Reference Number: 2023-012 Prior Year Finding: 2022-013 Federal Agency: U.S. Department of Labor State Agency: Executive Office of Labor and Workforce Development Federal Program: WIOA Cluster, Employment Service Cluster Assistance Listing Number: 17.258, 17.259, 17.278, 17.207, 17.801 Award Number and Year: AA-38535-22-55-A-25 (7/1/2022 – 6/30/2025), AA-36325-21-55-A-25 (4/1/2021 – 6/30/2024), AA-34774-20-55-A-25 (4/1/2020 – 6/30/2023) ES333991955A25 (7/1/2019 – 9/30/2022), ES353492055A25 (7/1/2020 – 9/30/2023), ES367612155A25 (7/1/2021 – 9/30/2024), ES387362255A25 (7/1/2022 – 9/30/2025) DV-35786-21-55-5-25 (10/1/2020 – 12/31/2022), DV-37859-22-55-5-25 (10/1/2021 – 12/31/2023), 23555DV000008 (10/1/2022 – 12/31/2024) Compliance Requirement: Subrecipient Monitoring Type of Finding: Significant Deficiency in Internal Control Over Compliance, Other Matters Criteria or Specific Requirement: Compliance: Per 2 CFR section 200.332 - Requirements for Pass-Through Entities states, in part, that all pass-through entities must: (a) Ensure that every subaward is clearly identified to the subrecipient as a subaward and includes information at the time of the subaward and if any of these data elements change, include the changes in subsequent subaward modification. When some of this information is not available, the pass-through entity must provide the best information available to describe the Federal award and subaward. (d) Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. Pass-through entity monitoring of the subrecipient must include: (1) Reviewing financial and performance reports required by the pass-through entity. (2) Following-up and ensuring that the subrecipient takes timely and appropriate action on all deficiencies pertaining to the Federal award provided to the subrecipient from the pass-through entity detected through audits, on-site reviews, and written confirmation from the subrecipient, highlighting the status of actions planned or taken to address Single Audit findings related to the particular subaward. (3) Issuing a management decision for applicable audit findings pertaining only to the Federal award provided to the subrecipient from the pass-through entity as required by §200.521. (4) The pass-through entity is responsible for resolving audit findings specifically related to the subaward and not responsible for resolving crosscutting findings. If a subrecipient has a current Single Audit report posted in the Federal Audit Clearinghouse and has not otherwise been excluded from receipt of Federal funding (e.g., has been debarred or suspended), the pass-through entity may rely on the subrecipient's cognizant audit agency or cognizant oversight agency to perform audit follow-up and make management decisions related to cross-cutting findings in accordance with section § 200.513(a)(3)(vii). Such reliance does not eliminate the responsibility of the pass-through entity to issue subawards that conform to agency and award-specific requirements, to manage risk through ongoing subaward monitoring, and to monitor the status of the findings that are specifically related to the subaward. Per 2 CFR section 200.331 - Subrecipient and contractor determinations states, in part, that a pass-through entity must make case-by-case determinations whether each agreement it makes for the disbursement of Federal program funds casts the party receiving the funds in the role of a subrecipient or a contractor. Control: Per 2 CFR section 200.303(a), a non-Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should comply with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: The Executive Office of Labor and Workforce Development (Department) omitted required federal award information from subawards it issued from the programs and did not adequately monitor subrecipients. Context: WIOA Cluster: Six out of eighteen subrecipients were selected for testing. The following exceptions were noted: • For 6 of 6 subawards issued, the Federal Award Identification Number (FAIN) and Federal award date of award to the recipient by the Federal agency were not included on the subaward agreement. • For 1 of 6 subrecipients selected for testing, no subaward monitoring was performed during the audit period. • For 1 of 6 subrecipients selected for testing, subaward monitoring was not completed in accordance with the Department’s policy. • For 1 of 6 subrecipients selected for testing, a determination on whether the entity was a subrecipient was unable to be made based on the documentation provided. • One subrecipient was excluded from subrecipient testing based on auditor analysis that the entity did not meet the definition of a subrecipient. The Schedule of Expenditures of Federal Awards was not adjusted to reflect the classification change. Employment Service Cluster: Five out of sixteen subrecipients were selected for testing. The following exceptions were noted: • For 5 of 5 subawards issued, the Federal Award Identification Number (FAIN) and the Federal award date of award to the recipient by the Federal agency were not included on the subaward agreement. Cause: The Department’s procedures were not sufficient to ensure that subawards included all required information nor that subrecipient monitoring was completed in accordance with the requirements of the federal programs. Effect: Excluding required federal grant award information at the time of the subaward may cause subrecipients and their auditors to be uninformed about specific program and other regulations that apply to the funds they receive. There is also the potential for subrecipients to have incomplete Schedules of Expenditures of Federal Awards (SEFA) in their Single Audit reports, and federal funds may not be properly audited at the subrecipient level in accordance with the Uniform Guidance. Failure to conduct adequate subrecipient monitoring may result in a failure of the Department to detect that subawards were used for unauthorized purposes, were managed in violation of the terms and conditions of the subawards, or that subaward performance goals were not achieved. There is an increased risk that subrecipients could be inappropriately spending and/or inaccurately tracking and reporting federal funds over multiple year periods, and these discrepancies may not be properly monitored, detected, and corrected by Department personnel on a timely basis. Questioned costs: WIOA Cluster: Undetermined Employment Service Cluster: None Recommendation: We recommend the Department review and enhance internal controls and procedures to ensure that required information is included in its subawards. We also recommend the Department review and enhance its internal controls and procedures to ensure subrecipient monitoring is performed in compliance with the requirements of the federal programs. Views of Responsible Officials: Management agrees with the finding.
Reference Number: 2023-012 Prior Year Finding: 2022-013 Federal Agency: U.S. Department of Labor State Agency: Executive Office of Labor and Workforce Development Federal Program: WIOA Cluster, Employment Service Cluster Assistance Listing Number: 17.258, 17.259, 17.278, 17.207, 17.801 Award Number and Year: AA-38535-22-55-A-25 (7/1/2022 – 6/30/2025), AA-36325-21-55-A-25 (4/1/2021 – 6/30/2024), AA-34774-20-55-A-25 (4/1/2020 – 6/30/2023) ES333991955A25 (7/1/2019 – 9/30/2022), ES353492055A25 (7/1/2020 – 9/30/2023), ES367612155A25 (7/1/2021 – 9/30/2024), ES387362255A25 (7/1/2022 – 9/30/2025) DV-35786-21-55-5-25 (10/1/2020 – 12/31/2022), DV-37859-22-55-5-25 (10/1/2021 – 12/31/2023), 23555DV000008 (10/1/2022 – 12/31/2024) Compliance Requirement: Subrecipient Monitoring Type of Finding: Significant Deficiency in Internal Control Over Compliance, Other Matters Criteria or Specific Requirement: Compliance: Per 2 CFR section 200.332 - Requirements for Pass-Through Entities states, in part, that all pass-through entities must: (a) Ensure that every subaward is clearly identified to the subrecipient as a subaward and includes information at the time of the subaward and if any of these data elements change, include the changes in subsequent subaward modification. When some of this information is not available, the pass-through entity must provide the best information available to describe the Federal award and subaward. (d) Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. Pass-through entity monitoring of the subrecipient must include: (1) Reviewing financial and performance reports required by the pass-through entity. (2) Following-up and ensuring that the subrecipient takes timely and appropriate action on all deficiencies pertaining to the Federal award provided to the subrecipient from the pass-through entity detected through audits, on-site reviews, and written confirmation from the subrecipient, highlighting the status of actions planned or taken to address Single Audit findings related to the particular subaward. (3) Issuing a management decision for applicable audit findings pertaining only to the Federal award provided to the subrecipient from the pass-through entity as required by §200.521. (4) The pass-through entity is responsible for resolving audit findings specifically related to the subaward and not responsible for resolving crosscutting findings. If a subrecipient has a current Single Audit report posted in the Federal Audit Clearinghouse and has not otherwise been excluded from receipt of Federal funding (e.g., has been debarred or suspended), the pass-through entity may rely on the subrecipient's cognizant audit agency or cognizant oversight agency to perform audit follow-up and make management decisions related to cross-cutting findings in accordance with section § 200.513(a)(3)(vii). Such reliance does not eliminate the responsibility of the pass-through entity to issue subawards that conform to agency and award-specific requirements, to manage risk through ongoing subaward monitoring, and to monitor the status of the findings that are specifically related to the subaward. Per 2 CFR section 200.331 - Subrecipient and contractor determinations states, in part, that a pass-through entity must make case-by-case determinations whether each agreement it makes for the disbursement of Federal program funds casts the party receiving the funds in the role of a subrecipient or a contractor. Control: Per 2 CFR section 200.303(a), a non-Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should comply with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: The Executive Office of Labor and Workforce Development (Department) omitted required federal award information from subawards it issued from the programs and did not adequately monitor subrecipients. Context: WIOA Cluster: Six out of eighteen subrecipients were selected for testing. The following exceptions were noted: • For 6 of 6 subawards issued, the Federal Award Identification Number (FAIN) and Federal award date of award to the recipient by the Federal agency were not included on the subaward agreement. • For 1 of 6 subrecipients selected for testing, no subaward monitoring was performed during the audit period. • For 1 of 6 subrecipients selected for testing, subaward monitoring was not completed in accordance with the Department’s policy. • For 1 of 6 subrecipients selected for testing, a determination on whether the entity was a subrecipient was unable to be made based on the documentation provided. • One subrecipient was excluded from subrecipient testing based on auditor analysis that the entity did not meet the definition of a subrecipient. The Schedule of Expenditures of Federal Awards was not adjusted to reflect the classification change. Employment Service Cluster: Five out of sixteen subrecipients were selected for testing. The following exceptions were noted: • For 5 of 5 subawards issued, the Federal Award Identification Number (FAIN) and the Federal award date of award to the recipient by the Federal agency were not included on the subaward agreement. Cause: The Department’s procedures were not sufficient to ensure that subawards included all required information nor that subrecipient monitoring was completed in accordance with the requirements of the federal programs. Effect: Excluding required federal grant award information at the time of the subaward may cause subrecipients and their auditors to be uninformed about specific program and other regulations that apply to the funds they receive. There is also the potential for subrecipients to have incomplete Schedules of Expenditures of Federal Awards (SEFA) in their Single Audit reports, and federal funds may not be properly audited at the subrecipient level in accordance with the Uniform Guidance. Failure to conduct adequate subrecipient monitoring may result in a failure of the Department to detect that subawards were used for unauthorized purposes, were managed in violation of the terms and conditions of the subawards, or that subaward performance goals were not achieved. There is an increased risk that subrecipients could be inappropriately spending and/or inaccurately tracking and reporting federal funds over multiple year periods, and these discrepancies may not be properly monitored, detected, and corrected by Department personnel on a timely basis. Questioned costs: WIOA Cluster: Undetermined Employment Service Cluster: None Recommendation: We recommend the Department review and enhance internal controls and procedures to ensure that required information is included in its subawards. We also recommend the Department review and enhance its internal controls and procedures to ensure subrecipient monitoring is performed in compliance with the requirements of the federal programs. Views of Responsible Officials: Management agrees with the finding.
Reference Number: 2023-012 Prior Year Finding: 2022-013 Federal Agency: U.S. Department of Labor State Agency: Executive Office of Labor and Workforce Development Federal Program: WIOA Cluster, Employment Service Cluster Assistance Listing Number: 17.258, 17.259, 17.278, 17.207, 17.801 Award Number and Year: AA-38535-22-55-A-25 (7/1/2022 – 6/30/2025), AA-36325-21-55-A-25 (4/1/2021 – 6/30/2024), AA-34774-20-55-A-25 (4/1/2020 – 6/30/2023) ES333991955A25 (7/1/2019 – 9/30/2022), ES353492055A25 (7/1/2020 – 9/30/2023), ES367612155A25 (7/1/2021 – 9/30/2024), ES387362255A25 (7/1/2022 – 9/30/2025) DV-35786-21-55-5-25 (10/1/2020 – 12/31/2022), DV-37859-22-55-5-25 (10/1/2021 – 12/31/2023), 23555DV000008 (10/1/2022 – 12/31/2024) Compliance Requirement: Subrecipient Monitoring Type of Finding: Significant Deficiency in Internal Control Over Compliance, Other Matters Criteria or Specific Requirement: Compliance: Per 2 CFR section 200.332 - Requirements for Pass-Through Entities states, in part, that all pass-through entities must: (a) Ensure that every subaward is clearly identified to the subrecipient as a subaward and includes information at the time of the subaward and if any of these data elements change, include the changes in subsequent subaward modification. When some of this information is not available, the pass-through entity must provide the best information available to describe the Federal award and subaward. (d) Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. Pass-through entity monitoring of the subrecipient must include: (1) Reviewing financial and performance reports required by the pass-through entity. (2) Following-up and ensuring that the subrecipient takes timely and appropriate action on all deficiencies pertaining to the Federal award provided to the subrecipient from the pass-through entity detected through audits, on-site reviews, and written confirmation from the subrecipient, highlighting the status of actions planned or taken to address Single Audit findings related to the particular subaward. (3) Issuing a management decision for applicable audit findings pertaining only to the Federal award provided to the subrecipient from the pass-through entity as required by §200.521. (4) The pass-through entity is responsible for resolving audit findings specifically related to the subaward and not responsible for resolving crosscutting findings. If a subrecipient has a current Single Audit report posted in the Federal Audit Clearinghouse and has not otherwise been excluded from receipt of Federal funding (e.g., has been debarred or suspended), the pass-through entity may rely on the subrecipient's cognizant audit agency or cognizant oversight agency to perform audit follow-up and make management decisions related to cross-cutting findings in accordance with section § 200.513(a)(3)(vii). Such reliance does not eliminate the responsibility of the pass-through entity to issue subawards that conform to agency and award-specific requirements, to manage risk through ongoing subaward monitoring, and to monitor the status of the findings that are specifically related to the subaward. Per 2 CFR section 200.331 - Subrecipient and contractor determinations states, in part, that a pass-through entity must make case-by-case determinations whether each agreement it makes for the disbursement of Federal program funds casts the party receiving the funds in the role of a subrecipient or a contractor. Control: Per 2 CFR section 200.303(a), a non-Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should comply with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: The Executive Office of Labor and Workforce Development (Department) omitted required federal award information from subawards it issued from the programs and did not adequately monitor subrecipients. Context: WIOA Cluster: Six out of eighteen subrecipients were selected for testing. The following exceptions were noted: • For 6 of 6 subawards issued, the Federal Award Identification Number (FAIN) and Federal award date of award to the recipient by the Federal agency were not included on the subaward agreement. • For 1 of 6 subrecipients selected for testing, no subaward monitoring was performed during the audit period. • For 1 of 6 subrecipients selected for testing, subaward monitoring was not completed in accordance with the Department’s policy. • For 1 of 6 subrecipients selected for testing, a determination on whether the entity was a subrecipient was unable to be made based on the documentation provided. • One subrecipient was excluded from subrecipient testing based on auditor analysis that the entity did not meet the definition of a subrecipient. The Schedule of Expenditures of Federal Awards was not adjusted to reflect the classification change. Employment Service Cluster: Five out of sixteen subrecipients were selected for testing. The following exceptions were noted: • For 5 of 5 subawards issued, the Federal Award Identification Number (FAIN) and the Federal award date of award to the recipient by the Federal agency were not included on the subaward agreement. Cause: The Department’s procedures were not sufficient to ensure that subawards included all required information nor that subrecipient monitoring was completed in accordance with the requirements of the federal programs. Effect: Excluding required federal grant award information at the time of the subaward may cause subrecipients and their auditors to be uninformed about specific program and other regulations that apply to the funds they receive. There is also the potential for subrecipients to have incomplete Schedules of Expenditures of Federal Awards (SEFA) in their Single Audit reports, and federal funds may not be properly audited at the subrecipient level in accordance with the Uniform Guidance. Failure to conduct adequate subrecipient monitoring may result in a failure of the Department to detect that subawards were used for unauthorized purposes, were managed in violation of the terms and conditions of the subawards, or that subaward performance goals were not achieved. There is an increased risk that subrecipients could be inappropriately spending and/or inaccurately tracking and reporting federal funds over multiple year periods, and these discrepancies may not be properly monitored, detected, and corrected by Department personnel on a timely basis. Questioned costs: WIOA Cluster: Undetermined Employment Service Cluster: None Recommendation: We recommend the Department review and enhance internal controls and procedures to ensure that required information is included in its subawards. We also recommend the Department review and enhance its internal controls and procedures to ensure subrecipient monitoring is performed in compliance with the requirements of the federal programs. Views of Responsible Officials: Management agrees with the finding.
Reference Number: 2023-012 Prior Year Finding: 2022-013 Federal Agency: U.S. Department of Labor State Agency: Executive Office of Labor and Workforce Development Federal Program: WIOA Cluster, Employment Service Cluster Assistance Listing Number: 17.258, 17.259, 17.278, 17.207, 17.801 Award Number and Year: AA-38535-22-55-A-25 (7/1/2022 – 6/30/2025), AA-36325-21-55-A-25 (4/1/2021 – 6/30/2024), AA-34774-20-55-A-25 (4/1/2020 – 6/30/2023) ES333991955A25 (7/1/2019 – 9/30/2022), ES353492055A25 (7/1/2020 – 9/30/2023), ES367612155A25 (7/1/2021 – 9/30/2024), ES387362255A25 (7/1/2022 – 9/30/2025) DV-35786-21-55-5-25 (10/1/2020 – 12/31/2022), DV-37859-22-55-5-25 (10/1/2021 – 12/31/2023), 23555DV000008 (10/1/2022 – 12/31/2024) Compliance Requirement: Subrecipient Monitoring Type of Finding: Significant Deficiency in Internal Control Over Compliance, Other Matters Criteria or Specific Requirement: Compliance: Per 2 CFR section 200.332 - Requirements for Pass-Through Entities states, in part, that all pass-through entities must: (a) Ensure that every subaward is clearly identified to the subrecipient as a subaward and includes information at the time of the subaward and if any of these data elements change, include the changes in subsequent subaward modification. When some of this information is not available, the pass-through entity must provide the best information available to describe the Federal award and subaward. (d) Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. Pass-through entity monitoring of the subrecipient must include: (1) Reviewing financial and performance reports required by the pass-through entity. (2) Following-up and ensuring that the subrecipient takes timely and appropriate action on all deficiencies pertaining to the Federal award provided to the subrecipient from the pass-through entity detected through audits, on-site reviews, and written confirmation from the subrecipient, highlighting the status of actions planned or taken to address Single Audit findings related to the particular subaward. (3) Issuing a management decision for applicable audit findings pertaining only to the Federal award provided to the subrecipient from the pass-through entity as required by §200.521. (4) The pass-through entity is responsible for resolving audit findings specifically related to the subaward and not responsible for resolving crosscutting findings. If a subrecipient has a current Single Audit report posted in the Federal Audit Clearinghouse and has not otherwise been excluded from receipt of Federal funding (e.g., has been debarred or suspended), the pass-through entity may rely on the subrecipient's cognizant audit agency or cognizant oversight agency to perform audit follow-up and make management decisions related to cross-cutting findings in accordance with section § 200.513(a)(3)(vii). Such reliance does not eliminate the responsibility of the pass-through entity to issue subawards that conform to agency and award-specific requirements, to manage risk through ongoing subaward monitoring, and to monitor the status of the findings that are specifically related to the subaward. Per 2 CFR section 200.331 - Subrecipient and contractor determinations states, in part, that a pass-through entity must make case-by-case determinations whether each agreement it makes for the disbursement of Federal program funds casts the party receiving the funds in the role of a subrecipient or a contractor. Control: Per 2 CFR section 200.303(a), a non-Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should comply with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: The Executive Office of Labor and Workforce Development (Department) omitted required federal award information from subawards it issued from the programs and did not adequately monitor subrecipients. Context: WIOA Cluster: Six out of eighteen subrecipients were selected for testing. The following exceptions were noted: • For 6 of 6 subawards issued, the Federal Award Identification Number (FAIN) and Federal award date of award to the recipient by the Federal agency were not included on the subaward agreement. • For 1 of 6 subrecipients selected for testing, no subaward monitoring was performed during the audit period. • For 1 of 6 subrecipients selected for testing, subaward monitoring was not completed in accordance with the Department’s policy. • For 1 of 6 subrecipients selected for testing, a determination on whether the entity was a subrecipient was unable to be made based on the documentation provided. • One subrecipient was excluded from subrecipient testing based on auditor analysis that the entity did not meet the definition of a subrecipient. The Schedule of Expenditures of Federal Awards was not adjusted to reflect the classification change. Employment Service Cluster: Five out of sixteen subrecipients were selected for testing. The following exceptions were noted: • For 5 of 5 subawards issued, the Federal Award Identification Number (FAIN) and the Federal award date of award to the recipient by the Federal agency were not included on the subaward agreement. Cause: The Department’s procedures were not sufficient to ensure that subawards included all required information nor that subrecipient monitoring was completed in accordance with the requirements of the federal programs. Effect: Excluding required federal grant award information at the time of the subaward may cause subrecipients and their auditors to be uninformed about specific program and other regulations that apply to the funds they receive. There is also the potential for subrecipients to have incomplete Schedules of Expenditures of Federal Awards (SEFA) in their Single Audit reports, and federal funds may not be properly audited at the subrecipient level in accordance with the Uniform Guidance. Failure to conduct adequate subrecipient monitoring may result in a failure of the Department to detect that subawards were used for unauthorized purposes, were managed in violation of the terms and conditions of the subawards, or that subaward performance goals were not achieved. There is an increased risk that subrecipients could be inappropriately spending and/or inaccurately tracking and reporting federal funds over multiple year periods, and these discrepancies may not be properly monitored, detected, and corrected by Department personnel on a timely basis. Questioned costs: WIOA Cluster: Undetermined Employment Service Cluster: None Recommendation: We recommend the Department review and enhance internal controls and procedures to ensure that required information is included in its subawards. We also recommend the Department review and enhance its internal controls and procedures to ensure subrecipient monitoring is performed in compliance with the requirements of the federal programs. Views of Responsible Officials: Management agrees with the finding.
Reference Number: 2023-012 Prior Year Finding: 2022-013 Federal Agency: U.S. Department of Labor State Agency: Executive Office of Labor and Workforce Development Federal Program: WIOA Cluster, Employment Service Cluster Assistance Listing Number: 17.258, 17.259, 17.278, 17.207, 17.801 Award Number and Year: AA-38535-22-55-A-25 (7/1/2022 – 6/30/2025), AA-36325-21-55-A-25 (4/1/2021 – 6/30/2024), AA-34774-20-55-A-25 (4/1/2020 – 6/30/2023) ES333991955A25 (7/1/2019 – 9/30/2022), ES353492055A25 (7/1/2020 – 9/30/2023), ES367612155A25 (7/1/2021 – 9/30/2024), ES387362255A25 (7/1/2022 – 9/30/2025) DV-35786-21-55-5-25 (10/1/2020 – 12/31/2022), DV-37859-22-55-5-25 (10/1/2021 – 12/31/2023), 23555DV000008 (10/1/2022 – 12/31/2024) Compliance Requirement: Subrecipient Monitoring Type of Finding: Significant Deficiency in Internal Control Over Compliance, Other Matters Criteria or Specific Requirement: Compliance: Per 2 CFR section 200.332 - Requirements for Pass-Through Entities states, in part, that all pass-through entities must: (a) Ensure that every subaward is clearly identified to the subrecipient as a subaward and includes information at the time of the subaward and if any of these data elements change, include the changes in subsequent subaward modification. When some of this information is not available, the pass-through entity must provide the best information available to describe the Federal award and subaward. (d) Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. Pass-through entity monitoring of the subrecipient must include: (1) Reviewing financial and performance reports required by the pass-through entity. (2) Following-up and ensuring that the subrecipient takes timely and appropriate action on all deficiencies pertaining to the Federal award provided to the subrecipient from the pass-through entity detected through audits, on-site reviews, and written confirmation from the subrecipient, highlighting the status of actions planned or taken to address Single Audit findings related to the particular subaward. (3) Issuing a management decision for applicable audit findings pertaining only to the Federal award provided to the subrecipient from the pass-through entity as required by §200.521. (4) The pass-through entity is responsible for resolving audit findings specifically related to the subaward and not responsible for resolving crosscutting findings. If a subrecipient has a current Single Audit report posted in the Federal Audit Clearinghouse and has not otherwise been excluded from receipt of Federal funding (e.g., has been debarred or suspended), the pass-through entity may rely on the subrecipient's cognizant audit agency or cognizant oversight agency to perform audit follow-up and make management decisions related to cross-cutting findings in accordance with section § 200.513(a)(3)(vii). Such reliance does not eliminate the responsibility of the pass-through entity to issue subawards that conform to agency and award-specific requirements, to manage risk through ongoing subaward monitoring, and to monitor the status of the findings that are specifically related to the subaward. Per 2 CFR section 200.331 - Subrecipient and contractor determinations states, in part, that a pass-through entity must make case-by-case determinations whether each agreement it makes for the disbursement of Federal program funds casts the party receiving the funds in the role of a subrecipient or a contractor. Control: Per 2 CFR section 200.303(a), a non-Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should comply with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: The Executive Office of Labor and Workforce Development (Department) omitted required federal award information from subawards it issued from the programs and did not adequately monitor subrecipients. Context: WIOA Cluster: Six out of eighteen subrecipients were selected for testing. The following exceptions were noted: • For 6 of 6 subawards issued, the Federal Award Identification Number (FAIN) and Federal award date of award to the recipient by the Federal agency were not included on the subaward agreement. • For 1 of 6 subrecipients selected for testing, no subaward monitoring was performed during the audit period. • For 1 of 6 subrecipients selected for testing, subaward monitoring was not completed in accordance with the Department’s policy. • For 1 of 6 subrecipients selected for testing, a determination on whether the entity was a subrecipient was unable to be made based on the documentation provided. • One subrecipient was excluded from subrecipient testing based on auditor analysis that the entity did not meet the definition of a subrecipient. The Schedule of Expenditures of Federal Awards was not adjusted to reflect the classification change. Employment Service Cluster: Five out of sixteen subrecipients were selected for testing. The following exceptions were noted: • For 5 of 5 subawards issued, the Federal Award Identification Number (FAIN) and the Federal award date of award to the recipient by the Federal agency were not included on the subaward agreement. Cause: The Department’s procedures were not sufficient to ensure that subawards included all required information nor that subrecipient monitoring was completed in accordance with the requirements of the federal programs. Effect: Excluding required federal grant award information at the time of the subaward may cause subrecipients and their auditors to be uninformed about specific program and other regulations that apply to the funds they receive. There is also the potential for subrecipients to have incomplete Schedules of Expenditures of Federal Awards (SEFA) in their Single Audit reports, and federal funds may not be properly audited at the subrecipient level in accordance with the Uniform Guidance. Failure to conduct adequate subrecipient monitoring may result in a failure of the Department to detect that subawards were used for unauthorized purposes, were managed in violation of the terms and conditions of the subawards, or that subaward performance goals were not achieved. There is an increased risk that subrecipients could be inappropriately spending and/or inaccurately tracking and reporting federal funds over multiple year periods, and these discrepancies may not be properly monitored, detected, and corrected by Department personnel on a timely basis. Questioned costs: WIOA Cluster: Undetermined Employment Service Cluster: None Recommendation: We recommend the Department review and enhance internal controls and procedures to ensure that required information is included in its subawards. We also recommend the Department review and enhance its internal controls and procedures to ensure subrecipient monitoring is performed in compliance with the requirements of the federal programs. Views of Responsible Officials: Management agrees with the finding.
Assistance Listings numbers and names: 14.231 Emergency Solutions Grant Program 14.231 COVID-19 - Emergency Solutions Grant Program Award numbers and years: E-20-DW-04-001, July 1, 2020 through September 30, 2022; E-21-DC-04-001, July 1, 2021 through September 30, 2023 Federal agency: U.S. Department of Housing and Urban Development Questioned costs: $1,820 Assistance Listings numbers and names: 93.558 Temporary Assistance for Needy Families 93.558 COVID-19 - Temporary Assistance for Needy Families Award numbers and years: 2201AZTANF, October 1, 2021 through September 30, 2022; 2301AZTANF, October 1, 2022 through September 30, 2023 Federal agency: U.S. Department of Health and Human Services Questioned costs: $10,330 Compliance requirement: Subrecipient monitoring Total questioned costs: $12,150 Condition—Contrary to federal regulations and its federal award terms, the Department of Economic Security (DES) reimbursed 1 nonprofit organization subrecipient for federal program costs totaling $12,150 during fiscal year 2023 that were unsupported, unallowable, and/or paid to the nonprofit organization’s principal officers or their immediate family member in violation of conflict-of-interest disclosure requirements. Specifically, we reviewed 14 reimbursements that included Emergency Solutions Grant Program (ESG) and Temporary Assistance for Needy Family (TANF) program costs totaling $26,120 and $65,730 for the year, respectively, and found that DES reimbursed the subrecipient: • $4,733 for financial and accounting services that were paid to 1 of the nonprofit organization’s principal officers, who served as the Treasurer, and their company, which was not disclosed as a conflict of interest to DES as required by DES’ contract with the subrecipient and federal regulations. Also, the subrecipient allocated these costs to other federal programs and nonfederal activities; however, DES did not verify that the allocation method the subrecipient used was reasonable or that the costs, as allocated, were allowed by the program’s requirements ($112 for ESG and $4,621 for TANF). • $7,417 for bookkeeping services that were not adequately supported by sufficiently detailed invoices and a signed, written contract having a specified price rate for the services and terms; therefore, we were unable to verify if the amounts paid were appropriate. Further, DES reimbursed the subrecipient for payments made to the Treasurer’s family member, whose bookkeeping services company was not disclosed as a conflict of interest to DES as required by federal regulations. Also, the subrecipient allocated these costs to other federal programs and nonfederal activities; however, DES did not verify that the allocation method the subrecipient used was reasonable or that the costs, as allocated, were allowed by the program’s requirements ($1,708 for ESG and $5,709 for TANF). Additionally, contrary to federal regulations, DES had not ensured that the subrecipient implemented competitive purchasing procedures when procuring the professional services described above, and the subrecipient was unable to provide documentation that it had competitively procured the services. ESG was not audited as a major federal program for the State’s fiscal year 2023 single audit; therefore, the scope of our review was not sufficient to determine whether DES or its subrecipients complied with all applicable federal requirements for this program. We audited the TANF program as a major federal program for the State’s fiscal year 2023 single audit, and we performed follow-up procedures to the review that we conducted during fiscal year 2022. During the audit, we became aware of the potentially noncompliant 14 reimbursements involving 1 of DES’ nonprofit subrecipients with which it partnered to carry out federal and State programs, including the Continuum of Care Program (Assistance Listings number 14.267), ESG, and TANF, which was audited as a major federal program for fiscal year 2023, as well as the State Housing Trust Fund. Our review of select reimbursements to this subrecipient resulted in similar findings for the federal Continuum of Care Program and the State Housing Trust Fund that are described in findings 2023-116 and 2023-06, respectively. Effect—DES’ reimbursing a nonprofit organization subrecipient for $12,150 of unallowable or unsupported costs and/or costs paid to the nonprofit organization’s principal officer or their immediate family member in violation of conflict-of-interest disclosure requirements resulted in those monies being unavailable to be spent for their intended purpose of providing housing assistance to those in need. Consequently, DES may be required to return these monies to the federal agencies in accordance with federal requirements.1 Cause—Although DES’ subrecipient monitoring policies and procedures did not require it to obtain from subrecipients documentation supporting charges for personal and contracted professional services to verify allowability when subrecipients requested reimbursement, the policies and procedures required an on-site monitoring visit once every 3 years for each subrecipient in which it reviews a sample of the subrecipient’s personal and professional services charges. However, DES had not performed an on-site monitoring visit of the nonprofit subrecipient since 2018 because it had not yet resumed all its subrecipient-monitoring activities, such as conducting on-site reviews and providing training and technical assistance, since suspending these activities during the COVID-19 pandemic during fiscal year 2020. In addition, DES had not properly assessed the subrecipient’s risk of noncompliance with its award contract and program requirements to determine the level of monitoring procedures it should put in place or training the subrecipient needed. For example, DES was unaware that the subrecipient had not informed it of a principal officer’s conflicts of interest so that it could ensure that the principal officer and their immediate family member were not involved in decision-making related to those conflicts and selectively reviewed the related costs and activities for compliance purposes. Criteria—Federal regulations require DES to monitor subrecipients and include required procedures for assessing the risk of each subrecipient’s noncompliance and implementing appropriate monitoring procedures to address those risk assessments; verifying single audits were conducted timely, if required; reviewing financial and performance reports; following up on and ensuring corrective action is taken on deficiencies that could potentially affect the program; and issuing management decisions on the results of audit findings or monitoring.2 Federal regulations provide that monitoring procedures DES may implement to address a subrecipient’s risk assessment include providing training or technical assistance on program-related matters and performing on-site reviews and selective audits of reimbursed costs.2 In addition, federal regulations require DES’ subrecipients to allocate allowable costs using a reasonable basis, to use competitive purchasing standards when procuring goods and services, and to disclose in writing to DES any potential conflicts of interest.3 Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303 and 45 CFR §75.303). Recommendations—DES should: 1. Immediately stop reimbursing the nonprofit subrecipient for costs that are unsupported, unallowable, and/or paid to the nonprofit subrecipient’s principal officer or their immediate family member in violation of federal regulations and take appropriate enforcement actions in accordance with its subaward contract. 2. Update its written policies and procedures for reviewing and approving subrecipient reimbursement requests to include a process to ensure costs are adequately supported, allowable in accordance with program requirements, and approved by the appropriate level of management. 3. Train personnel responsible for reviewing and approving subrecipient reimbursement requests on how to identify costs that are unallowable under federal regulations. 4. Assess the risk of each subrecipient’s noncompliance and perform the appropriate monitoring procedures based on the assessed risk, such as providing training or technical assistance on program-related matters and performing on-site reviews and selective audits of reimbursed costs for allowability. 5. Ensure subrecipients allocate allowable costs using a reasonable basis, use competitive purchasing standards when procuring goods and services, and disclose in writing to DES any potential conflicts of interest. DES may need to provide training and technical assistance to subrecipients that address these compliance areas, including DES obtaining conflict-of-interest disclosures from subrecipients as part of the subaward contract, as an example, or otherwise establishing a communication mechanism for subrecipients to use as such conflicts arise. 6. Continue to work with the nonprofit subrecipient to resolve the $12,150 of unallowable costs, including recovering these monies from the subrecipient and assessing the continued need to use this subrecipient for services. 7. Work with the federal agencies to resolve the $12,150 of unallowable costs that it reimbursed, which may involve returning monies to the agencies. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year findings 2022-114 (TANF) and 2022-115 (ESG) and was initially reported in fiscal year 2022. 1 Federal Uniform Guidance and U.S. Health and Human Services audit requirements require federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient takes appropriate and timely corrective action (2 CFR §200.513[c] and 45 CFR §75.513[c]). Further, they require that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521 and 45 CFR §75.521). 2 The applicable federal requirements related to subrecipient monitoring can be found in the Code of Federal Regulations at 2 CFR §§200.332, .339, and .521 and 45 CFR §§75.352, .371, and .521. 3 The applicable federal requirements related to allowable costs, competitive purchasing, and conflicts of interest can be found in the Code of Federal Regulations at 2 CFR §§200.112, .318-.327, and Subpart E; 24 CFR §578.95; and 45 CFR §§75.112, .326-.335, and Subpart E.
Assistance Listings numbers and names: 14.231 Emergency Solutions Grant Program 14.231 COVID-19 - Emergency Solutions Grant Program Award numbers and years: E-20-DW-04-001, July 1, 2020 through September 30, 2022; E-21-DC-04-001, July 1, 2021 through September 30, 2023 Federal agency: U.S. Department of Housing and Urban Development Questioned costs: $1,820 Assistance Listings numbers and names: 93.558 Temporary Assistance for Needy Families 93.558 COVID-19 - Temporary Assistance for Needy Families Award numbers and years: 2201AZTANF, October 1, 2021 through September 30, 2022; 2301AZTANF, October 1, 2022 through September 30, 2023 Federal agency: U.S. Department of Health and Human Services Questioned costs: $10,330 Compliance requirement: Subrecipient monitoring Total questioned costs: $12,150 Condition—Contrary to federal regulations and its federal award terms, the Department of Economic Security (DES) reimbursed 1 nonprofit organization subrecipient for federal program costs totaling $12,150 during fiscal year 2023 that were unsupported, unallowable, and/or paid to the nonprofit organization’s principal officers or their immediate family member in violation of conflict-of-interest disclosure requirements. Specifically, we reviewed 14 reimbursements that included Emergency Solutions Grant Program (ESG) and Temporary Assistance for Needy Family (TANF) program costs totaling $26,120 and $65,730 for the year, respectively, and found that DES reimbursed the subrecipient: • $4,733 for financial and accounting services that were paid to 1 of the nonprofit organization’s principal officers, who served as the Treasurer, and their company, which was not disclosed as a conflict of interest to DES as required by DES’ contract with the subrecipient and federal regulations. Also, the subrecipient allocated these costs to other federal programs and nonfederal activities; however, DES did not verify that the allocation method the subrecipient used was reasonable or that the costs, as allocated, were allowed by the program’s requirements ($112 for ESG and $4,621 for TANF). • $7,417 for bookkeeping services that were not adequately supported by sufficiently detailed invoices and a signed, written contract having a specified price rate for the services and terms; therefore, we were unable to verify if the amounts paid were appropriate. Further, DES reimbursed the subrecipient for payments made to the Treasurer’s family member, whose bookkeeping services company was not disclosed as a conflict of interest to DES as required by federal regulations. Also, the subrecipient allocated these costs to other federal programs and nonfederal activities; however, DES did not verify that the allocation method the subrecipient used was reasonable or that the costs, as allocated, were allowed by the program’s requirements ($1,708 for ESG and $5,709 for TANF). Additionally, contrary to federal regulations, DES had not ensured that the subrecipient implemented competitive purchasing procedures when procuring the professional services described above, and the subrecipient was unable to provide documentation that it had competitively procured the services. ESG was not audited as a major federal program for the State’s fiscal year 2023 single audit; therefore, the scope of our review was not sufficient to determine whether DES or its subrecipients complied with all applicable federal requirements for this program. We audited the TANF program as a major federal program for the State’s fiscal year 2023 single audit, and we performed follow-up procedures to the review that we conducted during fiscal year 2022. During the audit, we became aware of the potentially noncompliant 14 reimbursements involving 1 of DES’ nonprofit subrecipients with which it partnered to carry out federal and State programs, including the Continuum of Care Program (Assistance Listings number 14.267), ESG, and TANF, which was audited as a major federal program for fiscal year 2023, as well as the State Housing Trust Fund. Our review of select reimbursements to this subrecipient resulted in similar findings for the federal Continuum of Care Program and the State Housing Trust Fund that are described in findings 2023-116 and 2023-06, respectively. Effect—DES’ reimbursing a nonprofit organization subrecipient for $12,150 of unallowable or unsupported costs and/or costs paid to the nonprofit organization’s principal officer or their immediate family member in violation of conflict-of-interest disclosure requirements resulted in those monies being unavailable to be spent for their intended purpose of providing housing assistance to those in need. Consequently, DES may be required to return these monies to the federal agencies in accordance with federal requirements.1 Cause—Although DES’ subrecipient monitoring policies and procedures did not require it to obtain from subrecipients documentation supporting charges for personal and contracted professional services to verify allowability when subrecipients requested reimbursement, the policies and procedures required an on-site monitoring visit once every 3 years for each subrecipient in which it reviews a sample of the subrecipient’s personal and professional services charges. However, DES had not performed an on-site monitoring visit of the nonprofit subrecipient since 2018 because it had not yet resumed all its subrecipient-monitoring activities, such as conducting on-site reviews and providing training and technical assistance, since suspending these activities during the COVID-19 pandemic during fiscal year 2020. In addition, DES had not properly assessed the subrecipient’s risk of noncompliance with its award contract and program requirements to determine the level of monitoring procedures it should put in place or training the subrecipient needed. For example, DES was unaware that the subrecipient had not informed it of a principal officer’s conflicts of interest so that it could ensure that the principal officer and their immediate family member were not involved in decision-making related to those conflicts and selectively reviewed the related costs and activities for compliance purposes. Criteria—Federal regulations require DES to monitor subrecipients and include required procedures for assessing the risk of each subrecipient’s noncompliance and implementing appropriate monitoring procedures to address those risk assessments; verifying single audits were conducted timely, if required; reviewing financial and performance reports; following up on and ensuring corrective action is taken on deficiencies that could potentially affect the program; and issuing management decisions on the results of audit findings or monitoring.2 Federal regulations provide that monitoring procedures DES may implement to address a subrecipient’s risk assessment include providing training or technical assistance on program-related matters and performing on-site reviews and selective audits of reimbursed costs.2 In addition, federal regulations require DES’ subrecipients to allocate allowable costs using a reasonable basis, to use competitive purchasing standards when procuring goods and services, and to disclose in writing to DES any potential conflicts of interest.3 Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303 and 45 CFR §75.303). Recommendations—DES should: 1. Immediately stop reimbursing the nonprofit subrecipient for costs that are unsupported, unallowable, and/or paid to the nonprofit subrecipient’s principal officer or their immediate family member in violation of federal regulations and take appropriate enforcement actions in accordance with its subaward contract. 2. Update its written policies and procedures for reviewing and approving subrecipient reimbursement requests to include a process to ensure costs are adequately supported, allowable in accordance with program requirements, and approved by the appropriate level of management. 3. Train personnel responsible for reviewing and approving subrecipient reimbursement requests on how to identify costs that are unallowable under federal regulations. 4. Assess the risk of each subrecipient’s noncompliance and perform the appropriate monitoring procedures based on the assessed risk, such as providing training or technical assistance on program-related matters and performing on-site reviews and selective audits of reimbursed costs for allowability. 5. Ensure subrecipients allocate allowable costs using a reasonable basis, use competitive purchasing standards when procuring goods and services, and disclose in writing to DES any potential conflicts of interest. DES may need to provide training and technical assistance to subrecipients that address these compliance areas, including DES obtaining conflict-of-interest disclosures from subrecipients as part of the subaward contract, as an example, or otherwise establishing a communication mechanism for subrecipients to use as such conflicts arise. 6. Continue to work with the nonprofit subrecipient to resolve the $12,150 of unallowable costs, including recovering these monies from the subrecipient and assessing the continued need to use this subrecipient for services. 7. Work with the federal agencies to resolve the $12,150 of unallowable costs that it reimbursed, which may involve returning monies to the agencies. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year findings 2022-114 (TANF) and 2022-115 (ESG) and was initially reported in fiscal year 2022. 1 Federal Uniform Guidance and U.S. Health and Human Services audit requirements require federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient takes appropriate and timely corrective action (2 CFR §200.513[c] and 45 CFR §75.513[c]). Further, they require that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521 and 45 CFR §75.521). 2 The applicable federal requirements related to subrecipient monitoring can be found in the Code of Federal Regulations at 2 CFR §§200.332, .339, and .521 and 45 CFR §§75.352, .371, and .521. 3 The applicable federal requirements related to allowable costs, competitive purchasing, and conflicts of interest can be found in the Code of Federal Regulations at 2 CFR §§200.112, .318-.327, and Subpart E; 24 CFR §578.95; and 45 CFR §§75.112, .326-.335, and Subpart E.
Assistance Listings number and name: 14.267 Continuum of Care Program Award number and year: AZ9999U9T002101, February 1, 2022 through June 30, 2023 Federal agency: U.S. Department of Housing and Urban Development Compliance requirement: Subrecipient monitoring Questioned costs: $40,455 Condition—Contrary to federal regulations and its federal award terms, the Department of Housing (Department) reimbursed 1 nonprofit organization subrecipient for federal program costs totaling $40,455 during fiscal year 2023 that were unsupported, unallowable, and/or paid to the nonprofit organization’s principal officers or their immediate family members in violation of conflict-of-interest disclosure requirements. Specifically, we reviewed 40 reimbursements that included Continuum of Care costs totaling $346,747 for the year and found that the Department reimbursed the subrecipient for: • $18,385 for financial and accounting services and supplies that were paid to 1 of the nonprofit organization’s principal officers, who served as the Treasurer, and their company, which was not disclosed as a conflict of interest to the Department as required by its contract with the subrecipient and federal regulations. Also, the subrecipient allocated these costs to other federal programs and nonfederal activities; however, the Department did not verify that the allocation method the subrecipient used was reasonable or that the costs, as allocated, were allowed by the program’s requirements. • $20,664 for bookkeeping services that were not adequately supported by sufficiently detailed invoices and a signed, written contract having a specified price rate for the services and terms; therefore, we were unable to verify if the amounts paid were appropriate. Further, the Department reimbursed the subrecipient for payments made to the Treasurer’s family member, whose bookkeeping services company was not disclosed as a conflict of interest to the Department as required by federal regulations. Also, the subrecipient allocated these costs to other federal programs and nonfederal activities; however, the Department did not verify that the allocation method the subrecipient used was reasonable or that the costs, as allocated, were allowed by the program’s requirements. • $831 for repairs and maintenance, travel, supplies, and other contracted services that were paid to another principal officer ($705) and the Executive Director’s immediate family member ($126) who performed various handyman services, including plumbing, painting, and building repairs, that were not adequately supported by a signed contract having specified price rates for the services and terms; therefore, we were unable to verify if the amounts reimbursed by the Department were appropriate. Further, the Department reimbursed the subrecipient for payments made to the principal officer and the Executive Director’s immediate family member, whose services were not disclosed as a conflict of interest to the Department as required by its contract with the subrecipient and federal regulations. • $476 for unallowable loan payments to the subrecipient’s Executive Director, which was for personal use. • $99 for incentive payments to 1 contractor and 1 principal officer without documentation demonstrating that they were authorized by an agreement, reasonable for the services performed as provided in the subrecipient’s policies, and consistent with compensation paid for similar work in other activities; therefore, we were unable to verify if the amounts reimbursed were allowable. Additionally, contrary to federal regulations, the Department had not ensured that the subrecipient implemented competitive purchasing procedures when procuring the professional services and handyman services described above, and the subrecipient was unable to provide documentation that it had competitively procured the services. We audited the Continuum of Care Program as a major federal program for the State’s fiscal year 2023 single audit, and we performed follow-up procedures to the review that we conducted during fiscal year 2022. During the audit, we became aware of the potentially noncompliant 40 reimbursements involving 1 of the Department’s nonprofit subrecipients with which it partnered with to carry out federal and State programs, including the Continuum of Care Program, the Emergency Solutions Grants Program (Assistance Listings number 14.231), and Temporary Assistance to Needy Families (Assistance Listings number 93.558), which was audited as a major federal program for fiscal year 2023, as well as the State Housing Trust Fund. Our review of select reimbursements to this subrecipient resulted in similar findings for the federal Temporary Assistance to Needy Families and Emergency Solutions Grants Program and the State Housing Trust Fund that are described in findings 2023-115 and 2023-06, respectively. Effect—The Department’s reimbursing a nonprofit organization subrecipient for $40,455 of unallowable or unsupported costs and/or costs paid to the nonprofit organization’s principal officers or their immediate family members in violation of conflict-of-interest disclosure requirements resulted in those monies being unavailable to be spent for their intended purpose of providing housing assistance to those in need. Consequently, the Department may be required to return those monies to the federal agency in accordance with federal requirements.1 Cause—The Department had not yet resumed all its subrecipient monitoring activities, such as conducting on-site reviews and providing training and technical assistance, since suspending them starting in fiscal year 2020 due to the COVID-19 pandemic. Also, the Department had not properly assessed the subrecipient’s risk of noncompliance with its award contract and program requirements to determine the level of monitoring procedures it should put in place or training the subrecipient needed. For example, the Department was unaware that the subrecipient had not informed it of principal officers’ conflicts of interest so that it could ensure that those principal officers or their immediate family members were not involved in decision-making related to those conflicts and selectively reviewed the related costs and activities for compliance purposes. Further, Department personnel responsible for reviewing and approving the subrecipient’s reimbursement requests reported to us that dating back to at least 2021, staff were trained to not follow the Department’s policies and procedures because they were not sufficiently detailed to provide direction on how to ensure costs are adequately supported and allowable in accordance with program requirements but, instead, to approve any costs that had been previously reimbursed. Criteria—Federal regulations require the Department to monitor subrecipients and include required procedures for assessing the risk of each subrecipient’s noncompliance and implementing appropriate monitoring procedures to address those risk assessments; verifying single audits were conducted timely, if required; reviewing financial and performance reports; following up on and ensuring corrective action is taken on deficiencies that could potentially affect the program; and issuing management decisions on the results of audit findings or monitoring (2 CFR §§ 200.332, .339, and .521). Federal regulations provide that monitoring procedures the Department may implement to address a subrecipient’s risk assessment include providing training or technical assistance on program-related matters and performing on-site reviews and selective audits of reimbursed costs (2 CFR §200.332[e]). In addition, federal regulations require the Department’s subrecipients to allocate allowable costs using a reasonable basis, to use competitive purchasing standards when procuring goods and services, and to disclose in writing to the Department any potential conflicts of interest.2 Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Department should: 1. Immediately stop reimbursing the nonprofit subrecipient for costs that are unsupported, unallowable, and/or paid to the nonprofit subrecipient’s principal officers or their immediate family members in violation of federal regulations and take appropriate enforcement actions in accordance with its subaward contract. 2. Update its written policies and procedures for reviewing and approving subrecipient reimbursement requests to include a process to ensure costs are adequately supported, allowable in accordance with program requirements, and approved by the appropriate level of management. 3. Train personnel responsible for reviewing and approving subrecipient reimbursement requests on how to identify costs that are unallowable under federal regulations. 4. Assess the risk of each subrecipient’s noncompliance and perform the appropriate monitoring procedures based on the assessed risk, such as providing training or technical assistance on program-related matters and performing on-site reviews and selective audits of reimbursed costs for allowability. 5. Ensure subrecipients allocate allowable costs using a reasonable basis, use competitive purchasing standards when procuring goods and services, and disclose in writing to the Department any potential conflicts of interest. The Department may need to provide training and technical assistance to subrecipients that address these compliance areas, including the Department’s obtaining conflict-of-interest disclosures from subrecipients as part of the subaward contract, as an example, or otherwise establishing a communication mechanism for subrecipients to use as such conflicts arise. 6. Continue to work with the nonprofit subrecipient to resolve the $40,455 in unallowable costs, including recovering these monies from the subrecipient and assessing the continued need to use this subrecipient for services. 7. Work with the federal agency to resolve the $40,455 of unallowable costs that it reimbursed, which may involve returning monies to the federal agency. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year finding 2022-115 and was initially reported in fiscal year 2022. 1 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 2 The applicable federal requirements related to allowable costs, competitive purchasing, and conflicts of interest can be found in the Code of Federal Regulations at 2 CFR §§200.112, .318-.327, and Subpart E, and 24 CFR §578.95.
Assistance Listings number and name: 14.267 Continuum of Care Program Award number and year: AZ9999U9T002101, February 1, 2022 through June 30, 2023 Federal agency: U.S. Department of Housing and Urban Development Compliance requirement: Subrecipient monitoring Questioned costs: Unknown Condition—The Arizona Department of Housing (Department) awarded $4.5 million to 15 subrecipients during fiscal year 2023, or 90 percent of the Department’s $5.0 million total federal expenditures for this federal program, but did not perform all the required monitoring of the subrecipients’ activities or compliance with the award terms and program requirements. Specifically, the Department’s only monitoring procedure during the year consisted of reviewing and approving the subrecipients’ invoices of program expenditures for reimbursement, which we also found to be deficient during a review of 1 nonprofit subrecipient’s reimbursement requests. See financial statement finding 2023-06 and federal award finding 2023-116 for specific issues noted and related recommendations. Further, that procedure alone was insufficient to evaluate whether the subrecipients used program monies in accordance with the award terms and program requirements. Effect—The Department’s failure to perform all required monitoring increased the risk that the $4.5 million of program monies the Department awarded to subrecipients may not have been spent in accordance with the award terms and program requirements. If monies are spent inconsistent with program requirements, those who were intended to benefit from the program may not receive all the services or other benefits they otherwise would have received. Consequently, the Department may be required to return any misspent monies to the federal agency in accordance with federal requirements.1 Cause—The Department did not perform all required monitoring procedures and did not have sufficient policies and procedures. Specifically, the Department did not develop and implement procedures to evaluate the substance of its federal award agreements with other parties to determine whether each of the other parties receiving the monies have the role of a subrecipient or contractor and whether they are required to comply with any of the federal program’s requirements that the Department should monitor until near the end of the grant period in May 2023. Prior to that, the Department had an informal process to identify subrecipients. Also, the Department did not develop and implement procedures to perform subrecipient risk assessments until March 2023 and had not yet resumed other subrecipient monitoring activities during fiscal year 2023, such as conducting on-site reviews and providing training and technical assistance, since suspending these activities starting in fiscal year 2020 due to the COVID-19 pandemic. Additionally, the Department’s written policies and procedures lacked procedures for performing risk assessments; designing monitoring procedures, training, or technical assistance based upon the assessed risk; and verifying that a subrecipient received a single audit if it was expected to meet or exceed the federal expenditure threshold of $750,000 for requiring a single audit. Criteria—Federal regulation requires the Department to evaluate the substance of its federal award agreements with other parties to determine whether each of the other parties receiving the monies have the role of a subrecipient or contractor and whether they are required to comply with any of the federal program’s requirements that the County should monitor (2 Code of Federal Regulation [CFR] §200.331). Additionally, federal regulation requires the Department to monitor subrecipients, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments; verifying single audits were conducted timely; following up on and ensuring corrective action is taken on audit findings that could potentially affect the program; and issuing a management decision for audit findings pertaining to the federal award. This federal regulation also provides that monitoring procedures may include providing training or technical assistance on program-related matters and performing on-site reviews, selective audits, and/or other monitoring procedures (2 CFR §§200.332[b] and [d–f]). Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Department should: 1. Perform required monitoring of its subrecipients and their compliance with the award terms and program requirements. 2. Update and follow written policies and procedures to: a. Evaluate the substance of its federal award agreements with other parties to determine whether each of the other parties receiving the monies have the role of a subrecipient or contractor and whether they are required to comply with any of the federal program’s requirements that the Department should monitor. b. Assess the risk of each subrecipient’s noncompliance and carry out monitoring activities based on those risk assessments such as providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures. c. Verify subrecipients receive timely single audits, if required; follow up on and ensure that corrective action is taken on any audit findings that could potentially affect the program; and issue management decisions for any audit findings pertaining to the federal award. d. Maintain documentation of monitoring procedures demonstrating they were performed, including the monitoring procedures’ results and any Department actions taken, if appropriate. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521).
Assistance Listings number and name: 14.267 Continuum of Care Program Award number and year: AZ9999U9T002101, February 1, 2022 through June 30, 2023 Federal agency: U.S. Department of Housing and Urban Development Compliance requirements: Matching, level of effort, and earmarking Questioned costs: Not applicable Condition—Contrary to federal regulation, the Department of Housing (Department) did not develop, document, or implement internal control procedures to monitor compliance with the program’s matching, level of effort, and earmarking requirements. Specifically, the Department did not have a process in place to identify required matching amounts, level of effort requirements, and earmarking limits or to monitor and review these requirements to ensure compliance with federal regulations.1 Despite lacking internal control procedures, we performed tests and determined the Department materially complied with the program’s matching, level of effort, and earmarking requirements during fiscal year 2023. Effect—Without effective internal control procedures in place, there is an increased risk that the Department will not comply with the program’s matching, level of effort, and earmarking requirements in future periods, which may result in having to return program monies to the federal awarding agency.2 Cause—The Department did not develop, document, or implement internal control procedures to monitor compliance with matching, level of effort, and earmarking requirements because according to management, it did not have a process to regularly review and update its policies and procedures to make sure they were current and relevant. Criteria—Federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms. (2 CFR §200.303) Recommendations—The Department should: 1. Update and implement written policies and procedures to address matching, level of effort, and earmarking requirements, including processes to: a. Identify grant award requirements over matching amounts, level of effort requirements, and earmarking limits and communicate applicable requirements to the subrecipient. b. Monitor and review these requirements to ensure the source and use of the monies used for matching are allowable and the required matching amounts are met, earmarking calculations are accurate and within the limit, and State or local funding levels increase at least proportionally to any increases in federal funding. c. Maintain documentation of accounting methods and amounts used to calculate the amounts claimed for matching, level of effort, and earmarking requirements. 2. Develop a process to regularly review and update its written policies and procedures to ensure they are current and relevant. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 Federal regulation requires that the recipient or subrecipient must match all Continuum of Care (CoC) grant funds, except for leasing funds, with no less than 25 percent of funds or in-kind contributions, and the recipient must ensure that any funds used to satisfy the matching requirements are eligible under the laws governing the funds in order to be used as matching funds for a grant awarded under this program. (24 CFR §578.73[a-b]) Also, federal regulation requires the Department to ensure that no more than 10 percent of the grant be used to pay for costs of administering assistance, including general management, oversight, and coordination; training on the CoC program requirements; and environmental review. (24 CFR §578.59) Further, federal regulation also requires that no assistance provided under the CoC program may be used to replace State or local funds previously used, or designated for use, to assist homeless persons (24 CFR §578.87[a]). 2 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521).
Assistance Listings number and name: 14.267 Continuum of Care Program Award number and year: AZ9999U9T002101, February 1, 2022 through June 30, 2023 Federal agency: U.S. Department of Housing and Urban Development Compliance requirement: Subrecipient monitoring Questioned costs: $40,455 Condition—Contrary to federal regulations and its federal award terms, the Department of Housing (Department) reimbursed 1 nonprofit organization subrecipient for federal program costs totaling $40,455 during fiscal year 2023 that were unsupported, unallowable, and/or paid to the nonprofit organization’s principal officers or their immediate family members in violation of conflict-of-interest disclosure requirements. Specifically, we reviewed 40 reimbursements that included Continuum of Care costs totaling $346,747 for the year and found that the Department reimbursed the subrecipient for: • $18,385 for financial and accounting services and supplies that were paid to 1 of the nonprofit organization’s principal officers, who served as the Treasurer, and their company, which was not disclosed as a conflict of interest to the Department as required by its contract with the subrecipient and federal regulations. Also, the subrecipient allocated these costs to other federal programs and nonfederal activities; however, the Department did not verify that the allocation method the subrecipient used was reasonable or that the costs, as allocated, were allowed by the program’s requirements. • $20,664 for bookkeeping services that were not adequately supported by sufficiently detailed invoices and a signed, written contract having a specified price rate for the services and terms; therefore, we were unable to verify if the amounts paid were appropriate. Further, the Department reimbursed the subrecipient for payments made to the Treasurer’s family member, whose bookkeeping services company was not disclosed as a conflict of interest to the Department as required by federal regulations. Also, the subrecipient allocated these costs to other federal programs and nonfederal activities; however, the Department did not verify that the allocation method the subrecipient used was reasonable or that the costs, as allocated, were allowed by the program’s requirements. • $831 for repairs and maintenance, travel, supplies, and other contracted services that were paid to another principal officer ($705) and the Executive Director’s immediate family member ($126) who performed various handyman services, including plumbing, painting, and building repairs, that were not adequately supported by a signed contract having specified price rates for the services and terms; therefore, we were unable to verify if the amounts reimbursed by the Department were appropriate. Further, the Department reimbursed the subrecipient for payments made to the principal officer and the Executive Director’s immediate family member, whose services were not disclosed as a conflict of interest to the Department as required by its contract with the subrecipient and federal regulations. • $476 for unallowable loan payments to the subrecipient’s Executive Director, which was for personal use. • $99 for incentive payments to 1 contractor and 1 principal officer without documentation demonstrating that they were authorized by an agreement, reasonable for the services performed as provided in the subrecipient’s policies, and consistent with compensation paid for similar work in other activities; therefore, we were unable to verify if the amounts reimbursed were allowable. Additionally, contrary to federal regulations, the Department had not ensured that the subrecipient implemented competitive purchasing procedures when procuring the professional services and handyman services described above, and the subrecipient was unable to provide documentation that it had competitively procured the services. We audited the Continuum of Care Program as a major federal program for the State’s fiscal year 2023 single audit, and we performed follow-up procedures to the review that we conducted during fiscal year 2022. During the audit, we became aware of the potentially noncompliant 40 reimbursements involving 1 of the Department’s nonprofit subrecipients with which it partnered with to carry out federal and State programs, including the Continuum of Care Program, the Emergency Solutions Grants Program (Assistance Listings number 14.231), and Temporary Assistance to Needy Families (Assistance Listings number 93.558), which was audited as a major federal program for fiscal year 2023, as well as the State Housing Trust Fund. Our review of select reimbursements to this subrecipient resulted in similar findings for the federal Temporary Assistance to Needy Families and Emergency Solutions Grants Program and the State Housing Trust Fund that are described in findings 2023-115 and 2023-06, respectively. Effect—The Department’s reimbursing a nonprofit organization subrecipient for $40,455 of unallowable or unsupported costs and/or costs paid to the nonprofit organization’s principal officers or their immediate family members in violation of conflict-of-interest disclosure requirements resulted in those monies being unavailable to be spent for their intended purpose of providing housing assistance to those in need. Consequently, the Department may be required to return those monies to the federal agency in accordance with federal requirements.1 Cause—The Department had not yet resumed all its subrecipient monitoring activities, such as conducting on-site reviews and providing training and technical assistance, since suspending them starting in fiscal year 2020 due to the COVID-19 pandemic. Also, the Department had not properly assessed the subrecipient’s risk of noncompliance with its award contract and program requirements to determine the level of monitoring procedures it should put in place or training the subrecipient needed. For example, the Department was unaware that the subrecipient had not informed it of principal officers’ conflicts of interest so that it could ensure that those principal officers or their immediate family members were not involved in decision-making related to those conflicts and selectively reviewed the related costs and activities for compliance purposes. Further, Department personnel responsible for reviewing and approving the subrecipient’s reimbursement requests reported to us that dating back to at least 2021, staff were trained to not follow the Department’s policies and procedures because they were not sufficiently detailed to provide direction on how to ensure costs are adequately supported and allowable in accordance with program requirements but, instead, to approve any costs that had been previously reimbursed. Criteria—Federal regulations require the Department to monitor subrecipients and include required procedures for assessing the risk of each subrecipient’s noncompliance and implementing appropriate monitoring procedures to address those risk assessments; verifying single audits were conducted timely, if required; reviewing financial and performance reports; following up on and ensuring corrective action is taken on deficiencies that could potentially affect the program; and issuing management decisions on the results of audit findings or monitoring (2 CFR §§ 200.332, .339, and .521). Federal regulations provide that monitoring procedures the Department may implement to address a subrecipient’s risk assessment include providing training or technical assistance on program-related matters and performing on-site reviews and selective audits of reimbursed costs (2 CFR §200.332[e]). In addition, federal regulations require the Department’s subrecipients to allocate allowable costs using a reasonable basis, to use competitive purchasing standards when procuring goods and services, and to disclose in writing to the Department any potential conflicts of interest.2 Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Department should: 1. Immediately stop reimbursing the nonprofit subrecipient for costs that are unsupported, unallowable, and/or paid to the nonprofit subrecipient’s principal officers or their immediate family members in violation of federal regulations and take appropriate enforcement actions in accordance with its subaward contract. 2. Update its written policies and procedures for reviewing and approving subrecipient reimbursement requests to include a process to ensure costs are adequately supported, allowable in accordance with program requirements, and approved by the appropriate level of management. 3. Train personnel responsible for reviewing and approving subrecipient reimbursement requests on how to identify costs that are unallowable under federal regulations. 4. Assess the risk of each subrecipient’s noncompliance and perform the appropriate monitoring procedures based on the assessed risk, such as providing training or technical assistance on program-related matters and performing on-site reviews and selective audits of reimbursed costs for allowability. 5. Ensure subrecipients allocate allowable costs using a reasonable basis, use competitive purchasing standards when procuring goods and services, and disclose in writing to the Department any potential conflicts of interest. The Department may need to provide training and technical assistance to subrecipients that address these compliance areas, including the Department’s obtaining conflict-of-interest disclosures from subrecipients as part of the subaward contract, as an example, or otherwise establishing a communication mechanism for subrecipients to use as such conflicts arise. 6. Continue to work with the nonprofit subrecipient to resolve the $40,455 in unallowable costs, including recovering these monies from the subrecipient and assessing the continued need to use this subrecipient for services. 7. Work with the federal agency to resolve the $40,455 of unallowable costs that it reimbursed, which may involve returning monies to the federal agency. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year finding 2022-115 and was initially reported in fiscal year 2022. 1 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 2 The applicable federal requirements related to allowable costs, competitive purchasing, and conflicts of interest can be found in the Code of Federal Regulations at 2 CFR §§200.112, .318-.327, and Subpart E, and 24 CFR §578.95.
Assistance Listings number and name: 14.267 Continuum of Care Program Award number and year: AZ9999U9T002101, February 1, 2022 through June 30, 2023 Federal agency: U.S. Department of Housing and Urban Development Compliance requirement: Subrecipient monitoring Questioned costs: Unknown Condition—The Arizona Department of Housing (Department) awarded $4.5 million to 15 subrecipients during fiscal year 2023, or 90 percent of the Department’s $5.0 million total federal expenditures for this federal program, but did not perform all the required monitoring of the subrecipients’ activities or compliance with the award terms and program requirements. Specifically, the Department’s only monitoring procedure during the year consisted of reviewing and approving the subrecipients’ invoices of program expenditures for reimbursement, which we also found to be deficient during a review of 1 nonprofit subrecipient’s reimbursement requests. See financial statement finding 2023-06 and federal award finding 2023-116 for specific issues noted and related recommendations. Further, that procedure alone was insufficient to evaluate whether the subrecipients used program monies in accordance with the award terms and program requirements. Effect—The Department’s failure to perform all required monitoring increased the risk that the $4.5 million of program monies the Department awarded to subrecipients may not have been spent in accordance with the award terms and program requirements. If monies are spent inconsistent with program requirements, those who were intended to benefit from the program may not receive all the services or other benefits they otherwise would have received. Consequently, the Department may be required to return any misspent monies to the federal agency in accordance with federal requirements.1 Cause—The Department did not perform all required monitoring procedures and did not have sufficient policies and procedures. Specifically, the Department did not develop and implement procedures to evaluate the substance of its federal award agreements with other parties to determine whether each of the other parties receiving the monies have the role of a subrecipient or contractor and whether they are required to comply with any of the federal program’s requirements that the Department should monitor until near the end of the grant period in May 2023. Prior to that, the Department had an informal process to identify subrecipients. Also, the Department did not develop and implement procedures to perform subrecipient risk assessments until March 2023 and had not yet resumed other subrecipient monitoring activities during fiscal year 2023, such as conducting on-site reviews and providing training and technical assistance, since suspending these activities starting in fiscal year 2020 due to the COVID-19 pandemic. Additionally, the Department’s written policies and procedures lacked procedures for performing risk assessments; designing monitoring procedures, training, or technical assistance based upon the assessed risk; and verifying that a subrecipient received a single audit if it was expected to meet or exceed the federal expenditure threshold of $750,000 for requiring a single audit. Criteria—Federal regulation requires the Department to evaluate the substance of its federal award agreements with other parties to determine whether each of the other parties receiving the monies have the role of a subrecipient or contractor and whether they are required to comply with any of the federal program’s requirements that the County should monitor (2 Code of Federal Regulation [CFR] §200.331). Additionally, federal regulation requires the Department to monitor subrecipients, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments; verifying single audits were conducted timely; following up on and ensuring corrective action is taken on audit findings that could potentially affect the program; and issuing a management decision for audit findings pertaining to the federal award. This federal regulation also provides that monitoring procedures may include providing training or technical assistance on program-related matters and performing on-site reviews, selective audits, and/or other monitoring procedures (2 CFR §§200.332[b] and [d–f]). Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Department should: 1. Perform required monitoring of its subrecipients and their compliance with the award terms and program requirements. 2. Update and follow written policies and procedures to: a. Evaluate the substance of its federal award agreements with other parties to determine whether each of the other parties receiving the monies have the role of a subrecipient or contractor and whether they are required to comply with any of the federal program’s requirements that the Department should monitor. b. Assess the risk of each subrecipient’s noncompliance and carry out monitoring activities based on those risk assessments such as providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures. c. Verify subrecipients receive timely single audits, if required; follow up on and ensure that corrective action is taken on any audit findings that could potentially affect the program; and issue management decisions for any audit findings pertaining to the federal award. d. Maintain documentation of monitoring procedures demonstrating they were performed, including the monitoring procedures’ results and any Department actions taken, if appropriate. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521).
Assistance Listings number and name: 14.267 Continuum of Care Program Award number and year: AZ9999U9T002101, February 1, 2022 through June 30, 2023 Federal agency: U.S. Department of Housing and Urban Development Compliance requirements: Matching, level of effort, and earmarking Questioned costs: Not applicable Condition—Contrary to federal regulation, the Department of Housing (Department) did not develop, document, or implement internal control procedures to monitor compliance with the program’s matching, level of effort, and earmarking requirements. Specifically, the Department did not have a process in place to identify required matching amounts, level of effort requirements, and earmarking limits or to monitor and review these requirements to ensure compliance with federal regulations.1 Despite lacking internal control procedures, we performed tests and determined the Department materially complied with the program’s matching, level of effort, and earmarking requirements during fiscal year 2023. Effect—Without effective internal control procedures in place, there is an increased risk that the Department will not comply with the program’s matching, level of effort, and earmarking requirements in future periods, which may result in having to return program monies to the federal awarding agency.2 Cause—The Department did not develop, document, or implement internal control procedures to monitor compliance with matching, level of effort, and earmarking requirements because according to management, it did not have a process to regularly review and update its policies and procedures to make sure they were current and relevant. Criteria—Federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms. (2 CFR §200.303) Recommendations—The Department should: 1. Update and implement written policies and procedures to address matching, level of effort, and earmarking requirements, including processes to: a. Identify grant award requirements over matching amounts, level of effort requirements, and earmarking limits and communicate applicable requirements to the subrecipient. b. Monitor and review these requirements to ensure the source and use of the monies used for matching are allowable and the required matching amounts are met, earmarking calculations are accurate and within the limit, and State or local funding levels increase at least proportionally to any increases in federal funding. c. Maintain documentation of accounting methods and amounts used to calculate the amounts claimed for matching, level of effort, and earmarking requirements. 2. Develop a process to regularly review and update its written policies and procedures to ensure they are current and relevant. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 Federal regulation requires that the recipient or subrecipient must match all Continuum of Care (CoC) grant funds, except for leasing funds, with no less than 25 percent of funds or in-kind contributions, and the recipient must ensure that any funds used to satisfy the matching requirements are eligible under the laws governing the funds in order to be used as matching funds for a grant awarded under this program. (24 CFR §578.73[a-b]) Also, federal regulation requires the Department to ensure that no more than 10 percent of the grant be used to pay for costs of administering assistance, including general management, oversight, and coordination; training on the CoC program requirements; and environmental review. (24 CFR §578.59) Further, federal regulation also requires that no assistance provided under the CoC program may be used to replace State or local funds previously used, or designated for use, to assist homeless persons (24 CFR §578.87[a]). 2 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521).
Assistance Listings number and name: 21.023 COVID-19 - Emergency Rental Assistance Program Award numbers and years: ERA-2101070596, January 8, 2021 through September 30, 2022; ERA2-0165, May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed, allowable costs/cost principles, and eligibility Questioned costs: $36,945 Assistance Listings number and name: 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Award number and year: None Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed and allowable costs/cost principles Questioned costs: $38,169 Total questioned costs: $75,114 Condition—Contrary to federal regulations and its policies and procedures, the Department of Economic Security—Division of Community Assistance and Development (Division) made unallowable benefits payments totaling $75,114 during fiscal year 2023 to rental assistance program applicants for the Emergency Rental Assistance Program (ERAP) and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) federal programs.1 Specifically, for 10 of 50 CSLFRF and 10 of 65 ERAP benefit payments tested, we found that the Division made unallowable benefits payments of $38,169 for CSLFRF and $36,945 for ERAP, to or on behalf of ineligible program applicants or those that lacked required eligibility documentation and for other inappropriate costs, as follows: • The Division inappropriately paid $43,642 of benefit payments to or on behalf of 8 ineligible program applicants, including: o $42,993 paid to or on behalf of 7 program applicants who did not reside in an eligible Maricopa County service area at the time of application ($30,618 for 5 ERAP program applicants and $12,375 for 2 CSLFRF applicants). o $649 paid to or on behalf of 1 ERAP program applicant whose income exceeded allowable program limits. • The Division inappropriately paid $17,655 of benefit payments to or on behalf of 8 program applicants without obtaining required documentation to support they were eligible to receive them, including: o $12,567 paid to or on behalf of 6 CSLFRF program applicants without required proof of income, a signed lease agreement, and other documentation supporting household size and the reimbursement of late penalties and fees related to rent and/or utility account bills. o $5,088 paid to or on behalf of 2 ERAP program applicants without a required lease agreement listing the applicants. • The Division inappropriately paid $13,817 of benefit payments to or on behalf of 4 program applicants, including: o $13,731 paid to or on behalf of 3 participants for rental arrears—rent not paid by the date specified in the lease agreement—payments exceeding the allowable one-time, lump sum payments ($13,227 for 2 CSLFRF participants and $504 for 1 ERAP participant). o $86 paid to or on behalf of 1 ERAP applicant for utility services the Division previously paid. Effect—The Division’s making unallowable benefits payments to ineligible program applicants or without required documentation increases the risk that the program applicants received utility and rental payments for which they were not entitled. Also, the Division’s paying for inappropriate costs spent inconsistent with program requirements increases the risk that those who were intended to benefit from the program may not have received all the benefits they otherwise would have received. Consequently, the Division may be required to return these monies to the federal agency in accordance with federal requirements.2 During fiscal year 2023, the Division paid $193.7 million in benefit payments to or on behalf of program applicants requesting emergency rental and utility assistance for these 2 federal programs, as illustrated in the figure below, and is at risk that more of its benefit payment expenditures are inappropriate than those identified in our sample. Benefit payments expenditures (in millions) Total program expenditures (in millions) Percent of benefit payments expenditures to total program expenditures ERAP $162.8 $194.7 83.6% CSLFRF $30.9 $379.5 8.1% Totals for ERAP and CSLFRF $193.7 $574.2 33.7% Cause—Division management reported that personnel responsible for evaluating program applications and determining program applicant’s eligibility and allowability of related costs did not have time to perform thorough evaluations, including making appropriate eligibility determinations, obtaining required documentation, or ensuring costs were allowable, because of the large quantity of program applications. Further, the Division failed to identify the program evaluation errors during post-reviews of eligibility determinations because the checklist Division personnel used lacked detailed guidance for verifying that the determinations aligned with the Division’s written policies and procedures and were supported by required documentation. Criteria—Federal regulations require costs to be reasonable and adequately documented to be allowable under federal awards, and the Division’s written policies and procedures require certain documentation to support eligibility requirements related to where the applicant lives and their income.3,4,5 Specifically, Division policy requires a program application evaluation to ensure complete and reasonable documentation is obtained including lease agreements; any bills related to utility accounts; and proof of income, household size, eligible service area residency, and risk of homelessness or housing instability. Also, the Division’s policies prohibit incomplete applications to be acted upon until applicants provide the required information and documentation to complete their applications. Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Division should: 1. Ensure benefit payments are for allowable costs paid to or on behalf of eligible program applicants. 2. Follow existing policies and procedures to obtain required documentation to support requirements related to where the applicant lives and their income to ensure program applicants are eligible to receive benefit payments. 3. Allocate sufficient staffing resources to perform a thorough evaluation of program benefits applications and provide training on eligibility requirements and allowable benefit payments. 4. Update the checklist Division personnel use to perform a post-review of eligibility determinations to include detailed guidance for verifying the determinations aligned with the Division’s written policies and procedures and supported by adequate documentation. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 The Arizona Department of Economic Security’s Emergency Rental Assistance Program (ERAP) was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. The initial program is referred to as ERAP 1. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). Further, the Arizona Department of Economic Security’s ERAP was extended through the federal Coronavirus State and Local Fiscal Recovery Funds, an American Rescue Plan Act of 2021 program (Public Law 117-2), as administered by the Office of the Governor. The Department of Economic Security began operating the program on July 1, 2022 (State of Arizona, Office of the Governor and Department of Economic Security, Interagency Service Agreement No. ISA-DES-ARPA-021623-01). 2 Federal Uniform Guidance audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Federal Uniform Guidance cost principles require costs to be adequately documented (2 CFR 200.403[g]) and reasonable (2 CFR 200.404). In determining the reasonableness of a given cost, consideration must be given to several factors, including requirements imposed by federal laws and regulations and the terms and conditions of the federal award (2 CFR 200.404[b]). 4 U.S. Department of the Treasury published guidance to assist grantees in ERAP administration, including a requirement for ERAP grantees to establish policies and procedures to govern the implementation of their ERAP programs consistent with the ERAP statutes and U.S. Department of the Treasury FAQs (U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions, Revised March 5, 2024. Retrieved 10/16/2024 from https://home.treasury.gov/system/files?file=136/ERA-FAQs03052024.pdf). 5 To be eligible for program benefits, individuals had to have filed, received, and been deemed eligible in accordance with the Division’s written policies and procedures. The benefit payments consisted of rent and/or utility payments for past-due amounts (a one-time lump sum payment) and for 3 months of payments on each reapplication up to a total of 18 months. Applicants must provide proof of income or self-attestation of no income and cannot earn an income that is above the area median income as determined by the HUD income limits (Section 8) set at 80 percent AMI (Area Median Income). These limits are updated annually and can be viewed at https://www.huduser.gov/portal/datasets/il.html#year2024. Further, applicants who live in Maricopa County must reside in the City of Phoenix. This policy was updated in April 2023 to include the City of Mesa. Rental applications must include a housing agreement with the applicant’s name and current rental address. Utility assistance applications must include bills or invoices or outstanding payments. Applications are reviewed by adjudicators, who ensure the documentation for proof of residence, proof of income, housing agreement, any bills related to utility accounts and proof of risk of homelessness or housing instability are complete and reasonable. Any decisions made contrary to policy must include a rationale for the decision in the supporting documentation for the application (Department of Economic Security Emergency Rental Assistance Program Policy, Rev 8 [7/1/2022] and Rev 9 [4/1/2023]).
Assistance Listings number and name: 21.023 COVID-19 - Emergency Rental Assistance Program Award numbers and years: ERA-2101070596, January 8, 2021 through September 30, 2022; ERA2-0165, May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed, allowable costs/cost principles, and eligibility Questioned costs: $36,945 Assistance Listings number and name: 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Award number and year: None Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed and allowable costs/cost principles Questioned costs: $38,169 Total questioned costs: $75,114 Condition—Contrary to federal regulations and its policies and procedures, the Department of Economic Security—Division of Community Assistance and Development (Division) made unallowable benefits payments totaling $75,114 during fiscal year 2023 to rental assistance program applicants for the Emergency Rental Assistance Program (ERAP) and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) federal programs.1 Specifically, for 10 of 50 CSLFRF and 10 of 65 ERAP benefit payments tested, we found that the Division made unallowable benefits payments of $38,169 for CSLFRF and $36,945 for ERAP, to or on behalf of ineligible program applicants or those that lacked required eligibility documentation and for other inappropriate costs, as follows: • The Division inappropriately paid $43,642 of benefit payments to or on behalf of 8 ineligible program applicants, including: o $42,993 paid to or on behalf of 7 program applicants who did not reside in an eligible Maricopa County service area at the time of application ($30,618 for 5 ERAP program applicants and $12,375 for 2 CSLFRF applicants). o $649 paid to or on behalf of 1 ERAP program applicant whose income exceeded allowable program limits. • The Division inappropriately paid $17,655 of benefit payments to or on behalf of 8 program applicants without obtaining required documentation to support they were eligible to receive them, including: o $12,567 paid to or on behalf of 6 CSLFRF program applicants without required proof of income, a signed lease agreement, and other documentation supporting household size and the reimbursement of late penalties and fees related to rent and/or utility account bills. o $5,088 paid to or on behalf of 2 ERAP program applicants without a required lease agreement listing the applicants. • The Division inappropriately paid $13,817 of benefit payments to or on behalf of 4 program applicants, including: o $13,731 paid to or on behalf of 3 participants for rental arrears—rent not paid by the date specified in the lease agreement—payments exceeding the allowable one-time, lump sum payments ($13,227 for 2 CSLFRF participants and $504 for 1 ERAP participant). o $86 paid to or on behalf of 1 ERAP applicant for utility services the Division previously paid. Effect—The Division’s making unallowable benefits payments to ineligible program applicants or without required documentation increases the risk that the program applicants received utility and rental payments for which they were not entitled. Also, the Division’s paying for inappropriate costs spent inconsistent with program requirements increases the risk that those who were intended to benefit from the program may not have received all the benefits they otherwise would have received. Consequently, the Division may be required to return these monies to the federal agency in accordance with federal requirements.2 During fiscal year 2023, the Division paid $193.7 million in benefit payments to or on behalf of program applicants requesting emergency rental and utility assistance for these 2 federal programs, as illustrated in the figure below, and is at risk that more of its benefit payment expenditures are inappropriate than those identified in our sample. Benefit payments expenditures (in millions) Total program expenditures (in millions) Percent of benefit payments expenditures to total program expenditures ERAP $162.8 $194.7 83.6% CSLFRF $30.9 $379.5 8.1% Totals for ERAP and CSLFRF $193.7 $574.2 33.7% Cause—Division management reported that personnel responsible for evaluating program applications and determining program applicant’s eligibility and allowability of related costs did not have time to perform thorough evaluations, including making appropriate eligibility determinations, obtaining required documentation, or ensuring costs were allowable, because of the large quantity of program applications. Further, the Division failed to identify the program evaluation errors during post-reviews of eligibility determinations because the checklist Division personnel used lacked detailed guidance for verifying that the determinations aligned with the Division’s written policies and procedures and were supported by required documentation. Criteria—Federal regulations require costs to be reasonable and adequately documented to be allowable under federal awards, and the Division’s written policies and procedures require certain documentation to support eligibility requirements related to where the applicant lives and their income.3,4,5 Specifically, Division policy requires a program application evaluation to ensure complete and reasonable documentation is obtained including lease agreements; any bills related to utility accounts; and proof of income, household size, eligible service area residency, and risk of homelessness or housing instability. Also, the Division’s policies prohibit incomplete applications to be acted upon until applicants provide the required information and documentation to complete their applications. Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Division should: 1. Ensure benefit payments are for allowable costs paid to or on behalf of eligible program applicants. 2. Follow existing policies and procedures to obtain required documentation to support requirements related to where the applicant lives and their income to ensure program applicants are eligible to receive benefit payments. 3. Allocate sufficient staffing resources to perform a thorough evaluation of program benefits applications and provide training on eligibility requirements and allowable benefit payments. 4. Update the checklist Division personnel use to perform a post-review of eligibility determinations to include detailed guidance for verifying the determinations aligned with the Division’s written policies and procedures and supported by adequate documentation. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 The Arizona Department of Economic Security’s Emergency Rental Assistance Program (ERAP) was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. The initial program is referred to as ERAP 1. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). Further, the Arizona Department of Economic Security’s ERAP was extended through the federal Coronavirus State and Local Fiscal Recovery Funds, an American Rescue Plan Act of 2021 program (Public Law 117-2), as administered by the Office of the Governor. The Department of Economic Security began operating the program on July 1, 2022 (State of Arizona, Office of the Governor and Department of Economic Security, Interagency Service Agreement No. ISA-DES-ARPA-021623-01). 2 Federal Uniform Guidance audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Federal Uniform Guidance cost principles require costs to be adequately documented (2 CFR 200.403[g]) and reasonable (2 CFR 200.404). In determining the reasonableness of a given cost, consideration must be given to several factors, including requirements imposed by federal laws and regulations and the terms and conditions of the federal award (2 CFR 200.404[b]). 4 U.S. Department of the Treasury published guidance to assist grantees in ERAP administration, including a requirement for ERAP grantees to establish policies and procedures to govern the implementation of their ERAP programs consistent with the ERAP statutes and U.S. Department of the Treasury FAQs (U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions, Revised March 5, 2024. Retrieved 10/16/2024 from https://home.treasury.gov/system/files?file=136/ERA-FAQs03052024.pdf). 5 To be eligible for program benefits, individuals had to have filed, received, and been deemed eligible in accordance with the Division’s written policies and procedures. The benefit payments consisted of rent and/or utility payments for past-due amounts (a one-time lump sum payment) and for 3 months of payments on each reapplication up to a total of 18 months. Applicants must provide proof of income or self-attestation of no income and cannot earn an income that is above the area median income as determined by the HUD income limits (Section 8) set at 80 percent AMI (Area Median Income). These limits are updated annually and can be viewed at https://www.huduser.gov/portal/datasets/il.html#year2024. Further, applicants who live in Maricopa County must reside in the City of Phoenix. This policy was updated in April 2023 to include the City of Mesa. Rental applications must include a housing agreement with the applicant’s name and current rental address. Utility assistance applications must include bills or invoices or outstanding payments. Applications are reviewed by adjudicators, who ensure the documentation for proof of residence, proof of income, housing agreement, any bills related to utility accounts and proof of risk of homelessness or housing instability are complete and reasonable. Any decisions made contrary to policy must include a rationale for the decision in the supporting documentation for the application (Department of Economic Security Emergency Rental Assistance Program Policy, Rev 8 [7/1/2022] and Rev 9 [4/1/2023]).
Assistance Listings number and name: 21.023 COVID-19 - Emergency Rental Assistance Program Award numbers and years: ERA-2101070596, January 8, 2021 through September 30, 2022; ERA2-0165, May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed, allowable costs/cost principles, and eligibility Questioned costs: $36,945 Assistance Listings number and name: 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Award number and year: None Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed and allowable costs/cost principles Questioned costs: $38,169 Total questioned costs: $75,114 Condition—Contrary to federal regulations and its policies and procedures, the Department of Economic Security—Division of Community Assistance and Development (Division) made unallowable benefits payments totaling $75,114 during fiscal year 2023 to rental assistance program applicants for the Emergency Rental Assistance Program (ERAP) and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) federal programs.1 Specifically, for 10 of 50 CSLFRF and 10 of 65 ERAP benefit payments tested, we found that the Division made unallowable benefits payments of $38,169 for CSLFRF and $36,945 for ERAP, to or on behalf of ineligible program applicants or those that lacked required eligibility documentation and for other inappropriate costs, as follows: • The Division inappropriately paid $43,642 of benefit payments to or on behalf of 8 ineligible program applicants, including: o $42,993 paid to or on behalf of 7 program applicants who did not reside in an eligible Maricopa County service area at the time of application ($30,618 for 5 ERAP program applicants and $12,375 for 2 CSLFRF applicants). o $649 paid to or on behalf of 1 ERAP program applicant whose income exceeded allowable program limits. • The Division inappropriately paid $17,655 of benefit payments to or on behalf of 8 program applicants without obtaining required documentation to support they were eligible to receive them, including: o $12,567 paid to or on behalf of 6 CSLFRF program applicants without required proof of income, a signed lease agreement, and other documentation supporting household size and the reimbursement of late penalties and fees related to rent and/or utility account bills. o $5,088 paid to or on behalf of 2 ERAP program applicants without a required lease agreement listing the applicants. • The Division inappropriately paid $13,817 of benefit payments to or on behalf of 4 program applicants, including: o $13,731 paid to or on behalf of 3 participants for rental arrears—rent not paid by the date specified in the lease agreement—payments exceeding the allowable one-time, lump sum payments ($13,227 for 2 CSLFRF participants and $504 for 1 ERAP participant). o $86 paid to or on behalf of 1 ERAP applicant for utility services the Division previously paid. Effect—The Division’s making unallowable benefits payments to ineligible program applicants or without required documentation increases the risk that the program applicants received utility and rental payments for which they were not entitled. Also, the Division’s paying for inappropriate costs spent inconsistent with program requirements increases the risk that those who were intended to benefit from the program may not have received all the benefits they otherwise would have received. Consequently, the Division may be required to return these monies to the federal agency in accordance with federal requirements.2 During fiscal year 2023, the Division paid $193.7 million in benefit payments to or on behalf of program applicants requesting emergency rental and utility assistance for these 2 federal programs, as illustrated in the figure below, and is at risk that more of its benefit payment expenditures are inappropriate than those identified in our sample. Benefit payments expenditures (in millions) Total program expenditures (in millions) Percent of benefit payments expenditures to total program expenditures ERAP $162.8 $194.7 83.6% CSLFRF $30.9 $379.5 8.1% Totals for ERAP and CSLFRF $193.7 $574.2 33.7% Cause—Division management reported that personnel responsible for evaluating program applications and determining program applicant’s eligibility and allowability of related costs did not have time to perform thorough evaluations, including making appropriate eligibility determinations, obtaining required documentation, or ensuring costs were allowable, because of the large quantity of program applications. Further, the Division failed to identify the program evaluation errors during post-reviews of eligibility determinations because the checklist Division personnel used lacked detailed guidance for verifying that the determinations aligned with the Division’s written policies and procedures and were supported by required documentation. Criteria—Federal regulations require costs to be reasonable and adequately documented to be allowable under federal awards, and the Division’s written policies and procedures require certain documentation to support eligibility requirements related to where the applicant lives and their income.3,4,5 Specifically, Division policy requires a program application evaluation to ensure complete and reasonable documentation is obtained including lease agreements; any bills related to utility accounts; and proof of income, household size, eligible service area residency, and risk of homelessness or housing instability. Also, the Division’s policies prohibit incomplete applications to be acted upon until applicants provide the required information and documentation to complete their applications. Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Division should: 1. Ensure benefit payments are for allowable costs paid to or on behalf of eligible program applicants. 2. Follow existing policies and procedures to obtain required documentation to support requirements related to where the applicant lives and their income to ensure program applicants are eligible to receive benefit payments. 3. Allocate sufficient staffing resources to perform a thorough evaluation of program benefits applications and provide training on eligibility requirements and allowable benefit payments. 4. Update the checklist Division personnel use to perform a post-review of eligibility determinations to include detailed guidance for verifying the determinations aligned with the Division’s written policies and procedures and supported by adequate documentation. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 The Arizona Department of Economic Security’s Emergency Rental Assistance Program (ERAP) was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. The initial program is referred to as ERAP 1. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). Further, the Arizona Department of Economic Security’s ERAP was extended through the federal Coronavirus State and Local Fiscal Recovery Funds, an American Rescue Plan Act of 2021 program (Public Law 117-2), as administered by the Office of the Governor. The Department of Economic Security began operating the program on July 1, 2022 (State of Arizona, Office of the Governor and Department of Economic Security, Interagency Service Agreement No. ISA-DES-ARPA-021623-01). 2 Federal Uniform Guidance audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Federal Uniform Guidance cost principles require costs to be adequately documented (2 CFR 200.403[g]) and reasonable (2 CFR 200.404). In determining the reasonableness of a given cost, consideration must be given to several factors, including requirements imposed by federal laws and regulations and the terms and conditions of the federal award (2 CFR 200.404[b]). 4 U.S. Department of the Treasury published guidance to assist grantees in ERAP administration, including a requirement for ERAP grantees to establish policies and procedures to govern the implementation of their ERAP programs consistent with the ERAP statutes and U.S. Department of the Treasury FAQs (U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions, Revised March 5, 2024. Retrieved 10/16/2024 from https://home.treasury.gov/system/files?file=136/ERA-FAQs03052024.pdf). 5 To be eligible for program benefits, individuals had to have filed, received, and been deemed eligible in accordance with the Division’s written policies and procedures. The benefit payments consisted of rent and/or utility payments for past-due amounts (a one-time lump sum payment) and for 3 months of payments on each reapplication up to a total of 18 months. Applicants must provide proof of income or self-attestation of no income and cannot earn an income that is above the area median income as determined by the HUD income limits (Section 8) set at 80 percent AMI (Area Median Income). These limits are updated annually and can be viewed at https://www.huduser.gov/portal/datasets/il.html#year2024. Further, applicants who live in Maricopa County must reside in the City of Phoenix. This policy was updated in April 2023 to include the City of Mesa. Rental applications must include a housing agreement with the applicant’s name and current rental address. Utility assistance applications must include bills or invoices or outstanding payments. Applications are reviewed by adjudicators, who ensure the documentation for proof of residence, proof of income, housing agreement, any bills related to utility accounts and proof of risk of homelessness or housing instability are complete and reasonable. Any decisions made contrary to policy must include a rationale for the decision in the supporting documentation for the application (Department of Economic Security Emergency Rental Assistance Program Policy, Rev 8 [7/1/2022] and Rev 9 [4/1/2023]).
Assistance Listings number and name: 21.023 COVID-19 - Emergency Rental Assistance Program Award numbers and years: ERA-2101070596, January 8, 2021 through September 30, 2022; ERA2-0165, May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed, allowable costs/cost principles, and eligibility Questioned costs: $36,945 Assistance Listings number and name: 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Award number and year: None Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed and allowable costs/cost principles Questioned costs: $38,169 Total questioned costs: $75,114 Condition—Contrary to federal regulations and its policies and procedures, the Department of Economic Security—Division of Community Assistance and Development (Division) made unallowable benefits payments totaling $75,114 during fiscal year 2023 to rental assistance program applicants for the Emergency Rental Assistance Program (ERAP) and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) federal programs.1 Specifically, for 10 of 50 CSLFRF and 10 of 65 ERAP benefit payments tested, we found that the Division made unallowable benefits payments of $38,169 for CSLFRF and $36,945 for ERAP, to or on behalf of ineligible program applicants or those that lacked required eligibility documentation and for other inappropriate costs, as follows: • The Division inappropriately paid $43,642 of benefit payments to or on behalf of 8 ineligible program applicants, including: o $42,993 paid to or on behalf of 7 program applicants who did not reside in an eligible Maricopa County service area at the time of application ($30,618 for 5 ERAP program applicants and $12,375 for 2 CSLFRF applicants). o $649 paid to or on behalf of 1 ERAP program applicant whose income exceeded allowable program limits. • The Division inappropriately paid $17,655 of benefit payments to or on behalf of 8 program applicants without obtaining required documentation to support they were eligible to receive them, including: o $12,567 paid to or on behalf of 6 CSLFRF program applicants without required proof of income, a signed lease agreement, and other documentation supporting household size and the reimbursement of late penalties and fees related to rent and/or utility account bills. o $5,088 paid to or on behalf of 2 ERAP program applicants without a required lease agreement listing the applicants. • The Division inappropriately paid $13,817 of benefit payments to or on behalf of 4 program applicants, including: o $13,731 paid to or on behalf of 3 participants for rental arrears—rent not paid by the date specified in the lease agreement—payments exceeding the allowable one-time, lump sum payments ($13,227 for 2 CSLFRF participants and $504 for 1 ERAP participant). o $86 paid to or on behalf of 1 ERAP applicant for utility services the Division previously paid. Effect—The Division’s making unallowable benefits payments to ineligible program applicants or without required documentation increases the risk that the program applicants received utility and rental payments for which they were not entitled. Also, the Division’s paying for inappropriate costs spent inconsistent with program requirements increases the risk that those who were intended to benefit from the program may not have received all the benefits they otherwise would have received. Consequently, the Division may be required to return these monies to the federal agency in accordance with federal requirements.2 During fiscal year 2023, the Division paid $193.7 million in benefit payments to or on behalf of program applicants requesting emergency rental and utility assistance for these 2 federal programs, as illustrated in the figure below, and is at risk that more of its benefit payment expenditures are inappropriate than those identified in our sample. Benefit payments expenditures (in millions) Total program expenditures (in millions) Percent of benefit payments expenditures to total program expenditures ERAP $162.8 $194.7 83.6% CSLFRF $30.9 $379.5 8.1% Totals for ERAP and CSLFRF $193.7 $574.2 33.7% Cause—Division management reported that personnel responsible for evaluating program applications and determining program applicant’s eligibility and allowability of related costs did not have time to perform thorough evaluations, including making appropriate eligibility determinations, obtaining required documentation, or ensuring costs were allowable, because of the large quantity of program applications. Further, the Division failed to identify the program evaluation errors during post-reviews of eligibility determinations because the checklist Division personnel used lacked detailed guidance for verifying that the determinations aligned with the Division’s written policies and procedures and were supported by required documentation. Criteria—Federal regulations require costs to be reasonable and adequately documented to be allowable under federal awards, and the Division’s written policies and procedures require certain documentation to support eligibility requirements related to where the applicant lives and their income.3,4,5 Specifically, Division policy requires a program application evaluation to ensure complete and reasonable documentation is obtained including lease agreements; any bills related to utility accounts; and proof of income, household size, eligible service area residency, and risk of homelessness or housing instability. Also, the Division’s policies prohibit incomplete applications to be acted upon until applicants provide the required information and documentation to complete their applications. Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Division should: 1. Ensure benefit payments are for allowable costs paid to or on behalf of eligible program applicants. 2. Follow existing policies and procedures to obtain required documentation to support requirements related to where the applicant lives and their income to ensure program applicants are eligible to receive benefit payments. 3. Allocate sufficient staffing resources to perform a thorough evaluation of program benefits applications and provide training on eligibility requirements and allowable benefit payments. 4. Update the checklist Division personnel use to perform a post-review of eligibility determinations to include detailed guidance for verifying the determinations aligned with the Division’s written policies and procedures and supported by adequate documentation. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 The Arizona Department of Economic Security’s Emergency Rental Assistance Program (ERAP) was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. The initial program is referred to as ERAP 1. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). Further, the Arizona Department of Economic Security’s ERAP was extended through the federal Coronavirus State and Local Fiscal Recovery Funds, an American Rescue Plan Act of 2021 program (Public Law 117-2), as administered by the Office of the Governor. The Department of Economic Security began operating the program on July 1, 2022 (State of Arizona, Office of the Governor and Department of Economic Security, Interagency Service Agreement No. ISA-DES-ARPA-021623-01). 2 Federal Uniform Guidance audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Federal Uniform Guidance cost principles require costs to be adequately documented (2 CFR 200.403[g]) and reasonable (2 CFR 200.404). In determining the reasonableness of a given cost, consideration must be given to several factors, including requirements imposed by federal laws and regulations and the terms and conditions of the federal award (2 CFR 200.404[b]). 4 U.S. Department of the Treasury published guidance to assist grantees in ERAP administration, including a requirement for ERAP grantees to establish policies and procedures to govern the implementation of their ERAP programs consistent with the ERAP statutes and U.S. Department of the Treasury FAQs (U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions, Revised March 5, 2024. Retrieved 10/16/2024 from https://home.treasury.gov/system/files?file=136/ERA-FAQs03052024.pdf). 5 To be eligible for program benefits, individuals had to have filed, received, and been deemed eligible in accordance with the Division’s written policies and procedures. The benefit payments consisted of rent and/or utility payments for past-due amounts (a one-time lump sum payment) and for 3 months of payments on each reapplication up to a total of 18 months. Applicants must provide proof of income or self-attestation of no income and cannot earn an income that is above the area median income as determined by the HUD income limits (Section 8) set at 80 percent AMI (Area Median Income). These limits are updated annually and can be viewed at https://www.huduser.gov/portal/datasets/il.html#year2024. Further, applicants who live in Maricopa County must reside in the City of Phoenix. This policy was updated in April 2023 to include the City of Mesa. Rental applications must include a housing agreement with the applicant’s name and current rental address. Utility assistance applications must include bills or invoices or outstanding payments. Applications are reviewed by adjudicators, who ensure the documentation for proof of residence, proof of income, housing agreement, any bills related to utility accounts and proof of risk of homelessness or housing instability are complete and reasonable. Any decisions made contrary to policy must include a rationale for the decision in the supporting documentation for the application (Department of Economic Security Emergency Rental Assistance Program Policy, Rev 8 [7/1/2022] and Rev 9 [4/1/2023]).
Assistance Listings number and name: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds (SLFRF) Award number and year: None Federal agency: U.S. Department of the Treasury Questioned costs: $1,903,858 Assistance Listing number and name: 84.425C COVID-19 Education Stabilization Fund – Governor’s Emergency Education Relief (GEER) Fund Award numbers and years: S425C200052, June 2, 2020 through September 30, 2022; S425C210052, January 8, 2021 through September 30, 2023 Federal agency: U.S. Department of Education Questioned costs: Unknown Compliance requirement: Subrecipient monitoring Condition—The Governor’s Office of Strategic Planning and Budgeting (Office) awarded $135.1 million to 334 SLFRF program subrecipients and $10.2 million to 10 GEER program subrecipients during fiscal year 2023, or 88 percent and 98 percent, respectively, of each of the Office’s federal program expenditures, but did not perform all required risk assessments to assess whether its monitoring procedures were sufficient to evaluate whether subrecipients used program monies in accordance with the award terms and program requirements. Specifically, risk assessments were not performed for 37 of 42 SLFRF program subrecipients and 5 of 5 GEER program subrecipients tested. Effect—The Office’s delay in performing required risk assessments did not allow the Office to properly design and prioritize its monitoring efforts, resulting in the Office not timely identifying questioned costs of approximately $1,903,858 for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements.1 The Office identified several of these questioned costs as potentially inappropriate and has forwarded this information to the Attorney General’s Office for further review. As a result, the Office may be required to return these monies to the federal agency in accordance with Uniform Guidance requirements.2 Further, if monies were spent inconsistent with program requirements, those who were intended to benefit from the program may not have received all the services or other benefits they otherwise would have received. Subrecipient program expenditures are not related to the revenue loss expenditure category. Cause—Office management reported that it hired additional staff in fiscal year 2023 to begin addressing issues noted in prior year findings 2022-104 and 2022-10 but had not done so in time to complete required risk assessments for the more than 300 SLFRF program and 10 GEER program subrecipients.3 Criteria—Federal regulation requires the Office to monitor subrecipients, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. This federal regulation also provides that monitoring procedures may include reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures (2 CFR §200.332[b] and [e]). Further, Office policy requires an annual risk assessment of open, active subawards to determine which subawards will be selected for review and monitoring priority (Grants Management Manual – Grantor, Chapter 8 – Award Monitoring). Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Office should: 1. Ensure it performs required monitoring of its subrecipients and their compliance with the award terms and program requirements by following its established policies and procedures to assess the risk of each subrecipient’s noncompliance annually and carry out monitoring activities based on those risk assessments such as reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on site reviews, selective audits, and/or other monitoring procedures. 2. Continue to assess its resources, such as staffing, to perform required risk assessments and monitoring procedures to comply with the award terms and program requirements. 3. Work with the federal agency and the subrecipients to resolve the $1,903,858 of program monies that may have been spent in violation of its federal award terms and that may need to be returned to the federal agency.2 The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year findings 2022-104 (GEER) and 2022-106 (SLFRF) and were initially reported in fiscal years 2021 (GEER) and 2022 (SLFRF). 1 The Office reported during fiscal year 2024 it began performing missing risk assessments for subrecipients awarded monies during fiscal years 2022 and 2023 that were not completed by June 30, 2023, and is currently conducting additional onsite monitoring or desk reviews based on those results. As of the report date, December 17, 2024, the Office identified and reported to us approximately $1,903,858 of expenditures for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements. Since the Office is still performing monitoring procedures for subaward monies spent during fiscal year 2023, there may be additional questioned costs that the Office has not identified. 2 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Office, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Arizona Auditor General. (2023). State of Arizona June 30, 2022, Single Audit Report. Phoenix, AZ. Retrieved 08/13/2024 from https://www.azauditor.gov/sites/default/files/2024-01/StateOfArizonaJune30_2022SingleAudit.pdf
Assistance Listings number and name: 21.023 COVID-19 - Emergency Rental Assistance Program Award numbers and years: ERA-2101070596, January 8, 2021 through September 30, 2022; ERA2-0165, May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed, allowable costs/cost principles, and eligibility Questioned costs: $36,945 Assistance Listings number and name: 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Award number and year: None Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed and allowable costs/cost principles Questioned costs: $38,169 Total questioned costs: $75,114 Condition—Contrary to federal regulations and its policies and procedures, the Department of Economic Security—Division of Community Assistance and Development (Division) made unallowable benefits payments totaling $75,114 during fiscal year 2023 to rental assistance program applicants for the Emergency Rental Assistance Program (ERAP) and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) federal programs.1 Specifically, for 10 of 50 CSLFRF and 10 of 65 ERAP benefit payments tested, we found that the Division made unallowable benefits payments of $38,169 for CSLFRF and $36,945 for ERAP, to or on behalf of ineligible program applicants or those that lacked required eligibility documentation and for other inappropriate costs, as follows: • The Division inappropriately paid $43,642 of benefit payments to or on behalf of 8 ineligible program applicants, including: o $42,993 paid to or on behalf of 7 program applicants who did not reside in an eligible Maricopa County service area at the time of application ($30,618 for 5 ERAP program applicants and $12,375 for 2 CSLFRF applicants). o $649 paid to or on behalf of 1 ERAP program applicant whose income exceeded allowable program limits. • The Division inappropriately paid $17,655 of benefit payments to or on behalf of 8 program applicants without obtaining required documentation to support they were eligible to receive them, including: o $12,567 paid to or on behalf of 6 CSLFRF program applicants without required proof of income, a signed lease agreement, and other documentation supporting household size and the reimbursement of late penalties and fees related to rent and/or utility account bills. o $5,088 paid to or on behalf of 2 ERAP program applicants without a required lease agreement listing the applicants. • The Division inappropriately paid $13,817 of benefit payments to or on behalf of 4 program applicants, including: o $13,731 paid to or on behalf of 3 participants for rental arrears—rent not paid by the date specified in the lease agreement—payments exceeding the allowable one-time, lump sum payments ($13,227 for 2 CSLFRF participants and $504 for 1 ERAP participant). o $86 paid to or on behalf of 1 ERAP applicant for utility services the Division previously paid. Effect—The Division’s making unallowable benefits payments to ineligible program applicants or without required documentation increases the risk that the program applicants received utility and rental payments for which they were not entitled. Also, the Division’s paying for inappropriate costs spent inconsistent with program requirements increases the risk that those who were intended to benefit from the program may not have received all the benefits they otherwise would have received. Consequently, the Division may be required to return these monies to the federal agency in accordance with federal requirements.2 During fiscal year 2023, the Division paid $193.7 million in benefit payments to or on behalf of program applicants requesting emergency rental and utility assistance for these 2 federal programs, as illustrated in the figure below, and is at risk that more of its benefit payment expenditures are inappropriate than those identified in our sample. Benefit payments expenditures (in millions) Total program expenditures (in millions) Percent of benefit payments expenditures to total program expenditures ERAP $162.8 $194.7 83.6% CSLFRF $30.9 $379.5 8.1% Totals for ERAP and CSLFRF $193.7 $574.2 33.7% Cause—Division management reported that personnel responsible for evaluating program applications and determining program applicant’s eligibility and allowability of related costs did not have time to perform thorough evaluations, including making appropriate eligibility determinations, obtaining required documentation, or ensuring costs were allowable, because of the large quantity of program applications. Further, the Division failed to identify the program evaluation errors during post-reviews of eligibility determinations because the checklist Division personnel used lacked detailed guidance for verifying that the determinations aligned with the Division’s written policies and procedures and were supported by required documentation. Criteria—Federal regulations require costs to be reasonable and adequately documented to be allowable under federal awards, and the Division’s written policies and procedures require certain documentation to support eligibility requirements related to where the applicant lives and their income.3,4,5 Specifically, Division policy requires a program application evaluation to ensure complete and reasonable documentation is obtained including lease agreements; any bills related to utility accounts; and proof of income, household size, eligible service area residency, and risk of homelessness or housing instability. Also, the Division’s policies prohibit incomplete applications to be acted upon until applicants provide the required information and documentation to complete their applications. Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Division should: 1. Ensure benefit payments are for allowable costs paid to or on behalf of eligible program applicants. 2. Follow existing policies and procedures to obtain required documentation to support requirements related to where the applicant lives and their income to ensure program applicants are eligible to receive benefit payments. 3. Allocate sufficient staffing resources to perform a thorough evaluation of program benefits applications and provide training on eligibility requirements and allowable benefit payments. 4. Update the checklist Division personnel use to perform a post-review of eligibility determinations to include detailed guidance for verifying the determinations aligned with the Division’s written policies and procedures and supported by adequate documentation. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 The Arizona Department of Economic Security’s Emergency Rental Assistance Program (ERAP) was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. The initial program is referred to as ERAP 1. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). Further, the Arizona Department of Economic Security’s ERAP was extended through the federal Coronavirus State and Local Fiscal Recovery Funds, an American Rescue Plan Act of 2021 program (Public Law 117-2), as administered by the Office of the Governor. The Department of Economic Security began operating the program on July 1, 2022 (State of Arizona, Office of the Governor and Department of Economic Security, Interagency Service Agreement No. ISA-DES-ARPA-021623-01). 2 Federal Uniform Guidance audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Federal Uniform Guidance cost principles require costs to be adequately documented (2 CFR 200.403[g]) and reasonable (2 CFR 200.404). In determining the reasonableness of a given cost, consideration must be given to several factors, including requirements imposed by federal laws and regulations and the terms and conditions of the federal award (2 CFR 200.404[b]). 4 U.S. Department of the Treasury published guidance to assist grantees in ERAP administration, including a requirement for ERAP grantees to establish policies and procedures to govern the implementation of their ERAP programs consistent with the ERAP statutes and U.S. Department of the Treasury FAQs (U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions, Revised March 5, 2024. Retrieved 10/16/2024 from https://home.treasury.gov/system/files?file=136/ERA-FAQs03052024.pdf). 5 To be eligible for program benefits, individuals had to have filed, received, and been deemed eligible in accordance with the Division’s written policies and procedures. The benefit payments consisted of rent and/or utility payments for past-due amounts (a one-time lump sum payment) and for 3 months of payments on each reapplication up to a total of 18 months. Applicants must provide proof of income or self-attestation of no income and cannot earn an income that is above the area median income as determined by the HUD income limits (Section 8) set at 80 percent AMI (Area Median Income). These limits are updated annually and can be viewed at https://www.huduser.gov/portal/datasets/il.html#year2024. Further, applicants who live in Maricopa County must reside in the City of Phoenix. This policy was updated in April 2023 to include the City of Mesa. Rental applications must include a housing agreement with the applicant’s name and current rental address. Utility assistance applications must include bills or invoices or outstanding payments. Applications are reviewed by adjudicators, who ensure the documentation for proof of residence, proof of income, housing agreement, any bills related to utility accounts and proof of risk of homelessness or housing instability are complete and reasonable. Any decisions made contrary to policy must include a rationale for the decision in the supporting documentation for the application (Department of Economic Security Emergency Rental Assistance Program Policy, Rev 8 [7/1/2022] and Rev 9 [4/1/2023]).
Assistance Listings number and name: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds (SLFRF) Award number and year: None Federal agency: U.S. Department of the Treasury Questioned costs: $1,903,858 Assistance Listing number and name: 84.425C COVID-19 Education Stabilization Fund – Governor’s Emergency Education Relief (GEER) Fund Award numbers and years: S425C200052, June 2, 2020 through September 30, 2022; S425C210052, January 8, 2021 through September 30, 2023 Federal agency: U.S. Department of Education Questioned costs: Unknown Compliance requirement: Subrecipient monitoring Condition—The Governor’s Office of Strategic Planning and Budgeting (Office) awarded $135.1 million to 334 SLFRF program subrecipients and $10.2 million to 10 GEER program subrecipients during fiscal year 2023, or 88 percent and 98 percent, respectively, of each of the Office’s federal program expenditures, but did not perform all required risk assessments to assess whether its monitoring procedures were sufficient to evaluate whether subrecipients used program monies in accordance with the award terms and program requirements. Specifically, risk assessments were not performed for 37 of 42 SLFRF program subrecipients and 5 of 5 GEER program subrecipients tested. Effect—The Office’s delay in performing required risk assessments did not allow the Office to properly design and prioritize its monitoring efforts, resulting in the Office not timely identifying questioned costs of approximately $1,903,858 for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements.1 The Office identified several of these questioned costs as potentially inappropriate and has forwarded this information to the Attorney General’s Office for further review. As a result, the Office may be required to return these monies to the federal agency in accordance with Uniform Guidance requirements.2 Further, if monies were spent inconsistent with program requirements, those who were intended to benefit from the program may not have received all the services or other benefits they otherwise would have received. Subrecipient program expenditures are not related to the revenue loss expenditure category. Cause—Office management reported that it hired additional staff in fiscal year 2023 to begin addressing issues noted in prior year findings 2022-104 and 2022-10 but had not done so in time to complete required risk assessments for the more than 300 SLFRF program and 10 GEER program subrecipients.3 Criteria—Federal regulation requires the Office to monitor subrecipients, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. This federal regulation also provides that monitoring procedures may include reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures (2 CFR §200.332[b] and [e]). Further, Office policy requires an annual risk assessment of open, active subawards to determine which subawards will be selected for review and monitoring priority (Grants Management Manual – Grantor, Chapter 8 – Award Monitoring). Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Office should: 1. Ensure it performs required monitoring of its subrecipients and their compliance with the award terms and program requirements by following its established policies and procedures to assess the risk of each subrecipient’s noncompliance annually and carry out monitoring activities based on those risk assessments such as reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on site reviews, selective audits, and/or other monitoring procedures. 2. Continue to assess its resources, such as staffing, to perform required risk assessments and monitoring procedures to comply with the award terms and program requirements. 3. Work with the federal agency and the subrecipients to resolve the $1,903,858 of program monies that may have been spent in violation of its federal award terms and that may need to be returned to the federal agency.2 The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year findings 2022-104 (GEER) and 2022-106 (SLFRF) and were initially reported in fiscal years 2021 (GEER) and 2022 (SLFRF). 1 The Office reported during fiscal year 2024 it began performing missing risk assessments for subrecipients awarded monies during fiscal years 2022 and 2023 that were not completed by June 30, 2023, and is currently conducting additional onsite monitoring or desk reviews based on those results. As of the report date, December 17, 2024, the Office identified and reported to us approximately $1,903,858 of expenditures for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements. Since the Office is still performing monitoring procedures for subaward monies spent during fiscal year 2023, there may be additional questioned costs that the Office has not identified. 2 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Office, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Arizona Auditor General. (2023). State of Arizona June 30, 2022, Single Audit Report. Phoenix, AZ. Retrieved 08/13/2024 from https://www.azauditor.gov/sites/default/files/2024-01/StateOfArizonaJune30_2022SingleAudit.pdf
Assistance Listings number and name: 21.023 COVID-19 - Emergency Rental Assistance Program Award numbers and years: ERA-2101070596, January 8, 2021 through September 30, 2022; ERA2-0165, May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed, allowable costs/cost principles, and eligibility Questioned costs: $36,945 Assistance Listings number and name: 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Award number and year: None Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed and allowable costs/cost principles Questioned costs: $38,169 Total questioned costs: $75,114 Condition—Contrary to federal regulations and its policies and procedures, the Department of Economic Security—Division of Community Assistance and Development (Division) made unallowable benefits payments totaling $75,114 during fiscal year 2023 to rental assistance program applicants for the Emergency Rental Assistance Program (ERAP) and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) federal programs.1 Specifically, for 10 of 50 CSLFRF and 10 of 65 ERAP benefit payments tested, we found that the Division made unallowable benefits payments of $38,169 for CSLFRF and $36,945 for ERAP, to or on behalf of ineligible program applicants or those that lacked required eligibility documentation and for other inappropriate costs, as follows: • The Division inappropriately paid $43,642 of benefit payments to or on behalf of 8 ineligible program applicants, including: o $42,993 paid to or on behalf of 7 program applicants who did not reside in an eligible Maricopa County service area at the time of application ($30,618 for 5 ERAP program applicants and $12,375 for 2 CSLFRF applicants). o $649 paid to or on behalf of 1 ERAP program applicant whose income exceeded allowable program limits. • The Division inappropriately paid $17,655 of benefit payments to or on behalf of 8 program applicants without obtaining required documentation to support they were eligible to receive them, including: o $12,567 paid to or on behalf of 6 CSLFRF program applicants without required proof of income, a signed lease agreement, and other documentation supporting household size and the reimbursement of late penalties and fees related to rent and/or utility account bills. o $5,088 paid to or on behalf of 2 ERAP program applicants without a required lease agreement listing the applicants. • The Division inappropriately paid $13,817 of benefit payments to or on behalf of 4 program applicants, including: o $13,731 paid to or on behalf of 3 participants for rental arrears—rent not paid by the date specified in the lease agreement—payments exceeding the allowable one-time, lump sum payments ($13,227 for 2 CSLFRF participants and $504 for 1 ERAP participant). o $86 paid to or on behalf of 1 ERAP applicant for utility services the Division previously paid. Effect—The Division’s making unallowable benefits payments to ineligible program applicants or without required documentation increases the risk that the program applicants received utility and rental payments for which they were not entitled. Also, the Division’s paying for inappropriate costs spent inconsistent with program requirements increases the risk that those who were intended to benefit from the program may not have received all the benefits they otherwise would have received. Consequently, the Division may be required to return these monies to the federal agency in accordance with federal requirements.2 During fiscal year 2023, the Division paid $193.7 million in benefit payments to or on behalf of program applicants requesting emergency rental and utility assistance for these 2 federal programs, as illustrated in the figure below, and is at risk that more of its benefit payment expenditures are inappropriate than those identified in our sample. Benefit payments expenditures (in millions) Total program expenditures (in millions) Percent of benefit payments expenditures to total program expenditures ERAP $162.8 $194.7 83.6% CSLFRF $30.9 $379.5 8.1% Totals for ERAP and CSLFRF $193.7 $574.2 33.7% Cause—Division management reported that personnel responsible for evaluating program applications and determining program applicant’s eligibility and allowability of related costs did not have time to perform thorough evaluations, including making appropriate eligibility determinations, obtaining required documentation, or ensuring costs were allowable, because of the large quantity of program applications. Further, the Division failed to identify the program evaluation errors during post-reviews of eligibility determinations because the checklist Division personnel used lacked detailed guidance for verifying that the determinations aligned with the Division’s written policies and procedures and were supported by required documentation. Criteria—Federal regulations require costs to be reasonable and adequately documented to be allowable under federal awards, and the Division’s written policies and procedures require certain documentation to support eligibility requirements related to where the applicant lives and their income.3,4,5 Specifically, Division policy requires a program application evaluation to ensure complete and reasonable documentation is obtained including lease agreements; any bills related to utility accounts; and proof of income, household size, eligible service area residency, and risk of homelessness or housing instability. Also, the Division’s policies prohibit incomplete applications to be acted upon until applicants provide the required information and documentation to complete their applications. Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Division should: 1. Ensure benefit payments are for allowable costs paid to or on behalf of eligible program applicants. 2. Follow existing policies and procedures to obtain required documentation to support requirements related to where the applicant lives and their income to ensure program applicants are eligible to receive benefit payments. 3. Allocate sufficient staffing resources to perform a thorough evaluation of program benefits applications and provide training on eligibility requirements and allowable benefit payments. 4. Update the checklist Division personnel use to perform a post-review of eligibility determinations to include detailed guidance for verifying the determinations aligned with the Division’s written policies and procedures and supported by adequate documentation. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 The Arizona Department of Economic Security’s Emergency Rental Assistance Program (ERAP) was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. The initial program is referred to as ERAP 1. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). Further, the Arizona Department of Economic Security’s ERAP was extended through the federal Coronavirus State and Local Fiscal Recovery Funds, an American Rescue Plan Act of 2021 program (Public Law 117-2), as administered by the Office of the Governor. The Department of Economic Security began operating the program on July 1, 2022 (State of Arizona, Office of the Governor and Department of Economic Security, Interagency Service Agreement No. ISA-DES-ARPA-021623-01). 2 Federal Uniform Guidance audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Federal Uniform Guidance cost principles require costs to be adequately documented (2 CFR 200.403[g]) and reasonable (2 CFR 200.404). In determining the reasonableness of a given cost, consideration must be given to several factors, including requirements imposed by federal laws and regulations and the terms and conditions of the federal award (2 CFR 200.404[b]). 4 U.S. Department of the Treasury published guidance to assist grantees in ERAP administration, including a requirement for ERAP grantees to establish policies and procedures to govern the implementation of their ERAP programs consistent with the ERAP statutes and U.S. Department of the Treasury FAQs (U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions, Revised March 5, 2024. Retrieved 10/16/2024 from https://home.treasury.gov/system/files?file=136/ERA-FAQs03052024.pdf). 5 To be eligible for program benefits, individuals had to have filed, received, and been deemed eligible in accordance with the Division’s written policies and procedures. The benefit payments consisted of rent and/or utility payments for past-due amounts (a one-time lump sum payment) and for 3 months of payments on each reapplication up to a total of 18 months. Applicants must provide proof of income or self-attestation of no income and cannot earn an income that is above the area median income as determined by the HUD income limits (Section 8) set at 80 percent AMI (Area Median Income). These limits are updated annually and can be viewed at https://www.huduser.gov/portal/datasets/il.html#year2024. Further, applicants who live in Maricopa County must reside in the City of Phoenix. This policy was updated in April 2023 to include the City of Mesa. Rental applications must include a housing agreement with the applicant’s name and current rental address. Utility assistance applications must include bills or invoices or outstanding payments. Applications are reviewed by adjudicators, who ensure the documentation for proof of residence, proof of income, housing agreement, any bills related to utility accounts and proof of risk of homelessness or housing instability are complete and reasonable. Any decisions made contrary to policy must include a rationale for the decision in the supporting documentation for the application (Department of Economic Security Emergency Rental Assistance Program Policy, Rev 8 [7/1/2022] and Rev 9 [4/1/2023]).
Assistance Listings number and name: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds (SLFRF) Award number and year: None Federal agency: U.S. Department of the Treasury Questioned costs: $1,903,858 Assistance Listing number and name: 84.425C COVID-19 Education Stabilization Fund – Governor’s Emergency Education Relief (GEER) Fund Award numbers and years: S425C200052, June 2, 2020 through September 30, 2022; S425C210052, January 8, 2021 through September 30, 2023 Federal agency: U.S. Department of Education Questioned costs: Unknown Compliance requirement: Subrecipient monitoring Condition—The Governor’s Office of Strategic Planning and Budgeting (Office) awarded $135.1 million to 334 SLFRF program subrecipients and $10.2 million to 10 GEER program subrecipients during fiscal year 2023, or 88 percent and 98 percent, respectively, of each of the Office’s federal program expenditures, but did not perform all required risk assessments to assess whether its monitoring procedures were sufficient to evaluate whether subrecipients used program monies in accordance with the award terms and program requirements. Specifically, risk assessments were not performed for 37 of 42 SLFRF program subrecipients and 5 of 5 GEER program subrecipients tested. Effect—The Office’s delay in performing required risk assessments did not allow the Office to properly design and prioritize its monitoring efforts, resulting in the Office not timely identifying questioned costs of approximately $1,903,858 for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements.1 The Office identified several of these questioned costs as potentially inappropriate and has forwarded this information to the Attorney General’s Office for further review. As a result, the Office may be required to return these monies to the federal agency in accordance with Uniform Guidance requirements.2 Further, if monies were spent inconsistent with program requirements, those who were intended to benefit from the program may not have received all the services or other benefits they otherwise would have received. Subrecipient program expenditures are not related to the revenue loss expenditure category. Cause—Office management reported that it hired additional staff in fiscal year 2023 to begin addressing issues noted in prior year findings 2022-104 and 2022-10 but had not done so in time to complete required risk assessments for the more than 300 SLFRF program and 10 GEER program subrecipients.3 Criteria—Federal regulation requires the Office to monitor subrecipients, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. This federal regulation also provides that monitoring procedures may include reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures (2 CFR §200.332[b] and [e]). Further, Office policy requires an annual risk assessment of open, active subawards to determine which subawards will be selected for review and monitoring priority (Grants Management Manual – Grantor, Chapter 8 – Award Monitoring). Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Office should: 1. Ensure it performs required monitoring of its subrecipients and their compliance with the award terms and program requirements by following its established policies and procedures to assess the risk of each subrecipient’s noncompliance annually and carry out monitoring activities based on those risk assessments such as reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on site reviews, selective audits, and/or other monitoring procedures. 2. Continue to assess its resources, such as staffing, to perform required risk assessments and monitoring procedures to comply with the award terms and program requirements. 3. Work with the federal agency and the subrecipients to resolve the $1,903,858 of program monies that may have been spent in violation of its federal award terms and that may need to be returned to the federal agency.2 The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year findings 2022-104 (GEER) and 2022-106 (SLFRF) and were initially reported in fiscal years 2021 (GEER) and 2022 (SLFRF). 1 The Office reported during fiscal year 2024 it began performing missing risk assessments for subrecipients awarded monies during fiscal years 2022 and 2023 that were not completed by June 30, 2023, and is currently conducting additional onsite monitoring or desk reviews based on those results. As of the report date, December 17, 2024, the Office identified and reported to us approximately $1,903,858 of expenditures for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements. Since the Office is still performing monitoring procedures for subaward monies spent during fiscal year 2023, there may be additional questioned costs that the Office has not identified. 2 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Office, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Arizona Auditor General. (2023). State of Arizona June 30, 2022, Single Audit Report. Phoenix, AZ. Retrieved 08/13/2024 from https://www.azauditor.gov/sites/default/files/2024-01/StateOfArizonaJune30_2022SingleAudit.pdf
Assistance Listings number and name: 21.023 COVID-19 - Emergency Rental Assistance Program Award numbers and years: ERA-2101070596, January 8, 2021 through September 30, 2022; ERA2-0165, May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed, allowable costs/cost principles, and eligibility Questioned costs: $36,945 Assistance Listings number and name: 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Award number and year: None Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed and allowable costs/cost principles Questioned costs: $38,169 Total questioned costs: $75,114 Condition—Contrary to federal regulations and its policies and procedures, the Department of Economic Security—Division of Community Assistance and Development (Division) made unallowable benefits payments totaling $75,114 during fiscal year 2023 to rental assistance program applicants for the Emergency Rental Assistance Program (ERAP) and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) federal programs.1 Specifically, for 10 of 50 CSLFRF and 10 of 65 ERAP benefit payments tested, we found that the Division made unallowable benefits payments of $38,169 for CSLFRF and $36,945 for ERAP, to or on behalf of ineligible program applicants or those that lacked required eligibility documentation and for other inappropriate costs, as follows: • The Division inappropriately paid $43,642 of benefit payments to or on behalf of 8 ineligible program applicants, including: o $42,993 paid to or on behalf of 7 program applicants who did not reside in an eligible Maricopa County service area at the time of application ($30,618 for 5 ERAP program applicants and $12,375 for 2 CSLFRF applicants). o $649 paid to or on behalf of 1 ERAP program applicant whose income exceeded allowable program limits. • The Division inappropriately paid $17,655 of benefit payments to or on behalf of 8 program applicants without obtaining required documentation to support they were eligible to receive them, including: o $12,567 paid to or on behalf of 6 CSLFRF program applicants without required proof of income, a signed lease agreement, and other documentation supporting household size and the reimbursement of late penalties and fees related to rent and/or utility account bills. o $5,088 paid to or on behalf of 2 ERAP program applicants without a required lease agreement listing the applicants. • The Division inappropriately paid $13,817 of benefit payments to or on behalf of 4 program applicants, including: o $13,731 paid to or on behalf of 3 participants for rental arrears—rent not paid by the date specified in the lease agreement—payments exceeding the allowable one-time, lump sum payments ($13,227 for 2 CSLFRF participants and $504 for 1 ERAP participant). o $86 paid to or on behalf of 1 ERAP applicant for utility services the Division previously paid. Effect—The Division’s making unallowable benefits payments to ineligible program applicants or without required documentation increases the risk that the program applicants received utility and rental payments for which they were not entitled. Also, the Division’s paying for inappropriate costs spent inconsistent with program requirements increases the risk that those who were intended to benefit from the program may not have received all the benefits they otherwise would have received. Consequently, the Division may be required to return these monies to the federal agency in accordance with federal requirements.2 During fiscal year 2023, the Division paid $193.7 million in benefit payments to or on behalf of program applicants requesting emergency rental and utility assistance for these 2 federal programs, as illustrated in the figure below, and is at risk that more of its benefit payment expenditures are inappropriate than those identified in our sample. Benefit payments expenditures (in millions) Total program expenditures (in millions) Percent of benefit payments expenditures to total program expenditures ERAP $162.8 $194.7 83.6% CSLFRF $30.9 $379.5 8.1% Totals for ERAP and CSLFRF $193.7 $574.2 33.7% Cause—Division management reported that personnel responsible for evaluating program applications and determining program applicant’s eligibility and allowability of related costs did not have time to perform thorough evaluations, including making appropriate eligibility determinations, obtaining required documentation, or ensuring costs were allowable, because of the large quantity of program applications. Further, the Division failed to identify the program evaluation errors during post-reviews of eligibility determinations because the checklist Division personnel used lacked detailed guidance for verifying that the determinations aligned with the Division’s written policies and procedures and were supported by required documentation. Criteria—Federal regulations require costs to be reasonable and adequately documented to be allowable under federal awards, and the Division’s written policies and procedures require certain documentation to support eligibility requirements related to where the applicant lives and their income.3,4,5 Specifically, Division policy requires a program application evaluation to ensure complete and reasonable documentation is obtained including lease agreements; any bills related to utility accounts; and proof of income, household size, eligible service area residency, and risk of homelessness or housing instability. Also, the Division’s policies prohibit incomplete applications to be acted upon until applicants provide the required information and documentation to complete their applications. Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Division should: 1. Ensure benefit payments are for allowable costs paid to or on behalf of eligible program applicants. 2. Follow existing policies and procedures to obtain required documentation to support requirements related to where the applicant lives and their income to ensure program applicants are eligible to receive benefit payments. 3. Allocate sufficient staffing resources to perform a thorough evaluation of program benefits applications and provide training on eligibility requirements and allowable benefit payments. 4. Update the checklist Division personnel use to perform a post-review of eligibility determinations to include detailed guidance for verifying the determinations aligned with the Division’s written policies and procedures and supported by adequate documentation. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 The Arizona Department of Economic Security’s Emergency Rental Assistance Program (ERAP) was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. The initial program is referred to as ERAP 1. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). Further, the Arizona Department of Economic Security’s ERAP was extended through the federal Coronavirus State and Local Fiscal Recovery Funds, an American Rescue Plan Act of 2021 program (Public Law 117-2), as administered by the Office of the Governor. The Department of Economic Security began operating the program on July 1, 2022 (State of Arizona, Office of the Governor and Department of Economic Security, Interagency Service Agreement No. ISA-DES-ARPA-021623-01). 2 Federal Uniform Guidance audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Federal Uniform Guidance cost principles require costs to be adequately documented (2 CFR 200.403[g]) and reasonable (2 CFR 200.404). In determining the reasonableness of a given cost, consideration must be given to several factors, including requirements imposed by federal laws and regulations and the terms and conditions of the federal award (2 CFR 200.404[b]). 4 U.S. Department of the Treasury published guidance to assist grantees in ERAP administration, including a requirement for ERAP grantees to establish policies and procedures to govern the implementation of their ERAP programs consistent with the ERAP statutes and U.S. Department of the Treasury FAQs (U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions, Revised March 5, 2024. Retrieved 10/16/2024 from https://home.treasury.gov/system/files?file=136/ERA-FAQs03052024.pdf). 5 To be eligible for program benefits, individuals had to have filed, received, and been deemed eligible in accordance with the Division’s written policies and procedures. The benefit payments consisted of rent and/or utility payments for past-due amounts (a one-time lump sum payment) and for 3 months of payments on each reapplication up to a total of 18 months. Applicants must provide proof of income or self-attestation of no income and cannot earn an income that is above the area median income as determined by the HUD income limits (Section 8) set at 80 percent AMI (Area Median Income). These limits are updated annually and can be viewed at https://www.huduser.gov/portal/datasets/il.html#year2024. Further, applicants who live in Maricopa County must reside in the City of Phoenix. This policy was updated in April 2023 to include the City of Mesa. Rental applications must include a housing agreement with the applicant’s name and current rental address. Utility assistance applications must include bills or invoices or outstanding payments. Applications are reviewed by adjudicators, who ensure the documentation for proof of residence, proof of income, housing agreement, any bills related to utility accounts and proof of risk of homelessness or housing instability are complete and reasonable. Any decisions made contrary to policy must include a rationale for the decision in the supporting documentation for the application (Department of Economic Security Emergency Rental Assistance Program Policy, Rev 8 [7/1/2022] and Rev 9 [4/1/2023]).
Assistance Listings number and name: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds (SLFRF) Award number and year: None Federal agency: U.S. Department of the Treasury Questioned costs: $1,903,858 Assistance Listing number and name: 84.425C COVID-19 Education Stabilization Fund – Governor’s Emergency Education Relief (GEER) Fund Award numbers and years: S425C200052, June 2, 2020 through September 30, 2022; S425C210052, January 8, 2021 through September 30, 2023 Federal agency: U.S. Department of Education Questioned costs: Unknown Compliance requirement: Subrecipient monitoring Condition—The Governor’s Office of Strategic Planning and Budgeting (Office) awarded $135.1 million to 334 SLFRF program subrecipients and $10.2 million to 10 GEER program subrecipients during fiscal year 2023, or 88 percent and 98 percent, respectively, of each of the Office’s federal program expenditures, but did not perform all required risk assessments to assess whether its monitoring procedures were sufficient to evaluate whether subrecipients used program monies in accordance with the award terms and program requirements. Specifically, risk assessments were not performed for 37 of 42 SLFRF program subrecipients and 5 of 5 GEER program subrecipients tested. Effect—The Office’s delay in performing required risk assessments did not allow the Office to properly design and prioritize its monitoring efforts, resulting in the Office not timely identifying questioned costs of approximately $1,903,858 for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements.1 The Office identified several of these questioned costs as potentially inappropriate and has forwarded this information to the Attorney General’s Office for further review. As a result, the Office may be required to return these monies to the federal agency in accordance with Uniform Guidance requirements.2 Further, if monies were spent inconsistent with program requirements, those who were intended to benefit from the program may not have received all the services or other benefits they otherwise would have received. Subrecipient program expenditures are not related to the revenue loss expenditure category. Cause—Office management reported that it hired additional staff in fiscal year 2023 to begin addressing issues noted in prior year findings 2022-104 and 2022-10 but had not done so in time to complete required risk assessments for the more than 300 SLFRF program and 10 GEER program subrecipients.3 Criteria—Federal regulation requires the Office to monitor subrecipients, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. This federal regulation also provides that monitoring procedures may include reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures (2 CFR §200.332[b] and [e]). Further, Office policy requires an annual risk assessment of open, active subawards to determine which subawards will be selected for review and monitoring priority (Grants Management Manual – Grantor, Chapter 8 – Award Monitoring). Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Office should: 1. Ensure it performs required monitoring of its subrecipients and their compliance with the award terms and program requirements by following its established policies and procedures to assess the risk of each subrecipient’s noncompliance annually and carry out monitoring activities based on those risk assessments such as reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on site reviews, selective audits, and/or other monitoring procedures. 2. Continue to assess its resources, such as staffing, to perform required risk assessments and monitoring procedures to comply with the award terms and program requirements. 3. Work with the federal agency and the subrecipients to resolve the $1,903,858 of program monies that may have been spent in violation of its federal award terms and that may need to be returned to the federal agency.2 The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year findings 2022-104 (GEER) and 2022-106 (SLFRF) and were initially reported in fiscal years 2021 (GEER) and 2022 (SLFRF). 1 The Office reported during fiscal year 2024 it began performing missing risk assessments for subrecipients awarded monies during fiscal years 2022 and 2023 that were not completed by June 30, 2023, and is currently conducting additional onsite monitoring or desk reviews based on those results. As of the report date, December 17, 2024, the Office identified and reported to us approximately $1,903,858 of expenditures for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements. Since the Office is still performing monitoring procedures for subaward monies spent during fiscal year 2023, there may be additional questioned costs that the Office has not identified. 2 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Office, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Arizona Auditor General. (2023). State of Arizona June 30, 2022, Single Audit Report. Phoenix, AZ. Retrieved 08/13/2024 from https://www.azauditor.gov/sites/default/files/2024-01/StateOfArizonaJune30_2022SingleAudit.pdf
Assistance Listings number and name: 21.023 COVID-19 - Emergency Rental Assistance Program Award numbers and years: ERA-2101070596, January 8, 2021 through September 30, 2022; ERA2-0165, May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed, allowable costs/cost principles, and eligibility Questioned costs: $36,945 Assistance Listings number and name: 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Award number and year: None Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed and allowable costs/cost principles Questioned costs: $38,169 Total questioned costs: $75,114 Condition—Contrary to federal regulations and its policies and procedures, the Department of Economic Security—Division of Community Assistance and Development (Division) made unallowable benefits payments totaling $75,114 during fiscal year 2023 to rental assistance program applicants for the Emergency Rental Assistance Program (ERAP) and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) federal programs.1 Specifically, for 10 of 50 CSLFRF and 10 of 65 ERAP benefit payments tested, we found that the Division made unallowable benefits payments of $38,169 for CSLFRF and $36,945 for ERAP, to or on behalf of ineligible program applicants or those that lacked required eligibility documentation and for other inappropriate costs, as follows: • The Division inappropriately paid $43,642 of benefit payments to or on behalf of 8 ineligible program applicants, including: o $42,993 paid to or on behalf of 7 program applicants who did not reside in an eligible Maricopa County service area at the time of application ($30,618 for 5 ERAP program applicants and $12,375 for 2 CSLFRF applicants). o $649 paid to or on behalf of 1 ERAP program applicant whose income exceeded allowable program limits. • The Division inappropriately paid $17,655 of benefit payments to or on behalf of 8 program applicants without obtaining required documentation to support they were eligible to receive them, including: o $12,567 paid to or on behalf of 6 CSLFRF program applicants without required proof of income, a signed lease agreement, and other documentation supporting household size and the reimbursement of late penalties and fees related to rent and/or utility account bills. o $5,088 paid to or on behalf of 2 ERAP program applicants without a required lease agreement listing the applicants. • The Division inappropriately paid $13,817 of benefit payments to or on behalf of 4 program applicants, including: o $13,731 paid to or on behalf of 3 participants for rental arrears—rent not paid by the date specified in the lease agreement—payments exceeding the allowable one-time, lump sum payments ($13,227 for 2 CSLFRF participants and $504 for 1 ERAP participant). o $86 paid to or on behalf of 1 ERAP applicant for utility services the Division previously paid. Effect—The Division’s making unallowable benefits payments to ineligible program applicants or without required documentation increases the risk that the program applicants received utility and rental payments for which they were not entitled. Also, the Division’s paying for inappropriate costs spent inconsistent with program requirements increases the risk that those who were intended to benefit from the program may not have received all the benefits they otherwise would have received. Consequently, the Division may be required to return these monies to the federal agency in accordance with federal requirements.2 During fiscal year 2023, the Division paid $193.7 million in benefit payments to or on behalf of program applicants requesting emergency rental and utility assistance for these 2 federal programs, as illustrated in the figure below, and is at risk that more of its benefit payment expenditures are inappropriate than those identified in our sample. Benefit payments expenditures (in millions) Total program expenditures (in millions) Percent of benefit payments expenditures to total program expenditures ERAP $162.8 $194.7 83.6% CSLFRF $30.9 $379.5 8.1% Totals for ERAP and CSLFRF $193.7 $574.2 33.7% Cause—Division management reported that personnel responsible for evaluating program applications and determining program applicant’s eligibility and allowability of related costs did not have time to perform thorough evaluations, including making appropriate eligibility determinations, obtaining required documentation, or ensuring costs were allowable, because of the large quantity of program applications. Further, the Division failed to identify the program evaluation errors during post-reviews of eligibility determinations because the checklist Division personnel used lacked detailed guidance for verifying that the determinations aligned with the Division’s written policies and procedures and were supported by required documentation. Criteria—Federal regulations require costs to be reasonable and adequately documented to be allowable under federal awards, and the Division’s written policies and procedures require certain documentation to support eligibility requirements related to where the applicant lives and their income.3,4,5 Specifically, Division policy requires a program application evaluation to ensure complete and reasonable documentation is obtained including lease agreements; any bills related to utility accounts; and proof of income, household size, eligible service area residency, and risk of homelessness or housing instability. Also, the Division’s policies prohibit incomplete applications to be acted upon until applicants provide the required information and documentation to complete their applications. Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Division should: 1. Ensure benefit payments are for allowable costs paid to or on behalf of eligible program applicants. 2. Follow existing policies and procedures to obtain required documentation to support requirements related to where the applicant lives and their income to ensure program applicants are eligible to receive benefit payments. 3. Allocate sufficient staffing resources to perform a thorough evaluation of program benefits applications and provide training on eligibility requirements and allowable benefit payments. 4. Update the checklist Division personnel use to perform a post-review of eligibility determinations to include detailed guidance for verifying the determinations aligned with the Division’s written policies and procedures and supported by adequate documentation. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 The Arizona Department of Economic Security’s Emergency Rental Assistance Program (ERAP) was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. The initial program is referred to as ERAP 1. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). Further, the Arizona Department of Economic Security’s ERAP was extended through the federal Coronavirus State and Local Fiscal Recovery Funds, an American Rescue Plan Act of 2021 program (Public Law 117-2), as administered by the Office of the Governor. The Department of Economic Security began operating the program on July 1, 2022 (State of Arizona, Office of the Governor and Department of Economic Security, Interagency Service Agreement No. ISA-DES-ARPA-021623-01). 2 Federal Uniform Guidance audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Federal Uniform Guidance cost principles require costs to be adequately documented (2 CFR 200.403[g]) and reasonable (2 CFR 200.404). In determining the reasonableness of a given cost, consideration must be given to several factors, including requirements imposed by federal laws and regulations and the terms and conditions of the federal award (2 CFR 200.404[b]). 4 U.S. Department of the Treasury published guidance to assist grantees in ERAP administration, including a requirement for ERAP grantees to establish policies and procedures to govern the implementation of their ERAP programs consistent with the ERAP statutes and U.S. Department of the Treasury FAQs (U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions, Revised March 5, 2024. Retrieved 10/16/2024 from https://home.treasury.gov/system/files?file=136/ERA-FAQs03052024.pdf). 5 To be eligible for program benefits, individuals had to have filed, received, and been deemed eligible in accordance with the Division’s written policies and procedures. The benefit payments consisted of rent and/or utility payments for past-due amounts (a one-time lump sum payment) and for 3 months of payments on each reapplication up to a total of 18 months. Applicants must provide proof of income or self-attestation of no income and cannot earn an income that is above the area median income as determined by the HUD income limits (Section 8) set at 80 percent AMI (Area Median Income). These limits are updated annually and can be viewed at https://www.huduser.gov/portal/datasets/il.html#year2024. Further, applicants who live in Maricopa County must reside in the City of Phoenix. This policy was updated in April 2023 to include the City of Mesa. Rental applications must include a housing agreement with the applicant’s name and current rental address. Utility assistance applications must include bills or invoices or outstanding payments. Applications are reviewed by adjudicators, who ensure the documentation for proof of residence, proof of income, housing agreement, any bills related to utility accounts and proof of risk of homelessness or housing instability are complete and reasonable. Any decisions made contrary to policy must include a rationale for the decision in the supporting documentation for the application (Department of Economic Security Emergency Rental Assistance Program Policy, Rev 8 [7/1/2022] and Rev 9 [4/1/2023]).
Assistance Listings number and name: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds (SLFRF) Award number and year: None Federal agency: U.S. Department of the Treasury Questioned costs: $1,903,858 Assistance Listing number and name: 84.425C COVID-19 Education Stabilization Fund – Governor’s Emergency Education Relief (GEER) Fund Award numbers and years: S425C200052, June 2, 2020 through September 30, 2022; S425C210052, January 8, 2021 through September 30, 2023 Federal agency: U.S. Department of Education Questioned costs: Unknown Compliance requirement: Subrecipient monitoring Condition—The Governor’s Office of Strategic Planning and Budgeting (Office) awarded $135.1 million to 334 SLFRF program subrecipients and $10.2 million to 10 GEER program subrecipients during fiscal year 2023, or 88 percent and 98 percent, respectively, of each of the Office’s federal program expenditures, but did not perform all required risk assessments to assess whether its monitoring procedures were sufficient to evaluate whether subrecipients used program monies in accordance with the award terms and program requirements. Specifically, risk assessments were not performed for 37 of 42 SLFRF program subrecipients and 5 of 5 GEER program subrecipients tested. Effect—The Office’s delay in performing required risk assessments did not allow the Office to properly design and prioritize its monitoring efforts, resulting in the Office not timely identifying questioned costs of approximately $1,903,858 for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements.1 The Office identified several of these questioned costs as potentially inappropriate and has forwarded this information to the Attorney General’s Office for further review. As a result, the Office may be required to return these monies to the federal agency in accordance with Uniform Guidance requirements.2 Further, if monies were spent inconsistent with program requirements, those who were intended to benefit from the program may not have received all the services or other benefits they otherwise would have received. Subrecipient program expenditures are not related to the revenue loss expenditure category. Cause—Office management reported that it hired additional staff in fiscal year 2023 to begin addressing issues noted in prior year findings 2022-104 and 2022-10 but had not done so in time to complete required risk assessments for the more than 300 SLFRF program and 10 GEER program subrecipients.3 Criteria—Federal regulation requires the Office to monitor subrecipients, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. This federal regulation also provides that monitoring procedures may include reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures (2 CFR §200.332[b] and [e]). Further, Office policy requires an annual risk assessment of open, active subawards to determine which subawards will be selected for review and monitoring priority (Grants Management Manual – Grantor, Chapter 8 – Award Monitoring). Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Office should: 1. Ensure it performs required monitoring of its subrecipients and their compliance with the award terms and program requirements by following its established policies and procedures to assess the risk of each subrecipient’s noncompliance annually and carry out monitoring activities based on those risk assessments such as reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on site reviews, selective audits, and/or other monitoring procedures. 2. Continue to assess its resources, such as staffing, to perform required risk assessments and monitoring procedures to comply with the award terms and program requirements. 3. Work with the federal agency and the subrecipients to resolve the $1,903,858 of program monies that may have been spent in violation of its federal award terms and that may need to be returned to the federal agency.2 The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year findings 2022-104 (GEER) and 2022-106 (SLFRF) and were initially reported in fiscal years 2021 (GEER) and 2022 (SLFRF). 1 The Office reported during fiscal year 2024 it began performing missing risk assessments for subrecipients awarded monies during fiscal years 2022 and 2023 that were not completed by June 30, 2023, and is currently conducting additional onsite monitoring or desk reviews based on those results. As of the report date, December 17, 2024, the Office identified and reported to us approximately $1,903,858 of expenditures for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements. Since the Office is still performing monitoring procedures for subaward monies spent during fiscal year 2023, there may be additional questioned costs that the Office has not identified. 2 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Office, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Arizona Auditor General. (2023). State of Arizona June 30, 2022, Single Audit Report. Phoenix, AZ. Retrieved 08/13/2024 from https://www.azauditor.gov/sites/default/files/2024-01/StateOfArizonaJune30_2022SingleAudit.pdf
Assistance Listings number and name: 21.023 COVID-19 - Emergency Rental Assistance Program Award numbers and years: ERA-2101070596, January 8, 2021 through September 30, 2022; ERA2-0165, May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed, allowable costs/cost principles, and eligibility Questioned costs: $36,945 Assistance Listings number and name: 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Award number and year: None Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed and allowable costs/cost principles Questioned costs: $38,169 Total questioned costs: $75,114 Condition—Contrary to federal regulations and its policies and procedures, the Department of Economic Security—Division of Community Assistance and Development (Division) made unallowable benefits payments totaling $75,114 during fiscal year 2023 to rental assistance program applicants for the Emergency Rental Assistance Program (ERAP) and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) federal programs.1 Specifically, for 10 of 50 CSLFRF and 10 of 65 ERAP benefit payments tested, we found that the Division made unallowable benefits payments of $38,169 for CSLFRF and $36,945 for ERAP, to or on behalf of ineligible program applicants or those that lacked required eligibility documentation and for other inappropriate costs, as follows: • The Division inappropriately paid $43,642 of benefit payments to or on behalf of 8 ineligible program applicants, including: o $42,993 paid to or on behalf of 7 program applicants who did not reside in an eligible Maricopa County service area at the time of application ($30,618 for 5 ERAP program applicants and $12,375 for 2 CSLFRF applicants). o $649 paid to or on behalf of 1 ERAP program applicant whose income exceeded allowable program limits. • The Division inappropriately paid $17,655 of benefit payments to or on behalf of 8 program applicants without obtaining required documentation to support they were eligible to receive them, including: o $12,567 paid to or on behalf of 6 CSLFRF program applicants without required proof of income, a signed lease agreement, and other documentation supporting household size and the reimbursement of late penalties and fees related to rent and/or utility account bills. o $5,088 paid to or on behalf of 2 ERAP program applicants without a required lease agreement listing the applicants. • The Division inappropriately paid $13,817 of benefit payments to or on behalf of 4 program applicants, including: o $13,731 paid to or on behalf of 3 participants for rental arrears—rent not paid by the date specified in the lease agreement—payments exceeding the allowable one-time, lump sum payments ($13,227 for 2 CSLFRF participants and $504 for 1 ERAP participant). o $86 paid to or on behalf of 1 ERAP applicant for utility services the Division previously paid. Effect—The Division’s making unallowable benefits payments to ineligible program applicants or without required documentation increases the risk that the program applicants received utility and rental payments for which they were not entitled. Also, the Division’s paying for inappropriate costs spent inconsistent with program requirements increases the risk that those who were intended to benefit from the program may not have received all the benefits they otherwise would have received. Consequently, the Division may be required to return these monies to the federal agency in accordance with federal requirements.2 During fiscal year 2023, the Division paid $193.7 million in benefit payments to or on behalf of program applicants requesting emergency rental and utility assistance for these 2 federal programs, as illustrated in the figure below, and is at risk that more of its benefit payment expenditures are inappropriate than those identified in our sample. Benefit payments expenditures (in millions) Total program expenditures (in millions) Percent of benefit payments expenditures to total program expenditures ERAP $162.8 $194.7 83.6% CSLFRF $30.9 $379.5 8.1% Totals for ERAP and CSLFRF $193.7 $574.2 33.7% Cause—Division management reported that personnel responsible for evaluating program applications and determining program applicant’s eligibility and allowability of related costs did not have time to perform thorough evaluations, including making appropriate eligibility determinations, obtaining required documentation, or ensuring costs were allowable, because of the large quantity of program applications. Further, the Division failed to identify the program evaluation errors during post-reviews of eligibility determinations because the checklist Division personnel used lacked detailed guidance for verifying that the determinations aligned with the Division’s written policies and procedures and were supported by required documentation. Criteria—Federal regulations require costs to be reasonable and adequately documented to be allowable under federal awards, and the Division’s written policies and procedures require certain documentation to support eligibility requirements related to where the applicant lives and their income.3,4,5 Specifically, Division policy requires a program application evaluation to ensure complete and reasonable documentation is obtained including lease agreements; any bills related to utility accounts; and proof of income, household size, eligible service area residency, and risk of homelessness or housing instability. Also, the Division’s policies prohibit incomplete applications to be acted upon until applicants provide the required information and documentation to complete their applications. Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Division should: 1. Ensure benefit payments are for allowable costs paid to or on behalf of eligible program applicants. 2. Follow existing policies and procedures to obtain required documentation to support requirements related to where the applicant lives and their income to ensure program applicants are eligible to receive benefit payments. 3. Allocate sufficient staffing resources to perform a thorough evaluation of program benefits applications and provide training on eligibility requirements and allowable benefit payments. 4. Update the checklist Division personnel use to perform a post-review of eligibility determinations to include detailed guidance for verifying the determinations aligned with the Division’s written policies and procedures and supported by adequate documentation. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 The Arizona Department of Economic Security’s Emergency Rental Assistance Program (ERAP) was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. The initial program is referred to as ERAP 1. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). Further, the Arizona Department of Economic Security’s ERAP was extended through the federal Coronavirus State and Local Fiscal Recovery Funds, an American Rescue Plan Act of 2021 program (Public Law 117-2), as administered by the Office of the Governor. The Department of Economic Security began operating the program on July 1, 2022 (State of Arizona, Office of the Governor and Department of Economic Security, Interagency Service Agreement No. ISA-DES-ARPA-021623-01). 2 Federal Uniform Guidance audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Federal Uniform Guidance cost principles require costs to be adequately documented (2 CFR 200.403[g]) and reasonable (2 CFR 200.404). In determining the reasonableness of a given cost, consideration must be given to several factors, including requirements imposed by federal laws and regulations and the terms and conditions of the federal award (2 CFR 200.404[b]). 4 U.S. Department of the Treasury published guidance to assist grantees in ERAP administration, including a requirement for ERAP grantees to establish policies and procedures to govern the implementation of their ERAP programs consistent with the ERAP statutes and U.S. Department of the Treasury FAQs (U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions, Revised March 5, 2024. Retrieved 10/16/2024 from https://home.treasury.gov/system/files?file=136/ERA-FAQs03052024.pdf). 5 To be eligible for program benefits, individuals had to have filed, received, and been deemed eligible in accordance with the Division’s written policies and procedures. The benefit payments consisted of rent and/or utility payments for past-due amounts (a one-time lump sum payment) and for 3 months of payments on each reapplication up to a total of 18 months. Applicants must provide proof of income or self-attestation of no income and cannot earn an income that is above the area median income as determined by the HUD income limits (Section 8) set at 80 percent AMI (Area Median Income). These limits are updated annually and can be viewed at https://www.huduser.gov/portal/datasets/il.html#year2024. Further, applicants who live in Maricopa County must reside in the City of Phoenix. This policy was updated in April 2023 to include the City of Mesa. Rental applications must include a housing agreement with the applicant’s name and current rental address. Utility assistance applications must include bills or invoices or outstanding payments. Applications are reviewed by adjudicators, who ensure the documentation for proof of residence, proof of income, housing agreement, any bills related to utility accounts and proof of risk of homelessness or housing instability are complete and reasonable. Any decisions made contrary to policy must include a rationale for the decision in the supporting documentation for the application (Department of Economic Security Emergency Rental Assistance Program Policy, Rev 8 [7/1/2022] and Rev 9 [4/1/2023]).
Assistance Listings number and name: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds (SLFRF) Award number and year: None Federal agency: U.S. Department of the Treasury Questioned costs: $1,903,858 Assistance Listing number and name: 84.425C COVID-19 Education Stabilization Fund – Governor’s Emergency Education Relief (GEER) Fund Award numbers and years: S425C200052, June 2, 2020 through September 30, 2022; S425C210052, January 8, 2021 through September 30, 2023 Federal agency: U.S. Department of Education Questioned costs: Unknown Compliance requirement: Subrecipient monitoring Condition—The Governor’s Office of Strategic Planning and Budgeting (Office) awarded $135.1 million to 334 SLFRF program subrecipients and $10.2 million to 10 GEER program subrecipients during fiscal year 2023, or 88 percent and 98 percent, respectively, of each of the Office’s federal program expenditures, but did not perform all required risk assessments to assess whether its monitoring procedures were sufficient to evaluate whether subrecipients used program monies in accordance with the award terms and program requirements. Specifically, risk assessments were not performed for 37 of 42 SLFRF program subrecipients and 5 of 5 GEER program subrecipients tested. Effect—The Office’s delay in performing required risk assessments did not allow the Office to properly design and prioritize its monitoring efforts, resulting in the Office not timely identifying questioned costs of approximately $1,903,858 for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements.1 The Office identified several of these questioned costs as potentially inappropriate and has forwarded this information to the Attorney General’s Office for further review. As a result, the Office may be required to return these monies to the federal agency in accordance with Uniform Guidance requirements.2 Further, if monies were spent inconsistent with program requirements, those who were intended to benefit from the program may not have received all the services or other benefits they otherwise would have received. Subrecipient program expenditures are not related to the revenue loss expenditure category. Cause—Office management reported that it hired additional staff in fiscal year 2023 to begin addressing issues noted in prior year findings 2022-104 and 2022-10 but had not done so in time to complete required risk assessments for the more than 300 SLFRF program and 10 GEER program subrecipients.3 Criteria—Federal regulation requires the Office to monitor subrecipients, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. This federal regulation also provides that monitoring procedures may include reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures (2 CFR §200.332[b] and [e]). Further, Office policy requires an annual risk assessment of open, active subawards to determine which subawards will be selected for review and monitoring priority (Grants Management Manual – Grantor, Chapter 8 – Award Monitoring). Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Office should: 1. Ensure it performs required monitoring of its subrecipients and their compliance with the award terms and program requirements by following its established policies and procedures to assess the risk of each subrecipient’s noncompliance annually and carry out monitoring activities based on those risk assessments such as reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on site reviews, selective audits, and/or other monitoring procedures. 2. Continue to assess its resources, such as staffing, to perform required risk assessments and monitoring procedures to comply with the award terms and program requirements. 3. Work with the federal agency and the subrecipients to resolve the $1,903,858 of program monies that may have been spent in violation of its federal award terms and that may need to be returned to the federal agency.2 The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year findings 2022-104 (GEER) and 2022-106 (SLFRF) and were initially reported in fiscal years 2021 (GEER) and 2022 (SLFRF). 1 The Office reported during fiscal year 2024 it began performing missing risk assessments for subrecipients awarded monies during fiscal years 2022 and 2023 that were not completed by June 30, 2023, and is currently conducting additional onsite monitoring or desk reviews based on those results. As of the report date, December 17, 2024, the Office identified and reported to us approximately $1,903,858 of expenditures for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements. Since the Office is still performing monitoring procedures for subaward monies spent during fiscal year 2023, there may be additional questioned costs that the Office has not identified. 2 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Office, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Arizona Auditor General. (2023). State of Arizona June 30, 2022, Single Audit Report. Phoenix, AZ. Retrieved 08/13/2024 from https://www.azauditor.gov/sites/default/files/2024-01/StateOfArizonaJune30_2022SingleAudit.pdf
Assistance Listings number and name: 21.023 COVID-19 - Emergency Rental Assistance Program Award numbers and years: ERA-2101070596, January 8, 2021 through September 30, 2022; ERA2-0165, May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed, allowable costs/cost principles, and eligibility Questioned costs: $36,945 Assistance Listings number and name: 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Award number and year: None Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed and allowable costs/cost principles Questioned costs: $38,169 Total questioned costs: $75,114 Condition—Contrary to federal regulations and its policies and procedures, the Department of Economic Security—Division of Community Assistance and Development (Division) made unallowable benefits payments totaling $75,114 during fiscal year 2023 to rental assistance program applicants for the Emergency Rental Assistance Program (ERAP) and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) federal programs.1 Specifically, for 10 of 50 CSLFRF and 10 of 65 ERAP benefit payments tested, we found that the Division made unallowable benefits payments of $38,169 for CSLFRF and $36,945 for ERAP, to or on behalf of ineligible program applicants or those that lacked required eligibility documentation and for other inappropriate costs, as follows: • The Division inappropriately paid $43,642 of benefit payments to or on behalf of 8 ineligible program applicants, including: o $42,993 paid to or on behalf of 7 program applicants who did not reside in an eligible Maricopa County service area at the time of application ($30,618 for 5 ERAP program applicants and $12,375 for 2 CSLFRF applicants). o $649 paid to or on behalf of 1 ERAP program applicant whose income exceeded allowable program limits. • The Division inappropriately paid $17,655 of benefit payments to or on behalf of 8 program applicants without obtaining required documentation to support they were eligible to receive them, including: o $12,567 paid to or on behalf of 6 CSLFRF program applicants without required proof of income, a signed lease agreement, and other documentation supporting household size and the reimbursement of late penalties and fees related to rent and/or utility account bills. o $5,088 paid to or on behalf of 2 ERAP program applicants without a required lease agreement listing the applicants. • The Division inappropriately paid $13,817 of benefit payments to or on behalf of 4 program applicants, including: o $13,731 paid to or on behalf of 3 participants for rental arrears—rent not paid by the date specified in the lease agreement—payments exceeding the allowable one-time, lump sum payments ($13,227 for 2 CSLFRF participants and $504 for 1 ERAP participant). o $86 paid to or on behalf of 1 ERAP applicant for utility services the Division previously paid. Effect—The Division’s making unallowable benefits payments to ineligible program applicants or without required documentation increases the risk that the program applicants received utility and rental payments for which they were not entitled. Also, the Division’s paying for inappropriate costs spent inconsistent with program requirements increases the risk that those who were intended to benefit from the program may not have received all the benefits they otherwise would have received. Consequently, the Division may be required to return these monies to the federal agency in accordance with federal requirements.2 During fiscal year 2023, the Division paid $193.7 million in benefit payments to or on behalf of program applicants requesting emergency rental and utility assistance for these 2 federal programs, as illustrated in the figure below, and is at risk that more of its benefit payment expenditures are inappropriate than those identified in our sample. Benefit payments expenditures (in millions) Total program expenditures (in millions) Percent of benefit payments expenditures to total program expenditures ERAP $162.8 $194.7 83.6% CSLFRF $30.9 $379.5 8.1% Totals for ERAP and CSLFRF $193.7 $574.2 33.7% Cause—Division management reported that personnel responsible for evaluating program applications and determining program applicant’s eligibility and allowability of related costs did not have time to perform thorough evaluations, including making appropriate eligibility determinations, obtaining required documentation, or ensuring costs were allowable, because of the large quantity of program applications. Further, the Division failed to identify the program evaluation errors during post-reviews of eligibility determinations because the checklist Division personnel used lacked detailed guidance for verifying that the determinations aligned with the Division’s written policies and procedures and were supported by required documentation. Criteria—Federal regulations require costs to be reasonable and adequately documented to be allowable under federal awards, and the Division’s written policies and procedures require certain documentation to support eligibility requirements related to where the applicant lives and their income.3,4,5 Specifically, Division policy requires a program application evaluation to ensure complete and reasonable documentation is obtained including lease agreements; any bills related to utility accounts; and proof of income, household size, eligible service area residency, and risk of homelessness or housing instability. Also, the Division’s policies prohibit incomplete applications to be acted upon until applicants provide the required information and documentation to complete their applications. Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Division should: 1. Ensure benefit payments are for allowable costs paid to or on behalf of eligible program applicants. 2. Follow existing policies and procedures to obtain required documentation to support requirements related to where the applicant lives and their income to ensure program applicants are eligible to receive benefit payments. 3. Allocate sufficient staffing resources to perform a thorough evaluation of program benefits applications and provide training on eligibility requirements and allowable benefit payments. 4. Update the checklist Division personnel use to perform a post-review of eligibility determinations to include detailed guidance for verifying the determinations aligned with the Division’s written policies and procedures and supported by adequate documentation. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 The Arizona Department of Economic Security’s Emergency Rental Assistance Program (ERAP) was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. The initial program is referred to as ERAP 1. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). Further, the Arizona Department of Economic Security’s ERAP was extended through the federal Coronavirus State and Local Fiscal Recovery Funds, an American Rescue Plan Act of 2021 program (Public Law 117-2), as administered by the Office of the Governor. The Department of Economic Security began operating the program on July 1, 2022 (State of Arizona, Office of the Governor and Department of Economic Security, Interagency Service Agreement No. ISA-DES-ARPA-021623-01). 2 Federal Uniform Guidance audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Federal Uniform Guidance cost principles require costs to be adequately documented (2 CFR 200.403[g]) and reasonable (2 CFR 200.404). In determining the reasonableness of a given cost, consideration must be given to several factors, including requirements imposed by federal laws and regulations and the terms and conditions of the federal award (2 CFR 200.404[b]). 4 U.S. Department of the Treasury published guidance to assist grantees in ERAP administration, including a requirement for ERAP grantees to establish policies and procedures to govern the implementation of their ERAP programs consistent with the ERAP statutes and U.S. Department of the Treasury FAQs (U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions, Revised March 5, 2024. Retrieved 10/16/2024 from https://home.treasury.gov/system/files?file=136/ERA-FAQs03052024.pdf). 5 To be eligible for program benefits, individuals had to have filed, received, and been deemed eligible in accordance with the Division’s written policies and procedures. The benefit payments consisted of rent and/or utility payments for past-due amounts (a one-time lump sum payment) and for 3 months of payments on each reapplication up to a total of 18 months. Applicants must provide proof of income or self-attestation of no income and cannot earn an income that is above the area median income as determined by the HUD income limits (Section 8) set at 80 percent AMI (Area Median Income). These limits are updated annually and can be viewed at https://www.huduser.gov/portal/datasets/il.html#year2024. Further, applicants who live in Maricopa County must reside in the City of Phoenix. This policy was updated in April 2023 to include the City of Mesa. Rental applications must include a housing agreement with the applicant’s name and current rental address. Utility assistance applications must include bills or invoices or outstanding payments. Applications are reviewed by adjudicators, who ensure the documentation for proof of residence, proof of income, housing agreement, any bills related to utility accounts and proof of risk of homelessness or housing instability are complete and reasonable. Any decisions made contrary to policy must include a rationale for the decision in the supporting documentation for the application (Department of Economic Security Emergency Rental Assistance Program Policy, Rev 8 [7/1/2022] and Rev 9 [4/1/2023]).
Assistance Listings number and name: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds (SLFRF) Award number and year: None Federal agency: U.S. Department of the Treasury Questioned costs: $1,903,858 Assistance Listing number and name: 84.425C COVID-19 Education Stabilization Fund – Governor’s Emergency Education Relief (GEER) Fund Award numbers and years: S425C200052, June 2, 2020 through September 30, 2022; S425C210052, January 8, 2021 through September 30, 2023 Federal agency: U.S. Department of Education Questioned costs: Unknown Compliance requirement: Subrecipient monitoring Condition—The Governor’s Office of Strategic Planning and Budgeting (Office) awarded $135.1 million to 334 SLFRF program subrecipients and $10.2 million to 10 GEER program subrecipients during fiscal year 2023, or 88 percent and 98 percent, respectively, of each of the Office’s federal program expenditures, but did not perform all required risk assessments to assess whether its monitoring procedures were sufficient to evaluate whether subrecipients used program monies in accordance with the award terms and program requirements. Specifically, risk assessments were not performed for 37 of 42 SLFRF program subrecipients and 5 of 5 GEER program subrecipients tested. Effect—The Office’s delay in performing required risk assessments did not allow the Office to properly design and prioritize its monitoring efforts, resulting in the Office not timely identifying questioned costs of approximately $1,903,858 for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements.1 The Office identified several of these questioned costs as potentially inappropriate and has forwarded this information to the Attorney General’s Office for further review. As a result, the Office may be required to return these monies to the federal agency in accordance with Uniform Guidance requirements.2 Further, if monies were spent inconsistent with program requirements, those who were intended to benefit from the program may not have received all the services or other benefits they otherwise would have received. Subrecipient program expenditures are not related to the revenue loss expenditure category. Cause—Office management reported that it hired additional staff in fiscal year 2023 to begin addressing issues noted in prior year findings 2022-104 and 2022-10 but had not done so in time to complete required risk assessments for the more than 300 SLFRF program and 10 GEER program subrecipients.3 Criteria—Federal regulation requires the Office to monitor subrecipients, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. This federal regulation also provides that monitoring procedures may include reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures (2 CFR §200.332[b] and [e]). Further, Office policy requires an annual risk assessment of open, active subawards to determine which subawards will be selected for review and monitoring priority (Grants Management Manual – Grantor, Chapter 8 – Award Monitoring). Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Office should: 1. Ensure it performs required monitoring of its subrecipients and their compliance with the award terms and program requirements by following its established policies and procedures to assess the risk of each subrecipient’s noncompliance annually and carry out monitoring activities based on those risk assessments such as reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on site reviews, selective audits, and/or other monitoring procedures. 2. Continue to assess its resources, such as staffing, to perform required risk assessments and monitoring procedures to comply with the award terms and program requirements. 3. Work with the federal agency and the subrecipients to resolve the $1,903,858 of program monies that may have been spent in violation of its federal award terms and that may need to be returned to the federal agency.2 The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year findings 2022-104 (GEER) and 2022-106 (SLFRF) and were initially reported in fiscal years 2021 (GEER) and 2022 (SLFRF). 1 The Office reported during fiscal year 2024 it began performing missing risk assessments for subrecipients awarded monies during fiscal years 2022 and 2023 that were not completed by June 30, 2023, and is currently conducting additional onsite monitoring or desk reviews based on those results. As of the report date, December 17, 2024, the Office identified and reported to us approximately $1,903,858 of expenditures for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements. Since the Office is still performing monitoring procedures for subaward monies spent during fiscal year 2023, there may be additional questioned costs that the Office has not identified. 2 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Office, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Arizona Auditor General. (2023). State of Arizona June 30, 2022, Single Audit Report. Phoenix, AZ. Retrieved 08/13/2024 from https://www.azauditor.gov/sites/default/files/2024-01/StateOfArizonaJune30_2022SingleAudit.pdf
Assistance Listings number and name: 21.023 COVID-19 - Emergency Rental Assistance Program Award numbers and years: ERA-2101070596, January 8, 2021 through September 30, 2022; ERA2-0165, May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed, allowable costs/cost principles, and eligibility Questioned costs: $36,945 Assistance Listings number and name: 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Award number and year: None Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed and allowable costs/cost principles Questioned costs: $38,169 Total questioned costs: $75,114 Condition—Contrary to federal regulations and its policies and procedures, the Department of Economic Security—Division of Community Assistance and Development (Division) made unallowable benefits payments totaling $75,114 during fiscal year 2023 to rental assistance program applicants for the Emergency Rental Assistance Program (ERAP) and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) federal programs.1 Specifically, for 10 of 50 CSLFRF and 10 of 65 ERAP benefit payments tested, we found that the Division made unallowable benefits payments of $38,169 for CSLFRF and $36,945 for ERAP, to or on behalf of ineligible program applicants or those that lacked required eligibility documentation and for other inappropriate costs, as follows: • The Division inappropriately paid $43,642 of benefit payments to or on behalf of 8 ineligible program applicants, including: o $42,993 paid to or on behalf of 7 program applicants who did not reside in an eligible Maricopa County service area at the time of application ($30,618 for 5 ERAP program applicants and $12,375 for 2 CSLFRF applicants). o $649 paid to or on behalf of 1 ERAP program applicant whose income exceeded allowable program limits. • The Division inappropriately paid $17,655 of benefit payments to or on behalf of 8 program applicants without obtaining required documentation to support they were eligible to receive them, including: o $12,567 paid to or on behalf of 6 CSLFRF program applicants without required proof of income, a signed lease agreement, and other documentation supporting household size and the reimbursement of late penalties and fees related to rent and/or utility account bills. o $5,088 paid to or on behalf of 2 ERAP program applicants without a required lease agreement listing the applicants. • The Division inappropriately paid $13,817 of benefit payments to or on behalf of 4 program applicants, including: o $13,731 paid to or on behalf of 3 participants for rental arrears—rent not paid by the date specified in the lease agreement—payments exceeding the allowable one-time, lump sum payments ($13,227 for 2 CSLFRF participants and $504 for 1 ERAP participant). o $86 paid to or on behalf of 1 ERAP applicant for utility services the Division previously paid. Effect—The Division’s making unallowable benefits payments to ineligible program applicants or without required documentation increases the risk that the program applicants received utility and rental payments for which they were not entitled. Also, the Division’s paying for inappropriate costs spent inconsistent with program requirements increases the risk that those who were intended to benefit from the program may not have received all the benefits they otherwise would have received. Consequently, the Division may be required to return these monies to the federal agency in accordance with federal requirements.2 During fiscal year 2023, the Division paid $193.7 million in benefit payments to or on behalf of program applicants requesting emergency rental and utility assistance for these 2 federal programs, as illustrated in the figure below, and is at risk that more of its benefit payment expenditures are inappropriate than those identified in our sample. Benefit payments expenditures (in millions) Total program expenditures (in millions) Percent of benefit payments expenditures to total program expenditures ERAP $162.8 $194.7 83.6% CSLFRF $30.9 $379.5 8.1% Totals for ERAP and CSLFRF $193.7 $574.2 33.7% Cause—Division management reported that personnel responsible for evaluating program applications and determining program applicant’s eligibility and allowability of related costs did not have time to perform thorough evaluations, including making appropriate eligibility determinations, obtaining required documentation, or ensuring costs were allowable, because of the large quantity of program applications. Further, the Division failed to identify the program evaluation errors during post-reviews of eligibility determinations because the checklist Division personnel used lacked detailed guidance for verifying that the determinations aligned with the Division’s written policies and procedures and were supported by required documentation. Criteria—Federal regulations require costs to be reasonable and adequately documented to be allowable under federal awards, and the Division’s written policies and procedures require certain documentation to support eligibility requirements related to where the applicant lives and their income.3,4,5 Specifically, Division policy requires a program application evaluation to ensure complete and reasonable documentation is obtained including lease agreements; any bills related to utility accounts; and proof of income, household size, eligible service area residency, and risk of homelessness or housing instability. Also, the Division’s policies prohibit incomplete applications to be acted upon until applicants provide the required information and documentation to complete their applications. Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Division should: 1. Ensure benefit payments are for allowable costs paid to or on behalf of eligible program applicants. 2. Follow existing policies and procedures to obtain required documentation to support requirements related to where the applicant lives and their income to ensure program applicants are eligible to receive benefit payments. 3. Allocate sufficient staffing resources to perform a thorough evaluation of program benefits applications and provide training on eligibility requirements and allowable benefit payments. 4. Update the checklist Division personnel use to perform a post-review of eligibility determinations to include detailed guidance for verifying the determinations aligned with the Division’s written policies and procedures and supported by adequate documentation. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 The Arizona Department of Economic Security’s Emergency Rental Assistance Program (ERAP) was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. The initial program is referred to as ERAP 1. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). Further, the Arizona Department of Economic Security’s ERAP was extended through the federal Coronavirus State and Local Fiscal Recovery Funds, an American Rescue Plan Act of 2021 program (Public Law 117-2), as administered by the Office of the Governor. The Department of Economic Security began operating the program on July 1, 2022 (State of Arizona, Office of the Governor and Department of Economic Security, Interagency Service Agreement No. ISA-DES-ARPA-021623-01). 2 Federal Uniform Guidance audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Federal Uniform Guidance cost principles require costs to be adequately documented (2 CFR 200.403[g]) and reasonable (2 CFR 200.404). In determining the reasonableness of a given cost, consideration must be given to several factors, including requirements imposed by federal laws and regulations and the terms and conditions of the federal award (2 CFR 200.404[b]). 4 U.S. Department of the Treasury published guidance to assist grantees in ERAP administration, including a requirement for ERAP grantees to establish policies and procedures to govern the implementation of their ERAP programs consistent with the ERAP statutes and U.S. Department of the Treasury FAQs (U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions, Revised March 5, 2024. Retrieved 10/16/2024 from https://home.treasury.gov/system/files?file=136/ERA-FAQs03052024.pdf). 5 To be eligible for program benefits, individuals had to have filed, received, and been deemed eligible in accordance with the Division’s written policies and procedures. The benefit payments consisted of rent and/or utility payments for past-due amounts (a one-time lump sum payment) and for 3 months of payments on each reapplication up to a total of 18 months. Applicants must provide proof of income or self-attestation of no income and cannot earn an income that is above the area median income as determined by the HUD income limits (Section 8) set at 80 percent AMI (Area Median Income). These limits are updated annually and can be viewed at https://www.huduser.gov/portal/datasets/il.html#year2024. Further, applicants who live in Maricopa County must reside in the City of Phoenix. This policy was updated in April 2023 to include the City of Mesa. Rental applications must include a housing agreement with the applicant’s name and current rental address. Utility assistance applications must include bills or invoices or outstanding payments. Applications are reviewed by adjudicators, who ensure the documentation for proof of residence, proof of income, housing agreement, any bills related to utility accounts and proof of risk of homelessness or housing instability are complete and reasonable. Any decisions made contrary to policy must include a rationale for the decision in the supporting documentation for the application (Department of Economic Security Emergency Rental Assistance Program Policy, Rev 8 [7/1/2022] and Rev 9 [4/1/2023]).
Assistance Listings number and name: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds (SLFRF) Award number and year: None Federal agency: U.S. Department of the Treasury Questioned costs: $1,903,858 Assistance Listing number and name: 84.425C COVID-19 Education Stabilization Fund – Governor’s Emergency Education Relief (GEER) Fund Award numbers and years: S425C200052, June 2, 2020 through September 30, 2022; S425C210052, January 8, 2021 through September 30, 2023 Federal agency: U.S. Department of Education Questioned costs: Unknown Compliance requirement: Subrecipient monitoring Condition—The Governor’s Office of Strategic Planning and Budgeting (Office) awarded $135.1 million to 334 SLFRF program subrecipients and $10.2 million to 10 GEER program subrecipients during fiscal year 2023, or 88 percent and 98 percent, respectively, of each of the Office’s federal program expenditures, but did not perform all required risk assessments to assess whether its monitoring procedures were sufficient to evaluate whether subrecipients used program monies in accordance with the award terms and program requirements. Specifically, risk assessments were not performed for 37 of 42 SLFRF program subrecipients and 5 of 5 GEER program subrecipients tested. Effect—The Office’s delay in performing required risk assessments did not allow the Office to properly design and prioritize its monitoring efforts, resulting in the Office not timely identifying questioned costs of approximately $1,903,858 for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements.1 The Office identified several of these questioned costs as potentially inappropriate and has forwarded this information to the Attorney General’s Office for further review. As a result, the Office may be required to return these monies to the federal agency in accordance with Uniform Guidance requirements.2 Further, if monies were spent inconsistent with program requirements, those who were intended to benefit from the program may not have received all the services or other benefits they otherwise would have received. Subrecipient program expenditures are not related to the revenue loss expenditure category. Cause—Office management reported that it hired additional staff in fiscal year 2023 to begin addressing issues noted in prior year findings 2022-104 and 2022-10 but had not done so in time to complete required risk assessments for the more than 300 SLFRF program and 10 GEER program subrecipients.3 Criteria—Federal regulation requires the Office to monitor subrecipients, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. This federal regulation also provides that monitoring procedures may include reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures (2 CFR §200.332[b] and [e]). Further, Office policy requires an annual risk assessment of open, active subawards to determine which subawards will be selected for review and monitoring priority (Grants Management Manual – Grantor, Chapter 8 – Award Monitoring). Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Office should: 1. Ensure it performs required monitoring of its subrecipients and their compliance with the award terms and program requirements by following its established policies and procedures to assess the risk of each subrecipient’s noncompliance annually and carry out monitoring activities based on those risk assessments such as reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on site reviews, selective audits, and/or other monitoring procedures. 2. Continue to assess its resources, such as staffing, to perform required risk assessments and monitoring procedures to comply with the award terms and program requirements. 3. Work with the federal agency and the subrecipients to resolve the $1,903,858 of program monies that may have been spent in violation of its federal award terms and that may need to be returned to the federal agency.2 The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year findings 2022-104 (GEER) and 2022-106 (SLFRF) and were initially reported in fiscal years 2021 (GEER) and 2022 (SLFRF). 1 The Office reported during fiscal year 2024 it began performing missing risk assessments for subrecipients awarded monies during fiscal years 2022 and 2023 that were not completed by June 30, 2023, and is currently conducting additional onsite monitoring or desk reviews based on those results. As of the report date, December 17, 2024, the Office identified and reported to us approximately $1,903,858 of expenditures for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements. Since the Office is still performing monitoring procedures for subaward monies spent during fiscal year 2023, there may be additional questioned costs that the Office has not identified. 2 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Office, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Arizona Auditor General. (2023). State of Arizona June 30, 2022, Single Audit Report. Phoenix, AZ. Retrieved 08/13/2024 from https://www.azauditor.gov/sites/default/files/2024-01/StateOfArizonaJune30_2022SingleAudit.pdf
Assistance Listings number and name: 21.023 COVID-19 - Emergency Rental Assistance Program Award numbers and years: ERA-2101070596, January 8, 2021 through September 30, 2022; ERA2-0165, May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed, allowable costs/cost principles, and eligibility Questioned costs: $36,945 Assistance Listings number and name: 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Award number and year: None Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed and allowable costs/cost principles Questioned costs: $38,169 Total questioned costs: $75,114 Condition—Contrary to federal regulations and its policies and procedures, the Department of Economic Security—Division of Community Assistance and Development (Division) made unallowable benefits payments totaling $75,114 during fiscal year 2023 to rental assistance program applicants for the Emergency Rental Assistance Program (ERAP) and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) federal programs.1 Specifically, for 10 of 50 CSLFRF and 10 of 65 ERAP benefit payments tested, we found that the Division made unallowable benefits payments of $38,169 for CSLFRF and $36,945 for ERAP, to or on behalf of ineligible program applicants or those that lacked required eligibility documentation and for other inappropriate costs, as follows: • The Division inappropriately paid $43,642 of benefit payments to or on behalf of 8 ineligible program applicants, including: o $42,993 paid to or on behalf of 7 program applicants who did not reside in an eligible Maricopa County service area at the time of application ($30,618 for 5 ERAP program applicants and $12,375 for 2 CSLFRF applicants). o $649 paid to or on behalf of 1 ERAP program applicant whose income exceeded allowable program limits. • The Division inappropriately paid $17,655 of benefit payments to or on behalf of 8 program applicants without obtaining required documentation to support they were eligible to receive them, including: o $12,567 paid to or on behalf of 6 CSLFRF program applicants without required proof of income, a signed lease agreement, and other documentation supporting household size and the reimbursement of late penalties and fees related to rent and/or utility account bills. o $5,088 paid to or on behalf of 2 ERAP program applicants without a required lease agreement listing the applicants. • The Division inappropriately paid $13,817 of benefit payments to or on behalf of 4 program applicants, including: o $13,731 paid to or on behalf of 3 participants for rental arrears—rent not paid by the date specified in the lease agreement—payments exceeding the allowable one-time, lump sum payments ($13,227 for 2 CSLFRF participants and $504 for 1 ERAP participant). o $86 paid to or on behalf of 1 ERAP applicant for utility services the Division previously paid. Effect—The Division’s making unallowable benefits payments to ineligible program applicants or without required documentation increases the risk that the program applicants received utility and rental payments for which they were not entitled. Also, the Division’s paying for inappropriate costs spent inconsistent with program requirements increases the risk that those who were intended to benefit from the program may not have received all the benefits they otherwise would have received. Consequently, the Division may be required to return these monies to the federal agency in accordance with federal requirements.2 During fiscal year 2023, the Division paid $193.7 million in benefit payments to or on behalf of program applicants requesting emergency rental and utility assistance for these 2 federal programs, as illustrated in the figure below, and is at risk that more of its benefit payment expenditures are inappropriate than those identified in our sample. Benefit payments expenditures (in millions) Total program expenditures (in millions) Percent of benefit payments expenditures to total program expenditures ERAP $162.8 $194.7 83.6% CSLFRF $30.9 $379.5 8.1% Totals for ERAP and CSLFRF $193.7 $574.2 33.7% Cause—Division management reported that personnel responsible for evaluating program applications and determining program applicant’s eligibility and allowability of related costs did not have time to perform thorough evaluations, including making appropriate eligibility determinations, obtaining required documentation, or ensuring costs were allowable, because of the large quantity of program applications. Further, the Division failed to identify the program evaluation errors during post-reviews of eligibility determinations because the checklist Division personnel used lacked detailed guidance for verifying that the determinations aligned with the Division’s written policies and procedures and were supported by required documentation. Criteria—Federal regulations require costs to be reasonable and adequately documented to be allowable under federal awards, and the Division’s written policies and procedures require certain documentation to support eligibility requirements related to where the applicant lives and their income.3,4,5 Specifically, Division policy requires a program application evaluation to ensure complete and reasonable documentation is obtained including lease agreements; any bills related to utility accounts; and proof of income, household size, eligible service area residency, and risk of homelessness or housing instability. Also, the Division’s policies prohibit incomplete applications to be acted upon until applicants provide the required information and documentation to complete their applications. Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Division should: 1. Ensure benefit payments are for allowable costs paid to or on behalf of eligible program applicants. 2. Follow existing policies and procedures to obtain required documentation to support requirements related to where the applicant lives and their income to ensure program applicants are eligible to receive benefit payments. 3. Allocate sufficient staffing resources to perform a thorough evaluation of program benefits applications and provide training on eligibility requirements and allowable benefit payments. 4. Update the checklist Division personnel use to perform a post-review of eligibility determinations to include detailed guidance for verifying the determinations aligned with the Division’s written policies and procedures and supported by adequate documentation. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 The Arizona Department of Economic Security’s Emergency Rental Assistance Program (ERAP) was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. The initial program is referred to as ERAP 1. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). Further, the Arizona Department of Economic Security’s ERAP was extended through the federal Coronavirus State and Local Fiscal Recovery Funds, an American Rescue Plan Act of 2021 program (Public Law 117-2), as administered by the Office of the Governor. The Department of Economic Security began operating the program on July 1, 2022 (State of Arizona, Office of the Governor and Department of Economic Security, Interagency Service Agreement No. ISA-DES-ARPA-021623-01). 2 Federal Uniform Guidance audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Federal Uniform Guidance cost principles require costs to be adequately documented (2 CFR 200.403[g]) and reasonable (2 CFR 200.404). In determining the reasonableness of a given cost, consideration must be given to several factors, including requirements imposed by federal laws and regulations and the terms and conditions of the federal award (2 CFR 200.404[b]). 4 U.S. Department of the Treasury published guidance to assist grantees in ERAP administration, including a requirement for ERAP grantees to establish policies and procedures to govern the implementation of their ERAP programs consistent with the ERAP statutes and U.S. Department of the Treasury FAQs (U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions, Revised March 5, 2024. Retrieved 10/16/2024 from https://home.treasury.gov/system/files?file=136/ERA-FAQs03052024.pdf). 5 To be eligible for program benefits, individuals had to have filed, received, and been deemed eligible in accordance with the Division’s written policies and procedures. The benefit payments consisted of rent and/or utility payments for past-due amounts (a one-time lump sum payment) and for 3 months of payments on each reapplication up to a total of 18 months. Applicants must provide proof of income or self-attestation of no income and cannot earn an income that is above the area median income as determined by the HUD income limits (Section 8) set at 80 percent AMI (Area Median Income). These limits are updated annually and can be viewed at https://www.huduser.gov/portal/datasets/il.html#year2024. Further, applicants who live in Maricopa County must reside in the City of Phoenix. This policy was updated in April 2023 to include the City of Mesa. Rental applications must include a housing agreement with the applicant’s name and current rental address. Utility assistance applications must include bills or invoices or outstanding payments. Applications are reviewed by adjudicators, who ensure the documentation for proof of residence, proof of income, housing agreement, any bills related to utility accounts and proof of risk of homelessness or housing instability are complete and reasonable. Any decisions made contrary to policy must include a rationale for the decision in the supporting documentation for the application (Department of Economic Security Emergency Rental Assistance Program Policy, Rev 8 [7/1/2022] and Rev 9 [4/1/2023]).
Assistance Listings number and name: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds (SLFRF) Award number and year: None Federal agency: U.S. Department of the Treasury Questioned costs: $1,903,858 Assistance Listing number and name: 84.425C COVID-19 Education Stabilization Fund – Governor’s Emergency Education Relief (GEER) Fund Award numbers and years: S425C200052, June 2, 2020 through September 30, 2022; S425C210052, January 8, 2021 through September 30, 2023 Federal agency: U.S. Department of Education Questioned costs: Unknown Compliance requirement: Subrecipient monitoring Condition—The Governor’s Office of Strategic Planning and Budgeting (Office) awarded $135.1 million to 334 SLFRF program subrecipients and $10.2 million to 10 GEER program subrecipients during fiscal year 2023, or 88 percent and 98 percent, respectively, of each of the Office’s federal program expenditures, but did not perform all required risk assessments to assess whether its monitoring procedures were sufficient to evaluate whether subrecipients used program monies in accordance with the award terms and program requirements. Specifically, risk assessments were not performed for 37 of 42 SLFRF program subrecipients and 5 of 5 GEER program subrecipients tested. Effect—The Office’s delay in performing required risk assessments did not allow the Office to properly design and prioritize its monitoring efforts, resulting in the Office not timely identifying questioned costs of approximately $1,903,858 for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements.1 The Office identified several of these questioned costs as potentially inappropriate and has forwarded this information to the Attorney General’s Office for further review. As a result, the Office may be required to return these monies to the federal agency in accordance with Uniform Guidance requirements.2 Further, if monies were spent inconsistent with program requirements, those who were intended to benefit from the program may not have received all the services or other benefits they otherwise would have received. Subrecipient program expenditures are not related to the revenue loss expenditure category. Cause—Office management reported that it hired additional staff in fiscal year 2023 to begin addressing issues noted in prior year findings 2022-104 and 2022-10 but had not done so in time to complete required risk assessments for the more than 300 SLFRF program and 10 GEER program subrecipients.3 Criteria—Federal regulation requires the Office to monitor subrecipients, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. This federal regulation also provides that monitoring procedures may include reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures (2 CFR §200.332[b] and [e]). Further, Office policy requires an annual risk assessment of open, active subawards to determine which subawards will be selected for review and monitoring priority (Grants Management Manual – Grantor, Chapter 8 – Award Monitoring). Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Office should: 1. Ensure it performs required monitoring of its subrecipients and their compliance with the award terms and program requirements by following its established policies and procedures to assess the risk of each subrecipient’s noncompliance annually and carry out monitoring activities based on those risk assessments such as reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on site reviews, selective audits, and/or other monitoring procedures. 2. Continue to assess its resources, such as staffing, to perform required risk assessments and monitoring procedures to comply with the award terms and program requirements. 3. Work with the federal agency and the subrecipients to resolve the $1,903,858 of program monies that may have been spent in violation of its federal award terms and that may need to be returned to the federal agency.2 The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year findings 2022-104 (GEER) and 2022-106 (SLFRF) and were initially reported in fiscal years 2021 (GEER) and 2022 (SLFRF). 1 The Office reported during fiscal year 2024 it began performing missing risk assessments for subrecipients awarded monies during fiscal years 2022 and 2023 that were not completed by June 30, 2023, and is currently conducting additional onsite monitoring or desk reviews based on those results. As of the report date, December 17, 2024, the Office identified and reported to us approximately $1,903,858 of expenditures for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements. Since the Office is still performing monitoring procedures for subaward monies spent during fiscal year 2023, there may be additional questioned costs that the Office has not identified. 2 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Office, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Arizona Auditor General. (2023). State of Arizona June 30, 2022, Single Audit Report. Phoenix, AZ. Retrieved 08/13/2024 from https://www.azauditor.gov/sites/default/files/2024-01/StateOfArizonaJune30_2022SingleAudit.pdf
Assistance Listings number and name: 21.023 COVID-19 - Emergency Rental Assistance Program Award numbers and years: ERA-2101070596, January 8, 2021 through September 30, 2022; ERA2-0165, May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed, allowable costs/cost principles, and eligibility Questioned costs: $36,945 Assistance Listings number and name: 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Award number and year: None Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed and allowable costs/cost principles Questioned costs: $38,169 Total questioned costs: $75,114 Condition—Contrary to federal regulations and its policies and procedures, the Department of Economic Security—Division of Community Assistance and Development (Division) made unallowable benefits payments totaling $75,114 during fiscal year 2023 to rental assistance program applicants for the Emergency Rental Assistance Program (ERAP) and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) federal programs.1 Specifically, for 10 of 50 CSLFRF and 10 of 65 ERAP benefit payments tested, we found that the Division made unallowable benefits payments of $38,169 for CSLFRF and $36,945 for ERAP, to or on behalf of ineligible program applicants or those that lacked required eligibility documentation and for other inappropriate costs, as follows: • The Division inappropriately paid $43,642 of benefit payments to or on behalf of 8 ineligible program applicants, including: o $42,993 paid to or on behalf of 7 program applicants who did not reside in an eligible Maricopa County service area at the time of application ($30,618 for 5 ERAP program applicants and $12,375 for 2 CSLFRF applicants). o $649 paid to or on behalf of 1 ERAP program applicant whose income exceeded allowable program limits. • The Division inappropriately paid $17,655 of benefit payments to or on behalf of 8 program applicants without obtaining required documentation to support they were eligible to receive them, including: o $12,567 paid to or on behalf of 6 CSLFRF program applicants without required proof of income, a signed lease agreement, and other documentation supporting household size and the reimbursement of late penalties and fees related to rent and/or utility account bills. o $5,088 paid to or on behalf of 2 ERAP program applicants without a required lease agreement listing the applicants. • The Division inappropriately paid $13,817 of benefit payments to or on behalf of 4 program applicants, including: o $13,731 paid to or on behalf of 3 participants for rental arrears—rent not paid by the date specified in the lease agreement—payments exceeding the allowable one-time, lump sum payments ($13,227 for 2 CSLFRF participants and $504 for 1 ERAP participant). o $86 paid to or on behalf of 1 ERAP applicant for utility services the Division previously paid. Effect—The Division’s making unallowable benefits payments to ineligible program applicants or without required documentation increases the risk that the program applicants received utility and rental payments for which they were not entitled. Also, the Division’s paying for inappropriate costs spent inconsistent with program requirements increases the risk that those who were intended to benefit from the program may not have received all the benefits they otherwise would have received. Consequently, the Division may be required to return these monies to the federal agency in accordance with federal requirements.2 During fiscal year 2023, the Division paid $193.7 million in benefit payments to or on behalf of program applicants requesting emergency rental and utility assistance for these 2 federal programs, as illustrated in the figure below, and is at risk that more of its benefit payment expenditures are inappropriate than those identified in our sample. Benefit payments expenditures (in millions) Total program expenditures (in millions) Percent of benefit payments expenditures to total program expenditures ERAP $162.8 $194.7 83.6% CSLFRF $30.9 $379.5 8.1% Totals for ERAP and CSLFRF $193.7 $574.2 33.7% Cause—Division management reported that personnel responsible for evaluating program applications and determining program applicant’s eligibility and allowability of related costs did not have time to perform thorough evaluations, including making appropriate eligibility determinations, obtaining required documentation, or ensuring costs were allowable, because of the large quantity of program applications. Further, the Division failed to identify the program evaluation errors during post-reviews of eligibility determinations because the checklist Division personnel used lacked detailed guidance for verifying that the determinations aligned with the Division’s written policies and procedures and were supported by required documentation. Criteria—Federal regulations require costs to be reasonable and adequately documented to be allowable under federal awards, and the Division’s written policies and procedures require certain documentation to support eligibility requirements related to where the applicant lives and their income.3,4,5 Specifically, Division policy requires a program application evaluation to ensure complete and reasonable documentation is obtained including lease agreements; any bills related to utility accounts; and proof of income, household size, eligible service area residency, and risk of homelessness or housing instability. Also, the Division’s policies prohibit incomplete applications to be acted upon until applicants provide the required information and documentation to complete their applications. Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Division should: 1. Ensure benefit payments are for allowable costs paid to or on behalf of eligible program applicants. 2. Follow existing policies and procedures to obtain required documentation to support requirements related to where the applicant lives and their income to ensure program applicants are eligible to receive benefit payments. 3. Allocate sufficient staffing resources to perform a thorough evaluation of program benefits applications and provide training on eligibility requirements and allowable benefit payments. 4. Update the checklist Division personnel use to perform a post-review of eligibility determinations to include detailed guidance for verifying the determinations aligned with the Division’s written policies and procedures and supported by adequate documentation. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 The Arizona Department of Economic Security’s Emergency Rental Assistance Program (ERAP) was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. The initial program is referred to as ERAP 1. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). Further, the Arizona Department of Economic Security’s ERAP was extended through the federal Coronavirus State and Local Fiscal Recovery Funds, an American Rescue Plan Act of 2021 program (Public Law 117-2), as administered by the Office of the Governor. The Department of Economic Security began operating the program on July 1, 2022 (State of Arizona, Office of the Governor and Department of Economic Security, Interagency Service Agreement No. ISA-DES-ARPA-021623-01). 2 Federal Uniform Guidance audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Federal Uniform Guidance cost principles require costs to be adequately documented (2 CFR 200.403[g]) and reasonable (2 CFR 200.404). In determining the reasonableness of a given cost, consideration must be given to several factors, including requirements imposed by federal laws and regulations and the terms and conditions of the federal award (2 CFR 200.404[b]). 4 U.S. Department of the Treasury published guidance to assist grantees in ERAP administration, including a requirement for ERAP grantees to establish policies and procedures to govern the implementation of their ERAP programs consistent with the ERAP statutes and U.S. Department of the Treasury FAQs (U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions, Revised March 5, 2024. Retrieved 10/16/2024 from https://home.treasury.gov/system/files?file=136/ERA-FAQs03052024.pdf). 5 To be eligible for program benefits, individuals had to have filed, received, and been deemed eligible in accordance with the Division’s written policies and procedures. The benefit payments consisted of rent and/or utility payments for past-due amounts (a one-time lump sum payment) and for 3 months of payments on each reapplication up to a total of 18 months. Applicants must provide proof of income or self-attestation of no income and cannot earn an income that is above the area median income as determined by the HUD income limits (Section 8) set at 80 percent AMI (Area Median Income). These limits are updated annually and can be viewed at https://www.huduser.gov/portal/datasets/il.html#year2024. Further, applicants who live in Maricopa County must reside in the City of Phoenix. This policy was updated in April 2023 to include the City of Mesa. Rental applications must include a housing agreement with the applicant’s name and current rental address. Utility assistance applications must include bills or invoices or outstanding payments. Applications are reviewed by adjudicators, who ensure the documentation for proof of residence, proof of income, housing agreement, any bills related to utility accounts and proof of risk of homelessness or housing instability are complete and reasonable. Any decisions made contrary to policy must include a rationale for the decision in the supporting documentation for the application (Department of Economic Security Emergency Rental Assistance Program Policy, Rev 8 [7/1/2022] and Rev 9 [4/1/2023]).
Assistance Listings number and name: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds (SLFRF) Award number and year: None Federal agency: U.S. Department of the Treasury Questioned costs: $1,903,858 Assistance Listing number and name: 84.425C COVID-19 Education Stabilization Fund – Governor’s Emergency Education Relief (GEER) Fund Award numbers and years: S425C200052, June 2, 2020 through September 30, 2022; S425C210052, January 8, 2021 through September 30, 2023 Federal agency: U.S. Department of Education Questioned costs: Unknown Compliance requirement: Subrecipient monitoring Condition—The Governor’s Office of Strategic Planning and Budgeting (Office) awarded $135.1 million to 334 SLFRF program subrecipients and $10.2 million to 10 GEER program subrecipients during fiscal year 2023, or 88 percent and 98 percent, respectively, of each of the Office’s federal program expenditures, but did not perform all required risk assessments to assess whether its monitoring procedures were sufficient to evaluate whether subrecipients used program monies in accordance with the award terms and program requirements. Specifically, risk assessments were not performed for 37 of 42 SLFRF program subrecipients and 5 of 5 GEER program subrecipients tested. Effect—The Office’s delay in performing required risk assessments did not allow the Office to properly design and prioritize its monitoring efforts, resulting in the Office not timely identifying questioned costs of approximately $1,903,858 for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements.1 The Office identified several of these questioned costs as potentially inappropriate and has forwarded this information to the Attorney General’s Office for further review. As a result, the Office may be required to return these monies to the federal agency in accordance with Uniform Guidance requirements.2 Further, if monies were spent inconsistent with program requirements, those who were intended to benefit from the program may not have received all the services or other benefits they otherwise would have received. Subrecipient program expenditures are not related to the revenue loss expenditure category. Cause—Office management reported that it hired additional staff in fiscal year 2023 to begin addressing issues noted in prior year findings 2022-104 and 2022-10 but had not done so in time to complete required risk assessments for the more than 300 SLFRF program and 10 GEER program subrecipients.3 Criteria—Federal regulation requires the Office to monitor subrecipients, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. This federal regulation also provides that monitoring procedures may include reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures (2 CFR §200.332[b] and [e]). Further, Office policy requires an annual risk assessment of open, active subawards to determine which subawards will be selected for review and monitoring priority (Grants Management Manual – Grantor, Chapter 8 – Award Monitoring). Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Office should: 1. Ensure it performs required monitoring of its subrecipients and their compliance with the award terms and program requirements by following its established policies and procedures to assess the risk of each subrecipient’s noncompliance annually and carry out monitoring activities based on those risk assessments such as reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on site reviews, selective audits, and/or other monitoring procedures. 2. Continue to assess its resources, such as staffing, to perform required risk assessments and monitoring procedures to comply with the award terms and program requirements. 3. Work with the federal agency and the subrecipients to resolve the $1,903,858 of program monies that may have been spent in violation of its federal award terms and that may need to be returned to the federal agency.2 The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year findings 2022-104 (GEER) and 2022-106 (SLFRF) and were initially reported in fiscal years 2021 (GEER) and 2022 (SLFRF). 1 The Office reported during fiscal year 2024 it began performing missing risk assessments for subrecipients awarded monies during fiscal years 2022 and 2023 that were not completed by June 30, 2023, and is currently conducting additional onsite monitoring or desk reviews based on those results. As of the report date, December 17, 2024, the Office identified and reported to us approximately $1,903,858 of expenditures for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements. Since the Office is still performing monitoring procedures for subaward monies spent during fiscal year 2023, there may be additional questioned costs that the Office has not identified. 2 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Office, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Arizona Auditor General. (2023). State of Arizona June 30, 2022, Single Audit Report. Phoenix, AZ. Retrieved 08/13/2024 from https://www.azauditor.gov/sites/default/files/2024-01/StateOfArizonaJune30_2022SingleAudit.pdf
Assistance Listings number and name: 21.023 COVID-19 - Emergency Rental Assistance Program Award numbers and years: ERA-2101070596, January 8, 2021 through September 30, 2022; ERA2-0165, May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed, allowable costs/cost principles, and eligibility Questioned costs: $36,945 Assistance Listings number and name: 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Award number and year: None Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed and allowable costs/cost principles Questioned costs: $38,169 Total questioned costs: $75,114 Condition—Contrary to federal regulations and its policies and procedures, the Department of Economic Security—Division of Community Assistance and Development (Division) made unallowable benefits payments totaling $75,114 during fiscal year 2023 to rental assistance program applicants for the Emergency Rental Assistance Program (ERAP) and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) federal programs.1 Specifically, for 10 of 50 CSLFRF and 10 of 65 ERAP benefit payments tested, we found that the Division made unallowable benefits payments of $38,169 for CSLFRF and $36,945 for ERAP, to or on behalf of ineligible program applicants or those that lacked required eligibility documentation and for other inappropriate costs, as follows: • The Division inappropriately paid $43,642 of benefit payments to or on behalf of 8 ineligible program applicants, including: o $42,993 paid to or on behalf of 7 program applicants who did not reside in an eligible Maricopa County service area at the time of application ($30,618 for 5 ERAP program applicants and $12,375 for 2 CSLFRF applicants). o $649 paid to or on behalf of 1 ERAP program applicant whose income exceeded allowable program limits. • The Division inappropriately paid $17,655 of benefit payments to or on behalf of 8 program applicants without obtaining required documentation to support they were eligible to receive them, including: o $12,567 paid to or on behalf of 6 CSLFRF program applicants without required proof of income, a signed lease agreement, and other documentation supporting household size and the reimbursement of late penalties and fees related to rent and/or utility account bills. o $5,088 paid to or on behalf of 2 ERAP program applicants without a required lease agreement listing the applicants. • The Division inappropriately paid $13,817 of benefit payments to or on behalf of 4 program applicants, including: o $13,731 paid to or on behalf of 3 participants for rental arrears—rent not paid by the date specified in the lease agreement—payments exceeding the allowable one-time, lump sum payments ($13,227 for 2 CSLFRF participants and $504 for 1 ERAP participant). o $86 paid to or on behalf of 1 ERAP applicant for utility services the Division previously paid. Effect—The Division’s making unallowable benefits payments to ineligible program applicants or without required documentation increases the risk that the program applicants received utility and rental payments for which they were not entitled. Also, the Division’s paying for inappropriate costs spent inconsistent with program requirements increases the risk that those who were intended to benefit from the program may not have received all the benefits they otherwise would have received. Consequently, the Division may be required to return these monies to the federal agency in accordance with federal requirements.2 During fiscal year 2023, the Division paid $193.7 million in benefit payments to or on behalf of program applicants requesting emergency rental and utility assistance for these 2 federal programs, as illustrated in the figure below, and is at risk that more of its benefit payment expenditures are inappropriate than those identified in our sample. Benefit payments expenditures (in millions) Total program expenditures (in millions) Percent of benefit payments expenditures to total program expenditures ERAP $162.8 $194.7 83.6% CSLFRF $30.9 $379.5 8.1% Totals for ERAP and CSLFRF $193.7 $574.2 33.7% Cause—Division management reported that personnel responsible for evaluating program applications and determining program applicant’s eligibility and allowability of related costs did not have time to perform thorough evaluations, including making appropriate eligibility determinations, obtaining required documentation, or ensuring costs were allowable, because of the large quantity of program applications. Further, the Division failed to identify the program evaluation errors during post-reviews of eligibility determinations because the checklist Division personnel used lacked detailed guidance for verifying that the determinations aligned with the Division’s written policies and procedures and were supported by required documentation. Criteria—Federal regulations require costs to be reasonable and adequately documented to be allowable under federal awards, and the Division’s written policies and procedures require certain documentation to support eligibility requirements related to where the applicant lives and their income.3,4,5 Specifically, Division policy requires a program application evaluation to ensure complete and reasonable documentation is obtained including lease agreements; any bills related to utility accounts; and proof of income, household size, eligible service area residency, and risk of homelessness or housing instability. Also, the Division’s policies prohibit incomplete applications to be acted upon until applicants provide the required information and documentation to complete their applications. Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Division should: 1. Ensure benefit payments are for allowable costs paid to or on behalf of eligible program applicants. 2. Follow existing policies and procedures to obtain required documentation to support requirements related to where the applicant lives and their income to ensure program applicants are eligible to receive benefit payments. 3. Allocate sufficient staffing resources to perform a thorough evaluation of program benefits applications and provide training on eligibility requirements and allowable benefit payments. 4. Update the checklist Division personnel use to perform a post-review of eligibility determinations to include detailed guidance for verifying the determinations aligned with the Division’s written policies and procedures and supported by adequate documentation. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 The Arizona Department of Economic Security’s Emergency Rental Assistance Program (ERAP) was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. The initial program is referred to as ERAP 1. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). Further, the Arizona Department of Economic Security’s ERAP was extended through the federal Coronavirus State and Local Fiscal Recovery Funds, an American Rescue Plan Act of 2021 program (Public Law 117-2), as administered by the Office of the Governor. The Department of Economic Security began operating the program on July 1, 2022 (State of Arizona, Office of the Governor and Department of Economic Security, Interagency Service Agreement No. ISA-DES-ARPA-021623-01). 2 Federal Uniform Guidance audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Federal Uniform Guidance cost principles require costs to be adequately documented (2 CFR 200.403[g]) and reasonable (2 CFR 200.404). In determining the reasonableness of a given cost, consideration must be given to several factors, including requirements imposed by federal laws and regulations and the terms and conditions of the federal award (2 CFR 200.404[b]). 4 U.S. Department of the Treasury published guidance to assist grantees in ERAP administration, including a requirement for ERAP grantees to establish policies and procedures to govern the implementation of their ERAP programs consistent with the ERAP statutes and U.S. Department of the Treasury FAQs (U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions, Revised March 5, 2024. Retrieved 10/16/2024 from https://home.treasury.gov/system/files?file=136/ERA-FAQs03052024.pdf). 5 To be eligible for program benefits, individuals had to have filed, received, and been deemed eligible in accordance with the Division’s written policies and procedures. The benefit payments consisted of rent and/or utility payments for past-due amounts (a one-time lump sum payment) and for 3 months of payments on each reapplication up to a total of 18 months. Applicants must provide proof of income or self-attestation of no income and cannot earn an income that is above the area median income as determined by the HUD income limits (Section 8) set at 80 percent AMI (Area Median Income). These limits are updated annually and can be viewed at https://www.huduser.gov/portal/datasets/il.html#year2024. Further, applicants who live in Maricopa County must reside in the City of Phoenix. This policy was updated in April 2023 to include the City of Mesa. Rental applications must include a housing agreement with the applicant’s name and current rental address. Utility assistance applications must include bills or invoices or outstanding payments. Applications are reviewed by adjudicators, who ensure the documentation for proof of residence, proof of income, housing agreement, any bills related to utility accounts and proof of risk of homelessness or housing instability are complete and reasonable. Any decisions made contrary to policy must include a rationale for the decision in the supporting documentation for the application (Department of Economic Security Emergency Rental Assistance Program Policy, Rev 8 [7/1/2022] and Rev 9 [4/1/2023]).
Assistance Listings number and name: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds (SLFRF) Award number and year: None Federal agency: U.S. Department of the Treasury Questioned costs: $1,903,858 Assistance Listing number and name: 84.425C COVID-19 Education Stabilization Fund – Governor’s Emergency Education Relief (GEER) Fund Award numbers and years: S425C200052, June 2, 2020 through September 30, 2022; S425C210052, January 8, 2021 through September 30, 2023 Federal agency: U.S. Department of Education Questioned costs: Unknown Compliance requirement: Subrecipient monitoring Condition—The Governor’s Office of Strategic Planning and Budgeting (Office) awarded $135.1 million to 334 SLFRF program subrecipients and $10.2 million to 10 GEER program subrecipients during fiscal year 2023, or 88 percent and 98 percent, respectively, of each of the Office’s federal program expenditures, but did not perform all required risk assessments to assess whether its monitoring procedures were sufficient to evaluate whether subrecipients used program monies in accordance with the award terms and program requirements. Specifically, risk assessments were not performed for 37 of 42 SLFRF program subrecipients and 5 of 5 GEER program subrecipients tested. Effect—The Office’s delay in performing required risk assessments did not allow the Office to properly design and prioritize its monitoring efforts, resulting in the Office not timely identifying questioned costs of approximately $1,903,858 for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements.1 The Office identified several of these questioned costs as potentially inappropriate and has forwarded this information to the Attorney General’s Office for further review. As a result, the Office may be required to return these monies to the federal agency in accordance with Uniform Guidance requirements.2 Further, if monies were spent inconsistent with program requirements, those who were intended to benefit from the program may not have received all the services or other benefits they otherwise would have received. Subrecipient program expenditures are not related to the revenue loss expenditure category. Cause—Office management reported that it hired additional staff in fiscal year 2023 to begin addressing issues noted in prior year findings 2022-104 and 2022-10 but had not done so in time to complete required risk assessments for the more than 300 SLFRF program and 10 GEER program subrecipients.3 Criteria—Federal regulation requires the Office to monitor subrecipients, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. This federal regulation also provides that monitoring procedures may include reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures (2 CFR §200.332[b] and [e]). Further, Office policy requires an annual risk assessment of open, active subawards to determine which subawards will be selected for review and monitoring priority (Grants Management Manual – Grantor, Chapter 8 – Award Monitoring). Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Office should: 1. Ensure it performs required monitoring of its subrecipients and their compliance with the award terms and program requirements by following its established policies and procedures to assess the risk of each subrecipient’s noncompliance annually and carry out monitoring activities based on those risk assessments such as reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on site reviews, selective audits, and/or other monitoring procedures. 2. Continue to assess its resources, such as staffing, to perform required risk assessments and monitoring procedures to comply with the award terms and program requirements. 3. Work with the federal agency and the subrecipients to resolve the $1,903,858 of program monies that may have been spent in violation of its federal award terms and that may need to be returned to the federal agency.2 The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year findings 2022-104 (GEER) and 2022-106 (SLFRF) and were initially reported in fiscal years 2021 (GEER) and 2022 (SLFRF). 1 The Office reported during fiscal year 2024 it began performing missing risk assessments for subrecipients awarded monies during fiscal years 2022 and 2023 that were not completed by June 30, 2023, and is currently conducting additional onsite monitoring or desk reviews based on those results. As of the report date, December 17, 2024, the Office identified and reported to us approximately $1,903,858 of expenditures for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements. Since the Office is still performing monitoring procedures for subaward monies spent during fiscal year 2023, there may be additional questioned costs that the Office has not identified. 2 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Office, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Arizona Auditor General. (2023). State of Arizona June 30, 2022, Single Audit Report. Phoenix, AZ. Retrieved 08/13/2024 from https://www.azauditor.gov/sites/default/files/2024-01/StateOfArizonaJune30_2022SingleAudit.pdf
Assistance Listings number and name: 21.023 COVID-19 - Emergency Rental Assistance Program Award numbers and years: ERA-2101070596, January 8, 2021 through September 30, 2022; ERA2-0165, May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed, allowable costs/cost principles, and eligibility Questioned costs: $36,945 Assistance Listings number and name: 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Award number and year: None Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed and allowable costs/cost principles Questioned costs: $38,169 Total questioned costs: $75,114 Condition—Contrary to federal regulations and its policies and procedures, the Department of Economic Security—Division of Community Assistance and Development (Division) made unallowable benefits payments totaling $75,114 during fiscal year 2023 to rental assistance program applicants for the Emergency Rental Assistance Program (ERAP) and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) federal programs.1 Specifically, for 10 of 50 CSLFRF and 10 of 65 ERAP benefit payments tested, we found that the Division made unallowable benefits payments of $38,169 for CSLFRF and $36,945 for ERAP, to or on behalf of ineligible program applicants or those that lacked required eligibility documentation and for other inappropriate costs, as follows: • The Division inappropriately paid $43,642 of benefit payments to or on behalf of 8 ineligible program applicants, including: o $42,993 paid to or on behalf of 7 program applicants who did not reside in an eligible Maricopa County service area at the time of application ($30,618 for 5 ERAP program applicants and $12,375 for 2 CSLFRF applicants). o $649 paid to or on behalf of 1 ERAP program applicant whose income exceeded allowable program limits. • The Division inappropriately paid $17,655 of benefit payments to or on behalf of 8 program applicants without obtaining required documentation to support they were eligible to receive them, including: o $12,567 paid to or on behalf of 6 CSLFRF program applicants without required proof of income, a signed lease agreement, and other documentation supporting household size and the reimbursement of late penalties and fees related to rent and/or utility account bills. o $5,088 paid to or on behalf of 2 ERAP program applicants without a required lease agreement listing the applicants. • The Division inappropriately paid $13,817 of benefit payments to or on behalf of 4 program applicants, including: o $13,731 paid to or on behalf of 3 participants for rental arrears—rent not paid by the date specified in the lease agreement—payments exceeding the allowable one-time, lump sum payments ($13,227 for 2 CSLFRF participants and $504 for 1 ERAP participant). o $86 paid to or on behalf of 1 ERAP applicant for utility services the Division previously paid. Effect—The Division’s making unallowable benefits payments to ineligible program applicants or without required documentation increases the risk that the program applicants received utility and rental payments for which they were not entitled. Also, the Division’s paying for inappropriate costs spent inconsistent with program requirements increases the risk that those who were intended to benefit from the program may not have received all the benefits they otherwise would have received. Consequently, the Division may be required to return these monies to the federal agency in accordance with federal requirements.2 During fiscal year 2023, the Division paid $193.7 million in benefit payments to or on behalf of program applicants requesting emergency rental and utility assistance for these 2 federal programs, as illustrated in the figure below, and is at risk that more of its benefit payment expenditures are inappropriate than those identified in our sample. Benefit payments expenditures (in millions) Total program expenditures (in millions) Percent of benefit payments expenditures to total program expenditures ERAP $162.8 $194.7 83.6% CSLFRF $30.9 $379.5 8.1% Totals for ERAP and CSLFRF $193.7 $574.2 33.7% Cause—Division management reported that personnel responsible for evaluating program applications and determining program applicant’s eligibility and allowability of related costs did not have time to perform thorough evaluations, including making appropriate eligibility determinations, obtaining required documentation, or ensuring costs were allowable, because of the large quantity of program applications. Further, the Division failed to identify the program evaluation errors during post-reviews of eligibility determinations because the checklist Division personnel used lacked detailed guidance for verifying that the determinations aligned with the Division’s written policies and procedures and were supported by required documentation. Criteria—Federal regulations require costs to be reasonable and adequately documented to be allowable under federal awards, and the Division’s written policies and procedures require certain documentation to support eligibility requirements related to where the applicant lives and their income.3,4,5 Specifically, Division policy requires a program application evaluation to ensure complete and reasonable documentation is obtained including lease agreements; any bills related to utility accounts; and proof of income, household size, eligible service area residency, and risk of homelessness or housing instability. Also, the Division’s policies prohibit incomplete applications to be acted upon until applicants provide the required information and documentation to complete their applications. Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Division should: 1. Ensure benefit payments are for allowable costs paid to or on behalf of eligible program applicants. 2. Follow existing policies and procedures to obtain required documentation to support requirements related to where the applicant lives and their income to ensure program applicants are eligible to receive benefit payments. 3. Allocate sufficient staffing resources to perform a thorough evaluation of program benefits applications and provide training on eligibility requirements and allowable benefit payments. 4. Update the checklist Division personnel use to perform a post-review of eligibility determinations to include detailed guidance for verifying the determinations aligned with the Division’s written policies and procedures and supported by adequate documentation. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 The Arizona Department of Economic Security’s Emergency Rental Assistance Program (ERAP) was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. The initial program is referred to as ERAP 1. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). Further, the Arizona Department of Economic Security’s ERAP was extended through the federal Coronavirus State and Local Fiscal Recovery Funds, an American Rescue Plan Act of 2021 program (Public Law 117-2), as administered by the Office of the Governor. The Department of Economic Security began operating the program on July 1, 2022 (State of Arizona, Office of the Governor and Department of Economic Security, Interagency Service Agreement No. ISA-DES-ARPA-021623-01). 2 Federal Uniform Guidance audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Federal Uniform Guidance cost principles require costs to be adequately documented (2 CFR 200.403[g]) and reasonable (2 CFR 200.404). In determining the reasonableness of a given cost, consideration must be given to several factors, including requirements imposed by federal laws and regulations and the terms and conditions of the federal award (2 CFR 200.404[b]). 4 U.S. Department of the Treasury published guidance to assist grantees in ERAP administration, including a requirement for ERAP grantees to establish policies and procedures to govern the implementation of their ERAP programs consistent with the ERAP statutes and U.S. Department of the Treasury FAQs (U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions, Revised March 5, 2024. Retrieved 10/16/2024 from https://home.treasury.gov/system/files?file=136/ERA-FAQs03052024.pdf). 5 To be eligible for program benefits, individuals had to have filed, received, and been deemed eligible in accordance with the Division’s written policies and procedures. The benefit payments consisted of rent and/or utility payments for past-due amounts (a one-time lump sum payment) and for 3 months of payments on each reapplication up to a total of 18 months. Applicants must provide proof of income or self-attestation of no income and cannot earn an income that is above the area median income as determined by the HUD income limits (Section 8) set at 80 percent AMI (Area Median Income). These limits are updated annually and can be viewed at https://www.huduser.gov/portal/datasets/il.html#year2024. Further, applicants who live in Maricopa County must reside in the City of Phoenix. This policy was updated in April 2023 to include the City of Mesa. Rental applications must include a housing agreement with the applicant’s name and current rental address. Utility assistance applications must include bills or invoices or outstanding payments. Applications are reviewed by adjudicators, who ensure the documentation for proof of residence, proof of income, housing agreement, any bills related to utility accounts and proof of risk of homelessness or housing instability are complete and reasonable. Any decisions made contrary to policy must include a rationale for the decision in the supporting documentation for the application (Department of Economic Security Emergency Rental Assistance Program Policy, Rev 8 [7/1/2022] and Rev 9 [4/1/2023]).
Assistance Listings number and name: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds (SLFRF) Award number and year: None Federal agency: U.S. Department of the Treasury Questioned costs: $1,903,858 Assistance Listing number and name: 84.425C COVID-19 Education Stabilization Fund – Governor’s Emergency Education Relief (GEER) Fund Award numbers and years: S425C200052, June 2, 2020 through September 30, 2022; S425C210052, January 8, 2021 through September 30, 2023 Federal agency: U.S. Department of Education Questioned costs: Unknown Compliance requirement: Subrecipient monitoring Condition—The Governor’s Office of Strategic Planning and Budgeting (Office) awarded $135.1 million to 334 SLFRF program subrecipients and $10.2 million to 10 GEER program subrecipients during fiscal year 2023, or 88 percent and 98 percent, respectively, of each of the Office’s federal program expenditures, but did not perform all required risk assessments to assess whether its monitoring procedures were sufficient to evaluate whether subrecipients used program monies in accordance with the award terms and program requirements. Specifically, risk assessments were not performed for 37 of 42 SLFRF program subrecipients and 5 of 5 GEER program subrecipients tested. Effect—The Office’s delay in performing required risk assessments did not allow the Office to properly design and prioritize its monitoring efforts, resulting in the Office not timely identifying questioned costs of approximately $1,903,858 for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements.1 The Office identified several of these questioned costs as potentially inappropriate and has forwarded this information to the Attorney General’s Office for further review. As a result, the Office may be required to return these monies to the federal agency in accordance with Uniform Guidance requirements.2 Further, if monies were spent inconsistent with program requirements, those who were intended to benefit from the program may not have received all the services or other benefits they otherwise would have received. Subrecipient program expenditures are not related to the revenue loss expenditure category. Cause—Office management reported that it hired additional staff in fiscal year 2023 to begin addressing issues noted in prior year findings 2022-104 and 2022-10 but had not done so in time to complete required risk assessments for the more than 300 SLFRF program and 10 GEER program subrecipients.3 Criteria—Federal regulation requires the Office to monitor subrecipients, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. This federal regulation also provides that monitoring procedures may include reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures (2 CFR §200.332[b] and [e]). Further, Office policy requires an annual risk assessment of open, active subawards to determine which subawards will be selected for review and monitoring priority (Grants Management Manual – Grantor, Chapter 8 – Award Monitoring). Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Office should: 1. Ensure it performs required monitoring of its subrecipients and their compliance with the award terms and program requirements by following its established policies and procedures to assess the risk of each subrecipient’s noncompliance annually and carry out monitoring activities based on those risk assessments such as reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on site reviews, selective audits, and/or other monitoring procedures. 2. Continue to assess its resources, such as staffing, to perform required risk assessments and monitoring procedures to comply with the award terms and program requirements. 3. Work with the federal agency and the subrecipients to resolve the $1,903,858 of program monies that may have been spent in violation of its federal award terms and that may need to be returned to the federal agency.2 The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year findings 2022-104 (GEER) and 2022-106 (SLFRF) and were initially reported in fiscal years 2021 (GEER) and 2022 (SLFRF). 1 The Office reported during fiscal year 2024 it began performing missing risk assessments for subrecipients awarded monies during fiscal years 2022 and 2023 that were not completed by June 30, 2023, and is currently conducting additional onsite monitoring or desk reviews based on those results. As of the report date, December 17, 2024, the Office identified and reported to us approximately $1,903,858 of expenditures for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements. Since the Office is still performing monitoring procedures for subaward monies spent during fiscal year 2023, there may be additional questioned costs that the Office has not identified. 2 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Office, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Arizona Auditor General. (2023). State of Arizona June 30, 2022, Single Audit Report. Phoenix, AZ. Retrieved 08/13/2024 from https://www.azauditor.gov/sites/default/files/2024-01/StateOfArizonaJune30_2022SingleAudit.pdf
Assistance Listings number and name: 21.023 COVID-19 - Emergency Rental Assistance Program Award numbers and years: ERA-2101070596, January 8, 2021 through September 30, 2022; ERA2-0165, May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed, allowable costs/cost principles, and eligibility Questioned costs: $36,945 Assistance Listings number and name: 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Award number and year: None Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed and allowable costs/cost principles Questioned costs: $38,169 Total questioned costs: $75,114 Condition—Contrary to federal regulations and its policies and procedures, the Department of Economic Security—Division of Community Assistance and Development (Division) made unallowable benefits payments totaling $75,114 during fiscal year 2023 to rental assistance program applicants for the Emergency Rental Assistance Program (ERAP) and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) federal programs.1 Specifically, for 10 of 50 CSLFRF and 10 of 65 ERAP benefit payments tested, we found that the Division made unallowable benefits payments of $38,169 for CSLFRF and $36,945 for ERAP, to or on behalf of ineligible program applicants or those that lacked required eligibility documentation and for other inappropriate costs, as follows: • The Division inappropriately paid $43,642 of benefit payments to or on behalf of 8 ineligible program applicants, including: o $42,993 paid to or on behalf of 7 program applicants who did not reside in an eligible Maricopa County service area at the time of application ($30,618 for 5 ERAP program applicants and $12,375 for 2 CSLFRF applicants). o $649 paid to or on behalf of 1 ERAP program applicant whose income exceeded allowable program limits. • The Division inappropriately paid $17,655 of benefit payments to or on behalf of 8 program applicants without obtaining required documentation to support they were eligible to receive them, including: o $12,567 paid to or on behalf of 6 CSLFRF program applicants without required proof of income, a signed lease agreement, and other documentation supporting household size and the reimbursement of late penalties and fees related to rent and/or utility account bills. o $5,088 paid to or on behalf of 2 ERAP program applicants without a required lease agreement listing the applicants. • The Division inappropriately paid $13,817 of benefit payments to or on behalf of 4 program applicants, including: o $13,731 paid to or on behalf of 3 participants for rental arrears—rent not paid by the date specified in the lease agreement—payments exceeding the allowable one-time, lump sum payments ($13,227 for 2 CSLFRF participants and $504 for 1 ERAP participant). o $86 paid to or on behalf of 1 ERAP applicant for utility services the Division previously paid. Effect—The Division’s making unallowable benefits payments to ineligible program applicants or without required documentation increases the risk that the program applicants received utility and rental payments for which they were not entitled. Also, the Division’s paying for inappropriate costs spent inconsistent with program requirements increases the risk that those who were intended to benefit from the program may not have received all the benefits they otherwise would have received. Consequently, the Division may be required to return these monies to the federal agency in accordance with federal requirements.2 During fiscal year 2023, the Division paid $193.7 million in benefit payments to or on behalf of program applicants requesting emergency rental and utility assistance for these 2 federal programs, as illustrated in the figure below, and is at risk that more of its benefit payment expenditures are inappropriate than those identified in our sample. Benefit payments expenditures (in millions) Total program expenditures (in millions) Percent of benefit payments expenditures to total program expenditures ERAP $162.8 $194.7 83.6% CSLFRF $30.9 $379.5 8.1% Totals for ERAP and CSLFRF $193.7 $574.2 33.7% Cause—Division management reported that personnel responsible for evaluating program applications and determining program applicant’s eligibility and allowability of related costs did not have time to perform thorough evaluations, including making appropriate eligibility determinations, obtaining required documentation, or ensuring costs were allowable, because of the large quantity of program applications. Further, the Division failed to identify the program evaluation errors during post-reviews of eligibility determinations because the checklist Division personnel used lacked detailed guidance for verifying that the determinations aligned with the Division’s written policies and procedures and were supported by required documentation. Criteria—Federal regulations require costs to be reasonable and adequately documented to be allowable under federal awards, and the Division’s written policies and procedures require certain documentation to support eligibility requirements related to where the applicant lives and their income.3,4,5 Specifically, Division policy requires a program application evaluation to ensure complete and reasonable documentation is obtained including lease agreements; any bills related to utility accounts; and proof of income, household size, eligible service area residency, and risk of homelessness or housing instability. Also, the Division’s policies prohibit incomplete applications to be acted upon until applicants provide the required information and documentation to complete their applications. Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Division should: 1. Ensure benefit payments are for allowable costs paid to or on behalf of eligible program applicants. 2. Follow existing policies and procedures to obtain required documentation to support requirements related to where the applicant lives and their income to ensure program applicants are eligible to receive benefit payments. 3. Allocate sufficient staffing resources to perform a thorough evaluation of program benefits applications and provide training on eligibility requirements and allowable benefit payments. 4. Update the checklist Division personnel use to perform a post-review of eligibility determinations to include detailed guidance for verifying the determinations aligned with the Division’s written policies and procedures and supported by adequate documentation. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 The Arizona Department of Economic Security’s Emergency Rental Assistance Program (ERAP) was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. The initial program is referred to as ERAP 1. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). Further, the Arizona Department of Economic Security’s ERAP was extended through the federal Coronavirus State and Local Fiscal Recovery Funds, an American Rescue Plan Act of 2021 program (Public Law 117-2), as administered by the Office of the Governor. The Department of Economic Security began operating the program on July 1, 2022 (State of Arizona, Office of the Governor and Department of Economic Security, Interagency Service Agreement No. ISA-DES-ARPA-021623-01). 2 Federal Uniform Guidance audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Federal Uniform Guidance cost principles require costs to be adequately documented (2 CFR 200.403[g]) and reasonable (2 CFR 200.404). In determining the reasonableness of a given cost, consideration must be given to several factors, including requirements imposed by federal laws and regulations and the terms and conditions of the federal award (2 CFR 200.404[b]). 4 U.S. Department of the Treasury published guidance to assist grantees in ERAP administration, including a requirement for ERAP grantees to establish policies and procedures to govern the implementation of their ERAP programs consistent with the ERAP statutes and U.S. Department of the Treasury FAQs (U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions, Revised March 5, 2024. Retrieved 10/16/2024 from https://home.treasury.gov/system/files?file=136/ERA-FAQs03052024.pdf). 5 To be eligible for program benefits, individuals had to have filed, received, and been deemed eligible in accordance with the Division’s written policies and procedures. The benefit payments consisted of rent and/or utility payments for past-due amounts (a one-time lump sum payment) and for 3 months of payments on each reapplication up to a total of 18 months. Applicants must provide proof of income or self-attestation of no income and cannot earn an income that is above the area median income as determined by the HUD income limits (Section 8) set at 80 percent AMI (Area Median Income). These limits are updated annually and can be viewed at https://www.huduser.gov/portal/datasets/il.html#year2024. Further, applicants who live in Maricopa County must reside in the City of Phoenix. This policy was updated in April 2023 to include the City of Mesa. Rental applications must include a housing agreement with the applicant’s name and current rental address. Utility assistance applications must include bills or invoices or outstanding payments. Applications are reviewed by adjudicators, who ensure the documentation for proof of residence, proof of income, housing agreement, any bills related to utility accounts and proof of risk of homelessness or housing instability are complete and reasonable. Any decisions made contrary to policy must include a rationale for the decision in the supporting documentation for the application (Department of Economic Security Emergency Rental Assistance Program Policy, Rev 8 [7/1/2022] and Rev 9 [4/1/2023]).
Assistance Listings number and name: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds (SLFRF) Award number and year: None Federal agency: U.S. Department of the Treasury Questioned costs: $1,903,858 Assistance Listing number and name: 84.425C COVID-19 Education Stabilization Fund – Governor’s Emergency Education Relief (GEER) Fund Award numbers and years: S425C200052, June 2, 2020 through September 30, 2022; S425C210052, January 8, 2021 through September 30, 2023 Federal agency: U.S. Department of Education Questioned costs: Unknown Compliance requirement: Subrecipient monitoring Condition—The Governor’s Office of Strategic Planning and Budgeting (Office) awarded $135.1 million to 334 SLFRF program subrecipients and $10.2 million to 10 GEER program subrecipients during fiscal year 2023, or 88 percent and 98 percent, respectively, of each of the Office’s federal program expenditures, but did not perform all required risk assessments to assess whether its monitoring procedures were sufficient to evaluate whether subrecipients used program monies in accordance with the award terms and program requirements. Specifically, risk assessments were not performed for 37 of 42 SLFRF program subrecipients and 5 of 5 GEER program subrecipients tested. Effect—The Office’s delay in performing required risk assessments did not allow the Office to properly design and prioritize its monitoring efforts, resulting in the Office not timely identifying questioned costs of approximately $1,903,858 for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements.1 The Office identified several of these questioned costs as potentially inappropriate and has forwarded this information to the Attorney General’s Office for further review. As a result, the Office may be required to return these monies to the federal agency in accordance with Uniform Guidance requirements.2 Further, if monies were spent inconsistent with program requirements, those who were intended to benefit from the program may not have received all the services or other benefits they otherwise would have received. Subrecipient program expenditures are not related to the revenue loss expenditure category. Cause—Office management reported that it hired additional staff in fiscal year 2023 to begin addressing issues noted in prior year findings 2022-104 and 2022-10 but had not done so in time to complete required risk assessments for the more than 300 SLFRF program and 10 GEER program subrecipients.3 Criteria—Federal regulation requires the Office to monitor subrecipients, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. This federal regulation also provides that monitoring procedures may include reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures (2 CFR §200.332[b] and [e]). Further, Office policy requires an annual risk assessment of open, active subawards to determine which subawards will be selected for review and monitoring priority (Grants Management Manual – Grantor, Chapter 8 – Award Monitoring). Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Office should: 1. Ensure it performs required monitoring of its subrecipients and their compliance with the award terms and program requirements by following its established policies and procedures to assess the risk of each subrecipient’s noncompliance annually and carry out monitoring activities based on those risk assessments such as reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on site reviews, selective audits, and/or other monitoring procedures. 2. Continue to assess its resources, such as staffing, to perform required risk assessments and monitoring procedures to comply with the award terms and program requirements. 3. Work with the federal agency and the subrecipients to resolve the $1,903,858 of program monies that may have been spent in violation of its federal award terms and that may need to be returned to the federal agency.2 The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year findings 2022-104 (GEER) and 2022-106 (SLFRF) and were initially reported in fiscal years 2021 (GEER) and 2022 (SLFRF). 1 The Office reported during fiscal year 2024 it began performing missing risk assessments for subrecipients awarded monies during fiscal years 2022 and 2023 that were not completed by June 30, 2023, and is currently conducting additional onsite monitoring or desk reviews based on those results. As of the report date, December 17, 2024, the Office identified and reported to us approximately $1,903,858 of expenditures for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements. Since the Office is still performing monitoring procedures for subaward monies spent during fiscal year 2023, there may be additional questioned costs that the Office has not identified. 2 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Office, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Arizona Auditor General. (2023). State of Arizona June 30, 2022, Single Audit Report. Phoenix, AZ. Retrieved 08/13/2024 from https://www.azauditor.gov/sites/default/files/2024-01/StateOfArizonaJune30_2022SingleAudit.pdf
Assistance Listings number and name: 21.023 COVID-19 - Emergency Rental Assistance Program Award numbers and years: ERA-2101070596, January 8, 2021 through September 30, 2022; ERA2-0165, May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed, allowable costs/cost principles, and eligibility Questioned costs: $36,945 Assistance Listings number and name: 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Award number and year: None Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed and allowable costs/cost principles Questioned costs: $38,169 Total questioned costs: $75,114 Condition—Contrary to federal regulations and its policies and procedures, the Department of Economic Security—Division of Community Assistance and Development (Division) made unallowable benefits payments totaling $75,114 during fiscal year 2023 to rental assistance program applicants for the Emergency Rental Assistance Program (ERAP) and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) federal programs.1 Specifically, for 10 of 50 CSLFRF and 10 of 65 ERAP benefit payments tested, we found that the Division made unallowable benefits payments of $38,169 for CSLFRF and $36,945 for ERAP, to or on behalf of ineligible program applicants or those that lacked required eligibility documentation and for other inappropriate costs, as follows: • The Division inappropriately paid $43,642 of benefit payments to or on behalf of 8 ineligible program applicants, including: o $42,993 paid to or on behalf of 7 program applicants who did not reside in an eligible Maricopa County service area at the time of application ($30,618 for 5 ERAP program applicants and $12,375 for 2 CSLFRF applicants). o $649 paid to or on behalf of 1 ERAP program applicant whose income exceeded allowable program limits. • The Division inappropriately paid $17,655 of benefit payments to or on behalf of 8 program applicants without obtaining required documentation to support they were eligible to receive them, including: o $12,567 paid to or on behalf of 6 CSLFRF program applicants without required proof of income, a signed lease agreement, and other documentation supporting household size and the reimbursement of late penalties and fees related to rent and/or utility account bills. o $5,088 paid to or on behalf of 2 ERAP program applicants without a required lease agreement listing the applicants. • The Division inappropriately paid $13,817 of benefit payments to or on behalf of 4 program applicants, including: o $13,731 paid to or on behalf of 3 participants for rental arrears—rent not paid by the date specified in the lease agreement—payments exceeding the allowable one-time, lump sum payments ($13,227 for 2 CSLFRF participants and $504 for 1 ERAP participant). o $86 paid to or on behalf of 1 ERAP applicant for utility services the Division previously paid. Effect—The Division’s making unallowable benefits payments to ineligible program applicants or without required documentation increases the risk that the program applicants received utility and rental payments for which they were not entitled. Also, the Division’s paying for inappropriate costs spent inconsistent with program requirements increases the risk that those who were intended to benefit from the program may not have received all the benefits they otherwise would have received. Consequently, the Division may be required to return these monies to the federal agency in accordance with federal requirements.2 During fiscal year 2023, the Division paid $193.7 million in benefit payments to or on behalf of program applicants requesting emergency rental and utility assistance for these 2 federal programs, as illustrated in the figure below, and is at risk that more of its benefit payment expenditures are inappropriate than those identified in our sample. Benefit payments expenditures (in millions) Total program expenditures (in millions) Percent of benefit payments expenditures to total program expenditures ERAP $162.8 $194.7 83.6% CSLFRF $30.9 $379.5 8.1% Totals for ERAP and CSLFRF $193.7 $574.2 33.7% Cause—Division management reported that personnel responsible for evaluating program applications and determining program applicant’s eligibility and allowability of related costs did not have time to perform thorough evaluations, including making appropriate eligibility determinations, obtaining required documentation, or ensuring costs were allowable, because of the large quantity of program applications. Further, the Division failed to identify the program evaluation errors during post-reviews of eligibility determinations because the checklist Division personnel used lacked detailed guidance for verifying that the determinations aligned with the Division’s written policies and procedures and were supported by required documentation. Criteria—Federal regulations require costs to be reasonable and adequately documented to be allowable under federal awards, and the Division’s written policies and procedures require certain documentation to support eligibility requirements related to where the applicant lives and their income.3,4,5 Specifically, Division policy requires a program application evaluation to ensure complete and reasonable documentation is obtained including lease agreements; any bills related to utility accounts; and proof of income, household size, eligible service area residency, and risk of homelessness or housing instability. Also, the Division’s policies prohibit incomplete applications to be acted upon until applicants provide the required information and documentation to complete their applications. Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Division should: 1. Ensure benefit payments are for allowable costs paid to or on behalf of eligible program applicants. 2. Follow existing policies and procedures to obtain required documentation to support requirements related to where the applicant lives and their income to ensure program applicants are eligible to receive benefit payments. 3. Allocate sufficient staffing resources to perform a thorough evaluation of program benefits applications and provide training on eligibility requirements and allowable benefit payments. 4. Update the checklist Division personnel use to perform a post-review of eligibility determinations to include detailed guidance for verifying the determinations aligned with the Division’s written policies and procedures and supported by adequate documentation. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 The Arizona Department of Economic Security’s Emergency Rental Assistance Program (ERAP) was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. The initial program is referred to as ERAP 1. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). Further, the Arizona Department of Economic Security’s ERAP was extended through the federal Coronavirus State and Local Fiscal Recovery Funds, an American Rescue Plan Act of 2021 program (Public Law 117-2), as administered by the Office of the Governor. The Department of Economic Security began operating the program on July 1, 2022 (State of Arizona, Office of the Governor and Department of Economic Security, Interagency Service Agreement No. ISA-DES-ARPA-021623-01). 2 Federal Uniform Guidance audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Federal Uniform Guidance cost principles require costs to be adequately documented (2 CFR 200.403[g]) and reasonable (2 CFR 200.404). In determining the reasonableness of a given cost, consideration must be given to several factors, including requirements imposed by federal laws and regulations and the terms and conditions of the federal award (2 CFR 200.404[b]). 4 U.S. Department of the Treasury published guidance to assist grantees in ERAP administration, including a requirement for ERAP grantees to establish policies and procedures to govern the implementation of their ERAP programs consistent with the ERAP statutes and U.S. Department of the Treasury FAQs (U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions, Revised March 5, 2024. Retrieved 10/16/2024 from https://home.treasury.gov/system/files?file=136/ERA-FAQs03052024.pdf). 5 To be eligible for program benefits, individuals had to have filed, received, and been deemed eligible in accordance with the Division’s written policies and procedures. The benefit payments consisted of rent and/or utility payments for past-due amounts (a one-time lump sum payment) and for 3 months of payments on each reapplication up to a total of 18 months. Applicants must provide proof of income or self-attestation of no income and cannot earn an income that is above the area median income as determined by the HUD income limits (Section 8) set at 80 percent AMI (Area Median Income). These limits are updated annually and can be viewed at https://www.huduser.gov/portal/datasets/il.html#year2024. Further, applicants who live in Maricopa County must reside in the City of Phoenix. This policy was updated in April 2023 to include the City of Mesa. Rental applications must include a housing agreement with the applicant’s name and current rental address. Utility assistance applications must include bills or invoices or outstanding payments. Applications are reviewed by adjudicators, who ensure the documentation for proof of residence, proof of income, housing agreement, any bills related to utility accounts and proof of risk of homelessness or housing instability are complete and reasonable. Any decisions made contrary to policy must include a rationale for the decision in the supporting documentation for the application (Department of Economic Security Emergency Rental Assistance Program Policy, Rev 8 [7/1/2022] and Rev 9 [4/1/2023]).
Assistance Listings number and name: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds (SLFRF) Award number and year: None Federal agency: U.S. Department of the Treasury Questioned costs: $1,903,858 Assistance Listing number and name: 84.425C COVID-19 Education Stabilization Fund – Governor’s Emergency Education Relief (GEER) Fund Award numbers and years: S425C200052, June 2, 2020 through September 30, 2022; S425C210052, January 8, 2021 through September 30, 2023 Federal agency: U.S. Department of Education Questioned costs: Unknown Compliance requirement: Subrecipient monitoring Condition—The Governor’s Office of Strategic Planning and Budgeting (Office) awarded $135.1 million to 334 SLFRF program subrecipients and $10.2 million to 10 GEER program subrecipients during fiscal year 2023, or 88 percent and 98 percent, respectively, of each of the Office’s federal program expenditures, but did not perform all required risk assessments to assess whether its monitoring procedures were sufficient to evaluate whether subrecipients used program monies in accordance with the award terms and program requirements. Specifically, risk assessments were not performed for 37 of 42 SLFRF program subrecipients and 5 of 5 GEER program subrecipients tested. Effect—The Office’s delay in performing required risk assessments did not allow the Office to properly design and prioritize its monitoring efforts, resulting in the Office not timely identifying questioned costs of approximately $1,903,858 for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements.1 The Office identified several of these questioned costs as potentially inappropriate and has forwarded this information to the Attorney General’s Office for further review. As a result, the Office may be required to return these monies to the federal agency in accordance with Uniform Guidance requirements.2 Further, if monies were spent inconsistent with program requirements, those who were intended to benefit from the program may not have received all the services or other benefits they otherwise would have received. Subrecipient program expenditures are not related to the revenue loss expenditure category. Cause—Office management reported that it hired additional staff in fiscal year 2023 to begin addressing issues noted in prior year findings 2022-104 and 2022-10 but had not done so in time to complete required risk assessments for the more than 300 SLFRF program and 10 GEER program subrecipients.3 Criteria—Federal regulation requires the Office to monitor subrecipients, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. This federal regulation also provides that monitoring procedures may include reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures (2 CFR §200.332[b] and [e]). Further, Office policy requires an annual risk assessment of open, active subawards to determine which subawards will be selected for review and monitoring priority (Grants Management Manual – Grantor, Chapter 8 – Award Monitoring). Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Office should: 1. Ensure it performs required monitoring of its subrecipients and their compliance with the award terms and program requirements by following its established policies and procedures to assess the risk of each subrecipient’s noncompliance annually and carry out monitoring activities based on those risk assessments such as reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on site reviews, selective audits, and/or other monitoring procedures. 2. Continue to assess its resources, such as staffing, to perform required risk assessments and monitoring procedures to comply with the award terms and program requirements. 3. Work with the federal agency and the subrecipients to resolve the $1,903,858 of program monies that may have been spent in violation of its federal award terms and that may need to be returned to the federal agency.2 The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year findings 2022-104 (GEER) and 2022-106 (SLFRF) and were initially reported in fiscal years 2021 (GEER) and 2022 (SLFRF). 1 The Office reported during fiscal year 2024 it began performing missing risk assessments for subrecipients awarded monies during fiscal years 2022 and 2023 that were not completed by June 30, 2023, and is currently conducting additional onsite monitoring or desk reviews based on those results. As of the report date, December 17, 2024, the Office identified and reported to us approximately $1,903,858 of expenditures for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements. Since the Office is still performing monitoring procedures for subaward monies spent during fiscal year 2023, there may be additional questioned costs that the Office has not identified. 2 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Office, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Arizona Auditor General. (2023). State of Arizona June 30, 2022, Single Audit Report. Phoenix, AZ. Retrieved 08/13/2024 from https://www.azauditor.gov/sites/default/files/2024-01/StateOfArizonaJune30_2022SingleAudit.pdf
Assistance Listings number and name: 21.023 COVID-19 - Emergency Rental Assistance Program Award numbers and years: ERA-2101070596, January 8, 2021 through September 30, 2022; ERA2-0165, May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed, allowable costs/cost principles, and eligibility Questioned costs: $36,945 Assistance Listings number and name: 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Award number and year: None Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed and allowable costs/cost principles Questioned costs: $38,169 Total questioned costs: $75,114 Condition—Contrary to federal regulations and its policies and procedures, the Department of Economic Security—Division of Community Assistance and Development (Division) made unallowable benefits payments totaling $75,114 during fiscal year 2023 to rental assistance program applicants for the Emergency Rental Assistance Program (ERAP) and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) federal programs.1 Specifically, for 10 of 50 CSLFRF and 10 of 65 ERAP benefit payments tested, we found that the Division made unallowable benefits payments of $38,169 for CSLFRF and $36,945 for ERAP, to or on behalf of ineligible program applicants or those that lacked required eligibility documentation and for other inappropriate costs, as follows: • The Division inappropriately paid $43,642 of benefit payments to or on behalf of 8 ineligible program applicants, including: o $42,993 paid to or on behalf of 7 program applicants who did not reside in an eligible Maricopa County service area at the time of application ($30,618 for 5 ERAP program applicants and $12,375 for 2 CSLFRF applicants). o $649 paid to or on behalf of 1 ERAP program applicant whose income exceeded allowable program limits. • The Division inappropriately paid $17,655 of benefit payments to or on behalf of 8 program applicants without obtaining required documentation to support they were eligible to receive them, including: o $12,567 paid to or on behalf of 6 CSLFRF program applicants without required proof of income, a signed lease agreement, and other documentation supporting household size and the reimbursement of late penalties and fees related to rent and/or utility account bills. o $5,088 paid to or on behalf of 2 ERAP program applicants without a required lease agreement listing the applicants. • The Division inappropriately paid $13,817 of benefit payments to or on behalf of 4 program applicants, including: o $13,731 paid to or on behalf of 3 participants for rental arrears—rent not paid by the date specified in the lease agreement—payments exceeding the allowable one-time, lump sum payments ($13,227 for 2 CSLFRF participants and $504 for 1 ERAP participant). o $86 paid to or on behalf of 1 ERAP applicant for utility services the Division previously paid. Effect—The Division’s making unallowable benefits payments to ineligible program applicants or without required documentation increases the risk that the program applicants received utility and rental payments for which they were not entitled. Also, the Division’s paying for inappropriate costs spent inconsistent with program requirements increases the risk that those who were intended to benefit from the program may not have received all the benefits they otherwise would have received. Consequently, the Division may be required to return these monies to the federal agency in accordance with federal requirements.2 During fiscal year 2023, the Division paid $193.7 million in benefit payments to or on behalf of program applicants requesting emergency rental and utility assistance for these 2 federal programs, as illustrated in the figure below, and is at risk that more of its benefit payment expenditures are inappropriate than those identified in our sample. Benefit payments expenditures (in millions) Total program expenditures (in millions) Percent of benefit payments expenditures to total program expenditures ERAP $162.8 $194.7 83.6% CSLFRF $30.9 $379.5 8.1% Totals for ERAP and CSLFRF $193.7 $574.2 33.7% Cause—Division management reported that personnel responsible for evaluating program applications and determining program applicant’s eligibility and allowability of related costs did not have time to perform thorough evaluations, including making appropriate eligibility determinations, obtaining required documentation, or ensuring costs were allowable, because of the large quantity of program applications. Further, the Division failed to identify the program evaluation errors during post-reviews of eligibility determinations because the checklist Division personnel used lacked detailed guidance for verifying that the determinations aligned with the Division’s written policies and procedures and were supported by required documentation. Criteria—Federal regulations require costs to be reasonable and adequately documented to be allowable under federal awards, and the Division’s written policies and procedures require certain documentation to support eligibility requirements related to where the applicant lives and their income.3,4,5 Specifically, Division policy requires a program application evaluation to ensure complete and reasonable documentation is obtained including lease agreements; any bills related to utility accounts; and proof of income, household size, eligible service area residency, and risk of homelessness or housing instability. Also, the Division’s policies prohibit incomplete applications to be acted upon until applicants provide the required information and documentation to complete their applications. Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Division should: 1. Ensure benefit payments are for allowable costs paid to or on behalf of eligible program applicants. 2. Follow existing policies and procedures to obtain required documentation to support requirements related to where the applicant lives and their income to ensure program applicants are eligible to receive benefit payments. 3. Allocate sufficient staffing resources to perform a thorough evaluation of program benefits applications and provide training on eligibility requirements and allowable benefit payments. 4. Update the checklist Division personnel use to perform a post-review of eligibility determinations to include detailed guidance for verifying the determinations aligned with the Division’s written policies and procedures and supported by adequate documentation. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 The Arizona Department of Economic Security’s Emergency Rental Assistance Program (ERAP) was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. The initial program is referred to as ERAP 1. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). Further, the Arizona Department of Economic Security’s ERAP was extended through the federal Coronavirus State and Local Fiscal Recovery Funds, an American Rescue Plan Act of 2021 program (Public Law 117-2), as administered by the Office of the Governor. The Department of Economic Security began operating the program on July 1, 2022 (State of Arizona, Office of the Governor and Department of Economic Security, Interagency Service Agreement No. ISA-DES-ARPA-021623-01). 2 Federal Uniform Guidance audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Federal Uniform Guidance cost principles require costs to be adequately documented (2 CFR 200.403[g]) and reasonable (2 CFR 200.404). In determining the reasonableness of a given cost, consideration must be given to several factors, including requirements imposed by federal laws and regulations and the terms and conditions of the federal award (2 CFR 200.404[b]). 4 U.S. Department of the Treasury published guidance to assist grantees in ERAP administration, including a requirement for ERAP grantees to establish policies and procedures to govern the implementation of their ERAP programs consistent with the ERAP statutes and U.S. Department of the Treasury FAQs (U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions, Revised March 5, 2024. Retrieved 10/16/2024 from https://home.treasury.gov/system/files?file=136/ERA-FAQs03052024.pdf). 5 To be eligible for program benefits, individuals had to have filed, received, and been deemed eligible in accordance with the Division’s written policies and procedures. The benefit payments consisted of rent and/or utility payments for past-due amounts (a one-time lump sum payment) and for 3 months of payments on each reapplication up to a total of 18 months. Applicants must provide proof of income or self-attestation of no income and cannot earn an income that is above the area median income as determined by the HUD income limits (Section 8) set at 80 percent AMI (Area Median Income). These limits are updated annually and can be viewed at https://www.huduser.gov/portal/datasets/il.html#year2024. Further, applicants who live in Maricopa County must reside in the City of Phoenix. This policy was updated in April 2023 to include the City of Mesa. Rental applications must include a housing agreement with the applicant’s name and current rental address. Utility assistance applications must include bills or invoices or outstanding payments. Applications are reviewed by adjudicators, who ensure the documentation for proof of residence, proof of income, housing agreement, any bills related to utility accounts and proof of risk of homelessness or housing instability are complete and reasonable. Any decisions made contrary to policy must include a rationale for the decision in the supporting documentation for the application (Department of Economic Security Emergency Rental Assistance Program Policy, Rev 8 [7/1/2022] and Rev 9 [4/1/2023]).
Assistance Listings number and name: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds (SLFRF) Award number and year: None Federal agency: U.S. Department of the Treasury Questioned costs: $1,903,858 Assistance Listing number and name: 84.425C COVID-19 Education Stabilization Fund – Governor’s Emergency Education Relief (GEER) Fund Award numbers and years: S425C200052, June 2, 2020 through September 30, 2022; S425C210052, January 8, 2021 through September 30, 2023 Federal agency: U.S. Department of Education Questioned costs: Unknown Compliance requirement: Subrecipient monitoring Condition—The Governor’s Office of Strategic Planning and Budgeting (Office) awarded $135.1 million to 334 SLFRF program subrecipients and $10.2 million to 10 GEER program subrecipients during fiscal year 2023, or 88 percent and 98 percent, respectively, of each of the Office’s federal program expenditures, but did not perform all required risk assessments to assess whether its monitoring procedures were sufficient to evaluate whether subrecipients used program monies in accordance with the award terms and program requirements. Specifically, risk assessments were not performed for 37 of 42 SLFRF program subrecipients and 5 of 5 GEER program subrecipients tested. Effect—The Office’s delay in performing required risk assessments did not allow the Office to properly design and prioritize its monitoring efforts, resulting in the Office not timely identifying questioned costs of approximately $1,903,858 for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements.1 The Office identified several of these questioned costs as potentially inappropriate and has forwarded this information to the Attorney General’s Office for further review. As a result, the Office may be required to return these monies to the federal agency in accordance with Uniform Guidance requirements.2 Further, if monies were spent inconsistent with program requirements, those who were intended to benefit from the program may not have received all the services or other benefits they otherwise would have received. Subrecipient program expenditures are not related to the revenue loss expenditure category. Cause—Office management reported that it hired additional staff in fiscal year 2023 to begin addressing issues noted in prior year findings 2022-104 and 2022-10 but had not done so in time to complete required risk assessments for the more than 300 SLFRF program and 10 GEER program subrecipients.3 Criteria—Federal regulation requires the Office to monitor subrecipients, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. This federal regulation also provides that monitoring procedures may include reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures (2 CFR §200.332[b] and [e]). Further, Office policy requires an annual risk assessment of open, active subawards to determine which subawards will be selected for review and monitoring priority (Grants Management Manual – Grantor, Chapter 8 – Award Monitoring). Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Office should: 1. Ensure it performs required monitoring of its subrecipients and their compliance with the award terms and program requirements by following its established policies and procedures to assess the risk of each subrecipient’s noncompliance annually and carry out monitoring activities based on those risk assessments such as reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on site reviews, selective audits, and/or other monitoring procedures. 2. Continue to assess its resources, such as staffing, to perform required risk assessments and monitoring procedures to comply with the award terms and program requirements. 3. Work with the federal agency and the subrecipients to resolve the $1,903,858 of program monies that may have been spent in violation of its federal award terms and that may need to be returned to the federal agency.2 The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year findings 2022-104 (GEER) and 2022-106 (SLFRF) and were initially reported in fiscal years 2021 (GEER) and 2022 (SLFRF). 1 The Office reported during fiscal year 2024 it began performing missing risk assessments for subrecipients awarded monies during fiscal years 2022 and 2023 that were not completed by June 30, 2023, and is currently conducting additional onsite monitoring or desk reviews based on those results. As of the report date, December 17, 2024, the Office identified and reported to us approximately $1,903,858 of expenditures for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements. Since the Office is still performing monitoring procedures for subaward monies spent during fiscal year 2023, there may be additional questioned costs that the Office has not identified. 2 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Office, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Arizona Auditor General. (2023). State of Arizona June 30, 2022, Single Audit Report. Phoenix, AZ. Retrieved 08/13/2024 from https://www.azauditor.gov/sites/default/files/2024-01/StateOfArizonaJune30_2022SingleAudit.pdf
Assistance Listings number and name: 21.023 COVID-19 - Emergency Rental Assistance Program Award numbers and years: ERA-2101070596, January 8, 2021 through September 30, 2022; ERA2-0165, May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed, allowable costs/cost principles, and eligibility Questioned costs: $36,945 Assistance Listings number and name: 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Award number and year: None Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed and allowable costs/cost principles Questioned costs: $38,169 Total questioned costs: $75,114 Condition—Contrary to federal regulations and its policies and procedures, the Department of Economic Security—Division of Community Assistance and Development (Division) made unallowable benefits payments totaling $75,114 during fiscal year 2023 to rental assistance program applicants for the Emergency Rental Assistance Program (ERAP) and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) federal programs.1 Specifically, for 10 of 50 CSLFRF and 10 of 65 ERAP benefit payments tested, we found that the Division made unallowable benefits payments of $38,169 for CSLFRF and $36,945 for ERAP, to or on behalf of ineligible program applicants or those that lacked required eligibility documentation and for other inappropriate costs, as follows: • The Division inappropriately paid $43,642 of benefit payments to or on behalf of 8 ineligible program applicants, including: o $42,993 paid to or on behalf of 7 program applicants who did not reside in an eligible Maricopa County service area at the time of application ($30,618 for 5 ERAP program applicants and $12,375 for 2 CSLFRF applicants). o $649 paid to or on behalf of 1 ERAP program applicant whose income exceeded allowable program limits. • The Division inappropriately paid $17,655 of benefit payments to or on behalf of 8 program applicants without obtaining required documentation to support they were eligible to receive them, including: o $12,567 paid to or on behalf of 6 CSLFRF program applicants without required proof of income, a signed lease agreement, and other documentation supporting household size and the reimbursement of late penalties and fees related to rent and/or utility account bills. o $5,088 paid to or on behalf of 2 ERAP program applicants without a required lease agreement listing the applicants. • The Division inappropriately paid $13,817 of benefit payments to or on behalf of 4 program applicants, including: o $13,731 paid to or on behalf of 3 participants for rental arrears—rent not paid by the date specified in the lease agreement—payments exceeding the allowable one-time, lump sum payments ($13,227 for 2 CSLFRF participants and $504 for 1 ERAP participant). o $86 paid to or on behalf of 1 ERAP applicant for utility services the Division previously paid. Effect—The Division’s making unallowable benefits payments to ineligible program applicants or without required documentation increases the risk that the program applicants received utility and rental payments for which they were not entitled. Also, the Division’s paying for inappropriate costs spent inconsistent with program requirements increases the risk that those who were intended to benefit from the program may not have received all the benefits they otherwise would have received. Consequently, the Division may be required to return these monies to the federal agency in accordance with federal requirements.2 During fiscal year 2023, the Division paid $193.7 million in benefit payments to or on behalf of program applicants requesting emergency rental and utility assistance for these 2 federal programs, as illustrated in the figure below, and is at risk that more of its benefit payment expenditures are inappropriate than those identified in our sample. Benefit payments expenditures (in millions) Total program expenditures (in millions) Percent of benefit payments expenditures to total program expenditures ERAP $162.8 $194.7 83.6% CSLFRF $30.9 $379.5 8.1% Totals for ERAP and CSLFRF $193.7 $574.2 33.7% Cause—Division management reported that personnel responsible for evaluating program applications and determining program applicant’s eligibility and allowability of related costs did not have time to perform thorough evaluations, including making appropriate eligibility determinations, obtaining required documentation, or ensuring costs were allowable, because of the large quantity of program applications. Further, the Division failed to identify the program evaluation errors during post-reviews of eligibility determinations because the checklist Division personnel used lacked detailed guidance for verifying that the determinations aligned with the Division’s written policies and procedures and were supported by required documentation. Criteria—Federal regulations require costs to be reasonable and adequately documented to be allowable under federal awards, and the Division’s written policies and procedures require certain documentation to support eligibility requirements related to where the applicant lives and their income.3,4,5 Specifically, Division policy requires a program application evaluation to ensure complete and reasonable documentation is obtained including lease agreements; any bills related to utility accounts; and proof of income, household size, eligible service area residency, and risk of homelessness or housing instability. Also, the Division’s policies prohibit incomplete applications to be acted upon until applicants provide the required information and documentation to complete their applications. Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Division should: 1. Ensure benefit payments are for allowable costs paid to or on behalf of eligible program applicants. 2. Follow existing policies and procedures to obtain required documentation to support requirements related to where the applicant lives and their income to ensure program applicants are eligible to receive benefit payments. 3. Allocate sufficient staffing resources to perform a thorough evaluation of program benefits applications and provide training on eligibility requirements and allowable benefit payments. 4. Update the checklist Division personnel use to perform a post-review of eligibility determinations to include detailed guidance for verifying the determinations aligned with the Division’s written policies and procedures and supported by adequate documentation. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 The Arizona Department of Economic Security’s Emergency Rental Assistance Program (ERAP) was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. The initial program is referred to as ERAP 1. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). Further, the Arizona Department of Economic Security’s ERAP was extended through the federal Coronavirus State and Local Fiscal Recovery Funds, an American Rescue Plan Act of 2021 program (Public Law 117-2), as administered by the Office of the Governor. The Department of Economic Security began operating the program on July 1, 2022 (State of Arizona, Office of the Governor and Department of Economic Security, Interagency Service Agreement No. ISA-DES-ARPA-021623-01). 2 Federal Uniform Guidance audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Federal Uniform Guidance cost principles require costs to be adequately documented (2 CFR 200.403[g]) and reasonable (2 CFR 200.404). In determining the reasonableness of a given cost, consideration must be given to several factors, including requirements imposed by federal laws and regulations and the terms and conditions of the federal award (2 CFR 200.404[b]). 4 U.S. Department of the Treasury published guidance to assist grantees in ERAP administration, including a requirement for ERAP grantees to establish policies and procedures to govern the implementation of their ERAP programs consistent with the ERAP statutes and U.S. Department of the Treasury FAQs (U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions, Revised March 5, 2024. Retrieved 10/16/2024 from https://home.treasury.gov/system/files?file=136/ERA-FAQs03052024.pdf). 5 To be eligible for program benefits, individuals had to have filed, received, and been deemed eligible in accordance with the Division’s written policies and procedures. The benefit payments consisted of rent and/or utility payments for past-due amounts (a one-time lump sum payment) and for 3 months of payments on each reapplication up to a total of 18 months. Applicants must provide proof of income or self-attestation of no income and cannot earn an income that is above the area median income as determined by the HUD income limits (Section 8) set at 80 percent AMI (Area Median Income). These limits are updated annually and can be viewed at https://www.huduser.gov/portal/datasets/il.html#year2024. Further, applicants who live in Maricopa County must reside in the City of Phoenix. This policy was updated in April 2023 to include the City of Mesa. Rental applications must include a housing agreement with the applicant’s name and current rental address. Utility assistance applications must include bills or invoices or outstanding payments. Applications are reviewed by adjudicators, who ensure the documentation for proof of residence, proof of income, housing agreement, any bills related to utility accounts and proof of risk of homelessness or housing instability are complete and reasonable. Any decisions made contrary to policy must include a rationale for the decision in the supporting documentation for the application (Department of Economic Security Emergency Rental Assistance Program Policy, Rev 8 [7/1/2022] and Rev 9 [4/1/2023]).
Assistance Listings number and name: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds (SLFRF) Award number and year: None Federal agency: U.S. Department of the Treasury Questioned costs: $1,903,858 Assistance Listing number and name: 84.425C COVID-19 Education Stabilization Fund – Governor’s Emergency Education Relief (GEER) Fund Award numbers and years: S425C200052, June 2, 2020 through September 30, 2022; S425C210052, January 8, 2021 through September 30, 2023 Federal agency: U.S. Department of Education Questioned costs: Unknown Compliance requirement: Subrecipient monitoring Condition—The Governor’s Office of Strategic Planning and Budgeting (Office) awarded $135.1 million to 334 SLFRF program subrecipients and $10.2 million to 10 GEER program subrecipients during fiscal year 2023, or 88 percent and 98 percent, respectively, of each of the Office’s federal program expenditures, but did not perform all required risk assessments to assess whether its monitoring procedures were sufficient to evaluate whether subrecipients used program monies in accordance with the award terms and program requirements. Specifically, risk assessments were not performed for 37 of 42 SLFRF program subrecipients and 5 of 5 GEER program subrecipients tested. Effect—The Office’s delay in performing required risk assessments did not allow the Office to properly design and prioritize its monitoring efforts, resulting in the Office not timely identifying questioned costs of approximately $1,903,858 for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements.1 The Office identified several of these questioned costs as potentially inappropriate and has forwarded this information to the Attorney General’s Office for further review. As a result, the Office may be required to return these monies to the federal agency in accordance with Uniform Guidance requirements.2 Further, if monies were spent inconsistent with program requirements, those who were intended to benefit from the program may not have received all the services or other benefits they otherwise would have received. Subrecipient program expenditures are not related to the revenue loss expenditure category. Cause—Office management reported that it hired additional staff in fiscal year 2023 to begin addressing issues noted in prior year findings 2022-104 and 2022-10 but had not done so in time to complete required risk assessments for the more than 300 SLFRF program and 10 GEER program subrecipients.3 Criteria—Federal regulation requires the Office to monitor subrecipients, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. This federal regulation also provides that monitoring procedures may include reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures (2 CFR §200.332[b] and [e]). Further, Office policy requires an annual risk assessment of open, active subawards to determine which subawards will be selected for review and monitoring priority (Grants Management Manual – Grantor, Chapter 8 – Award Monitoring). Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Office should: 1. Ensure it performs required monitoring of its subrecipients and their compliance with the award terms and program requirements by following its established policies and procedures to assess the risk of each subrecipient’s noncompliance annually and carry out monitoring activities based on those risk assessments such as reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on site reviews, selective audits, and/or other monitoring procedures. 2. Continue to assess its resources, such as staffing, to perform required risk assessments and monitoring procedures to comply with the award terms and program requirements. 3. Work with the federal agency and the subrecipients to resolve the $1,903,858 of program monies that may have been spent in violation of its federal award terms and that may need to be returned to the federal agency.2 The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year findings 2022-104 (GEER) and 2022-106 (SLFRF) and were initially reported in fiscal years 2021 (GEER) and 2022 (SLFRF). 1 The Office reported during fiscal year 2024 it began performing missing risk assessments for subrecipients awarded monies during fiscal years 2022 and 2023 that were not completed by June 30, 2023, and is currently conducting additional onsite monitoring or desk reviews based on those results. As of the report date, December 17, 2024, the Office identified and reported to us approximately $1,903,858 of expenditures for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements. Since the Office is still performing monitoring procedures for subaward monies spent during fiscal year 2023, there may be additional questioned costs that the Office has not identified. 2 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Office, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Arizona Auditor General. (2023). State of Arizona June 30, 2022, Single Audit Report. Phoenix, AZ. Retrieved 08/13/2024 from https://www.azauditor.gov/sites/default/files/2024-01/StateOfArizonaJune30_2022SingleAudit.pdf
Assistance Listings number and name: 21.023 COVID-19 - Emergency Rental Assistance Program Award numbers and years: ERA-2101070596, January 8, 2021 through September 30, 2022; ERA2-0165, May 10, 2021 through September 30, 2025 Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed, allowable costs/cost principles, and eligibility Questioned costs: $36,945 Assistance Listings number and name: 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Award number and year: None Federal agency: U.S. Department of the Treasury Compliance requirements: Activities allowed or unallowed and allowable costs/cost principles Questioned costs: $38,169 Total questioned costs: $75,114 Condition—Contrary to federal regulations and its policies and procedures, the Department of Economic Security—Division of Community Assistance and Development (Division) made unallowable benefits payments totaling $75,114 during fiscal year 2023 to rental assistance program applicants for the Emergency Rental Assistance Program (ERAP) and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) federal programs.1 Specifically, for 10 of 50 CSLFRF and 10 of 65 ERAP benefit payments tested, we found that the Division made unallowable benefits payments of $38,169 for CSLFRF and $36,945 for ERAP, to or on behalf of ineligible program applicants or those that lacked required eligibility documentation and for other inappropriate costs, as follows: • The Division inappropriately paid $43,642 of benefit payments to or on behalf of 8 ineligible program applicants, including: o $42,993 paid to or on behalf of 7 program applicants who did not reside in an eligible Maricopa County service area at the time of application ($30,618 for 5 ERAP program applicants and $12,375 for 2 CSLFRF applicants). o $649 paid to or on behalf of 1 ERAP program applicant whose income exceeded allowable program limits. • The Division inappropriately paid $17,655 of benefit payments to or on behalf of 8 program applicants without obtaining required documentation to support they were eligible to receive them, including: o $12,567 paid to or on behalf of 6 CSLFRF program applicants without required proof of income, a signed lease agreement, and other documentation supporting household size and the reimbursement of late penalties and fees related to rent and/or utility account bills. o $5,088 paid to or on behalf of 2 ERAP program applicants without a required lease agreement listing the applicants. • The Division inappropriately paid $13,817 of benefit payments to or on behalf of 4 program applicants, including: o $13,731 paid to or on behalf of 3 participants for rental arrears—rent not paid by the date specified in the lease agreement—payments exceeding the allowable one-time, lump sum payments ($13,227 for 2 CSLFRF participants and $504 for 1 ERAP participant). o $86 paid to or on behalf of 1 ERAP applicant for utility services the Division previously paid. Effect—The Division’s making unallowable benefits payments to ineligible program applicants or without required documentation increases the risk that the program applicants received utility and rental payments for which they were not entitled. Also, the Division’s paying for inappropriate costs spent inconsistent with program requirements increases the risk that those who were intended to benefit from the program may not have received all the benefits they otherwise would have received. Consequently, the Division may be required to return these monies to the federal agency in accordance with federal requirements.2 During fiscal year 2023, the Division paid $193.7 million in benefit payments to or on behalf of program applicants requesting emergency rental and utility assistance for these 2 federal programs, as illustrated in the figure below, and is at risk that more of its benefit payment expenditures are inappropriate than those identified in our sample. Benefit payments expenditures (in millions) Total program expenditures (in millions) Percent of benefit payments expenditures to total program expenditures ERAP $162.8 $194.7 83.6% CSLFRF $30.9 $379.5 8.1% Totals for ERAP and CSLFRF $193.7 $574.2 33.7% Cause—Division management reported that personnel responsible for evaluating program applications and determining program applicant’s eligibility and allowability of related costs did not have time to perform thorough evaluations, including making appropriate eligibility determinations, obtaining required documentation, or ensuring costs were allowable, because of the large quantity of program applications. Further, the Division failed to identify the program evaluation errors during post-reviews of eligibility determinations because the checklist Division personnel used lacked detailed guidance for verifying that the determinations aligned with the Division’s written policies and procedures and were supported by required documentation. Criteria—Federal regulations require costs to be reasonable and adequately documented to be allowable under federal awards, and the Division’s written policies and procedures require certain documentation to support eligibility requirements related to where the applicant lives and their income.3,4,5 Specifically, Division policy requires a program application evaluation to ensure complete and reasonable documentation is obtained including lease agreements; any bills related to utility accounts; and proof of income, household size, eligible service area residency, and risk of homelessness or housing instability. Also, the Division’s policies prohibit incomplete applications to be acted upon until applicants provide the required information and documentation to complete their applications. Further, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Division should: 1. Ensure benefit payments are for allowable costs paid to or on behalf of eligible program applicants. 2. Follow existing policies and procedures to obtain required documentation to support requirements related to where the applicant lives and their income to ensure program applicants are eligible to receive benefit payments. 3. Allocate sufficient staffing resources to perform a thorough evaluation of program benefits applications and provide training on eligibility requirements and allowable benefit payments. 4. Update the checklist Division personnel use to perform a post-review of eligibility determinations to include detailed guidance for verifying the determinations aligned with the Division’s written policies and procedures and supported by adequate documentation. The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 The Arizona Department of Economic Security’s Emergency Rental Assistance Program (ERAP) was established by Section 501 of Title V, Division N, of the Consolidated Appropriations Act of 2021 (Public Law No. 116-260) in response to the coronavirus pandemic and to provide financial relief to help keep individuals who rent housing in their homes and provide financial assistance to landlords who rely on rental income. The initial program is referred to as ERAP 1. ERAP 2 was established by Sec. 3201 of Title III, Subtitle B, of the American Rescue Plan Act of 2021 (Public Law No. 117-2). Further, the Arizona Department of Economic Security’s ERAP was extended through the federal Coronavirus State and Local Fiscal Recovery Funds, an American Rescue Plan Act of 2021 program (Public Law 117-2), as administered by the Office of the Governor. The Department of Economic Security began operating the program on July 1, 2022 (State of Arizona, Office of the Governor and Department of Economic Security, Interagency Service Agreement No. ISA-DES-ARPA-021623-01). 2 Federal Uniform Guidance audit requirements require its federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Department, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Federal Uniform Guidance cost principles require costs to be adequately documented (2 CFR 200.403[g]) and reasonable (2 CFR 200.404). In determining the reasonableness of a given cost, consideration must be given to several factors, including requirements imposed by federal laws and regulations and the terms and conditions of the federal award (2 CFR 200.404[b]). 4 U.S. Department of the Treasury published guidance to assist grantees in ERAP administration, including a requirement for ERAP grantees to establish policies and procedures to govern the implementation of their ERAP programs consistent with the ERAP statutes and U.S. Department of the Treasury FAQs (U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions, Revised March 5, 2024. Retrieved 10/16/2024 from https://home.treasury.gov/system/files?file=136/ERA-FAQs03052024.pdf). 5 To be eligible for program benefits, individuals had to have filed, received, and been deemed eligible in accordance with the Division’s written policies and procedures. The benefit payments consisted of rent and/or utility payments for past-due amounts (a one-time lump sum payment) and for 3 months of payments on each reapplication up to a total of 18 months. Applicants must provide proof of income or self-attestation of no income and cannot earn an income that is above the area median income as determined by the HUD income limits (Section 8) set at 80 percent AMI (Area Median Income). These limits are updated annually and can be viewed at https://www.huduser.gov/portal/datasets/il.html#year2024. Further, applicants who live in Maricopa County must reside in the City of Phoenix. This policy was updated in April 2023 to include the City of Mesa. Rental applications must include a housing agreement with the applicant’s name and current rental address. Utility assistance applications must include bills or invoices or outstanding payments. Applications are reviewed by adjudicators, who ensure the documentation for proof of residence, proof of income, housing agreement, any bills related to utility accounts and proof of risk of homelessness or housing instability are complete and reasonable. Any decisions made contrary to policy must include a rationale for the decision in the supporting documentation for the application (Department of Economic Security Emergency Rental Assistance Program Policy, Rev 8 [7/1/2022] and Rev 9 [4/1/2023]).
Assistance Listings number and name: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds (SLFRF) Award number and year: None Federal agency: U.S. Department of the Treasury Questioned costs: $1,903,858 Assistance Listing number and name: 84.425C COVID-19 Education Stabilization Fund – Governor’s Emergency Education Relief (GEER) Fund Award numbers and years: S425C200052, June 2, 2020 through September 30, 2022; S425C210052, January 8, 2021 through September 30, 2023 Federal agency: U.S. Department of Education Questioned costs: Unknown Compliance requirement: Subrecipient monitoring Condition—The Governor’s Office of Strategic Planning and Budgeting (Office) awarded $135.1 million to 334 SLFRF program subrecipients and $10.2 million to 10 GEER program subrecipients during fiscal year 2023, or 88 percent and 98 percent, respectively, of each of the Office’s federal program expenditures, but did not perform all required risk assessments to assess whether its monitoring procedures were sufficient to evaluate whether subrecipients used program monies in accordance with the award terms and program requirements. Specifically, risk assessments were not performed for 37 of 42 SLFRF program subrecipients and 5 of 5 GEER program subrecipients tested. Effect—The Office’s delay in performing required risk assessments did not allow the Office to properly design and prioritize its monitoring efforts, resulting in the Office not timely identifying questioned costs of approximately $1,903,858 for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements.1 The Office identified several of these questioned costs as potentially inappropriate and has forwarded this information to the Attorney General’s Office for further review. As a result, the Office may be required to return these monies to the federal agency in accordance with Uniform Guidance requirements.2 Further, if monies were spent inconsistent with program requirements, those who were intended to benefit from the program may not have received all the services or other benefits they otherwise would have received. Subrecipient program expenditures are not related to the revenue loss expenditure category. Cause—Office management reported that it hired additional staff in fiscal year 2023 to begin addressing issues noted in prior year findings 2022-104 and 2022-10 but had not done so in time to complete required risk assessments for the more than 300 SLFRF program and 10 GEER program subrecipients.3 Criteria—Federal regulation requires the Office to monitor subrecipients, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. This federal regulation also provides that monitoring procedures may include reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on-site reviews, selective audits, and/or other monitoring procedures (2 CFR §200.332[b] and [e]). Further, Office policy requires an annual risk assessment of open, active subawards to determine which subawards will be selected for review and monitoring priority (Grants Management Manual – Grantor, Chapter 8 – Award Monitoring). Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that the federal program is being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Office should: 1. Ensure it performs required monitoring of its subrecipients and their compliance with the award terms and program requirements by following its established policies and procedures to assess the risk of each subrecipient’s noncompliance annually and carry out monitoring activities based on those risk assessments such as reviewing financial and performance reports, providing training or technical assistance on program-related matters, and performing on site reviews, selective audits, and/or other monitoring procedures. 2. Continue to assess its resources, such as staffing, to perform required risk assessments and monitoring procedures to comply with the award terms and program requirements. 3. Work with the federal agency and the subrecipients to resolve the $1,903,858 of program monies that may have been spent in violation of its federal award terms and that may need to be returned to the federal agency.2 The State’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year findings 2022-104 (GEER) and 2022-106 (SLFRF) and were initially reported in fiscal years 2021 (GEER) and 2022 (SLFRF). 1 The Office reported during fiscal year 2024 it began performing missing risk assessments for subrecipients awarded monies during fiscal years 2022 and 2023 that were not completed by June 30, 2023, and is currently conducting additional onsite monitoring or desk reviews based on those results. As of the report date, December 17, 2024, the Office identified and reported to us approximately $1,903,858 of expenditures for 3 SLFRF program subrecipients that may not have been spent in accordance with program requirements. Since the Office is still performing monitoring procedures for subaward monies spent during fiscal year 2023, there may be additional questioned costs that the Office has not identified. 2 Federal Uniform Guidance requires federal awarding agencies to follow up on audit findings and issue a management decision to ensure the recipient, the Office, takes appropriate and timely corrective action (2 CFR §200.513[c]). Further, it requires that federal awarding agencies’ management decisions clearly state whether or not the audit finding is sustained, the reasons for the decision, and the expected auditee action to repay disallowed costs, make financial adjustments, or take other action, as directed by the federal awarding agencies (2 CFR §200.521). 3 Arizona Auditor General. (2023). State of Arizona June 30, 2022, Single Audit Report. Phoenix, AZ. Retrieved 08/13/2024 from https://www.azauditor.gov/sites/default/files/2024-01/StateOfArizonaJune30_2022SingleAudit.pdf