Finding Text
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 Federal Agency Name: U.S. Department of the Treasury Federal Award/Contract Number: SLT-3787 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: Yes, Finding 2022-002 Background The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program 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. During 2023, the City spent $1,430,496 in program funds to cover expenditures related to supporting public health and safety services and paying employees who performed essential government services. The program funds included $640,208 passed through to three subrecipients in 2023 to fulfill components of the program’s objectives. 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. When the City passes on federal funds to subrecipients, federal regulations require the City to ensure every subaward agreement clearly identifies that it is a federal award and includes the applicable federal requirements. The City is required to report 14 federal award identification elements in each subaward agreement. Whenever passing federal funding to subrecipients, federal regulations also require the City to monitor them and ensure they comply with the terms and conditions of the federal award. Description of Condition Our audit found the City’s internal controls were ineffective for ensuring it included all 14 required elements in two of its subaward agreements. The missing elements included: • Subrecipient’s Unique Entity Identifier • Federal Award Identification Number (FAIN) • Federal award date • Total amount of federal funds obligated • Total amount of federal award committed • Federal award project description • Name of the federal awarding agency • Assistance Listing Number and program title • Program requirements imposed on the City and passed through to the subrecipient We consider this deficiency in internal controls to be a significant deficiency. Cause of Condition The City experienced turnover and the new staff responsible for creating contracts were unaware of these federal requirements. Also, the City approved these agreements before our 2022 audit concluded and reported on issues with the City’s previous subaward agreements. Effect of Condition When subaward agreements do not include the required information, subrecipients are at an increased risk of not knowing they received federal funding and the need to comply with specific program requirements, which could lead to spending the funds for unallowable purposes. The City did not provide evidence that it subsequently shared the missing federal information with the three subrecipients. Recommendation We recommend the City ensure it includes all required elements in federally funded subaward agreements. City’s Response The City of Bremerton appreciates the opportunity to respond to the Washington State Auditor’s Office’s (SAO) conclusions. The City is committed to maintaining effective internal controls for the administration of federal grants and ensuing compliance with federal Uniform Guidance requirements. The City will ensure that all subaward agreements clearly identify the funding as a federal award and include the applicable federal requirements for programs funded by the Coronavirus State and Local Fiscal Recovery Funds and other federal sources. 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.