Finding 21141 (2022-002)

2022-002 The County did not have adequate internal controls for ensuring compliance with federal match requirements. Assistance Listing Number and Title: 14.267 ? Continuum of Care Program Federal Grantor Name: U.S. Department of Housing and Urban Development Federal Award/Contract Number: N/A Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $186,109 Prior Year Audit Finding: N/A Background The Continuum of Care (CoC) program is designed to promote community-wide commitment to the goal of ending homelessness. The program provides funding for efforts by nonprofit providers and state and local governments to quickly re-house people and families experiencing homelessness while minimizing the trauma and dislocation it causes. The program also optimizes self-sufficiency and promotes access to and effective use of mainstream programs by people and families experiencing homelessness. Federal regulations require recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established internal controls. The CoC program requires recipients and subrecipients to provide nonfederal matching funds equaling 25 percent of their total federal expenditures. Federal regulations also require that match contributions be adequately documented and come from allowable expenditures meeting federal cost principles. The County contracts with its subrecipients on a project basis, and the required matching amount is based on each project amount. In 2022, the County completed 13 projects with seven subrecipients who provided a total match of $1,051,806 over the life of the contract. As the prime recipient, the County is responsible for monitoring its subrecipients? activities to ensure they comply with federal regulations, including that their match contributions come from an allowable source and are adequately documented. Description of Condition The County?s controls were inadequate for ensuring it consistently reviewed and retained subrecipient match documentation to gain assurance that the contributions were from allowable sources. The County provides a spreadsheet to subrecipients so they can identify the match source and amount when they submit monthly invoices. Although the County reviews subrecipients? invoices, it did not sufficiently review the matching contributions to ensure they were accurate and valid. Further, our audit found the County?s controls were inadequate for ensuring it took the appropriate corrective action when a subrecipient did not meet the 25 percent match that the grantor requires. Subrecipient invoices track match contributions by month and in total. This information is recorded on a spreadsheet that is configured to identify whether subrecipients have met the total match requirements. We determined the County?s spreadsheet identified two subrecipients that did not meet the required match. However, the County did not take corrective action to reduce future reimbursements to adjust for this difference. We consider these deficiencies in internal controls to be a significant deficiency. Cause of Condition On a monthly basis, County staff review whether subrecipients? match contributions are on track to meet the 25 percent requirement. The County determines if a subrecipient met the required match during the final monthly invoice review and contract closing process. However, this review was insufficient for ensuring the match contributions had adequate support. Further, the County expected to verify that subrecipients? match contributions were allowable and adequately supported as part of its subrecipient monitoring processes. However, it did not select matching as an area to review. Lastly, staff were aware that the two subrecipients did not meet the 25 percent match requirement, but the County did not reduce subsequent reimbursements to account for the unmet match. Effect of Condition and Questioned Costs The County did not review and obtain adequate documentation of subrecipients? match contributions to demonstrate compliance. Using a statistical sampling method, we selected 28 matching transactions to review. We identified 10 match transactions totaling $96,240 in known questioned costs. Based on the projection of our statistical sample, we identified an additional $215,690 in projected overpayments. Further, the County did not have support for in-kind match transactions totaling $58,586, resulting in known questioned costs. Additionally, since two subrecipients did not meet the 25 percent match requirement, the County should have reduced subsequent reimbursement requests by $31,283. We are questioning these costs. Without adequate documentation to support subrecipients? match contributions, the County is not in compliance with the granting agency?s recordkeeping and matching requirements. Further, the County cannot assure federal grantors that matching contributions reported are accurate and valid. Any unsupported match contributions could result in a reduction of future federal awards. Recommendation We recommend the County strengthen internal controls over federal match contributions from subrecipients to ensure it reviews and retains adequate documentation of the source and allowability of the match, and to ensure it provides the minimum amount of match contributions required by the grantor. County?s Response Pierce County Human Services understands the importance of properly tracking and documenting the source and allowability of required match contributions. Staff have already worked with the U.S. Department of Housing and Urban Development to bring contracts with match requirements into compliance and to implement internal controls so that adequate information will be reviewed and retained. 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. Title 2 CFR Part 200, Uniform Guidance, section 306, Cost sharing or matching, describes the requirements for match contributions to be allowable under federal cost principles. Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting allowability of costs, describes the requirements for federal expenditures to be adequately documented. Title 24 CFR Part 578, Continuum of Care Program, section 103, Recordkeeping requirements, describes the requirements for recipients to keep records of the source and use of match contributions.