Finding 1075194 (2023-001)

2023-001 The County had inadequate internal controls for ensuring compliance with federal reporting requirements. Assistance Listing Number and Title: 14.218 COVID-19 – Community Development Block Grants/Entitlement Grants 14.218 – Community Development Block Grants/Entitlement Grants Federal Grantor Name: U.S. Department of Housing and Urban Development (HUD) Federal Award/Contract Number: B22UC530007 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The primary objective of the Community Development Block Grants/Entitlement Grants (CDBG) program is to help provide decent and affordable housing, particularly for people with moderate, low and very low incomes. Funds also help recipients implement strategies for achieving an adequate supply of decent housing and providing suitable living environments and expanded economic opportunities for people with low incomes. The County was a direct recipient of CDBG funding and spent $2,206,140 in program funds during 2023. 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. The Federal Funding Accountability and Transparency Act (FFATA) requires direct recipients that make first-tier subawards of $30,000 or more to report them in the FFATA Subaward Reporting System. The County must report subawards and subaward amendments by the end of the month following the month in which it made the subawards and subaward amendments. Description of Condition The County’s internal controls were ineffective for ensuring compliance with FFATA reporting requirements. Specifically, the County made nine new and amended subawards in 2023 that exceeded $30,000, and it did not prepare or submit any FFATA reports for three of the nine subawards, as federal regulations require. Additionally, of the other six subawards, the County did not submit three FFATA reports on time, and two FFATA reports included incorrect subaward obligation dates. We consider these deficiencies in internal controls to be a material weakness that led to material noncompliance. Cause of Condition Staff were aware of FFATA reporting requirements for their subawards. However, the County had turnover, and management did not clearly communicate who was responsible for submitting the reports until late 2023. Effect of Condition Failing to submit the required reports on time diminishes the federal government’s ability to ensure accountability and transparency of federal spending. The table below summarizes the discrepancies we identified. Transactions tested Subaward not reported Reported late Subaward amount incorrect* Subaward missing key elements 9 3 3 N/A 2 Dollar amount of tested transactions Subaward not reported Reported late Subaward amount incorrect Subaward missing key elements $ 1,661,538 $ 491,538 $ 1,035,000 N/A $ 115,000 Recommendation We recommend the County strengthen its internal controls to ensure it prepares and submits complete and accurate FFATA reports for all applicable subawards by the due date, as federal regulations require. County’s Response The County values the opportunity to collaborate with the State Auditor’s Office in enhancing our financial reporting processes. In 2022, we faced notable turnover in the positions responsible for FFATA reporting due to the Public Health Emergency. Furthermore, as we transitioned out of this emergency in 2023, ongoing staffing challenges contributed to a loss of historical knowledge and established practices. In response to the recommendation, the County has taken and plans to take the following actions: • Update procedures for FFATA reporting, including staff responsibilities and timelines (implemented 8/2/2024). • Ensure management oversight to ensure timely and accurate reporting. • Provide training to all staff involved in the FFATA reporting process on their responsibilities (occurred 8/1/2024) We appreciate the opportunity to work with the State Auditor’s Office staff to improve the accuracy of our FFATA reporting requirements. Auditor’s Remarks We appreciate the County’s commitment to resolve this finding and thank the County for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular 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 170, Reporting Subaward and Executive Compensation Information, establishes the Federal Funding Accountability and Transparency Act (FFATA) requirements of reporting the subaward information through the FFATA Subaward Reporting System (FSRS). 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.