Finding 1081371 (2021-001)

Finding 2021-001 Federal Program Title – Airport Improvement Program and COVID-19 Airport Improvement Program Assistance Listing No. – 20.106 Federal Agency – U.S. Department of Transportation – Direct Program Federal Award Number – 30601270472020 Grant Award Periods – May 7, 2020 to May 6, 2024 Compliance Requirement – Reporting Criteria: As set forth in 2 CFR 200.328, the Federal Financial Report, SF 425, must be collected with the frequency required by the terms and conditions of the federal award, but no less frequently than annually nor more frequently than quarterly except in unusual circumstances. In addition, 2 CFR 200.303 requires nonfederal entities to, among other things, establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. Conditions Found: The City did not have an effective system of internal control in place to ensure the reports that are required to be submitted to the U.S. Department of Transportation were accurate. We selected a sample of nine reports and determined that one report omitted $18.4 million in payroll and payroll-related costs of which $3.6 million are costs incurred during the fiscal year ended September 30, 2021. Questioned Costs: There are no questioned costs. Context: The City is required to submit annual federal financial reports related to the Airport Improvement Program that include all disbursements for direct charges for property and services; the amount of indirect expense incurred; and the net increase or decrease in the amounts owed by the recipient for (1) goods and other property received; (2) services performed by employees, contractors, subrecipients, and other payees; and (3) programs for which no current services or performance are required. Cause and Effect: City management indicated that interpretation of the reporting requirements was that payments made to employees for services provided were required to be omitted from the SF 425 report. As a result, the reports submitted omitted $18.4 million in payroll and payroll-related costs. Repeat Finding: A similar finding was not reported in the prior-year audit. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendations: We recommend the City strengthen processes and internal controls to ensure the City has an effective internal control in place to ensure that reports are complete and accurate prior to submitting to the U.S. Department of Transportation as required. View of Responsible Official: The subject Airport Improvement Program (AIP) grant for COVID-19 related funding was used solely for internal City payroll-related expenditures and debt service payments, which is different from other previous AIP grants received by the Airport Department. The misinterpretation of reporting requirements for the new grant led to an error on the Federal Financial Report SF 425. The Airport Department will be providing more training to staff that are involved with the preparation, review and approval of the reports to reduce the risk of misinterpreting reporting requirements. The Airport Department will also strengthen internal controls by requiring at least two levels of review for Federal Financial Report SF 425, prior to submission. These improvements to the process will ensure that reports are complete and accurate.