2022-003 The County did not have adequate internal controls for ensuring federal match contributions from subrecipients were adequately supported. "See Schedule of Federal Award Findings and Questioned Costs for chart/table" Background The Continuum of Care (CoC) program is designed to promote community-wide commitment to the goal of ending homelessness. The program provides funding to quickly rehouse homeless people and families while minimizing the trauma and dislocation homelessness causes, promote access to and effective use of mainstream programs by homeless people and families, and optimize self-sufficiency among 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. Federal regulations also require that match contributions be adequately documented and come from allowable expenditures meeting federal cost principles. The CoC program requires recipients and subrecipients to provide nonfederal matching funds of 25 percent of their total federal expenditures. The County provided this match through its own funds and funds provided by its subrecipients. For the program year ending on June 30, 2022, the County and its subrecipients were required to provide a total match of $2,714,574. As the prime recipient, the County is responsible for monitoring the activities of the subrecipients to ensure they comply with federal regulations, including that subrecipient match contributions are adequately documented. Description of Condition The County?s controls were inadequate for ensuring it reviewed and retained subrecipient match contribution documentation to gain assurance that match costs came from allowable sources. The County contractually requires subrecipients to provide documentation of match contributions monthly, but it only enforces this requirement for the first and last month of each program year. In addition, the County?s subrecipient monitoring procedures state that it samples the remaining program months and reviews match documentation, but staff did not perform this process for fiscal year 2022. We consider these deficiencies in internal controls to be a material weakness. Cause of Condition Employees responsible for administering the program determined the review of the first and last month of match documentation of each program year, along with the review performed as part of subrecipient monitoring, would be sufficient to ensure match amounts were adequately supported and came from allowable sources. However, in April 2022, the County experienced turnover in the position responsible for performing subrecipient monitoring reviews over documentation of match contributions, and this position remained vacant for more than a year. As a result, a key part of the process for reviewing a sample of match documentation throughout the year was not performed during the audit period. Effect of Condition During fiscal year 2022, the County provided a total match of $4,432,463. Although this amount in total exceeded the required match of $2,714,574, the County did not review and obtain adequate documentation of subrecipient match contributions totaling $3,536,545, or 79.8 percent of total match contributions. Without adequate documentation to support subrecipient match contributions, the County is not in compliance with the granting agency?s recordkeeping requirements. Further, the County cannot assure federal grantors that matching contributions reported are accurate and valid. In addition, unsupported match contributions could result in a reduction of future federal awards. During the audit, the County obtained additional documentation from subrecipients to support match contributions. This reduced the amount of unsupported subrecipient match contributions to $896,966, or 20.2 percent of total match contributions. As the County initially provided match contributions that were more than the amount required, the remaining supported amount met the overall match requirements. As such, we are not questioning costs. 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. County?s Response The County does have established internal controls for matching requirements. These controls include remote review of Program Income and Match Reports (summary, GL for cash match, in-kind summary sheet), first and last month review of source documentation, additional requests for backup documentation if concerns are identified, monthly staff review of match report sheet breaking down reported match amounts by eligible category for each agency providing in-kind match, and onsite review of match source documentation for selected months other than first/last month. The County?s contract language for agencies to provide the match documentation was further detailed in a memo to CoC agencies. The memo identified the types of documentation agencies are to submit, and that the agencies are not expected to provide all source documentation on months 2-11. The County wrote the contract language to generally require match documentation monthly and implemented its intent specifically through the memo. CFR part 578.73 requires the recipient or subrecipient to document and maintain match documentation. The County as recipient and CoC subrecipients maintained source documentation. One of the agencies for which supporting documentation was requested during the audit, did not have adequate time to provide the documentation, as the agency had moved offices and most of the support documentation had not been unboxed. Another factor was some of the support documentation contains HIPAA-covered personal identifiable information (PII) that needs to be handled and maintain under strict confidential requirements. This would require additional time to redact PII to maintain confidentiality. The agency was able to provide most but not all of the support documentation by the deadline under these statutory restrictions. While we do have established internal controls, the County was unable to perform onsite match monitoring during 2022 due to staff turnover and Covid-19 restrictions. Labor market conditions during 2022 were extremely challenging, and as a result it took a considerable amount of time to fill the Housing and Community Services Financial Compliance Officer 1 (FCO1) position. The FCO1 performs remote and onsite monitoring activities for cash and in-kind match and works closely with program staff and fiscal staff. The position was filled with onboarding and training occurring in the later part of 2022 and first part of 2023. Onsite and remote FCO1 match monitoring resumed in 2023 and the FCO1 will review current practices to recommend possible improvements for implementation. 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.