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 numbers and names: 84.010 Title I Grants to Local Educational Agencies 84.367 Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants)* *referred to as Title II Award numbers and years: S010A190003, July 1, 2019 through September 30, 2020; S010A200003, July 1, 2020 through September 30, 2021; S010A210003, July 1, 2021 through September 30, 2022; S010A220003, July 1, 2022 through September 30, 2023; S367A190049, July 1, 2019 through September 30, 2020; S367A200049, July 1, 2020 through September 30, 2021; S367A210049, July 1, 2021 through September 30, 2022; S367A220049, July 1, 2022 through September 30, 2023 Federal agency: U.S. Department of Education Compliance requirement: Activities allowed or unallowed, allowable costs/cost principles, eligibility, earmarking, and special tests and provisions Questioned costs: $8,696 Condition—During fiscal year 2023, the Arizona Department of Education’s Title I Department (Department) allocated and disbursed over $354.6 million and over $43.6 million in Title I and Title II funds, respectively, to local educational agencies (LEAs). However, contrary to federal requirements, the Department did not consider 110 Special LEAs (charter schools) for eligibility for federal Title I funding and 109 charter schools for federal Title II funding that may have been eligible and thus should have been included in its funding allocation calculations. Further, the Department included 6 ineligible LEAs in its Title II funding allocation calculation. The U.S. Department of Education (USDE) awarded these Title I and Title II funds to the Department in October 2021, and they were allocated (specific grant amounts determined by the Department using statutory formulas) in April 2022, with the official grant period beginning July 1, 2022, and ending June 30, 2023. The Title I and Title II funds the Department allocated to the LEAs were then considered obligated (reserved) and could be disbursed (paid) by the Department each month after it received and processed a reimbursement request from an LEA. Effect—The Department’s Title I and Title II awards to LEAs may be inaccurate. Specifically: • 519 Title I and 550 Title II LEAs likely received more funds than they were entitled to. We were unable to determine the actual questioned cost as we could not determine the individual amount of over- or underpayment for each LEA without the Department recalculating the allocation, including gathering census data and poverty data for the 110 Title I charter schools and 109 Title II charter schools that were not considered for eligibility and not part of the original allocation. The Department stated that the recalculation process would require the use of historical census, and enrollment and would be an overly arduous process. For these reasons, the Department chose to focus on correcting and overhauling the allocation process for fiscal year 2024 and forward. • 110 Title I and 109 Title II charter school LEAs not part of the original allocation and referenced above may have been able to provide additional services to eligible students in fiscal year 2023 if the Department had appropriately evaluated and determined them to be eligible for Title I and Title II disbursements. • $8,696 of Title II funds awarded to 6 ineligible LEAs may require repayment to the USDE.1 Further, future Title I and Title II funding could be affected if the USDE requires the Department to recalculate the fiscal year 2023 allocations and provide subsequent funding to those entities that were eligible but did not receive funding. Additionally, the Department is at risk that this finding applies to other federal programs it administers. Cause—Despite federal laws requiring the Department to allocate fiscal year 2023 Title I and Title II funds to LEAs beginning in July 2023, including charter schools, and detailed federal guidance on how to adjust the USDE allocations for new or significantly expanded charter schools, the Department lacked detailed procedures and reported that it only evaluated charter schools for inclusion in its allocation calculations upon direct requests from the schools, rather than evaluating charter schools annually. Specifically, the Department reported that it did not add charter schools to the list of eligible LEAs during their first year of operation or when the LEAs’ enrollment significantly expanded because Department staff used the prior fiscal year listing of eligible LEAs. The Department also did not perform a supervisory review and approval of this listing to ensure all eligible LEAs were properly included and evaluated. Further, Department staff responsible for the administration and execution of Title I and Title II grants during fiscal year 2023 were no longer employed by the Department at the time of the audit, and current leadership reported they were unaware of what policies and procedures were followed during the grant-allocation process due to out-of-date and incomplete policies and procedures and because the grant allocation process for fiscal year 2023 was performed prior to their hire. Specifically, the program administrator responsible for the allocation of grant funds was no longer employed by the Department as of April 20, 2023, 2 months before the end of the LEA grant period. As of this date, preliminary allocations for fiscal year 2024 had been calculated and were able to be adjusted by current Department staff. Due to the timing of the adjustments the Department implemented, the results of the changes in procedures for the fiscal year 2024 allocation will be reviewed for accuracy and compliance in the 2024 Single Audit Report. Lastly, the 6 ineligible LEAs that received Title II funds were Educational Service Agencies, such as a Juvenile Detention Center, that were ineligible for the funds due to the classification of their educational programs or organizational structure. When determining eligibility for these entities, the Department incorrectly classified the entities as public schools and therefore incorrectly deemed them eligible, resulting in $8,696 in improper payments. Criteria—Federal laws require the Department to use a statutory formula to annually allocate Title I and Title II funds to LEAs, including charter schools, based on the number of children from low-income families attending them who meet the eligibility requirements established by the USDE (20 USC §§6303, 6303b, 6304, 6333-6337). Public schools are defined as eligible LEAs in accordance with 34 USC 303.23(a) and A.R.S. §§15-101 and 15-913. In addition, federal laws and guidance require the Department to provide Title I and Title II funding to eligible charter schools within 5 months of opening for the first time or significantly expanding enrollment (20 USC §7221e). 2,3 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. Ensure the allocation of Title I and Title II funds is based on statutory formula and eligibility requirements and that awards are made to eligible charter schools within 5 months of opening for the first time or significantly expanding enrollment by developing and implementing detailed allocation policies and procedures. 2. Ensure that staff responsible for the allocation and performance of grant objectives are adequately supervised and managed by knowledgeable supervisors who have the understanding and training to review and approve allocation calculations prior to Title I and Title II disbursements being made to LEAs. 3. Work with the USDE to determine if it will require the Department to recalculate the allocation of funds for fiscal year 2023 and what steps may be necessary to correct the amounts paid to LEAs. 4. Work with the 6 ineligible LEAs that received funding to determine if the amounts disbursed should be repaid and how the LEAs can reimburse the Department for these unallowable costs. 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, 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). 2 Significant expansion of enrollment means a substantial increase in the number of students attending a charter school due to a significant event that is unlikely to occur on a regular basis, such as the addition of one or more grades or educational programs in major curriculum areas. The term also includes any other expansion of enrollment that the state educational agency (SEA) determines to be significant (34 CFR §78.787). 3 U.S. Department of Education. (November 21, 2016). Non-regulatory Guidance: Fiscal Changes and Equitable Services Requirements under the Elementary and Secondary Education Act of 1965 (ESEA), as amended by the Every Student Succeeds Act (ESSA). Retrieved 08/26/2024 from https://oese.ed.gov/files/2020/07/essaguidance160477.pdf
Assistance Listings numbers and names: 84.010 Title I Grants to Local Educational Agencies 84.367 Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants)* *referred to as Title II Award numbers and years: S010A190003, July 1, 2019 through September 30, 2020; S010A200003, July 1, 2020 through September 30, 2021; S010A210003, July 1, 2021 through September 30, 2022; S010A220003, July 1, 2022 through September 30, 2023; S367A190049, July 1, 2019 through September 30, 2020; S367A200049, July 1, 2020 through September 30, 2021; S367A210049, July 1, 2021 through September 30, 2022; S367A220049, July 1, 2022 through September 30, 2023 Federal agency: U.S. Department of Education Compliance requirement: Level of effort Questioned costs: Unknown Condition—The Department of Education’s Grants Management Department (Department) disbursed over $55.3 million and over $6.1 million in Title I and Title II funds, respectively, to 295 Title I and 307 Title II charter school local educational agencies (LEAs) during fiscal year 2023 without completing required maintenance-of-effort calculations and reducing grant funding when necessary as required by federal law. Specifically, the Department did not evaluate and reduce grant monies awarded to any charter school that failed to meet required spending levels (maintain fiscal effort) for more than once in a 5-year period. Effect—The Department’s not completing required maintenance-of-effort calculations for charter schools increased the risk that charter schools may have received current or future grant funding through fiscal year 2028 they are not entitled to and may require repayment to the U.S. Department of Education.1 Further, other LEAs may have been entitled to additional grant monies and may have been able to provide additional services to eligible students. Additionally, the Department is at risk that this finding applies to other federal programs it administers. Cause—The Department relied on its grant-management system to automatically calculate maintenance-of-effort without ensuring all necessary data was included in the calculations. The Department performs these maintenance-of-effort calculations on April 1 of each year using the prior-year data from the LEAs’ Financial Audit Report. Specifically, the Department reported that it changed where it stored the charter schools’ financial information in fiscal year 2023 but did not adjust grant-management system criteria to include the data in the maintenance-of-effort calculations run on April 1, 2023. Further, Department staff did not review the maintenance-of-effort calculation results to ensure all LEAs were included. Criteria—Federal law requires the Department to disburse Title I and Title II grant monies to LEAs, including charter schools, only if maintenance-of-effort requirements are met. Specifically, the Department must calculate and verify that the combined fiscal effort per student or the LEA’s aggregate expenditures from State and local funds for free public education for the preceding year was not less than 90 percent of the combined fiscal effort or aggregate expenditures for the second preceding year. If the LEA fails to maintain fiscal effort, federal law requires the Department to reduce the LEA’s allocation under a covered program if the LEA also failed to maintain effort in 1 or more of the 5 immediately preceding fiscal years in exact proportion by which the LEA failed to maintain effort (20 USC 7901). Also, 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. Evaluate and reduce Title I and Title II funds annually for any LEA, including charter schools, that failed to maintain fiscal effort more than once in a 5-year period. 2. Develop and implement maintenance-of-effort policies and procedures that include verifying that its grants management system’s maintenance-of-effort calculations include necessary data for all applicable LEAs, including charter schools, and to review the calculation results to ensure all LEAs were included. 3. Determine if any LEAs, including charter schools, received funding they were not entitled to by completing the missing fiscal year 2023 charter school maintenance-of-effort calculations and identifying any LEAs that did not maintain fiscal effort more than once in a 5-year period. If improper payments were made, work with the U.S. Department of Education to determine if they will require the Department to reperform the allocation of Title I and Title II benefits for fiscal year 2023 and what steps may be necessary to correct any errors, if applicable, for the amounts paid to LEAs. 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, 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).
Assistance Listings numbers and names: 84.010 Title I Grants to Local Educational Agencies 84.367 Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants)* *referred to as Title II Award numbers and years: S010A190003, July 1, 2019 through September 30, 2020; S010A200003, July 1, 2020 through September 30, 2021; S010A210003, July 1, 2021 through September 30, 2022; S010A220003, July 1, 2022 through September 30, 2023; S367A190049, July 1, 2019 through September 30, 2020; S367A200049, July 1, 2020 through September 30, 2021; S367A210049, July 1, 2021 through September 30, 2022; S367A220049, July 1, 2022 through September 30, 2023 Federal agency: U.S. Department of Education Compliance requirement: Special tests and provisions Questioned costs: Unknown Condition—The Department of Education’s Grants Management Department (Department) disbursed over $55.3 million and over $6.1 million in Title I and Title II funds, respectively, to 295 Title I and 307 Title II charter school local educational agencies (LEAs) during fiscal year 2023 but did not perform certain monitoring procedures required by the U.S. Department of Education. Specifically, the Department did not identify which of the 295 Title I and 307 Title II charter school LEAs receiving federal grant monies had relationships with charter management organizations (CMOs) in order to perform additional required monitoring to assess the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties at these charter schools.1 Effect—The Department’s not identifying or performing additional monitoring of charter schools with relationships with CMOs increases the risk that funds allocated to these charter school LEAs may not have been spent in accordance with the award terms and program requirements and could result in the U.S. Department of Education to reduce future awards.2 Further, if monies were spent inconsistently 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. Additionally, the Department is at risk that this finding applies to other federal programs it administers. Cause—Despite the U.S. Department of Education providing related guidance in September 2015, the Department staff reported they were unaware of the requirement to perform additional monitoring steps over charter schools with relationships with CMOs. Further, the Department’s policies and procedures for monitoring LEAs did not differentiate between regular LEAs, charter schools without CMOs, or charter schools with relationships with CMOs. As such, the Department lacked specific procedures to assess the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties. Criteria—Federal regulations require the Department to monitor subrecipients, including charter schools, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. Those federal regulations also provide 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 d]). As part of these monitoring responsibilities, the U.S. Department of Education requires the Department to monitor charter schools with relationships with CMOs and assess the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties.3 Also, 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 annual monitoring over charter schools with relationships with CMOs, including performing risk-assessment procedures over the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties, 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. Update existing LEA-monitoring policies and procedures and train employees to identify charter schools that have relationships with CMOs and to then assess and design monitoring procedures over conflicts of interest, related-party transactions, or insufficient segregation of duties. 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 term “charter management organization” means a nonprofit organization that operates or manages a network of charter schools linked by centralized support, operations, and oversight (20 USC 7221i[3]. Retrieved 9/13/2024 from https://www.law.cornell.edu/uscode/text/20/7221i#2 2 Federal Uniform Guidance requires 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 On September 28, 2015, the U.S. Department of Education issued a letter to State Educational Agencies (SEAs) reminding them of their role in helping to ensure that federal funds accessed by public charter schools are used for intended, appropriate purposes, and provided additional resources for states, and specifically SEAs, to consult as they consider improvements to their monitoring and oversight procedures for charter schools (U.S. Department of Education. [2015, September]. Letter to SEAs. Retrieved 8/29/2024 from https://oese.ed.gov/files/2020/07/finalsignedcsp.pdf). Further, in September 2016, the U.S. Department of Education’s Office of Inspector General issued an audit report on charter schools with CMOs and identified risks such as conflicts of interest, related-party transactions, or insufficient segregation of duties (U.S. Department of Education. [2016, September]. Nationwide Assessment of Charter and Education Management Organizations. Retrieved 8/29/2024 from https://oig.ed.gov/sites/default/files/reports/2023-11/a02m0012.pdf).
Assistance Listings numbers and names: 84.010 Title I Grants to Local Educational Agencies 84.367 Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants)* *referred to as Title II Award numbers and years: S010A190003, July 1, 2019 through September 30, 2020; S010A200003, July 1, 2020 through September 30, 2021; S010A210003, July 1, 2021 through September 30, 2022; S010A220003, July 1, 2022 through September 30, 2023; S367A190049, July 1, 2019 through September 30, 2020; S367A200049, July 1, 2020 through September 30, 2021; S367A210049, July 1, 2021 through September 30, 2022; S367A220049, July 1, 2022 through September 30, 2023 Federal agency: U.S. Department of Education Compliance requirement: Activities allowed or unallowed, allowable costs/cost principles, eligibility, earmarking, and special tests and provisions Questioned costs: $8,696 Condition—During fiscal year 2023, the Arizona Department of Education’s Title I Department (Department) allocated and disbursed over $354.6 million and over $43.6 million in Title I and Title II funds, respectively, to local educational agencies (LEAs). However, contrary to federal requirements, the Department did not consider 110 Special LEAs (charter schools) for eligibility for federal Title I funding and 109 charter schools for federal Title II funding that may have been eligible and thus should have been included in its funding allocation calculations. Further, the Department included 6 ineligible LEAs in its Title II funding allocation calculation. The U.S. Department of Education (USDE) awarded these Title I and Title II funds to the Department in October 2021, and they were allocated (specific grant amounts determined by the Department using statutory formulas) in April 2022, with the official grant period beginning July 1, 2022, and ending June 30, 2023. The Title I and Title II funds the Department allocated to the LEAs were then considered obligated (reserved) and could be disbursed (paid) by the Department each month after it received and processed a reimbursement request from an LEA. Effect—The Department’s Title I and Title II awards to LEAs may be inaccurate. Specifically: • 519 Title I and 550 Title II LEAs likely received more funds than they were entitled to. We were unable to determine the actual questioned cost as we could not determine the individual amount of over- or underpayment for each LEA without the Department recalculating the allocation, including gathering census data and poverty data for the 110 Title I charter schools and 109 Title II charter schools that were not considered for eligibility and not part of the original allocation. The Department stated that the recalculation process would require the use of historical census, and enrollment and would be an overly arduous process. For these reasons, the Department chose to focus on correcting and overhauling the allocation process for fiscal year 2024 and forward. • 110 Title I and 109 Title II charter school LEAs not part of the original allocation and referenced above may have been able to provide additional services to eligible students in fiscal year 2023 if the Department had appropriately evaluated and determined them to be eligible for Title I and Title II disbursements. • $8,696 of Title II funds awarded to 6 ineligible LEAs may require repayment to the USDE.1 Further, future Title I and Title II funding could be affected if the USDE requires the Department to recalculate the fiscal year 2023 allocations and provide subsequent funding to those entities that were eligible but did not receive funding. Additionally, the Department is at risk that this finding applies to other federal programs it administers. Cause—Despite federal laws requiring the Department to allocate fiscal year 2023 Title I and Title II funds to LEAs beginning in July 2023, including charter schools, and detailed federal guidance on how to adjust the USDE allocations for new or significantly expanded charter schools, the Department lacked detailed procedures and reported that it only evaluated charter schools for inclusion in its allocation calculations upon direct requests from the schools, rather than evaluating charter schools annually. Specifically, the Department reported that it did not add charter schools to the list of eligible LEAs during their first year of operation or when the LEAs’ enrollment significantly expanded because Department staff used the prior fiscal year listing of eligible LEAs. The Department also did not perform a supervisory review and approval of this listing to ensure all eligible LEAs were properly included and evaluated. Further, Department staff responsible for the administration and execution of Title I and Title II grants during fiscal year 2023 were no longer employed by the Department at the time of the audit, and current leadership reported they were unaware of what policies and procedures were followed during the grant-allocation process due to out-of-date and incomplete policies and procedures and because the grant allocation process for fiscal year 2023 was performed prior to their hire. Specifically, the program administrator responsible for the allocation of grant funds was no longer employed by the Department as of April 20, 2023, 2 months before the end of the LEA grant period. As of this date, preliminary allocations for fiscal year 2024 had been calculated and were able to be adjusted by current Department staff. Due to the timing of the adjustments the Department implemented, the results of the changes in procedures for the fiscal year 2024 allocation will be reviewed for accuracy and compliance in the 2024 Single Audit Report. Lastly, the 6 ineligible LEAs that received Title II funds were Educational Service Agencies, such as a Juvenile Detention Center, that were ineligible for the funds due to the classification of their educational programs or organizational structure. When determining eligibility for these entities, the Department incorrectly classified the entities as public schools and therefore incorrectly deemed them eligible, resulting in $8,696 in improper payments. Criteria—Federal laws require the Department to use a statutory formula to annually allocate Title I and Title II funds to LEAs, including charter schools, based on the number of children from low-income families attending them who meet the eligibility requirements established by the USDE (20 USC §§6303, 6303b, 6304, 6333-6337). Public schools are defined as eligible LEAs in accordance with 34 USC 303.23(a) and A.R.S. §§15-101 and 15-913. In addition, federal laws and guidance require the Department to provide Title I and Title II funding to eligible charter schools within 5 months of opening for the first time or significantly expanding enrollment (20 USC §7221e). 2,3 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. Ensure the allocation of Title I and Title II funds is based on statutory formula and eligibility requirements and that awards are made to eligible charter schools within 5 months of opening for the first time or significantly expanding enrollment by developing and implementing detailed allocation policies and procedures. 2. Ensure that staff responsible for the allocation and performance of grant objectives are adequately supervised and managed by knowledgeable supervisors who have the understanding and training to review and approve allocation calculations prior to Title I and Title II disbursements being made to LEAs. 3. Work with the USDE to determine if it will require the Department to recalculate the allocation of funds for fiscal year 2023 and what steps may be necessary to correct the amounts paid to LEAs. 4. Work with the 6 ineligible LEAs that received funding to determine if the amounts disbursed should be repaid and how the LEAs can reimburse the Department for these unallowable costs. 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, 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). 2 Significant expansion of enrollment means a substantial increase in the number of students attending a charter school due to a significant event that is unlikely to occur on a regular basis, such as the addition of one or more grades or educational programs in major curriculum areas. The term also includes any other expansion of enrollment that the state educational agency (SEA) determines to be significant (34 CFR §78.787). 3 U.S. Department of Education. (November 21, 2016). Non-regulatory Guidance: Fiscal Changes and Equitable Services Requirements under the Elementary and Secondary Education Act of 1965 (ESEA), as amended by the Every Student Succeeds Act (ESSA). Retrieved 08/26/2024 from https://oese.ed.gov/files/2020/07/essaguidance160477.pdf
Assistance Listings numbers and names: 84.010 Title I Grants to Local Educational Agencies 84.367 Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants)* *referred to as Title II Award numbers and years: S010A190003, July 1, 2019 through September 30, 2020; S010A200003, July 1, 2020 through September 30, 2021; S010A210003, July 1, 2021 through September 30, 2022; S010A220003, July 1, 2022 through September 30, 2023; S367A190049, July 1, 2019 through September 30, 2020; S367A200049, July 1, 2020 through September 30, 2021; S367A210049, July 1, 2021 through September 30, 2022; S367A220049, July 1, 2022 through September 30, 2023 Federal agency: U.S. Department of Education Compliance requirement: Level of effort Questioned costs: Unknown Condition—The Department of Education’s Grants Management Department (Department) disbursed over $55.3 million and over $6.1 million in Title I and Title II funds, respectively, to 295 Title I and 307 Title II charter school local educational agencies (LEAs) during fiscal year 2023 without completing required maintenance-of-effort calculations and reducing grant funding when necessary as required by federal law. Specifically, the Department did not evaluate and reduce grant monies awarded to any charter school that failed to meet required spending levels (maintain fiscal effort) for more than once in a 5-year period. Effect—The Department’s not completing required maintenance-of-effort calculations for charter schools increased the risk that charter schools may have received current or future grant funding through fiscal year 2028 they are not entitled to and may require repayment to the U.S. Department of Education.1 Further, other LEAs may have been entitled to additional grant monies and may have been able to provide additional services to eligible students. Additionally, the Department is at risk that this finding applies to other federal programs it administers. Cause—The Department relied on its grant-management system to automatically calculate maintenance-of-effort without ensuring all necessary data was included in the calculations. The Department performs these maintenance-of-effort calculations on April 1 of each year using the prior-year data from the LEAs’ Financial Audit Report. Specifically, the Department reported that it changed where it stored the charter schools’ financial information in fiscal year 2023 but did not adjust grant-management system criteria to include the data in the maintenance-of-effort calculations run on April 1, 2023. Further, Department staff did not review the maintenance-of-effort calculation results to ensure all LEAs were included. Criteria—Federal law requires the Department to disburse Title I and Title II grant monies to LEAs, including charter schools, only if maintenance-of-effort requirements are met. Specifically, the Department must calculate and verify that the combined fiscal effort per student or the LEA’s aggregate expenditures from State and local funds for free public education for the preceding year was not less than 90 percent of the combined fiscal effort or aggregate expenditures for the second preceding year. If the LEA fails to maintain fiscal effort, federal law requires the Department to reduce the LEA’s allocation under a covered program if the LEA also failed to maintain effort in 1 or more of the 5 immediately preceding fiscal years in exact proportion by which the LEA failed to maintain effort (20 USC 7901). Also, 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. Evaluate and reduce Title I and Title II funds annually for any LEA, including charter schools, that failed to maintain fiscal effort more than once in a 5-year period. 2. Develop and implement maintenance-of-effort policies and procedures that include verifying that its grants management system’s maintenance-of-effort calculations include necessary data for all applicable LEAs, including charter schools, and to review the calculation results to ensure all LEAs were included. 3. Determine if any LEAs, including charter schools, received funding they were not entitled to by completing the missing fiscal year 2023 charter school maintenance-of-effort calculations and identifying any LEAs that did not maintain fiscal effort more than once in a 5-year period. If improper payments were made, work with the U.S. Department of Education to determine if they will require the Department to reperform the allocation of Title I and Title II benefits for fiscal year 2023 and what steps may be necessary to correct any errors, if applicable, for the amounts paid to LEAs. 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, 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).
Assistance Listings numbers and names: 84.010 Title I Grants to Local Educational Agencies 84.367 Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants)* *referred to as Title II Award numbers and years: S010A190003, July 1, 2019 through September 30, 2020; S010A200003, July 1, 2020 through September 30, 2021; S010A210003, July 1, 2021 through September 30, 2022; S010A220003, July 1, 2022 through September 30, 2023; S367A190049, July 1, 2019 through September 30, 2020; S367A200049, July 1, 2020 through September 30, 2021; S367A210049, July 1, 2021 through September 30, 2022; S367A220049, July 1, 2022 through September 30, 2023 Federal agency: U.S. Department of Education Compliance requirement: Special tests and provisions Questioned costs: Unknown Condition—The Department of Education’s Grants Management Department (Department) disbursed over $55.3 million and over $6.1 million in Title I and Title II funds, respectively, to 295 Title I and 307 Title II charter school local educational agencies (LEAs) during fiscal year 2023 but did not perform certain monitoring procedures required by the U.S. Department of Education. Specifically, the Department did not identify which of the 295 Title I and 307 Title II charter school LEAs receiving federal grant monies had relationships with charter management organizations (CMOs) in order to perform additional required monitoring to assess the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties at these charter schools.1 Effect—The Department’s not identifying or performing additional monitoring of charter schools with relationships with CMOs increases the risk that funds allocated to these charter school LEAs may not have been spent in accordance with the award terms and program requirements and could result in the U.S. Department of Education to reduce future awards.2 Further, if monies were spent inconsistently 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. Additionally, the Department is at risk that this finding applies to other federal programs it administers. Cause—Despite the U.S. Department of Education providing related guidance in September 2015, the Department staff reported they were unaware of the requirement to perform additional monitoring steps over charter schools with relationships with CMOs. Further, the Department’s policies and procedures for monitoring LEAs did not differentiate between regular LEAs, charter schools without CMOs, or charter schools with relationships with CMOs. As such, the Department lacked specific procedures to assess the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties. Criteria—Federal regulations require the Department to monitor subrecipients, including charter schools, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. Those federal regulations also provide 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 d]). As part of these monitoring responsibilities, the U.S. Department of Education requires the Department to monitor charter schools with relationships with CMOs and assess the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties.3 Also, 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 annual monitoring over charter schools with relationships with CMOs, including performing risk-assessment procedures over the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties, 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. Update existing LEA-monitoring policies and procedures and train employees to identify charter schools that have relationships with CMOs and to then assess and design monitoring procedures over conflicts of interest, related-party transactions, or insufficient segregation of duties. 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 term “charter management organization” means a nonprofit organization that operates or manages a network of charter schools linked by centralized support, operations, and oversight (20 USC 7221i[3]. Retrieved 9/13/2024 from https://www.law.cornell.edu/uscode/text/20/7221i#2 2 Federal Uniform Guidance requires 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 On September 28, 2015, the U.S. Department of Education issued a letter to State Educational Agencies (SEAs) reminding them of their role in helping to ensure that federal funds accessed by public charter schools are used for intended, appropriate purposes, and provided additional resources for states, and specifically SEAs, to consult as they consider improvements to their monitoring and oversight procedures for charter schools (U.S. Department of Education. [2015, September]. Letter to SEAs. Retrieved 8/29/2024 from https://oese.ed.gov/files/2020/07/finalsignedcsp.pdf). Further, in September 2016, the U.S. Department of Education’s Office of Inspector General issued an audit report on charter schools with CMOs and identified risks such as conflicts of interest, related-party transactions, or insufficient segregation of duties (U.S. Department of Education. [2016, September]. Nationwide Assessment of Charter and Education Management Organizations. Retrieved 8/29/2024 from https://oig.ed.gov/sites/default/files/reports/2023-11/a02m0012.pdf).
Assistance Listings numbers and names: 84.010 Title I Grants to Local Educational Agencies 84.367 Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants)* *referred to as Title II Award numbers and years: S010A190003, July 1, 2019 through September 30, 2020; S010A200003, July 1, 2020 through September 30, 2021; S010A210003, July 1, 2021 through September 30, 2022; S010A220003, July 1, 2022 through September 30, 2023; S367A190049, July 1, 2019 through September 30, 2020; S367A200049, July 1, 2020 through September 30, 2021; S367A210049, July 1, 2021 through September 30, 2022; S367A220049, July 1, 2022 through September 30, 2023 Federal agency: U.S. Department of Education Compliance requirement: Activities allowed or unallowed, allowable costs/cost principles, eligibility, earmarking, and special tests and provisions Questioned costs: $8,696 Condition—During fiscal year 2023, the Arizona Department of Education’s Title I Department (Department) allocated and disbursed over $354.6 million and over $43.6 million in Title I and Title II funds, respectively, to local educational agencies (LEAs). However, contrary to federal requirements, the Department did not consider 110 Special LEAs (charter schools) for eligibility for federal Title I funding and 109 charter schools for federal Title II funding that may have been eligible and thus should have been included in its funding allocation calculations. Further, the Department included 6 ineligible LEAs in its Title II funding allocation calculation. The U.S. Department of Education (USDE) awarded these Title I and Title II funds to the Department in October 2021, and they were allocated (specific grant amounts determined by the Department using statutory formulas) in April 2022, with the official grant period beginning July 1, 2022, and ending June 30, 2023. The Title I and Title II funds the Department allocated to the LEAs were then considered obligated (reserved) and could be disbursed (paid) by the Department each month after it received and processed a reimbursement request from an LEA. Effect—The Department’s Title I and Title II awards to LEAs may be inaccurate. Specifically: • 519 Title I and 550 Title II LEAs likely received more funds than they were entitled to. We were unable to determine the actual questioned cost as we could not determine the individual amount of over- or underpayment for each LEA without the Department recalculating the allocation, including gathering census data and poverty data for the 110 Title I charter schools and 109 Title II charter schools that were not considered for eligibility and not part of the original allocation. The Department stated that the recalculation process would require the use of historical census, and enrollment and would be an overly arduous process. For these reasons, the Department chose to focus on correcting and overhauling the allocation process for fiscal year 2024 and forward. • 110 Title I and 109 Title II charter school LEAs not part of the original allocation and referenced above may have been able to provide additional services to eligible students in fiscal year 2023 if the Department had appropriately evaluated and determined them to be eligible for Title I and Title II disbursements. • $8,696 of Title II funds awarded to 6 ineligible LEAs may require repayment to the USDE.1 Further, future Title I and Title II funding could be affected if the USDE requires the Department to recalculate the fiscal year 2023 allocations and provide subsequent funding to those entities that were eligible but did not receive funding. Additionally, the Department is at risk that this finding applies to other federal programs it administers. Cause—Despite federal laws requiring the Department to allocate fiscal year 2023 Title I and Title II funds to LEAs beginning in July 2023, including charter schools, and detailed federal guidance on how to adjust the USDE allocations for new or significantly expanded charter schools, the Department lacked detailed procedures and reported that it only evaluated charter schools for inclusion in its allocation calculations upon direct requests from the schools, rather than evaluating charter schools annually. Specifically, the Department reported that it did not add charter schools to the list of eligible LEAs during their first year of operation or when the LEAs’ enrollment significantly expanded because Department staff used the prior fiscal year listing of eligible LEAs. The Department also did not perform a supervisory review and approval of this listing to ensure all eligible LEAs were properly included and evaluated. Further, Department staff responsible for the administration and execution of Title I and Title II grants during fiscal year 2023 were no longer employed by the Department at the time of the audit, and current leadership reported they were unaware of what policies and procedures were followed during the grant-allocation process due to out-of-date and incomplete policies and procedures and because the grant allocation process for fiscal year 2023 was performed prior to their hire. Specifically, the program administrator responsible for the allocation of grant funds was no longer employed by the Department as of April 20, 2023, 2 months before the end of the LEA grant period. As of this date, preliminary allocations for fiscal year 2024 had been calculated and were able to be adjusted by current Department staff. Due to the timing of the adjustments the Department implemented, the results of the changes in procedures for the fiscal year 2024 allocation will be reviewed for accuracy and compliance in the 2024 Single Audit Report. Lastly, the 6 ineligible LEAs that received Title II funds were Educational Service Agencies, such as a Juvenile Detention Center, that were ineligible for the funds due to the classification of their educational programs or organizational structure. When determining eligibility for these entities, the Department incorrectly classified the entities as public schools and therefore incorrectly deemed them eligible, resulting in $8,696 in improper payments. Criteria—Federal laws require the Department to use a statutory formula to annually allocate Title I and Title II funds to LEAs, including charter schools, based on the number of children from low-income families attending them who meet the eligibility requirements established by the USDE (20 USC §§6303, 6303b, 6304, 6333-6337). Public schools are defined as eligible LEAs in accordance with 34 USC 303.23(a) and A.R.S. §§15-101 and 15-913. In addition, federal laws and guidance require the Department to provide Title I and Title II funding to eligible charter schools within 5 months of opening for the first time or significantly expanding enrollment (20 USC §7221e). 2,3 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. Ensure the allocation of Title I and Title II funds is based on statutory formula and eligibility requirements and that awards are made to eligible charter schools within 5 months of opening for the first time or significantly expanding enrollment by developing and implementing detailed allocation policies and procedures. 2. Ensure that staff responsible for the allocation and performance of grant objectives are adequately supervised and managed by knowledgeable supervisors who have the understanding and training to review and approve allocation calculations prior to Title I and Title II disbursements being made to LEAs. 3. Work with the USDE to determine if it will require the Department to recalculate the allocation of funds for fiscal year 2023 and what steps may be necessary to correct the amounts paid to LEAs. 4. Work with the 6 ineligible LEAs that received funding to determine if the amounts disbursed should be repaid and how the LEAs can reimburse the Department for these unallowable costs. 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, 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). 2 Significant expansion of enrollment means a substantial increase in the number of students attending a charter school due to a significant event that is unlikely to occur on a regular basis, such as the addition of one or more grades or educational programs in major curriculum areas. The term also includes any other expansion of enrollment that the state educational agency (SEA) determines to be significant (34 CFR §78.787). 3 U.S. Department of Education. (November 21, 2016). Non-regulatory Guidance: Fiscal Changes and Equitable Services Requirements under the Elementary and Secondary Education Act of 1965 (ESEA), as amended by the Every Student Succeeds Act (ESSA). Retrieved 08/26/2024 from https://oese.ed.gov/files/2020/07/essaguidance160477.pdf
Assistance Listings numbers and names: 84.010 Title I Grants to Local Educational Agencies 84.367 Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants)* *referred to as Title II Award numbers and years: S010A190003, July 1, 2019 through September 30, 2020; S010A200003, July 1, 2020 through September 30, 2021; S010A210003, July 1, 2021 through September 30, 2022; S010A220003, July 1, 2022 through September 30, 2023; S367A190049, July 1, 2019 through September 30, 2020; S367A200049, July 1, 2020 through September 30, 2021; S367A210049, July 1, 2021 through September 30, 2022; S367A220049, July 1, 2022 through September 30, 2023 Federal agency: U.S. Department of Education Compliance requirement: Level of effort Questioned costs: Unknown Condition—The Department of Education’s Grants Management Department (Department) disbursed over $55.3 million and over $6.1 million in Title I and Title II funds, respectively, to 295 Title I and 307 Title II charter school local educational agencies (LEAs) during fiscal year 2023 without completing required maintenance-of-effort calculations and reducing grant funding when necessary as required by federal law. Specifically, the Department did not evaluate and reduce grant monies awarded to any charter school that failed to meet required spending levels (maintain fiscal effort) for more than once in a 5-year period. Effect—The Department’s not completing required maintenance-of-effort calculations for charter schools increased the risk that charter schools may have received current or future grant funding through fiscal year 2028 they are not entitled to and may require repayment to the U.S. Department of Education.1 Further, other LEAs may have been entitled to additional grant monies and may have been able to provide additional services to eligible students. Additionally, the Department is at risk that this finding applies to other federal programs it administers. Cause—The Department relied on its grant-management system to automatically calculate maintenance-of-effort without ensuring all necessary data was included in the calculations. The Department performs these maintenance-of-effort calculations on April 1 of each year using the prior-year data from the LEAs’ Financial Audit Report. Specifically, the Department reported that it changed where it stored the charter schools’ financial information in fiscal year 2023 but did not adjust grant-management system criteria to include the data in the maintenance-of-effort calculations run on April 1, 2023. Further, Department staff did not review the maintenance-of-effort calculation results to ensure all LEAs were included. Criteria—Federal law requires the Department to disburse Title I and Title II grant monies to LEAs, including charter schools, only if maintenance-of-effort requirements are met. Specifically, the Department must calculate and verify that the combined fiscal effort per student or the LEA’s aggregate expenditures from State and local funds for free public education for the preceding year was not less than 90 percent of the combined fiscal effort or aggregate expenditures for the second preceding year. If the LEA fails to maintain fiscal effort, federal law requires the Department to reduce the LEA’s allocation under a covered program if the LEA also failed to maintain effort in 1 or more of the 5 immediately preceding fiscal years in exact proportion by which the LEA failed to maintain effort (20 USC 7901). Also, 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. Evaluate and reduce Title I and Title II funds annually for any LEA, including charter schools, that failed to maintain fiscal effort more than once in a 5-year period. 2. Develop and implement maintenance-of-effort policies and procedures that include verifying that its grants management system’s maintenance-of-effort calculations include necessary data for all applicable LEAs, including charter schools, and to review the calculation results to ensure all LEAs were included. 3. Determine if any LEAs, including charter schools, received funding they were not entitled to by completing the missing fiscal year 2023 charter school maintenance-of-effort calculations and identifying any LEAs that did not maintain fiscal effort more than once in a 5-year period. If improper payments were made, work with the U.S. Department of Education to determine if they will require the Department to reperform the allocation of Title I and Title II benefits for fiscal year 2023 and what steps may be necessary to correct any errors, if applicable, for the amounts paid to LEAs. 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, 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).
Assistance Listings numbers and names: 84.010 Title I Grants to Local Educational Agencies 84.367 Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants)* *referred to as Title II Award numbers and years: S010A190003, July 1, 2019 through September 30, 2020; S010A200003, July 1, 2020 through September 30, 2021; S010A210003, July 1, 2021 through September 30, 2022; S010A220003, July 1, 2022 through September 30, 2023; S367A190049, July 1, 2019 through September 30, 2020; S367A200049, July 1, 2020 through September 30, 2021; S367A210049, July 1, 2021 through September 30, 2022; S367A220049, July 1, 2022 through September 30, 2023 Federal agency: U.S. Department of Education Compliance requirement: Special tests and provisions Questioned costs: Unknown Condition—The Department of Education’s Grants Management Department (Department) disbursed over $55.3 million and over $6.1 million in Title I and Title II funds, respectively, to 295 Title I and 307 Title II charter school local educational agencies (LEAs) during fiscal year 2023 but did not perform certain monitoring procedures required by the U.S. Department of Education. Specifically, the Department did not identify which of the 295 Title I and 307 Title II charter school LEAs receiving federal grant monies had relationships with charter management organizations (CMOs) in order to perform additional required monitoring to assess the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties at these charter schools.1 Effect—The Department’s not identifying or performing additional monitoring of charter schools with relationships with CMOs increases the risk that funds allocated to these charter school LEAs may not have been spent in accordance with the award terms and program requirements and could result in the U.S. Department of Education to reduce future awards.2 Further, if monies were spent inconsistently 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. Additionally, the Department is at risk that this finding applies to other federal programs it administers. Cause—Despite the U.S. Department of Education providing related guidance in September 2015, the Department staff reported they were unaware of the requirement to perform additional monitoring steps over charter schools with relationships with CMOs. Further, the Department’s policies and procedures for monitoring LEAs did not differentiate between regular LEAs, charter schools without CMOs, or charter schools with relationships with CMOs. As such, the Department lacked specific procedures to assess the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties. Criteria—Federal regulations require the Department to monitor subrecipients, including charter schools, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. Those federal regulations also provide 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 d]). As part of these monitoring responsibilities, the U.S. Department of Education requires the Department to monitor charter schools with relationships with CMOs and assess the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties.3 Also, 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 annual monitoring over charter schools with relationships with CMOs, including performing risk-assessment procedures over the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties, 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. Update existing LEA-monitoring policies and procedures and train employees to identify charter schools that have relationships with CMOs and to then assess and design monitoring procedures over conflicts of interest, related-party transactions, or insufficient segregation of duties. 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 term “charter management organization” means a nonprofit organization that operates or manages a network of charter schools linked by centralized support, operations, and oversight (20 USC 7221i[3]. Retrieved 9/13/2024 from https://www.law.cornell.edu/uscode/text/20/7221i#2 2 Federal Uniform Guidance requires 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 On September 28, 2015, the U.S. Department of Education issued a letter to State Educational Agencies (SEAs) reminding them of their role in helping to ensure that federal funds accessed by public charter schools are used for intended, appropriate purposes, and provided additional resources for states, and specifically SEAs, to consult as they consider improvements to their monitoring and oversight procedures for charter schools (U.S. Department of Education. [2015, September]. Letter to SEAs. Retrieved 8/29/2024 from https://oese.ed.gov/files/2020/07/finalsignedcsp.pdf). Further, in September 2016, the U.S. Department of Education’s Office of Inspector General issued an audit report on charter schools with CMOs and identified risks such as conflicts of interest, related-party transactions, or insufficient segregation of duties (U.S. Department of Education. [2016, September]. Nationwide Assessment of Charter and Education Management Organizations. Retrieved 8/29/2024 from https://oig.ed.gov/sites/default/files/reports/2023-11/a02m0012.pdf).
Assistance Listings numbers and names: 84.010 Title I Grants to Local Educational Agencies 84.367 Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants)* *referred to as Title II Award numbers and years: S010A190003, July 1, 2019 through September 30, 2020; S010A200003, July 1, 2020 through September 30, 2021; S010A210003, July 1, 2021 through September 30, 2022; S010A220003, July 1, 2022 through September 30, 2023; S367A190049, July 1, 2019 through September 30, 2020; S367A200049, July 1, 2020 through September 30, 2021; S367A210049, July 1, 2021 through September 30, 2022; S367A220049, July 1, 2022 through September 30, 2023 Federal agency: U.S. Department of Education Compliance requirement: Activities allowed or unallowed, allowable costs/cost principles, eligibility, earmarking, and special tests and provisions Questioned costs: $8,696 Condition—During fiscal year 2023, the Arizona Department of Education’s Title I Department (Department) allocated and disbursed over $354.6 million and over $43.6 million in Title I and Title II funds, respectively, to local educational agencies (LEAs). However, contrary to federal requirements, the Department did not consider 110 Special LEAs (charter schools) for eligibility for federal Title I funding and 109 charter schools for federal Title II funding that may have been eligible and thus should have been included in its funding allocation calculations. Further, the Department included 6 ineligible LEAs in its Title II funding allocation calculation. The U.S. Department of Education (USDE) awarded these Title I and Title II funds to the Department in October 2021, and they were allocated (specific grant amounts determined by the Department using statutory formulas) in April 2022, with the official grant period beginning July 1, 2022, and ending June 30, 2023. The Title I and Title II funds the Department allocated to the LEAs were then considered obligated (reserved) and could be disbursed (paid) by the Department each month after it received and processed a reimbursement request from an LEA. Effect—The Department’s Title I and Title II awards to LEAs may be inaccurate. Specifically: • 519 Title I and 550 Title II LEAs likely received more funds than they were entitled to. We were unable to determine the actual questioned cost as we could not determine the individual amount of over- or underpayment for each LEA without the Department recalculating the allocation, including gathering census data and poverty data for the 110 Title I charter schools and 109 Title II charter schools that were not considered for eligibility and not part of the original allocation. The Department stated that the recalculation process would require the use of historical census, and enrollment and would be an overly arduous process. For these reasons, the Department chose to focus on correcting and overhauling the allocation process for fiscal year 2024 and forward. • 110 Title I and 109 Title II charter school LEAs not part of the original allocation and referenced above may have been able to provide additional services to eligible students in fiscal year 2023 if the Department had appropriately evaluated and determined them to be eligible for Title I and Title II disbursements. • $8,696 of Title II funds awarded to 6 ineligible LEAs may require repayment to the USDE.1 Further, future Title I and Title II funding could be affected if the USDE requires the Department to recalculate the fiscal year 2023 allocations and provide subsequent funding to those entities that were eligible but did not receive funding. Additionally, the Department is at risk that this finding applies to other federal programs it administers. Cause—Despite federal laws requiring the Department to allocate fiscal year 2023 Title I and Title II funds to LEAs beginning in July 2023, including charter schools, and detailed federal guidance on how to adjust the USDE allocations for new or significantly expanded charter schools, the Department lacked detailed procedures and reported that it only evaluated charter schools for inclusion in its allocation calculations upon direct requests from the schools, rather than evaluating charter schools annually. Specifically, the Department reported that it did not add charter schools to the list of eligible LEAs during their first year of operation or when the LEAs’ enrollment significantly expanded because Department staff used the prior fiscal year listing of eligible LEAs. The Department also did not perform a supervisory review and approval of this listing to ensure all eligible LEAs were properly included and evaluated. Further, Department staff responsible for the administration and execution of Title I and Title II grants during fiscal year 2023 were no longer employed by the Department at the time of the audit, and current leadership reported they were unaware of what policies and procedures were followed during the grant-allocation process due to out-of-date and incomplete policies and procedures and because the grant allocation process for fiscal year 2023 was performed prior to their hire. Specifically, the program administrator responsible for the allocation of grant funds was no longer employed by the Department as of April 20, 2023, 2 months before the end of the LEA grant period. As of this date, preliminary allocations for fiscal year 2024 had been calculated and were able to be adjusted by current Department staff. Due to the timing of the adjustments the Department implemented, the results of the changes in procedures for the fiscal year 2024 allocation will be reviewed for accuracy and compliance in the 2024 Single Audit Report. Lastly, the 6 ineligible LEAs that received Title II funds were Educational Service Agencies, such as a Juvenile Detention Center, that were ineligible for the funds due to the classification of their educational programs or organizational structure. When determining eligibility for these entities, the Department incorrectly classified the entities as public schools and therefore incorrectly deemed them eligible, resulting in $8,696 in improper payments. Criteria—Federal laws require the Department to use a statutory formula to annually allocate Title I and Title II funds to LEAs, including charter schools, based on the number of children from low-income families attending them who meet the eligibility requirements established by the USDE (20 USC §§6303, 6303b, 6304, 6333-6337). Public schools are defined as eligible LEAs in accordance with 34 USC 303.23(a) and A.R.S. §§15-101 and 15-913. In addition, federal laws and guidance require the Department to provide Title I and Title II funding to eligible charter schools within 5 months of opening for the first time or significantly expanding enrollment (20 USC §7221e). 2,3 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. Ensure the allocation of Title I and Title II funds is based on statutory formula and eligibility requirements and that awards are made to eligible charter schools within 5 months of opening for the first time or significantly expanding enrollment by developing and implementing detailed allocation policies and procedures. 2. Ensure that staff responsible for the allocation and performance of grant objectives are adequately supervised and managed by knowledgeable supervisors who have the understanding and training to review and approve allocation calculations prior to Title I and Title II disbursements being made to LEAs. 3. Work with the USDE to determine if it will require the Department to recalculate the allocation of funds for fiscal year 2023 and what steps may be necessary to correct the amounts paid to LEAs. 4. Work with the 6 ineligible LEAs that received funding to determine if the amounts disbursed should be repaid and how the LEAs can reimburse the Department for these unallowable costs. 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, 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). 2 Significant expansion of enrollment means a substantial increase in the number of students attending a charter school due to a significant event that is unlikely to occur on a regular basis, such as the addition of one or more grades or educational programs in major curriculum areas. The term also includes any other expansion of enrollment that the state educational agency (SEA) determines to be significant (34 CFR §78.787). 3 U.S. Department of Education. (November 21, 2016). Non-regulatory Guidance: Fiscal Changes and Equitable Services Requirements under the Elementary and Secondary Education Act of 1965 (ESEA), as amended by the Every Student Succeeds Act (ESSA). Retrieved 08/26/2024 from https://oese.ed.gov/files/2020/07/essaguidance160477.pdf
Assistance Listings numbers and names: 84.010 Title I Grants to Local Educational Agencies 84.367 Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants)* *referred to as Title II Award numbers and years: S010A190003, July 1, 2019 through September 30, 2020; S010A200003, July 1, 2020 through September 30, 2021; S010A210003, July 1, 2021 through September 30, 2022; S010A220003, July 1, 2022 through September 30, 2023; S367A190049, July 1, 2019 through September 30, 2020; S367A200049, July 1, 2020 through September 30, 2021; S367A210049, July 1, 2021 through September 30, 2022; S367A220049, July 1, 2022 through September 30, 2023 Federal agency: U.S. Department of Education Compliance requirement: Level of effort Questioned costs: Unknown Condition—The Department of Education’s Grants Management Department (Department) disbursed over $55.3 million and over $6.1 million in Title I and Title II funds, respectively, to 295 Title I and 307 Title II charter school local educational agencies (LEAs) during fiscal year 2023 without completing required maintenance-of-effort calculations and reducing grant funding when necessary as required by federal law. Specifically, the Department did not evaluate and reduce grant monies awarded to any charter school that failed to meet required spending levels (maintain fiscal effort) for more than once in a 5-year period. Effect—The Department’s not completing required maintenance-of-effort calculations for charter schools increased the risk that charter schools may have received current or future grant funding through fiscal year 2028 they are not entitled to and may require repayment to the U.S. Department of Education.1 Further, other LEAs may have been entitled to additional grant monies and may have been able to provide additional services to eligible students. Additionally, the Department is at risk that this finding applies to other federal programs it administers. Cause—The Department relied on its grant-management system to automatically calculate maintenance-of-effort without ensuring all necessary data was included in the calculations. The Department performs these maintenance-of-effort calculations on April 1 of each year using the prior-year data from the LEAs’ Financial Audit Report. Specifically, the Department reported that it changed where it stored the charter schools’ financial information in fiscal year 2023 but did not adjust grant-management system criteria to include the data in the maintenance-of-effort calculations run on April 1, 2023. Further, Department staff did not review the maintenance-of-effort calculation results to ensure all LEAs were included. Criteria—Federal law requires the Department to disburse Title I and Title II grant monies to LEAs, including charter schools, only if maintenance-of-effort requirements are met. Specifically, the Department must calculate and verify that the combined fiscal effort per student or the LEA’s aggregate expenditures from State and local funds for free public education for the preceding year was not less than 90 percent of the combined fiscal effort or aggregate expenditures for the second preceding year. If the LEA fails to maintain fiscal effort, federal law requires the Department to reduce the LEA’s allocation under a covered program if the LEA also failed to maintain effort in 1 or more of the 5 immediately preceding fiscal years in exact proportion by which the LEA failed to maintain effort (20 USC 7901). Also, 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. Evaluate and reduce Title I and Title II funds annually for any LEA, including charter schools, that failed to maintain fiscal effort more than once in a 5-year period. 2. Develop and implement maintenance-of-effort policies and procedures that include verifying that its grants management system’s maintenance-of-effort calculations include necessary data for all applicable LEAs, including charter schools, and to review the calculation results to ensure all LEAs were included. 3. Determine if any LEAs, including charter schools, received funding they were not entitled to by completing the missing fiscal year 2023 charter school maintenance-of-effort calculations and identifying any LEAs that did not maintain fiscal effort more than once in a 5-year period. If improper payments were made, work with the U.S. Department of Education to determine if they will require the Department to reperform the allocation of Title I and Title II benefits for fiscal year 2023 and what steps may be necessary to correct any errors, if applicable, for the amounts paid to LEAs. 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, 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).
Assistance Listings numbers and names: 84.010 Title I Grants to Local Educational Agencies 84.367 Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants)* *referred to as Title II Award numbers and years: S010A190003, July 1, 2019 through September 30, 2020; S010A200003, July 1, 2020 through September 30, 2021; S010A210003, July 1, 2021 through September 30, 2022; S010A220003, July 1, 2022 through September 30, 2023; S367A190049, July 1, 2019 through September 30, 2020; S367A200049, July 1, 2020 through September 30, 2021; S367A210049, July 1, 2021 through September 30, 2022; S367A220049, July 1, 2022 through September 30, 2023 Federal agency: U.S. Department of Education Compliance requirement: Special tests and provisions Questioned costs: Unknown Condition—The Department of Education’s Grants Management Department (Department) disbursed over $55.3 million and over $6.1 million in Title I and Title II funds, respectively, to 295 Title I and 307 Title II charter school local educational agencies (LEAs) during fiscal year 2023 but did not perform certain monitoring procedures required by the U.S. Department of Education. Specifically, the Department did not identify which of the 295 Title I and 307 Title II charter school LEAs receiving federal grant monies had relationships with charter management organizations (CMOs) in order to perform additional required monitoring to assess the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties at these charter schools.1 Effect—The Department’s not identifying or performing additional monitoring of charter schools with relationships with CMOs increases the risk that funds allocated to these charter school LEAs may not have been spent in accordance with the award terms and program requirements and could result in the U.S. Department of Education to reduce future awards.2 Further, if monies were spent inconsistently 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. Additionally, the Department is at risk that this finding applies to other federal programs it administers. Cause—Despite the U.S. Department of Education providing related guidance in September 2015, the Department staff reported they were unaware of the requirement to perform additional monitoring steps over charter schools with relationships with CMOs. Further, the Department’s policies and procedures for monitoring LEAs did not differentiate between regular LEAs, charter schools without CMOs, or charter schools with relationships with CMOs. As such, the Department lacked specific procedures to assess the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties. Criteria—Federal regulations require the Department to monitor subrecipients, including charter schools, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. Those federal regulations also provide 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 d]). As part of these monitoring responsibilities, the U.S. Department of Education requires the Department to monitor charter schools with relationships with CMOs and assess the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties.3 Also, 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 annual monitoring over charter schools with relationships with CMOs, including performing risk-assessment procedures over the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties, 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. Update existing LEA-monitoring policies and procedures and train employees to identify charter schools that have relationships with CMOs and to then assess and design monitoring procedures over conflicts of interest, related-party transactions, or insufficient segregation of duties. 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 term “charter management organization” means a nonprofit organization that operates or manages a network of charter schools linked by centralized support, operations, and oversight (20 USC 7221i[3]. Retrieved 9/13/2024 from https://www.law.cornell.edu/uscode/text/20/7221i#2 2 Federal Uniform Guidance requires 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 On September 28, 2015, the U.S. Department of Education issued a letter to State Educational Agencies (SEAs) reminding them of their role in helping to ensure that federal funds accessed by public charter schools are used for intended, appropriate purposes, and provided additional resources for states, and specifically SEAs, to consult as they consider improvements to their monitoring and oversight procedures for charter schools (U.S. Department of Education. [2015, September]. Letter to SEAs. Retrieved 8/29/2024 from https://oese.ed.gov/files/2020/07/finalsignedcsp.pdf). Further, in September 2016, the U.S. Department of Education’s Office of Inspector General issued an audit report on charter schools with CMOs and identified risks such as conflicts of interest, related-party transactions, or insufficient segregation of duties (U.S. Department of Education. [2016, September]. Nationwide Assessment of Charter and Education Management Organizations. Retrieved 8/29/2024 from https://oig.ed.gov/sites/default/files/reports/2023-11/a02m0012.pdf).
Assistance Listings numbers and names: 84.010 Title I Grants to Local Educational Agencies 84.367 Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants)* *referred to as Title II Award numbers and years: S010A190003, July 1, 2019 through September 30, 2020; S010A200003, July 1, 2020 through September 30, 2021; S010A210003, July 1, 2021 through September 30, 2022; S010A220003, July 1, 2022 through September 30, 2023; S367A190049, July 1, 2019 through September 30, 2020; S367A200049, July 1, 2020 through September 30, 2021; S367A210049, July 1, 2021 through September 30, 2022; S367A220049, July 1, 2022 through September 30, 2023 Federal agency: U.S. Department of Education Compliance requirement: Activities allowed or unallowed, allowable costs/cost principles, eligibility, earmarking, and special tests and provisions Questioned costs: $8,696 Condition—During fiscal year 2023, the Arizona Department of Education’s Title I Department (Department) allocated and disbursed over $354.6 million and over $43.6 million in Title I and Title II funds, respectively, to local educational agencies (LEAs). However, contrary to federal requirements, the Department did not consider 110 Special LEAs (charter schools) for eligibility for federal Title I funding and 109 charter schools for federal Title II funding that may have been eligible and thus should have been included in its funding allocation calculations. Further, the Department included 6 ineligible LEAs in its Title II funding allocation calculation. The U.S. Department of Education (USDE) awarded these Title I and Title II funds to the Department in October 2021, and they were allocated (specific grant amounts determined by the Department using statutory formulas) in April 2022, with the official grant period beginning July 1, 2022, and ending June 30, 2023. The Title I and Title II funds the Department allocated to the LEAs were then considered obligated (reserved) and could be disbursed (paid) by the Department each month after it received and processed a reimbursement request from an LEA. Effect—The Department’s Title I and Title II awards to LEAs may be inaccurate. Specifically: • 519 Title I and 550 Title II LEAs likely received more funds than they were entitled to. We were unable to determine the actual questioned cost as we could not determine the individual amount of over- or underpayment for each LEA without the Department recalculating the allocation, including gathering census data and poverty data for the 110 Title I charter schools and 109 Title II charter schools that were not considered for eligibility and not part of the original allocation. The Department stated that the recalculation process would require the use of historical census, and enrollment and would be an overly arduous process. For these reasons, the Department chose to focus on correcting and overhauling the allocation process for fiscal year 2024 and forward. • 110 Title I and 109 Title II charter school LEAs not part of the original allocation and referenced above may have been able to provide additional services to eligible students in fiscal year 2023 if the Department had appropriately evaluated and determined them to be eligible for Title I and Title II disbursements. • $8,696 of Title II funds awarded to 6 ineligible LEAs may require repayment to the USDE.1 Further, future Title I and Title II funding could be affected if the USDE requires the Department to recalculate the fiscal year 2023 allocations and provide subsequent funding to those entities that were eligible but did not receive funding. Additionally, the Department is at risk that this finding applies to other federal programs it administers. Cause—Despite federal laws requiring the Department to allocate fiscal year 2023 Title I and Title II funds to LEAs beginning in July 2023, including charter schools, and detailed federal guidance on how to adjust the USDE allocations for new or significantly expanded charter schools, the Department lacked detailed procedures and reported that it only evaluated charter schools for inclusion in its allocation calculations upon direct requests from the schools, rather than evaluating charter schools annually. Specifically, the Department reported that it did not add charter schools to the list of eligible LEAs during their first year of operation or when the LEAs’ enrollment significantly expanded because Department staff used the prior fiscal year listing of eligible LEAs. The Department also did not perform a supervisory review and approval of this listing to ensure all eligible LEAs were properly included and evaluated. Further, Department staff responsible for the administration and execution of Title I and Title II grants during fiscal year 2023 were no longer employed by the Department at the time of the audit, and current leadership reported they were unaware of what policies and procedures were followed during the grant-allocation process due to out-of-date and incomplete policies and procedures and because the grant allocation process for fiscal year 2023 was performed prior to their hire. Specifically, the program administrator responsible for the allocation of grant funds was no longer employed by the Department as of April 20, 2023, 2 months before the end of the LEA grant period. As of this date, preliminary allocations for fiscal year 2024 had been calculated and were able to be adjusted by current Department staff. Due to the timing of the adjustments the Department implemented, the results of the changes in procedures for the fiscal year 2024 allocation will be reviewed for accuracy and compliance in the 2024 Single Audit Report. Lastly, the 6 ineligible LEAs that received Title II funds were Educational Service Agencies, such as a Juvenile Detention Center, that were ineligible for the funds due to the classification of their educational programs or organizational structure. When determining eligibility for these entities, the Department incorrectly classified the entities as public schools and therefore incorrectly deemed them eligible, resulting in $8,696 in improper payments. Criteria—Federal laws require the Department to use a statutory formula to annually allocate Title I and Title II funds to LEAs, including charter schools, based on the number of children from low-income families attending them who meet the eligibility requirements established by the USDE (20 USC §§6303, 6303b, 6304, 6333-6337). Public schools are defined as eligible LEAs in accordance with 34 USC 303.23(a) and A.R.S. §§15-101 and 15-913. In addition, federal laws and guidance require the Department to provide Title I and Title II funding to eligible charter schools within 5 months of opening for the first time or significantly expanding enrollment (20 USC §7221e). 2,3 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. Ensure the allocation of Title I and Title II funds is based on statutory formula and eligibility requirements and that awards are made to eligible charter schools within 5 months of opening for the first time or significantly expanding enrollment by developing and implementing detailed allocation policies and procedures. 2. Ensure that staff responsible for the allocation and performance of grant objectives are adequately supervised and managed by knowledgeable supervisors who have the understanding and training to review and approve allocation calculations prior to Title I and Title II disbursements being made to LEAs. 3. Work with the USDE to determine if it will require the Department to recalculate the allocation of funds for fiscal year 2023 and what steps may be necessary to correct the amounts paid to LEAs. 4. Work with the 6 ineligible LEAs that received funding to determine if the amounts disbursed should be repaid and how the LEAs can reimburse the Department for these unallowable costs. 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, 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). 2 Significant expansion of enrollment means a substantial increase in the number of students attending a charter school due to a significant event that is unlikely to occur on a regular basis, such as the addition of one or more grades or educational programs in major curriculum areas. The term also includes any other expansion of enrollment that the state educational agency (SEA) determines to be significant (34 CFR §78.787). 3 U.S. Department of Education. (November 21, 2016). Non-regulatory Guidance: Fiscal Changes and Equitable Services Requirements under the Elementary and Secondary Education Act of 1965 (ESEA), as amended by the Every Student Succeeds Act (ESSA). Retrieved 08/26/2024 from https://oese.ed.gov/files/2020/07/essaguidance160477.pdf
Assistance Listings numbers and names: 84.010 Title I Grants to Local Educational Agencies 84.367 Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants)* *referred to as Title II Award numbers and years: S010A190003, July 1, 2019 through September 30, 2020; S010A200003, July 1, 2020 through September 30, 2021; S010A210003, July 1, 2021 through September 30, 2022; S010A220003, July 1, 2022 through September 30, 2023; S367A190049, July 1, 2019 through September 30, 2020; S367A200049, July 1, 2020 through September 30, 2021; S367A210049, July 1, 2021 through September 30, 2022; S367A220049, July 1, 2022 through September 30, 2023 Federal agency: U.S. Department of Education Compliance requirement: Level of effort Questioned costs: Unknown Condition—The Department of Education’s Grants Management Department (Department) disbursed over $55.3 million and over $6.1 million in Title I and Title II funds, respectively, to 295 Title I and 307 Title II charter school local educational agencies (LEAs) during fiscal year 2023 without completing required maintenance-of-effort calculations and reducing grant funding when necessary as required by federal law. Specifically, the Department did not evaluate and reduce grant monies awarded to any charter school that failed to meet required spending levels (maintain fiscal effort) for more than once in a 5-year period. Effect—The Department’s not completing required maintenance-of-effort calculations for charter schools increased the risk that charter schools may have received current or future grant funding through fiscal year 2028 they are not entitled to and may require repayment to the U.S. Department of Education.1 Further, other LEAs may have been entitled to additional grant monies and may have been able to provide additional services to eligible students. Additionally, the Department is at risk that this finding applies to other federal programs it administers. Cause—The Department relied on its grant-management system to automatically calculate maintenance-of-effort without ensuring all necessary data was included in the calculations. The Department performs these maintenance-of-effort calculations on April 1 of each year using the prior-year data from the LEAs’ Financial Audit Report. Specifically, the Department reported that it changed where it stored the charter schools’ financial information in fiscal year 2023 but did not adjust grant-management system criteria to include the data in the maintenance-of-effort calculations run on April 1, 2023. Further, Department staff did not review the maintenance-of-effort calculation results to ensure all LEAs were included. Criteria—Federal law requires the Department to disburse Title I and Title II grant monies to LEAs, including charter schools, only if maintenance-of-effort requirements are met. Specifically, the Department must calculate and verify that the combined fiscal effort per student or the LEA’s aggregate expenditures from State and local funds for free public education for the preceding year was not less than 90 percent of the combined fiscal effort or aggregate expenditures for the second preceding year. If the LEA fails to maintain fiscal effort, federal law requires the Department to reduce the LEA’s allocation under a covered program if the LEA also failed to maintain effort in 1 or more of the 5 immediately preceding fiscal years in exact proportion by which the LEA failed to maintain effort (20 USC 7901). Also, 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. Evaluate and reduce Title I and Title II funds annually for any LEA, including charter schools, that failed to maintain fiscal effort more than once in a 5-year period. 2. Develop and implement maintenance-of-effort policies and procedures that include verifying that its grants management system’s maintenance-of-effort calculations include necessary data for all applicable LEAs, including charter schools, and to review the calculation results to ensure all LEAs were included. 3. Determine if any LEAs, including charter schools, received funding they were not entitled to by completing the missing fiscal year 2023 charter school maintenance-of-effort calculations and identifying any LEAs that did not maintain fiscal effort more than once in a 5-year period. If improper payments were made, work with the U.S. Department of Education to determine if they will require the Department to reperform the allocation of Title I and Title II benefits for fiscal year 2023 and what steps may be necessary to correct any errors, if applicable, for the amounts paid to LEAs. 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, 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).
Assistance Listings numbers and names: 84.010 Title I Grants to Local Educational Agencies 84.367 Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants)* *referred to as Title II Award numbers and years: S010A190003, July 1, 2019 through September 30, 2020; S010A200003, July 1, 2020 through September 30, 2021; S010A210003, July 1, 2021 through September 30, 2022; S010A220003, July 1, 2022 through September 30, 2023; S367A190049, July 1, 2019 through September 30, 2020; S367A200049, July 1, 2020 through September 30, 2021; S367A210049, July 1, 2021 through September 30, 2022; S367A220049, July 1, 2022 through September 30, 2023 Federal agency: U.S. Department of Education Compliance requirement: Special tests and provisions Questioned costs: Unknown Condition—The Department of Education’s Grants Management Department (Department) disbursed over $55.3 million and over $6.1 million in Title I and Title II funds, respectively, to 295 Title I and 307 Title II charter school local educational agencies (LEAs) during fiscal year 2023 but did not perform certain monitoring procedures required by the U.S. Department of Education. Specifically, the Department did not identify which of the 295 Title I and 307 Title II charter school LEAs receiving federal grant monies had relationships with charter management organizations (CMOs) in order to perform additional required monitoring to assess the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties at these charter schools.1 Effect—The Department’s not identifying or performing additional monitoring of charter schools with relationships with CMOs increases the risk that funds allocated to these charter school LEAs may not have been spent in accordance with the award terms and program requirements and could result in the U.S. Department of Education to reduce future awards.2 Further, if monies were spent inconsistently 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. Additionally, the Department is at risk that this finding applies to other federal programs it administers. Cause—Despite the U.S. Department of Education providing related guidance in September 2015, the Department staff reported they were unaware of the requirement to perform additional monitoring steps over charter schools with relationships with CMOs. Further, the Department’s policies and procedures for monitoring LEAs did not differentiate between regular LEAs, charter schools without CMOs, or charter schools with relationships with CMOs. As such, the Department lacked specific procedures to assess the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties. Criteria—Federal regulations require the Department to monitor subrecipients, including charter schools, which includes required monitoring procedures for assessing the risk of each subrecipient’s noncompliance and monitoring activities based on those risk assessments. Those federal regulations also provide 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 d]). As part of these monitoring responsibilities, the U.S. Department of Education requires the Department to monitor charter schools with relationships with CMOs and assess the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties.3 Also, 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 annual monitoring over charter schools with relationships with CMOs, including performing risk-assessment procedures over the additional risk posed by conflicts of interest, related-party transactions, or insufficient segregation of duties, 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. Update existing LEA-monitoring policies and procedures and train employees to identify charter schools that have relationships with CMOs and to then assess and design monitoring procedures over conflicts of interest, related-party transactions, or insufficient segregation of duties. 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 term “charter management organization” means a nonprofit organization that operates or manages a network of charter schools linked by centralized support, operations, and oversight (20 USC 7221i[3]. Retrieved 9/13/2024 from https://www.law.cornell.edu/uscode/text/20/7221i#2 2 Federal Uniform Guidance requires 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 On September 28, 2015, the U.S. Department of Education issued a letter to State Educational Agencies (SEAs) reminding them of their role in helping to ensure that federal funds accessed by public charter schools are used for intended, appropriate purposes, and provided additional resources for states, and specifically SEAs, to consult as they consider improvements to their monitoring and oversight procedures for charter schools (U.S. Department of Education. [2015, September]. Letter to SEAs. Retrieved 8/29/2024 from https://oese.ed.gov/files/2020/07/finalsignedcsp.pdf). Further, in September 2016, the U.S. Department of Education’s Office of Inspector General issued an audit report on charter schools with CMOs and identified risks such as conflicts of interest, related-party transactions, or insufficient segregation of duties (U.S. Department of Education. [2016, September]. Nationwide Assessment of Charter and Education Management Organizations. Retrieved 8/29/2024 from https://oig.ed.gov/sites/default/files/reports/2023-11/a02m0012.pdf).
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: 21.027 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: 21.027 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: 21.027 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: 21.027 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: 21.027 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: 21.027 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: 21.027 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