Criteria or specific requirement (including statutory, regulatory, or other citation) - During the fiscal years June 30, 2018 to June 30, 2023, the University incurred unallowed expenditures for a federal grant that were not identified by the internal controls in place over the grant program. According to 2 CFR § 200.413, Direct Costs, direct costs are those costs that can be directly assigned to a direct cost activity with a high degree of accuracy. In addition, according to 2 CFR § 200.516, Audit Findings, the auditor must report known fraud affecting a federal award as well as known questioned costs that are greater than $25,000 for a federal program which is not audited as a major program, as an audit finding. Condition- From fiscal year 2018 through 2023, the University was not able to support that expenses paid from a federal grant for salary, benefits, and travel and other expense reimbursements for an adjunct faculty member were related to allowable activities to eligible clients under the terms of the grant agreement due to false reporting by the adjunct faculty member. More specifically, the adjunct faculty member misrepresented that services were or would be provided per the terms of the grant to eligible clients. In addition, the adjunct faculty member provided false reporting of the impact of services provided to the clients and utilized fraudulent documentation as evidence for their work performed. As a result, the University was reimbursed for expenses by the grant related to services that were not provided or were unallowable. Cause - Lack of oversight and insufficient review of work performed of adjunct faculty member. Effect- The University was reimbursed federal grant monies for work that was not performed under the terms and conditions of the grant award. Questioned costs - For fiscal years 2018 to 2023, questioned costs totaled $209,101. Identification as a repeat finding - Not applicable – this matter is not a repeat finding Recommendation - We recommend the University, along with the internal audit function, continue to emphasize with staff existing job responsibilities, the critical task of secondary reviews and thoroughness of those reviews. The reviews should include ensuring compliance with grant terms and conditions, as well as adequate documentation is provided and maintained to support the federal expenditure and the secondary reviews.
U.S. Department of Health and Human Services Passed through the N.C. Dept. of Health and Human Services Program Name: Foster Care, Adoption, and Guardianship Assistance Cluster AL# 93.658, 93.659 Grant Number: 2201NCFOST / 2301NCFOST; 2201NCADPT / 2301NCADPT Material Weakness Material Non-Compliance Finding 2023-001 Criteria: In order for costs to be allowable for purposes of reimbursement they must be allowable in accordance with 45 CFR section 1356.60 and the NC Division of Social Services Manual. All County Department of Social Services employees which provide direct services must maintain daysheets in accordance with the NC Department of Social Services Information System Policy. Condition: The County Department of Social Services failed to retain proper documentation regarding daysheet entries. Context: Of the 892 payroll charges valued at $1,287,503, we examined 55 daysheets ($44,716 value) and determined that nine daysheets (16% valued at $14,964 did not have documentation to substantiate time charged to the Foster Care, Adoption, and Guardianship Assistance Cluster program. Questioned Costs: In accordance with 2 CFR 200.516(a)(3), auditors are required to report known questioned costs when likely questioned costs are greater than $25,000. Even though the sample results only identified $14,964 (federal share of $13,844 and state share $1,120) in questioned costs, if tests were extended to the entire population, questioned costs could exceed $25,000. Effect: Caseworker time entry could be charged to the wrong program/grant causing administrative costs to be misallocated. Cause: Caseworker failed to retain documentation of time charged to program. Identification of a Repeat Finding: This is a modified, repeat finding from the immediate previous audit, 2022-002. Recommendation: Require the County Program Directors to implement procedures to ensure that daysheets are properly supported by documentation of time charged to each program. Name of Contact Person: Angela Karchmer, Social Services Director Views of Responsible Officials and Planned Corrective Actions: Management concurs with this finding and will adhere to the Corrective Action Plan in this audit report.
U.S. Department of Health and Human Services Passed through the N.C. Dept. of Health and Human Services Program Name: Foster Care, Adoption, and Guardianship Assistance Cluster AL# 93.658, 93.659 Grant Number: 2201NCFOST / 2301NCFOST; 2201NCADPT / 2301NCADPT Material Weakness Material Non-Compliance Finding 2023-001 Criteria: In order for costs to be allowable for purposes of reimbursement they must be allowable in accordance with 45 CFR section 1356.60 and the NC Division of Social Services Manual. All County Department of Social Services employees which provide direct services must maintain daysheets in accordance with the NC Department of Social Services Information System Policy. Condition: The County Department of Social Services failed to retain proper documentation regarding daysheet entries. Context: Of the 892 payroll charges valued at $1,287,503, we examined 55 daysheets ($44,716 value) and determined that nine daysheets (16% valued at $14,964 did not have documentation to substantiate time charged to the Foster Care, Adoption, and Guardianship Assistance Cluster program. Questioned Costs: In accordance with 2 CFR 200.516(a)(3), auditors are required to report known questioned costs when likely questioned costs are greater than $25,000. Even though the sample results only identified $14,964 (federal share of $13,844 and state share $1,120) in questioned costs, if tests were extended to the entire population, questioned costs could exceed $25,000. Effect: Caseworker time entry could be charged to the wrong program/grant causing administrative costs to be misallocated. Cause: Caseworker failed to retain documentation of time charged to program. Identification of a Repeat Finding: This is a modified, repeat finding from the immediate previous audit, 2022-002. Recommendation: Require the County Program Directors to implement procedures to ensure that daysheets are properly supported by documentation of time charged to each program. Name of Contact Person: Angela Karchmer, Social Services Director Views of Responsible Officials and Planned Corrective Actions: Management concurs with this finding and will adhere to the Corrective Action Plan in this audit report.
U.S. Department of Health and Human Services Passed through the N.C. Dept. of Health and Human Services Program Name: Foster Care, Adoption, and Guardianship Assistance Cluster AL# 93.658, 93.659 Grant Number: 2201NCFOST / 2301NCFOST; 2201NCADPT / 2301NCADPT Material Weakness Material Non-Compliance Finding 2023-001 Criteria: In order for costs to be allowable for purposes of reimbursement they must be allowable in accordance with 45 CFR section 1356.60 and the NC Division of Social Services Manual. All County Department of Social Services employees which provide direct services must maintain daysheets in accordance with the NC Department of Social Services Information System Policy. Condition: The County Department of Social Services failed to retain proper documentation regarding daysheet entries. Context: Of the 892 payroll charges valued at $1,287,503, we examined 55 daysheets ($44,716 value) and determined that nine daysheets (16% valued at $14,964 did not have documentation to substantiate time charged to the Foster Care, Adoption, and Guardianship Assistance Cluster program. Questioned Costs: In accordance with 2 CFR 200.516(a)(3), auditors are required to report known questioned costs when likely questioned costs are greater than $25,000. Even though the sample results only identified $14,964 (federal share of $13,844 and state share $1,120) in questioned costs, if tests were extended to the entire population, questioned costs could exceed $25,000. Effect: Caseworker time entry could be charged to the wrong program/grant causing administrative costs to be misallocated. Cause: Caseworker failed to retain documentation of time charged to program. Identification of a Repeat Finding: This is a modified, repeat finding from the immediate previous audit, 2022-002. Recommendation: Require the County Program Directors to implement procedures to ensure that daysheets are properly supported by documentation of time charged to each program. Name of Contact Person: Angela Karchmer, Social Services Director Views of Responsible Officials and Planned Corrective Actions: Management concurs with this finding and will adhere to the Corrective Action Plan in this audit report.
U.S. Department of Health and Human Services Passed through the N.C. Dept. of Health and Human Services Grant Number: 2201NCADPT / 2301NCADPT Program Name: Child Support Enforcement AL# 93.563 Grant Number: 2201NCCES / 2301NCCES Significant Deficiency Non-Material Non-Compliance Finding 2023-004 Criteria: In accordance with 45 CFR 304 and the Division of Social Services Fiscal Manual, management should have an adequate system of internal control procedures in place to ensure that salaries are being paid at the approved rate in accordance with the county pay plan. Condition: The County Department of Social Services failed to pay one employee at the correct pay rate. Context: Of the 289 payroll charges valued at $1,294,572, we examined 40 payroll charges ($184,290 value) and determined that one employee (2.5% valued at $415) was not paid at the approved pay rate. Questioned Costs: In accordance with 2 CFR 200.516(a)(3), auditors are required to report known questioned costs when likely questioned costs are greater than $25,000. Costs are under the amount to be reported. Effect: Caseworker time could be charged at the incorrect pay rate causing administrative costs to be inaccurately reported to the state for reimbursement. Cause: The County failed to pay one employee at the correct pay rate. Recommendation: Require the Human Resources Department and County Program Directors to implement procedures to ensure that pay rates are properly entered into the payroll processing system at the time the pay rate is established. Name of Contact Person: Amia Massey, Director, Human Resources Views of Responsible Officials and Planned Corrective Actions: Management concurs with this finding and will adhere to the Corrective Action Plan in this audit report.
2023-006 Federal Awarding Agency: Department of the Treasury Program title and ALN: Coronavirus State and Local Fiscal Recovery Funds #21.027 126 GRANT COUNTY, OREGON SCHEDULE OF FINDINGS AND QUESTIONED COSTS June 30, 2023 Compliance requirements applicable to finding: Activities Allowed or Unallowed Findings: Other findings disclosed in accordance with 2 CFR 200.516(a) Questioned Costs: $90,122 in known questioned costs related to the non-major federal program Criteria: The county spent $90,122 in Coronavirus State and Local Fiscal Recovery Funds on the remodel of a county building planned to materially be used for the new offices of the county’s emergency management department. Coronavirus State and Local Fiscal Recovery Funds under ALN #21.027 are required to be spent on projects that directly respond to the public health and negative economic impacts of the COVID-19 pandemic. Under 602(c)(1)(A) or 603(c)(1)(A), a general infrastructure project typically would not be considered a response to the public health emergency and its negative economic impacts unless the project responds to a specific pandemic-related public health need (e.g., investments in facilities for the delivery of vaccines) or a specific negative economic impact of the pandemic (e.g., affordable housing in a Qualified Census Tract). The emergency management department does not fit these criteria, which means this remodel project is an unallowed cost. Condition and Context: As a result of following up on prior year findings reported on the Schedule of Findings and Questioned Costs for the year ended June 30, 2022, significant transactions were identified that directly relate to noncompliance over the federal program that occurred during the June 30, 2023, fiscal year. These transactions were not tested as a major program during the 2023 fiscal year and were not subject to current year auditing procedures; however, noncompliance and known questioned costs were identified that met requirements for disclosure. Furthermore, recommendations made by auditors and plans of corrective action identified by management in prior years were insufficiently addressed. Cause: Unfamiliarity with program requirements from those accumulating and tracking costs charged to the program and lack of knowledgeable oversight over the program was a significant cause for these findings. The county lacked internal controls to ensure expenditures reimbursed through the program met compliance requirements. Effect: Known questioned costs related to the compliance of federal programs in the amount of $90,122 related to expenditures in the 2023 fiscal year were identified. Recommendation: We recommend the county adopt formal policies to address transactional compliance over grant awards. Given the volume of grant activity, identifying a grant compliance officer with the requisite experience in program compliance monitoring should be an included control. The current general ledger system has historically been sufficient to address the appropriate segregation and tracking of individual awards but has been used inappropriately to be implemented as a control. Monitoring of controls over expenditures and grant award compliance should be implemented, and deviations from controls in place should be addressed timely. Views of responsible officials and planned corrective actions: The County does not have available funding to hire a grant compliance officer, however, the County plans to seek training resources for current staff responsible for grant administration.
Agency: Department of Treasury Program & ALN: COVID-19 Coronavirus State and Local Fiscal Recovery Funds (21.027) ComplianceRequirement: Reporting Finding Type: Finding reported in accordance with 2 CFR section 200.516(a) Criteria: Per grant requirements, recipients are required to submit annual Project and Expenditure Reports detailing cumulative and current period expenditures andobligations. Condition: The Town filed reports with expenditures based on estimates that did not have underlying supporting documentation. Cause: The Town did not have a proper reporting and review process of federal grants. Effect: The expenditures reported by the Town on the report for the year ended March 31, 2023 were overstated. Context: The Town reported expenditures totaling $4,988,468 for the two years ended March 31, 2023 but only had supporting expenditures totaling $4,208,385. Recommendation: Management should establish a reconciliation process and reports should be reviewed by someone other than the preparer prior to submission to ensure accuracy of reporting. Views of Responsible Officials and Planned Corrective Action: The Town concurs with the finding; however, it will be corrected as the Town willhave fully spent the funds by the next filing due March 31, 2024.
C. FINDINGS AND QUESTIONED COSTS - FOR MAJOR FEDERAL AWARD PROGRAMS AS DEFINED BY THE UNIFORM GUIDANCE (2 CFR 200.516(a)) DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT FINDING NO. 2023-002: Late REAC Submission - See the details of this finding in 2023-001 above.
SECTION II - FINANCIAL STATEMENT FINDINGS This section identifies the significant deficiencies, material weaknesses, fraud, noncompliance with provisions of laws, regulations, contracts, grant agreements and abuse related to the financial statements for which Government Auditing Standards require reporting. There were no such findings in the current year that are required to be reported in accordance with Government Auditing Standards. SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS This section identifies the audit findings required to be reported by 2 CFR 200.516(a) (significant deficiencies, material weaknesses, material instances of noncompliance, including questioned costs and material abuse). Finding 2023-001: Student Financial Assistance Cluster, Department of Education Programs Program Names: Federal Direct Student Loans AL Numbers: 84.268 Criteria or Specific Requirement: 34 CFR 685.309 and 34 CFR 690.83(b)(2) require the institution to update its Enrollment Reporting roster file at a minimum of every 60 days. Once a change in enrollment status has been received, the institution must update its roster file for changes in student status, report the date the enrollment status was effective, enter the new anticipated completion date, and submit the changes electronically through the batch method or the National Student Loan Data System (NSLDS) website. Condition: The University did not report enrollment status updates for graduate students to the NSLDS through the National Student Clearinghouse as required under 34 CFR 682.610 for 16 of 40 students tested, within the 60-day required time frame. Cause: The exceptions noted were a result of a failure in the University’s processes and controls surrounding the validation of support uploaded to the National Student Clearinghouse. A manual trigger to an automated process was not initiated, resulting in a report not capturing enrollment changes in a timely manner for students who graduated from the University after the end of the Spring 2023 semester. Effect or Potential Effect: A student’s enrollment status determines eligibility for in-school status, deferment, and grace periods. Enrollment reporting in a timely and accurate manner is critical for effective management of the program. Changes in enrollment status were not submitted to the NSLDS within the time frame required under 34 CFR 682.610. Questioned Costs: None noted Context: The sample selected for testing is representative of the population. However, it was determined upon further review of the entire population by the University that there were 354 instances of noncompliance that were not included within the sample. Identification as a Repeat Finding, if applicable: This is not a repeat finding. Recommendation: We recommend that the University implement an additional step in its enrollment status change process to ensure that graduate status changes are reported in a timely manner and that the population of enrollment changes is complete. We also recommend that the University continue to develop and document additional policies and procedures to ensure that all enrollment changes are reported accurately, completely, and in a timely manner. Views of responsible officials: Management concurs with this finding. See separate corrective action plan document.
This section identifies the audit findings required to be reported by 2 CFR 200.516(a), including significant deficiencies, material weaknesses and material instances of noncompliance, including questioned costs and material abuse involving federal awards that are material to a major federal program. Finding No. 2023-01: Name of Federal Agency: Department of Health and Human Services Name of Pass Through Entity: Westmoreland County Children, Youth and Family Program Name: Temporary Assistance for Needy Families Assistance Listing No: 93.558 Condition During 2023, the Organization was notified upon completion of a Fiscal and Program File Review performed by an awarding agency, related to one of their Family Support Services programs, that errors were identified and supporting documentation was not readily available. As a result, the awarding agency determined these to be errors in billing and represented an overpayment. Criteria The Organization did not comply with the contractual arrangements and was non-compliant with a number of provisions of the Fiscal Year 2022-2023 Agreement with an awarding agency concerning financial responsibility and maintaining complete and accurate records related to one of their Family Support Services programs. Cause Upon initial review, there was insufficient understanding and training on the awarding agency’s documentation requirements. Effect The Organization is believed to have received an overpayment in the amount of approximately $586,594 due to lack of sufficient support for amounts billed and paid when compared to the awarding agency verified amount. Questioned Costs Approximately $586,594 of costs to be reimbursed to the awarding agency. Recommendation Management should improve processes surrounding submission of monthly invoices to include all required documentation to sufficiently support all items included within the invoice. Additional training should occur to ensure all individuals involved are aware of the requirement specified by the awarding agency. Reporting Views of Responsible Officials Management concurs with this finding and recommendation. See separate corrective action plan document.
This section identifies the audit findings required to be reported by 2 CFR 200.516(a), including significant deficiencies, material weaknesses and material instances of noncompliance, including questioned costs and material abuse involving federal awards that are material to a major federal program. Finding No. 2023-01: Name of Federal Agency: Department of Health and Human Services Name of Pass Through Entity: Westmoreland County Children, Youth and Family Program Name: Temporary Assistance for Needy Families Assistance Listing No: 93.558 Condition During 2023, the Organization was notified upon completion of a Fiscal and Program File Review performed by an awarding agency, related to one of their Family Support Services programs, that errors were identified and supporting documentation was not readily available. As a result, the awarding agency determined these to be errors in billing and represented an overpayment. Criteria The Organization did not comply with the contractual arrangements and was non-compliant with a number of provisions of the Fiscal Year 2022-2023 Agreement with an awarding agency concerning financial responsibility and maintaining complete and accurate records related to one of their Family Support Services programs. Cause Upon initial review, there was insufficient understanding and training on the awarding agency’s documentation requirements. Effect The Organization is believed to have received an overpayment in the amount of approximately $586,594 due to lack of sufficient support for amounts billed and paid when compared to the awarding agency verified amount. Questioned Costs Approximately $586,594 of costs to be reimbursed to the awarding agency. Recommendation Management should improve processes surrounding submission of monthly invoices to include all required documentation to sufficiently support all items included within the invoice. Additional training should occur to ensure all individuals involved are aware of the requirement specified by the awarding agency. Reporting Views of Responsible Officials Management concurs with this finding and recommendation. See separate corrective action plan document.
This section identifies the audit findings required to be reported by 2 CFR 200.516(a), including significant deficiencies, material weaknesses and material instances of noncompliance, including questioned costs and material abuse involving federal awards that are material to a major federal program. Finding No. 2023-01: Name of Federal Agency: Department of Health and Human Services Name of Pass Through Entity: Westmoreland County Children, Youth and Family Program Name: Temporary Assistance for Needy Families Assistance Listing No: 93.558 Condition During 2023, the Organization was notified upon completion of a Fiscal and Program File Review performed by an awarding agency, related to one of their Family Support Services programs, that errors were identified and supporting documentation was not readily available. As a result, the awarding agency determined these to be errors in billing and represented an overpayment. Criteria The Organization did not comply with the contractual arrangements and was non-compliant with a number of provisions of the Fiscal Year 2022-2023 Agreement with an awarding agency concerning financial responsibility and maintaining complete and accurate records related to one of their Family Support Services programs. Cause Upon initial review, there was insufficient understanding and training on the awarding agency’s documentation requirements. Effect The Organization is believed to have received an overpayment in the amount of approximately $586,594 due to lack of sufficient support for amounts billed and paid when compared to the awarding agency verified amount. Questioned Costs Approximately $586,594 of costs to be reimbursed to the awarding agency. Recommendation Management should improve processes surrounding submission of monthly invoices to include all required documentation to sufficiently support all items included within the invoice. Additional training should occur to ensure all individuals involved are aware of the requirement specified by the awarding agency. Reporting Views of Responsible Officials Management concurs with this finding and recommendation. See separate corrective action plan document.
This section identifies the audit findings required to be reported by 2 CFR 200.516(a), including significant deficiencies, material weaknesses and material instances of noncompliance, including questioned costs and material abuse involving federal awards that are material to a major federal program. Finding No. 2023-01: Name of Federal Agency: Department of Health and Human Services Name of Pass Through Entity: Westmoreland County Children, Youth and Family Program Name: Temporary Assistance for Needy Families Assistance Listing No: 93.558 Condition During 2023, the Organization was notified upon completion of a Fiscal and Program File Review performed by an awarding agency, related to one of their Family Support Services programs, that errors were identified and supporting documentation was not readily available. As a result, the awarding agency determined these to be errors in billing and represented an overpayment. Criteria The Organization did not comply with the contractual arrangements and was non-compliant with a number of provisions of the Fiscal Year 2022-2023 Agreement with an awarding agency concerning financial responsibility and maintaining complete and accurate records related to one of their Family Support Services programs. Cause Upon initial review, there was insufficient understanding and training on the awarding agency’s documentation requirements. Effect The Organization is believed to have received an overpayment in the amount of approximately $586,594 due to lack of sufficient support for amounts billed and paid when compared to the awarding agency verified amount. Questioned Costs Approximately $586,594 of costs to be reimbursed to the awarding agency. Recommendation Management should improve processes surrounding submission of monthly invoices to include all required documentation to sufficiently support all items included within the invoice. Additional training should occur to ensure all individuals involved are aware of the requirement specified by the awarding agency. Reporting Views of Responsible Officials Management concurs with this finding and recommendation. See separate corrective action plan document.
Finding Number: 2023-005 State/Educational Agency(s): Arkansas Department of Commerce – Division of Workforce Services Pass-Through Entity: Not Applicable ALN Number(s) and Program Title(s): 17.225 – Unemployment Insurance Federal Awarding Agency: U.S. Department of Labor Federal Award Number(s): Not Applicable Federal Award Year(s): Not Applicable Compliance Requirement(s) Affected: Activities Allowed or Unallowed; Eligibility Type of Finding: Noncompliance and Significant Deficiency Repeat Finding: A similar issue was reported in prior-year finding 2022-001. Criteria: In accordance with 2 CFR § 200.303, a non-federal entity must establish and maintain effective internal control over the federal award that provides reasonable assurance that the non-federal entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the award. In addition, 2 CFR § 200.516 (a)(6) requires the auditor to report as an audit finding any known or likely fraud affecting a federal award. Condition and Context: In state fiscal year 2023, the Division of Workforce Services (DWS) identified 1,077 claims paid for Unemployment Insurance programs, totaling $2,295,059, as likely fraud. (This is in addition to the claims identified in the previous years.) The $2,295,059 is comprised of $1,563,505 in federal funds and $731,554 in state funds. Statistically Valid Sample: Not a statistically valid sample Questioned Costs: $1,563,505 (federal) $ 731,554 (state) Cause: In response to the increase in demand for services/benefits, the State relaxed controls over identify verification and income verification for the program during fiscal year 2021. DWS continued to identify claims in fiscal year 2023 that were paid during fiscal year 2021. Effect: Lack of appropriate internal controls resulted in overpayments of state and federal funds. Recommendation: ALA staff recommend the Agency continue to strengthen controls over benefit payments to ensure that payments are made in the correct amount and to eligible claimants. Additionally, ALA staff recommend the Agency continue to seek recoupment of the identified overpayments, returning them to their appropriate source. Views of Responsible Officials and Planned Corrective Action: Due to the health concerns of the pandemic as well as unprecedented claims volume, claimants were not required to come into a local office for identity verification, the waiting week was waived for 2020, and the requirements for work search were adjusted in order to protect employees and claimants. Before the pandemic, all claimants were required to come to the local office to verify their identity. Removing these process controls resulted in several consequences as itemized below: • By waiving the waiting week, the claimant was able to receive payment the following week. For example, a fraudster could file a claim on Friday, then receive payment on Sunday, removing the typical week that an employer would respond to validate the separation from employment. • The information mailed to the employer and claimant were not received before payments were made due to the lack of waiting week. • Businesses were closed at that time and did not respond to the unemployment paperwork timely to report fraudulent claims. • Identity theft fraudsters often changed the address of the individuals for which they had filed claims in order to prevent the victims from being notified and reporting the fraud. In 2020, the work search requirement was reinstated. In 2021, all claimants had to verify their identity in-person at the local office before the claim was opened for a regular unemployment claim. The UIdentify program was utilized for identity verification for the PUA claims filed after January 1, 2021. The waiting week was reinstated in January 2021, which lengthened the time period for employers to respond before payment was issued. In addition, Internal Audit created the Fraud Investigation Unit and hired additional staff to focus on investigating the identity theft fraud claims. When the perpetrator is identified, a determination is issued and an overpayment is established in the perpetrator’s name/SSN for collection. The NASWA Integrity Data Hub (IDH) crossmatch was implemented in July 2020 as well in an effort to identify additional fraudulent claims for investigation. ADWS was the first UI program to implement 2 projects with the Department of Labor for identity verification. One is using Login.gov and the other involves the United States Postal Service where they verify the identity of claimants for using multifactor authentication and in person presentation of ID. The Login.gov pilot started in 2022 and the USPS pilot project started in 2023. 1. The Login.gov project uses the current system that Federal agencies use to verify identity and went into service in Arkansas as of March 2022. A link is given to the claimant, when they select verify ID through login.gov and go through the steps to verify their identity through the federal government system. If they are approved, we are sent an IA2 verification to the UI processing system to allow staff to match back to the claim to prove ID verification. 2. The United States Postal Service project, implements in Arkansas March 2023, offers the claimant the same link as Login.gov, but grants the additional option to verify their identity at any US Post Office in the country. A barcode is created and must be taken with a valid government-issued ID (they are given examples) along with proof of current address to the post office in person. If they are approved, we are sent an IA2 verification to the UI processing system to allow staff to match back to the claim to prove ID verification. Anticipated Completion Date: Corrective action was taken for the controls the ALA staff recommended. Contact Person: Sheri Rooney Program Administrator Arkansas Division of Workforce Services #2 Capitol Mall Little Rock, AR 72201 501-682-3382 Sheri.Rooney@arkansas.gov
Finding Number: 2023-032 State/Educational Agency(s): Arkansas Department of Commerce – Division of Workforce Services Pass-Through Entity: Not Applicable ALN Number(s) and Program Title(s): 97.050 – COVID 19: Presidential Declared Disaster Assistance to Individuals and Households – Other Needs (Supplemental Payments for Lost Wages) Federal Awarding Agency: Federal Emergency Management Agency Federal Award Number(s): 4518DRARSPLW Federal Award Year(s): Not Applicable Compliance Requirement(s) Affected: Activities Allowed or Unallowed; Eligibility Type of Finding: Noncompliance and Significant Deficiency Repeat Finding: Not applicable Criteria: In accordance with 2 CFR § 200.303, a non-federal entity must establish and maintain effective internal control over the federal award that provides reasonable assurance that the non-federal entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the award. In addition, 2 CFR § 200.516(a)(6) requires the auditor to report known or likely fraud affecting a federal award. Condition and Context: In state fiscal year 2023, the Division of Workforce Services (DWS) identified 64 claims paid for Lost Wages Assistance (LWA) totaling $67,500 as likely fraud. This is in addition to the claims identified in the previous fiscal years. Statistically Valid Sample: Not a statistically valid sample Questioned Costs: $67,500 Cause: In response to the increase in demand for services/benefits, the State relaxed controls over identify verification and income verification for the program during fiscal year 2021. DWS continued to identify claims in fiscal year 2023 that were paid during fiscal year 2021. Effect: Lack of appropriate internal controls resulted in overpayments of federal funds. Recommendation: ALA staff recommend the Agency continue to strengthen controls over benefit payments to ensure that payments are made in the correct amounts and to eligible claimants. Additionally, ALA staff recommend the Agency continue to seek recoupment of the identified overpayments, returning them to the appropriate source. Views of Responsible Officials and Planned Corrective Action: Due to the health concerns of the pandemic as well as unprecedented claims volume, claimants were not required to come into a local office for identity verification, the waiting week was waived for 2020, and the requirements for work search were adjusted in order to protect employees and claimants. Before the pandemic, all claimants were required to come to the local office to verify their identity. Removing these process controls resulted in several consequences as itemized below: • By waiving the waiting week, the claimant was able to receive payment the following week. For example, a fraudster could file a claim on Friday, then receive payment on Sunday, removing the typical week that an employer would respond to validate the separation from employment. • The information mailed to the employer and claimant were not received before payments were made due to the lack of waiting week. • Businesses were closed at that time and did not respond to the unemployment paperwork timely to report fraudulent claims. • Identity theft fraudsters often changed the address of the individuals for which they had filed claims in order to prevent the victims from being notified and reporting the fraud. In 2020, the work search requirement was reinstated. In 2021, all claimants had to verify their identity in-person at the local office before the claim was opened for a regular unemployment claim. The UIdentify program was utilized for identity verification for the PUA claims filed after January 1, 2021. The waiting week was reinstated in January 2021, which lengthened the time period for employers to respond before payment was issued. In addition, Internal Audit created the Fraud Investigation Unit and hired additional staff to focus on investigating the identity theft fraud claims. When the perpetrator is identified, a determination is issued and an overpayment is established in the perpetrator’s name/SSN for collection. The NASWA Integrity Data Hub (IDH) crossmatch was implemented in July 2020 as well in an effort to identify additional fraudulent claims for investigation. ADWS was the first UI program to implement 2 projects with the Department of Labor for identity verification. One is using Login.gov and the other involves the United States Postal Service where they verify the identity of claimants for using multifactor authentication and in person presentation of ID. The Login.gov pilot started in 2022 and the USPS pilot project started in 2023. 1. The Login.gov project uses the current system that Federal agencies use to verify identity and went into service in Arkansas as of March 2022. A link is given to the claimant, when they select verify ID through login.gov and go through the steps to verify their identity through the federal government system. If they are approved, we are sent an IA2 verification to the UI processing system to allow staff to match back to the claim to prove ID verification. 2. The United States Postal Service project, implements in Arkansas March 2023, offers the claimant the same link as Login.gov, but grants the additional option to verify their identity at any US Post Office in the country. A barcode is created and must be taken with a valid government-issued ID (they are given examples) along with proof of current address to the post office in person. If they are approved, we are sent an IA2 verification to the UI processing system to allow staff to match back to the claim to prove ID verification. Anticipated Completion Date: Corrective action was taken for the ALA staff recommendations Contact Person: Sheri Rooney Program Administrator Arkansas Division of Workforce Services #2 Capitol Mall Little Rock, AR 72201 501-682-3382 Sheri.Rooney@arkansas.gov
Finding 2023-003 – Material Weakness AL No: 20.507 Federal Grantor: U.S. Department of Transportation, Federal Transit Administration, Federal Transit Formula Grants - Direct Award Compliance Requirements: Activities Allowed or Unallowed and Allowable Costs/Cost Principles. Condition: The District’s internal controls over compliance requirements did not identify ineligible costs applied to four separate Federal Transit Administration (FTA) grants as follows. Section 5307 Grant Award CA-2020-173-01: The District overclaimed Route 42 and Woodland fixed route operating expenses that should have been reimbursed by a local match as required by other FTA grants applied to the same routes, resulting in ineligible costs of $1,073,260 being charged to the program. Questioned Costs: $1,073,260. Section 5307 Grant Award CA-2022-140-01: The District overclaimed Route 42 expansion fixed route operating expenses that should have been reimbursed by a local match as the wrong federal percentage was applied in the claims, resulting in ineligible costs of $33,129 being charged to the program. Questioned Costs: $33,129. Section 5307 Grant Award CA-2022-147-04: The District overclaimed communication expenses for Woodland paratransit operating routes, resulting in ineligible costs of $12,513 being charged to the program. Questioned Costs: Ineligible costs were below the $25,000 floor for questioned costs under 2 CFR Part 200, Subpart F (Uniform Guidance), Section 200.516. Section 5307 Grant Awards CA-2022-204-01 and CA-2021-162-03: The District claimed engine overhaul expenses that did not qualify as preventative maintenance costs allowed by the terms and conditions of the grant, resulting in ineligible costs of $17,902 being charged to the program. Questioned Costs: Ineligible costs were below the $25,000 floor for questioned costs under 2 CFR Part 200, Subpart F (Uniform Guidance), Section 200.516. Criteria: 2 CFR Part 200, Subpart E (Uniform Guidance) Section 200.303 states that “The nonfederal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award.” Cause: Several federal grants applied to these routes had local match requirements that were not captured by the District’s review procedures due to recent staff turnover and lack of documented procedures to track expenses charged to all funding sources combined. Not all paratransit operating expenses were reported and tracked separately in the allocation spreadsheet leading to expenses being double claimed under different grants for different purposes. This is due to the allocation spreadsheet not having a summary page totaling all expenses charged to programs to make sure the total expenses allocated agree to the total population of expenses allocated. Effect: Expenses were charged to more than one grant when filing claims and ineligible costs were applied, resulting in the overclaimed amounts cited above. Context: The ineligible costs were discovered through reconciliation of the operating expenses and capital costs from the claims to the general ledger. It was noted that the District did not have any FTA awards for capital maintenance during the year. The overclaimed amounts of $1,073,260, $33,129, and $12,513 have been removed from revenue as the FTA has currently approved the District claiming the expenses under different grants. There were potentially additional operating expenses under Paratransit services that could have offset some of these overclaimed amounts. The ineligible costs of $17,902 have been submitted to the FTA through a budget revision to allow for capital funding under the two related awards and is currently pending FTA approval. Recommendation: We recommend the District develop written procedures for allocating expenses to routes and purposes used to claim expenses under federal grants and to track the different funding sources applied. A summary tab should be added to the allocation spreadsheet to sum amounts for each route computed on separate tabs on the spreadsheet to make it easier to reconcile total operating expenses, preventive maintenance, insurance, communications and other expenses allocated to the population of expenses in the general ledger. View of Responsible Officials and Planned Corrective Action: Management’s response and planned corrective action is included at the Corrective Action Plan end of this report.
Finding 2023-003 – Material Weakness AL No: 20.507 Federal Grantor: U.S. Department of Transportation, Federal Transit Administration, Federal Transit Formula Grants - Direct Award Compliance Requirements: Activities Allowed or Unallowed and Allowable Costs/Cost Principles. Condition: The District’s internal controls over compliance requirements did not identify ineligible costs applied to four separate Federal Transit Administration (FTA) grants as follows. Section 5307 Grant Award CA-2020-173-01: The District overclaimed Route 42 and Woodland fixed route operating expenses that should have been reimbursed by a local match as required by other FTA grants applied to the same routes, resulting in ineligible costs of $1,073,260 being charged to the program. Questioned Costs: $1,073,260. Section 5307 Grant Award CA-2022-140-01: The District overclaimed Route 42 expansion fixed route operating expenses that should have been reimbursed by a local match as the wrong federal percentage was applied in the claims, resulting in ineligible costs of $33,129 being charged to the program. Questioned Costs: $33,129. Section 5307 Grant Award CA-2022-147-04: The District overclaimed communication expenses for Woodland paratransit operating routes, resulting in ineligible costs of $12,513 being charged to the program. Questioned Costs: Ineligible costs were below the $25,000 floor for questioned costs under 2 CFR Part 200, Subpart F (Uniform Guidance), Section 200.516. Section 5307 Grant Awards CA-2022-204-01 and CA-2021-162-03: The District claimed engine overhaul expenses that did not qualify as preventative maintenance costs allowed by the terms and conditions of the grant, resulting in ineligible costs of $17,902 being charged to the program. Questioned Costs: Ineligible costs were below the $25,000 floor for questioned costs under 2 CFR Part 200, Subpart F (Uniform Guidance), Section 200.516. Criteria: 2 CFR Part 200, Subpart E (Uniform Guidance) Section 200.303 states that “The nonfederal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award.” Cause: Several federal grants applied to these routes had local match requirements that were not captured by the District’s review procedures due to recent staff turnover and lack of documented procedures to track expenses charged to all funding sources combined. Not all paratransit operating expenses were reported and tracked separately in the allocation spreadsheet leading to expenses being double claimed under different grants for different purposes. This is due to the allocation spreadsheet not having a summary page totaling all expenses charged to programs to make sure the total expenses allocated agree to the total population of expenses allocated. Effect: Expenses were charged to more than one grant when filing claims and ineligible costs were applied, resulting in the overclaimed amounts cited above. Context: The ineligible costs were discovered through reconciliation of the operating expenses and capital costs from the claims to the general ledger. It was noted that the District did not have any FTA awards for capital maintenance during the year. The overclaimed amounts of $1,073,260, $33,129, and $12,513 have been removed from revenue as the FTA has currently approved the District claiming the expenses under different grants. There were potentially additional operating expenses under Paratransit services that could have offset some of these overclaimed amounts. The ineligible costs of $17,902 have been submitted to the FTA through a budget revision to allow for capital funding under the two related awards and is currently pending FTA approval. Recommendation: We recommend the District develop written procedures for allocating expenses to routes and purposes used to claim expenses under federal grants and to track the different funding sources applied. A summary tab should be added to the allocation spreadsheet to sum amounts for each route computed on separate tabs on the spreadsheet to make it easier to reconcile total operating expenses, preventive maintenance, insurance, communications and other expenses allocated to the population of expenses in the general ledger. View of Responsible Officials and Planned Corrective Action: Management’s response and planned corrective action is included at the Corrective Action Plan end of this report.
Finding 2023-003 – Material Weakness AL No: 20.507 Federal Grantor: U.S. Department of Transportation, Federal Transit Administration, Federal Transit Formula Grants - Direct Award Compliance Requirements: Activities Allowed or Unallowed and Allowable Costs/Cost Principles. Condition: The District’s internal controls over compliance requirements did not identify ineligible costs applied to four separate Federal Transit Administration (FTA) grants as follows. Section 5307 Grant Award CA-2020-173-01: The District overclaimed Route 42 and Woodland fixed route operating expenses that should have been reimbursed by a local match as required by other FTA grants applied to the same routes, resulting in ineligible costs of $1,073,260 being charged to the program. Questioned Costs: $1,073,260. Section 5307 Grant Award CA-2022-140-01: The District overclaimed Route 42 expansion fixed route operating expenses that should have been reimbursed by a local match as the wrong federal percentage was applied in the claims, resulting in ineligible costs of $33,129 being charged to the program. Questioned Costs: $33,129. Section 5307 Grant Award CA-2022-147-04: The District overclaimed communication expenses for Woodland paratransit operating routes, resulting in ineligible costs of $12,513 being charged to the program. Questioned Costs: Ineligible costs were below the $25,000 floor for questioned costs under 2 CFR Part 200, Subpart F (Uniform Guidance), Section 200.516. Section 5307 Grant Awards CA-2022-204-01 and CA-2021-162-03: The District claimed engine overhaul expenses that did not qualify as preventative maintenance costs allowed by the terms and conditions of the grant, resulting in ineligible costs of $17,902 being charged to the program. Questioned Costs: Ineligible costs were below the $25,000 floor for questioned costs under 2 CFR Part 200, Subpart F (Uniform Guidance), Section 200.516. Criteria: 2 CFR Part 200, Subpart E (Uniform Guidance) Section 200.303 states that “The nonfederal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award.” Cause: Several federal grants applied to these routes had local match requirements that were not captured by the District’s review procedures due to recent staff turnover and lack of documented procedures to track expenses charged to all funding sources combined. Not all paratransit operating expenses were reported and tracked separately in the allocation spreadsheet leading to expenses being double claimed under different grants for different purposes. This is due to the allocation spreadsheet not having a summary page totaling all expenses charged to programs to make sure the total expenses allocated agree to the total population of expenses allocated. Effect: Expenses were charged to more than one grant when filing claims and ineligible costs were applied, resulting in the overclaimed amounts cited above. Context: The ineligible costs were discovered through reconciliation of the operating expenses and capital costs from the claims to the general ledger. It was noted that the District did not have any FTA awards for capital maintenance during the year. The overclaimed amounts of $1,073,260, $33,129, and $12,513 have been removed from revenue as the FTA has currently approved the District claiming the expenses under different grants. There were potentially additional operating expenses under Paratransit services that could have offset some of these overclaimed amounts. The ineligible costs of $17,902 have been submitted to the FTA through a budget revision to allow for capital funding under the two related awards and is currently pending FTA approval. Recommendation: We recommend the District develop written procedures for allocating expenses to routes and purposes used to claim expenses under federal grants and to track the different funding sources applied. A summary tab should be added to the allocation spreadsheet to sum amounts for each route computed on separate tabs on the spreadsheet to make it easier to reconcile total operating expenses, preventive maintenance, insurance, communications and other expenses allocated to the population of expenses in the general ledger. View of Responsible Officials and Planned Corrective Action: Management’s response and planned corrective action is included at the Corrective Action Plan end of this report.
Finding 2023-003 – Material Weakness AL No: 20.507 Federal Grantor: U.S. Department of Transportation, Federal Transit Administration, Federal Transit Formula Grants - Direct Award Compliance Requirements: Activities Allowed or Unallowed and Allowable Costs/Cost Principles. Condition: The District’s internal controls over compliance requirements did not identify ineligible costs applied to four separate Federal Transit Administration (FTA) grants as follows. Section 5307 Grant Award CA-2020-173-01: The District overclaimed Route 42 and Woodland fixed route operating expenses that should have been reimbursed by a local match as required by other FTA grants applied to the same routes, resulting in ineligible costs of $1,073,260 being charged to the program. Questioned Costs: $1,073,260. Section 5307 Grant Award CA-2022-140-01: The District overclaimed Route 42 expansion fixed route operating expenses that should have been reimbursed by a local match as the wrong federal percentage was applied in the claims, resulting in ineligible costs of $33,129 being charged to the program. Questioned Costs: $33,129. Section 5307 Grant Award CA-2022-147-04: The District overclaimed communication expenses for Woodland paratransit operating routes, resulting in ineligible costs of $12,513 being charged to the program. Questioned Costs: Ineligible costs were below the $25,000 floor for questioned costs under 2 CFR Part 200, Subpart F (Uniform Guidance), Section 200.516. Section 5307 Grant Awards CA-2022-204-01 and CA-2021-162-03: The District claimed engine overhaul expenses that did not qualify as preventative maintenance costs allowed by the terms and conditions of the grant, resulting in ineligible costs of $17,902 being charged to the program. Questioned Costs: Ineligible costs were below the $25,000 floor for questioned costs under 2 CFR Part 200, Subpart F (Uniform Guidance), Section 200.516. Criteria: 2 CFR Part 200, Subpart E (Uniform Guidance) Section 200.303 states that “The nonfederal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award.” Cause: Several federal grants applied to these routes had local match requirements that were not captured by the District’s review procedures due to recent staff turnover and lack of documented procedures to track expenses charged to all funding sources combined. Not all paratransit operating expenses were reported and tracked separately in the allocation spreadsheet leading to expenses being double claimed under different grants for different purposes. This is due to the allocation spreadsheet not having a summary page totaling all expenses charged to programs to make sure the total expenses allocated agree to the total population of expenses allocated. Effect: Expenses were charged to more than one grant when filing claims and ineligible costs were applied, resulting in the overclaimed amounts cited above. Context: The ineligible costs were discovered through reconciliation of the operating expenses and capital costs from the claims to the general ledger. It was noted that the District did not have any FTA awards for capital maintenance during the year. The overclaimed amounts of $1,073,260, $33,129, and $12,513 have been removed from revenue as the FTA has currently approved the District claiming the expenses under different grants. There were potentially additional operating expenses under Paratransit services that could have offset some of these overclaimed amounts. The ineligible costs of $17,902 have been submitted to the FTA through a budget revision to allow for capital funding under the two related awards and is currently pending FTA approval. Recommendation: We recommend the District develop written procedures for allocating expenses to routes and purposes used to claim expenses under federal grants and to track the different funding sources applied. A summary tab should be added to the allocation spreadsheet to sum amounts for each route computed on separate tabs on the spreadsheet to make it easier to reconcile total operating expenses, preventive maintenance, insurance, communications and other expenses allocated to the population of expenses in the general ledger. View of Responsible Officials and Planned Corrective Action: Management’s response and planned corrective action is included at the Corrective Action Plan end of this report.
Finding 2023-003 – Material Weakness AL No: 20.507 Federal Grantor: U.S. Department of Transportation, Federal Transit Administration, Federal Transit Formula Grants - Direct Award Compliance Requirements: Activities Allowed or Unallowed and Allowable Costs/Cost Principles. Condition: The District’s internal controls over compliance requirements did not identify ineligible costs applied to four separate Federal Transit Administration (FTA) grants as follows. Section 5307 Grant Award CA-2020-173-01: The District overclaimed Route 42 and Woodland fixed route operating expenses that should have been reimbursed by a local match as required by other FTA grants applied to the same routes, resulting in ineligible costs of $1,073,260 being charged to the program. Questioned Costs: $1,073,260. Section 5307 Grant Award CA-2022-140-01: The District overclaimed Route 42 expansion fixed route operating expenses that should have been reimbursed by a local match as the wrong federal percentage was applied in the claims, resulting in ineligible costs of $33,129 being charged to the program. Questioned Costs: $33,129. Section 5307 Grant Award CA-2022-147-04: The District overclaimed communication expenses for Woodland paratransit operating routes, resulting in ineligible costs of $12,513 being charged to the program. Questioned Costs: Ineligible costs were below the $25,000 floor for questioned costs under 2 CFR Part 200, Subpart F (Uniform Guidance), Section 200.516. Section 5307 Grant Awards CA-2022-204-01 and CA-2021-162-03: The District claimed engine overhaul expenses that did not qualify as preventative maintenance costs allowed by the terms and conditions of the grant, resulting in ineligible costs of $17,902 being charged to the program. Questioned Costs: Ineligible costs were below the $25,000 floor for questioned costs under 2 CFR Part 200, Subpart F (Uniform Guidance), Section 200.516. Criteria: 2 CFR Part 200, Subpart E (Uniform Guidance) Section 200.303 states that “The nonfederal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award.” Cause: Several federal grants applied to these routes had local match requirements that were not captured by the District’s review procedures due to recent staff turnover and lack of documented procedures to track expenses charged to all funding sources combined. Not all paratransit operating expenses were reported and tracked separately in the allocation spreadsheet leading to expenses being double claimed under different grants for different purposes. This is due to the allocation spreadsheet not having a summary page totaling all expenses charged to programs to make sure the total expenses allocated agree to the total population of expenses allocated. Effect: Expenses were charged to more than one grant when filing claims and ineligible costs were applied, resulting in the overclaimed amounts cited above. Context: The ineligible costs were discovered through reconciliation of the operating expenses and capital costs from the claims to the general ledger. It was noted that the District did not have any FTA awards for capital maintenance during the year. The overclaimed amounts of $1,073,260, $33,129, and $12,513 have been removed from revenue as the FTA has currently approved the District claiming the expenses under different grants. There were potentially additional operating expenses under Paratransit services that could have offset some of these overclaimed amounts. The ineligible costs of $17,902 have been submitted to the FTA through a budget revision to allow for capital funding under the two related awards and is currently pending FTA approval. Recommendation: We recommend the District develop written procedures for allocating expenses to routes and purposes used to claim expenses under federal grants and to track the different funding sources applied. A summary tab should be added to the allocation spreadsheet to sum amounts for each route computed on separate tabs on the spreadsheet to make it easier to reconcile total operating expenses, preventive maintenance, insurance, communications and other expenses allocated to the population of expenses in the general ledger. View of Responsible Officials and Planned Corrective Action: Management’s response and planned corrective action is included at the Corrective Action Plan end of this report.
Under the requirements of 2 CFR 200.516(a)(6), known or likely fraud affecting a Federal award must be reported as an audit finding in the schedule of findings and questioned costs. A child’s eligibility for free or reduced price meals under the Child Nutrition Cluster program may be established by the submission of an annual application or statement which furnishes such information as family income and family size. It was noted an employee of the District filled out an online application for free or reduced price meals with false information, resulting in their children receiving free meals. The District is not required to verify all applications and the information within them, other than an annual verification process that results in a random sample of applicants. This employee was not randomly selected for this verification process. By the employee submitting a false application, the District may be overclaiming Federal reimbursements for the food service program, which could result in questioned costs, penalties, or sanctions from the Federal awarding agency. We recommend the District including an additional procedure for employees filling out applications to perform some level of verification on the information they submit, utilizing the employee’s personnel files already on hand at the District.
Under the requirements of 2 CFR 200.516(a)(6), known or likely fraud affecting a Federal award must be reported as an audit finding in the schedule of findings and questioned costs. A child’s eligibility for free or reduced price meals under the Child Nutrition Cluster program may be established by the submission of an annual application or statement which furnishes such information as family income and family size. It was noted an employee of the District filled out an online application for free or reduced price meals with false information, resulting in their children receiving free meals. The District is not required to verify all applications and the information within them, other than an annual verification process that results in a random sample of applicants. This employee was not randomly selected for this verification process. By the employee submitting a false application, the District may be overclaiming Federal reimbursements for the food service program, which could result in questioned costs, penalties, or sanctions from the Federal awarding agency. We recommend the District including an additional procedure for employees filling out applications to perform some level of verification on the information they submit, utilizing the employee’s personnel files already on hand at the District.
Under the requirements of 2 CFR 200.516(a)(6), known or likely fraud affecting a Federal award must be reported as an audit finding in the schedule of findings and questioned costs. A child’s eligibility for free or reduced price meals under the Child Nutrition Cluster program may be established by the submission of an annual application or statement which furnishes such information as family income and family size. It was noted an employee of the District filled out an online application for free or reduced price meals with false information, resulting in their children receiving free meals. The District is not required to verify all applications and the information within them, other than an annual verification process that results in a random sample of applicants. This employee was not randomly selected for this verification process. By the employee submitting a false application, the District may be overclaiming Federal reimbursements for the food service program, which could result in questioned costs, penalties, or sanctions from the Federal awarding agency. We recommend the District including an additional procedure for employees filling out applications to perform some level of verification on the information they submit, utilizing the employee’s personnel files already on hand at the District.
Under the requirements of 2 CFR 200.516(a)(6), known or likely fraud affecting a Federal award must be reported as an audit finding in the schedule of findings and questioned costs. A child’s eligibility for free or reduced price meals under the Child Nutrition Cluster program may be established by the submission of an annual application or statement which furnishes such information as family income and family size. It was noted an employee of the District filled out an online application for free or reduced price meals with false information, resulting in their children receiving free meals. The District is not required to verify all applications and the information within them, other than an annual verification process that results in a random sample of applicants. This employee was not randomly selected for this verification process. By the employee submitting a false application, the District may be overclaiming Federal reimbursements for the food service program, which could result in questioned costs, penalties, or sanctions from the Federal awarding agency. We recommend the District including an additional procedure for employees filling out applications to perform some level of verification on the information they submit, utilizing the employee’s personnel files already on hand at the District.
Under the requirements of 2 CFR 200.516(a)(6), known or likely fraud affecting a Federal award must be reported as an audit finding in the schedule of findings and questioned costs. A child’s eligibility for free or reduced price meals under the Child Nutrition Cluster program may be established by the submission of an annual application or statement which furnishes such information as family income and family size. It was noted an employee of the District filled out an online application for free or reduced price meals with false information, resulting in their children receiving free meals. The District is not required to verify all applications and the information within them, other than an annual verification process that results in a random sample of applicants. This employee was not randomly selected for this verification process. By the employee submitting a false application, the District may be overclaiming Federal reimbursements for the food service program, which could result in questioned costs, penalties, or sanctions from the Federal awarding agency. We recommend the District including an additional procedure for employees filling out applications to perform some level of verification on the information they submit, utilizing the employee’s personnel files already on hand at the District.
(1) Summary of Auditors’ Results a. Type of report issued on whether the financial statements were prepared in accordance with generally accepted accounting principles: Unmodified b. Internal control deficiencies over financial reporting disclosed by the audit of the financial statements: • Material weaknesses: No • Significant deficiencies: None Reported c. Noncompliance material to the financial statements: No d. Internal control deficiencies over major programs disclosed by the audit: • Material weaknesses: No • Significant deficiencies: Yes – See Finding 2023-001 e. Type of report issued on compliance for major programs: Unmodified f. Audit findings that are required to be reported in accordance with 2 CFR 200.516(a): Yes g. Major program: • Student Financial Assistance Cluster – various Federal Assistance Listing numbers h. Dollar threshold used to distinguish between Type A and Type B programs: $750,000 i. Auditee qualified as a low-risk auditee: Yes (2) Findings Relating to the Financial Statements Reported in Accordance with Government Auditing Standards None. (3) Findings and Questioned Costs Relating to Federal Awards Finding Number: 2023-001 Federal Agency: U.S. Department of Education Program: Federal Direct Loan Program Federal Assistance Listing Numbers: 84.268 Criteria Per CFR 200 Part 5 Student Financial Statement Assistance Cluster, institutions request funds from the Education Department under the advance, reimbursement, or heightened cash monitoring payment methods. The University utilizes the reimbursement payment method. Under this method an institution is required to credit the student’s account with the eligible amount of funds and pay any remaining credit balances before seeking reimbursement from the Department of Education (ED). The reimbursement request must be accompanied by supporting documentation for the disbursed funds. Once the reimbursement request is approved, ED will transfer the funds electronically to the institution’s account. Condition The University submitted a reimbursement request for the Federal Direct Loan Program for November 2022 that was greater than the amount of funds disbursed for the period. The Financial Aid Office identified this error after the drawdown of funds occurred. After the identification of this error, the University issued a refund to ED in the amount of $1,987,716. However, there was a period during which the University had overdrawn its Federal Direct Loan Program funds. Cause The University’s cash management process did not include a requirement to review the reimbursement request before it was processed. Effect If appropriate controls are not designed and operating effectively over the cash management process, reimbursement requests may be submitted that are in excess of funds disbursed for the time period. Questioned Costs None Noted Statistical Sampling The sample was not intended to be and was not a statistically valid sample. Prior Year Finding No. Recommendation We recommend that the University perform and document a review of reimbursement submissions before they are processed to ensure that reimbursement requests are not in excess of funds disbursed for the period. Management Views After the identification of the error in the Federal Direct Loan reimbursement request for November 2022, the University implemented a review requirement. The Director of Tax and Financial Reporting or the AVP, Controller must review the reimbursement request calculated by the Assistant Controller and Director of Grant Accounting before it can be processed. As of June 30, 2023, this review requirement was fully implemented.
2023-006 The Employment Security Department made improper payments to ineligible beneficiaries of the Unemployment Insurance program. Assistance Listing Number and Title: 17.225 Unemployment Insurance 17.225 COVID-19 Unemployment Insurance Federal Grantor Name: U.S. Department of Labor Federal Award/Contract Number: UI-34528-20-60-A-53; UI-34748-20-55-A-53; UI-35682-21-55-A-53; UI-35977-21-60-A-53; UI-37098-21-55-A-53; UI-37256-22-55-A-53; UI-37313-22-55-A-53; UI-38013-22-60-A-53; UI-38163-22-55-A-53; UI-38511-22-55-A-53; UI-38580-22-75-A-53; UI-39303-23-55-A-53; UI-39355-23-55-A-53; UI-34092-20-55-A-53 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed, Eligibility Known Questioned Cost Amount: $603 Prior Year Audit Finding: No Background The Unemployment Insurance (UI) program was created by the Social Security Act, and provides benefits under the Unemployment Compensation program to people for periods of involuntary unemployment. It provides a stabilizing effect on the economy by maintaining the spending power of eligible workers while they are between jobs. The Employment Security Department administers the state’s UI program. During fiscal year 2023, the Department paid more than $1.1 billion in unemployment insurance benefits to people in Washington. In 2020, the U.S. Department of Labor (DOL) established new unemployment compensation programs, including Pandemic Unemployment Assistance (PUA), to provide additional unemployment assistance benefits to eligible workers affected by the COVID-19 pandemic. These programs were extended and modified through the American Rescue Plan Act of 2021. Under the temporary programs, which expired on September 6, 2021, states must process and pay benefits to eligible people for all weeks of unemployment ending on or before the date of termination or eligibility expiration (whichever comes first). People eligible for PUA included those not eligible for regular unemployment compensation, such as people who have already exhausted their regular UI benefits, are self-employed, seeking part-time employment, or lack sufficient work history. The first week in which claimants were eligible to receive PUA benefits began on January 27, 2020. During the pandemic, people applying for PUA benefits were required to self-certify that they were unemployed, partially unemployed, or unable or unavailable to work due to COVID-19. However, in January 2021, DOL announced a change to federal law through Unemployment Insurance Program Letter (UIPL) 16-20, Change 4. This change required that people receiving PUA benefits on or after December 27, 2020, submit proof of documentation to the state substantiating their employment, self-employment, or planned start of employment or self-employment in order to receive their benefits, regardless of when their benefits are actually paid. This includes people requesting retroactive payments of PUA benefits that are not received until after December 27, 2020. Description of Condition The Department did not ensure that payments were made only to eligible beneficiaries of the UI program. We found the Department had adequate internal controls to ensure it paid UI benefits to eligible people, and it materially complied with the federal requirements. However, we identified questioned costs for benefits awarded to PUA claimants. We used a statistical sampling method to randomly select and examine 78 out of a total population of 20,447 claims for weekly PUA benefits. For these claims, the Department was required to determine the eligibility of each claimant to receive benefits, including verifying proof of employment, self-employment, or planned start of employment or self-employment. We found three instances (5.1 percent) where the Department paid weekly benefits without requesting and reviewing documentation from the claimant substantiating employment, self-employment, or planned start of employment or self-employment, as required by the federal grantor. These three claims resulted in $603 in known overpayments of PUA benefits by the Department, as each claim was paid after December 27, 2020, and during our audit period. Federal regulations require the auditor to issue a finding when the known or estimated questioned costs identified in a single audit exceed $25,000. We are issuing this finding because, as stated in the Effect of Condition and Questioned Costs section of this finding, the estimated questioned costs exceed that threshold. This issue was not reported as a finding in the prior audit. Cause of Condition Department officials did not correctly interpret the guidance outlined in the UIPL change to reflect that claimants were required to provide documentation substantiating proof of employment or self-employment in order to receive payments from the state after December 27, 2020. The Department did not request documentation from PUA claimants to substantiate employment prior to paying the claims. Effect of Condition and Questioned Costs We identified $603 in known federal questioned costs and $208,975 in likely federal questioned costs. We considered these questioned costs because the people receiving the benefit payments did not meet all the program’s eligibility requirements at the time of payment. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflects this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Verify people applying for PUA benefits have met all eligibility requirements before issuing weekly benefit payments • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The Department does not concur with the finding. The State Auditor’s Office asserts the Department incorrectly interpreted guidance outlined in the UIPL regarding PUA benefit eligibility requirements. However, citing the UIPL below: UIPL 16-20 change 4 2. Requirement to submit documentation substantiating employment or self-employment (Section 241 of the Continued Assistance Act) (new). The first full paragraph of section C.2. of attachment I, UIPL 16-20 change 4 says that: “Anyone that receives a payment of PUA on or after December 27, 2020, (the enactment date of the Continued Assistance Act) will be required to submit documentation substantiating employment or self-employment, or the planned commencement of employment or self-employment.” [emphasis added] Under this guidance, the claimant had to first have been issued a payment after the Continued Assistant Act (CAA) became effective (regardless of the week or weeks the payment(s) were for) before the Department could set the issue to request the documentation. In the exceptions noted by SAO, the first claimant wasn’t paid at all until 2023. Once the payment was issued to the claimant, the PUA Documents Required (PDR) issue was properly set. In the second, the claimant received some payments before 12/27/20 and then had other payment stops on her claim that were not removed until 2023. The removal of those payment stops triggered a payment for the remaining weeks claimed. Because those payments were made after 12/27/20, the PDR issue was set. Under the same section, item c. limits the date the Department can start the denial for failing to comply with the PDR issue: c. Failure to Comply. Individuals who do not provide documentation substantiating employment/self-employment (or planned employment/self-employment) within the required timeframe, as described above, are not eligible for PUA. For DUA, if the individual fails to submit documentation substantiating employment or self-employment, the state must establish an overpayment for the entire DUA claim, per 20 C.F.R. 625.6(e)(2). However, as provided in Section 241(b)(2) of the Continued Assistance Act, for PUA, if the individual fails to submit such documentation, the state may only establish an overpayment for those weeks of unemployment ending on or after December 27, 2020 (the enactment date of the Continued Assistance Act). For example, an individual has a PUA claim effective on November 1, 2020, and files and is paid for weeks of unemployment ending November 7, 2020, through weeks ending January 9, 2021. Because the individual received a payment for PUA after December 27, 2020, the state must notify the individual on January 4, 2021, about the requirement to provide documentation substantiating employment/self-employment (or planned employment/self-employment) within 90 days (by April 4, 2021). If, in that timeframe, the individual fails to provide documentation or fails to show good cause to have the deadline extended, an overpayment must be established for all the weeks paid beginning with the week ending January 2, 2021. This is because the individual cannot be deemed ineligible for a week of unemployment ending before the date of enactment solely for failure to submit documentation (emphasis added). In the cases reviewed, the claimants did not respond to the issue or provide their documentation. Because the denial is limited to only claimed weeks following the enactment of the CAA (weeks ending 1/2/21 and later), any weeks from 2020 that were paid in 2023 had no potential for denial and therefore should not be considered to be incorrectly paid, similar to the example given above from the UIPL. If addition, if claimants never claimed a week ending after the CAA was effective, the PDR issue will set but never be adjudicated because they had never claimed a week that was potentially deniable. In discussions with SAO, the Office cited paragraph b(ii) of the UIPL, to indicate that any claims paid by the State on or after 12/27/2020 require the claimant to provide documentation substantiating employment or self-employment within 90 days of payment, or when directed to submit the documentation by the state workforce agency, whichever is later. This section of the UIPL solely lays out the requirements for establishing the respond-by dates for providing documentation for review. The deadline for responses is different depending on whether the PUA claim was filed before 1/26/21 or on/after that date. This paragraph does not establish the requirements for payment or non-payment of PUA weeks. Additionally, the Department received further guidance in a webinar with USDOL on Monday, January 11, 2021, which reinforced the methodology used by the Department in these cases. Auditor’s Remarks For the claimants in question, we did not receive any documentation from the Department demonstrating that a request was sent to the claimant to provide supporting documentation substantiating employment, nor was there evidence provided that the claims in-question were suspended due to missing documentation from the claimants. Federal guidance contained in Attachment I to UIPL 16-20, Change 4 – Pandemic Unemployment Assistance (PUA) Implementation and Operating Instructions stipulates the following: “Anyone that receives a payment of PUA on or after December 27, 2020, (the enactment date of the Continued Assistance Act) will be required to submit documentation substantiating employment or self-employment, or the planned commencement of employment or self-employment. This includes any individual who receives any payment of PUA on or after December 27, even if the payment is for a week of unemployment that occurred before December 27, 2020. The deadline for providing such documentation depends on when the individual filed the initial PUA claim. • Filing New Applications for PUA on or after January 31, 2021. Individuals filing a new PUA application on or after January 31, 2021 (regardless of whether the claim is backdated), are required to provide documentation within 21 days of application or the date the individual is directed to submit the documentation by the State Agency, whichever is later. The deadline may be extended if the individual has shown good cause under state UC law within 21 days. • Filing Continued Claims for PUA. Individuals who have an existing PUA claim as of December 27, 2020, (the enactment date of the Continued Assistance Act) or who file a new initial PUA claim before January 31, 2021, and who receive PUA on or after December 27, 2020, must provide documentation within 90 days of the application date or the date the individual is instructed to provide such documentation by the state agency (whichever date is later).” We questioned these payments due to the Department not receiving any supporting documentation substantiating employment or self-employment from these claimants during the audit period, and failing to establish overpayment notices to the claimants during the audit period. For all three payments in-question, the claimant filed for PUA prior to December 27, 2020, and therefore would have been required to submit supporting documentation substantiating employment to the Department within 90 days, or as directed by the Department. Because the Department did not receive supporting documentation from the claimants for these benefit weeks during the audit period, we could not determine that the payments were allowable and that the claimants met the PUA eligibility requirements for their benefit weeks paid. We reaffirm our finding and will follow-up on the Department’s corrective action during the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Office of Management and Budget, 2 CFR Part 200, Appendix XI, Compliance Supplement, Unemployment Insurance, states in part: E. Eligibility 1. Eligibility for Individuals a. PUA – PUA provides benefits to covered individuals, who are those individuals not eligible for regular unemployment compensation (UC or extended benefits under state or federal law or PEUC, including those who have exhausted all rights to such benefits). Covered individuals also include self-employed, those seeking part-time employment, individuals lacking sufficient work history, and those who otherwise do not qualify for regular unemployment compensation or extended benefits under state or federal law or PEUC. PUA is payable to individuals who are ineligible for regular UC, EB, or PEUC and are unemployed, partially unemployed, or unable or unavailable to work due to one of the COVID-19 related reasons identified in Attachment I to UIPL No. 16-20, Change 6. Section 2102(a)(3)(A)(ii)(I) of the CARES Act included 10 specific COVID-19 related reasons. The Department, under the authority provided by Section 2102(a)(3)(A)(ii)(I)(kk) of the CARES Act, added additional COVID-19 related reasons three new COVID-19 related reasons with the publication of UIPL No. 16-20, Change 5 on February 25, 2021. All COVID-19 related reasons apply retroactively to the beginning of the PUA program. Additionally, individuals who are paid on or after December 27, 2020, must submit proof of documentation substantiating employment, self-employment, or the planned commencement of employment or self-employment (see Attachment I, Section C.2. of UIPL No. 16-20, Change 4). This includes individuals requesting retroactive payments that are not received until after December 27, 2020.
2023-006 The Employment Security Department made improper payments to ineligible beneficiaries of the Unemployment Insurance program. Assistance Listing Number and Title: 17.225 Unemployment Insurance 17.225 COVID-19 Unemployment Insurance Federal Grantor Name: U.S. Department of Labor Federal Award/Contract Number: UI-34528-20-60-A-53; UI-34748-20-55-A-53; UI-35682-21-55-A-53; UI-35977-21-60-A-53; UI-37098-21-55-A-53; UI-37256-22-55-A-53; UI-37313-22-55-A-53; UI-38013-22-60-A-53; UI-38163-22-55-A-53; UI-38511-22-55-A-53; UI-38580-22-75-A-53; UI-39303-23-55-A-53; UI-39355-23-55-A-53; UI-34092-20-55-A-53 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed, Eligibility Known Questioned Cost Amount: $603 Prior Year Audit Finding: No Background The Unemployment Insurance (UI) program was created by the Social Security Act, and provides benefits under the Unemployment Compensation program to people for periods of involuntary unemployment. It provides a stabilizing effect on the economy by maintaining the spending power of eligible workers while they are between jobs. The Employment Security Department administers the state’s UI program. During fiscal year 2023, the Department paid more than $1.1 billion in unemployment insurance benefits to people in Washington. In 2020, the U.S. Department of Labor (DOL) established new unemployment compensation programs, including Pandemic Unemployment Assistance (PUA), to provide additional unemployment assistance benefits to eligible workers affected by the COVID-19 pandemic. These programs were extended and modified through the American Rescue Plan Act of 2021. Under the temporary programs, which expired on September 6, 2021, states must process and pay benefits to eligible people for all weeks of unemployment ending on or before the date of termination or eligibility expiration (whichever comes first). People eligible for PUA included those not eligible for regular unemployment compensation, such as people who have already exhausted their regular UI benefits, are self-employed, seeking part-time employment, or lack sufficient work history. The first week in which claimants were eligible to receive PUA benefits began on January 27, 2020. During the pandemic, people applying for PUA benefits were required to self-certify that they were unemployed, partially unemployed, or unable or unavailable to work due to COVID-19. However, in January 2021, DOL announced a change to federal law through Unemployment Insurance Program Letter (UIPL) 16-20, Change 4. This change required that people receiving PUA benefits on or after December 27, 2020, submit proof of documentation to the state substantiating their employment, self-employment, or planned start of employment or self-employment in order to receive their benefits, regardless of when their benefits are actually paid. This includes people requesting retroactive payments of PUA benefits that are not received until after December 27, 2020. Description of Condition The Department did not ensure that payments were made only to eligible beneficiaries of the UI program. We found the Department had adequate internal controls to ensure it paid UI benefits to eligible people, and it materially complied with the federal requirements. However, we identified questioned costs for benefits awarded to PUA claimants. We used a statistical sampling method to randomly select and examine 78 out of a total population of 20,447 claims for weekly PUA benefits. For these claims, the Department was required to determine the eligibility of each claimant to receive benefits, including verifying proof of employment, self-employment, or planned start of employment or self-employment. We found three instances (5.1 percent) where the Department paid weekly benefits without requesting and reviewing documentation from the claimant substantiating employment, self-employment, or planned start of employment or self-employment, as required by the federal grantor. These three claims resulted in $603 in known overpayments of PUA benefits by the Department, as each claim was paid after December 27, 2020, and during our audit period. Federal regulations require the auditor to issue a finding when the known or estimated questioned costs identified in a single audit exceed $25,000. We are issuing this finding because, as stated in the Effect of Condition and Questioned Costs section of this finding, the estimated questioned costs exceed that threshold. This issue was not reported as a finding in the prior audit. Cause of Condition Department officials did not correctly interpret the guidance outlined in the UIPL change to reflect that claimants were required to provide documentation substantiating proof of employment or self-employment in order to receive payments from the state after December 27, 2020. The Department did not request documentation from PUA claimants to substantiate employment prior to paying the claims. Effect of Condition and Questioned Costs We identified $603 in known federal questioned costs and $208,975 in likely federal questioned costs. We considered these questioned costs because the people receiving the benefit payments did not meet all the program’s eligibility requirements at the time of payment. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflects this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Verify people applying for PUA benefits have met all eligibility requirements before issuing weekly benefit payments • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The Department does not concur with the finding. The State Auditor’s Office asserts the Department incorrectly interpreted guidance outlined in the UIPL regarding PUA benefit eligibility requirements. However, citing the UIPL below: UIPL 16-20 change 4 2. Requirement to submit documentation substantiating employment or self-employment (Section 241 of the Continued Assistance Act) (new). The first full paragraph of section C.2. of attachment I, UIPL 16-20 change 4 says that: “Anyone that receives a payment of PUA on or after December 27, 2020, (the enactment date of the Continued Assistance Act) will be required to submit documentation substantiating employment or self-employment, or the planned commencement of employment or self-employment.” [emphasis added] Under this guidance, the claimant had to first have been issued a payment after the Continued Assistant Act (CAA) became effective (regardless of the week or weeks the payment(s) were for) before the Department could set the issue to request the documentation. In the exceptions noted by SAO, the first claimant wasn’t paid at all until 2023. Once the payment was issued to the claimant, the PUA Documents Required (PDR) issue was properly set. In the second, the claimant received some payments before 12/27/20 and then had other payment stops on her claim that were not removed until 2023. The removal of those payment stops triggered a payment for the remaining weeks claimed. Because those payments were made after 12/27/20, the PDR issue was set. Under the same section, item c. limits the date the Department can start the denial for failing to comply with the PDR issue: c. Failure to Comply. Individuals who do not provide documentation substantiating employment/self-employment (or planned employment/self-employment) within the required timeframe, as described above, are not eligible for PUA. For DUA, if the individual fails to submit documentation substantiating employment or self-employment, the state must establish an overpayment for the entire DUA claim, per 20 C.F.R. 625.6(e)(2). However, as provided in Section 241(b)(2) of the Continued Assistance Act, for PUA, if the individual fails to submit such documentation, the state may only establish an overpayment for those weeks of unemployment ending on or after December 27, 2020 (the enactment date of the Continued Assistance Act). For example, an individual has a PUA claim effective on November 1, 2020, and files and is paid for weeks of unemployment ending November 7, 2020, through weeks ending January 9, 2021. Because the individual received a payment for PUA after December 27, 2020, the state must notify the individual on January 4, 2021, about the requirement to provide documentation substantiating employment/self-employment (or planned employment/self-employment) within 90 days (by April 4, 2021). If, in that timeframe, the individual fails to provide documentation or fails to show good cause to have the deadline extended, an overpayment must be established for all the weeks paid beginning with the week ending January 2, 2021. This is because the individual cannot be deemed ineligible for a week of unemployment ending before the date of enactment solely for failure to submit documentation (emphasis added). In the cases reviewed, the claimants did not respond to the issue or provide their documentation. Because the denial is limited to only claimed weeks following the enactment of the CAA (weeks ending 1/2/21 and later), any weeks from 2020 that were paid in 2023 had no potential for denial and therefore should not be considered to be incorrectly paid, similar to the example given above from the UIPL. If addition, if claimants never claimed a week ending after the CAA was effective, the PDR issue will set but never be adjudicated because they had never claimed a week that was potentially deniable. In discussions with SAO, the Office cited paragraph b(ii) of the UIPL, to indicate that any claims paid by the State on or after 12/27/2020 require the claimant to provide documentation substantiating employment or self-employment within 90 days of payment, or when directed to submit the documentation by the state workforce agency, whichever is later. This section of the UIPL solely lays out the requirements for establishing the respond-by dates for providing documentation for review. The deadline for responses is different depending on whether the PUA claim was filed before 1/26/21 or on/after that date. This paragraph does not establish the requirements for payment or non-payment of PUA weeks. Additionally, the Department received further guidance in a webinar with USDOL on Monday, January 11, 2021, which reinforced the methodology used by the Department in these cases. Auditor’s Remarks For the claimants in question, we did not receive any documentation from the Department demonstrating that a request was sent to the claimant to provide supporting documentation substantiating employment, nor was there evidence provided that the claims in-question were suspended due to missing documentation from the claimants. Federal guidance contained in Attachment I to UIPL 16-20, Change 4 – Pandemic Unemployment Assistance (PUA) Implementation and Operating Instructions stipulates the following: “Anyone that receives a payment of PUA on or after December 27, 2020, (the enactment date of the Continued Assistance Act) will be required to submit documentation substantiating employment or self-employment, or the planned commencement of employment or self-employment. This includes any individual who receives any payment of PUA on or after December 27, even if the payment is for a week of unemployment that occurred before December 27, 2020. The deadline for providing such documentation depends on when the individual filed the initial PUA claim. • Filing New Applications for PUA on or after January 31, 2021. Individuals filing a new PUA application on or after January 31, 2021 (regardless of whether the claim is backdated), are required to provide documentation within 21 days of application or the date the individual is directed to submit the documentation by the State Agency, whichever is later. The deadline may be extended if the individual has shown good cause under state UC law within 21 days. • Filing Continued Claims for PUA. Individuals who have an existing PUA claim as of December 27, 2020, (the enactment date of the Continued Assistance Act) or who file a new initial PUA claim before January 31, 2021, and who receive PUA on or after December 27, 2020, must provide documentation within 90 days of the application date or the date the individual is instructed to provide such documentation by the state agency (whichever date is later).” We questioned these payments due to the Department not receiving any supporting documentation substantiating employment or self-employment from these claimants during the audit period, and failing to establish overpayment notices to the claimants during the audit period. For all three payments in-question, the claimant filed for PUA prior to December 27, 2020, and therefore would have been required to submit supporting documentation substantiating employment to the Department within 90 days, or as directed by the Department. Because the Department did not receive supporting documentation from the claimants for these benefit weeks during the audit period, we could not determine that the payments were allowable and that the claimants met the PUA eligibility requirements for their benefit weeks paid. We reaffirm our finding and will follow-up on the Department’s corrective action during the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Office of Management and Budget, 2 CFR Part 200, Appendix XI, Compliance Supplement, Unemployment Insurance, states in part: E. Eligibility 1. Eligibility for Individuals a. PUA – PUA provides benefits to covered individuals, who are those individuals not eligible for regular unemployment compensation (UC or extended benefits under state or federal law or PEUC, including those who have exhausted all rights to such benefits). Covered individuals also include self-employed, those seeking part-time employment, individuals lacking sufficient work history, and those who otherwise do not qualify for regular unemployment compensation or extended benefits under state or federal law or PEUC. PUA is payable to individuals who are ineligible for regular UC, EB, or PEUC and are unemployed, partially unemployed, or unable or unavailable to work due to one of the COVID-19 related reasons identified in Attachment I to UIPL No. 16-20, Change 6. Section 2102(a)(3)(A)(ii)(I) of the CARES Act included 10 specific COVID-19 related reasons. The Department, under the authority provided by Section 2102(a)(3)(A)(ii)(I)(kk) of the CARES Act, added additional COVID-19 related reasons three new COVID-19 related reasons with the publication of UIPL No. 16-20, Change 5 on February 25, 2021. All COVID-19 related reasons apply retroactively to the beginning of the PUA program. Additionally, individuals who are paid on or after December 27, 2020, must submit proof of documentation substantiating employment, self-employment, or the planned commencement of employment or self-employment (see Attachment I, Section C.2. of UIPL No. 16-20, Change 4). This includes individuals requesting retroactive payments that are not received until after December 27, 2020.
2023-015 The Washington State Department of Transportation did not have adequate internal controls over and did not comply with cash management requirements for the Formula Grants for Rural Areas program. Assistance Listing Number and Title: 20.509 Formula Grants for Rural Areas Federal Grantor Name: U.S. Department of Transportation Federal Award/Contract Number: WA-2019-091-01; WA-2020-038-01; WA-2021-052-01; WA-2021-130-01; WA-2021-133-01; WA-2022-031-01 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Cash Management Known Questioned Cost Amount: $41,555 Prior Year Audit Finding: No Background The Washington State Department of Transportation administers the Section 5311 program— Formula Grants for Rural Areas—to rural transportation areas by providing financial assistance for operating, planning, administrative expenses, and the acquisition, construction, and improvement of facilities and equipment. In addition, Section 5311 specifically provides for the support of rural intercity bus services, as well as funding for training, technical assistance, research, and related services to support the rural transit service. The Department spent about $80.3 million in program funds during fiscal year 2023. Of that amount, it passed through about $35.2 million to subrecipients through subawards. The Formula Grants for Rural Areas program is not subject to the Cash Management Improvement Act, and is not included in the Treasury-State Agreement for Washington. Programs not covered by a Treasury-State Agreement are subject to the provisions of Title 31 of the U.S. Code of Federal Regulations, Part 205, Subpart B, which specifies how funds transfers from the federal government must be processed. The Department requests monthly federal reimbursements for operating expenses and disbursements to subrecipients. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Description of Condition The Department did not have adequate internal controls over and did not comply with cash management requirements for the Formula Grants for Rural Areas program. We used a non-statistical sampling method to randomly select and examine 17 draws of program funds out of a total population of 128. We also selected six large draws that were individually significant. During our review, we found that one draw in the amount of $41,555 was made for an incorrect program. Management reviewed, verified, and approved this draw, but the Department did not detect that funds were drawn for the incorrect program during the audit period. We consider these questioned costs. Additionally, we found that two of the six individually significant draws were not made timely. One draw for $6.3 million was made in June 2023 for expenditures the Department incurred and paid in fiscal year 2021. Similarly, another draw for $9 million was made in April 2023 for expenditures the Department incurred and paid for in fiscal year 2022. Based on the length of time it took to perform the associated draws, we determined that the Department did not comply with federal requirements to minimize the time between the drawdown of federal funds and their disbursement for federal program purposes. Therefore, the Department’s controls did not ensure timely draws in compliance with federal regulations. We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition Management review was insufficient for ensuring that program funds were drawn only for allowable program expenditures. Additionally, management did not ensure that draws were performed timely in accordance with federal regulations and said this was due to difficulties in reconciling expenditure accruals to the payment system. Effect of Condition and Questioned Costs Drawing funds for the incorrect federal program can potentially result in uncollected funds in one program and overdrawing another. Further, delaying federal drawdown requests results in state funds being advanced longer than necessary and lost interest revenue for the state. The table below summarizes the questioned costs our audit identified. Projection to population Likely Questioned Costs (Estimate) Known Questioned Costs $41,555 Federal expenditures $298,218 Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflects this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR §200.516(3). We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Improve its internal controls to ensure reimbursement requests are for the correct federal award • Ensure draws of federal program funds are performed in a timely manner • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The Washington State Department of Transportation (WSDOT) appreciates the State Auditor’s Office (SAO) audit of the Formula Grants for Rural Areas Program. The Department is committed to ensuring our programs comply with federal regulations related to Cash Management. WSDOT has implemented additional controls to help ensure the draws of program funds are accurate, drawn on the correct program, and timely. The updated procedures include: Identifying back up staff to ensure coverage during regular staff absences; Change in the timing of draws of program funds; Use of automatic ECHO system confirmations for draws entered; Additional reviews of draw amounts by project, and a Validation process with the WSDOT program staff. In addition, the questioned costs have been refunded to the incorrectly charged federal program. In an effort to ensure increased compliance, these procedures will be reviewed regularly and updated as required. Auditor’s Remarks We thank the Department for its cooperation and assistance throughout the audit. We will review the status of the Department's corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. Title 31 CFR Part 205.33, How are funds transfers processed?, states in part: a. A State must minimize the time between the drawdown of Federal funds from the Federal government and their disbursement for Federal program purposes. A Federal Program Agency must limit a funds transfer to a State to the minimum amounts needed by the State and must time the disbursement to be in accord with the actual, immediate cash requirements of the State in carrying out a Federal assistance program or project. The timing and amount of funds transfers must be as close as is administratively feasible to a State’s actual cash outlay for direct program costs and the proportionate share of any allowable indirect costs. States should exercise sound cash management in funds transfers to subgrantees in accordance with OMB Circular A–102 (For availability, see 5 CFR 1310.3.). The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-017 The Department of Commerce did not have adequate internal controls over and did not comply with requirements to ensure payments to subrecipients of the Emergency Rental Assistance program were allowable and properly supported. Assistance Listing Number and Title: 21.023 COVID-19 Emergency Rental Assistance Program Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: N/A Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs / Cost Principles Period of Performance Known Questioned Cost Amount: $4,123,486 Prior Year Audit Finding: Yes, Finding 2022-016 Background Congress passed two acts authorizing federal funds for the Emergency Rental Assistance (ERA) program to respond to the COVID-19 pandemic. The Consolidated Appropriations Act, 2021, enacted on December 27, 2020, provided $25 billion for ERA. These funds are known as ERA1. The American Rescue Plan Act of 2021, enacted on March 11, 2021, provided $21.55 billion in additional funding for ERA. These funds are known as ERA2. The funds are provided directly to states, U.S. territories, local governments and, in the case of ERA1, Indian tribes, to assist eligible households through existing or newly created rental assistance programs. The Department of Commerce administers the ERA program in Washington. The Department subawarded federal funds to subrecipients to provide financial assistance to households, landlords and utility providers. In fiscal year 2023, the Department spent about $62.5 million in ERA1 and ERA2 funds. During the audit period, the Department allocated program funds to 13 ERA1 subrecipients and 12 ERA2 subrecipients. Grant recipients may use ERA1 and ERA2 funds for administrative expenses, housing stability services, financial assistance, and other affordable rental housing and eviction prevention purposes. Most of the expenditures the Department spent were for financial assistance to eligible households, which included payment of rent, rental arrears, utilities and home energy costs, utilities and home energy costs arrears, housing stability services and other expenses related to housing. Under the ERA1 program, award funds used for “other expenses” must be related to housing and “incurred due, directly or indirectly, to the COVID-19 outbreak.” The amount for prospective rent cannot exceed three months under a single household application. Financial assistance arrears may only cover household expenses accrued on or after March 13, 2020, up to a maximum of 15 months for ERA1 and a maximum of 18 months under ERA1 and ERA2 combined. There is no maximum dollar amount for the cumulative financial assistance that may be provided on behalf of an eligible household beyond the requirement that the amounts paid be based on documentation of household income, leases and equivalent forms. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In prior audits, we reported the Department did not have adequate internal controls over and did not comply with requirements to ensure payments to subrecipients of the ERA program were allowable and properly supported. The prior finding number was 2022-016. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to ensure payments for the ERA program were allowable and properly supported. During the audit period, the Department had procedures in place, which required staff to review supporting documentation when approving payments. We used a statistical sampling method to randomly select and examine 48 out of a total population of 136 subrecipient payments. Additionally, we judgmentally reviewed two significant payments that each exceeded $3 million. In total, we examined more than $39 million in provider payments as part of the audit. Of the 48 randomly selected payments examined, we identified seven (15 percent) that did not have adequate documentation to ensure the payment was for allowable activities, met cost principles, and occurred within the award’s period of performance. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. Cause of Condition In July 2022, the Department implemented procedures requiring staff to review supporting documentation to ensure reimbursement requests were for allowable activities before reimbursing subrecipients. However, Department staff did not follow these procedures and approved reimbursements to subrecipients that did not provide adequate supporting documentation. Management said that this was caused by staff turnover during the audit period. Effect of Condition and Questioned Costs We determined the Department did not receive adequate supporting documentation before reimbursing subrecipients to ensure that expenditures were for allowable activities, met cost principles, and occurred within the award’s period of performance. As a result, we identified $4,123,486 in known federal questioned costs and $11,511,399 in likely federal questioned costs. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR 200.516(a)(3). Without establishing adequate internal controls, the Department cannot reasonably ensure it is using federal funds for allowable purposes and that program spending occurs within the allowed period of performance. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Improve internal controls to ensure payments to subrecipients are not approved without a review of adequate supporting documentation • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The Department acknowledges the payments reported lacked adequate documentation to ensure compliance with federal requirements. In July 2022, the Department began requiring subrecipients to submit supporting backup documentation for all expenditures to the program for review and approval. Due to the temporary nature of the Emergency Rental Assistance (ERA) program, all staff supporting the administration of the program held temporary positions and staff turnover impacted consistency with compliance of federal requirements. As a result, supporting documentation for seven of the randomly selected 48 payments were approved before they were fully reviewed and determined to be properly supported. The Department will obtain the supporting documentation for those transactions to ensure the invoices paid were properly supported and to retail with the corresponding invoices. The Department has used the reported deficiency to improve our internal control processes and has since implemented a new control process requiring staff include a note to the invoicing system recording documentation received supported and reconciled to the submitted invoice before payment is approved. Auditor’s Remarks We thank the Department for its cooperation and assistance throughout the audit. We will review the status of the Department's corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for questioned costs. Part 200.410 establishes requirements for the collection of unallowable costs. Title 2 CFR Part 200.403, Uniform Guidance, establishes the factors affecting the allowability of costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-027 The Department of Commerce did not have adequate internal controls over and did not comply with requirements for monitoring subrecipients to ensure payments were allowable, properly supported, and met period of performance requirements for the Coronavirus State and Local Fiscal Recovery Funds. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: SLFRP0002 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Subrecipient Monitoring Known Questioned Cost Amount: $95,560 Prior Year Audit Finding: Yes, Finding 2022-019 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF), as part of the America Rescue Plan Act of 2021, delivered $350 billion to state, local and tribal governments to support the response to and recovery from the COVID-19 public health emergency. Washington received $4.4 billion of SLFRF money from the U.S. Department of the Treasury, which the state’s Office of Financial Management allocated to state agencies for various programs. In fiscal year 2023, state agencies spent about $1.9 billion in SLFRF funds, more than $718 million of which was spent by the Department of Commerce. The Department used SLFRF funds to administer and provide economic assistance to households at risk of eviction and homelessness primarily through the Eviction Rental Assistance Program (ERAP 2.0) and Treasury Rent Assistance Program (TRAP 2.0), in addition to transportation, tourism and other pandemic-recovery projects. During fiscal year 2023, the Department expended about $253.5 million on reimbursements and advance payments to local governments and nonprofit organizations as subrecipients. These subrecipients were responsible for making direct payments of rent and utilities for eligible low-income households with overdue rent payments dating as far back as March 2020. Pass-through entities are required to monitor the activities of subrecipients to ensure they are properly using federal funds for allowable activities and expenditures. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Department did not have adequate internal controls over and did not comply with federal requirements for monitoring subrecipients to ensure payments were allowable, properly supported and within the period of performance. The prior finding number was 2022-019. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to monitor subrecipients to ensure payments were allowable, properly supported and met period of performance requirements for the SLFRF program. During the audit period, the Department only required summary level supporting documentation when approving subrecipient payments. Since detailed source documentation was not required at the time of reimbursement, the Department implemented a fiscal review process for ERAP and TRAP 2.0 subrecipients. We used a statistical sampling method to randomly select and review 56 out of 554 payments. Of the payments examined, we identified nine (16 percent) payments that were not allowable under terms and conditions of the subaward. Specifically: 1. Seven payments (13 percent) were for advances to the subrecipient, which are specifically prohibited under the terms and conditions of the Department’s subaward 2. Four payments (7 percent), including one of the payments mentioned above, did not have adequate documentation to ensure the payment was for an allowable activity under the subaward, met cost principles and occurred within the award’s period of performance. The Department’s invoice review procedure required the Department to verify that each subrecipient submitted, along with its invoice, a voucher detail worksheet that outlines expenses by budget category, and a general ledger report detailing the expenses incurred by the subrecipient during the invoice period. For four of the nine payments referenced above, we found the Department approved them for payment without receiving a general ledger report from the subrecipient detailing all incurred expenses. In one of these instances, we also found the Department advanced program funds to the subrecipient without reviewing supporting documentation from the subrecipient to demonstrate that all expenditures were incurred to support the amount advanced by the Department. We were not provided with any documentation demonstrating these funds were returned to the Department. We also used a non-statistical sampling method to randomly select and examine nine out of 35 subrecipients for which the Department completed monitoring during the audit period. We determined five of the nine fiscal reviews completed (56 percent) were insufficient to ensure payments to the subrecipients were allowable and adequately supported. We came to this conclusion because the support we were provided lacked enough details to ensure the activities were allowable and within the period of performance. In addition, the Department did not have evidence that it obtained supporting documentation for client files from one of the nine subrecipients we examined. We also examined program monitoring documentation completed for the same nine subrecipients. The Department only selected five households from each subrecipient for eligibility verification. There was a total of 53,699 households served for ERAP 2.0, and an additional 8,373 households served for TRAP 2.0. Therefore, the Department reviewed less than one-half of one percent of client files for each subrecipient. For these nine subrecipients, we verified that staff reviewed the number of client files that management required under the program. However, in our judgment, the total number of client files reviewed for each subrecipient was inadequate to reasonably ensure compliance with program requirements. The following table summarizes the percentage of client files the Department reviewed for each subrecipient during the audit period: We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition Management did not ensure that proper internal controls were in place to oversee ERAP 2.0 and the use of SLFRF funds. The Department approved payments to subrecipients without reviewing adequate supporting documentation, and management relied on annual program and fiscal monitoring to ensure subrecipients had proper supporting documentation and only served eligible households. In addition, it issued advance payments to subrecipients despite the subawards explicitly stating this was not allowable. Management did not ensure program and fiscal monitoring conducted included a sufficient sample of subrecipient records, and required detailed source documentation, to provide reasonable assurance of material compliance with federal SLFRF requirements and the terms and conditions of the subawards. Effect of Condition and Questioned Costs We determined the Department did not request and review adequate supporting documentation before paying subrecipients, and it did not perform adequate fiscal monitoring to ensure that funds advanced to subrecipients were disbursed to eligible households and for allowable activities. As a result, we identified $95,560 in known federal questioned costs and $1,482,489 in likely federal questioned costs. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). To ensure a representative sample, we stratified the population by dollar amount. Without establishing adequate internal controls and reviewing required supporting documentation from subrecipients, the Department cannot reasonably ensure it is using federal funds for allowable purposes and that spending occurs within the allowed period of performance. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Update its written procedures to require an adequate number of subrecipient client files to be reviewed during fiscal and program monitoring to provide reasonable assurance that each subrecipient is compliant with program requirements • Improve internal controls to ensure subrecipients provide adequate supporting documentation when requesting reimbursement • Request and review supporting documentation from all participating subrecipients on households served with SLFRF funds to determine if any amounts reimbursed to the subrecipients must be returned to the Department • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The State and Local Fiscal Recovery Funds were provided to the state as an advanced payment by which the Department used them to address the immense rent assistance needs as a result of the COVID-19 pandemic. Commerce funded subrecipients up to 25% of their contract total in an effort to mitigate cash flow issues to allow the swift distribution of funding. The Department utilized this method as obtaining documentation and processing reimbursements on a weekly basis still could not provide sufficient funding for all of the rent assistance needs. The Department now acknowledges the advanced payments were not authorized per federal guidance, however, all housing expenses were verified through thorough review of subrecipient expenditure supporting documentation. The Department completed fiscal and program monitoring of each subrecipient over the contract period, however, neither the Code of Federal Regulations nor the Washington State Auditor’s Office has been able to provide the Department with the number of client files that would need to be reviewed to be considered adequate. The Department created a procedure to review a minimum of five client files per subrecipient and followed this procedure. The Department understands that given the urgent need for assistance and the enormous amount of rent assistance funding distributed, thousands of client files would had to have been reviewed in a short period of time and we could not build and sustain the necessary staff capacity to match the fast-paced program delivery. The Department did increase internal controls related to program monitoring to more accurately comply with federal requirements as a result of the prior audit results. In July 2022, the Department began to review supporting backup documentation for all expenditures. The Department did not yet understand that transaction level detail was required and its review included a higher level of detail. Since the process was newly implemented in fiscal year 2023, it took some time to work out compliance challenges and provide technical assistance to subrecipients in order to comply with the federal requirements. The Department’s expenditure backup documentation review process began including transaction level detail in fiscal year 2023 as a result of the prior audit results. Any repayment of questioned costs will be determined through the standard resolution process with the United States Department of Treasury. Auditor’s Remarks Federal regulations require pass-through entities to monitor the activities of subrecipients as necessary to ensure that subawards are used for authorized purposes and in compliance with federal requirements and the terms and conditions of the subaward. In our judgement, the Department’s design of monitoring subrecipients for fiscal and program compliance did not provide this level of assurance. Specifically, the Department’s decision to review only five client files per subrecipient did not provide reasonable assurance of each subrecipient’s compliance when the average subrecipient served 1,413 clients, as illustrated in the Description of Condition. Based on this evidence, the Department only reviewed a total of 230 client files during the audit period, which makes up less than 0.4 percent of the total number of clients served. In addition, the Department’s decision to not review transaction-level supporting documentation at the time of issuing payment to subrecipients means that the monitoring of subrecipients was also being relied upon to ensure all payments made to subrecipients were only for allowable activities under the subaward. In our judgment, the procedures in place requiring only five client files be reviewed for each subrecipient were not sufficient to provide reasonable assurance of material compliance with the requirements for Activities Allowed or Unallowed and Allowable Costs/Cost Principles. We reaffirm our audit finding and will follow up on the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes the requirements for all pass-through entities. Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting the allowability of costs, describes the general criteria in order for a cost to be allowable under federal awards, including being adequately documented. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-027 The Department of Commerce did not have adequate internal controls over and did not comply with requirements for monitoring subrecipients to ensure payments were allowable, properly supported, and met period of performance requirements for the Coronavirus State and Local Fiscal Recovery Funds. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: SLFRP0002 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Subrecipient Monitoring Known Questioned Cost Amount: $95,560 Prior Year Audit Finding: Yes, Finding 2022-019 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF), as part of the America Rescue Plan Act of 2021, delivered $350 billion to state, local and tribal governments to support the response to and recovery from the COVID-19 public health emergency. Washington received $4.4 billion of SLFRF money from the U.S. Department of the Treasury, which the state’s Office of Financial Management allocated to state agencies for various programs. In fiscal year 2023, state agencies spent about $1.9 billion in SLFRF funds, more than $718 million of which was spent by the Department of Commerce. The Department used SLFRF funds to administer and provide economic assistance to households at risk of eviction and homelessness primarily through the Eviction Rental Assistance Program (ERAP 2.0) and Treasury Rent Assistance Program (TRAP 2.0), in addition to transportation, tourism and other pandemic-recovery projects. During fiscal year 2023, the Department expended about $253.5 million on reimbursements and advance payments to local governments and nonprofit organizations as subrecipients. These subrecipients were responsible for making direct payments of rent and utilities for eligible low-income households with overdue rent payments dating as far back as March 2020. Pass-through entities are required to monitor the activities of subrecipients to ensure they are properly using federal funds for allowable activities and expenditures. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Department did not have adequate internal controls over and did not comply with federal requirements for monitoring subrecipients to ensure payments were allowable, properly supported and within the period of performance. The prior finding number was 2022-019. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to monitor subrecipients to ensure payments were allowable, properly supported and met period of performance requirements for the SLFRF program. During the audit period, the Department only required summary level supporting documentation when approving subrecipient payments. Since detailed source documentation was not required at the time of reimbursement, the Department implemented a fiscal review process for ERAP and TRAP 2.0 subrecipients. We used a statistical sampling method to randomly select and review 56 out of 554 payments. Of the payments examined, we identified nine (16 percent) payments that were not allowable under terms and conditions of the subaward. Specifically: 1. Seven payments (13 percent) were for advances to the subrecipient, which are specifically prohibited under the terms and conditions of the Department’s subaward 2. Four payments (7 percent), including one of the payments mentioned above, did not have adequate documentation to ensure the payment was for an allowable activity under the subaward, met cost principles and occurred within the award’s period of performance. The Department’s invoice review procedure required the Department to verify that each subrecipient submitted, along with its invoice, a voucher detail worksheet that outlines expenses by budget category, and a general ledger report detailing the expenses incurred by the subrecipient during the invoice period. For four of the nine payments referenced above, we found the Department approved them for payment without receiving a general ledger report from the subrecipient detailing all incurred expenses. In one of these instances, we also found the Department advanced program funds to the subrecipient without reviewing supporting documentation from the subrecipient to demonstrate that all expenditures were incurred to support the amount advanced by the Department. We were not provided with any documentation demonstrating these funds were returned to the Department. We also used a non-statistical sampling method to randomly select and examine nine out of 35 subrecipients for which the Department completed monitoring during the audit period. We determined five of the nine fiscal reviews completed (56 percent) were insufficient to ensure payments to the subrecipients were allowable and adequately supported. We came to this conclusion because the support we were provided lacked enough details to ensure the activities were allowable and within the period of performance. In addition, the Department did not have evidence that it obtained supporting documentation for client files from one of the nine subrecipients we examined. We also examined program monitoring documentation completed for the same nine subrecipients. The Department only selected five households from each subrecipient for eligibility verification. There was a total of 53,699 households served for ERAP 2.0, and an additional 8,373 households served for TRAP 2.0. Therefore, the Department reviewed less than one-half of one percent of client files for each subrecipient. For these nine subrecipients, we verified that staff reviewed the number of client files that management required under the program. However, in our judgment, the total number of client files reviewed for each subrecipient was inadequate to reasonably ensure compliance with program requirements. The following table summarizes the percentage of client files the Department reviewed for each subrecipient during the audit period: We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition Management did not ensure that proper internal controls were in place to oversee ERAP 2.0 and the use of SLFRF funds. The Department approved payments to subrecipients without reviewing adequate supporting documentation, and management relied on annual program and fiscal monitoring to ensure subrecipients had proper supporting documentation and only served eligible households. In addition, it issued advance payments to subrecipients despite the subawards explicitly stating this was not allowable. Management did not ensure program and fiscal monitoring conducted included a sufficient sample of subrecipient records, and required detailed source documentation, to provide reasonable assurance of material compliance with federal SLFRF requirements and the terms and conditions of the subawards. Effect of Condition and Questioned Costs We determined the Department did not request and review adequate supporting documentation before paying subrecipients, and it did not perform adequate fiscal monitoring to ensure that funds advanced to subrecipients were disbursed to eligible households and for allowable activities. As a result, we identified $95,560 in known federal questioned costs and $1,482,489 in likely federal questioned costs. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). To ensure a representative sample, we stratified the population by dollar amount. Without establishing adequate internal controls and reviewing required supporting documentation from subrecipients, the Department cannot reasonably ensure it is using federal funds for allowable purposes and that spending occurs within the allowed period of performance. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Update its written procedures to require an adequate number of subrecipient client files to be reviewed during fiscal and program monitoring to provide reasonable assurance that each subrecipient is compliant with program requirements • Improve internal controls to ensure subrecipients provide adequate supporting documentation when requesting reimbursement • Request and review supporting documentation from all participating subrecipients on households served with SLFRF funds to determine if any amounts reimbursed to the subrecipients must be returned to the Department • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The State and Local Fiscal Recovery Funds were provided to the state as an advanced payment by which the Department used them to address the immense rent assistance needs as a result of the COVID-19 pandemic. Commerce funded subrecipients up to 25% of their contract total in an effort to mitigate cash flow issues to allow the swift distribution of funding. The Department utilized this method as obtaining documentation and processing reimbursements on a weekly basis still could not provide sufficient funding for all of the rent assistance needs. The Department now acknowledges the advanced payments were not authorized per federal guidance, however, all housing expenses were verified through thorough review of subrecipient expenditure supporting documentation. The Department completed fiscal and program monitoring of each subrecipient over the contract period, however, neither the Code of Federal Regulations nor the Washington State Auditor’s Office has been able to provide the Department with the number of client files that would need to be reviewed to be considered adequate. The Department created a procedure to review a minimum of five client files per subrecipient and followed this procedure. The Department understands that given the urgent need for assistance and the enormous amount of rent assistance funding distributed, thousands of client files would had to have been reviewed in a short period of time and we could not build and sustain the necessary staff capacity to match the fast-paced program delivery. The Department did increase internal controls related to program monitoring to more accurately comply with federal requirements as a result of the prior audit results. In July 2022, the Department began to review supporting backup documentation for all expenditures. The Department did not yet understand that transaction level detail was required and its review included a higher level of detail. Since the process was newly implemented in fiscal year 2023, it took some time to work out compliance challenges and provide technical assistance to subrecipients in order to comply with the federal requirements. The Department’s expenditure backup documentation review process began including transaction level detail in fiscal year 2023 as a result of the prior audit results. Any repayment of questioned costs will be determined through the standard resolution process with the United States Department of Treasury. Auditor’s Remarks Federal regulations require pass-through entities to monitor the activities of subrecipients as necessary to ensure that subawards are used for authorized purposes and in compliance with federal requirements and the terms and conditions of the subaward. In our judgement, the Department’s design of monitoring subrecipients for fiscal and program compliance did not provide this level of assurance. Specifically, the Department’s decision to review only five client files per subrecipient did not provide reasonable assurance of each subrecipient’s compliance when the average subrecipient served 1,413 clients, as illustrated in the Description of Condition. Based on this evidence, the Department only reviewed a total of 230 client files during the audit period, which makes up less than 0.4 percent of the total number of clients served. In addition, the Department’s decision to not review transaction-level supporting documentation at the time of issuing payment to subrecipients means that the monitoring of subrecipients was also being relied upon to ensure all payments made to subrecipients were only for allowable activities under the subaward. In our judgment, the procedures in place requiring only five client files be reviewed for each subrecipient were not sufficient to provide reasonable assurance of material compliance with the requirements for Activities Allowed or Unallowed and Allowable Costs/Cost Principles. We reaffirm our audit finding and will follow up on the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes the requirements for all pass-through entities. Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting the allowability of costs, describes the general criteria in order for a cost to be allowable under federal awards, including being adequately documented. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-027 The Department of Commerce did not have adequate internal controls over and did not comply with requirements for monitoring subrecipients to ensure payments were allowable, properly supported, and met period of performance requirements for the Coronavirus State and Local Fiscal Recovery Funds. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: SLFRP0002 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Subrecipient Monitoring Known Questioned Cost Amount: $95,560 Prior Year Audit Finding: Yes, Finding 2022-019 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF), as part of the America Rescue Plan Act of 2021, delivered $350 billion to state, local and tribal governments to support the response to and recovery from the COVID-19 public health emergency. Washington received $4.4 billion of SLFRF money from the U.S. Department of the Treasury, which the state’s Office of Financial Management allocated to state agencies for various programs. In fiscal year 2023, state agencies spent about $1.9 billion in SLFRF funds, more than $718 million of which was spent by the Department of Commerce. The Department used SLFRF funds to administer and provide economic assistance to households at risk of eviction and homelessness primarily through the Eviction Rental Assistance Program (ERAP 2.0) and Treasury Rent Assistance Program (TRAP 2.0), in addition to transportation, tourism and other pandemic-recovery projects. During fiscal year 2023, the Department expended about $253.5 million on reimbursements and advance payments to local governments and nonprofit organizations as subrecipients. These subrecipients were responsible for making direct payments of rent and utilities for eligible low-income households with overdue rent payments dating as far back as March 2020. Pass-through entities are required to monitor the activities of subrecipients to ensure they are properly using federal funds for allowable activities and expenditures. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Department did not have adequate internal controls over and did not comply with federal requirements for monitoring subrecipients to ensure payments were allowable, properly supported and within the period of performance. The prior finding number was 2022-019. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to monitor subrecipients to ensure payments were allowable, properly supported and met period of performance requirements for the SLFRF program. During the audit period, the Department only required summary level supporting documentation when approving subrecipient payments. Since detailed source documentation was not required at the time of reimbursement, the Department implemented a fiscal review process for ERAP and TRAP 2.0 subrecipients. We used a statistical sampling method to randomly select and review 56 out of 554 payments. Of the payments examined, we identified nine (16 percent) payments that were not allowable under terms and conditions of the subaward. Specifically: 1. Seven payments (13 percent) were for advances to the subrecipient, which are specifically prohibited under the terms and conditions of the Department’s subaward 2. Four payments (7 percent), including one of the payments mentioned above, did not have adequate documentation to ensure the payment was for an allowable activity under the subaward, met cost principles and occurred within the award’s period of performance. The Department’s invoice review procedure required the Department to verify that each subrecipient submitted, along with its invoice, a voucher detail worksheet that outlines expenses by budget category, and a general ledger report detailing the expenses incurred by the subrecipient during the invoice period. For four of the nine payments referenced above, we found the Department approved them for payment without receiving a general ledger report from the subrecipient detailing all incurred expenses. In one of these instances, we also found the Department advanced program funds to the subrecipient without reviewing supporting documentation from the subrecipient to demonstrate that all expenditures were incurred to support the amount advanced by the Department. We were not provided with any documentation demonstrating these funds were returned to the Department. We also used a non-statistical sampling method to randomly select and examine nine out of 35 subrecipients for which the Department completed monitoring during the audit period. We determined five of the nine fiscal reviews completed (56 percent) were insufficient to ensure payments to the subrecipients were allowable and adequately supported. We came to this conclusion because the support we were provided lacked enough details to ensure the activities were allowable and within the period of performance. In addition, the Department did not have evidence that it obtained supporting documentation for client files from one of the nine subrecipients we examined. We also examined program monitoring documentation completed for the same nine subrecipients. The Department only selected five households from each subrecipient for eligibility verification. There was a total of 53,699 households served for ERAP 2.0, and an additional 8,373 households served for TRAP 2.0. Therefore, the Department reviewed less than one-half of one percent of client files for each subrecipient. For these nine subrecipients, we verified that staff reviewed the number of client files that management required under the program. However, in our judgment, the total number of client files reviewed for each subrecipient was inadequate to reasonably ensure compliance with program requirements. The following table summarizes the percentage of client files the Department reviewed for each subrecipient during the audit period: We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition Management did not ensure that proper internal controls were in place to oversee ERAP 2.0 and the use of SLFRF funds. The Department approved payments to subrecipients without reviewing adequate supporting documentation, and management relied on annual program and fiscal monitoring to ensure subrecipients had proper supporting documentation and only served eligible households. In addition, it issued advance payments to subrecipients despite the subawards explicitly stating this was not allowable. Management did not ensure program and fiscal monitoring conducted included a sufficient sample of subrecipient records, and required detailed source documentation, to provide reasonable assurance of material compliance with federal SLFRF requirements and the terms and conditions of the subawards. Effect of Condition and Questioned Costs We determined the Department did not request and review adequate supporting documentation before paying subrecipients, and it did not perform adequate fiscal monitoring to ensure that funds advanced to subrecipients were disbursed to eligible households and for allowable activities. As a result, we identified $95,560 in known federal questioned costs and $1,482,489 in likely federal questioned costs. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). To ensure a representative sample, we stratified the population by dollar amount. Without establishing adequate internal controls and reviewing required supporting documentation from subrecipients, the Department cannot reasonably ensure it is using federal funds for allowable purposes and that spending occurs within the allowed period of performance. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Update its written procedures to require an adequate number of subrecipient client files to be reviewed during fiscal and program monitoring to provide reasonable assurance that each subrecipient is compliant with program requirements • Improve internal controls to ensure subrecipients provide adequate supporting documentation when requesting reimbursement • Request and review supporting documentation from all participating subrecipients on households served with SLFRF funds to determine if any amounts reimbursed to the subrecipients must be returned to the Department • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The State and Local Fiscal Recovery Funds were provided to the state as an advanced payment by which the Department used them to address the immense rent assistance needs as a result of the COVID-19 pandemic. Commerce funded subrecipients up to 25% of their contract total in an effort to mitigate cash flow issues to allow the swift distribution of funding. The Department utilized this method as obtaining documentation and processing reimbursements on a weekly basis still could not provide sufficient funding for all of the rent assistance needs. The Department now acknowledges the advanced payments were not authorized per federal guidance, however, all housing expenses were verified through thorough review of subrecipient expenditure supporting documentation. The Department completed fiscal and program monitoring of each subrecipient over the contract period, however, neither the Code of Federal Regulations nor the Washington State Auditor’s Office has been able to provide the Department with the number of client files that would need to be reviewed to be considered adequate. The Department created a procedure to review a minimum of five client files per subrecipient and followed this procedure. The Department understands that given the urgent need for assistance and the enormous amount of rent assistance funding distributed, thousands of client files would had to have been reviewed in a short period of time and we could not build and sustain the necessary staff capacity to match the fast-paced program delivery. The Department did increase internal controls related to program monitoring to more accurately comply with federal requirements as a result of the prior audit results. In July 2022, the Department began to review supporting backup documentation for all expenditures. The Department did not yet understand that transaction level detail was required and its review included a higher level of detail. Since the process was newly implemented in fiscal year 2023, it took some time to work out compliance challenges and provide technical assistance to subrecipients in order to comply with the federal requirements. The Department’s expenditure backup documentation review process began including transaction level detail in fiscal year 2023 as a result of the prior audit results. Any repayment of questioned costs will be determined through the standard resolution process with the United States Department of Treasury. Auditor’s Remarks Federal regulations require pass-through entities to monitor the activities of subrecipients as necessary to ensure that subawards are used for authorized purposes and in compliance with federal requirements and the terms and conditions of the subaward. In our judgement, the Department’s design of monitoring subrecipients for fiscal and program compliance did not provide this level of assurance. Specifically, the Department’s decision to review only five client files per subrecipient did not provide reasonable assurance of each subrecipient’s compliance when the average subrecipient served 1,413 clients, as illustrated in the Description of Condition. Based on this evidence, the Department only reviewed a total of 230 client files during the audit period, which makes up less than 0.4 percent of the total number of clients served. In addition, the Department’s decision to not review transaction-level supporting documentation at the time of issuing payment to subrecipients means that the monitoring of subrecipients was also being relied upon to ensure all payments made to subrecipients were only for allowable activities under the subaward. In our judgment, the procedures in place requiring only five client files be reviewed for each subrecipient were not sufficient to provide reasonable assurance of material compliance with the requirements for Activities Allowed or Unallowed and Allowable Costs/Cost Principles. We reaffirm our audit finding and will follow up on the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes the requirements for all pass-through entities. Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting the allowability of costs, describes the general criteria in order for a cost to be allowable under federal awards, including being adequately documented. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-027 The Department of Commerce did not have adequate internal controls over and did not comply with requirements for monitoring subrecipients to ensure payments were allowable, properly supported, and met period of performance requirements for the Coronavirus State and Local Fiscal Recovery Funds. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: SLFRP0002 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Subrecipient Monitoring Known Questioned Cost Amount: $95,560 Prior Year Audit Finding: Yes, Finding 2022-019 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF), as part of the America Rescue Plan Act of 2021, delivered $350 billion to state, local and tribal governments to support the response to and recovery from the COVID-19 public health emergency. Washington received $4.4 billion of SLFRF money from the U.S. Department of the Treasury, which the state’s Office of Financial Management allocated to state agencies for various programs. In fiscal year 2023, state agencies spent about $1.9 billion in SLFRF funds, more than $718 million of which was spent by the Department of Commerce. The Department used SLFRF funds to administer and provide economic assistance to households at risk of eviction and homelessness primarily through the Eviction Rental Assistance Program (ERAP 2.0) and Treasury Rent Assistance Program (TRAP 2.0), in addition to transportation, tourism and other pandemic-recovery projects. During fiscal year 2023, the Department expended about $253.5 million on reimbursements and advance payments to local governments and nonprofit organizations as subrecipients. These subrecipients were responsible for making direct payments of rent and utilities for eligible low-income households with overdue rent payments dating as far back as March 2020. Pass-through entities are required to monitor the activities of subrecipients to ensure they are properly using federal funds for allowable activities and expenditures. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Department did not have adequate internal controls over and did not comply with federal requirements for monitoring subrecipients to ensure payments were allowable, properly supported and within the period of performance. The prior finding number was 2022-019. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to monitor subrecipients to ensure payments were allowable, properly supported and met period of performance requirements for the SLFRF program. During the audit period, the Department only required summary level supporting documentation when approving subrecipient payments. Since detailed source documentation was not required at the time of reimbursement, the Department implemented a fiscal review process for ERAP and TRAP 2.0 subrecipients. We used a statistical sampling method to randomly select and review 56 out of 554 payments. Of the payments examined, we identified nine (16 percent) payments that were not allowable under terms and conditions of the subaward. Specifically: 1. Seven payments (13 percent) were for advances to the subrecipient, which are specifically prohibited under the terms and conditions of the Department’s subaward 2. Four payments (7 percent), including one of the payments mentioned above, did not have adequate documentation to ensure the payment was for an allowable activity under the subaward, met cost principles and occurred within the award’s period of performance. The Department’s invoice review procedure required the Department to verify that each subrecipient submitted, along with its invoice, a voucher detail worksheet that outlines expenses by budget category, and a general ledger report detailing the expenses incurred by the subrecipient during the invoice period. For four of the nine payments referenced above, we found the Department approved them for payment without receiving a general ledger report from the subrecipient detailing all incurred expenses. In one of these instances, we also found the Department advanced program funds to the subrecipient without reviewing supporting documentation from the subrecipient to demonstrate that all expenditures were incurred to support the amount advanced by the Department. We were not provided with any documentation demonstrating these funds were returned to the Department. We also used a non-statistical sampling method to randomly select and examine nine out of 35 subrecipients for which the Department completed monitoring during the audit period. We determined five of the nine fiscal reviews completed (56 percent) were insufficient to ensure payments to the subrecipients were allowable and adequately supported. We came to this conclusion because the support we were provided lacked enough details to ensure the activities were allowable and within the period of performance. In addition, the Department did not have evidence that it obtained supporting documentation for client files from one of the nine subrecipients we examined. We also examined program monitoring documentation completed for the same nine subrecipients. The Department only selected five households from each subrecipient for eligibility verification. There was a total of 53,699 households served for ERAP 2.0, and an additional 8,373 households served for TRAP 2.0. Therefore, the Department reviewed less than one-half of one percent of client files for each subrecipient. For these nine subrecipients, we verified that staff reviewed the number of client files that management required under the program. However, in our judgment, the total number of client files reviewed for each subrecipient was inadequate to reasonably ensure compliance with program requirements. The following table summarizes the percentage of client files the Department reviewed for each subrecipient during the audit period: We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition Management did not ensure that proper internal controls were in place to oversee ERAP 2.0 and the use of SLFRF funds. The Department approved payments to subrecipients without reviewing adequate supporting documentation, and management relied on annual program and fiscal monitoring to ensure subrecipients had proper supporting documentation and only served eligible households. In addition, it issued advance payments to subrecipients despite the subawards explicitly stating this was not allowable. Management did not ensure program and fiscal monitoring conducted included a sufficient sample of subrecipient records, and required detailed source documentation, to provide reasonable assurance of material compliance with federal SLFRF requirements and the terms and conditions of the subawards. Effect of Condition and Questioned Costs We determined the Department did not request and review adequate supporting documentation before paying subrecipients, and it did not perform adequate fiscal monitoring to ensure that funds advanced to subrecipients were disbursed to eligible households and for allowable activities. As a result, we identified $95,560 in known federal questioned costs and $1,482,489 in likely federal questioned costs. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). To ensure a representative sample, we stratified the population by dollar amount. Without establishing adequate internal controls and reviewing required supporting documentation from subrecipients, the Department cannot reasonably ensure it is using federal funds for allowable purposes and that spending occurs within the allowed period of performance. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Update its written procedures to require an adequate number of subrecipient client files to be reviewed during fiscal and program monitoring to provide reasonable assurance that each subrecipient is compliant with program requirements • Improve internal controls to ensure subrecipients provide adequate supporting documentation when requesting reimbursement • Request and review supporting documentation from all participating subrecipients on households served with SLFRF funds to determine if any amounts reimbursed to the subrecipients must be returned to the Department • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The State and Local Fiscal Recovery Funds were provided to the state as an advanced payment by which the Department used them to address the immense rent assistance needs as a result of the COVID-19 pandemic. Commerce funded subrecipients up to 25% of their contract total in an effort to mitigate cash flow issues to allow the swift distribution of funding. The Department utilized this method as obtaining documentation and processing reimbursements on a weekly basis still could not provide sufficient funding for all of the rent assistance needs. The Department now acknowledges the advanced payments were not authorized per federal guidance, however, all housing expenses were verified through thorough review of subrecipient expenditure supporting documentation. The Department completed fiscal and program monitoring of each subrecipient over the contract period, however, neither the Code of Federal Regulations nor the Washington State Auditor’s Office has been able to provide the Department with the number of client files that would need to be reviewed to be considered adequate. The Department created a procedure to review a minimum of five client files per subrecipient and followed this procedure. The Department understands that given the urgent need for assistance and the enormous amount of rent assistance funding distributed, thousands of client files would had to have been reviewed in a short period of time and we could not build and sustain the necessary staff capacity to match the fast-paced program delivery. The Department did increase internal controls related to program monitoring to more accurately comply with federal requirements as a result of the prior audit results. In July 2022, the Department began to review supporting backup documentation for all expenditures. The Department did not yet understand that transaction level detail was required and its review included a higher level of detail. Since the process was newly implemented in fiscal year 2023, it took some time to work out compliance challenges and provide technical assistance to subrecipients in order to comply with the federal requirements. The Department’s expenditure backup documentation review process began including transaction level detail in fiscal year 2023 as a result of the prior audit results. Any repayment of questioned costs will be determined through the standard resolution process with the United States Department of Treasury. Auditor’s Remarks Federal regulations require pass-through entities to monitor the activities of subrecipients as necessary to ensure that subawards are used for authorized purposes and in compliance with federal requirements and the terms and conditions of the subaward. In our judgement, the Department’s design of monitoring subrecipients for fiscal and program compliance did not provide this level of assurance. Specifically, the Department’s decision to review only five client files per subrecipient did not provide reasonable assurance of each subrecipient’s compliance when the average subrecipient served 1,413 clients, as illustrated in the Description of Condition. Based on this evidence, the Department only reviewed a total of 230 client files during the audit period, which makes up less than 0.4 percent of the total number of clients served. In addition, the Department’s decision to not review transaction-level supporting documentation at the time of issuing payment to subrecipients means that the monitoring of subrecipients was also being relied upon to ensure all payments made to subrecipients were only for allowable activities under the subaward. In our judgment, the procedures in place requiring only five client files be reviewed for each subrecipient were not sufficient to provide reasonable assurance of material compliance with the requirements for Activities Allowed or Unallowed and Allowable Costs/Cost Principles. We reaffirm our audit finding and will follow up on the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes the requirements for all pass-through entities. Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting the allowability of costs, describes the general criteria in order for a cost to be allowable under federal awards, including being adequately documented. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-027 The Department of Commerce did not have adequate internal controls over and did not comply with requirements for monitoring subrecipients to ensure payments were allowable, properly supported, and met period of performance requirements for the Coronavirus State and Local Fiscal Recovery Funds. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: SLFRP0002 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Subrecipient Monitoring Known Questioned Cost Amount: $95,560 Prior Year Audit Finding: Yes, Finding 2022-019 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF), as part of the America Rescue Plan Act of 2021, delivered $350 billion to state, local and tribal governments to support the response to and recovery from the COVID-19 public health emergency. Washington received $4.4 billion of SLFRF money from the U.S. Department of the Treasury, which the state’s Office of Financial Management allocated to state agencies for various programs. In fiscal year 2023, state agencies spent about $1.9 billion in SLFRF funds, more than $718 million of which was spent by the Department of Commerce. The Department used SLFRF funds to administer and provide economic assistance to households at risk of eviction and homelessness primarily through the Eviction Rental Assistance Program (ERAP 2.0) and Treasury Rent Assistance Program (TRAP 2.0), in addition to transportation, tourism and other pandemic-recovery projects. During fiscal year 2023, the Department expended about $253.5 million on reimbursements and advance payments to local governments and nonprofit organizations as subrecipients. These subrecipients were responsible for making direct payments of rent and utilities for eligible low-income households with overdue rent payments dating as far back as March 2020. Pass-through entities are required to monitor the activities of subrecipients to ensure they are properly using federal funds for allowable activities and expenditures. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Department did not have adequate internal controls over and did not comply with federal requirements for monitoring subrecipients to ensure payments were allowable, properly supported and within the period of performance. The prior finding number was 2022-019. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to monitor subrecipients to ensure payments were allowable, properly supported and met period of performance requirements for the SLFRF program. During the audit period, the Department only required summary level supporting documentation when approving subrecipient payments. Since detailed source documentation was not required at the time of reimbursement, the Department implemented a fiscal review process for ERAP and TRAP 2.0 subrecipients. We used a statistical sampling method to randomly select and review 56 out of 554 payments. Of the payments examined, we identified nine (16 percent) payments that were not allowable under terms and conditions of the subaward. Specifically: 1. Seven payments (13 percent) were for advances to the subrecipient, which are specifically prohibited under the terms and conditions of the Department’s subaward 2. Four payments (7 percent), including one of the payments mentioned above, did not have adequate documentation to ensure the payment was for an allowable activity under the subaward, met cost principles and occurred within the award’s period of performance. The Department’s invoice review procedure required the Department to verify that each subrecipient submitted, along with its invoice, a voucher detail worksheet that outlines expenses by budget category, and a general ledger report detailing the expenses incurred by the subrecipient during the invoice period. For four of the nine payments referenced above, we found the Department approved them for payment without receiving a general ledger report from the subrecipient detailing all incurred expenses. In one of these instances, we also found the Department advanced program funds to the subrecipient without reviewing supporting documentation from the subrecipient to demonstrate that all expenditures were incurred to support the amount advanced by the Department. We were not provided with any documentation demonstrating these funds were returned to the Department. We also used a non-statistical sampling method to randomly select and examine nine out of 35 subrecipients for which the Department completed monitoring during the audit period. We determined five of the nine fiscal reviews completed (56 percent) were insufficient to ensure payments to the subrecipients were allowable and adequately supported. We came to this conclusion because the support we were provided lacked enough details to ensure the activities were allowable and within the period of performance. In addition, the Department did not have evidence that it obtained supporting documentation for client files from one of the nine subrecipients we examined. We also examined program monitoring documentation completed for the same nine subrecipients. The Department only selected five households from each subrecipient for eligibility verification. There was a total of 53,699 households served for ERAP 2.0, and an additional 8,373 households served for TRAP 2.0. Therefore, the Department reviewed less than one-half of one percent of client files for each subrecipient. For these nine subrecipients, we verified that staff reviewed the number of client files that management required under the program. However, in our judgment, the total number of client files reviewed for each subrecipient was inadequate to reasonably ensure compliance with program requirements. The following table summarizes the percentage of client files the Department reviewed for each subrecipient during the audit period: We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition Management did not ensure that proper internal controls were in place to oversee ERAP 2.0 and the use of SLFRF funds. The Department approved payments to subrecipients without reviewing adequate supporting documentation, and management relied on annual program and fiscal monitoring to ensure subrecipients had proper supporting documentation and only served eligible households. In addition, it issued advance payments to subrecipients despite the subawards explicitly stating this was not allowable. Management did not ensure program and fiscal monitoring conducted included a sufficient sample of subrecipient records, and required detailed source documentation, to provide reasonable assurance of material compliance with federal SLFRF requirements and the terms and conditions of the subawards. Effect of Condition and Questioned Costs We determined the Department did not request and review adequate supporting documentation before paying subrecipients, and it did not perform adequate fiscal monitoring to ensure that funds advanced to subrecipients were disbursed to eligible households and for allowable activities. As a result, we identified $95,560 in known federal questioned costs and $1,482,489 in likely federal questioned costs. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). To ensure a representative sample, we stratified the population by dollar amount. Without establishing adequate internal controls and reviewing required supporting documentation from subrecipients, the Department cannot reasonably ensure it is using federal funds for allowable purposes and that spending occurs within the allowed period of performance. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Update its written procedures to require an adequate number of subrecipient client files to be reviewed during fiscal and program monitoring to provide reasonable assurance that each subrecipient is compliant with program requirements • Improve internal controls to ensure subrecipients provide adequate supporting documentation when requesting reimbursement • Request and review supporting documentation from all participating subrecipients on households served with SLFRF funds to determine if any amounts reimbursed to the subrecipients must be returned to the Department • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The State and Local Fiscal Recovery Funds were provided to the state as an advanced payment by which the Department used them to address the immense rent assistance needs as a result of the COVID-19 pandemic. Commerce funded subrecipients up to 25% of their contract total in an effort to mitigate cash flow issues to allow the swift distribution of funding. The Department utilized this method as obtaining documentation and processing reimbursements on a weekly basis still could not provide sufficient funding for all of the rent assistance needs. The Department now acknowledges the advanced payments were not authorized per federal guidance, however, all housing expenses were verified through thorough review of subrecipient expenditure supporting documentation. The Department completed fiscal and program monitoring of each subrecipient over the contract period, however, neither the Code of Federal Regulations nor the Washington State Auditor’s Office has been able to provide the Department with the number of client files that would need to be reviewed to be considered adequate. The Department created a procedure to review a minimum of five client files per subrecipient and followed this procedure. The Department understands that given the urgent need for assistance and the enormous amount of rent assistance funding distributed, thousands of client files would had to have been reviewed in a short period of time and we could not build and sustain the necessary staff capacity to match the fast-paced program delivery. The Department did increase internal controls related to program monitoring to more accurately comply with federal requirements as a result of the prior audit results. In July 2022, the Department began to review supporting backup documentation for all expenditures. The Department did not yet understand that transaction level detail was required and its review included a higher level of detail. Since the process was newly implemented in fiscal year 2023, it took some time to work out compliance challenges and provide technical assistance to subrecipients in order to comply with the federal requirements. The Department’s expenditure backup documentation review process began including transaction level detail in fiscal year 2023 as a result of the prior audit results. Any repayment of questioned costs will be determined through the standard resolution process with the United States Department of Treasury. Auditor’s Remarks Federal regulations require pass-through entities to monitor the activities of subrecipients as necessary to ensure that subawards are used for authorized purposes and in compliance with federal requirements and the terms and conditions of the subaward. In our judgement, the Department’s design of monitoring subrecipients for fiscal and program compliance did not provide this level of assurance. Specifically, the Department’s decision to review only five client files per subrecipient did not provide reasonable assurance of each subrecipient’s compliance when the average subrecipient served 1,413 clients, as illustrated in the Description of Condition. Based on this evidence, the Department only reviewed a total of 230 client files during the audit period, which makes up less than 0.4 percent of the total number of clients served. In addition, the Department’s decision to not review transaction-level supporting documentation at the time of issuing payment to subrecipients means that the monitoring of subrecipients was also being relied upon to ensure all payments made to subrecipients were only for allowable activities under the subaward. In our judgment, the procedures in place requiring only five client files be reviewed for each subrecipient were not sufficient to provide reasonable assurance of material compliance with the requirements for Activities Allowed or Unallowed and Allowable Costs/Cost Principles. We reaffirm our audit finding and will follow up on the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes the requirements for all pass-through entities. Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting the allowability of costs, describes the general criteria in order for a cost to be allowable under federal awards, including being adequately documented. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-027 The Department of Commerce did not have adequate internal controls over and did not comply with requirements for monitoring subrecipients to ensure payments were allowable, properly supported, and met period of performance requirements for the Coronavirus State and Local Fiscal Recovery Funds. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: SLFRP0002 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Subrecipient Monitoring Known Questioned Cost Amount: $95,560 Prior Year Audit Finding: Yes, Finding 2022-019 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF), as part of the America Rescue Plan Act of 2021, delivered $350 billion to state, local and tribal governments to support the response to and recovery from the COVID-19 public health emergency. Washington received $4.4 billion of SLFRF money from the U.S. Department of the Treasury, which the state’s Office of Financial Management allocated to state agencies for various programs. In fiscal year 2023, state agencies spent about $1.9 billion in SLFRF funds, more than $718 million of which was spent by the Department of Commerce. The Department used SLFRF funds to administer and provide economic assistance to households at risk of eviction and homelessness primarily through the Eviction Rental Assistance Program (ERAP 2.0) and Treasury Rent Assistance Program (TRAP 2.0), in addition to transportation, tourism and other pandemic-recovery projects. During fiscal year 2023, the Department expended about $253.5 million on reimbursements and advance payments to local governments and nonprofit organizations as subrecipients. These subrecipients were responsible for making direct payments of rent and utilities for eligible low-income households with overdue rent payments dating as far back as March 2020. Pass-through entities are required to monitor the activities of subrecipients to ensure they are properly using federal funds for allowable activities and expenditures. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Department did not have adequate internal controls over and did not comply with federal requirements for monitoring subrecipients to ensure payments were allowable, properly supported and within the period of performance. The prior finding number was 2022-019. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to monitor subrecipients to ensure payments were allowable, properly supported and met period of performance requirements for the SLFRF program. During the audit period, the Department only required summary level supporting documentation when approving subrecipient payments. Since detailed source documentation was not required at the time of reimbursement, the Department implemented a fiscal review process for ERAP and TRAP 2.0 subrecipients. We used a statistical sampling method to randomly select and review 56 out of 554 payments. Of the payments examined, we identified nine (16 percent) payments that were not allowable under terms and conditions of the subaward. Specifically: 1. Seven payments (13 percent) were for advances to the subrecipient, which are specifically prohibited under the terms and conditions of the Department’s subaward 2. Four payments (7 percent), including one of the payments mentioned above, did not have adequate documentation to ensure the payment was for an allowable activity under the subaward, met cost principles and occurred within the award’s period of performance. The Department’s invoice review procedure required the Department to verify that each subrecipient submitted, along with its invoice, a voucher detail worksheet that outlines expenses by budget category, and a general ledger report detailing the expenses incurred by the subrecipient during the invoice period. For four of the nine payments referenced above, we found the Department approved them for payment without receiving a general ledger report from the subrecipient detailing all incurred expenses. In one of these instances, we also found the Department advanced program funds to the subrecipient without reviewing supporting documentation from the subrecipient to demonstrate that all expenditures were incurred to support the amount advanced by the Department. We were not provided with any documentation demonstrating these funds were returned to the Department. We also used a non-statistical sampling method to randomly select and examine nine out of 35 subrecipients for which the Department completed monitoring during the audit period. We determined five of the nine fiscal reviews completed (56 percent) were insufficient to ensure payments to the subrecipients were allowable and adequately supported. We came to this conclusion because the support we were provided lacked enough details to ensure the activities were allowable and within the period of performance. In addition, the Department did not have evidence that it obtained supporting documentation for client files from one of the nine subrecipients we examined. We also examined program monitoring documentation completed for the same nine subrecipients. The Department only selected five households from each subrecipient for eligibility verification. There was a total of 53,699 households served for ERAP 2.0, and an additional 8,373 households served for TRAP 2.0. Therefore, the Department reviewed less than one-half of one percent of client files for each subrecipient. For these nine subrecipients, we verified that staff reviewed the number of client files that management required under the program. However, in our judgment, the total number of client files reviewed for each subrecipient was inadequate to reasonably ensure compliance with program requirements. The following table summarizes the percentage of client files the Department reviewed for each subrecipient during the audit period: We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition Management did not ensure that proper internal controls were in place to oversee ERAP 2.0 and the use of SLFRF funds. The Department approved payments to subrecipients without reviewing adequate supporting documentation, and management relied on annual program and fiscal monitoring to ensure subrecipients had proper supporting documentation and only served eligible households. In addition, it issued advance payments to subrecipients despite the subawards explicitly stating this was not allowable. Management did not ensure program and fiscal monitoring conducted included a sufficient sample of subrecipient records, and required detailed source documentation, to provide reasonable assurance of material compliance with federal SLFRF requirements and the terms and conditions of the subawards. Effect of Condition and Questioned Costs We determined the Department did not request and review adequate supporting documentation before paying subrecipients, and it did not perform adequate fiscal monitoring to ensure that funds advanced to subrecipients were disbursed to eligible households and for allowable activities. As a result, we identified $95,560 in known federal questioned costs and $1,482,489 in likely federal questioned costs. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). To ensure a representative sample, we stratified the population by dollar amount. Without establishing adequate internal controls and reviewing required supporting documentation from subrecipients, the Department cannot reasonably ensure it is using federal funds for allowable purposes and that spending occurs within the allowed period of performance. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Update its written procedures to require an adequate number of subrecipient client files to be reviewed during fiscal and program monitoring to provide reasonable assurance that each subrecipient is compliant with program requirements • Improve internal controls to ensure subrecipients provide adequate supporting documentation when requesting reimbursement • Request and review supporting documentation from all participating subrecipients on households served with SLFRF funds to determine if any amounts reimbursed to the subrecipients must be returned to the Department • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The State and Local Fiscal Recovery Funds were provided to the state as an advanced payment by which the Department used them to address the immense rent assistance needs as a result of the COVID-19 pandemic. Commerce funded subrecipients up to 25% of their contract total in an effort to mitigate cash flow issues to allow the swift distribution of funding. The Department utilized this method as obtaining documentation and processing reimbursements on a weekly basis still could not provide sufficient funding for all of the rent assistance needs. The Department now acknowledges the advanced payments were not authorized per federal guidance, however, all housing expenses were verified through thorough review of subrecipient expenditure supporting documentation. The Department completed fiscal and program monitoring of each subrecipient over the contract period, however, neither the Code of Federal Regulations nor the Washington State Auditor’s Office has been able to provide the Department with the number of client files that would need to be reviewed to be considered adequate. The Department created a procedure to review a minimum of five client files per subrecipient and followed this procedure. The Department understands that given the urgent need for assistance and the enormous amount of rent assistance funding distributed, thousands of client files would had to have been reviewed in a short period of time and we could not build and sustain the necessary staff capacity to match the fast-paced program delivery. The Department did increase internal controls related to program monitoring to more accurately comply with federal requirements as a result of the prior audit results. In July 2022, the Department began to review supporting backup documentation for all expenditures. The Department did not yet understand that transaction level detail was required and its review included a higher level of detail. Since the process was newly implemented in fiscal year 2023, it took some time to work out compliance challenges and provide technical assistance to subrecipients in order to comply with the federal requirements. The Department’s expenditure backup documentation review process began including transaction level detail in fiscal year 2023 as a result of the prior audit results. Any repayment of questioned costs will be determined through the standard resolution process with the United States Department of Treasury. Auditor’s Remarks Federal regulations require pass-through entities to monitor the activities of subrecipients as necessary to ensure that subawards are used for authorized purposes and in compliance with federal requirements and the terms and conditions of the subaward. In our judgement, the Department’s design of monitoring subrecipients for fiscal and program compliance did not provide this level of assurance. Specifically, the Department’s decision to review only five client files per subrecipient did not provide reasonable assurance of each subrecipient’s compliance when the average subrecipient served 1,413 clients, as illustrated in the Description of Condition. Based on this evidence, the Department only reviewed a total of 230 client files during the audit period, which makes up less than 0.4 percent of the total number of clients served. In addition, the Department’s decision to not review transaction-level supporting documentation at the time of issuing payment to subrecipients means that the monitoring of subrecipients was also being relied upon to ensure all payments made to subrecipients were only for allowable activities under the subaward. In our judgment, the procedures in place requiring only five client files be reviewed for each subrecipient were not sufficient to provide reasonable assurance of material compliance with the requirements for Activities Allowed or Unallowed and Allowable Costs/Cost Principles. We reaffirm our audit finding and will follow up on the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes the requirements for all pass-through entities. Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting the allowability of costs, describes the general criteria in order for a cost to be allowable under federal awards, including being adequately documented. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-027 The Department of Commerce did not have adequate internal controls over and did not comply with requirements for monitoring subrecipients to ensure payments were allowable, properly supported, and met period of performance requirements for the Coronavirus State and Local Fiscal Recovery Funds. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: SLFRP0002 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Subrecipient Monitoring Known Questioned Cost Amount: $95,560 Prior Year Audit Finding: Yes, Finding 2022-019 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF), as part of the America Rescue Plan Act of 2021, delivered $350 billion to state, local and tribal governments to support the response to and recovery from the COVID-19 public health emergency. Washington received $4.4 billion of SLFRF money from the U.S. Department of the Treasury, which the state’s Office of Financial Management allocated to state agencies for various programs. In fiscal year 2023, state agencies spent about $1.9 billion in SLFRF funds, more than $718 million of which was spent by the Department of Commerce. The Department used SLFRF funds to administer and provide economic assistance to households at risk of eviction and homelessness primarily through the Eviction Rental Assistance Program (ERAP 2.0) and Treasury Rent Assistance Program (TRAP 2.0), in addition to transportation, tourism and other pandemic-recovery projects. During fiscal year 2023, the Department expended about $253.5 million on reimbursements and advance payments to local governments and nonprofit organizations as subrecipients. These subrecipients were responsible for making direct payments of rent and utilities for eligible low-income households with overdue rent payments dating as far back as March 2020. Pass-through entities are required to monitor the activities of subrecipients to ensure they are properly using federal funds for allowable activities and expenditures. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Department did not have adequate internal controls over and did not comply with federal requirements for monitoring subrecipients to ensure payments were allowable, properly supported and within the period of performance. The prior finding number was 2022-019. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to monitor subrecipients to ensure payments were allowable, properly supported and met period of performance requirements for the SLFRF program. During the audit period, the Department only required summary level supporting documentation when approving subrecipient payments. Since detailed source documentation was not required at the time of reimbursement, the Department implemented a fiscal review process for ERAP and TRAP 2.0 subrecipients. We used a statistical sampling method to randomly select and review 56 out of 554 payments. Of the payments examined, we identified nine (16 percent) payments that were not allowable under terms and conditions of the subaward. Specifically: 1. Seven payments (13 percent) were for advances to the subrecipient, which are specifically prohibited under the terms and conditions of the Department’s subaward 2. Four payments (7 percent), including one of the payments mentioned above, did not have adequate documentation to ensure the payment was for an allowable activity under the subaward, met cost principles and occurred within the award’s period of performance. The Department’s invoice review procedure required the Department to verify that each subrecipient submitted, along with its invoice, a voucher detail worksheet that outlines expenses by budget category, and a general ledger report detailing the expenses incurred by the subrecipient during the invoice period. For four of the nine payments referenced above, we found the Department approved them for payment without receiving a general ledger report from the subrecipient detailing all incurred expenses. In one of these instances, we also found the Department advanced program funds to the subrecipient without reviewing supporting documentation from the subrecipient to demonstrate that all expenditures were incurred to support the amount advanced by the Department. We were not provided with any documentation demonstrating these funds were returned to the Department. We also used a non-statistical sampling method to randomly select and examine nine out of 35 subrecipients for which the Department completed monitoring during the audit period. We determined five of the nine fiscal reviews completed (56 percent) were insufficient to ensure payments to the subrecipients were allowable and adequately supported. We came to this conclusion because the support we were provided lacked enough details to ensure the activities were allowable and within the period of performance. In addition, the Department did not have evidence that it obtained supporting documentation for client files from one of the nine subrecipients we examined. We also examined program monitoring documentation completed for the same nine subrecipients. The Department only selected five households from each subrecipient for eligibility verification. There was a total of 53,699 households served for ERAP 2.0, and an additional 8,373 households served for TRAP 2.0. Therefore, the Department reviewed less than one-half of one percent of client files for each subrecipient. For these nine subrecipients, we verified that staff reviewed the number of client files that management required under the program. However, in our judgment, the total number of client files reviewed for each subrecipient was inadequate to reasonably ensure compliance with program requirements. The following table summarizes the percentage of client files the Department reviewed for each subrecipient during the audit period: We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition Management did not ensure that proper internal controls were in place to oversee ERAP 2.0 and the use of SLFRF funds. The Department approved payments to subrecipients without reviewing adequate supporting documentation, and management relied on annual program and fiscal monitoring to ensure subrecipients had proper supporting documentation and only served eligible households. In addition, it issued advance payments to subrecipients despite the subawards explicitly stating this was not allowable. Management did not ensure program and fiscal monitoring conducted included a sufficient sample of subrecipient records, and required detailed source documentation, to provide reasonable assurance of material compliance with federal SLFRF requirements and the terms and conditions of the subawards. Effect of Condition and Questioned Costs We determined the Department did not request and review adequate supporting documentation before paying subrecipients, and it did not perform adequate fiscal monitoring to ensure that funds advanced to subrecipients were disbursed to eligible households and for allowable activities. As a result, we identified $95,560 in known federal questioned costs and $1,482,489 in likely federal questioned costs. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). To ensure a representative sample, we stratified the population by dollar amount. Without establishing adequate internal controls and reviewing required supporting documentation from subrecipients, the Department cannot reasonably ensure it is using federal funds for allowable purposes and that spending occurs within the allowed period of performance. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Update its written procedures to require an adequate number of subrecipient client files to be reviewed during fiscal and program monitoring to provide reasonable assurance that each subrecipient is compliant with program requirements • Improve internal controls to ensure subrecipients provide adequate supporting documentation when requesting reimbursement • Request and review supporting documentation from all participating subrecipients on households served with SLFRF funds to determine if any amounts reimbursed to the subrecipients must be returned to the Department • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The State and Local Fiscal Recovery Funds were provided to the state as an advanced payment by which the Department used them to address the immense rent assistance needs as a result of the COVID-19 pandemic. Commerce funded subrecipients up to 25% of their contract total in an effort to mitigate cash flow issues to allow the swift distribution of funding. The Department utilized this method as obtaining documentation and processing reimbursements on a weekly basis still could not provide sufficient funding for all of the rent assistance needs. The Department now acknowledges the advanced payments were not authorized per federal guidance, however, all housing expenses were verified through thorough review of subrecipient expenditure supporting documentation. The Department completed fiscal and program monitoring of each subrecipient over the contract period, however, neither the Code of Federal Regulations nor the Washington State Auditor’s Office has been able to provide the Department with the number of client files that would need to be reviewed to be considered adequate. The Department created a procedure to review a minimum of five client files per subrecipient and followed this procedure. The Department understands that given the urgent need for assistance and the enormous amount of rent assistance funding distributed, thousands of client files would had to have been reviewed in a short period of time and we could not build and sustain the necessary staff capacity to match the fast-paced program delivery. The Department did increase internal controls related to program monitoring to more accurately comply with federal requirements as a result of the prior audit results. In July 2022, the Department began to review supporting backup documentation for all expenditures. The Department did not yet understand that transaction level detail was required and its review included a higher level of detail. Since the process was newly implemented in fiscal year 2023, it took some time to work out compliance challenges and provide technical assistance to subrecipients in order to comply with the federal requirements. The Department’s expenditure backup documentation review process began including transaction level detail in fiscal year 2023 as a result of the prior audit results. Any repayment of questioned costs will be determined through the standard resolution process with the United States Department of Treasury. Auditor’s Remarks Federal regulations require pass-through entities to monitor the activities of subrecipients as necessary to ensure that subawards are used for authorized purposes and in compliance with federal requirements and the terms and conditions of the subaward. In our judgement, the Department’s design of monitoring subrecipients for fiscal and program compliance did not provide this level of assurance. Specifically, the Department’s decision to review only five client files per subrecipient did not provide reasonable assurance of each subrecipient’s compliance when the average subrecipient served 1,413 clients, as illustrated in the Description of Condition. Based on this evidence, the Department only reviewed a total of 230 client files during the audit period, which makes up less than 0.4 percent of the total number of clients served. In addition, the Department’s decision to not review transaction-level supporting documentation at the time of issuing payment to subrecipients means that the monitoring of subrecipients was also being relied upon to ensure all payments made to subrecipients were only for allowable activities under the subaward. In our judgment, the procedures in place requiring only five client files be reviewed for each subrecipient were not sufficient to provide reasonable assurance of material compliance with the requirements for Activities Allowed or Unallowed and Allowable Costs/Cost Principles. We reaffirm our audit finding and will follow up on the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes the requirements for all pass-through entities. Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting the allowability of costs, describes the general criteria in order for a cost to be allowable under federal awards, including being adequately documented. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-027 The Department of Commerce did not have adequate internal controls over and did not comply with requirements for monitoring subrecipients to ensure payments were allowable, properly supported, and met period of performance requirements for the Coronavirus State and Local Fiscal Recovery Funds. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: SLFRP0002 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Subrecipient Monitoring Known Questioned Cost Amount: $95,560 Prior Year Audit Finding: Yes, Finding 2022-019 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF), as part of the America Rescue Plan Act of 2021, delivered $350 billion to state, local and tribal governments to support the response to and recovery from the COVID-19 public health emergency. Washington received $4.4 billion of SLFRF money from the U.S. Department of the Treasury, which the state’s Office of Financial Management allocated to state agencies for various programs. In fiscal year 2023, state agencies spent about $1.9 billion in SLFRF funds, more than $718 million of which was spent by the Department of Commerce. The Department used SLFRF funds to administer and provide economic assistance to households at risk of eviction and homelessness primarily through the Eviction Rental Assistance Program (ERAP 2.0) and Treasury Rent Assistance Program (TRAP 2.0), in addition to transportation, tourism and other pandemic-recovery projects. During fiscal year 2023, the Department expended about $253.5 million on reimbursements and advance payments to local governments and nonprofit organizations as subrecipients. These subrecipients were responsible for making direct payments of rent and utilities for eligible low-income households with overdue rent payments dating as far back as March 2020. Pass-through entities are required to monitor the activities of subrecipients to ensure they are properly using federal funds for allowable activities and expenditures. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Department did not have adequate internal controls over and did not comply with federal requirements for monitoring subrecipients to ensure payments were allowable, properly supported and within the period of performance. The prior finding number was 2022-019. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to monitor subrecipients to ensure payments were allowable, properly supported and met period of performance requirements for the SLFRF program. During the audit period, the Department only required summary level supporting documentation when approving subrecipient payments. Since detailed source documentation was not required at the time of reimbursement, the Department implemented a fiscal review process for ERAP and TRAP 2.0 subrecipients. We used a statistical sampling method to randomly select and review 56 out of 554 payments. Of the payments examined, we identified nine (16 percent) payments that were not allowable under terms and conditions of the subaward. Specifically: 1. Seven payments (13 percent) were for advances to the subrecipient, which are specifically prohibited under the terms and conditions of the Department’s subaward 2. Four payments (7 percent), including one of the payments mentioned above, did not have adequate documentation to ensure the payment was for an allowable activity under the subaward, met cost principles and occurred within the award’s period of performance. The Department’s invoice review procedure required the Department to verify that each subrecipient submitted, along with its invoice, a voucher detail worksheet that outlines expenses by budget category, and a general ledger report detailing the expenses incurred by the subrecipient during the invoice period. For four of the nine payments referenced above, we found the Department approved them for payment without receiving a general ledger report from the subrecipient detailing all incurred expenses. In one of these instances, we also found the Department advanced program funds to the subrecipient without reviewing supporting documentation from the subrecipient to demonstrate that all expenditures were incurred to support the amount advanced by the Department. We were not provided with any documentation demonstrating these funds were returned to the Department. We also used a non-statistical sampling method to randomly select and examine nine out of 35 subrecipients for which the Department completed monitoring during the audit period. We determined five of the nine fiscal reviews completed (56 percent) were insufficient to ensure payments to the subrecipients were allowable and adequately supported. We came to this conclusion because the support we were provided lacked enough details to ensure the activities were allowable and within the period of performance. In addition, the Department did not have evidence that it obtained supporting documentation for client files from one of the nine subrecipients we examined. We also examined program monitoring documentation completed for the same nine subrecipients. The Department only selected five households from each subrecipient for eligibility verification. There was a total of 53,699 households served for ERAP 2.0, and an additional 8,373 households served for TRAP 2.0. Therefore, the Department reviewed less than one-half of one percent of client files for each subrecipient. For these nine subrecipients, we verified that staff reviewed the number of client files that management required under the program. However, in our judgment, the total number of client files reviewed for each subrecipient was inadequate to reasonably ensure compliance with program requirements. The following table summarizes the percentage of client files the Department reviewed for each subrecipient during the audit period: We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition Management did not ensure that proper internal controls were in place to oversee ERAP 2.0 and the use of SLFRF funds. The Department approved payments to subrecipients without reviewing adequate supporting documentation, and management relied on annual program and fiscal monitoring to ensure subrecipients had proper supporting documentation and only served eligible households. In addition, it issued advance payments to subrecipients despite the subawards explicitly stating this was not allowable. Management did not ensure program and fiscal monitoring conducted included a sufficient sample of subrecipient records, and required detailed source documentation, to provide reasonable assurance of material compliance with federal SLFRF requirements and the terms and conditions of the subawards. Effect of Condition and Questioned Costs We determined the Department did not request and review adequate supporting documentation before paying subrecipients, and it did not perform adequate fiscal monitoring to ensure that funds advanced to subrecipients were disbursed to eligible households and for allowable activities. As a result, we identified $95,560 in known federal questioned costs and $1,482,489 in likely federal questioned costs. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). To ensure a representative sample, we stratified the population by dollar amount. Without establishing adequate internal controls and reviewing required supporting documentation from subrecipients, the Department cannot reasonably ensure it is using federal funds for allowable purposes and that spending occurs within the allowed period of performance. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Update its written procedures to require an adequate number of subrecipient client files to be reviewed during fiscal and program monitoring to provide reasonable assurance that each subrecipient is compliant with program requirements • Improve internal controls to ensure subrecipients provide adequate supporting documentation when requesting reimbursement • Request and review supporting documentation from all participating subrecipients on households served with SLFRF funds to determine if any amounts reimbursed to the subrecipients must be returned to the Department • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The State and Local Fiscal Recovery Funds were provided to the state as an advanced payment by which the Department used them to address the immense rent assistance needs as a result of the COVID-19 pandemic. Commerce funded subrecipients up to 25% of their contract total in an effort to mitigate cash flow issues to allow the swift distribution of funding. The Department utilized this method as obtaining documentation and processing reimbursements on a weekly basis still could not provide sufficient funding for all of the rent assistance needs. The Department now acknowledges the advanced payments were not authorized per federal guidance, however, all housing expenses were verified through thorough review of subrecipient expenditure supporting documentation. The Department completed fiscal and program monitoring of each subrecipient over the contract period, however, neither the Code of Federal Regulations nor the Washington State Auditor’s Office has been able to provide the Department with the number of client files that would need to be reviewed to be considered adequate. The Department created a procedure to review a minimum of five client files per subrecipient and followed this procedure. The Department understands that given the urgent need for assistance and the enormous amount of rent assistance funding distributed, thousands of client files would had to have been reviewed in a short period of time and we could not build and sustain the necessary staff capacity to match the fast-paced program delivery. The Department did increase internal controls related to program monitoring to more accurately comply with federal requirements as a result of the prior audit results. In July 2022, the Department began to review supporting backup documentation for all expenditures. The Department did not yet understand that transaction level detail was required and its review included a higher level of detail. Since the process was newly implemented in fiscal year 2023, it took some time to work out compliance challenges and provide technical assistance to subrecipients in order to comply with the federal requirements. The Department’s expenditure backup documentation review process began including transaction level detail in fiscal year 2023 as a result of the prior audit results. Any repayment of questioned costs will be determined through the standard resolution process with the United States Department of Treasury. Auditor’s Remarks Federal regulations require pass-through entities to monitor the activities of subrecipients as necessary to ensure that subawards are used for authorized purposes and in compliance with federal requirements and the terms and conditions of the subaward. In our judgement, the Department’s design of monitoring subrecipients for fiscal and program compliance did not provide this level of assurance. Specifically, the Department’s decision to review only five client files per subrecipient did not provide reasonable assurance of each subrecipient’s compliance when the average subrecipient served 1,413 clients, as illustrated in the Description of Condition. Based on this evidence, the Department only reviewed a total of 230 client files during the audit period, which makes up less than 0.4 percent of the total number of clients served. In addition, the Department’s decision to not review transaction-level supporting documentation at the time of issuing payment to subrecipients means that the monitoring of subrecipients was also being relied upon to ensure all payments made to subrecipients were only for allowable activities under the subaward. In our judgment, the procedures in place requiring only five client files be reviewed for each subrecipient were not sufficient to provide reasonable assurance of material compliance with the requirements for Activities Allowed or Unallowed and Allowable Costs/Cost Principles. We reaffirm our audit finding and will follow up on the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes the requirements for all pass-through entities. Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting the allowability of costs, describes the general criteria in order for a cost to be allowable under federal awards, including being adequately documented. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-027 The Department of Commerce did not have adequate internal controls over and did not comply with requirements for monitoring subrecipients to ensure payments were allowable, properly supported, and met period of performance requirements for the Coronavirus State and Local Fiscal Recovery Funds. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: SLFRP0002 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Subrecipient Monitoring Known Questioned Cost Amount: $95,560 Prior Year Audit Finding: Yes, Finding 2022-019 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF), as part of the America Rescue Plan Act of 2021, delivered $350 billion to state, local and tribal governments to support the response to and recovery from the COVID-19 public health emergency. Washington received $4.4 billion of SLFRF money from the U.S. Department of the Treasury, which the state’s Office of Financial Management allocated to state agencies for various programs. In fiscal year 2023, state agencies spent about $1.9 billion in SLFRF funds, more than $718 million of which was spent by the Department of Commerce. The Department used SLFRF funds to administer and provide economic assistance to households at risk of eviction and homelessness primarily through the Eviction Rental Assistance Program (ERAP 2.0) and Treasury Rent Assistance Program (TRAP 2.0), in addition to transportation, tourism and other pandemic-recovery projects. During fiscal year 2023, the Department expended about $253.5 million on reimbursements and advance payments to local governments and nonprofit organizations as subrecipients. These subrecipients were responsible for making direct payments of rent and utilities for eligible low-income households with overdue rent payments dating as far back as March 2020. Pass-through entities are required to monitor the activities of subrecipients to ensure they are properly using federal funds for allowable activities and expenditures. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Department did not have adequate internal controls over and did not comply with federal requirements for monitoring subrecipients to ensure payments were allowable, properly supported and within the period of performance. The prior finding number was 2022-019. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to monitor subrecipients to ensure payments were allowable, properly supported and met period of performance requirements for the SLFRF program. During the audit period, the Department only required summary level supporting documentation when approving subrecipient payments. Since detailed source documentation was not required at the time of reimbursement, the Department implemented a fiscal review process for ERAP and TRAP 2.0 subrecipients. We used a statistical sampling method to randomly select and review 56 out of 554 payments. Of the payments examined, we identified nine (16 percent) payments that were not allowable under terms and conditions of the subaward. Specifically: 1. Seven payments (13 percent) were for advances to the subrecipient, which are specifically prohibited under the terms and conditions of the Department’s subaward 2. Four payments (7 percent), including one of the payments mentioned above, did not have adequate documentation to ensure the payment was for an allowable activity under the subaward, met cost principles and occurred within the award’s period of performance. The Department’s invoice review procedure required the Department to verify that each subrecipient submitted, along with its invoice, a voucher detail worksheet that outlines expenses by budget category, and a general ledger report detailing the expenses incurred by the subrecipient during the invoice period. For four of the nine payments referenced above, we found the Department approved them for payment without receiving a general ledger report from the subrecipient detailing all incurred expenses. In one of these instances, we also found the Department advanced program funds to the subrecipient without reviewing supporting documentation from the subrecipient to demonstrate that all expenditures were incurred to support the amount advanced by the Department. We were not provided with any documentation demonstrating these funds were returned to the Department. We also used a non-statistical sampling method to randomly select and examine nine out of 35 subrecipients for which the Department completed monitoring during the audit period. We determined five of the nine fiscal reviews completed (56 percent) were insufficient to ensure payments to the subrecipients were allowable and adequately supported. We came to this conclusion because the support we were provided lacked enough details to ensure the activities were allowable and within the period of performance. In addition, the Department did not have evidence that it obtained supporting documentation for client files from one of the nine subrecipients we examined. We also examined program monitoring documentation completed for the same nine subrecipients. The Department only selected five households from each subrecipient for eligibility verification. There was a total of 53,699 households served for ERAP 2.0, and an additional 8,373 households served for TRAP 2.0. Therefore, the Department reviewed less than one-half of one percent of client files for each subrecipient. For these nine subrecipients, we verified that staff reviewed the number of client files that management required under the program. However, in our judgment, the total number of client files reviewed for each subrecipient was inadequate to reasonably ensure compliance with program requirements. The following table summarizes the percentage of client files the Department reviewed for each subrecipient during the audit period: We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition Management did not ensure that proper internal controls were in place to oversee ERAP 2.0 and the use of SLFRF funds. The Department approved payments to subrecipients without reviewing adequate supporting documentation, and management relied on annual program and fiscal monitoring to ensure subrecipients had proper supporting documentation and only served eligible households. In addition, it issued advance payments to subrecipients despite the subawards explicitly stating this was not allowable. Management did not ensure program and fiscal monitoring conducted included a sufficient sample of subrecipient records, and required detailed source documentation, to provide reasonable assurance of material compliance with federal SLFRF requirements and the terms and conditions of the subawards. Effect of Condition and Questioned Costs We determined the Department did not request and review adequate supporting documentation before paying subrecipients, and it did not perform adequate fiscal monitoring to ensure that funds advanced to subrecipients were disbursed to eligible households and for allowable activities. As a result, we identified $95,560 in known federal questioned costs and $1,482,489 in likely federal questioned costs. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). To ensure a representative sample, we stratified the population by dollar amount. Without establishing adequate internal controls and reviewing required supporting documentation from subrecipients, the Department cannot reasonably ensure it is using federal funds for allowable purposes and that spending occurs within the allowed period of performance. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Update its written procedures to require an adequate number of subrecipient client files to be reviewed during fiscal and program monitoring to provide reasonable assurance that each subrecipient is compliant with program requirements • Improve internal controls to ensure subrecipients provide adequate supporting documentation when requesting reimbursement • Request and review supporting documentation from all participating subrecipients on households served with SLFRF funds to determine if any amounts reimbursed to the subrecipients must be returned to the Department • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The State and Local Fiscal Recovery Funds were provided to the state as an advanced payment by which the Department used them to address the immense rent assistance needs as a result of the COVID-19 pandemic. Commerce funded subrecipients up to 25% of their contract total in an effort to mitigate cash flow issues to allow the swift distribution of funding. The Department utilized this method as obtaining documentation and processing reimbursements on a weekly basis still could not provide sufficient funding for all of the rent assistance needs. The Department now acknowledges the advanced payments were not authorized per federal guidance, however, all housing expenses were verified through thorough review of subrecipient expenditure supporting documentation. The Department completed fiscal and program monitoring of each subrecipient over the contract period, however, neither the Code of Federal Regulations nor the Washington State Auditor’s Office has been able to provide the Department with the number of client files that would need to be reviewed to be considered adequate. The Department created a procedure to review a minimum of five client files per subrecipient and followed this procedure. The Department understands that given the urgent need for assistance and the enormous amount of rent assistance funding distributed, thousands of client files would had to have been reviewed in a short period of time and we could not build and sustain the necessary staff capacity to match the fast-paced program delivery. The Department did increase internal controls related to program monitoring to more accurately comply with federal requirements as a result of the prior audit results. In July 2022, the Department began to review supporting backup documentation for all expenditures. The Department did not yet understand that transaction level detail was required and its review included a higher level of detail. Since the process was newly implemented in fiscal year 2023, it took some time to work out compliance challenges and provide technical assistance to subrecipients in order to comply with the federal requirements. The Department’s expenditure backup documentation review process began including transaction level detail in fiscal year 2023 as a result of the prior audit results. Any repayment of questioned costs will be determined through the standard resolution process with the United States Department of Treasury. Auditor’s Remarks Federal regulations require pass-through entities to monitor the activities of subrecipients as necessary to ensure that subawards are used for authorized purposes and in compliance with federal requirements and the terms and conditions of the subaward. In our judgement, the Department’s design of monitoring subrecipients for fiscal and program compliance did not provide this level of assurance. Specifically, the Department’s decision to review only five client files per subrecipient did not provide reasonable assurance of each subrecipient’s compliance when the average subrecipient served 1,413 clients, as illustrated in the Description of Condition. Based on this evidence, the Department only reviewed a total of 230 client files during the audit period, which makes up less than 0.4 percent of the total number of clients served. In addition, the Department’s decision to not review transaction-level supporting documentation at the time of issuing payment to subrecipients means that the monitoring of subrecipients was also being relied upon to ensure all payments made to subrecipients were only for allowable activities under the subaward. In our judgment, the procedures in place requiring only five client files be reviewed for each subrecipient were not sufficient to provide reasonable assurance of material compliance with the requirements for Activities Allowed or Unallowed and Allowable Costs/Cost Principles. We reaffirm our audit finding and will follow up on the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes the requirements for all pass-through entities. Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting the allowability of costs, describes the general criteria in order for a cost to be allowable under federal awards, including being adequately documented. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-027 The Department of Commerce did not have adequate internal controls over and did not comply with requirements for monitoring subrecipients to ensure payments were allowable, properly supported, and met period of performance requirements for the Coronavirus State and Local Fiscal Recovery Funds. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: SLFRP0002 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Subrecipient Monitoring Known Questioned Cost Amount: $95,560 Prior Year Audit Finding: Yes, Finding 2022-019 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF), as part of the America Rescue Plan Act of 2021, delivered $350 billion to state, local and tribal governments to support the response to and recovery from the COVID-19 public health emergency. Washington received $4.4 billion of SLFRF money from the U.S. Department of the Treasury, which the state’s Office of Financial Management allocated to state agencies for various programs. In fiscal year 2023, state agencies spent about $1.9 billion in SLFRF funds, more than $718 million of which was spent by the Department of Commerce. The Department used SLFRF funds to administer and provide economic assistance to households at risk of eviction and homelessness primarily through the Eviction Rental Assistance Program (ERAP 2.0) and Treasury Rent Assistance Program (TRAP 2.0), in addition to transportation, tourism and other pandemic-recovery projects. During fiscal year 2023, the Department expended about $253.5 million on reimbursements and advance payments to local governments and nonprofit organizations as subrecipients. These subrecipients were responsible for making direct payments of rent and utilities for eligible low-income households with overdue rent payments dating as far back as March 2020. Pass-through entities are required to monitor the activities of subrecipients to ensure they are properly using federal funds for allowable activities and expenditures. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Department did not have adequate internal controls over and did not comply with federal requirements for monitoring subrecipients to ensure payments were allowable, properly supported and within the period of performance. The prior finding number was 2022-019. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to monitor subrecipients to ensure payments were allowable, properly supported and met period of performance requirements for the SLFRF program. During the audit period, the Department only required summary level supporting documentation when approving subrecipient payments. Since detailed source documentation was not required at the time of reimbursement, the Department implemented a fiscal review process for ERAP and TRAP 2.0 subrecipients. We used a statistical sampling method to randomly select and review 56 out of 554 payments. Of the payments examined, we identified nine (16 percent) payments that were not allowable under terms and conditions of the subaward. Specifically: 1. Seven payments (13 percent) were for advances to the subrecipient, which are specifically prohibited under the terms and conditions of the Department’s subaward 2. Four payments (7 percent), including one of the payments mentioned above, did not have adequate documentation to ensure the payment was for an allowable activity under the subaward, met cost principles and occurred within the award’s period of performance. The Department’s invoice review procedure required the Department to verify that each subrecipient submitted, along with its invoice, a voucher detail worksheet that outlines expenses by budget category, and a general ledger report detailing the expenses incurred by the subrecipient during the invoice period. For four of the nine payments referenced above, we found the Department approved them for payment without receiving a general ledger report from the subrecipient detailing all incurred expenses. In one of these instances, we also found the Department advanced program funds to the subrecipient without reviewing supporting documentation from the subrecipient to demonstrate that all expenditures were incurred to support the amount advanced by the Department. We were not provided with any documentation demonstrating these funds were returned to the Department. We also used a non-statistical sampling method to randomly select and examine nine out of 35 subrecipients for which the Department completed monitoring during the audit period. We determined five of the nine fiscal reviews completed (56 percent) were insufficient to ensure payments to the subrecipients were allowable and adequately supported. We came to this conclusion because the support we were provided lacked enough details to ensure the activities were allowable and within the period of performance. In addition, the Department did not have evidence that it obtained supporting documentation for client files from one of the nine subrecipients we examined. We also examined program monitoring documentation completed for the same nine subrecipients. The Department only selected five households from each subrecipient for eligibility verification. There was a total of 53,699 households served for ERAP 2.0, and an additional 8,373 households served for TRAP 2.0. Therefore, the Department reviewed less than one-half of one percent of client files for each subrecipient. For these nine subrecipients, we verified that staff reviewed the number of client files that management required under the program. However, in our judgment, the total number of client files reviewed for each subrecipient was inadequate to reasonably ensure compliance with program requirements. The following table summarizes the percentage of client files the Department reviewed for each subrecipient during the audit period: We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition Management did not ensure that proper internal controls were in place to oversee ERAP 2.0 and the use of SLFRF funds. The Department approved payments to subrecipients without reviewing adequate supporting documentation, and management relied on annual program and fiscal monitoring to ensure subrecipients had proper supporting documentation and only served eligible households. In addition, it issued advance payments to subrecipients despite the subawards explicitly stating this was not allowable. Management did not ensure program and fiscal monitoring conducted included a sufficient sample of subrecipient records, and required detailed source documentation, to provide reasonable assurance of material compliance with federal SLFRF requirements and the terms and conditions of the subawards. Effect of Condition and Questioned Costs We determined the Department did not request and review adequate supporting documentation before paying subrecipients, and it did not perform adequate fiscal monitoring to ensure that funds advanced to subrecipients were disbursed to eligible households and for allowable activities. As a result, we identified $95,560 in known federal questioned costs and $1,482,489 in likely federal questioned costs. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). To ensure a representative sample, we stratified the population by dollar amount. Without establishing adequate internal controls and reviewing required supporting documentation from subrecipients, the Department cannot reasonably ensure it is using federal funds for allowable purposes and that spending occurs within the allowed period of performance. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Update its written procedures to require an adequate number of subrecipient client files to be reviewed during fiscal and program monitoring to provide reasonable assurance that each subrecipient is compliant with program requirements • Improve internal controls to ensure subrecipients provide adequate supporting documentation when requesting reimbursement • Request and review supporting documentation from all participating subrecipients on households served with SLFRF funds to determine if any amounts reimbursed to the subrecipients must be returned to the Department • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The State and Local Fiscal Recovery Funds were provided to the state as an advanced payment by which the Department used them to address the immense rent assistance needs as a result of the COVID-19 pandemic. Commerce funded subrecipients up to 25% of their contract total in an effort to mitigate cash flow issues to allow the swift distribution of funding. The Department utilized this method as obtaining documentation and processing reimbursements on a weekly basis still could not provide sufficient funding for all of the rent assistance needs. The Department now acknowledges the advanced payments were not authorized per federal guidance, however, all housing expenses were verified through thorough review of subrecipient expenditure supporting documentation. The Department completed fiscal and program monitoring of each subrecipient over the contract period, however, neither the Code of Federal Regulations nor the Washington State Auditor’s Office has been able to provide the Department with the number of client files that would need to be reviewed to be considered adequate. The Department created a procedure to review a minimum of five client files per subrecipient and followed this procedure. The Department understands that given the urgent need for assistance and the enormous amount of rent assistance funding distributed, thousands of client files would had to have been reviewed in a short period of time and we could not build and sustain the necessary staff capacity to match the fast-paced program delivery. The Department did increase internal controls related to program monitoring to more accurately comply with federal requirements as a result of the prior audit results. In July 2022, the Department began to review supporting backup documentation for all expenditures. The Department did not yet understand that transaction level detail was required and its review included a higher level of detail. Since the process was newly implemented in fiscal year 2023, it took some time to work out compliance challenges and provide technical assistance to subrecipients in order to comply with the federal requirements. The Department’s expenditure backup documentation review process began including transaction level detail in fiscal year 2023 as a result of the prior audit results. Any repayment of questioned costs will be determined through the standard resolution process with the United States Department of Treasury. Auditor’s Remarks Federal regulations require pass-through entities to monitor the activities of subrecipients as necessary to ensure that subawards are used for authorized purposes and in compliance with federal requirements and the terms and conditions of the subaward. In our judgement, the Department’s design of monitoring subrecipients for fiscal and program compliance did not provide this level of assurance. Specifically, the Department’s decision to review only five client files per subrecipient did not provide reasonable assurance of each subrecipient’s compliance when the average subrecipient served 1,413 clients, as illustrated in the Description of Condition. Based on this evidence, the Department only reviewed a total of 230 client files during the audit period, which makes up less than 0.4 percent of the total number of clients served. In addition, the Department’s decision to not review transaction-level supporting documentation at the time of issuing payment to subrecipients means that the monitoring of subrecipients was also being relied upon to ensure all payments made to subrecipients were only for allowable activities under the subaward. In our judgment, the procedures in place requiring only five client files be reviewed for each subrecipient were not sufficient to provide reasonable assurance of material compliance with the requirements for Activities Allowed or Unallowed and Allowable Costs/Cost Principles. We reaffirm our audit finding and will follow up on the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes the requirements for all pass-through entities. Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting the allowability of costs, describes the general criteria in order for a cost to be allowable under federal awards, including being adequately documented. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-027 The Department of Commerce did not have adequate internal controls over and did not comply with requirements for monitoring subrecipients to ensure payments were allowable, properly supported, and met period of performance requirements for the Coronavirus State and Local Fiscal Recovery Funds. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: SLFRP0002 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Subrecipient Monitoring Known Questioned Cost Amount: $95,560 Prior Year Audit Finding: Yes, Finding 2022-019 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF), as part of the America Rescue Plan Act of 2021, delivered $350 billion to state, local and tribal governments to support the response to and recovery from the COVID-19 public health emergency. Washington received $4.4 billion of SLFRF money from the U.S. Department of the Treasury, which the state’s Office of Financial Management allocated to state agencies for various programs. In fiscal year 2023, state agencies spent about $1.9 billion in SLFRF funds, more than $718 million of which was spent by the Department of Commerce. The Department used SLFRF funds to administer and provide economic assistance to households at risk of eviction and homelessness primarily through the Eviction Rental Assistance Program (ERAP 2.0) and Treasury Rent Assistance Program (TRAP 2.0), in addition to transportation, tourism and other pandemic-recovery projects. During fiscal year 2023, the Department expended about $253.5 million on reimbursements and advance payments to local governments and nonprofit organizations as subrecipients. These subrecipients were responsible for making direct payments of rent and utilities for eligible low-income households with overdue rent payments dating as far back as March 2020. Pass-through entities are required to monitor the activities of subrecipients to ensure they are properly using federal funds for allowable activities and expenditures. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Department did not have adequate internal controls over and did not comply with federal requirements for monitoring subrecipients to ensure payments were allowable, properly supported and within the period of performance. The prior finding number was 2022-019. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to monitor subrecipients to ensure payments were allowable, properly supported and met period of performance requirements for the SLFRF program. During the audit period, the Department only required summary level supporting documentation when approving subrecipient payments. Since detailed source documentation was not required at the time of reimbursement, the Department implemented a fiscal review process for ERAP and TRAP 2.0 subrecipients. We used a statistical sampling method to randomly select and review 56 out of 554 payments. Of the payments examined, we identified nine (16 percent) payments that were not allowable under terms and conditions of the subaward. Specifically: 1. Seven payments (13 percent) were for advances to the subrecipient, which are specifically prohibited under the terms and conditions of the Department’s subaward 2. Four payments (7 percent), including one of the payments mentioned above, did not have adequate documentation to ensure the payment was for an allowable activity under the subaward, met cost principles and occurred within the award’s period of performance. The Department’s invoice review procedure required the Department to verify that each subrecipient submitted, along with its invoice, a voucher detail worksheet that outlines expenses by budget category, and a general ledger report detailing the expenses incurred by the subrecipient during the invoice period. For four of the nine payments referenced above, we found the Department approved them for payment without receiving a general ledger report from the subrecipient detailing all incurred expenses. In one of these instances, we also found the Department advanced program funds to the subrecipient without reviewing supporting documentation from the subrecipient to demonstrate that all expenditures were incurred to support the amount advanced by the Department. We were not provided with any documentation demonstrating these funds were returned to the Department. We also used a non-statistical sampling method to randomly select and examine nine out of 35 subrecipients for which the Department completed monitoring during the audit period. We determined five of the nine fiscal reviews completed (56 percent) were insufficient to ensure payments to the subrecipients were allowable and adequately supported. We came to this conclusion because the support we were provided lacked enough details to ensure the activities were allowable and within the period of performance. In addition, the Department did not have evidence that it obtained supporting documentation for client files from one of the nine subrecipients we examined. We also examined program monitoring documentation completed for the same nine subrecipients. The Department only selected five households from each subrecipient for eligibility verification. There was a total of 53,699 households served for ERAP 2.0, and an additional 8,373 households served for TRAP 2.0. Therefore, the Department reviewed less than one-half of one percent of client files for each subrecipient. For these nine subrecipients, we verified that staff reviewed the number of client files that management required under the program. However, in our judgment, the total number of client files reviewed for each subrecipient was inadequate to reasonably ensure compliance with program requirements. The following table summarizes the percentage of client files the Department reviewed for each subrecipient during the audit period: We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition Management did not ensure that proper internal controls were in place to oversee ERAP 2.0 and the use of SLFRF funds. The Department approved payments to subrecipients without reviewing adequate supporting documentation, and management relied on annual program and fiscal monitoring to ensure subrecipients had proper supporting documentation and only served eligible households. In addition, it issued advance payments to subrecipients despite the subawards explicitly stating this was not allowable. Management did not ensure program and fiscal monitoring conducted included a sufficient sample of subrecipient records, and required detailed source documentation, to provide reasonable assurance of material compliance with federal SLFRF requirements and the terms and conditions of the subawards. Effect of Condition and Questioned Costs We determined the Department did not request and review adequate supporting documentation before paying subrecipients, and it did not perform adequate fiscal monitoring to ensure that funds advanced to subrecipients were disbursed to eligible households and for allowable activities. As a result, we identified $95,560 in known federal questioned costs and $1,482,489 in likely federal questioned costs. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). To ensure a representative sample, we stratified the population by dollar amount. Without establishing adequate internal controls and reviewing required supporting documentation from subrecipients, the Department cannot reasonably ensure it is using federal funds for allowable purposes and that spending occurs within the allowed period of performance. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Update its written procedures to require an adequate number of subrecipient client files to be reviewed during fiscal and program monitoring to provide reasonable assurance that each subrecipient is compliant with program requirements • Improve internal controls to ensure subrecipients provide adequate supporting documentation when requesting reimbursement • Request and review supporting documentation from all participating subrecipients on households served with SLFRF funds to determine if any amounts reimbursed to the subrecipients must be returned to the Department • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The State and Local Fiscal Recovery Funds were provided to the state as an advanced payment by which the Department used them to address the immense rent assistance needs as a result of the COVID-19 pandemic. Commerce funded subrecipients up to 25% of their contract total in an effort to mitigate cash flow issues to allow the swift distribution of funding. The Department utilized this method as obtaining documentation and processing reimbursements on a weekly basis still could not provide sufficient funding for all of the rent assistance needs. The Department now acknowledges the advanced payments were not authorized per federal guidance, however, all housing expenses were verified through thorough review of subrecipient expenditure supporting documentation. The Department completed fiscal and program monitoring of each subrecipient over the contract period, however, neither the Code of Federal Regulations nor the Washington State Auditor’s Office has been able to provide the Department with the number of client files that would need to be reviewed to be considered adequate. The Department created a procedure to review a minimum of five client files per subrecipient and followed this procedure. The Department understands that given the urgent need for assistance and the enormous amount of rent assistance funding distributed, thousands of client files would had to have been reviewed in a short period of time and we could not build and sustain the necessary staff capacity to match the fast-paced program delivery. The Department did increase internal controls related to program monitoring to more accurately comply with federal requirements as a result of the prior audit results. In July 2022, the Department began to review supporting backup documentation for all expenditures. The Department did not yet understand that transaction level detail was required and its review included a higher level of detail. Since the process was newly implemented in fiscal year 2023, it took some time to work out compliance challenges and provide technical assistance to subrecipients in order to comply with the federal requirements. The Department’s expenditure backup documentation review process began including transaction level detail in fiscal year 2023 as a result of the prior audit results. Any repayment of questioned costs will be determined through the standard resolution process with the United States Department of Treasury. Auditor’s Remarks Federal regulations require pass-through entities to monitor the activities of subrecipients as necessary to ensure that subawards are used for authorized purposes and in compliance with federal requirements and the terms and conditions of the subaward. In our judgement, the Department’s design of monitoring subrecipients for fiscal and program compliance did not provide this level of assurance. Specifically, the Department’s decision to review only five client files per subrecipient did not provide reasonable assurance of each subrecipient’s compliance when the average subrecipient served 1,413 clients, as illustrated in the Description of Condition. Based on this evidence, the Department only reviewed a total of 230 client files during the audit period, which makes up less than 0.4 percent of the total number of clients served. In addition, the Department’s decision to not review transaction-level supporting documentation at the time of issuing payment to subrecipients means that the monitoring of subrecipients was also being relied upon to ensure all payments made to subrecipients were only for allowable activities under the subaward. In our judgment, the procedures in place requiring only five client files be reviewed for each subrecipient were not sufficient to provide reasonable assurance of material compliance with the requirements for Activities Allowed or Unallowed and Allowable Costs/Cost Principles. We reaffirm our audit finding and will follow up on the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes the requirements for all pass-through entities. Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting the allowability of costs, describes the general criteria in order for a cost to be allowable under federal awards, including being adequately documented. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-027 The Department of Commerce did not have adequate internal controls over and did not comply with requirements for monitoring subrecipients to ensure payments were allowable, properly supported, and met period of performance requirements for the Coronavirus State and Local Fiscal Recovery Funds. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: SLFRP0002 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Subrecipient Monitoring Known Questioned Cost Amount: $95,560 Prior Year Audit Finding: Yes, Finding 2022-019 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF), as part of the America Rescue Plan Act of 2021, delivered $350 billion to state, local and tribal governments to support the response to and recovery from the COVID-19 public health emergency. Washington received $4.4 billion of SLFRF money from the U.S. Department of the Treasury, which the state’s Office of Financial Management allocated to state agencies for various programs. In fiscal year 2023, state agencies spent about $1.9 billion in SLFRF funds, more than $718 million of which was spent by the Department of Commerce. The Department used SLFRF funds to administer and provide economic assistance to households at risk of eviction and homelessness primarily through the Eviction Rental Assistance Program (ERAP 2.0) and Treasury Rent Assistance Program (TRAP 2.0), in addition to transportation, tourism and other pandemic-recovery projects. During fiscal year 2023, the Department expended about $253.5 million on reimbursements and advance payments to local governments and nonprofit organizations as subrecipients. These subrecipients were responsible for making direct payments of rent and utilities for eligible low-income households with overdue rent payments dating as far back as March 2020. Pass-through entities are required to monitor the activities of subrecipients to ensure they are properly using federal funds for allowable activities and expenditures. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Department did not have adequate internal controls over and did not comply with federal requirements for monitoring subrecipients to ensure payments were allowable, properly supported and within the period of performance. The prior finding number was 2022-019. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to monitor subrecipients to ensure payments were allowable, properly supported and met period of performance requirements for the SLFRF program. During the audit period, the Department only required summary level supporting documentation when approving subrecipient payments. Since detailed source documentation was not required at the time of reimbursement, the Department implemented a fiscal review process for ERAP and TRAP 2.0 subrecipients. We used a statistical sampling method to randomly select and review 56 out of 554 payments. Of the payments examined, we identified nine (16 percent) payments that were not allowable under terms and conditions of the subaward. Specifically: 1. Seven payments (13 percent) were for advances to the subrecipient, which are specifically prohibited under the terms and conditions of the Department’s subaward 2. Four payments (7 percent), including one of the payments mentioned above, did not have adequate documentation to ensure the payment was for an allowable activity under the subaward, met cost principles and occurred within the award’s period of performance. The Department’s invoice review procedure required the Department to verify that each subrecipient submitted, along with its invoice, a voucher detail worksheet that outlines expenses by budget category, and a general ledger report detailing the expenses incurred by the subrecipient during the invoice period. For four of the nine payments referenced above, we found the Department approved them for payment without receiving a general ledger report from the subrecipient detailing all incurred expenses. In one of these instances, we also found the Department advanced program funds to the subrecipient without reviewing supporting documentation from the subrecipient to demonstrate that all expenditures were incurred to support the amount advanced by the Department. We were not provided with any documentation demonstrating these funds were returned to the Department. We also used a non-statistical sampling method to randomly select and examine nine out of 35 subrecipients for which the Department completed monitoring during the audit period. We determined five of the nine fiscal reviews completed (56 percent) were insufficient to ensure payments to the subrecipients were allowable and adequately supported. We came to this conclusion because the support we were provided lacked enough details to ensure the activities were allowable and within the period of performance. In addition, the Department did not have evidence that it obtained supporting documentation for client files from one of the nine subrecipients we examined. We also examined program monitoring documentation completed for the same nine subrecipients. The Department only selected five households from each subrecipient for eligibility verification. There was a total of 53,699 households served for ERAP 2.0, and an additional 8,373 households served for TRAP 2.0. Therefore, the Department reviewed less than one-half of one percent of client files for each subrecipient. For these nine subrecipients, we verified that staff reviewed the number of client files that management required under the program. However, in our judgment, the total number of client files reviewed for each subrecipient was inadequate to reasonably ensure compliance with program requirements. The following table summarizes the percentage of client files the Department reviewed for each subrecipient during the audit period: We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition Management did not ensure that proper internal controls were in place to oversee ERAP 2.0 and the use of SLFRF funds. The Department approved payments to subrecipients without reviewing adequate supporting documentation, and management relied on annual program and fiscal monitoring to ensure subrecipients had proper supporting documentation and only served eligible households. In addition, it issued advance payments to subrecipients despite the subawards explicitly stating this was not allowable. Management did not ensure program and fiscal monitoring conducted included a sufficient sample of subrecipient records, and required detailed source documentation, to provide reasonable assurance of material compliance with federal SLFRF requirements and the terms and conditions of the subawards. Effect of Condition and Questioned Costs We determined the Department did not request and review adequate supporting documentation before paying subrecipients, and it did not perform adequate fiscal monitoring to ensure that funds advanced to subrecipients were disbursed to eligible households and for allowable activities. As a result, we identified $95,560 in known federal questioned costs and $1,482,489 in likely federal questioned costs. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). To ensure a representative sample, we stratified the population by dollar amount. Without establishing adequate internal controls and reviewing required supporting documentation from subrecipients, the Department cannot reasonably ensure it is using federal funds for allowable purposes and that spending occurs within the allowed period of performance. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Update its written procedures to require an adequate number of subrecipient client files to be reviewed during fiscal and program monitoring to provide reasonable assurance that each subrecipient is compliant with program requirements • Improve internal controls to ensure subrecipients provide adequate supporting documentation when requesting reimbursement • Request and review supporting documentation from all participating subrecipients on households served with SLFRF funds to determine if any amounts reimbursed to the subrecipients must be returned to the Department • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The State and Local Fiscal Recovery Funds were provided to the state as an advanced payment by which the Department used them to address the immense rent assistance needs as a result of the COVID-19 pandemic. Commerce funded subrecipients up to 25% of their contract total in an effort to mitigate cash flow issues to allow the swift distribution of funding. The Department utilized this method as obtaining documentation and processing reimbursements on a weekly basis still could not provide sufficient funding for all of the rent assistance needs. The Department now acknowledges the advanced payments were not authorized per federal guidance, however, all housing expenses were verified through thorough review of subrecipient expenditure supporting documentation. The Department completed fiscal and program monitoring of each subrecipient over the contract period, however, neither the Code of Federal Regulations nor the Washington State Auditor’s Office has been able to provide the Department with the number of client files that would need to be reviewed to be considered adequate. The Department created a procedure to review a minimum of five client files per subrecipient and followed this procedure. The Department understands that given the urgent need for assistance and the enormous amount of rent assistance funding distributed, thousands of client files would had to have been reviewed in a short period of time and we could not build and sustain the necessary staff capacity to match the fast-paced program delivery. The Department did increase internal controls related to program monitoring to more accurately comply with federal requirements as a result of the prior audit results. In July 2022, the Department began to review supporting backup documentation for all expenditures. The Department did not yet understand that transaction level detail was required and its review included a higher level of detail. Since the process was newly implemented in fiscal year 2023, it took some time to work out compliance challenges and provide technical assistance to subrecipients in order to comply with the federal requirements. The Department’s expenditure backup documentation review process began including transaction level detail in fiscal year 2023 as a result of the prior audit results. Any repayment of questioned costs will be determined through the standard resolution process with the United States Department of Treasury. Auditor’s Remarks Federal regulations require pass-through entities to monitor the activities of subrecipients as necessary to ensure that subawards are used for authorized purposes and in compliance with federal requirements and the terms and conditions of the subaward. In our judgement, the Department’s design of monitoring subrecipients for fiscal and program compliance did not provide this level of assurance. Specifically, the Department’s decision to review only five client files per subrecipient did not provide reasonable assurance of each subrecipient’s compliance when the average subrecipient served 1,413 clients, as illustrated in the Description of Condition. Based on this evidence, the Department only reviewed a total of 230 client files during the audit period, which makes up less than 0.4 percent of the total number of clients served. In addition, the Department’s decision to not review transaction-level supporting documentation at the time of issuing payment to subrecipients means that the monitoring of subrecipients was also being relied upon to ensure all payments made to subrecipients were only for allowable activities under the subaward. In our judgment, the procedures in place requiring only five client files be reviewed for each subrecipient were not sufficient to provide reasonable assurance of material compliance with the requirements for Activities Allowed or Unallowed and Allowable Costs/Cost Principles. We reaffirm our audit finding and will follow up on the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes the requirements for all pass-through entities. Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting the allowability of costs, describes the general criteria in order for a cost to be allowable under federal awards, including being adequately documented. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-027 The Department of Commerce did not have adequate internal controls over and did not comply with requirements for monitoring subrecipients to ensure payments were allowable, properly supported, and met period of performance requirements for the Coronavirus State and Local Fiscal Recovery Funds. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: SLFRP0002 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Subrecipient Monitoring Known Questioned Cost Amount: $95,560 Prior Year Audit Finding: Yes, Finding 2022-019 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF), as part of the America Rescue Plan Act of 2021, delivered $350 billion to state, local and tribal governments to support the response to and recovery from the COVID-19 public health emergency. Washington received $4.4 billion of SLFRF money from the U.S. Department of the Treasury, which the state’s Office of Financial Management allocated to state agencies for various programs. In fiscal year 2023, state agencies spent about $1.9 billion in SLFRF funds, more than $718 million of which was spent by the Department of Commerce. The Department used SLFRF funds to administer and provide economic assistance to households at risk of eviction and homelessness primarily through the Eviction Rental Assistance Program (ERAP 2.0) and Treasury Rent Assistance Program (TRAP 2.0), in addition to transportation, tourism and other pandemic-recovery projects. During fiscal year 2023, the Department expended about $253.5 million on reimbursements and advance payments to local governments and nonprofit organizations as subrecipients. These subrecipients were responsible for making direct payments of rent and utilities for eligible low-income households with overdue rent payments dating as far back as March 2020. Pass-through entities are required to monitor the activities of subrecipients to ensure they are properly using federal funds for allowable activities and expenditures. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Department did not have adequate internal controls over and did not comply with federal requirements for monitoring subrecipients to ensure payments were allowable, properly supported and within the period of performance. The prior finding number was 2022-019. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to monitor subrecipients to ensure payments were allowable, properly supported and met period of performance requirements for the SLFRF program. During the audit period, the Department only required summary level supporting documentation when approving subrecipient payments. Since detailed source documentation was not required at the time of reimbursement, the Department implemented a fiscal review process for ERAP and TRAP 2.0 subrecipients. We used a statistical sampling method to randomly select and review 56 out of 554 payments. Of the payments examined, we identified nine (16 percent) payments that were not allowable under terms and conditions of the subaward. Specifically: 1. Seven payments (13 percent) were for advances to the subrecipient, which are specifically prohibited under the terms and conditions of the Department’s subaward 2. Four payments (7 percent), including one of the payments mentioned above, did not have adequate documentation to ensure the payment was for an allowable activity under the subaward, met cost principles and occurred within the award’s period of performance. The Department’s invoice review procedure required the Department to verify that each subrecipient submitted, along with its invoice, a voucher detail worksheet that outlines expenses by budget category, and a general ledger report detailing the expenses incurred by the subrecipient during the invoice period. For four of the nine payments referenced above, we found the Department approved them for payment without receiving a general ledger report from the subrecipient detailing all incurred expenses. In one of these instances, we also found the Department advanced program funds to the subrecipient without reviewing supporting documentation from the subrecipient to demonstrate that all expenditures were incurred to support the amount advanced by the Department. We were not provided with any documentation demonstrating these funds were returned to the Department. We also used a non-statistical sampling method to randomly select and examine nine out of 35 subrecipients for which the Department completed monitoring during the audit period. We determined five of the nine fiscal reviews completed (56 percent) were insufficient to ensure payments to the subrecipients were allowable and adequately supported. We came to this conclusion because the support we were provided lacked enough details to ensure the activities were allowable and within the period of performance. In addition, the Department did not have evidence that it obtained supporting documentation for client files from one of the nine subrecipients we examined. We also examined program monitoring documentation completed for the same nine subrecipients. The Department only selected five households from each subrecipient for eligibility verification. There was a total of 53,699 households served for ERAP 2.0, and an additional 8,373 households served for TRAP 2.0. Therefore, the Department reviewed less than one-half of one percent of client files for each subrecipient. For these nine subrecipients, we verified that staff reviewed the number of client files that management required under the program. However, in our judgment, the total number of client files reviewed for each subrecipient was inadequate to reasonably ensure compliance with program requirements. The following table summarizes the percentage of client files the Department reviewed for each subrecipient during the audit period: We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition Management did not ensure that proper internal controls were in place to oversee ERAP 2.0 and the use of SLFRF funds. The Department approved payments to subrecipients without reviewing adequate supporting documentation, and management relied on annual program and fiscal monitoring to ensure subrecipients had proper supporting documentation and only served eligible households. In addition, it issued advance payments to subrecipients despite the subawards explicitly stating this was not allowable. Management did not ensure program and fiscal monitoring conducted included a sufficient sample of subrecipient records, and required detailed source documentation, to provide reasonable assurance of material compliance with federal SLFRF requirements and the terms and conditions of the subawards. Effect of Condition and Questioned Costs We determined the Department did not request and review adequate supporting documentation before paying subrecipients, and it did not perform adequate fiscal monitoring to ensure that funds advanced to subrecipients were disbursed to eligible households and for allowable activities. As a result, we identified $95,560 in known federal questioned costs and $1,482,489 in likely federal questioned costs. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). To ensure a representative sample, we stratified the population by dollar amount. Without establishing adequate internal controls and reviewing required supporting documentation from subrecipients, the Department cannot reasonably ensure it is using federal funds for allowable purposes and that spending occurs within the allowed period of performance. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Update its written procedures to require an adequate number of subrecipient client files to be reviewed during fiscal and program monitoring to provide reasonable assurance that each subrecipient is compliant with program requirements • Improve internal controls to ensure subrecipients provide adequate supporting documentation when requesting reimbursement • Request and review supporting documentation from all participating subrecipients on households served with SLFRF funds to determine if any amounts reimbursed to the subrecipients must be returned to the Department • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The State and Local Fiscal Recovery Funds were provided to the state as an advanced payment by which the Department used them to address the immense rent assistance needs as a result of the COVID-19 pandemic. Commerce funded subrecipients up to 25% of their contract total in an effort to mitigate cash flow issues to allow the swift distribution of funding. The Department utilized this method as obtaining documentation and processing reimbursements on a weekly basis still could not provide sufficient funding for all of the rent assistance needs. The Department now acknowledges the advanced payments were not authorized per federal guidance, however, all housing expenses were verified through thorough review of subrecipient expenditure supporting documentation. The Department completed fiscal and program monitoring of each subrecipient over the contract period, however, neither the Code of Federal Regulations nor the Washington State Auditor’s Office has been able to provide the Department with the number of client files that would need to be reviewed to be considered adequate. The Department created a procedure to review a minimum of five client files per subrecipient and followed this procedure. The Department understands that given the urgent need for assistance and the enormous amount of rent assistance funding distributed, thousands of client files would had to have been reviewed in a short period of time and we could not build and sustain the necessary staff capacity to match the fast-paced program delivery. The Department did increase internal controls related to program monitoring to more accurately comply with federal requirements as a result of the prior audit results. In July 2022, the Department began to review supporting backup documentation for all expenditures. The Department did not yet understand that transaction level detail was required and its review included a higher level of detail. Since the process was newly implemented in fiscal year 2023, it took some time to work out compliance challenges and provide technical assistance to subrecipients in order to comply with the federal requirements. The Department’s expenditure backup documentation review process began including transaction level detail in fiscal year 2023 as a result of the prior audit results. Any repayment of questioned costs will be determined through the standard resolution process with the United States Department of Treasury. Auditor’s Remarks Federal regulations require pass-through entities to monitor the activities of subrecipients as necessary to ensure that subawards are used for authorized purposes and in compliance with federal requirements and the terms and conditions of the subaward. In our judgement, the Department’s design of monitoring subrecipients for fiscal and program compliance did not provide this level of assurance. Specifically, the Department’s decision to review only five client files per subrecipient did not provide reasonable assurance of each subrecipient’s compliance when the average subrecipient served 1,413 clients, as illustrated in the Description of Condition. Based on this evidence, the Department only reviewed a total of 230 client files during the audit period, which makes up less than 0.4 percent of the total number of clients served. In addition, the Department’s decision to not review transaction-level supporting documentation at the time of issuing payment to subrecipients means that the monitoring of subrecipients was also being relied upon to ensure all payments made to subrecipients were only for allowable activities under the subaward. In our judgment, the procedures in place requiring only five client files be reviewed for each subrecipient were not sufficient to provide reasonable assurance of material compliance with the requirements for Activities Allowed or Unallowed and Allowable Costs/Cost Principles. We reaffirm our audit finding and will follow up on the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes the requirements for all pass-through entities. Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting the allowability of costs, describes the general criteria in order for a cost to be allowable under federal awards, including being adequately documented. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-027 The Department of Commerce did not have adequate internal controls over and did not comply with requirements for monitoring subrecipients to ensure payments were allowable, properly supported, and met period of performance requirements for the Coronavirus State and Local Fiscal Recovery Funds. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: SLFRP0002 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Subrecipient Monitoring Known Questioned Cost Amount: $95,560 Prior Year Audit Finding: Yes, Finding 2022-019 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF), as part of the America Rescue Plan Act of 2021, delivered $350 billion to state, local and tribal governments to support the response to and recovery from the COVID-19 public health emergency. Washington received $4.4 billion of SLFRF money from the U.S. Department of the Treasury, which the state’s Office of Financial Management allocated to state agencies for various programs. In fiscal year 2023, state agencies spent about $1.9 billion in SLFRF funds, more than $718 million of which was spent by the Department of Commerce. The Department used SLFRF funds to administer and provide economic assistance to households at risk of eviction and homelessness primarily through the Eviction Rental Assistance Program (ERAP 2.0) and Treasury Rent Assistance Program (TRAP 2.0), in addition to transportation, tourism and other pandemic-recovery projects. During fiscal year 2023, the Department expended about $253.5 million on reimbursements and advance payments to local governments and nonprofit organizations as subrecipients. These subrecipients were responsible for making direct payments of rent and utilities for eligible low-income households with overdue rent payments dating as far back as March 2020. Pass-through entities are required to monitor the activities of subrecipients to ensure they are properly using federal funds for allowable activities and expenditures. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Department did not have adequate internal controls over and did not comply with federal requirements for monitoring subrecipients to ensure payments were allowable, properly supported and within the period of performance. The prior finding number was 2022-019. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to monitor subrecipients to ensure payments were allowable, properly supported and met period of performance requirements for the SLFRF program. During the audit period, the Department only required summary level supporting documentation when approving subrecipient payments. Since detailed source documentation was not required at the time of reimbursement, the Department implemented a fiscal review process for ERAP and TRAP 2.0 subrecipients. We used a statistical sampling method to randomly select and review 56 out of 554 payments. Of the payments examined, we identified nine (16 percent) payments that were not allowable under terms and conditions of the subaward. Specifically: 1. Seven payments (13 percent) were for advances to the subrecipient, which are specifically prohibited under the terms and conditions of the Department’s subaward 2. Four payments (7 percent), including one of the payments mentioned above, did not have adequate documentation to ensure the payment was for an allowable activity under the subaward, met cost principles and occurred within the award’s period of performance. The Department’s invoice review procedure required the Department to verify that each subrecipient submitted, along with its invoice, a voucher detail worksheet that outlines expenses by budget category, and a general ledger report detailing the expenses incurred by the subrecipient during the invoice period. For four of the nine payments referenced above, we found the Department approved them for payment without receiving a general ledger report from the subrecipient detailing all incurred expenses. In one of these instances, we also found the Department advanced program funds to the subrecipient without reviewing supporting documentation from the subrecipient to demonstrate that all expenditures were incurred to support the amount advanced by the Department. We were not provided with any documentation demonstrating these funds were returned to the Department. We also used a non-statistical sampling method to randomly select and examine nine out of 35 subrecipients for which the Department completed monitoring during the audit period. We determined five of the nine fiscal reviews completed (56 percent) were insufficient to ensure payments to the subrecipients were allowable and adequately supported. We came to this conclusion because the support we were provided lacked enough details to ensure the activities were allowable and within the period of performance. In addition, the Department did not have evidence that it obtained supporting documentation for client files from one of the nine subrecipients we examined. We also examined program monitoring documentation completed for the same nine subrecipients. The Department only selected five households from each subrecipient for eligibility verification. There was a total of 53,699 households served for ERAP 2.0, and an additional 8,373 households served for TRAP 2.0. Therefore, the Department reviewed less than one-half of one percent of client files for each subrecipient. For these nine subrecipients, we verified that staff reviewed the number of client files that management required under the program. However, in our judgment, the total number of client files reviewed for each subrecipient was inadequate to reasonably ensure compliance with program requirements. The following table summarizes the percentage of client files the Department reviewed for each subrecipient during the audit period: We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition Management did not ensure that proper internal controls were in place to oversee ERAP 2.0 and the use of SLFRF funds. The Department approved payments to subrecipients without reviewing adequate supporting documentation, and management relied on annual program and fiscal monitoring to ensure subrecipients had proper supporting documentation and only served eligible households. In addition, it issued advance payments to subrecipients despite the subawards explicitly stating this was not allowable. Management did not ensure program and fiscal monitoring conducted included a sufficient sample of subrecipient records, and required detailed source documentation, to provide reasonable assurance of material compliance with federal SLFRF requirements and the terms and conditions of the subawards. Effect of Condition and Questioned Costs We determined the Department did not request and review adequate supporting documentation before paying subrecipients, and it did not perform adequate fiscal monitoring to ensure that funds advanced to subrecipients were disbursed to eligible households and for allowable activities. As a result, we identified $95,560 in known federal questioned costs and $1,482,489 in likely federal questioned costs. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). To ensure a representative sample, we stratified the population by dollar amount. Without establishing adequate internal controls and reviewing required supporting documentation from subrecipients, the Department cannot reasonably ensure it is using federal funds for allowable purposes and that spending occurs within the allowed period of performance. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Update its written procedures to require an adequate number of subrecipient client files to be reviewed during fiscal and program monitoring to provide reasonable assurance that each subrecipient is compliant with program requirements • Improve internal controls to ensure subrecipients provide adequate supporting documentation when requesting reimbursement • Request and review supporting documentation from all participating subrecipients on households served with SLFRF funds to determine if any amounts reimbursed to the subrecipients must be returned to the Department • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The State and Local Fiscal Recovery Funds were provided to the state as an advanced payment by which the Department used them to address the immense rent assistance needs as a result of the COVID-19 pandemic. Commerce funded subrecipients up to 25% of their contract total in an effort to mitigate cash flow issues to allow the swift distribution of funding. The Department utilized this method as obtaining documentation and processing reimbursements on a weekly basis still could not provide sufficient funding for all of the rent assistance needs. The Department now acknowledges the advanced payments were not authorized per federal guidance, however, all housing expenses were verified through thorough review of subrecipient expenditure supporting documentation. The Department completed fiscal and program monitoring of each subrecipient over the contract period, however, neither the Code of Federal Regulations nor the Washington State Auditor’s Office has been able to provide the Department with the number of client files that would need to be reviewed to be considered adequate. The Department created a procedure to review a minimum of five client files per subrecipient and followed this procedure. The Department understands that given the urgent need for assistance and the enormous amount of rent assistance funding distributed, thousands of client files would had to have been reviewed in a short period of time and we could not build and sustain the necessary staff capacity to match the fast-paced program delivery. The Department did increase internal controls related to program monitoring to more accurately comply with federal requirements as a result of the prior audit results. In July 2022, the Department began to review supporting backup documentation for all expenditures. The Department did not yet understand that transaction level detail was required and its review included a higher level of detail. Since the process was newly implemented in fiscal year 2023, it took some time to work out compliance challenges and provide technical assistance to subrecipients in order to comply with the federal requirements. The Department’s expenditure backup documentation review process began including transaction level detail in fiscal year 2023 as a result of the prior audit results. Any repayment of questioned costs will be determined through the standard resolution process with the United States Department of Treasury. Auditor’s Remarks Federal regulations require pass-through entities to monitor the activities of subrecipients as necessary to ensure that subawards are used for authorized purposes and in compliance with federal requirements and the terms and conditions of the subaward. In our judgement, the Department’s design of monitoring subrecipients for fiscal and program compliance did not provide this level of assurance. Specifically, the Department’s decision to review only five client files per subrecipient did not provide reasonable assurance of each subrecipient’s compliance when the average subrecipient served 1,413 clients, as illustrated in the Description of Condition. Based on this evidence, the Department only reviewed a total of 230 client files during the audit period, which makes up less than 0.4 percent of the total number of clients served. In addition, the Department’s decision to not review transaction-level supporting documentation at the time of issuing payment to subrecipients means that the monitoring of subrecipients was also being relied upon to ensure all payments made to subrecipients were only for allowable activities under the subaward. In our judgment, the procedures in place requiring only five client files be reviewed for each subrecipient were not sufficient to provide reasonable assurance of material compliance with the requirements for Activities Allowed or Unallowed and Allowable Costs/Cost Principles. We reaffirm our audit finding and will follow up on the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes the requirements for all pass-through entities. Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting the allowability of costs, describes the general criteria in order for a cost to be allowable under federal awards, including being adequately documented. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-027 The Department of Commerce did not have adequate internal controls over and did not comply with requirements for monitoring subrecipients to ensure payments were allowable, properly supported, and met period of performance requirements for the Coronavirus State and Local Fiscal Recovery Funds. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: SLFRP0002 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Subrecipient Monitoring Known Questioned Cost Amount: $95,560 Prior Year Audit Finding: Yes, Finding 2022-019 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF), as part of the America Rescue Plan Act of 2021, delivered $350 billion to state, local and tribal governments to support the response to and recovery from the COVID-19 public health emergency. Washington received $4.4 billion of SLFRF money from the U.S. Department of the Treasury, which the state’s Office of Financial Management allocated to state agencies for various programs. In fiscal year 2023, state agencies spent about $1.9 billion in SLFRF funds, more than $718 million of which was spent by the Department of Commerce. The Department used SLFRF funds to administer and provide economic assistance to households at risk of eviction and homelessness primarily through the Eviction Rental Assistance Program (ERAP 2.0) and Treasury Rent Assistance Program (TRAP 2.0), in addition to transportation, tourism and other pandemic-recovery projects. During fiscal year 2023, the Department expended about $253.5 million on reimbursements and advance payments to local governments and nonprofit organizations as subrecipients. These subrecipients were responsible for making direct payments of rent and utilities for eligible low-income households with overdue rent payments dating as far back as March 2020. Pass-through entities are required to monitor the activities of subrecipients to ensure they are properly using federal funds for allowable activities and expenditures. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Department did not have adequate internal controls over and did not comply with federal requirements for monitoring subrecipients to ensure payments were allowable, properly supported and within the period of performance. The prior finding number was 2022-019. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to monitor subrecipients to ensure payments were allowable, properly supported and met period of performance requirements for the SLFRF program. During the audit period, the Department only required summary level supporting documentation when approving subrecipient payments. Since detailed source documentation was not required at the time of reimbursement, the Department implemented a fiscal review process for ERAP and TRAP 2.0 subrecipients. We used a statistical sampling method to randomly select and review 56 out of 554 payments. Of the payments examined, we identified nine (16 percent) payments that were not allowable under terms and conditions of the subaward. Specifically: 1. Seven payments (13 percent) were for advances to the subrecipient, which are specifically prohibited under the terms and conditions of the Department’s subaward 2. Four payments (7 percent), including one of the payments mentioned above, did not have adequate documentation to ensure the payment was for an allowable activity under the subaward, met cost principles and occurred within the award’s period of performance. The Department’s invoice review procedure required the Department to verify that each subrecipient submitted, along with its invoice, a voucher detail worksheet that outlines expenses by budget category, and a general ledger report detailing the expenses incurred by the subrecipient during the invoice period. For four of the nine payments referenced above, we found the Department approved them for payment without receiving a general ledger report from the subrecipient detailing all incurred expenses. In one of these instances, we also found the Department advanced program funds to the subrecipient without reviewing supporting documentation from the subrecipient to demonstrate that all expenditures were incurred to support the amount advanced by the Department. We were not provided with any documentation demonstrating these funds were returned to the Department. We also used a non-statistical sampling method to randomly select and examine nine out of 35 subrecipients for which the Department completed monitoring during the audit period. We determined five of the nine fiscal reviews completed (56 percent) were insufficient to ensure payments to the subrecipients were allowable and adequately supported. We came to this conclusion because the support we were provided lacked enough details to ensure the activities were allowable and within the period of performance. In addition, the Department did not have evidence that it obtained supporting documentation for client files from one of the nine subrecipients we examined. We also examined program monitoring documentation completed for the same nine subrecipients. The Department only selected five households from each subrecipient for eligibility verification. There was a total of 53,699 households served for ERAP 2.0, and an additional 8,373 households served for TRAP 2.0. Therefore, the Department reviewed less than one-half of one percent of client files for each subrecipient. For these nine subrecipients, we verified that staff reviewed the number of client files that management required under the program. However, in our judgment, the total number of client files reviewed for each subrecipient was inadequate to reasonably ensure compliance with program requirements. The following table summarizes the percentage of client files the Department reviewed for each subrecipient during the audit period: We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition Management did not ensure that proper internal controls were in place to oversee ERAP 2.0 and the use of SLFRF funds. The Department approved payments to subrecipients without reviewing adequate supporting documentation, and management relied on annual program and fiscal monitoring to ensure subrecipients had proper supporting documentation and only served eligible households. In addition, it issued advance payments to subrecipients despite the subawards explicitly stating this was not allowable. Management did not ensure program and fiscal monitoring conducted included a sufficient sample of subrecipient records, and required detailed source documentation, to provide reasonable assurance of material compliance with federal SLFRF requirements and the terms and conditions of the subawards. Effect of Condition and Questioned Costs We determined the Department did not request and review adequate supporting documentation before paying subrecipients, and it did not perform adequate fiscal monitoring to ensure that funds advanced to subrecipients were disbursed to eligible households and for allowable activities. As a result, we identified $95,560 in known federal questioned costs and $1,482,489 in likely federal questioned costs. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). To ensure a representative sample, we stratified the population by dollar amount. Without establishing adequate internal controls and reviewing required supporting documentation from subrecipients, the Department cannot reasonably ensure it is using federal funds for allowable purposes and that spending occurs within the allowed period of performance. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Update its written procedures to require an adequate number of subrecipient client files to be reviewed during fiscal and program monitoring to provide reasonable assurance that each subrecipient is compliant with program requirements • Improve internal controls to ensure subrecipients provide adequate supporting documentation when requesting reimbursement • Request and review supporting documentation from all participating subrecipients on households served with SLFRF funds to determine if any amounts reimbursed to the subrecipients must be returned to the Department • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The State and Local Fiscal Recovery Funds were provided to the state as an advanced payment by which the Department used them to address the immense rent assistance needs as a result of the COVID-19 pandemic. Commerce funded subrecipients up to 25% of their contract total in an effort to mitigate cash flow issues to allow the swift distribution of funding. The Department utilized this method as obtaining documentation and processing reimbursements on a weekly basis still could not provide sufficient funding for all of the rent assistance needs. The Department now acknowledges the advanced payments were not authorized per federal guidance, however, all housing expenses were verified through thorough review of subrecipient expenditure supporting documentation. The Department completed fiscal and program monitoring of each subrecipient over the contract period, however, neither the Code of Federal Regulations nor the Washington State Auditor’s Office has been able to provide the Department with the number of client files that would need to be reviewed to be considered adequate. The Department created a procedure to review a minimum of five client files per subrecipient and followed this procedure. The Department understands that given the urgent need for assistance and the enormous amount of rent assistance funding distributed, thousands of client files would had to have been reviewed in a short period of time and we could not build and sustain the necessary staff capacity to match the fast-paced program delivery. The Department did increase internal controls related to program monitoring to more accurately comply with federal requirements as a result of the prior audit results. In July 2022, the Department began to review supporting backup documentation for all expenditures. The Department did not yet understand that transaction level detail was required and its review included a higher level of detail. Since the process was newly implemented in fiscal year 2023, it took some time to work out compliance challenges and provide technical assistance to subrecipients in order to comply with the federal requirements. The Department’s expenditure backup documentation review process began including transaction level detail in fiscal year 2023 as a result of the prior audit results. Any repayment of questioned costs will be determined through the standard resolution process with the United States Department of Treasury. Auditor’s Remarks Federal regulations require pass-through entities to monitor the activities of subrecipients as necessary to ensure that subawards are used for authorized purposes and in compliance with federal requirements and the terms and conditions of the subaward. In our judgement, the Department’s design of monitoring subrecipients for fiscal and program compliance did not provide this level of assurance. Specifically, the Department’s decision to review only five client files per subrecipient did not provide reasonable assurance of each subrecipient’s compliance when the average subrecipient served 1,413 clients, as illustrated in the Description of Condition. Based on this evidence, the Department only reviewed a total of 230 client files during the audit period, which makes up less than 0.4 percent of the total number of clients served. In addition, the Department’s decision to not review transaction-level supporting documentation at the time of issuing payment to subrecipients means that the monitoring of subrecipients was also being relied upon to ensure all payments made to subrecipients were only for allowable activities under the subaward. In our judgment, the procedures in place requiring only five client files be reviewed for each subrecipient were not sufficient to provide reasonable assurance of material compliance with the requirements for Activities Allowed or Unallowed and Allowable Costs/Cost Principles. We reaffirm our audit finding and will follow up on the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes the requirements for all pass-through entities. Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting the allowability of costs, describes the general criteria in order for a cost to be allowable under federal awards, including being adequately documented. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-027 The Department of Commerce did not have adequate internal controls over and did not comply with requirements for monitoring subrecipients to ensure payments were allowable, properly supported, and met period of performance requirements for the Coronavirus State and Local Fiscal Recovery Funds. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: SLFRP0002 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Subrecipient Monitoring Known Questioned Cost Amount: $95,560 Prior Year Audit Finding: Yes, Finding 2022-019 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF), as part of the America Rescue Plan Act of 2021, delivered $350 billion to state, local and tribal governments to support the response to and recovery from the COVID-19 public health emergency. Washington received $4.4 billion of SLFRF money from the U.S. Department of the Treasury, which the state’s Office of Financial Management allocated to state agencies for various programs. In fiscal year 2023, state agencies spent about $1.9 billion in SLFRF funds, more than $718 million of which was spent by the Department of Commerce. The Department used SLFRF funds to administer and provide economic assistance to households at risk of eviction and homelessness primarily through the Eviction Rental Assistance Program (ERAP 2.0) and Treasury Rent Assistance Program (TRAP 2.0), in addition to transportation, tourism and other pandemic-recovery projects. During fiscal year 2023, the Department expended about $253.5 million on reimbursements and advance payments to local governments and nonprofit organizations as subrecipients. These subrecipients were responsible for making direct payments of rent and utilities for eligible low-income households with overdue rent payments dating as far back as March 2020. Pass-through entities are required to monitor the activities of subrecipients to ensure they are properly using federal funds for allowable activities and expenditures. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Department did not have adequate internal controls over and did not comply with federal requirements for monitoring subrecipients to ensure payments were allowable, properly supported and within the period of performance. The prior finding number was 2022-019. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to monitor subrecipients to ensure payments were allowable, properly supported and met period of performance requirements for the SLFRF program. During the audit period, the Department only required summary level supporting documentation when approving subrecipient payments. Since detailed source documentation was not required at the time of reimbursement, the Department implemented a fiscal review process for ERAP and TRAP 2.0 subrecipients. We used a statistical sampling method to randomly select and review 56 out of 554 payments. Of the payments examined, we identified nine (16 percent) payments that were not allowable under terms and conditions of the subaward. Specifically: 1. Seven payments (13 percent) were for advances to the subrecipient, which are specifically prohibited under the terms and conditions of the Department’s subaward 2. Four payments (7 percent), including one of the payments mentioned above, did not have adequate documentation to ensure the payment was for an allowable activity under the subaward, met cost principles and occurred within the award’s period of performance. The Department’s invoice review procedure required the Department to verify that each subrecipient submitted, along with its invoice, a voucher detail worksheet that outlines expenses by budget category, and a general ledger report detailing the expenses incurred by the subrecipient during the invoice period. For four of the nine payments referenced above, we found the Department approved them for payment without receiving a general ledger report from the subrecipient detailing all incurred expenses. In one of these instances, we also found the Department advanced program funds to the subrecipient without reviewing supporting documentation from the subrecipient to demonstrate that all expenditures were incurred to support the amount advanced by the Department. We were not provided with any documentation demonstrating these funds were returned to the Department. We also used a non-statistical sampling method to randomly select and examine nine out of 35 subrecipients for which the Department completed monitoring during the audit period. We determined five of the nine fiscal reviews completed (56 percent) were insufficient to ensure payments to the subrecipients were allowable and adequately supported. We came to this conclusion because the support we were provided lacked enough details to ensure the activities were allowable and within the period of performance. In addition, the Department did not have evidence that it obtained supporting documentation for client files from one of the nine subrecipients we examined. We also examined program monitoring documentation completed for the same nine subrecipients. The Department only selected five households from each subrecipient for eligibility verification. There was a total of 53,699 households served for ERAP 2.0, and an additional 8,373 households served for TRAP 2.0. Therefore, the Department reviewed less than one-half of one percent of client files for each subrecipient. For these nine subrecipients, we verified that staff reviewed the number of client files that management required under the program. However, in our judgment, the total number of client files reviewed for each subrecipient was inadequate to reasonably ensure compliance with program requirements. The following table summarizes the percentage of client files the Department reviewed for each subrecipient during the audit period: We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition Management did not ensure that proper internal controls were in place to oversee ERAP 2.0 and the use of SLFRF funds. The Department approved payments to subrecipients without reviewing adequate supporting documentation, and management relied on annual program and fiscal monitoring to ensure subrecipients had proper supporting documentation and only served eligible households. In addition, it issued advance payments to subrecipients despite the subawards explicitly stating this was not allowable. Management did not ensure program and fiscal monitoring conducted included a sufficient sample of subrecipient records, and required detailed source documentation, to provide reasonable assurance of material compliance with federal SLFRF requirements and the terms and conditions of the subawards. Effect of Condition and Questioned Costs We determined the Department did not request and review adequate supporting documentation before paying subrecipients, and it did not perform adequate fiscal monitoring to ensure that funds advanced to subrecipients were disbursed to eligible households and for allowable activities. As a result, we identified $95,560 in known federal questioned costs and $1,482,489 in likely federal questioned costs. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). To ensure a representative sample, we stratified the population by dollar amount. Without establishing adequate internal controls and reviewing required supporting documentation from subrecipients, the Department cannot reasonably ensure it is using federal funds for allowable purposes and that spending occurs within the allowed period of performance. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Update its written procedures to require an adequate number of subrecipient client files to be reviewed during fiscal and program monitoring to provide reasonable assurance that each subrecipient is compliant with program requirements • Improve internal controls to ensure subrecipients provide adequate supporting documentation when requesting reimbursement • Request and review supporting documentation from all participating subrecipients on households served with SLFRF funds to determine if any amounts reimbursed to the subrecipients must be returned to the Department • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The State and Local Fiscal Recovery Funds were provided to the state as an advanced payment by which the Department used them to address the immense rent assistance needs as a result of the COVID-19 pandemic. Commerce funded subrecipients up to 25% of their contract total in an effort to mitigate cash flow issues to allow the swift distribution of funding. The Department utilized this method as obtaining documentation and processing reimbursements on a weekly basis still could not provide sufficient funding for all of the rent assistance needs. The Department now acknowledges the advanced payments were not authorized per federal guidance, however, all housing expenses were verified through thorough review of subrecipient expenditure supporting documentation. The Department completed fiscal and program monitoring of each subrecipient over the contract period, however, neither the Code of Federal Regulations nor the Washington State Auditor’s Office has been able to provide the Department with the number of client files that would need to be reviewed to be considered adequate. The Department created a procedure to review a minimum of five client files per subrecipient and followed this procedure. The Department understands that given the urgent need for assistance and the enormous amount of rent assistance funding distributed, thousands of client files would had to have been reviewed in a short period of time and we could not build and sustain the necessary staff capacity to match the fast-paced program delivery. The Department did increase internal controls related to program monitoring to more accurately comply with federal requirements as a result of the prior audit results. In July 2022, the Department began to review supporting backup documentation for all expenditures. The Department did not yet understand that transaction level detail was required and its review included a higher level of detail. Since the process was newly implemented in fiscal year 2023, it took some time to work out compliance challenges and provide technical assistance to subrecipients in order to comply with the federal requirements. The Department’s expenditure backup documentation review process began including transaction level detail in fiscal year 2023 as a result of the prior audit results. Any repayment of questioned costs will be determined through the standard resolution process with the United States Department of Treasury. Auditor’s Remarks Federal regulations require pass-through entities to monitor the activities of subrecipients as necessary to ensure that subawards are used for authorized purposes and in compliance with federal requirements and the terms and conditions of the subaward. In our judgement, the Department’s design of monitoring subrecipients for fiscal and program compliance did not provide this level of assurance. Specifically, the Department’s decision to review only five client files per subrecipient did not provide reasonable assurance of each subrecipient’s compliance when the average subrecipient served 1,413 clients, as illustrated in the Description of Condition. Based on this evidence, the Department only reviewed a total of 230 client files during the audit period, which makes up less than 0.4 percent of the total number of clients served. In addition, the Department’s decision to not review transaction-level supporting documentation at the time of issuing payment to subrecipients means that the monitoring of subrecipients was also being relied upon to ensure all payments made to subrecipients were only for allowable activities under the subaward. In our judgment, the procedures in place requiring only five client files be reviewed for each subrecipient were not sufficient to provide reasonable assurance of material compliance with the requirements for Activities Allowed or Unallowed and Allowable Costs/Cost Principles. We reaffirm our audit finding and will follow up on the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes the requirements for all pass-through entities. Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting the allowability of costs, describes the general criteria in order for a cost to be allowable under federal awards, including being adequately documented. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-027 The Department of Commerce did not have adequate internal controls over and did not comply with requirements for monitoring subrecipients to ensure payments were allowable, properly supported, and met period of performance requirements for the Coronavirus State and Local Fiscal Recovery Funds. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: SLFRP0002 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Subrecipient Monitoring Known Questioned Cost Amount: $95,560 Prior Year Audit Finding: Yes, Finding 2022-019 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF), as part of the America Rescue Plan Act of 2021, delivered $350 billion to state, local and tribal governments to support the response to and recovery from the COVID-19 public health emergency. Washington received $4.4 billion of SLFRF money from the U.S. Department of the Treasury, which the state’s Office of Financial Management allocated to state agencies for various programs. In fiscal year 2023, state agencies spent about $1.9 billion in SLFRF funds, more than $718 million of which was spent by the Department of Commerce. The Department used SLFRF funds to administer and provide economic assistance to households at risk of eviction and homelessness primarily through the Eviction Rental Assistance Program (ERAP 2.0) and Treasury Rent Assistance Program (TRAP 2.0), in addition to transportation, tourism and other pandemic-recovery projects. During fiscal year 2023, the Department expended about $253.5 million on reimbursements and advance payments to local governments and nonprofit organizations as subrecipients. These subrecipients were responsible for making direct payments of rent and utilities for eligible low-income households with overdue rent payments dating as far back as March 2020. Pass-through entities are required to monitor the activities of subrecipients to ensure they are properly using federal funds for allowable activities and expenditures. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Department did not have adequate internal controls over and did not comply with federal requirements for monitoring subrecipients to ensure payments were allowable, properly supported and within the period of performance. The prior finding number was 2022-019. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to monitor subrecipients to ensure payments were allowable, properly supported and met period of performance requirements for the SLFRF program. During the audit period, the Department only required summary level supporting documentation when approving subrecipient payments. Since detailed source documentation was not required at the time of reimbursement, the Department implemented a fiscal review process for ERAP and TRAP 2.0 subrecipients. We used a statistical sampling method to randomly select and review 56 out of 554 payments. Of the payments examined, we identified nine (16 percent) payments that were not allowable under terms and conditions of the subaward. Specifically: 1. Seven payments (13 percent) were for advances to the subrecipient, which are specifically prohibited under the terms and conditions of the Department’s subaward 2. Four payments (7 percent), including one of the payments mentioned above, did not have adequate documentation to ensure the payment was for an allowable activity under the subaward, met cost principles and occurred within the award’s period of performance. The Department’s invoice review procedure required the Department to verify that each subrecipient submitted, along with its invoice, a voucher detail worksheet that outlines expenses by budget category, and a general ledger report detailing the expenses incurred by the subrecipient during the invoice period. For four of the nine payments referenced above, we found the Department approved them for payment without receiving a general ledger report from the subrecipient detailing all incurred expenses. In one of these instances, we also found the Department advanced program funds to the subrecipient without reviewing supporting documentation from the subrecipient to demonstrate that all expenditures were incurred to support the amount advanced by the Department. We were not provided with any documentation demonstrating these funds were returned to the Department. We also used a non-statistical sampling method to randomly select and examine nine out of 35 subrecipients for which the Department completed monitoring during the audit period. We determined five of the nine fiscal reviews completed (56 percent) were insufficient to ensure payments to the subrecipients were allowable and adequately supported. We came to this conclusion because the support we were provided lacked enough details to ensure the activities were allowable and within the period of performance. In addition, the Department did not have evidence that it obtained supporting documentation for client files from one of the nine subrecipients we examined. We also examined program monitoring documentation completed for the same nine subrecipients. The Department only selected five households from each subrecipient for eligibility verification. There was a total of 53,699 households served for ERAP 2.0, and an additional 8,373 households served for TRAP 2.0. Therefore, the Department reviewed less than one-half of one percent of client files for each subrecipient. For these nine subrecipients, we verified that staff reviewed the number of client files that management required under the program. However, in our judgment, the total number of client files reviewed for each subrecipient was inadequate to reasonably ensure compliance with program requirements. The following table summarizes the percentage of client files the Department reviewed for each subrecipient during the audit period: We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition Management did not ensure that proper internal controls were in place to oversee ERAP 2.0 and the use of SLFRF funds. The Department approved payments to subrecipients without reviewing adequate supporting documentation, and management relied on annual program and fiscal monitoring to ensure subrecipients had proper supporting documentation and only served eligible households. In addition, it issued advance payments to subrecipients despite the subawards explicitly stating this was not allowable. Management did not ensure program and fiscal monitoring conducted included a sufficient sample of subrecipient records, and required detailed source documentation, to provide reasonable assurance of material compliance with federal SLFRF requirements and the terms and conditions of the subawards. Effect of Condition and Questioned Costs We determined the Department did not request and review adequate supporting documentation before paying subrecipients, and it did not perform adequate fiscal monitoring to ensure that funds advanced to subrecipients were disbursed to eligible households and for allowable activities. As a result, we identified $95,560 in known federal questioned costs and $1,482,489 in likely federal questioned costs. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). To ensure a representative sample, we stratified the population by dollar amount. Without establishing adequate internal controls and reviewing required supporting documentation from subrecipients, the Department cannot reasonably ensure it is using federal funds for allowable purposes and that spending occurs within the allowed period of performance. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Update its written procedures to require an adequate number of subrecipient client files to be reviewed during fiscal and program monitoring to provide reasonable assurance that each subrecipient is compliant with program requirements • Improve internal controls to ensure subrecipients provide adequate supporting documentation when requesting reimbursement • Request and review supporting documentation from all participating subrecipients on households served with SLFRF funds to determine if any amounts reimbursed to the subrecipients must be returned to the Department • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The State and Local Fiscal Recovery Funds were provided to the state as an advanced payment by which the Department used them to address the immense rent assistance needs as a result of the COVID-19 pandemic. Commerce funded subrecipients up to 25% of their contract total in an effort to mitigate cash flow issues to allow the swift distribution of funding. The Department utilized this method as obtaining documentation and processing reimbursements on a weekly basis still could not provide sufficient funding for all of the rent assistance needs. The Department now acknowledges the advanced payments were not authorized per federal guidance, however, all housing expenses were verified through thorough review of subrecipient expenditure supporting documentation. The Department completed fiscal and program monitoring of each subrecipient over the contract period, however, neither the Code of Federal Regulations nor the Washington State Auditor’s Office has been able to provide the Department with the number of client files that would need to be reviewed to be considered adequate. The Department created a procedure to review a minimum of five client files per subrecipient and followed this procedure. The Department understands that given the urgent need for assistance and the enormous amount of rent assistance funding distributed, thousands of client files would had to have been reviewed in a short period of time and we could not build and sustain the necessary staff capacity to match the fast-paced program delivery. The Department did increase internal controls related to program monitoring to more accurately comply with federal requirements as a result of the prior audit results. In July 2022, the Department began to review supporting backup documentation for all expenditures. The Department did not yet understand that transaction level detail was required and its review included a higher level of detail. Since the process was newly implemented in fiscal year 2023, it took some time to work out compliance challenges and provide technical assistance to subrecipients in order to comply with the federal requirements. The Department’s expenditure backup documentation review process began including transaction level detail in fiscal year 2023 as a result of the prior audit results. Any repayment of questioned costs will be determined through the standard resolution process with the United States Department of Treasury. Auditor’s Remarks Federal regulations require pass-through entities to monitor the activities of subrecipients as necessary to ensure that subawards are used for authorized purposes and in compliance with federal requirements and the terms and conditions of the subaward. In our judgement, the Department’s design of monitoring subrecipients for fiscal and program compliance did not provide this level of assurance. Specifically, the Department’s decision to review only five client files per subrecipient did not provide reasonable assurance of each subrecipient’s compliance when the average subrecipient served 1,413 clients, as illustrated in the Description of Condition. Based on this evidence, the Department only reviewed a total of 230 client files during the audit period, which makes up less than 0.4 percent of the total number of clients served. In addition, the Department’s decision to not review transaction-level supporting documentation at the time of issuing payment to subrecipients means that the monitoring of subrecipients was also being relied upon to ensure all payments made to subrecipients were only for allowable activities under the subaward. In our judgment, the procedures in place requiring only five client files be reviewed for each subrecipient were not sufficient to provide reasonable assurance of material compliance with the requirements for Activities Allowed or Unallowed and Allowable Costs/Cost Principles. We reaffirm our audit finding and will follow up on the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes the requirements for all pass-through entities. Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting the allowability of costs, describes the general criteria in order for a cost to be allowable under federal awards, including being adequately documented. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-027 The Department of Commerce did not have adequate internal controls over and did not comply with requirements for monitoring subrecipients to ensure payments were allowable, properly supported, and met period of performance requirements for the Coronavirus State and Local Fiscal Recovery Funds. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: SLFRP0002 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Subrecipient Monitoring Known Questioned Cost Amount: $95,560 Prior Year Audit Finding: Yes, Finding 2022-019 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF), as part of the America Rescue Plan Act of 2021, delivered $350 billion to state, local and tribal governments to support the response to and recovery from the COVID-19 public health emergency. Washington received $4.4 billion of SLFRF money from the U.S. Department of the Treasury, which the state’s Office of Financial Management allocated to state agencies for various programs. In fiscal year 2023, state agencies spent about $1.9 billion in SLFRF funds, more than $718 million of which was spent by the Department of Commerce. The Department used SLFRF funds to administer and provide economic assistance to households at risk of eviction and homelessness primarily through the Eviction Rental Assistance Program (ERAP 2.0) and Treasury Rent Assistance Program (TRAP 2.0), in addition to transportation, tourism and other pandemic-recovery projects. During fiscal year 2023, the Department expended about $253.5 million on reimbursements and advance payments to local governments and nonprofit organizations as subrecipients. These subrecipients were responsible for making direct payments of rent and utilities for eligible low-income households with overdue rent payments dating as far back as March 2020. Pass-through entities are required to monitor the activities of subrecipients to ensure they are properly using federal funds for allowable activities and expenditures. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Department did not have adequate internal controls over and did not comply with federal requirements for monitoring subrecipients to ensure payments were allowable, properly supported and within the period of performance. The prior finding number was 2022-019. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to monitor subrecipients to ensure payments were allowable, properly supported and met period of performance requirements for the SLFRF program. During the audit period, the Department only required summary level supporting documentation when approving subrecipient payments. Since detailed source documentation was not required at the time of reimbursement, the Department implemented a fiscal review process for ERAP and TRAP 2.0 subrecipients. We used a statistical sampling method to randomly select and review 56 out of 554 payments. Of the payments examined, we identified nine (16 percent) payments that were not allowable under terms and conditions of the subaward. Specifically: 1. Seven payments (13 percent) were for advances to the subrecipient, which are specifically prohibited under the terms and conditions of the Department’s subaward 2. Four payments (7 percent), including one of the payments mentioned above, did not have adequate documentation to ensure the payment was for an allowable activity under the subaward, met cost principles and occurred within the award’s period of performance. The Department’s invoice review procedure required the Department to verify that each subrecipient submitted, along with its invoice, a voucher detail worksheet that outlines expenses by budget category, and a general ledger report detailing the expenses incurred by the subrecipient during the invoice period. For four of the nine payments referenced above, we found the Department approved them for payment without receiving a general ledger report from the subrecipient detailing all incurred expenses. In one of these instances, we also found the Department advanced program funds to the subrecipient without reviewing supporting documentation from the subrecipient to demonstrate that all expenditures were incurred to support the amount advanced by the Department. We were not provided with any documentation demonstrating these funds were returned to the Department. We also used a non-statistical sampling method to randomly select and examine nine out of 35 subrecipients for which the Department completed monitoring during the audit period. We determined five of the nine fiscal reviews completed (56 percent) were insufficient to ensure payments to the subrecipients were allowable and adequately supported. We came to this conclusion because the support we were provided lacked enough details to ensure the activities were allowable and within the period of performance. In addition, the Department did not have evidence that it obtained supporting documentation for client files from one of the nine subrecipients we examined. We also examined program monitoring documentation completed for the same nine subrecipients. The Department only selected five households from each subrecipient for eligibility verification. There was a total of 53,699 households served for ERAP 2.0, and an additional 8,373 households served for TRAP 2.0. Therefore, the Department reviewed less than one-half of one percent of client files for each subrecipient. For these nine subrecipients, we verified that staff reviewed the number of client files that management required under the program. However, in our judgment, the total number of client files reviewed for each subrecipient was inadequate to reasonably ensure compliance with program requirements. The following table summarizes the percentage of client files the Department reviewed for each subrecipient during the audit period: We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition Management did not ensure that proper internal controls were in place to oversee ERAP 2.0 and the use of SLFRF funds. The Department approved payments to subrecipients without reviewing adequate supporting documentation, and management relied on annual program and fiscal monitoring to ensure subrecipients had proper supporting documentation and only served eligible households. In addition, it issued advance payments to subrecipients despite the subawards explicitly stating this was not allowable. Management did not ensure program and fiscal monitoring conducted included a sufficient sample of subrecipient records, and required detailed source documentation, to provide reasonable assurance of material compliance with federal SLFRF requirements and the terms and conditions of the subawards. Effect of Condition and Questioned Costs We determined the Department did not request and review adequate supporting documentation before paying subrecipients, and it did not perform adequate fiscal monitoring to ensure that funds advanced to subrecipients were disbursed to eligible households and for allowable activities. As a result, we identified $95,560 in known federal questioned costs and $1,482,489 in likely federal questioned costs. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). To ensure a representative sample, we stratified the population by dollar amount. Without establishing adequate internal controls and reviewing required supporting documentation from subrecipients, the Department cannot reasonably ensure it is using federal funds for allowable purposes and that spending occurs within the allowed period of performance. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Update its written procedures to require an adequate number of subrecipient client files to be reviewed during fiscal and program monitoring to provide reasonable assurance that each subrecipient is compliant with program requirements • Improve internal controls to ensure subrecipients provide adequate supporting documentation when requesting reimbursement • Request and review supporting documentation from all participating subrecipients on households served with SLFRF funds to determine if any amounts reimbursed to the subrecipients must be returned to the Department • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The State and Local Fiscal Recovery Funds were provided to the state as an advanced payment by which the Department used them to address the immense rent assistance needs as a result of the COVID-19 pandemic. Commerce funded subrecipients up to 25% of their contract total in an effort to mitigate cash flow issues to allow the swift distribution of funding. The Department utilized this method as obtaining documentation and processing reimbursements on a weekly basis still could not provide sufficient funding for all of the rent assistance needs. The Department now acknowledges the advanced payments were not authorized per federal guidance, however, all housing expenses were verified through thorough review of subrecipient expenditure supporting documentation. The Department completed fiscal and program monitoring of each subrecipient over the contract period, however, neither the Code of Federal Regulations nor the Washington State Auditor’s Office has been able to provide the Department with the number of client files that would need to be reviewed to be considered adequate. The Department created a procedure to review a minimum of five client files per subrecipient and followed this procedure. The Department understands that given the urgent need for assistance and the enormous amount of rent assistance funding distributed, thousands of client files would had to have been reviewed in a short period of time and we could not build and sustain the necessary staff capacity to match the fast-paced program delivery. The Department did increase internal controls related to program monitoring to more accurately comply with federal requirements as a result of the prior audit results. In July 2022, the Department began to review supporting backup documentation for all expenditures. The Department did not yet understand that transaction level detail was required and its review included a higher level of detail. Since the process was newly implemented in fiscal year 2023, it took some time to work out compliance challenges and provide technical assistance to subrecipients in order to comply with the federal requirements. The Department’s expenditure backup documentation review process began including transaction level detail in fiscal year 2023 as a result of the prior audit results. Any repayment of questioned costs will be determined through the standard resolution process with the United States Department of Treasury. Auditor’s Remarks Federal regulations require pass-through entities to monitor the activities of subrecipients as necessary to ensure that subawards are used for authorized purposes and in compliance with federal requirements and the terms and conditions of the subaward. In our judgement, the Department’s design of monitoring subrecipients for fiscal and program compliance did not provide this level of assurance. Specifically, the Department’s decision to review only five client files per subrecipient did not provide reasonable assurance of each subrecipient’s compliance when the average subrecipient served 1,413 clients, as illustrated in the Description of Condition. Based on this evidence, the Department only reviewed a total of 230 client files during the audit period, which makes up less than 0.4 percent of the total number of clients served. In addition, the Department’s decision to not review transaction-level supporting documentation at the time of issuing payment to subrecipients means that the monitoring of subrecipients was also being relied upon to ensure all payments made to subrecipients were only for allowable activities under the subaward. In our judgment, the procedures in place requiring only five client files be reviewed for each subrecipient were not sufficient to provide reasonable assurance of material compliance with the requirements for Activities Allowed or Unallowed and Allowable Costs/Cost Principles. We reaffirm our audit finding and will follow up on the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes the requirements for all pass-through entities. Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting the allowability of costs, describes the general criteria in order for a cost to be allowable under federal awards, including being adequately documented. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-027 The Department of Commerce did not have adequate internal controls over and did not comply with requirements for monitoring subrecipients to ensure payments were allowable, properly supported, and met period of performance requirements for the Coronavirus State and Local Fiscal Recovery Funds. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: SLFRP0002 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Subrecipient Monitoring Known Questioned Cost Amount: $95,560 Prior Year Audit Finding: Yes, Finding 2022-019 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF), as part of the America Rescue Plan Act of 2021, delivered $350 billion to state, local and tribal governments to support the response to and recovery from the COVID-19 public health emergency. Washington received $4.4 billion of SLFRF money from the U.S. Department of the Treasury, which the state’s Office of Financial Management allocated to state agencies for various programs. In fiscal year 2023, state agencies spent about $1.9 billion in SLFRF funds, more than $718 million of which was spent by the Department of Commerce. The Department used SLFRF funds to administer and provide economic assistance to households at risk of eviction and homelessness primarily through the Eviction Rental Assistance Program (ERAP 2.0) and Treasury Rent Assistance Program (TRAP 2.0), in addition to transportation, tourism and other pandemic-recovery projects. During fiscal year 2023, the Department expended about $253.5 million on reimbursements and advance payments to local governments and nonprofit organizations as subrecipients. These subrecipients were responsible for making direct payments of rent and utilities for eligible low-income households with overdue rent payments dating as far back as March 2020. Pass-through entities are required to monitor the activities of subrecipients to ensure they are properly using federal funds for allowable activities and expenditures. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Department did not have adequate internal controls over and did not comply with federal requirements for monitoring subrecipients to ensure payments were allowable, properly supported and within the period of performance. The prior finding number was 2022-019. Description of Condition The Department did not have adequate internal controls over and did not comply with requirements to monitor subrecipients to ensure payments were allowable, properly supported and met period of performance requirements for the SLFRF program. During the audit period, the Department only required summary level supporting documentation when approving subrecipient payments. Since detailed source documentation was not required at the time of reimbursement, the Department implemented a fiscal review process for ERAP and TRAP 2.0 subrecipients. We used a statistical sampling method to randomly select and review 56 out of 554 payments. Of the payments examined, we identified nine (16 percent) payments that were not allowable under terms and conditions of the subaward. Specifically: 1. Seven payments (13 percent) were for advances to the subrecipient, which are specifically prohibited under the terms and conditions of the Department’s subaward 2. Four payments (7 percent), including one of the payments mentioned above, did not have adequate documentation to ensure the payment was for an allowable activity under the subaward, met cost principles and occurred within the award’s period of performance. The Department’s invoice review procedure required the Department to verify that each subrecipient submitted, along with its invoice, a voucher detail worksheet that outlines expenses by budget category, and a general ledger report detailing the expenses incurred by the subrecipient during the invoice period. For four of the nine payments referenced above, we found the Department approved them for payment without receiving a general ledger report from the subrecipient detailing all incurred expenses. In one of these instances, we also found the Department advanced program funds to the subrecipient without reviewing supporting documentation from the subrecipient to demonstrate that all expenditures were incurred to support the amount advanced by the Department. We were not provided with any documentation demonstrating these funds were returned to the Department. We also used a non-statistical sampling method to randomly select and examine nine out of 35 subrecipients for which the Department completed monitoring during the audit period. We determined five of the nine fiscal reviews completed (56 percent) were insufficient to ensure payments to the subrecipients were allowable and adequately supported. We came to this conclusion because the support we were provided lacked enough details to ensure the activities were allowable and within the period of performance. In addition, the Department did not have evidence that it obtained supporting documentation for client files from one of the nine subrecipients we examined. We also examined program monitoring documentation completed for the same nine subrecipients. The Department only selected five households from each subrecipient for eligibility verification. There was a total of 53,699 households served for ERAP 2.0, and an additional 8,373 households served for TRAP 2.0. Therefore, the Department reviewed less than one-half of one percent of client files for each subrecipient. For these nine subrecipients, we verified that staff reviewed the number of client files that management required under the program. However, in our judgment, the total number of client files reviewed for each subrecipient was inadequate to reasonably ensure compliance with program requirements. The following table summarizes the percentage of client files the Department reviewed for each subrecipient during the audit period: We consider these internal control deficiencies to be a material weakness, which led to material noncompliance. Cause of Condition Management did not ensure that proper internal controls were in place to oversee ERAP 2.0 and the use of SLFRF funds. The Department approved payments to subrecipients without reviewing adequate supporting documentation, and management relied on annual program and fiscal monitoring to ensure subrecipients had proper supporting documentation and only served eligible households. In addition, it issued advance payments to subrecipients despite the subawards explicitly stating this was not allowable. Management did not ensure program and fiscal monitoring conducted included a sufficient sample of subrecipient records, and required detailed source documentation, to provide reasonable assurance of material compliance with federal SLFRF requirements and the terms and conditions of the subawards. Effect of Condition and Questioned Costs We determined the Department did not request and review adequate supporting documentation before paying subrecipients, and it did not perform adequate fiscal monitoring to ensure that funds advanced to subrecipients were disbursed to eligible households and for allowable activities. As a result, we identified $95,560 in known federal questioned costs and $1,482,489 in likely federal questioned costs. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). To ensure a representative sample, we stratified the population by dollar amount. Without establishing adequate internal controls and reviewing required supporting documentation from subrecipients, the Department cannot reasonably ensure it is using federal funds for allowable purposes and that spending occurs within the allowed period of performance. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Update its written procedures to require an adequate number of subrecipient client files to be reviewed during fiscal and program monitoring to provide reasonable assurance that each subrecipient is compliant with program requirements • Improve internal controls to ensure subrecipients provide adequate supporting documentation when requesting reimbursement • Request and review supporting documentation from all participating subrecipients on households served with SLFRF funds to determine if any amounts reimbursed to the subrecipients must be returned to the Department • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response The State and Local Fiscal Recovery Funds were provided to the state as an advanced payment by which the Department used them to address the immense rent assistance needs as a result of the COVID-19 pandemic. Commerce funded subrecipients up to 25% of their contract total in an effort to mitigate cash flow issues to allow the swift distribution of funding. The Department utilized this method as obtaining documentation and processing reimbursements on a weekly basis still could not provide sufficient funding for all of the rent assistance needs. The Department now acknowledges the advanced payments were not authorized per federal guidance, however, all housing expenses were verified through thorough review of subrecipient expenditure supporting documentation. The Department completed fiscal and program monitoring of each subrecipient over the contract period, however, neither the Code of Federal Regulations nor the Washington State Auditor’s Office has been able to provide the Department with the number of client files that would need to be reviewed to be considered adequate. The Department created a procedure to review a minimum of five client files per subrecipient and followed this procedure. The Department understands that given the urgent need for assistance and the enormous amount of rent assistance funding distributed, thousands of client files would had to have been reviewed in a short period of time and we could not build and sustain the necessary staff capacity to match the fast-paced program delivery. The Department did increase internal controls related to program monitoring to more accurately comply with federal requirements as a result of the prior audit results. In July 2022, the Department began to review supporting backup documentation for all expenditures. The Department did not yet understand that transaction level detail was required and its review included a higher level of detail. Since the process was newly implemented in fiscal year 2023, it took some time to work out compliance challenges and provide technical assistance to subrecipients in order to comply with the federal requirements. The Department’s expenditure backup documentation review process began including transaction level detail in fiscal year 2023 as a result of the prior audit results. Any repayment of questioned costs will be determined through the standard resolution process with the United States Department of Treasury. Auditor’s Remarks Federal regulations require pass-through entities to monitor the activities of subrecipients as necessary to ensure that subawards are used for authorized purposes and in compliance with federal requirements and the terms and conditions of the subaward. In our judgement, the Department’s design of monitoring subrecipients for fiscal and program compliance did not provide this level of assurance. Specifically, the Department’s decision to review only five client files per subrecipient did not provide reasonable assurance of each subrecipient’s compliance when the average subrecipient served 1,413 clients, as illustrated in the Description of Condition. Based on this evidence, the Department only reviewed a total of 230 client files during the audit period, which makes up less than 0.4 percent of the total number of clients served. In addition, the Department’s decision to not review transaction-level supporting documentation at the time of issuing payment to subrecipients means that the monitoring of subrecipients was also being relied upon to ensure all payments made to subrecipients were only for allowable activities under the subaward. In our judgment, the procedures in place requiring only five client files be reviewed for each subrecipient were not sufficient to provide reasonable assurance of material compliance with the requirements for Activities Allowed or Unallowed and Allowable Costs/Cost Principles. We reaffirm our audit finding and will follow up on the status of the Department’s corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes the requirements for all pass-through entities. Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting the allowability of costs, describes the general criteria in order for a cost to be allowable under federal awards, including being adequately documented. Title 2 CFR Part 200.1, Uniform Guidance, establishes definitions for improper payments. Part 200.410 establishes requirements for the collection of unallowable costs. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
2023-044 The Department of Health did not have adequate internal controls to ensure payments to subrecipients were allowable, met cost principles, and were within the period of performance for the Immunization Cooperative Agreements program. Assistance Listing Number and Title: 93.268 Immunization Cooperative Agreements 93.268 COVID-19 Immunization Cooperative Agreements Federal Grantor Name: U.S Department of Health and Human Services Federal Award/Contract Number: 6NH231IP922619-04-01; 5 NH23IP922619-04-00;6 NH23IP922619-02-04; 6 NH23IP922619-02-06; 6 NH23IP922619-02-03; 6 NH23IP922619-02-02 Pass-through Entity Name: None Pass-through Award/Contract Number: None Applicable Compliance Component: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Known Questioned Cost Amount: $416,027 Prior Year Audit Finding: Yes, Finding 2022-031 Background The Department of Health administers the Immunization Cooperative Agreements program, which aims to reduce and ultimately eliminate vaccine-preventable diseases by increasing and maintaining high immunization coverage. Emphasis is placed on populations at highest risk for underimmunization and disease, including children eligible under the Vaccines for Children program. In fiscal year 2023, the Department spent more than $24.6 million in federal program funds, about $8.5 million of which it disbursed to subrecipients. The Department also received more than $97.6 million in non-cash assistance from the federal grantor in the form of vaccines. To help carry out the program’s objectives, the Department issues consolidated contracts to Local Health Jurisdictions that are classified as subrecipients. A consolidated contract is for one subrecipient that combines funding for multiple federal programs. Each federal grant specifies a performance period during which recipients must obligate and liquidate program costs. The periods for this program are July 1 through June 30 of the associated fiscal year. Payments for costs charged before a grant’s beginning date or after the ending date are not allowed without the grantor’s prior approval. Subrecipients are awarded federal funds on a reimbursement basis only. The Department assigns each subrecipient a risk level based on standardized criteria, and it maintains a matrix that specifies the documentation that subrecipients at each risk level are required to submit with every reimbursement. There are varying requirements among low, moderate and high-risk subrecipients for each of the following expense categories: • Salaries and benefits • Equipment ($5,000 or more) • Materials and supplies • Meals • Outreach materials • Travel • Training • Contracts • Sub-subrecipients • Administrative/indirect costs During the audit period, subrecipients submitted invoices to the Department’s accounting unit where staff, on a weekly basis, compiled a list of all consolidated contract invoices into one email. The accounting unit emailed the requests to Department program staff requesting review to ensure the payment was allowable and within the period of performance. The emails consisted of 30 to 50 invoice requests with hundreds of pages of supporting documentation. Each invoice listed in the email would be considered approved if program staff did not respond. To address concerns about an invoice, program staff were required to email the accounting unit within 10 business days to withhold payment until the items in question were resolved. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. In the prior audit, we reported the Department did not have adequate internal controls over and did not comply with requirements to ensure payments to providers were allowable, met cost principles and were within the period of performance for the program. The prior finding number was 2022-031. Description of Condition The Department did not have adequate internal controls to ensure payments to subrecipients were allowable, met cost principles, and were within the period of performance for the program. Department program staff were required to use the documentation matrix when reviewing subrecipient payments to ensure they were for allowable activities, met cost principles, were within the period of performance and included required supporting documentation. However, program staff did not communicate their approval to the accounting unit that issues payment. As a result, the Department paid the subrecipients without knowing whether these expenditures had been reviewed and approved by program staff. We used a statistical sampling method to randomly select and examine 56 out of 681 provider payments. Additionally, we judgmentally reviewed two individually significant payments that exceeded $476,000 each. In total, we examined more than $2.4 million in provider payments as part of the audit. Of the 58 payments examined, we identified seven payments (12.5 percent) and one individually significant payment that did not have the required supporting documentation for the subrecipients’ assigned risk level. In addition, we judgmentally selected and examined six high-risk transactions out of a population of 1,293 expenditures charged to the federal fiscal year 2023 award that opened during the audit period. We found four expenditures that were improperly charged to the grant because the activity occurred before the period of performance. We also judgmentally selected and examined two out of a population of 167 expenditures charged to the federal fiscal year 2022 award that closed during the audit period. We found one expenditure was improperly charged to the grant because the activity occurred after the period of performance. We consider these internal control deficiencies to be a material weakness. Cause of Condition The Department’s established procedures allowed for paying providers without ensuring program staff reviewed and determined the payment was allowable, within the period of performance, and adequately supported. Furthermore, program management did not ensure staff followed the existing review procedures. Additionally, the Department did not ensure that expenditures that were cost allocated and directly charged during the opening and closing of awards were within the award’s period of performance. Effect of Condition and Questioned Costs Without establishing adequate internal controls, the Department cannot reasonably ensure it is using federal funds for allowable purposes and within the period of performance. By not ensuring subrecipients submitted required supporting documentation, staff could not adequately verify the reimbursement claims, and the Department could not ensure its subrecipients complied with the subaward’s terms and conditions. The eight payments for which the Department did not have required supporting documentation from subrecipients totaled $404,592 in known questioned costs. Based on these results, we estimate that the total amount of likely improper payments using federal funds to be $588,502. Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C 530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining if expenditures complied with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance, with a 95 percent confidence of whether exceptions exceeded our materiality threshold. Our audit report and finding reflect this conclusion. However, the likely improper payment projections are a point estimate and only represent our “best estimate of total questioned costs,” as required by 2 CFR § 200.516(3). To ensure a representative sample, we stratified the population by dollar amount. For the federal fiscal year award 2023 that opened during the audit period, we identified questioned costs totaling $3,852. For the federal fiscal year 2022 award that closed during our audit period, we identified questioned costs totaling $7,583. In total, we identified $416,027 in known federal questioned costs and $599,937 in likely questioned costs. We question costs when we find an agency has not complied with grant regulations or when it does not have adequate documentation to support its expenditures. Recommendations We recommend the Department: • Improve internal controls to ensure that it obtains adequate supporting documentation from subrecipients before reimbursing them • Improve internal controls to ensure program staff review, approve, and communicate approval of expenditures to those issuing payment to verify they are for allowable activities and within the period of performance prior to payment • Improve its internal controls to ensure expenditures charged at the beginning and end of an award are within the period of performance • Consult with the grantor to discuss whether the questioned costs identified in the audit should be repaid Department’s Response We appreciate the State Auditor’s Office audit of the Immunizations grant. DOH is committed to ensuring our programs comply with federal regulations. The Department does not concur with the finding. While the Department has taken steps to ensure payments to providers contain proper support in line with our A19 matrix for risk assessed of our subrecipients, we continue to disagree with SAO’s assessment of a material weakness in internal controls over the consolidated contract provider payment process. As noted in the finding, program staff now document their review and approval of consolidated contract reimbursement requests. If the payment has no issues or concerns, the total payment is logged in a spreadsheet with documented review and approval to denote no issues and that full payment can be made. If there is a question on allowable cost, period of performance, a need for additional backup or an error, program Immunization staff will update spreadsheet with the amounts in question and communicate with the Local Health Jurisdiction, document the correspondence, and contact the accounting consolidated contract payment desk to withhold the specific amount of payment until the issue is resolved. Once resolved staff update the spreadsheet to denote the issue has been resolved and email accounting to release the payment amount in question. The defined process of consolidated contract payments has been in place for well over a decade and was implemented in response to issues arising with timely payment of funds to our local government partners. The consolidated contracts are an essential tool in providing such funding on a large scale. This process balances many needs in tracking payments, providing documentation to the programs for review as well as allowing for timely distribution of funding to the local health jurisdictions (LHJs) for state and federal programs in order to serve the residents of the State of Washington. It also simplifies the invoicing and payment process as well as reconciliation between DOH and the LHJs. We do not concur with several of the exceptions and questioned costs identified. The Department believes there was a lack of understanding of DOH process related to allocation of space costs and how overtime is earned and accounted for according the Collective Bargaining Agreement. Additionally, while in some instances the level of support did not meet our internal policies, which are held to a higher standard than federal requirements, the level of documentation received from the subrecipient accounting system gave us assurance that the transactions/costs questioned met federal cost principles for allowability and period of performance. This, along with the following additional overall internal monitoring and policy processes support our overall assurance of the allowability of payments: • The Immunization program staff maintain detailed budget information for each subrecipient by project area, and as A-19s are submitted, program and accounting staff update budget spreadsheets. When reviewing the support provided by the subrecipient, they ensure amounts submitted by project are reasonable and are in alignment with expectations for the budget period submitted. • The Immunization program refer to the federal Immunization Program Operations Manual (IPOM) to determine allowable costs, purchase, and procurement procedures. •The Fiscal Monitoring Unit provides technical assistance and training, not only to program staff, but to the subrecipients while onsite and at the request of the entities receiving funding. • The Immunizations program provides technical assistance, policies, and training to Immunization subrecipients related to both allowability and compliance. • The Immunizations program has continued to strengthen processes to ensure that the backup documentation received is in alignment with the agency’s documentation matrix for sub-recipients per their risk level. Auditor’s Remarks While management has implemented a new procedure for program staff to document their review and approval of subrecipient reimbursement requests, this approval is not communicated to fiscal staff before payments are issued. As a result, approval is assumed and not verified by fiscal staff when no response is received from the program staff. The amount of supporting documentation submitted by a subrecipient utilizing consolidated contracts is extensive and often covers multiple reimbursement requests for more than one federally funded program. In our judgment, this increases the risk that a proper review is not performed before payments are issued. The Department did not concur with some of the identified exceptions and stated it believed it was due to our Office’s lack of understanding of their processes. This assertion is not accurate. We understand their processes, but four of the exceptions were payments for services that occurred prior to the grant being open (expenses were for the month of June 2022, but the award opened July 1, 2022. These four exceptions included the “allocation of space costs and how overtime is earned and accounted for” referred to in the Department’s response. These exceptions were discussed in detail with the Department and during these discussions the Department mistakenly asserted that the time of payment was what determined compliance, not when the activity occurred. This is not correct and may be part of why the Department did not concur with the exceptions. We reaffirm our finding and will follow up on the status of the Department’s corrective action during our next audit period. Applicable Laws and Regulations 45 U.S. Code of Federal Regulations (CFR) Part 75, section 2, Definitions, includes the definition of improper payment. Title 45 CFR Part 75, section 303, Internal Controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 45 CFR Part 75, section 403, Factors Affecting Allowability of Costs. 45 CFR Part 75, section 410, Collection of Unallowable Costs Title 45 CFR Part 75, section 516, Audit findings, establishes reporting requirements for audit findings. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Washington State Department of Health A-19 Documentation Matrix Approved by FMU 7/1/22 This is the backup documentation required based on the determined risk level. More supporting documentation may be requested by programs at any time regardless of risk category. Please review your statement of work to determine if there are additional documentation requirements. NOTE: Indirect costs included on A19s must include verification of the following: • Indirect plan is current and on file with DOH • Indirect rate is being applied accurately to allowable expenditures • If the indirect cost rate plan has expired, no indirect costs can be charged If the subrecipient is using 10% de minimis they must complete DOH de minimis certification