2025-001 The County did not have adequate internal controls for ensuring compliance with federal reporting and subrecipient monitoring requirements and did not comply with federal reporting requirements. Assistance Listing Number and Title: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: 1505-0271 Pass-through Entity Name: Washington State Department of Agriculture Pass-through Award/Contract Number: K5576 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) is to respond to 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 collected and make necessary investments in water, sewer or broadband infrastructure. In 2025, the County spent $2,387,149 in program funds for these activities. Of this amount, the County passed $296,296 through to one subrecipient. The internal control deficiencies and noncompliance identified in this finding impact the direct award received from the U.S. Department of the Treasury. 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. Reporting Under the SLFRF program, direct recipients must submit quarterly Project and Expenditure Reports to Treasury. Treasury identified the following key line items in the quarterly report that contain critical information and must be accurate and complete: 1. Obligations and Expenditures • Current period obligation • Cumulative obligation • Current period expenditure • Cumulative expenditure 2. Subawards 3. Detailed information on any loans issued; contracts and grants awarded; transfers made to other government entities; and direct payments made by the recipient that are more than $50,000. For amounts less than $50,000, the recipient must report in the aggregate for these same categories of loans issued; contracts and grants awarded; transfers made to other government entities; and direct payments made by the recipient. Subrecipient monitoring When the County passes on federal funds to subrecipients, federal regulations require the County to ensure every subaward agreement clearly identifies that it is a federal award and includes the applicable federal requirements. The County is required to report 14 federal award identification elements in each subaward agreement. Description of Condition Reporting The County did not have effective processes for ensuring it prepared accurate and complete quarterly reports based on supporting documentation and Treasury’s guidance for SLFRF. Specifically, the County submitted four quarterly Project and Expenditure Reports that included incorrect information when compared to the supporting documentation and reporting guidance. We consider these internal control deficiencies to be a material weakness that led to material noncompliance. Subrecipient monitoring The County did not have effective internal controls to comply with subrecipient monitoring requirements. Specifically, the County contracted with a for-profit company to initiate broadband infrastructure deployment to bring Fiber-to-the- Premise Broadband to serviceable locations within the County. The County did not identify the for-profit as a subrecipient and, as a result, did not follow subrecipient monitoring requirements to include all required federal identification elements in the contract. We consider this internal control deficiency to be a significant deficiency. Cause of Condition Reporting County staff responsible for preparing the quarterly reports misinterpreted Treasury’s guidance regarding what information they must include in them and how to report it. County staff said they attempted to correct the reports based on results of prior audits but did not dedicate adequate time to ensure the subawards were accurate before submission. Subrecipient monitoring The employee responsible for creating the contract was unaware the contract created a subrecipient relationship and did not know to include all the required elements in the subrecipient contract. Effect of Condition Reporting The U.S. Department of the Treasury uses the reports for oversight purposes, and any inaccurate information limits its ability to ensure transparency of program spending and fulfill its legal obligations. Failing to submit accurate reports diminishes the federal government’s ability to ensure accountability and transparency of federal spending. We reviewed all four quarterly Project and Expenditure reports related to 2025 and found: • The County included itself as a subrecipient twice on each report • In all four reports, the subaward section listed the incorrect subaward type for 56 out of the 60 subawards reported • The County reported an obligation of $11,773,375 for itself as a subrecipient/beneficiary out of the entire total obligation of $16,537,641 Subrecipient monitoring The County did not include all required elements in its subrecipient’s contract, including the federal award identification number, Assistance Listing Number, unique entity identifier, federal award date, federal agency name, and the terms and conditions of the award. Additionally, the County could not provide evidence that it subsequently shared the missing federal information with the subrecipient. Without this information, the subrecipient is less likely to know that the award comes from a federal program. This also increases the risk that the subrecipient would not know they need to comply with specific program requirements, which could potentially lead them to spend funds for unallowable purposes. Recommendation We recommend the County: • Establish internal controls to prepare accurate and complete reports, and ensure information included in reports is supported by accounting records and reviewed for accuracy before submitting and certifying them • Refer to Treasury’s Project and Expenditure Report User Guide for instructions on correcting the data • Provide resources necessary for staff to improve report preparation to comply with federal reporting guidance and subrecipient monitoring • Include all required elements in subaward agreements. County’s Response The County would like to thank the Washington State Auditor’s Office for their time and effort in reviewing the Coronavirus State and Local Fiscal Recovery Funds financial activity. County staff has previously reached out to the granting agency on how to resolve the quarterly Project and Expenditures reporting issue. Staff will review quarterly reporting to ensure the data accurately reflects the accounting records. The County is committed to obtaining the necessary training and resource materials for future ARPA reporting and subrecipient monitoring. Auditor’s Remarks We appreciate the County’s commitment to resolve this finding and thank the County for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular 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. U.S. Department of the Treasury’s Compliance and Reporting Guidance State and Local Fiscal Recovery Funds, Part 2: Reporting Guidance, provides the reporting requirements for the Project and Expenditure Report. U.S. Department of the Treasury’s Project and Expenditure Report User Guide State and Local Fiscal Recovery Funds, a supplement to the Compliance and Reporting Guidance, provides detailed reporting guidance, instructions, and FAQ’s for award recipients in using Treasury’s Portal for submitting the Project and Expenditure Reports. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for passthrough entities, establishes subrecipient monitoring and management requirements for pass-through entities