Finding 2354 (2022-002)

2022-002 The City did not have adequate internal controls for ensuring compliance with federal reporting requirements. Assistance Listing Number and Title: 14.218 – COVID-19 – Community Development Block Grant/Entitlement Grants 14.218 – Community Development Block Grants/Entitlement Grants Federal Grantor Name: U.S. Department of Housing and Urban Development (HUD) Federal Award/Contract Number: N/A Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The primary objective of the Community Development Block Grants/Entitlement Grants (CDBG) program is to help provide decent and affordable housing, particularly for people with moderate, low and very low incomes. Funds also help recipients implement strategies for achieving an adequate supply of decent housing and providing suitable living environments and expanded economic opportunities for people with low incomes. In 2022, the City spent $742,706 for its CDBG program. Of this amount, it passed $590,880 through to subrecipients. Federal regulations require recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring with effectiveness of established controls. The Federal Funding Accountability and Transparency Act (FFATA) requires direct recipients that make first-tier subawards of $30,000 or more to report them in the FFATA Subaward Reporting System (FSRS). The City has until the end of the month plus one additional month after obligating a subaward to fulfill this reporting requirement. Description of Condition We found the City’s internal controls were ineffective for ensuring compliance with FFATA reporting requirements. Specifically, the City made two subawards in 2022 that exceeded $30,000, and it did not prepare or submit any of the required FFATA reports for these subawards. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition City employees said they did not know about the FFATA reporting requirements for the program. Effect of Condition Failing to submit the required reports diminishes the federal government’s ability to ensure accountability and transparency of federal spending. The table below summarizes the discrepancies we identified. The City has since submitted all FFATA reports applicable to the audit period. Transactions Tested 2 Subaward not reported 2 Report not timely N/A Subaward amount incorrect N/A Subaward missing key elements N/A Dollar Amount of Tested Transactions $129,786 Subaward not reported $129,786 Report not timely N/A Subaward amount incorrect N/A Subaward missing key elements N/A Recommendation We recommend the City establish and follow internal controls over federal reporting requirements to ensure it prepares and submits FFATA reports for all applicable subawards, as federal regulations require. City’s Response The City’s CDBG Grant Manager has developed procedures to ensure all requirements in reporting Federal Funds, including FFATA are met by the City. This also includes review notification and requirements each year for any updates or changes to previously provided guidance. Management will ensure all internal controls are followed including the timely remittance of all reports. Procedures will be developed to provide training to new staff members. In addition, all delinquent reports are being completed by the CDBG Grant Manager and those will be filed no later than 12/31/2023. Auditor’s Remarks We appreciate the City’s commitment to resolve this finding and thank the City 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 170, Reporting Subaward and Executive Compensation Information, establishes the Federal Funding Accountability and Transparency Act (FFATA) requirements of reporting the subaward information through the FFATA Subaward Reporting System (FSRS).