Finding Text
2022-002 The Authority?s internal controls were inadequate for ensuring compliance with federal requirements for subrecipient monitoring. 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: N/A Pass-through Entity Name: City of Seattle and the Washington State Department of Commerce Pass-through Award/Contract Numbers: DM22-5212 SFY23-46141-002 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program is to respond to the COVID-19 pandemic?s negative effects on public health and the economy, provide premium pay to essential workers during the pandemic, provide government services to the extent COVID-19 caused a reduction in revenues collected, and make necessary investments in water, sewer, or broadband infrastructure. During 2022, the Authority spent $11,107,274 in program funds to provide homelessness and shelter services. Of this amount, the Authority passed through $10,079,848 in 19 subaward agreements to 14 subrecipients to fulfill components of the program?s objectives. The portion of program funds the Authority passed through to the subrecipients funded homelessness mitigation projects related to COVID-19. These projects included COVID-19 mitigation in shelters, capacity building, emergency housing services assistance to households, rapid rehousing, safe parking, and non-congregate shelter resources. 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. When the Authority passes on federal funds to subrecipients, federal regulations require the Authority to ensure every subaward agreement clearly identifies that it is a federal award and includes the applicable requirements. The Authority is required to include 14 federal award identification elements in each subaward agreement. Whenever passing federal funding to subrecipients, federal regulations require the Authority to monitor them and ensure they comply with the terms and conditions of the federal award. Description of Condition Our audit found the Authority?s internal controls were ineffective for ensuring it included all 14 required elements in the subaward agreements. The Authority did not include all 14 required elements for 11 subaward agreements. The missing elements included: ? Subrecipients? Unique Entity Identifier ? Federal Award Identification Number (FAIN) ? Federal award date ? Amount of federal funds obligated ? Total amount of the federal award ? Name of the federal awarding agency ? Assistance Listing Number and program title ? All federal program requirements imposed by the pass-through entity ? Indirect cost rate We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition The Authority is a recently established local government that began full-scale operations in 2022, and it was still expanding its finance and accounting staff and developing its subrecipient monitoring procedures during the audit period. Since the Authority is a newer government and not yet fully staffed, employees lacked adequate experience and knowledge about federal programs to ensure that all required information was included in the subaward agreements. Effect of Condition The Authority did not include all the required information in 11 subaward agreements. When subaward agreements do not include the required information, subrecipients are at an increased risk of not knowing they need to comply with specific program requirements, which could lead to spending the funds for unallowable purposes. Subsequently, the Authority shared some of the missing information with the subrecipients through its grant contract management system. Recommendation We recommend the Authority include all required elements in its subrecipient agreements. We also recommend the Authority strengthen its controls to ensure compliance with federal subrecipient monitoring requirements. This should include: ? Dedicating the necessary resources and adequately training staff responsible for administering federal programs. ? Continuing to develop and establish policies and procedures to ensure compliance with subrecipient monitoring requirements. Authority?s Response KCRHA greatly appreciates the recommendation and has already taken significant steps to implement many of the necessary components in our contracting year for 2023. We have been actively involved in recruiting experienced personnel and providing on-job trainings to strengthen our contract and grant management and compliance monitoring. Furthermore, KCHRA continues our current efforts to enhance our policies and procedures and implement best practices for federal grant compliance. We are very confident that we will successfully address the deficiency in 2023. Auditor?s Remarks We appreciate the Authority?s commitment to resolving this finding, and we thank the Authority 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.