Finding Text
City of Olympia
January 1, 2023 through December 31, 2023
2023-002 The City had inadequate internal controls for ensuring compliance with federal requirements for subrecipient monitoring.
Assistance Listing Number and Title:
21.027, COVID 19 - The Coronavirus State and Local Fiscal Recovery Fund (SLFRF)
Federal Grantor Name:
U.S. Department of Treasury
Federal Award/Contract Number:
N/A
Pass-through Entity Name:
Washington State Department of Commerce
Pass-through Award/Contract Number:
22-96720-203
Known Questioned Cost Amount:
$0
Prior Year Audit Finding:
N/A
Description of Condition
During fiscal year 2023, the City spent $6,400,211 in federal funding for the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) program including $2,499,997 that it passed through to one subrecipient. The purpose of the SLFRF is to respond to the COVID-19 pandemic’s negative effects on public health and the economy, provide premium pay to essential workers during the pandemic, provide government services to the extent COVID-19 caused a reduction in revenues collected and make necessary investments in water, sewer or broadband infrastructure.
Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls.
Federal regulations require the City to evaluate every subrecipient’s risk of noncompliance with federal requirements to determine the appropriate level of subrecipient monitoring. Subrecipient monitoring requirements include ensuring compliance with program requirements, ensuring the subrecipient receives a federal single audit when required, following up and ensuring the subrecipient takes timely and appropriate action on all audit findings, and issuing a management decision as required.
The City did not have adequate controls for evaluating the subrecipient’s risk of noncompliance with federal requirements and monitoring its subrecipients. Specifically, it did not have adequate controls for ensuring a subrecipient received a federal single audit when required and then reviewing subrecipients’ audits when applicable.
We consider this internal control deficiency to be a significant deficiency.
Cause of Condition
Employees responsible for ensuring compliance with subrecipient monitoring were unaware that the subrecipient was in fact a subrecipient, and therefore did not perform a risk assessment as required. They were also unaware of the annual requirement to verify that subrecipients receive a single audit if they have total federal expenditures more than the single audit threshold of $750,000.
Effect of Condition
The City could not provide supporting documentation showing that it performed the following monitoring procedures to prevent or detect subrecipient noncompliance:
• A risk assessment to determine adequate monitoring of the subrecipient
• Verifying if the subrecipient received a federal single audit, if required
• Ensuring subrecipient took corrective actions on any deficiencies
• Issuing management decisions within six months of an audit report’s publication
Recommendation
We recommend the City establish internal controls over subrecipient monitoring to ensure it performs risk assessments for its subrecipients, verifies that subrecipients receive a federal single audit when required and develops follow-up procedures if it detects deficiencies.
City’s Response
The City takes seriously the use of federal funds and the compliance requirements associated with them. While there were no compliance violations found due to this lack of controls, the Housing and Homelessness Response team is committed to learning more about compliance requirements as well as documenting how those requirements were met. We will be scheduling trainings and implementing new procedures to adequately document our compliance requirement processes. We thank the auditors for bringing the requirements to our attention.
Auditor’s Remarks
We thank the City for its cooperation throughout the audit and the steps it is taking to address these concerns. We will review the status of the City’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.
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.
Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for passthrough entities, establishes subrecipient monitoring and management requirements for pass-through entities