Reference Number: 2024-004 Federal Program Titles: Temporary Assistance for Needy Families (TANF) Foster Care – Title IV-E Federal Assistance Listing Numbers: 93.558 93.658 Federal Agency: U.S. Department of Health and Human Services Pass-Through Entity: California Department of Social Services Federal Award Number and Year: N/A Name of County Department: Health and Human Services Category of Finding: Subrecipient Monitoring Material Noncompliance and Material Weakness Criteria In accordance with Title 2 of the Code of Federal Regulations (CFR) § 200.332, all pass-through entities (PTE) must: (a) Verify that the subrecipient is not excluded or disqualified in accordance with § 180.300. Verification methods are provided in § 180.300, which include confirming in SAM.gov that a potential subrecipient is not suspended, debarred, or otherwise excluded from receiving Federal funds. (b) Ensure that every subaward is clearly identified to the subrecipient as a subaward and includes the information provided below. A pass-through entity must provide the best available information when some of the information below is unavailable. A pass-through entity must provide the unavailable information when it is obtained. Required information includes: (1) Federal award identification. (i) Subrecipient’s name (must match the name associated with its unique entity identifier); (ii) Subrecipient's unique entity identifier; (iii) Federal Award Identification Number (FAIN); (iv) Federal Award Date; (v) Subaward Period of Performance Start and End Date; (vi) Subaward Budget Period Start and End Date; (vii) Amount of Federal Funds Obligated in the subaward; (viii) Total Amount of Federal Funds Obligated to the subrecipient by the pass-through entity, including the current financial obligation; (ix) Total Amount of the Federal Award committed to the subrecipient by the pass-through entity; (x) Federal award project description, as required by the Federal Funding Accountability and Transparency Act (FFATA); (xi) Name of the Federal agency, pass-through entity, and contact information for awarding official of the pass-through entity; (xii) Assistance Listings title and number; the pass-through entity must identify the dollar amount made available under each Federal award and the Assistance Listings Number at the time of disbursement; (xiii) Identification of whether the Federal award is for research and development; and (xiv) Indirect cost rate for the Federal award (including if the de minimis rate is used in accordance with § 200.414). (2) All requirements of the subaward, including requirements imposed by Federal statutes, regulations, and the terms and conditions of the Federal award; (3) Any additional requirements that the pass-through entity imposes on the subrecipient for the pass-through entity to meet its responsibilities under the Federal award. This includes information and certifications (see § 200.415) required for submitting financial and performance reports that the pass-through entity must provide to the Federal agency; (4) Indirect cost rate: (i) An approved indirect cost rate negotiated between the subrecipient and the Federal Government. If no approved rate exists, a pass-through entity must determine the appropriate rate in collaboration with the subrecipient. The indirect cost rate may be either: (A) An indirect cost rate negotiated between the pass-through entity and the subrecipient. These rates may be based on a prior negotiated rate between a different pass-through entity and the subrecipient, in which case the pass-through entity is not required to collect information justifying the rate but may elect to do so; or (B) The de minimis indirect cost rate. (ii) The pass-through entity must not require the use of the de minimis indirect cost rate if the subrecipient has an approved indirect cost rate negotiated with the Federal Government. Subrecipients may elect to use the cost allocation method to account for indirect costs in accordance with § 200.405(d). (5) A requirement that the subrecipient permit the pass-through entity and auditors to access the subrecipient’s records and financial statements for the pass-through entity to fulfill its monitoring requirements; and (6) Appropriate terms and conditions concerning the closeout of the subaward. (c) Evaluate each subrecipient’s fraud risk and risk of noncompliance with a subaward to determine the appropriate subrecipient monitoring described in paragraph (f) of this section. When evaluating a subrecipient’s risk, a pass-through entity should consider the following: (1) The subrecipient’s prior experience with the same or similar subawards; (2) The results of previous audits. This includes considering whether or not the subrecipient receives a Single Audit in accordance with subpart F and the extent to which the same or similar subawards have been audited as a major program; (3) Whether the subrecipient has new personnel or new or substantially changed systems; and (4) The extent and results of any Federal agency monitoring (for example, if the subrecipient also receives Federal awards directly from the Federal agency). (d) If appropriate, consider implementing specific conditions in a subaward as described in § 200.208 and notify the Federal agency of the specific conditions. (e) Monitor the activities of a subrecipient as necessary to ensure that the subrecipient complies with Federal statutes, regulations, and the terms and conditions of the subaward. The pass-through entity is responsible for monitoring the overall performance of a subrecipient to ensure that the goals and objectives of the subaward are achieved. In monitoring a subrecipient, a pass-through entity must: (1) Review financial and performance reports. (2) Ensure that the subrecipient takes corrective action on all significant developments that negatively affect the subaward. Significant developments include Single Audit findings related to the subaward, other audit findings, site visits, and written notifications from a subrecipient of adverse conditions which will impact their ability to meet the milestones or the objectives of a subaward. When significant developments negatively impact the subaward, a subrecipient must provide the pass-through entity with information on their plan for corrective action and any assistance needed to resolve the situation. (3) Issue a management decision for audit findings pertaining only to the Federal award provided to the subrecipient from the pass-through entity as required by § 200.521. (4) Resolve audit findings specifically related to the subaward. However, the pass-through entity is not responsible for resolving cross-cutting audit findings that apply to the subaward and other Federal awards or subawards. If a subrecipient has a current Single Audit report and has not been excluded from receiving Federal funding (meaning, has not been debarred or suspended), the pass-through entity may rely on the subrecipient’s cognizant agency for audit or oversight agency for audit to perform audit follow-up and make management decisions related to cross-cutting audit findings in accordance with section § 200.513(a)(4)(viii). Such reliance does not eliminate the responsibility of the pass-through entity to issue subawards that conform to agency and award-specific requirements, to manage risk through ongoing subaward monitoring, and to monitor the status of the findings that are specifically related to the subaward. (f) Depending upon the pass-through entity’s assessment of the risk posed by the subrecipient (as described in paragraph (c) of this section), the following monitoring tools may be useful for the pass-through entity to ensure proper accountability and compliance with program requirements and achievement of performance goals: (1) Providing subrecipients with training and technical assistance on program-related matters; (2) Performing site visits to review the subrecipient’s program operations; and (3) Arranging for agreed-upon-procedures engagements as described in § 200.425. (g) Verify that a subrecipient is audited as required by subpart F of this part. (h) Consider whether the results of a subrecipient’s audit, site visits, or other monitoring necessitate adjustments to the pass-through entity’s records. (i) Consider taking enforcement action against noncompliant subrecipients as described in § 200.339 and in program regulations. Condition During our audit of the TANF and Foster Care programs, we noted that the draft schedule of expenditures of federal awards did not include expenditures passed through to subrecipients. Upon inquiry, program management did not have a clear understanding of the difference between a subrecipient and a contractor and, as a result, had not identified, reported on, or monitored subrecipients. Subsequently, using the criteria in 2 CFR § 200.331 Subrecipient and contractor determinations, program management performed an analysis of payments made to contractors and identified the following: • TANF: two entities that received a total of $293,289 in payments during FY2023-24. • Foster Care: two entities that received a total of $139,607 in payments during FY2023-24. Of these we sampled two subrecipients from TANF and one subrecipient from Foster Care. Because program management did not previously identify any entities as subrecipients, the County did not comply with the requirements of subrecipient monitoring as follows: Both TANF and Foster Care: • The County could not demonstrate that a verification was performed to determine that the entities were not excluded or disqualified from receiving federal funds for all three subrecipients. While one entity’s contract included reference to 2 CFR Part 376 Nonprocurement, Debarment and Suspension, it did not specifically include a self-certification clause. • TANF Contracts: One contract was deficient and did not identify the contract as a federally funded subaward and did not include the required elements outlined in § 200.332 (b). The contract for the other entity was more prescriptive and included most of the elements in § 200.332 (b) but also did not have current language referencing the Uniform Guidance, which was effective in 2014 (Contract date was December 4, 2019), and instead referred to outdated requirements under OMB Circular A-133. One contract did not address indirect costs. One contract did not address provisions to permit the County as the grantor to access the entity’s records to audit or fulfill other monitoring responsibilities. Both contracts did not address the terms and conditions concerning the closeout of subawards. Both TANF and Foster Care: • The County did not perform the required fraud risk and risk of noncompliance assessment to determine the appropriate level of monitoring. • The County has not developed and documented a formal subrecipient monitoring plan. Upon inquiry, program management provided a bulleted list of their monitoring activities; however, reviews, meetings, action items, and follow-up were not formally documented to demonstrate the activities were performed. • The County received single audit reports from the two subrecipients identified; however, the County did not reconcile the amounts reported to its records. Foster Care TANF #1 TANF #2 Total Subrecipient’s SEFA $ 0 $ 101,886 $ 232,499 $ 334,385 County SEFA 105,530 43,689 249,560 399,884 Variance (105,530) 58,197 (17,601) (65,499) Cause Program staff were not aware of the requirements to evaluate and classify entities as contractor or subrecipient and did not understand the need to formalize a subrecipient monitoring program in accordance with §200.332. The cause can be partially contributed to turnover in the County’s Health and Human Services Department. Effect Failure to evaluate and identify subrecipients will cause the County to be out of compliance with its oversight responsibilities resulting in the potential for federal funds to be used inappropriately. Failure to provide all the required subaward information may result in subrecipients incorrectly reporting on federal pass-through awards in their Single Audit reports. Failure to have a formal monitoring program that includes risk assessment will result in the County inadequately monitoring the activities of subrecipients and hold them accountable to complete corrective action plans for identified noncompliance. Questioned Costs None. Context Fiscal year 2024 payments to the subrecipients were as listed: • TANF - $293,289 or 9% of total program expenditures. • Foster Care - $139,607 or 6% of total program expenditures. The sample was not a statistically valid sample. Identification as a Repeat Finding Previously reported as Finding 2023-003. Recommendation We recommend the County consider the following: 1. Provide comprehensive training to program managers on how to assess if an entity meets the criteria of a subrecipient as defined in § 200.331. 2. Formalize a subrecipient monitoring program based on the criteria in § 200.332. 3. Design a subrecipient agreement template to include all the elements required by 2 CFR § 200.332(b). Incorporate the use of the template in the contracting requirements for all departments receiving federal funds. 4. For existing subrecipients that were not provided the required elements, provide a letter or amended agreement to include all the required elements of 2 CFR § 200.332(b).