City of Olympia
January 1, 2023 through December 31, 2023
2023-003 The City did not have adequate internal controls in place for ensuring compliance with federal special reporting and rehabilitation requirements.
Assistance Listing Number and Title:
14.218 Community Development Block Grants
Federal Grantor Name:
U.S. Department of Housing and Urban Development
Federal Award/Contract Number:
B16MC530012, B23MC530012, B22MC530012
Pass-through Entity Name:
N/A
Pass-through Award/Contract Number:
N/A
Known Questioned Cost Amount:
N/A
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 2023, the City spent $1,109,016 for its CDBG program. Of this amount, it passed $911,886 through to subrecipients.
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.
Special Reporting for Federal Funding Accountability and Transparency Act (FFATA) 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 must report subawards by the end of the month following the month in which it made the subawards.
Special Tests and Provisions – Rehabilitation
When recipients use CDBG funds for housing rehabilitation projects, federal regulations require them to ensure that the work is properly completed by performing the following:
• Conducting pre-rehabilitation inspections to determine deficiencies to be corrected
• Incorporating the deficiencies to be corrected into the rehabilitation contract
• Inspecting the rehabilitation work upon completion to assure that it is carried out in accordance with contract specifications
Description of Condition
Special Reporting for Federal Funding Accountability and Transparency Act (FFATA)
The City’s internal controls were ineffective for ensuring compliance with FFATA reporting requirements. Specifically, the City made four new subawards in 2023 that exceeded $30,000, and it did not prepare or submit any FFATA reports for these subawards as federal regulations require.
We consider these internal control deficiencies to be a material weakness that led to material noncompliance.
Special Tests and Provisions – Rehabilitation
Our audit found the City did not have a process in place to perform inspections of rehabilitation projects upon completion to ensure the work was carried out in accordance with contract specifications as federal regulations require.
We consider this deficiency in internal controls to be a material weakness that led to material noncompliance.
Cause of Condition
Special Reporting for Federal Funding Accountability and Transparency Act
(FFATA)
City staff overseeing the program were not aware of the federal FFATA reporting
requirements.
Special Tests and Provisions – Rehabilitation
The City staff overseeing the program did not know that they were required to
perform post-rehabilitation inspections themselves to ensure that the project was
complete. Staff stated that they have a process in place to review invoices and
supporting documentation once work is complete to verify that the work performed
appears to be within contract specifications based on documentation submitted.
However, they do not physically inspect the project, nor do they require all
subrecipients to submit photos or other documentation supporting that the work was
performed in accordance with specifications.
Effect of Condition
Special Reporting for Federal Funding Accountability and Transparency Act
(FFATA)
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.
Transactions
Tested
Subaward not
reported
Report
not
timely
Subaward
amount
incorrect*
Subaward
missing key
elements
4 4 N/A N/A N/A
Dollar
Amount of
Tested
Transactions
Subaward not
reported
Report
not
timely
Subaward
amount
incorrect
Subaward
missing key
elements
$
430,000 $ 430,000 N/A N/A N/A
Page 17
Office of the Washington State Auditor sao.wa.gov
Special Tests and Provisions – Rehabilitation
We tested twenty-five rehabilitation projects and the City could not provide documentation for any of the projects to show that a review or inspection took place upon completion. Therefore, we could not determine the City ensured that contractors carried out and completed the rehabilitation work in accordance with contract specifications. Without documented rehabilitation inspections, the City cannot demonstrate it is complying with program requirements. Failure to comply with program requirements could result in the U.S. Department of Housing and Urban Development withholding future annual allocations of CDBG funding from the City.
Recommendation
We recommend the City establish and follow internal controls to ensure it prepares and submits FFATA reports for all applicable subawards, as federal regulations require.
Further, we recommend the City establish controls and procedures to ensure all applicable housing projects receive rehabilitation inspections upon completion of the work, as federal regulations require.
City’s Response
The City takes seriously the use of federal funds, and the compliance requirements associated with them. The Housing and Homelessness Response team is committed to ensuring there are no further instances of noncompliance by updating our processes to meet these requirements. The inspections of rehabilitation projects were being performed remotely by reviewing contractor invoices and payments as evidence of work completion. Though each individual project site was not visited, the team did perform on-site monitoring visits at subrecipients’ locations and reviewed subrecipients’ documentation of project files. This process was a holdover from COVID, when we were unable to physically go on site to every project site. As COVID restrictions have lifted, we understand that a physical inspection at each site is now necessary.
Moving forward, we have implemented requirements to inspect all sites receiving CDBG rehabilitation funding as a part of project close-out. Staff will also continue to review subrecipient records during monitoring to ensure subrecipients have adequate recordkeeping of completed rehabilitation projects.
The department was unaware of the requirements of the FFATA filing and will be scheduling trainings to learn more about grant requirements. We thank the auditors for bringing the requirements to our attention.
Auditor’s Remarks
We thank the City for its cooperation throughout the audit and the steps it is taking to address these concerns. We will review the status of the City’s corrective action 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.
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).
Title 24 CFR Part 570, Community Development Block Grants, section 506, records to be maintained.