2023 SINGLE AUDIT FINDING SA-1: Compliance Element: Allowable Costs Federal Department – Department of the Treasury COVID-19 - Provider Relief Fund and American Rescue Plan (ARPA) Coronavirus State and Local Fiscal Recovery Fund Federal Assistance Listing # 21.027 County Department – County Board CRITERIA: A. As outlined in the Uniform Guidance at 2 CFR Part 200, Subpart E regarding Cost Principles, allowable costs are based on the premise that a recipient is responsible for the effective administration of Federal awards, application of sound management practices, and administration of Federal funds in a manner consistent with the program objectives and terms and conditions of the award. In addition, CFR 200.318 subparagraph (c), Uniform Administration Requirements, Cost Principles and Audit Requirements for Federal Awards regarding conflicts of interest states: (c) Conflicts of interest. (1) The recipient or subrecipient must maintain written standards of conduct covering conflicts of interest and governing the actions of its employees engaged in the selection, award, and administration of contracts. No employee, officer, agent, or board member with a real or apparent conflict of interest may participate in the selection, award, or administration of a contract supported by the Federal award. A conflict of interest includes when the employee, officer, agent, or board member, any member of their immediate family, their partner, or an organization that employs or is about to employ any of the parties indicated herein, has a financial or other interest in or a tangible personal benefit from an entity considered for a contract. An employee, officer, agent, and board member of the recipient or subrecipient may neither solicit nor accept gratuities, favors, or anything of monetary value from contractors. However, the recipient or subrecipient may set standards for situations where the financial interest is not substantial or a gift is an unsolicited item of nominal value. The recipient's or subrecipient's standards of conduct must also provide for disciplinary actions to be applied for violations by its employees, officers, agents, or board members. (2) If the recipient or subrecipient has a parent, affiliate, or subsidiary organization that is not a State, local government, or Indian Tribe, the recipient or subrecipient must also maintain written standards of conduct covering organizational conflicts of interest. Organizational conflicts of interest mean that because of relationships with a parent company, affiliate, or subsidiary organization, the recipient or subrecipient is unable or appears to be unable to be impartial in conducting a procurement action involving a related organization. B. Section II of the 2022 Final Rule details the allowable uses of ARPA Awards. As a recipient of an SLFRF award, the County had substantial discretion to use the award funds in the ways that best suit the needs its constituents as long as such use fits into one of the following seven statutory categories: 1. To respond to the COVID-19 public health emergency or its negative economic impacts; 2. To respond to workers performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers of the recipient that are performing such essential work, or by providing grants to eligible employers that have eligible workers who perform essential work; 3. For the provision of government services, to the extent of the reduction in revenue of such recipient due to the COVID–19 public health emergency, relative to revenues collected in the most recent full fiscal year of the recipient prior to the emergency; 4. To make necessary investments in water, sewer, or broadband infrastructure; 5. To provide emergency relief from natural disasters or the negative economic impacts of natural disasters; 6. For projects eligible under the 26 surface transportation programs specified in the 2023 CAA (Surface Transportation projects); or 7. For projects eligible under Title I of the Housing and Community Development Act of 1974 (Title I projects). In addition, sections 602(c)(4) and 603(c)(5) of the Social Security Act, as amended by the Infrastructure Investment and Jobs Act, provide that SLFRF funds may be used for an authorized Bureau of Reclamation project for purposes of satisfying any non-Federal matching requirement required for the project. The Final Rule also detailed Standards for Identifying a Public Health or Negative Economic Impact Standards: Designating a Public Health Impact. Per the Final Rule: First, there must be a negative public health impact or harm experienced by an individual or a class. For ease of administration, the interim final rule allowed, and the final rule maintains the ability for, recipients to identify a public health impact on a population or group of individuals, referred to as a “class,” and to provide assistance to that class. In determining whether an individual is eligible for a program designed to address a harm experienced by a class, the recipient need only document that the individual is within the class that experienced a public health impact, see section Standards: Designating Other Impacted Classes. In the case of some impacts, for example impacts of COVID-19 itself that are addressed by providing prevention and mitigation services, such a class could reasonably include the general public. Second, the program, service, or other intervention must address or respond to the identified impact or harm. The final rule maintains the interim final rule requirement that eligible uses under this category must be in response to the disease itself or other public health harms that it caused. Responses must be reasonably designed to benefit the individual or class that experienced the public health impact or harm. Uses of funds should be assessed based on their responsiveness to their intended beneficiaries and the ability of the response to address the impact or harm experienced by those beneficiaries. Responses must also be related and reasonably proportional to the extent and type of public health impact or harm experienced. Uses that bear no relation or are grossly disproportionate to the type or extent of harm experienced would not be eligible uses. Reasonably proportional refers to the scale of the response compared to the scale of the harm. It also refers to the targeting of the response to beneficiaries compared to the amount of harm they experienced. In evaluating whether a use is reasonably proportional, recipients should consider relevant factors about the harm identified and the response. For example, recipients may consider the size of the population impacted and the severity, type, and duration of the impact. Recipients may also consider the efficacy, cost, cost-effectiveness, and time to delivery of the response. If a recipient intends to fund capital expenditures in response to the public health impacts of the pandemic, recipients should refer to the section Capital Expenditures for details about the eligibility of capital expenditures. C. Per the Final Rule, capital expenditures, in certain cases, can be appropriate responses to the public health and economic impacts of the pandemic, in addition to programs and services. Like other eligible uses of SLFRF funds in this category, capital expenditures should be a related and reasonably proportional response to a public health or negative economic impact of the pandemic. The final rule clarifies and expands how SLFRF funds may be used for certain capital expenditures, including criteria and documentation requirements specified in this section, as applicable. However, large capital expenditures intended for general economic development or to aid the travel, tourism, and hospitality industries—such as convention centers and stadiums—are, on balance, generally not reasonably proportional to addressing the negative economic impacts of the pandemic, as the efficacy of a large capital expenditure intended for general economic development in remedying pandemic harms may be very limited compared to its cost. CONDITIONS: E. Conflict of Interest - A privately owned local business was awarded a $1,000,000 ARPA grant from the County as a subrecipient. However, one of the owners of the privately owned local business is the currently elected County Sheriff. During the fiscal year ended November 30, 2023, the local business received $549,437.47 of the $1,000,000 award. The remainder of the $1,000,000 award was disbursed in the subsequent fiscal year. F. Unallowable Costs - $1,000,000 ARPA Award - The privately owned local business submitted invoices in the following expense categories as support for use of the $1,000,000 ARPA Award: 7) $538,167.08 - Capital improvements to the commercial building that is privately owned. 8) $58,616.42 - Engineering fees for local road improvements. 9) $23,429.00 - Legal fees paid for income tax advice to the owners of the privately owned local business. 10) $787.50 - Other legal fees paid on behalf of the privately owned local business. 11) $329,500.00 - Design fees for a new beef plant. 12) $49,500.00 - Enterprise Zone fees for privately owned local business. G. Lack of required justification including all elements for capital expenditures equal to or greater than $1,000,000 - The Final Rule required the County to prepare a written justification for capital expenditures equal to or greater than $1,000,000; however, a written justification that included all required elements was not prepared. The written justification should have include the following: 1. Description of harm or need to be addresses (i.e. number of individuals). Recipients should provide a description of the specific harm or need to be addressed, and why the harm was exacerbated or caused by the public health emergency. When appropriate, recipients may provide quantitative information on the extent and type of the harm, such as the number of individuals or entities affected. 2. Explanation of why the capital expenditure is appropriate (i.e. why existing resources are inadequate). Recipients should provide an independent assessment demonstrating why a capital expenditure is appropriate to address the specified harm or need. This should include an explanation of why existing capital equipment, property, or facilities would be inadequate to addressing the harm or need and why policy changes or additional funding to pertinent programs or services would be insufficient without the corresponding capital expenditures. Recipients are not required to demonstrate that the harm or need would be irremediable but for the additional capital expenditure; rather, they may show that other interventions would be inefficient, costly, or otherwise not reasonably designed to remedy the harm without additional capital expenditure. 3. Comparison of proposed capital expenditure project against at least two alternative capital expenditures and why the proposed capital expenditure is superior. Recipients should provide an objective comparison of the proposed capital expenditure against at least two alternative capital expenditures and demonstrate why their proposed capital expenditure is superior to alternative capital expenditures that could be made. Specifically, recipients should assess the proposed capital expenditure against at least two alternative types or sizes of capital expenditures that are potentially effective and reasonably feasible. Where relevant, recipients should compare the proposal against the alternative of improving existing capital assets already owned or leasing other capital assets. Recipients should use quantitative data when available, although they are encouraged to supplement with qualitative information and narrative description. Recipients that complete analyses with minimal or no quantitative data should provide an explanation for doing so. H. Unallowable Costs –$200,000 ARPA Award - Another privately owned business with a restaurant location in another County was awarded $200,000 as an ARPA subrecipient to open a different restaurant location in the County. The purpose of the award was to fund remodeling costs for the new location. The location in another County was open prior to the declaration of the pandemic. However, the new location in the County was not. CAUSE: Lack of application of allowable costs principles and appropriate monitoring of allowable costs principles as stated in the 2022 Final Rule. EFFECT: Grant funds were awarded to subrecipients that did not have eligible projects under the terms and conditions of COVID-19 - Provider Relief Fund and American Rescue Plan (ARPA) Coronavirus State and Local Fiscal Recovery Fund QUESTIONED COSTS: For the $1,000,000 ARPA Award - $549,437.47 of grant expenditures for the year ended November 30, 2023. For the $200,000 ARPA Award - $100,000 of grant expenditures for the year ended November 30, 2023. IDENTIFICATION OF REPEATED FINDINGS: None. RECOMMENDATION: We recommend that the County review the allowable costs principles and consult with the grant body to determine if grant repayment is required. VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTIONS: See corrective action plan. ANCITPATED COMPLETION DATE: See corrective action plan.