Finding No.: 2022-019 Federal Agency: U.S. Department of Education AL Program: 84.425 Education Stabilization Fund AL Sub-Program: 84.425F HEERF - Institutional Portion Federal Award No.: COVID-19 P425F202732 AL Sub-Program: 84.425L HEERF - Minority Serving Institution Federal Award No.: COVID-19 P425L200219 Area: Activities Allowed or Unallowed Area: Allowable Costs/Cost Principles Questioned Costs: $1,138,362 Criteria: In accordance with the applicable activities allowed or unallowed requirements, institutions must demonstrate that costs incurred are allowable under the relevant statutory provisions and consistent with the purpose of the ESF “to prevent, prepare for, and respond to coronavirus”. Allowable expenditures incurred and liquidated prior to December 27, 2020 must have been “to cover any costs associated with significant changes to the delivery of instruction due to the coronavirus”. Further, beginning December 27, 2020, any unused HEERF I Institutional Portion funds, new HEERF II Institutional Portion funds and HEERF III Institutional Portion Funds, may be used to defray expenses associated with coronavirus (including lost revenue, reimbursement for expenses already incurred, technology costs associated with a transition to distance education, faculty and staff trainings, and payroll) and to make additional financial grants to students. HEERF I and HEERF II funds may also have been used to carry out student support activities authorized by the Higher Education Act (HEA) that address needs related to coronavirus. HEERF Frequently Asked Questions (FAQ) Rollup Document dated October 14, 2020 states that: Question #38: Institutions can use CARES Act funds under Section 18004(a)(2) to make scholarships to students. Section 18004(a)(2) of the CARES Act state that institutions may use funds specifically “for grants to students for any component of the student’s cost of attendance (as defined under section 472 of the HEA), including food, housing, course materials, technology, health care, and child care”. Question #47: Institution may use funds from the Institutional Portion of its section 18004(a)(1) allocation to purchase equipment or software, pay for online licensing fees, or pay for internet service to enable students to transition to distance learning as such costs are associated with a significant change in the delivery of instruction due to the coronavirus. An institution may also use Institutional Portion funds for any other costs for computer system upgrades that are reasonably related to “significant changes to the delivery of instruction due to the coronavirus.” This would not include, for example, previously planned upgrades to computer systems. Per HEERF I, II, and III Lost Revenue FAQ published March 19, 2021, sources of lost revenue that are not reimbursable under the HEERF grant programs include the following: Capital outlays associated with facilities related to athletics (including fees assessed for capital athletic facility construction); Acquisition of real property (including bond revenue); Contributions or donations to the institution; Marketing or recruitment activities; Revenue related to sectarian instruction or religious worship; Alcohol sales; and Investment income (including endowment and quasi-endowment revenue). Federal program expenditures should be necessary and reasonable for the performance of the Federal award in accordance with allowable costs/cost principles requirements and be adequately documented. Furthermore, 2 CFR 200.303(a) states that the subrecipient must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the 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 COSO. Condition: For fifty items (or 66%) of seventy-six items, aggregating $4,539,770 of $10,127,277 in total non-payroll expenditures, deficiencies were noted as follows: Item # Check/ PO# Description Expense Amount Questioned Cost 1 1034969 Small tools $1,115,378 $1,115,378 2 1035648 Vehicles 101,250 337,500 3 1035874 Vehicles 67,500 --- 4 1038536 Small tools 540 540 5 1038150 Others 645,544 645,544 6 22-PO-2880 Small tools 4,796 8,191 7 22-PO-3676 Subscriptions/ periodicals 22,984 22,984 8 236-003 Scholarships and grants 2,048 2,048 9 236-005 Scholarships and grants 587 587 10 236-027 Scholarships and grants 715 715 11 236-028 Scholarships and grants 116 116 12 236-038 Scholarships and grants 419 419 13 236-039 Scholarships and grants 1,269 1,269 14 236-041 Scholarships and grants 1,623 1,623 15 236-043 Scholarships and grants 1,202 1,202 16 236-051 Scholarships and grants 874 874 17 236-070 Scholarships and grants 83 83 18 236-096 Scholarships and grants 573 573 19 236-098 Scholarships and grants 203 203 20 236-101 Scholarships and grants 721 721 21 236-112 Scholarships and grants 2,655 2,655 22 236-117 Scholarships and grants 1,080 1,080 23 236-119 Scholarships and grants 855 855 24 236-150 Scholarships and grants 183 183 25 236-156 Scholarships and grants 3,885 3,885 26 236-173 Scholarships and grants 989 989 27 236-191 Scholarships and grants 1,108 1,108 28 236-202 Scholarships and grants 1,205 1,205 29 236-210 Scholarships and grants 1,895 1,895 30 236-213 Scholarships and grants 444 444 31 236-224 Scholarships and grants 105 105 32 236-243 Scholarships and grants 182 182 33 236-256 Scholarships and grants 872 872 34 236-270 Scholarships and grants 1,459 1,459 35 236-274 Scholarships and grants 158 158 36 236-278 Scholarships and grants 2,889 2,889 37 236-301 Scholarships and grants 381 381 38 236-321 Scholarships and grants 112 112 39 236-329 Scholarships and grants 699 699 40 236-346 Scholarships and grants 736 736 41 236-350 Scholarships and grants 1,647 1,647 42 236-388 Scholarships and grants 2,432 2,432 43 236-412 Scholarships and grants 3,675 3,675 44 236-425 Scholarships and grants 1,202 1,202 45 236-446 Scholarships and grants 539 539 46 236-458 Scholarships and grants 1,607 1,607 47 236-467 Scholarships and grants 58 58 48 236-481 Scholarships and grants 1,421 1,421 49 236-494 Scholarships and grants 1,513 1,513 50 236-519 Scholarships and grants 923 923 $2,005,334 $2,177,479 Item # 1 was not supported by adequate documentation (i.e. justification of the purpose prior to purchase and receiving reports) to ascertain whether such expenditure is associated to distance learning due to coronavirus. There is no evidence of communication or consultation with the grantor agency that this expenditure is allowable. No questioned cost is reported at this finding as questioned cost is reported and included at finding # 2022-022. For item #s 2 and 3, justification for the expenditures indicated on the file is to accommodate the increasing number of students, which appears to be inconsistent and not directly associated with significant changes to the delivery of instructions due to the coronavirus. There is no evidence of communication or consultation with the grantor agency that these expenditures are allowable. The $337,500 questioned cost is reported at this finding, which pertains to the total contract price charged against the grant related to these transactions. Item # 4 was not supported by adequate documentation (i.e. vendor invoice and receiving report) to ascertain whether such expenditure is an allowable cost of the underlying grant. Item # 5 relates to lost revenue from decreased appropriation (contribution) to the College, which is not reimbursable under the HEERF grant program. Item # 6 is standard cost and not associated with coronavirus. Specifically, expenditure relates to purchase of hardware device as part of the College’s firewall system for its new centers and locations. There is no evidence of communication or consultation with the grantor agency that this expenditure is allowable. $8,191 questioned cost is reported at this finding which pertains to the total invoice price charged against the grant related to this transaction. Item # 7 is standard recurring cost and not associated with coronavirus. Specifically, expenditure relates to annual software subscription of the College. There is no evidence of communication or consultation with the grantor agency that this expenditure is allowable. No questioned cost is reported at this finding as questioned cost is reported and included at finding # 2022-022. Item #s 8 through 50 pertain to relinquishment of student’s outstanding debt with the College, whereas the College directly credited student’s accounts and got reimbursement from the CARES Act funds under Section 18004(a)(2). These are not associated with coronavirus. There is no evidence of communication or consultation with the grantor agency that these expenditures are allowable. Cause: The College lacks adequate internal controls over compliance with the applicable activities allowed or unallowed requirements. Effect: The College is not in compliance with the applicable activities allowed or unallowed requirements and allowable costs/cost principles requirements. Only $1,039,117 questioned cost is reported at this finding as $1,138,362 is reported and included at finding # 2022-022. Identified as a Repeat Finding: 2021-014 Recommendation: College management should improve internal control policies and strengthen controls and procedures over compliance with the applicable federal regulations on activities allowed or unallowed. Views of Auditee and Planned Corrective Actions: The College agrees with the finding and provides details in its Corrective Action Plan.