The City’s internal controls were inadequate for ensuring compliance with federal subrecipient monitoring requirements.
Assistance Listing Number and Title: 21.019 – COVID-19 – Coronavirus Relief Fund
Federal Grantor Name: U.S. Department of the Treasury
Federal Award/Contract Number: N/A
Pass-through Entity Name: Washington State Department of Commerce
Pass-through Award/Contract Number:
20-6541C-329
Questioned Cost Amount: $0
Prior Year Audit Finding: N/A
Background
The purpose of the Coronavirus Relief Fund program is to provide payments to state, territorial, tribal and certain eligible local governments to cover necessary expenditures incurred because of the COVID-19 pandemic. During 2020, the City spent $1,555,200 in program funds. The City passed through $444,000 of its award from the Washington State Department of Commerce to a subrecipient to administer COVID-19 assistance programs to the City’s small businesses and residents.
Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls.
Whenever the City passes on federal funding to subrecipients, federal regulations require the City to clearly identify the subawards as federal awards and include all applicable program requirements. Further, the City must monitor its subrecipients to ensure they comply with the terms and conditions of the federal award.
To determine the appropriate level of monitoring, the City must evaluate each subrecipient’s risk of noncompliance with federal requirements. For awards dependent on participant eligibility, monitoring would include verifying the subrecipients only provided assistance to participants who met program eligibility requirements. The amount of verification would depend on each subrecipient’s risk of noncompliance.
Description of Condition
The City provided funds to one subrecipient to administer COVID-19 assistance programs to City residents and businesses. Our audit found the City did not perform a risk assessment for the subaward and did not sufficiently monitor the subrecipient, as federal regulations require.
We consider this deficiency in internal controls to be a material weakness that led to material noncompliance.
Cause of Condition
With the effects of COVID-19, it was urgent for the City to disburse funds to the subrecipient quickly in order to assist with public health needs and provide rental assistance and other services. City staff responsible for managing the federal program were not aware of the requirements to perform a risk assessment specific to the subaward, nor did they know about the requirements for subrecipient monitoring for awards dependent on participant eligibility.
Effect of Condition
The City did not complete a risk assessment for the subaward. Without conducting a risk assessment, the City risks not adequately monitoring its subrecipient to ensure it complies with program requirements and uses federal funds appropriately.
Since the City did not monitor its subrecipient, there was no way for it to confirm the assistance was paid to eligible recipients.
Recommendation
We recommend the City perform sufficient risk assessments over its subrecipients and monitor them accordingly to verify they are complying with the terms and conditions of the award and only providing funds to eligible participants.
City’s Response
In order to promptly and efficiently distribute funds to local business in critical need of support, the City worked with a non-profit subrecipient that had a long history of properly managing grants and awards.
The City’s process for evaluating the Subrecipient’s risk for noncompliance and monitoring included the following actions:
• The Subrecipient was determined to have experience with the same or similar awards as demonstrated by active agreements other local government entities for management of the same COVID-19 awards. Evaluation included discussion with other PTE’s including Whitman County and a review of contract requirements and processes that were provided related to an existing agreement with Asotin County.
• Review of the history and first hand knowledge that the Subrecipient demonstrated a consistent structure with staffing and systems including confirmation of the organization’s 35+ years of managing both state and federal grant funds in the region. For decades, including at this time, a member of the Pullman City Council served on the Board of Director for the Subrecipient and was familar with the operations, risks, and history of the organization.
• In addition to confirmation of the Subrecipient’s work administering the same subaward for other agencies, the City confirmed that the Subrecipient had a long track record of properly monitoring federal awards.
During the establishment of the Subrecipient Agreement between the City and Subrecipient, processes were established to ensure the ability to monitor Subrecipient activities and ensure compliance with the terms and conditions of the subawards as required. These monitoring factors were addressed through the following actions:
• The agreement established between the City and Subrecipient outlines the expectations and requirements including the Subrecipient’s requirement and requirements of the award. These requirements for Subrecipient included providing all information to the City and/or State Auditor’s Office.
• As required by agreement, the Subrecipient supplied the City details of amounts, awardees, and fund use details for review prior to funds being distributed. 100% of subrecipient awards to individual busineses were reviewed by City staff for appropriateness and compliance prior to submitting for reimbursement and prior to payment of the funds to the Subreceipient.
• The City was directly involved in the distribution of funds from the subrecipient to individual businesses receiving the funds.
The City selected a long standing regional non-profit that had already been confirmed by several other local entities as the best option to manage these subrecipient funds. Selecting this Subrecipient allowed the funds to be promptly and efficiently disbtributed to those businesses that were in desperate need of support due to the negative economic impacts caused by the worldwide pandemic of COVID-19. Prior to the disbtribution of any monies, risk factors were evaluated by the City and the award process was monitored and reviewed. All funds were appropriately and efficiently distributed in a manner consistent with compliance requirements, eligibility requirements, and resulted in no question in amount or use of any of the funds. All funds were properly accounted and no monies were missing in the process.
Auditor’s Remarks
It’s incumbent upon the City to document a formal risk assessment of subrecipients to meet their federal requirements. During our audit we requested all documentation from the City for any risk assessments completed; however, the City informed us that they had not completed a formal, documented risk assessment. Without a documented assessment, the City cannot demonstrate it complied with federal requirements. We reaffirm our finding and will review the status of these issues during our next 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.
Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes subrecipient monitoring and management requirements for pass-through entities.
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.