Office cannot ensure all funds were used for allowable activities and properly supported. In addition, without a subaward, the Office could not distribute funds to these subrecipients. Therefore, we are questioning the $47,322,280 that it distributed to these LEAs. 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. Recommendation We recommend the Office: • Establish effective internal controls to ensure that all federal funds it grants to subrecipients are awarded through a subaward that meets federal requirements • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response We distributed these funds through the apportionment process instead of our grants system due to the nature of how the payments were calculated. Our grants system provides a grant award notification via e-mail when the grant is awarded that contains the federal elements required in CFR 200.332. While we did not provide a formal subaward that included all of these elements in one document, we provided most of them using other formal communication, such as through a Gov Delivery e-mail and the School District Accounting Manual. If we use the apportionment process to distribute funds in the future, we will include all of the required federal elements in a separate subaward. Additionally, our communication to school districts included the use of allowable activities for these funds. Therefore, we do not agree that the funds should be questioned as not being allowable or properly supported. Auditor’s Remarks The Office asserts the costs should not be questioned for not being allowable or properly supported. However, without a subaward the Office could not distribute federal funds to these subrecipients, therefore we are questioning the costs consistent with criteria established in 2 CFR 200 (Uniform Guidance). We reaffirm our finding and will review the status of the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 34 U.S. Code of Federal Regulations (CFR) Part 75, Direct grant programs, section 702, Fiscal control and fund accounting procedures, states that a grantee shall use fiscal control and fund accounting procedures that ensure proper disbursement of, and accounting for, Federal funds as required in 2 CFR part 200, subpart D—Post Federal Award Requirements. 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 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 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 332, Requirements for pass-through entities, requires that every subaward is clearly identified to the subrecipient as a subaward and includes the federal identification elements. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 U.S. Code of Federal Regulations (CFR) Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200.403, Uniform Guidance, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-028 The Office of Superintendent of Public Instruction did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the Education Stabilization Fund program. Assistance Listing Number and Title: 84.425R COVID-19 Coronavirus Response and Relief Supplemental Appropriations Act, Emergency Assistance to Non-Public Schools (CRRSA EANS) 84.425V COVID-19 American Rescue Plan – Emergency Assistance to Non-Public Schools (ARP EANS) program Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: S425D210015; S425R210012; S425U210015; S425V210012; S425W210049 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Components: Activities Allowed or Unallowed Allowable Costs/Cost Principles Subrecipient Monitoring Known Questioned Cost Amount: $47,322,280 Prior Year Audit Finding: No Background Beginning in March 2020, Congress set aside the Elementary and Secondary School Emergency Relief (ESSER) Fund to address the effect the COVID-19 pandemic has had, and continues to have, on elementary and secondary schools across the nation. Several rounds of funding were distributed to states under the Education Stabilization Fund (ESF) program with the intent to support public and nonpublic schools. The U.S. Department of Education awarded ESF grants to the Office of Financial Management, which then dispersed funds to the Office of Superintendent of Public Instruction, to pass through to Local Education Agencies (LEAs). The U.S. Department of Education awarded ESF program funds to grantees under multiple subprograms of the ESF. An alphabetic character at the end of the 84.425 Assistance Listing Number was used to delineate the specific subprogram. Each subprogram has its own funding requirements and compliance requirements. The objective of the CRRSA EANS (84.425R) and ARP EANS (84.425V) subprograms is to provide governors with a reservation of funds to provide services or assistance to eligible nonpublic schools to address the impact the COVID-19 pandemic has had, and continues to have, on nonpublic school students and teachers in the state. In fiscal year 2024, the state spent more than $600 million in ESFs federal funding. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the ESF program. After the Office distributed EANS funds to nonpublic schools, there was $47,322,281 in ESF program funds remaining that went unobligated. Those funds reverted to the Governor’s office as CRRSA-GEER funds. After the reversion of these funds, the legislature specifically directed the Office to use the resources to fund Transition to Kindergarten programs. During this process, the Office distributed funds to 149 public LEAs but did not issue subawards as required. As a result, it failed to clearly communicate these awards’ terms and conditions to the subrecipients, including the allowable uses of the funds. We consider this internal control deficiency to be a material weakness which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office believed the information that was sent out through other means would cover the required elements it needed to communicate to the LEAs. The Office did not know the amount each LEA would receive as amounts were not predetermined, and the Office used an apportionment process to allocate funds to meet the legislative intent. Effect of Condition and Questioned Costs Without issuing subawards to subrecipients to ensure proper accountability and compliance with federal requirements, the Office cannot ensure all funds were used for allowable activities and properly supported. In addition, without a subaward, the Office could not distribute funds to these subrecipients. Therefore, we are questioning the $47,322,280 that it distributed to these LEAs. 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. Recommendation We recommend the Office: • Establish effective internal controls to ensure that all federal funds it grants to subrecipients are awarded through a subaward that meets federal requirements • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response We distributed these funds through the apportionment process instead of our grants system due to the nature of how the payments were calculated. Our grants system provides a grant award notification via e-mail when the grant is awarded that contains the federal elements required in CFR 200.332. While we did not provide a formal subaward that included all of these elements in one document, we provided most of them using other formal communication, such as through a Gov Delivery e-mail and the School District Accounting Manual. If we use the apportionment process to distribute funds in the future, we will include all of the required federal elements in a separate subaward. Additionally, our communication to school districts included the use of allowable activities for these funds. Therefore, we do not agree that the funds should be questioned as not being allowable or properly supported. Auditor’s Remarks The Office asserts the costs should not be questioned for not being allowable or properly supported. However, without a subaward the Office could not distribute federal funds to these subrecipients, therefore we are questioning the costs consistent with criteria established in 2 CFR 200 (Uniform Guidance). We reaffirm our finding and will review the status of the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 34 U.S. Code of Federal Regulations (CFR) Part 75, Direct grant programs, section 702, Fiscal control and fund accounting procedures, states that a grantee shall use fiscal control and fund accounting procedures that ensure proper disbursement of, and accounting for, Federal funds as required in 2 CFR part 200, subpart D—Post Federal Award Requirements. 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 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 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 332, Requirements for pass-through entities, requires that every subaward is clearly identified to the subrecipient as a subaward and includes the federal identification elements. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 U.S. Code of Federal Regulations (CFR) Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200.403, Uniform Guidance, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-028 The Office of Superintendent of Public Instruction did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the Education Stabilization Fund program. Assistance Listing Number and Title: 84.425R COVID-19 Coronavirus Response and Relief Supplemental Appropriations Act, Emergency Assistance to Non-Public Schools (CRRSA EANS) 84.425V COVID-19 American Rescue Plan – Emergency Assistance to Non-Public Schools (ARP EANS) program Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: S425D210015; S425R210012; S425U210015; S425V210012; S425W210049 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Components: Activities Allowed or Unallowed Allowable Costs/Cost Principles Subrecipient Monitoring Known Questioned Cost Amount: $47,322,280 Prior Year Audit Finding: No Background Beginning in March 2020, Congress set aside the Elementary and Secondary School Emergency Relief (ESSER) Fund to address the effect the COVID-19 pandemic has had, and continues to have, on elementary and secondary schools across the nation. Several rounds of funding were distributed to states under the Education Stabilization Fund (ESF) program with the intent to support public and nonpublic schools. The U.S. Department of Education awarded ESF grants to the Office of Financial Management, which then dispersed funds to the Office of Superintendent of Public Instruction, to pass through to Local Education Agencies (LEAs). The U.S. Department of Education awarded ESF program funds to grantees under multiple subprograms of the ESF. An alphabetic character at the end of the 84.425 Assistance Listing Number was used to delineate the specific subprogram. Each subprogram has its own funding requirements and compliance requirements. The objective of the CRRSA EANS (84.425R) and ARP EANS (84.425V) subprograms is to provide governors with a reservation of funds to provide services or assistance to eligible nonpublic schools to address the impact the COVID-19 pandemic has had, and continues to have, on nonpublic school students and teachers in the state. In fiscal year 2024, the state spent more than $600 million in ESFs federal funding. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Office did not have adequate internal controls over and did not comply with federal activities allowed and subrecipient monitoring requirements for the ESF program. After the Office distributed EANS funds to nonpublic schools, there was $47,322,281 in ESF program funds remaining that went unobligated. Those funds reverted to the Governor’s office as CRRSA-GEER funds. After the reversion of these funds, the legislature specifically directed the Office to use the resources to fund Transition to Kindergarten programs. During this process, the Office distributed funds to 149 public LEAs but did not issue subawards as required. As a result, it failed to clearly communicate these awards’ terms and conditions to the subrecipients, including the allowable uses of the funds. We consider this internal control deficiency to be a material weakness which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Office believed the information that was sent out through other means would cover the required elements it needed to communicate to the LEAs. The Office did not know the amount each LEA would receive as amounts were not predetermined, and the Office used an apportionment process to allocate funds to meet the legislative intent. Effect of Condition and Questioned Costs Without issuing subawards to subrecipients to ensure proper accountability and compliance with federal requirements, the Office cannot ensure all funds were used for allowable activities and properly supported. In addition, without a subaward, the Office could not distribute funds to these subrecipients. Therefore, we are questioning the $47,322,280 that it distributed to these LEAs. 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. Recommendation We recommend the Office: • Establish effective internal controls to ensure that all federal funds it grants to subrecipients are awarded through a subaward that meets federal requirements • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Office’s Response We distributed these funds through the apportionment process instead of our grants system due to the nature of how the payments were calculated. Our grants system provides a grant award notification via e-mail when the grant is awarded that contains the federal elements required in CFR 200.332. While we did not provide a formal subaward that included all of these elements in one document, we provided most of them using other formal communication, such as through a Gov Delivery e-mail and the School District Accounting Manual. If we use the apportionment process to distribute funds in the future, we will include all of the required federal elements in a separate subaward. Additionally, our communication to school districts included the use of allowable activities for these funds. Therefore, we do not agree that the funds should be questioned as not being allowable or properly supported. Auditor’s Remarks The Office asserts the costs should not be questioned for not being allowable or properly supported. However, without a subaward the Office could not distribute federal funds to these subrecipients, therefore we are questioning the costs consistent with criteria established in 2 CFR 200 (Uniform Guidance). We reaffirm our finding and will review the status of the Office’s corrective action during the next audit. Applicable Laws and Regulations Title 34 U.S. Code of Federal Regulations (CFR) Part 75, Direct grant programs, section 702, Fiscal control and fund accounting procedures, states that a grantee shall use fiscal control and fund accounting procedures that ensure proper disbursement of, and accounting for, Federal funds as required in 2 CFR part 200, subpart D—Post Federal Award Requirements. 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 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 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 332, Requirements for pass-through entities, requires that every subaward is clearly identified to the subrecipient as a subaward and includes the federal identification elements. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 U.S. Code of Federal Regulations (CFR) Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200.403, Uniform Guidance, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2024-050 The Department of Commerce did not have adequate internal controls over and did not comply with period of performance requirements for the Low-Income Home Energy Assistance program. Assistance Listing Number and Title: 93.568 Low-Income Home Energy Assistance Program 93.568 COVID-19 Low-Income Home Energy Assistance Program Federal Grantor Name: Department of Health and Human Services Federal Award/Contract Number: 2101WALIEA, 2101WAE5C6, 2101WALWC6, 2101WALWC5, 2201WALIEI, 2201WALIEA, 2201WALIE4 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Period of Performance Known Questioned Cost Amount: $4,409,760 Prior Year Audit Finding: N/A Background The U.S. Department of Health and Human Services, through the Office of Community Services at the Administration for Children and Families (ACF), administers the Low-Income Home Energy Assistance Program (LIHEAP). The agency distributes LIHEAP block grant funds by formula to states, the District of Columbia and U.S. territories. In Washington, the Department of Commerce administers LIHEAP, which provides financial assistance to low-income households to meet their home energy needs. The Department administers and awards LIHEAP funds under two programs: the energy assistance program and the weatherization program. Subawards are issued to community-based organizations to provide this assistance. In fiscal year 2024, the Department spent more than $96 million in federal funds, about $89.5 million of which it paid to subrecipients. Federal regulations require the Department to obligate at least 90% of the LIHEAP block grant funds in the first federal fiscal year in which they are awarded. If funds are left over after the end of the first federal fiscal year, the Department must either return those funds or report to the grantor the amount it intends to carry over and reallot. The Department may carry over up to 10% of the funds payable for obligation no later than the end of the following federal fiscal year. Funds not obligated by the end of the second fiscal year of the award must be returned to ACF. The limits on the period for the expenditure of funds are communicated to award recipients. LIHEAP awards typically have a two-year project period when the Department may obligate funds to subrecipients through subawards and incur administrative costs to execute the award. The subawards define the period of performance for subrecipients to spend these funds. Departmental administrative costs are considered obligated when the expenditure activity occurs. As such, the period of performance for administrative costs aligns with the project period start and end date. If the Department requires more than one year from the project period end date to liquidate allowable costs, it is required to notify the Grantor. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Department did not have adequate internal controls over and did not comply with period of performance requirements for LIHEAP. Obligations During state fiscal year 2024, the Department was required to obligate 90% of funds for the federal fiscal year 2023 award. This amount is reported on the Carryover and Reallotment Report. The Department was unable to provide documentation to support the amount of funds it obligated in the first year of the award. This issue is referenced in finding 2024-051. Expenditures During state fiscal year 2024, there were five awards with project end dates. We judgmentally selected and examined 21 expenditures charged to these awards. We found: • Four (19%) expenditures for which the Department did not provide any documentation to support that the cost occurred during the period of performance • Three (14%) expenditures for which the documentation the Department provided did not support that the costs occurred during the period of performance The total costs associated with these seven expenditures are $1,010,249. In addition, we analyzed expenditures charged to the awards in the accounting system and identified $1,346,137 of administrative activities that occurred after the period of performance. Liquidations There were two awards with liquidation periods ending during state fiscal year 2024. We judgmentally selected and examined eight expenditures the Department charged to grants that were liquidating funds during the audit period. We found: • Three (38%) expenditures for which the Department did not provide any documentation to support that the cost occurred during the period of performance • Two (25%) expenditures for which the documentation the Department provided did not support that the costs occurred during the period of performance The total costs associated with these five expenditures are $1,916,227 In addition, we analyzed expenditures charged to the awards and identified $137,148 of administrative activities that occurred after the period of performance. We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Department misinterpreted the federal regulations, which led management to believe it was compliant with period of performance requirements. Further, the Department did not provide us with all the documentation to demonstrate that the Department incurred the charges we examined during the period of performance. Effect of Condition and Questioned Costs Without establishing adequate internal controls, the Department cannot reasonably ensure it uses federal funds within the period of performance. We identified $1,483,285 in known questioned costs for expenditures that occurred outside of the period of performance. We also identified $2,926,476 in known questioned costs for expenditures that did not have adequate support to determine if they were within the period of performance. 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 it complies with period of performance requirements • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The Department agrees with the internal control weaknesses identified in the report. However, for the contract periods included in this audit we were operating off of guidance received by the United State Department of Health and Human Services (HHS) in 2022. Directly following notification of this deficiency for this audit, we reached out to HHS to clarify the closeout year requirements. In December 2024 we received updated guidance on how to apply the closeout year to current awards. Beginning with the 2024 program year (October 1, 2023), all subrecipient contracts were issued with a two-year period of performance, which will eliminate new expenses being added to the closeout year. This ensures that all LIHEAP awards will be managed within a consistent two-year period of performance, which aligns with the updated HHS guidance. All future LIHEAP awards will follow the same period of performance principle. The Department will engage with the HHS to determine the appropriate next steps on how to handle the questioned costs. The Department is committed to addressing the internal control weaknesses identified in the audit and will continue to strengthen its processes to ensure ongoing compliance with period of performance requirements. Auditor’s Remarks We thank the Department for its cooperation and assistance throughout the audit. We will review the status of the Department's corrective action during our next audit. Applicable Laws and Regulations Title 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 2 CFR Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Title 45 CFR Part 96, section 81, Carryover and reallotment, establishes the procedures relating to carryover and reallotment of regular LIHEAP block grant funds ACF Supplemental Terms and Conditions, LIHEAP, effective October 1, 2021, states in part: 9. Obligation Deadline: a. The two-year funding (project) period for this award is concurrent with the obligation period: from the first day of the FFY for which these funds were awarded through the last day of the following FFY. (i.e., October 1, FFY 1 through September 30, FFY 2.) A maximum of 10 percent of the federal funds awarded under this grant may be held available for obligation in the FFY 2 of the project period. If more than 10 percent of a recipient's federal funds remains unobligated at the end of the FFY in which they were allotted, those excess funds must be returned to HHS and are subject to reallotment among all recipients in the next fiscal year. Any federal funds not obligated by the end of the two-year obligation period will be recouped by the Department. b. Federal funds awarded under this grant must be expended for the purposes for which they were awarded and in payment for obligations made within the time period allotted. 10. Liquidation: All properly obligated federal funds awarded under this grant must be liquidated in accordance with the recipient’s own fiscal control and funds control procedures. If the recipient requires more than 1 year from the project period end date to liquidate allowable costs, it shall notify the Grants Management Officer identified on its latest Notice of Award. The notification shall include the reason for the delay and the anticipated timeframe for liquidation. Any federal funds from this award not liquidated by the date required under the recipient’s own fiscal control procedures, which may not exceed five years following the fiscal year of award, will be recouped by this Department. ACF-OCS-LIHEAP-IM-2024-04 LIHEAP Obligations, Expenditures, and Refunds, states in part: Federal appropriations accounting law at 31 U.S.C. § 1502(a) states that the balance of an appropriation or fund limited for obligation to a definite period is available only for payment of expenses properly incurred during the period of availability or to complete contracts properly made within that period of availability. Grant recipients may not incur new expenditures beyond the period of performance unless necessary to liquidate obligations made during the period of performance under active agreements or subawards with partnering agencies. Grant recipients must liquidate obligations according to the same rules, including the timeframe, required of its own non-federal funding. 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.
2024-050 The Department of Commerce did not have adequate internal controls over and did not comply with period of performance requirements for the Low-Income Home Energy Assistance program. Assistance Listing Number and Title: 93.568 Low-Income Home Energy Assistance Program 93.568 COVID-19 Low-Income Home Energy Assistance Program Federal Grantor Name: Department of Health and Human Services Federal Award/Contract Number: 2101WALIEA, 2101WAE5C6, 2101WALWC6, 2101WALWC5, 2201WALIEI, 2201WALIEA, 2201WALIE4 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Period of Performance Known Questioned Cost Amount: $4,409,760 Prior Year Audit Finding: N/A Background The U.S. Department of Health and Human Services, through the Office of Community Services at the Administration for Children and Families (ACF), administers the Low-Income Home Energy Assistance Program (LIHEAP). The agency distributes LIHEAP block grant funds by formula to states, the District of Columbia and U.S. territories. In Washington, the Department of Commerce administers LIHEAP, which provides financial assistance to low-income households to meet their home energy needs. The Department administers and awards LIHEAP funds under two programs: the energy assistance program and the weatherization program. Subawards are issued to community-based organizations to provide this assistance. In fiscal year 2024, the Department spent more than $96 million in federal funds, about $89.5 million of which it paid to subrecipients. Federal regulations require the Department to obligate at least 90% of the LIHEAP block grant funds in the first federal fiscal year in which they are awarded. If funds are left over after the end of the first federal fiscal year, the Department must either return those funds or report to the grantor the amount it intends to carry over and reallot. The Department may carry over up to 10% of the funds payable for obligation no later than the end of the following federal fiscal year. Funds not obligated by the end of the second fiscal year of the award must be returned to ACF. The limits on the period for the expenditure of funds are communicated to award recipients. LIHEAP awards typically have a two-year project period when the Department may obligate funds to subrecipients through subawards and incur administrative costs to execute the award. The subawards define the period of performance for subrecipients to spend these funds. Departmental administrative costs are considered obligated when the expenditure activity occurs. As such, the period of performance for administrative costs aligns with the project period start and end date. If the Department requires more than one year from the project period end date to liquidate allowable costs, it is required to notify the Grantor. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Department did not have adequate internal controls over and did not comply with period of performance requirements for LIHEAP. Obligations During state fiscal year 2024, the Department was required to obligate 90% of funds for the federal fiscal year 2023 award. This amount is reported on the Carryover and Reallotment Report. The Department was unable to provide documentation to support the amount of funds it obligated in the first year of the award. This issue is referenced in finding 2024-051. Expenditures During state fiscal year 2024, there were five awards with project end dates. We judgmentally selected and examined 21 expenditures charged to these awards. We found: • Four (19%) expenditures for which the Department did not provide any documentation to support that the cost occurred during the period of performance • Three (14%) expenditures for which the documentation the Department provided did not support that the costs occurred during the period of performance The total costs associated with these seven expenditures are $1,010,249. In addition, we analyzed expenditures charged to the awards in the accounting system and identified $1,346,137 of administrative activities that occurred after the period of performance. Liquidations There were two awards with liquidation periods ending during state fiscal year 2024. We judgmentally selected and examined eight expenditures the Department charged to grants that were liquidating funds during the audit period. We found: • Three (38%) expenditures for which the Department did not provide any documentation to support that the cost occurred during the period of performance • Two (25%) expenditures for which the documentation the Department provided did not support that the costs occurred during the period of performance The total costs associated with these five expenditures are $1,916,227 In addition, we analyzed expenditures charged to the awards and identified $137,148 of administrative activities that occurred after the period of performance. We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Department misinterpreted the federal regulations, which led management to believe it was compliant with period of performance requirements. Further, the Department did not provide us with all the documentation to demonstrate that the Department incurred the charges we examined during the period of performance. Effect of Condition and Questioned Costs Without establishing adequate internal controls, the Department cannot reasonably ensure it uses federal funds within the period of performance. We identified $1,483,285 in known questioned costs for expenditures that occurred outside of the period of performance. We also identified $2,926,476 in known questioned costs for expenditures that did not have adequate support to determine if they were within the period of performance. 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 it complies with period of performance requirements • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The Department agrees with the internal control weaknesses identified in the report. However, for the contract periods included in this audit we were operating off of guidance received by the United State Department of Health and Human Services (HHS) in 2022. Directly following notification of this deficiency for this audit, we reached out to HHS to clarify the closeout year requirements. In December 2024 we received updated guidance on how to apply the closeout year to current awards. Beginning with the 2024 program year (October 1, 2023), all subrecipient contracts were issued with a two-year period of performance, which will eliminate new expenses being added to the closeout year. This ensures that all LIHEAP awards will be managed within a consistent two-year period of performance, which aligns with the updated HHS guidance. All future LIHEAP awards will follow the same period of performance principle. The Department will engage with the HHS to determine the appropriate next steps on how to handle the questioned costs. The Department is committed to addressing the internal control weaknesses identified in the audit and will continue to strengthen its processes to ensure ongoing compliance with period of performance requirements. Auditor’s Remarks We thank the Department for its cooperation and assistance throughout the audit. We will review the status of the Department's corrective action during our next audit. Applicable Laws and Regulations Title 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 2 CFR Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Title 45 CFR Part 96, section 81, Carryover and reallotment, establishes the procedures relating to carryover and reallotment of regular LIHEAP block grant funds ACF Supplemental Terms and Conditions, LIHEAP, effective October 1, 2021, states in part: 9. Obligation Deadline: a. The two-year funding (project) period for this award is concurrent with the obligation period: from the first day of the FFY for which these funds were awarded through the last day of the following FFY. (i.e., October 1, FFY 1 through September 30, FFY 2.) A maximum of 10 percent of the federal funds awarded under this grant may be held available for obligation in the FFY 2 of the project period. If more than 10 percent of a recipient's federal funds remains unobligated at the end of the FFY in which they were allotted, those excess funds must be returned to HHS and are subject to reallotment among all recipients in the next fiscal year. Any federal funds not obligated by the end of the two-year obligation period will be recouped by the Department. b. Federal funds awarded under this grant must be expended for the purposes for which they were awarded and in payment for obligations made within the time period allotted. 10. Liquidation: All properly obligated federal funds awarded under this grant must be liquidated in accordance with the recipient’s own fiscal control and funds control procedures. If the recipient requires more than 1 year from the project period end date to liquidate allowable costs, it shall notify the Grants Management Officer identified on its latest Notice of Award. The notification shall include the reason for the delay and the anticipated timeframe for liquidation. Any federal funds from this award not liquidated by the date required under the recipient’s own fiscal control procedures, which may not exceed five years following the fiscal year of award, will be recouped by this Department. ACF-OCS-LIHEAP-IM-2024-04 LIHEAP Obligations, Expenditures, and Refunds, states in part: Federal appropriations accounting law at 31 U.S.C. § 1502(a) states that the balance of an appropriation or fund limited for obligation to a definite period is available only for payment of expenses properly incurred during the period of availability or to complete contracts properly made within that period of availability. Grant recipients may not incur new expenditures beyond the period of performance unless necessary to liquidate obligations made during the period of performance under active agreements or subawards with partnering agencies. Grant recipients must liquidate obligations according to the same rules, including the timeframe, required of its own non-federal funding. 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.
2024-024 The Office of Superintendent of Public Instruction improperly charged $5,139 to the Special Education program. Assistance Listing Number and Title: 84.027 Special Education Grants to Staes (IDEA, Part B) 84.027 COVID-19 Special Education Grants to Staes (IDEA, Part B) 84.173 Special Education Preschool Grants (IDEA Preschool) 84.173 COVID-19 Special Education Preschool Grants (IDEA Preschool) Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: H027A210074-21A; H027A220074; H027A230074-23A; H027X210074; H173A210074; H173A220074; H173A230074; H173X210074 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Period of Performance Known Questioned Cost Amount: $5,139 Prior Year Audit Finding: None Background The Individuals with Disabilities Education Act’s (IDEA) Special Education Grants to States program (IDEA, Part B) provides grants to states, and through them to local education agencies (LEAs), to help provide special education and related services to eligible children with disabilities. IDEA’s Special Education Preschool Grants program (IDEA Preschool), also known as the “619 program,” provides grants to states, and through them to LEAs, to assist with providing special education and related services to children with disabilities ages 3 through 5 and, at a state’s discretion, to 2-year-old children with disabilities who will turn 3 during the school year. The Office of Superintendent of Public Instruction administers the Special Education program in Washington, which serves about 143,000 eligible students. The program provides specially designed instruction to address students’ unique needs. The Office offers the program at no cost to parents, and it includes the related services students need to access their educational program. The Office spent about $251 million in federal IDEA grant funds during fiscal year 2024 and passed about $243 million of that funding through to LEAs and educational service districts. The grantor identified that obligations charged to the fiscal year 2022 IDEA grant funds must be obligated or incurred prior to September 30, 2023. Description of Condition The Office improperly charged $5,139 to the program. We found the Office had adequate internal controls to ensure it materially complied with period of performance requirements. We used a nonstatistical sampling method to randomly select and examine 13 payments of a total of 68 that the Office made close to the end of the obligation period to ensure they were allowable and obligated within the proper period. During our testing, we found three charges totaling $5,139 that were obligated after the obligation period ended. Federal regulations require the auditor to issue a finding when the known or estimated questioned costs identified in a single audit exceed $25,000. We are issuing this finding because, as stated in the Effect of Condition and Questioned Costs section of this finding, the estimated questioned costs exceed that threshold. This issue was not reported as a finding in the prior audit. Cause of Condition Office staff made accounting adjustments to the fiscal year 2023 IDEA part B grant. These payments were initially charged to an allowable grant, but staff made adjustments and moved them to the fiscal year 2022 IDEA part B grant. Therefore, the payments were then noncompliant with period of performance requirements. Effect of Condition and Questioned Costs We identified $5,139 in questioned costs that were obligated outside the obligation date. Projection to population Known Questioned Costs Likely Questioned Costs Federal expenditures $5,139 $26,883 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. Recommendation We recommend the Office consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid. Office’s Response The Office of Superintendent of Public Instruction (OSPI) concurs with this finding. To ensure that expenditures occurring outside of a grant’s period of performance are not shifted to the grant during its liquidation period, OSPI has established internal controls to address accounting adjustments made during liquidation periods. Journal vouchers (corrections) will be verified by budget staff prior to submission to ensure expenditures occurred within the grant period of performance. OSPI will communicate the corrective action plan with internal stakeholders to ensure compliance with updated process/procedures. Internal Control Details: • Monitor expenditures (through reconciliation of monthly reports) to ensure the agency stays within the allowable set-aside threshold and grant maximum. • Verify that all expenditures corrected with journal vouchers during the grant liquidation period have occurred during the grant period of performance. • Complete expenditure corrections within the grant liquidation period. • Liquidation is done on the last business day of January (or 120 days after the budget period ends). Auditor’s Remarks We thank the Office for its cooperation and assistance throughout the audit. We will review the status of the Office's corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 U.S. Code of Federal Regulations (CFR) Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Fiscal Year 2022 Special Education Grant Award, Grant Award Notification, establishes the federal funding period for award numbers H137A210074 and H027A210074 as July 1, 2021 through September 30, 2023. Tile 20 United States Code 1225(b), General Education Provisions Act, establishes that any funds that are not obligated at the end of the federal funding period shall remain available for obligation for an additional period of 12 months.
2024-024 The Office of Superintendent of Public Instruction improperly charged $5,139 to the Special Education program. Assistance Listing Number and Title: 84.027 Special Education Grants to Staes (IDEA, Part B) 84.027 COVID-19 Special Education Grants to Staes (IDEA, Part B) 84.173 Special Education Preschool Grants (IDEA Preschool) 84.173 COVID-19 Special Education Preschool Grants (IDEA Preschool) Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: H027A210074-21A; H027A220074; H027A230074-23A; H027X210074; H173A210074; H173A220074; H173A230074; H173X210074 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Period of Performance Known Questioned Cost Amount: $5,139 Prior Year Audit Finding: None Background The Individuals with Disabilities Education Act’s (IDEA) Special Education Grants to States program (IDEA, Part B) provides grants to states, and through them to local education agencies (LEAs), to help provide special education and related services to eligible children with disabilities. IDEA’s Special Education Preschool Grants program (IDEA Preschool), also known as the “619 program,” provides grants to states, and through them to LEAs, to assist with providing special education and related services to children with disabilities ages 3 through 5 and, at a state’s discretion, to 2-year-old children with disabilities who will turn 3 during the school year. The Office of Superintendent of Public Instruction administers the Special Education program in Washington, which serves about 143,000 eligible students. The program provides specially designed instruction to address students’ unique needs. The Office offers the program at no cost to parents, and it includes the related services students need to access their educational program. The Office spent about $251 million in federal IDEA grant funds during fiscal year 2024 and passed about $243 million of that funding through to LEAs and educational service districts. The grantor identified that obligations charged to the fiscal year 2022 IDEA grant funds must be obligated or incurred prior to September 30, 2023. Description of Condition The Office improperly charged $5,139 to the program. We found the Office had adequate internal controls to ensure it materially complied with period of performance requirements. We used a nonstatistical sampling method to randomly select and examine 13 payments of a total of 68 that the Office made close to the end of the obligation period to ensure they were allowable and obligated within the proper period. During our testing, we found three charges totaling $5,139 that were obligated after the obligation period ended. Federal regulations require the auditor to issue a finding when the known or estimated questioned costs identified in a single audit exceed $25,000. We are issuing this finding because, as stated in the Effect of Condition and Questioned Costs section of this finding, the estimated questioned costs exceed that threshold. This issue was not reported as a finding in the prior audit. Cause of Condition Office staff made accounting adjustments to the fiscal year 2023 IDEA part B grant. These payments were initially charged to an allowable grant, but staff made adjustments and moved them to the fiscal year 2022 IDEA part B grant. Therefore, the payments were then noncompliant with period of performance requirements. Effect of Condition and Questioned Costs We identified $5,139 in questioned costs that were obligated outside the obligation date. Projection to population Known Questioned Costs Likely Questioned Costs Federal expenditures $5,139 $26,883 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. Recommendation We recommend the Office consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid. Office’s Response The Office of Superintendent of Public Instruction (OSPI) concurs with this finding. To ensure that expenditures occurring outside of a grant’s period of performance are not shifted to the grant during its liquidation period, OSPI has established internal controls to address accounting adjustments made during liquidation periods. Journal vouchers (corrections) will be verified by budget staff prior to submission to ensure expenditures occurred within the grant period of performance. OSPI will communicate the corrective action plan with internal stakeholders to ensure compliance with updated process/procedures. Internal Control Details: • Monitor expenditures (through reconciliation of monthly reports) to ensure the agency stays within the allowable set-aside threshold and grant maximum. • Verify that all expenditures corrected with journal vouchers during the grant liquidation period have occurred during the grant period of performance. • Complete expenditure corrections within the grant liquidation period. • Liquidation is done on the last business day of January (or 120 days after the budget period ends). Auditor’s Remarks We thank the Office for its cooperation and assistance throughout the audit. We will review the status of the Office's corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 U.S. Code of Federal Regulations (CFR) Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Fiscal Year 2022 Special Education Grant Award, Grant Award Notification, establishes the federal funding period for award numbers H137A210074 and H027A210074 as July 1, 2021 through September 30, 2023. Tile 20 United States Code 1225(b), General Education Provisions Act, establishes that any funds that are not obligated at the end of the federal funding period shall remain available for obligation for an additional period of 12 months.
2024-024 The Office of Superintendent of Public Instruction improperly charged $5,139 to the Special Education program. Assistance Listing Number and Title: 84.027 Special Education Grants to Staes (IDEA, Part B) 84.027 COVID-19 Special Education Grants to Staes (IDEA, Part B) 84.173 Special Education Preschool Grants (IDEA Preschool) 84.173 COVID-19 Special Education Preschool Grants (IDEA Preschool) Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: H027A210074-21A; H027A220074; H027A230074-23A; H027X210074; H173A210074; H173A220074; H173A230074; H173X210074 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Period of Performance Known Questioned Cost Amount: $5,139 Prior Year Audit Finding: None Background The Individuals with Disabilities Education Act’s (IDEA) Special Education Grants to States program (IDEA, Part B) provides grants to states, and through them to local education agencies (LEAs), to help provide special education and related services to eligible children with disabilities. IDEA’s Special Education Preschool Grants program (IDEA Preschool), also known as the “619 program,” provides grants to states, and through them to LEAs, to assist with providing special education and related services to children with disabilities ages 3 through 5 and, at a state’s discretion, to 2-year-old children with disabilities who will turn 3 during the school year. The Office of Superintendent of Public Instruction administers the Special Education program in Washington, which serves about 143,000 eligible students. The program provides specially designed instruction to address students’ unique needs. The Office offers the program at no cost to parents, and it includes the related services students need to access their educational program. The Office spent about $251 million in federal IDEA grant funds during fiscal year 2024 and passed about $243 million of that funding through to LEAs and educational service districts. The grantor identified that obligations charged to the fiscal year 2022 IDEA grant funds must be obligated or incurred prior to September 30, 2023. Description of Condition The Office improperly charged $5,139 to the program. We found the Office had adequate internal controls to ensure it materially complied with period of performance requirements. We used a nonstatistical sampling method to randomly select and examine 13 payments of a total of 68 that the Office made close to the end of the obligation period to ensure they were allowable and obligated within the proper period. During our testing, we found three charges totaling $5,139 that were obligated after the obligation period ended. Federal regulations require the auditor to issue a finding when the known or estimated questioned costs identified in a single audit exceed $25,000. We are issuing this finding because, as stated in the Effect of Condition and Questioned Costs section of this finding, the estimated questioned costs exceed that threshold. This issue was not reported as a finding in the prior audit. Cause of Condition Office staff made accounting adjustments to the fiscal year 2023 IDEA part B grant. These payments were initially charged to an allowable grant, but staff made adjustments and moved them to the fiscal year 2022 IDEA part B grant. Therefore, the payments were then noncompliant with period of performance requirements. Effect of Condition and Questioned Costs We identified $5,139 in questioned costs that were obligated outside the obligation date. Projection to population Known Questioned Costs Likely Questioned Costs Federal expenditures $5,139 $26,883 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. Recommendation We recommend the Office consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid. Office’s Response The Office of Superintendent of Public Instruction (OSPI) concurs with this finding. To ensure that expenditures occurring outside of a grant’s period of performance are not shifted to the grant during its liquidation period, OSPI has established internal controls to address accounting adjustments made during liquidation periods. Journal vouchers (corrections) will be verified by budget staff prior to submission to ensure expenditures occurred within the grant period of performance. OSPI will communicate the corrective action plan with internal stakeholders to ensure compliance with updated process/procedures. Internal Control Details: • Monitor expenditures (through reconciliation of monthly reports) to ensure the agency stays within the allowable set-aside threshold and grant maximum. • Verify that all expenditures corrected with journal vouchers during the grant liquidation period have occurred during the grant period of performance. • Complete expenditure corrections within the grant liquidation period. • Liquidation is done on the last business day of January (or 120 days after the budget period ends). Auditor’s Remarks We thank the Office for its cooperation and assistance throughout the audit. We will review the status of the Office's corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 U.S. Code of Federal Regulations (CFR) Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Fiscal Year 2022 Special Education Grant Award, Grant Award Notification, establishes the federal funding period for award numbers H137A210074 and H027A210074 as July 1, 2021 through September 30, 2023. Tile 20 United States Code 1225(b), General Education Provisions Act, establishes that any funds that are not obligated at the end of the federal funding period shall remain available for obligation for an additional period of 12 months.
2024-024 The Office of Superintendent of Public Instruction improperly charged $5,139 to the Special Education program. Assistance Listing Number and Title: 84.027 Special Education Grants to Staes (IDEA, Part B) 84.027 COVID-19 Special Education Grants to Staes (IDEA, Part B) 84.173 Special Education Preschool Grants (IDEA Preschool) 84.173 COVID-19 Special Education Preschool Grants (IDEA Preschool) Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: H027A210074-21A; H027A220074; H027A230074-23A; H027X210074; H173A210074; H173A220074; H173A230074; H173X210074 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Period of Performance Known Questioned Cost Amount: $5,139 Prior Year Audit Finding: None Background The Individuals with Disabilities Education Act’s (IDEA) Special Education Grants to States program (IDEA, Part B) provides grants to states, and through them to local education agencies (LEAs), to help provide special education and related services to eligible children with disabilities. IDEA’s Special Education Preschool Grants program (IDEA Preschool), also known as the “619 program,” provides grants to states, and through them to LEAs, to assist with providing special education and related services to children with disabilities ages 3 through 5 and, at a state’s discretion, to 2-year-old children with disabilities who will turn 3 during the school year. The Office of Superintendent of Public Instruction administers the Special Education program in Washington, which serves about 143,000 eligible students. The program provides specially designed instruction to address students’ unique needs. The Office offers the program at no cost to parents, and it includes the related services students need to access their educational program. The Office spent about $251 million in federal IDEA grant funds during fiscal year 2024 and passed about $243 million of that funding through to LEAs and educational service districts. The grantor identified that obligations charged to the fiscal year 2022 IDEA grant funds must be obligated or incurred prior to September 30, 2023. Description of Condition The Office improperly charged $5,139 to the program. We found the Office had adequate internal controls to ensure it materially complied with period of performance requirements. We used a nonstatistical sampling method to randomly select and examine 13 payments of a total of 68 that the Office made close to the end of the obligation period to ensure they were allowable and obligated within the proper period. During our testing, we found three charges totaling $5,139 that were obligated after the obligation period ended. Federal regulations require the auditor to issue a finding when the known or estimated questioned costs identified in a single audit exceed $25,000. We are issuing this finding because, as stated in the Effect of Condition and Questioned Costs section of this finding, the estimated questioned costs exceed that threshold. This issue was not reported as a finding in the prior audit. Cause of Condition Office staff made accounting adjustments to the fiscal year 2023 IDEA part B grant. These payments were initially charged to an allowable grant, but staff made adjustments and moved them to the fiscal year 2022 IDEA part B grant. Therefore, the payments were then noncompliant with period of performance requirements. Effect of Condition and Questioned Costs We identified $5,139 in questioned costs that were obligated outside the obligation date. Projection to population Known Questioned Costs Likely Questioned Costs Federal expenditures $5,139 $26,883 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. Recommendation We recommend the Office consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid. Office’s Response The Office of Superintendent of Public Instruction (OSPI) concurs with this finding. To ensure that expenditures occurring outside of a grant’s period of performance are not shifted to the grant during its liquidation period, OSPI has established internal controls to address accounting adjustments made during liquidation periods. Journal vouchers (corrections) will be verified by budget staff prior to submission to ensure expenditures occurred within the grant period of performance. OSPI will communicate the corrective action plan with internal stakeholders to ensure compliance with updated process/procedures. Internal Control Details: • Monitor expenditures (through reconciliation of monthly reports) to ensure the agency stays within the allowable set-aside threshold and grant maximum. • Verify that all expenditures corrected with journal vouchers during the grant liquidation period have occurred during the grant period of performance. • Complete expenditure corrections within the grant liquidation period. • Liquidation is done on the last business day of January (or 120 days after the budget period ends). Auditor’s Remarks We thank the Office for its cooperation and assistance throughout the audit. We will review the status of the Office's corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 U.S. Code of Federal Regulations (CFR) Part 200.1, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Fiscal Year 2022 Special Education Grant Award, Grant Award Notification, establishes the federal funding period for award numbers H137A210074 and H027A210074 as July 1, 2021 through September 30, 2023. Tile 20 United States Code 1225(b), General Education Provisions Act, establishes that any funds that are not obligated at the end of the federal funding period shall remain available for obligation for an additional period of 12 months.
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.
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.
2023-006 The Employment Security Department made improper payments to ineligible beneficiaries of the Unemployment Insurance program. Assistance Listing Number and Title: 17.225 Unemployment Insurance 17.225 COVID-19 Unemployment Insurance Federal Grantor Name: U.S. Department of Labor Federal Award/Contract Number: UI-34528-20-60-A-53; UI-34748-20-55-A-53; UI-35682-21-55-A-53; UI-35977-21-60-A-53; UI-37098-21-55-A-53; UI-37256-22-55-A-53; UI-37313-22-55-A-53; UI-38013-22-60-A-53; UI-38163-22-55-A-53; UI-38511-22-55-A-53; UI-38580-22-75-A-53; UI-39303-23-55-A-53; UI-39355-23-55-A-53; UI-34092-20-55-A-53 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed, Eligibility Known Questioned Cost Amount: $603 Prior Year Audit Finding: No Background The Unemployment Insurance (UI) program was created by the Social Security Act, and provides benefits under the Unemployment Compensation program to people for periods of involuntary unemployment. It provides a stabilizing effect on the economy by maintaining the spending power of eligible workers while they are between jobs. The Employment Security Department administers the state’s UI program. During fiscal year 2023, the Department paid more than $1.1 billion in unemployment insurance benefits to people in Washington. In 2020, the U.S. Department of Labor (DOL) established new unemployment compensation programs, including Pandemic Unemployment Assistance (PUA), to provide additional unemployment assistance benefits to eligible workers affected by the COVID-19 pandemic. These programs were extended and modified through the American Rescue Plan Act of 2021. Under the temporary programs, which expired on September 6, 2021, states must process and pay benefits to eligible people for all weeks of unemployment ending on or before the date of termination or eligibility expiration (whichever comes first). People eligible for PUA included those not eligible for regular unemployment compensation, such as people who have already exhausted their regular UI benefits, are self-employed, seeking part-time employment, or lack sufficient work history. The first week in which claimants were eligible to receive PUA benefits began on January 27, 2020. During the pandemic, people applying for PUA benefits were required to self-certify that they were unemployed, partially unemployed, or unable or unavailable to work due to COVID-19. However, in January 2021, DOL announced a change to federal law through Unemployment Insurance Program Letter (UIPL) 16-20, Change 4. This change required that people receiving PUA benefits on or after December 27, 2020, submit proof of documentation to the state substantiating their employment, self-employment, or planned start of employment or self-employment in order to receive their benefits, regardless of when their benefits are actually paid. This includes people requesting retroactive payments of PUA benefits that are not received until after December 27, 2020. Description of Condition The Department did not ensure that payments were made only to eligible beneficiaries of the UI program. We found the Department had adequate internal controls to ensure it paid UI benefits to eligible people, and it materially complied with the federal requirements. However, we identified questioned costs for benefits awarded to PUA claimants. We used a statistical sampling method to randomly select and examine 78 out of a total population of 20,447 claims for weekly PUA benefits. For these claims, the Department was required to determine the eligibility of each claimant to receive benefits, including verifying proof of employment, self-employment, or planned start of employment or self-employment. We found three instances (5.1 percent) where the Department paid weekly benefits without requesting and reviewing documentation from the claimant substantiating employment, self-employment, or planned start of employment or self-employment, as required by the federal grantor. These three claims resulted in $603 in known overpayments of PUA benefits by the Department, as each claim was paid after December 27, 2020, and during our audit period. Federal regulations require the auditor to issue a finding when the known or estimated questioned costs identified in a single audit exceed $25,000. We are issuing this finding because, as stated in the Effect of Condition and Questioned Costs section of this finding, the estimated questioned costs exceed that threshold. This issue was not reported as a finding in the prior audit. Cause of Condition Department officials did not correctly interpret the guidance outlined in the UIPL change to reflect that claimants were required to provide documentation substantiating proof of employment or self-employment in order to receive payments from the state after December 27, 2020. The Department did not request documentation from PUA claimants to substantiate employment prior to paying the claims. Effect of Condition and Questioned Costs We identified $603 in known federal questioned costs and $208,975 in likely federal questioned costs. We considered these questioned costs because the people receiving the benefit payments did not meet all the program’s eligibility requirements at the time of payment. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflects this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). 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: • Verify people applying for PUA benefits have met all eligibility requirements before issuing weekly benefit payments • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The Department does not concur with the finding. The State Auditor’s Office asserts the Department incorrectly interpreted guidance outlined in the UIPL regarding PUA benefit eligibility requirements. However, citing the UIPL below: UIPL 16-20 change 4 2. Requirement to submit documentation substantiating employment or self-employment (Section 241 of the Continued Assistance Act) (new). The first full paragraph of section C.2. of attachment I, UIPL 16-20 change 4 says that: “Anyone that receives a payment of PUA on or after December 27, 2020, (the enactment date of the Continued Assistance Act) will be required to submit documentation substantiating employment or self-employment, or the planned commencement of employment or self-employment.” [emphasis added] Under this guidance, the claimant had to first have been issued a payment after the Continued Assistant Act (CAA) became effective (regardless of the week or weeks the payment(s) were for) before the Department could set the issue to request the documentation. In the exceptions noted by SAO, the first claimant wasn’t paid at all until 2023. Once the payment was issued to the claimant, the PUA Documents Required (PDR) issue was properly set. In the second, the claimant received some payments before 12/27/20 and then had other payment stops on her claim that were not removed until 2023. The removal of those payment stops triggered a payment for the remaining weeks claimed. Because those payments were made after 12/27/20, the PDR issue was set. Under the same section, item c. limits the date the Department can start the denial for failing to comply with the PDR issue: c. Failure to Comply. Individuals who do not provide documentation substantiating employment/self-employment (or planned employment/self-employment) within the required timeframe, as described above, are not eligible for PUA. For DUA, if the individual fails to submit documentation substantiating employment or self-employment, the state must establish an overpayment for the entire DUA claim, per 20 C.F.R. 625.6(e)(2). However, as provided in Section 241(b)(2) of the Continued Assistance Act, for PUA, if the individual fails to submit such documentation, the state may only establish an overpayment for those weeks of unemployment ending on or after December 27, 2020 (the enactment date of the Continued Assistance Act). For example, an individual has a PUA claim effective on November 1, 2020, and files and is paid for weeks of unemployment ending November 7, 2020, through weeks ending January 9, 2021. Because the individual received a payment for PUA after December 27, 2020, the state must notify the individual on January 4, 2021, about the requirement to provide documentation substantiating employment/self-employment (or planned employment/self-employment) within 90 days (by April 4, 2021). If, in that timeframe, the individual fails to provide documentation or fails to show good cause to have the deadline extended, an overpayment must be established for all the weeks paid beginning with the week ending January 2, 2021. This is because the individual cannot be deemed ineligible for a week of unemployment ending before the date of enactment solely for failure to submit documentation (emphasis added). In the cases reviewed, the claimants did not respond to the issue or provide their documentation. Because the denial is limited to only claimed weeks following the enactment of the CAA (weeks ending 1/2/21 and later), any weeks from 2020 that were paid in 2023 had no potential for denial and therefore should not be considered to be incorrectly paid, similar to the example given above from the UIPL. If addition, if claimants never claimed a week ending after the CAA was effective, the PDR issue will set but never be adjudicated because they had never claimed a week that was potentially deniable. In discussions with SAO, the Office cited paragraph b(ii) of the UIPL, to indicate that any claims paid by the State on or after 12/27/2020 require the claimant to provide documentation substantiating employment or self-employment within 90 days of payment, or when directed to submit the documentation by the state workforce agency, whichever is later. This section of the UIPL solely lays out the requirements for establishing the respond-by dates for providing documentation for review. The deadline for responses is different depending on whether the PUA claim was filed before 1/26/21 or on/after that date. This paragraph does not establish the requirements for payment or non-payment of PUA weeks. Additionally, the Department received further guidance in a webinar with USDOL on Monday, January 11, 2021, which reinforced the methodology used by the Department in these cases. Auditor’s Remarks For the claimants in question, we did not receive any documentation from the Department demonstrating that a request was sent to the claimant to provide supporting documentation substantiating employment, nor was there evidence provided that the claims in-question were suspended due to missing documentation from the claimants. Federal guidance contained in Attachment I to UIPL 16-20, Change 4 – Pandemic Unemployment Assistance (PUA) Implementation and Operating Instructions stipulates the following: “Anyone that receives a payment of PUA on or after December 27, 2020, (the enactment date of the Continued Assistance Act) will be required to submit documentation substantiating employment or self-employment, or the planned commencement of employment or self-employment. This includes any individual who receives any payment of PUA on or after December 27, even if the payment is for a week of unemployment that occurred before December 27, 2020. The deadline for providing such documentation depends on when the individual filed the initial PUA claim. • Filing New Applications for PUA on or after January 31, 2021. Individuals filing a new PUA application on or after January 31, 2021 (regardless of whether the claim is backdated), are required to provide documentation within 21 days of application or the date the individual is directed to submit the documentation by the State Agency, whichever is later. The deadline may be extended if the individual has shown good cause under state UC law within 21 days. • Filing Continued Claims for PUA. Individuals who have an existing PUA claim as of December 27, 2020, (the enactment date of the Continued Assistance Act) or who file a new initial PUA claim before January 31, 2021, and who receive PUA on or after December 27, 2020, must provide documentation within 90 days of the application date or the date the individual is instructed to provide such documentation by the state agency (whichever date is later).” We questioned these payments due to the Department not receiving any supporting documentation substantiating employment or self-employment from these claimants during the audit period, and failing to establish overpayment notices to the claimants during the audit period. For all three payments in-question, the claimant filed for PUA prior to December 27, 2020, and therefore would have been required to submit supporting documentation substantiating employment to the Department within 90 days, or as directed by the Department. Because the Department did not receive supporting documentation from the claimants for these benefit weeks during the audit period, we could not determine that the payments were allowable and that the claimants met the PUA eligibility requirements for their benefit weeks paid. We reaffirm our finding and will follow-up on the Department’s corrective action during the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Office of Management and Budget, 2 CFR Part 200, Appendix XI, Compliance Supplement, Unemployment Insurance, states in part: E. Eligibility 1. Eligibility for Individuals a. PUA – PUA provides benefits to covered individuals, who are those individuals not eligible for regular unemployment compensation (UC or extended benefits under state or federal law or PEUC, including those who have exhausted all rights to such benefits). Covered individuals also include self-employed, those seeking part-time employment, individuals lacking sufficient work history, and those who otherwise do not qualify for regular unemployment compensation or extended benefits under state or federal law or PEUC. PUA is payable to individuals who are ineligible for regular UC, EB, or PEUC and are unemployed, partially unemployed, or unable or unavailable to work due to one of the COVID-19 related reasons identified in Attachment I to UIPL No. 16-20, Change 6. Section 2102(a)(3)(A)(ii)(I) of the CARES Act included 10 specific COVID-19 related reasons. The Department, under the authority provided by Section 2102(a)(3)(A)(ii)(I)(kk) of the CARES Act, added additional COVID-19 related reasons three new COVID-19 related reasons with the publication of UIPL No. 16-20, Change 5 on February 25, 2021. All COVID-19 related reasons apply retroactively to the beginning of the PUA program. Additionally, individuals who are paid on or after December 27, 2020, must submit proof of documentation substantiating employment, self-employment, or the planned commencement of employment or self-employment (see Attachment I, Section C.2. of UIPL No. 16-20, Change 4). This includes individuals requesting retroactive payments that are not received until after December 27, 2020.
2023-006 The Employment Security Department made improper payments to ineligible beneficiaries of the Unemployment Insurance program. Assistance Listing Number and Title: 17.225 Unemployment Insurance 17.225 COVID-19 Unemployment Insurance Federal Grantor Name: U.S. Department of Labor Federal Award/Contract Number: UI-34528-20-60-A-53; UI-34748-20-55-A-53; UI-35682-21-55-A-53; UI-35977-21-60-A-53; UI-37098-21-55-A-53; UI-37256-22-55-A-53; UI-37313-22-55-A-53; UI-38013-22-60-A-53; UI-38163-22-55-A-53; UI-38511-22-55-A-53; UI-38580-22-75-A-53; UI-39303-23-55-A-53; UI-39355-23-55-A-53; UI-34092-20-55-A-53 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed, Eligibility Known Questioned Cost Amount: $603 Prior Year Audit Finding: No Background The Unemployment Insurance (UI) program was created by the Social Security Act, and provides benefits under the Unemployment Compensation program to people for periods of involuntary unemployment. It provides a stabilizing effect on the economy by maintaining the spending power of eligible workers while they are between jobs. The Employment Security Department administers the state’s UI program. During fiscal year 2023, the Department paid more than $1.1 billion in unemployment insurance benefits to people in Washington. In 2020, the U.S. Department of Labor (DOL) established new unemployment compensation programs, including Pandemic Unemployment Assistance (PUA), to provide additional unemployment assistance benefits to eligible workers affected by the COVID-19 pandemic. These programs were extended and modified through the American Rescue Plan Act of 2021. Under the temporary programs, which expired on September 6, 2021, states must process and pay benefits to eligible people for all weeks of unemployment ending on or before the date of termination or eligibility expiration (whichever comes first). People eligible for PUA included those not eligible for regular unemployment compensation, such as people who have already exhausted their regular UI benefits, are self-employed, seeking part-time employment, or lack sufficient work history. The first week in which claimants were eligible to receive PUA benefits began on January 27, 2020. During the pandemic, people applying for PUA benefits were required to self-certify that they were unemployed, partially unemployed, or unable or unavailable to work due to COVID-19. However, in January 2021, DOL announced a change to federal law through Unemployment Insurance Program Letter (UIPL) 16-20, Change 4. This change required that people receiving PUA benefits on or after December 27, 2020, submit proof of documentation to the state substantiating their employment, self-employment, or planned start of employment or self-employment in order to receive their benefits, regardless of when their benefits are actually paid. This includes people requesting retroactive payments of PUA benefits that are not received until after December 27, 2020. Description of Condition The Department did not ensure that payments were made only to eligible beneficiaries of the UI program. We found the Department had adequate internal controls to ensure it paid UI benefits to eligible people, and it materially complied with the federal requirements. However, we identified questioned costs for benefits awarded to PUA claimants. We used a statistical sampling method to randomly select and examine 78 out of a total population of 20,447 claims for weekly PUA benefits. For these claims, the Department was required to determine the eligibility of each claimant to receive benefits, including verifying proof of employment, self-employment, or planned start of employment or self-employment. We found three instances (5.1 percent) where the Department paid weekly benefits without requesting and reviewing documentation from the claimant substantiating employment, self-employment, or planned start of employment or self-employment, as required by the federal grantor. These three claims resulted in $603 in known overpayments of PUA benefits by the Department, as each claim was paid after December 27, 2020, and during our audit period. Federal regulations require the auditor to issue a finding when the known or estimated questioned costs identified in a single audit exceed $25,000. We are issuing this finding because, as stated in the Effect of Condition and Questioned Costs section of this finding, the estimated questioned costs exceed that threshold. This issue was not reported as a finding in the prior audit. Cause of Condition Department officials did not correctly interpret the guidance outlined in the UIPL change to reflect that claimants were required to provide documentation substantiating proof of employment or self-employment in order to receive payments from the state after December 27, 2020. The Department did not request documentation from PUA claimants to substantiate employment prior to paying the claims. Effect of Condition and Questioned Costs We identified $603 in known federal questioned costs and $208,975 in likely federal questioned costs. We considered these questioned costs because the people receiving the benefit payments did not meet all the program’s eligibility requirements at the time of payment. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflects this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). 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: • Verify people applying for PUA benefits have met all eligibility requirements before issuing weekly benefit payments • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The Department does not concur with the finding. The State Auditor’s Office asserts the Department incorrectly interpreted guidance outlined in the UIPL regarding PUA benefit eligibility requirements. However, citing the UIPL below: UIPL 16-20 change 4 2. Requirement to submit documentation substantiating employment or self-employment (Section 241 of the Continued Assistance Act) (new). The first full paragraph of section C.2. of attachment I, UIPL 16-20 change 4 says that: “Anyone that receives a payment of PUA on or after December 27, 2020, (the enactment date of the Continued Assistance Act) will be required to submit documentation substantiating employment or self-employment, or the planned commencement of employment or self-employment.” [emphasis added] Under this guidance, the claimant had to first have been issued a payment after the Continued Assistant Act (CAA) became effective (regardless of the week or weeks the payment(s) were for) before the Department could set the issue to request the documentation. In the exceptions noted by SAO, the first claimant wasn’t paid at all until 2023. Once the payment was issued to the claimant, the PUA Documents Required (PDR) issue was properly set. In the second, the claimant received some payments before 12/27/20 and then had other payment stops on her claim that were not removed until 2023. The removal of those payment stops triggered a payment for the remaining weeks claimed. Because those payments were made after 12/27/20, the PDR issue was set. Under the same section, item c. limits the date the Department can start the denial for failing to comply with the PDR issue: c. Failure to Comply. Individuals who do not provide documentation substantiating employment/self-employment (or planned employment/self-employment) within the required timeframe, as described above, are not eligible for PUA. For DUA, if the individual fails to submit documentation substantiating employment or self-employment, the state must establish an overpayment for the entire DUA claim, per 20 C.F.R. 625.6(e)(2). However, as provided in Section 241(b)(2) of the Continued Assistance Act, for PUA, if the individual fails to submit such documentation, the state may only establish an overpayment for those weeks of unemployment ending on or after December 27, 2020 (the enactment date of the Continued Assistance Act). For example, an individual has a PUA claim effective on November 1, 2020, and files and is paid for weeks of unemployment ending November 7, 2020, through weeks ending January 9, 2021. Because the individual received a payment for PUA after December 27, 2020, the state must notify the individual on January 4, 2021, about the requirement to provide documentation substantiating employment/self-employment (or planned employment/self-employment) within 90 days (by April 4, 2021). If, in that timeframe, the individual fails to provide documentation or fails to show good cause to have the deadline extended, an overpayment must be established for all the weeks paid beginning with the week ending January 2, 2021. This is because the individual cannot be deemed ineligible for a week of unemployment ending before the date of enactment solely for failure to submit documentation (emphasis added). In the cases reviewed, the claimants did not respond to the issue or provide their documentation. Because the denial is limited to only claimed weeks following the enactment of the CAA (weeks ending 1/2/21 and later), any weeks from 2020 that were paid in 2023 had no potential for denial and therefore should not be considered to be incorrectly paid, similar to the example given above from the UIPL. If addition, if claimants never claimed a week ending after the CAA was effective, the PDR issue will set but never be adjudicated because they had never claimed a week that was potentially deniable. In discussions with SAO, the Office cited paragraph b(ii) of the UIPL, to indicate that any claims paid by the State on or after 12/27/2020 require the claimant to provide documentation substantiating employment or self-employment within 90 days of payment, or when directed to submit the documentation by the state workforce agency, whichever is later. This section of the UIPL solely lays out the requirements for establishing the respond-by dates for providing documentation for review. The deadline for responses is different depending on whether the PUA claim was filed before 1/26/21 or on/after that date. This paragraph does not establish the requirements for payment or non-payment of PUA weeks. Additionally, the Department received further guidance in a webinar with USDOL on Monday, January 11, 2021, which reinforced the methodology used by the Department in these cases. Auditor’s Remarks For the claimants in question, we did not receive any documentation from the Department demonstrating that a request was sent to the claimant to provide supporting documentation substantiating employment, nor was there evidence provided that the claims in-question were suspended due to missing documentation from the claimants. Federal guidance contained in Attachment I to UIPL 16-20, Change 4 – Pandemic Unemployment Assistance (PUA) Implementation and Operating Instructions stipulates the following: “Anyone that receives a payment of PUA on or after December 27, 2020, (the enactment date of the Continued Assistance Act) will be required to submit documentation substantiating employment or self-employment, or the planned commencement of employment or self-employment. This includes any individual who receives any payment of PUA on or after December 27, even if the payment is for a week of unemployment that occurred before December 27, 2020. The deadline for providing such documentation depends on when the individual filed the initial PUA claim. • Filing New Applications for PUA on or after January 31, 2021. Individuals filing a new PUA application on or after January 31, 2021 (regardless of whether the claim is backdated), are required to provide documentation within 21 days of application or the date the individual is directed to submit the documentation by the State Agency, whichever is later. The deadline may be extended if the individual has shown good cause under state UC law within 21 days. • Filing Continued Claims for PUA. Individuals who have an existing PUA claim as of December 27, 2020, (the enactment date of the Continued Assistance Act) or who file a new initial PUA claim before January 31, 2021, and who receive PUA on or after December 27, 2020, must provide documentation within 90 days of the application date or the date the individual is instructed to provide such documentation by the state agency (whichever date is later).” We questioned these payments due to the Department not receiving any supporting documentation substantiating employment or self-employment from these claimants during the audit period, and failing to establish overpayment notices to the claimants during the audit period. For all three payments in-question, the claimant filed for PUA prior to December 27, 2020, and therefore would have been required to submit supporting documentation substantiating employment to the Department within 90 days, or as directed by the Department. Because the Department did not receive supporting documentation from the claimants for these benefit weeks during the audit period, we could not determine that the payments were allowable and that the claimants met the PUA eligibility requirements for their benefit weeks paid. We reaffirm our finding and will follow-up on the Department’s corrective action during the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Office of Management and Budget, 2 CFR Part 200, Appendix XI, Compliance Supplement, Unemployment Insurance, states in part: E. Eligibility 1. Eligibility for Individuals a. PUA – PUA provides benefits to covered individuals, who are those individuals not eligible for regular unemployment compensation (UC or extended benefits under state or federal law or PEUC, including those who have exhausted all rights to such benefits). Covered individuals also include self-employed, those seeking part-time employment, individuals lacking sufficient work history, and those who otherwise do not qualify for regular unemployment compensation or extended benefits under state or federal law or PEUC. PUA is payable to individuals who are ineligible for regular UC, EB, or PEUC and are unemployed, partially unemployed, or unable or unavailable to work due to one of the COVID-19 related reasons identified in Attachment I to UIPL No. 16-20, Change 6. Section 2102(a)(3)(A)(ii)(I) of the CARES Act included 10 specific COVID-19 related reasons. The Department, under the authority provided by Section 2102(a)(3)(A)(ii)(I)(kk) of the CARES Act, added additional COVID-19 related reasons three new COVID-19 related reasons with the publication of UIPL No. 16-20, Change 5 on February 25, 2021. All COVID-19 related reasons apply retroactively to the beginning of the PUA program. Additionally, individuals who are paid on or after December 27, 2020, must submit proof of documentation substantiating employment, self-employment, or the planned commencement of employment or self-employment (see Attachment I, Section C.2. of UIPL No. 16-20, Change 4). This includes individuals requesting retroactive payments that are not received until after December 27, 2020.
2023-015 The Washington State Department of Transportation did not have adequate internal controls over and did not comply with cash management requirements for the Formula Grants for Rural Areas program. Assistance Listing Number and Title: 20.509 Formula Grants for Rural Areas Federal Grantor Name: U.S. Department of Transportation Federal Award/Contract Number: WA-2019-091-01; WA-2020-038-01; WA-2021-052-01; WA-2021-130-01; WA-2021-133-01; WA-2022-031-01 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Cash Management Known Questioned Cost Amount: $41,555 Prior Year Audit Finding: No Background The Washington State Department of Transportation administers the Section 5311 program— Formula Grants for Rural Areas—to rural transportation areas by providing financial assistance for operating, planning, administrative expenses, and the acquisition, construction, and improvement of facilities and equipment. In addition, Section 5311 specifically provides for the support of rural intercity bus services, as well as funding for training, technical assistance, research, and related services to support the rural transit service. The Department spent about $80.3 million in program funds during fiscal year 2023. Of that amount, it passed through about $35.2 million to subrecipients through subawards. The Formula Grants for Rural Areas program is not subject to the Cash Management Improvement Act, and is not included in the Treasury-State Agreement for Washington. Programs not covered by a Treasury-State Agreement are subject to the provisions of Title 31 of the U.S. Code of Federal Regulations, Part 205, Subpart B, which specifies how funds transfers from the federal government must be processed. The Department requests monthly federal reimbursements for operating expenses and disbursements to subrecipients. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Department did not have adequate internal controls over and did not comply with cash management requirements for the Formula Grants for Rural Areas program. We used a non-statistical sampling method to randomly select and examine 17 draws of program funds out of a total population of 128. We also selected six large draws that were individually significant. During our review, we found that one draw in the amount of $41,555 was made for an incorrect program. Management reviewed, verified, and approved this draw, but the Department did not detect that funds were drawn for the incorrect program during the audit period. We consider these questioned costs. Additionally, we found that two of the six individually significant draws were not made timely. One draw for $6.3 million was made in June 2023 for expenditures the Department incurred and paid in fiscal year 2021. Similarly, another draw for $9 million was made in April 2023 for expenditures the Department incurred and paid for in fiscal year 2022. Based on the length of time it took to perform the associated draws, we determined that the Department did not comply with federal requirements to minimize the time between the drawdown of federal funds and their disbursement for federal program purposes. Therefore, the Department’s controls did not ensure timely draws in compliance with federal regulations. We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition Management review was insufficient for ensuring that program funds were drawn only for allowable program expenditures. Additionally, management did not ensure that draws were performed timely in accordance with federal regulations and said this was due to difficulties in reconciling expenditure accruals to the payment system. Effect of Condition and Questioned Costs Drawing funds for the incorrect federal program can potentially result in uncollected funds in one program and overdrawing another. Further, delaying federal drawdown requests results in state funds being advanced longer than necessary and lost interest revenue for the state. The table below summarizes the questioned costs our audit identified. Projection to population Likely Questioned Costs (Estimate) Known Questioned Costs $41,555 Federal expenditures $298,218 Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflects this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR §200.516(3). 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: • Improve its internal controls to ensure reimbursement requests are for the correct federal award • Ensure draws of federal program funds are performed in a timely manner • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The Washington State Department of Transportation (WSDOT) appreciates the State Auditor’s Office (SAO) audit of the Formula Grants for Rural Areas Program. The Department is committed to ensuring our programs comply with federal regulations related to Cash Management. WSDOT has implemented additional controls to help ensure the draws of program funds are accurate, drawn on the correct program, and timely. The updated procedures include: Identifying back up staff to ensure coverage during regular staff absences; Change in the timing of draws of program funds; Use of automatic ECHO system confirmations for draws entered; Additional reviews of draw amounts by project, and a Validation process with the WSDOT program staff. In addition, the questioned costs have been refunded to the incorrectly charged federal program. In an effort to ensure increased compliance, these procedures will be reviewed regularly and updated as required. Auditor’s Remarks We thank the Department for its cooperation and assistance throughout the audit. We will review the status of the Department's corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 31 CFR Part 205.33, How are funds transfers processed?, states in part: a. A State must minimize the time between the drawdown of Federal funds from the Federal government and their disbursement for Federal program purposes. A Federal Program Agency must limit a funds transfer to a State to the minimum amounts needed by the State and must time the disbursement to be in accord with the actual, immediate cash requirements of the State in carrying out a Federal assistance program or project. The timing and amount of funds transfers must be as close as is administratively feasible to a State’s actual cash outlay for direct program costs and the proportionate share of any allowable indirect costs. States should exercise sound cash management in funds transfers to subgrantees in accordance with OMB Circular A–102 (For availability, see 5 CFR 1310.3.). The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-017 The Department of Commerce did not have adequate internal controls over and did not comply with requirements to ensure payments to subrecipients of the Emergency Rental Assistance program were allowable and properly supported. Assistance Listing Number and Title: 21.023 COVID-19 Emergency Rental Assistance Program Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: N/A Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs / Cost Principles Period of Performance Known Questioned Cost Amount: $4,123,486 Prior Year Audit Finding: Yes, Finding 2022-016 Background Congress passed two acts authorizing federal funds for the Emergency Rental Assistance (ERA) program to respond to the COVID-19 pandemic. The Consolidated Appropriations Act, 2021, enacted on December 27, 2020, provided $25 billion for ERA. These funds are known as ERA1. The American Rescue Plan Act of 2021, enacted on March 11, 2021, provided $21.55 billion in additional funding for ERA. These funds are known as ERA2. The funds are provided directly to states, U.S. territories, local governments and, in the case of ERA1, Indian tribes, to assist eligible households through existing or newly created rental assistance programs. The Department of Commerce administers the ERA program in Washington. The Department subawarded federal funds to subrecipients to provide financial assistance to households, landlords and utility providers. In fiscal year 2023, the Department spent about $62.5 million in ERA1 and ERA2 funds. During the audit period, the Department allocated program funds to 13 ERA1 subrecipients and 12 ERA2 subrecipients. Grant recipients may use ERA1 and ERA2 funds for administrative expenses, housing stability services, financial assistance, and other affordable rental housing and eviction prevention purposes. Most of the expenditures the Department spent were for financial assistance to eligible households, which included payment of rent, rental arrears, utilities and home energy costs, utilities and home energy costs arrears, housing stability services and other expenses related to housing. Under the ERA1 program, award funds used for “other expenses” must be related to housing and “incurred due, directly or indirectly, to the COVID-19 outbreak.” The amount for prospective rent cannot exceed three months under a single household application. Financial assistance arrears may only cover household expenses accrued on or after March 13, 2020, up to a maximum of 15 months for ERA1 and a maximum of 18 months under ERA1 and ERA2 combined. There is no maximum dollar amount for the cumulative financial assistance that may be provided on behalf of an eligible household beyond the requirement that the amounts paid be based on documentation of household income, leases and equivalent forms. 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 subrecipients of the ERA program were allowable and properly supported. The prior finding number was 2022-016. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to ensure payments for the ERA program were allowable and properly supported. During the audit period, the Department had procedures in place, which required staff to review supporting documentation when approving payments. We used a statistical sampling method to randomly select and examine 48 out of a total population of 136 subrecipient payments. Additionally, we judgmentally reviewed two significant payments that each exceeded $3 million. In total, we examined more than $39 million in provider payments as part of the audit. Of the 48 randomly selected payments examined, we identified seven (15 percent) that did not have adequate documentation to ensure the payment was for allowable activities, met cost principles, and occurred within the award’s period of performance. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. Cause of Condition In July 2022, the Department implemented procedures requiring staff to review supporting documentation to ensure reimbursement requests were for allowable activities before reimbursing subrecipients. However, Department staff did not follow these procedures and approved reimbursements to subrecipients that did not provide adequate supporting documentation. Management said that this was caused by staff turnover during the audit period. Effect of Condition and Questioned Costs We determined the Department did not receive adequate supporting documentation before reimbursing subrecipients to ensure that expenditures were for allowable activities, met cost principles, and occurred within the award’s period of performance. As a result, we identified $4,123,486 in known federal questioned costs and $11,511,399 in likely federal questioned costs. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR 200.516(a)(3). Without establishing adequate internal controls, the Department cannot reasonably ensure it is using federal funds for allowable purposes and that program spending occurs within the allowed period of performance. 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: • Improve internal controls to ensure payments to subrecipients are not approved without a review of adequate supporting documentation • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The Department acknowledges the payments reported lacked adequate documentation to ensure compliance with federal requirements. In July 2022, the Department began requiring subrecipients to submit supporting backup documentation for all expenditures to the program for review and approval. Due to the temporary nature of the Emergency Rental Assistance (ERA) program, all staff supporting the administration of the program held temporary positions and staff turnover impacted consistency with compliance of federal requirements. As a result, supporting documentation for seven of the randomly selected 48 payments were approved before they were fully reviewed and determined to be properly supported. The Department will obtain the supporting documentation for those transactions to ensure the invoices paid were properly supported and to retail with the corresponding invoices. The Department has used the reported deficiency to improve our internal control processes and has since implemented a new control process requiring staff include a note to the invoicing system recording documentation received supported and reconciled to the submitted invoice before payment is approved. Auditor’s Remarks We thank the Department for its cooperation and assistance throughout the audit. We will review the status of the Department's corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200.403, Uniform Guidance, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.