Finding 1156359 (2024-001)

2024-001 The City did not have adequate internal controls for ensuring compliance with federal subrecipient monitoring requirements. Assistance Listing Number and Title: 21.027, COVID 19 - Coronavirus State and Local Fiscal Recovery Funds (SLFRF) Federal Grantor Name: U.S. Department of Treasury Federal Award/Contract Number: SLFRP1045 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 purpose of the Coronavirus State and Local Fiscal Recovery Fund (SLFRF) is to respond to the COVID-19 pandemic’s negative effects on public health and the economy, provide government services to the extent COVID-19 caused a reduction in revenues collected, make necessary investments in water, sewer or broadband infrastructure, and provide emergency relief from natural disasters or their negative economic impacts. It is also intended to fund projects eligible under certain programs administered by the U.S. Department of Transportation through three pathways, and fund projects eligible under the programs established in Title I of the Housing and Community Development Act of 1974. During fiscal year 2024, the City spent $27,916,977 in program funds for responding to the COVID-19 pandemic public health emergency’s negative economic impacts, including public health expenditures. The City passed down $3,596,048 to subrecipient organizations to execute these arrangements. Federal regulations require recipients to establish, document 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 also require the City to monitor its subrecipients’ activities. This includes verifying subrecipients that spend $750,000 or more in federal awards during a fiscal year receive a federal single audit, following up and ensuring subrecipients take timely and appropriate corrective action on all audit findings, and issuing a management decision as required. Description of Condition The City did not have adequate internal controls and did not comply with federal requirements to ensure its SLFRF program subrecipients received federal single audits when required, and that it followed up on findings and issued management decisions. We tested subrecipients for three City departments and found one department did not have a process to monitor for subrecipient single audits and another department did not retain any documentation showing it monitored for subrecipient single audits. Additionally, two of the three departments we tested did not issue management decisions when the subrecipients’ single audits resulted in SLFRF findings. We consider this deficiency in internal controls to be a significant deficiency Cause of Condition The exact causes varied by department. In general, staff turnover led to either having no controls or not following established controls for monitoring and following up on subrecipients’ federal single audits. Specifically, • The Office of Economic Development had a vacancy in a key role and current department staff could not locate documentation showing previous staff verified subrecipients received single audits when required. • The Office of Housing staff were not aware of the requirement to monitor for subrecipients’ single audits or issue a management decision letter for one subrecipient’s finding. • The Human Services Department experienced staff shortages and did not dedicate time to issuing a management decision for one subrecipient’s finding. Effect of Condition The City could not demonstrate it verified four of five subrecipients received federal single audits when required. Without this verification, the City cannot ensure it is performing the proper level of monitoring and that subrecipients are complying with program requirements. Additionally, the City did not issue a management decision letter as required for two subrecipients that received federal single audit findings for the SLFRF program. Recommendation We recommend the City strengthen internal controls over subrecipient monitoring to ensure it: • Verifies subrecipients receive a federal single audit, if required • Ensures subrecipients take timely and appropriate corrective action on all deficiencies • Issues management decisions to subrecipients within six months of audit reports’ publication for audit findings pertaining to the federal award City’s Response Human Services Department (HSD) HSD acknowledges this finding. While the Department successfully tracked, collected, reviewed, and issued management decision letters to its subrecipients as a standard practice. In this instance a formal management decision was missed for this specific sub-recipient during the review period. The Department has taken corrective measures to strengthen its compliance process, clarify roles and responsibilities to ensure timely completion of this requirement. Office of Economic Development (OED) OED acknowledges this finding. OED intends to take corrective measures through strengthening internal controls over subrecipient single audit monitoring: • Including a step in our internal monitoring processes to document when Program Managers pull and review single audits with federally funded partners • Retaining a monitoring workbook to track and date collection of single audit reports Office of Housing (OH) • OH acknowledges that neither a review of applicable audits nor management decision was sent to subrecipients who had audit findings. OH staff will evaluate its current policies to determine the best way to identify, review and follow-up on any subrecipient audits that may include findings. This review will include appropriate written follow up on actions OH recommends the subrecipient to take to correct the finding(s). Auditor’s Remarks We appreciate the City’s commitment to resolving this finding and thank the City for its cooperation and assistance during the audit. We will review the corrective action taken during the 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. 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.