Benton County January 1, 2023 through December 31, 2023 2023-003 The County’s internal controls were inadequate and it did not comply with federal subrecipient monitoring requirements. Assistance Listing Number and Title: 21.027, COVID – 19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S Department of Treasury Federal Award/Contract Number: N/A Pass-through Entity Name: Washington State Department of Commerce Pass-through Award/Contract Number: 21-4619C-102 and 24-4619D-101 Known Questioned Cost Amount: $0 Prior Year Audit Finding: Yes, Finding 2022-002 Background The Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program provides direct payment to states, U.S. territories, tribal governments, metropolitan cities, counties and (through states) non-entitlement units of local government. The purpose of the SLFRF program is to respond 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 collection and make necessary improvements in water, sewer and broadband infrastructure. In 2023, the County spent $8,256,094 of program funds and passed through $4,001,142 of its funds to three subrecipients to administer COVID-19 assistance programs to small businesses within the County, provide financial assistance to eligible households, including payment of rent, utilities and other housing stability services, and fund infrastructure projects. Federal regulations require recipients to establish, document and maintain effective internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Whenever the County passes on federal funding to subrecipients, federal regulations require the County to evaluate each subrecipient’s risk of noncompliance with federal requirements to determine the appropriate level of monitoring and to monitor its subrecipients to ensure they comply with the terms and conditions of the federal award. For awards dependent on participant eligibility, monitoring would include verifying subrecipients only provided assistance to participants who met program eligibility requirements. Description of Condition The County did not have adequate internal controls to comply with subrecipient monitoring requirements. Although the County performed a risk assessment, it did not monitor activities for one of its subrecipients to ensure the subrecipient administered the subaward in compliance with the subaward’s terms and conditions. Additionally, the County did not monitor to ensure the subrecipient received a federal single audit when required. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition County department staff responsible for managing the federal program did not know they needed to monitor the subrecipient’s activities to ensure the subrecipient only provided assistance to eligible businesses. Instead, County staff relied on a report from the subrecipient of small businesses who received assistance. Further, County staff did not know they needed to monitor the subrecipient to ensure the subrecipient received a single audit if required. Effect of Condition The County did not monitor subrecipient activities for one subrecipient totaling $1,811,817 whose costs it charged to the direct award from U.S. Department of Treasury. Without adequate monitoring, the County is unable to provide reasonable assurance that the subrecipient complied with the subaward’s terms and conditions. Without adequate monitoring, there is a risk that the subrecipient may spend funds for unallowable purposes. Since the County did not monitor the subrecipient, it was unable to confirm only eligible small businesses received assistance. The County also did not verify whether the subrecipient received a single audit when required to ensure the subrecipient complied with federal program requirements. Recommendation We recommend the County establish internal controls to monitor subrecipients to ensure subrecipients spend program funds for allowable purposes and verify that subrecipients receive a federal single audit when required. County’s Response The County is committed to strengthening its internal controls, ensuring consistent subrecipient monitoring, and maintaining full compliance with federal requirements. We appreciate the Auditor’s recommendations and have taken steps to address the identified deficiencies. Auditor’s Remarks We thank the County for its cooperation and assistance during the audit and acknowledge its commitment to resolve this finding. We will review the corrective action take 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 requirements for pass through entities.