Finding 1074365 (2023-001)

Finding 2023-001 Information on the Federal Program: Federal Agency: Department of Homeland Security Assistance Listing No.: 97.036 COVID-19 Disaster Grants – Public Assistance (Presidentially Declared Disasters) (FEMA) Pass-Through: Wisconsin Emergency Management Agency Pass-Through Award Number: FEMA-4520-079-07A07-00 Pass-Through Award Period of Performance: January 20, 2020 through December 31, 2021 Criteria or Specific Requirement (Including Statutory, Regulatory or Other Citation): Section 200.303 of the Uniform Guidance states the following regarding internal control: “The non-Federal 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. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).” Per the FEMA Project Worksheet Report #664571, under the Documentation Requirements Acknowledgement, “In accordance with 2 C.F.R. §200.333 as well as state and local record retention requirements, the Applicant acknowledges the requirement to maintain all documentation that supports this project application in its own files. This documentation will be required if the Applicant submits an appeal for additional funding, as well as in the case of any audits.” Condition: The Organization’s internal controls were not suitably designed to retain all supporting documentation over their review and approval of FEMA federal expenditures. Management did not retain supporting documentation to support the inventory usage reports used in the development of the FEMA expenditures. Cause: Management designed a process to accumulate and review expenditures related to the FEMA; however, for certain components of the review and approval the supporting documentation was not retained to evidence that the internal review was sufficiently designed and operating effectively throughout the process. Management did not retain supporting documentation to support the inventory usage reports used in the development of the FEMA expenditures. Questioned Costs: The amount of questioned costs are unknown, given the nature of this finding in which we were unable to support the underlying inventory usage reports which were a key input to the development of FEMA expenditures included on the Schedule. Context: The Organization recorded FEMA expenditures on the Schedule based on the number of units of the personal protective equipment (PPE) used during the period of performance outlined in the project worksheet times the average costs of each unit of PPE. The information used to develop the FEMA expenditures was obtained from the Organization’s inventory management system. Management did not retain supporting documentation to support the reliance on the inventory usage reports; therefore, the information from the inventory management system cannot be relied on for Uniform Guidance purposes. Management represented that they performed a review of FEMA expenditures but did not maintain evidence supporting all levels of review and approval of expenses under FEMA. We obtained the Organization’s FEMA project worksheet that reconciled to the schedule of expenditures of federal awards. We then selected a sample of 25 PPE items and agreed the items used and the average unit costs to the inventory management system. In addition, we compared the average unit cost to a third-party invoice to support the unit cost used. Management engaged a third party to perform a physical inventory of supplies at December 31, 2020 which included the PPE claimed in the FEMA obligation. The physical inventory was reconciled to the inventory management system. We selected a sample of inventory counts performed by the third-party agency and agreed the inventory counts back to the third-party records, noting no exceptions. A physical inventory was not performed at December 31, 2021. Total federal expenditures for Assistance Listing 97.036 recorded on the Schedule totaled $48,004,943 for the year ended December 31, 2023. Effect or Potential Effect: The amounts submitted for reimbursement and the FEMA reports submitted could be inaccurate or incomplete. Identification as a Repeat Finding, if Applicable: This is a repeat finding; see 2022-002. Recommendation: The Organization should design and implement internal controls that are sufficiently precise and require supporting documentation be retained over the review and approval of FEMA expenses. The Organization should retain evidence of internal controls related to access and change management over the report or a quality review process over the inventory reports. Management response: The FEMA personal protective equipment (PPE) claim covered two years, which are 2020 and 2021. As noted in the audit, the Organization engaged a third party to perform a physical inventory of supplies at December 31, 2020 which included the PPE claimed in the FEMA obligation. The physical inventory was reconciled to the inventory management system. The audit selected a sample inventory count performed by third party and agreed the inventory counts back to the third party records noting no exceptions. A physical inventory was not performed at December 31, 2021. Due to the COVID pandemic, there were unusual circumstances that precluded an annual physical inventory in 2021, due to the easy transmission of COVID-19, by breathing in air carrying droplets or aerosol particles that contain the SARS-CoV-2 virus when close to an infected person or in poorly ventilated spaces with infected persons. Noting there were no system changes to the inventory system during 2021, we relied on the prior year audits and internal control review of the inventory system to provide comfort for the Organization for reliance on the inventory usage for this FEMA claim. In addition to relying on past inventory documented audit controls, the Organization routinely reviews the supply expense generated from the inventory system.