Condition:
The Municipality failed to identify, within their records, a list of transactions, nor could provide supporting documentation for the disbursement of $373,670 of program funds. Several inconsistencies between the disbursement and supporting documentation were observed for disbursements totaling $8,579. A total of $373,670 of program funds were transferred to other accounts of the Municipality. The Municipality did not provide us with supporting documentation for transactions totaling $373,670, therefore, we could not ascertain that these transactions complied with program regulations.
Context:
The Municipality received $758,218 of program funds during the fiscal year ended on June 30, 2022. A total of $1,526,593 was included in the schedule of expenditures of federal awards (SEFA) as program expenses. The Municipality did not provide sufficient and appropriate documentation for $373,670 of program expenses. This represents 24% of the expenses reported in the SEFA. The following situations were observed for disbursements totaling $8,579:
Context, continued:
Situation Number of transactions with situation
Disbursement was made before the receipt of the related invoice 1
Duplicity of payments for the same invoice 2
Disbursement was made without the receipt of the related invoice nor the signoff of all required personnel. 1
Program regulation states that local governments are required to use payments from the Fund to cover: 1) Necessary expenditures incurred due to the public health emergency with respect to the Coronavirus Disease 2019 (Covid-19), 2) Costs that were not accounted in the governments’ most recently approved budget as of March 27, 2020, and 3) Costs that were incurred during the period that begins on March 1, 2020; and ends on December 31, 2021. Program Closure Report reminds the Municipality that as per 2 C.F.R. 200 and applicable federal regulations to the CRF Program, documentation that serves as evidence of any eligible expenditure reported under the CRF Program should be preserved and maintained for at least five years. We could not ascertain that these disbursements complied with program regulations.
The Coronavirus Relief Fund is authorized by the Cares Act, Pub. L. No. 116-136, Division A, Title V (2020) (codified as 42 USC 81 et seq.) as amended by the Consolidated Appropriations Act, 201, Pub. L. No. 116-260 Division N, Title X, Section 1001.
Criteria:
Uniform Guidance states in 2 CFR 200.403 that otherwise authorized by statue, costs must be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles, be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the non-Federal entity and be adequately documented. As per 2 CFR 200.302 the other non-Federal entity’s financial management system must provide for the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the federal statues, regulations, and the terms and conditions of the Federal Award.
Cause:
The Municipality failed to provide documentation that served as evidence of eligible expenses for the CRF program for expenses totaling $373,670. The Municipality applied inconsistent internal control and program procedures to disbursement transactions totaling $8,579.
Effect:
Remedies for noncompliance are described in 2 CFR 200.339. Grantor may impose additional conditions as described in 2 CRF 200.208 or take one or more of the actions listed on 2 CRF 200.339 as appropriate in the circumstances.
Auditor’s recommendation:
The Municipality must strengthen internal controls and procedures to assure that disbursement of program funds is properly documented and allowed under program regulations. The Municipality must ensure that all documentation that serves as evidence for eligible expenses be preserved and maintained for at least five years.
Views of Responsible officials and corrective actions:
Evidence of AAFAF Funds closeout report was provided, there is no issue.
Auditor Comments:
The Coronavirus Relief Fund (CRF) Transfer Agreement – Assistance Program to Municipalities establishes the following on its grant agreement:
2.3 Recordkeeping: Transferee will maintain its books and records in a manner that will provide Transferor with sufficient detail to review Transferee’s receipts and expenditures relating to the Transfer. Transferee will make such records available for review by Transferor or its agent or designee upon reasonable notice during the Transfer Period and for five (5) years after the termination or expiration of this Agreement.
5.2 Compliance Audit Requirements E.: As applicable, Transferees required to have an audit must ensure the audits are performed in accordance with Generally Accepted Auditing Standards (GAAS) and Government Auditing Standards.
The Assistance Program to Municipalities Program Closure Report that management refers to states the following: “Receipt of this notification means that your municipality does not need to provide further notifications or Use of Funds reports since the Program has been closed for your municipality. Your municipality is advised that all documentation that serves as evidence of any eligible expenditure reported under the CRF Program should be preserved and maintained for at least five (5) years, as indicated by federal regulation 2 C.F.R. 200 and applicable federal regulations to the CRF Program. Additionally, please be advised that your municipality will continue to be subject to revisions or audits by local, state or federal agencies pertaining to the use of funds in accordance with federal regulations applicable to the CRF program or the federal regulations regarding Federal Awards, 2 C.F.R. 200. Therefore, your municipality should expect and be prepared for a formal audit by the Government of Puerto Rico or by any pertinent federal agency”. Appendix XI to Part 200 – Compliance Supplement identifies Allowable Costs/Cost Principle as a compliance requirement. Except where otherwise authorized by statue, cost must meet the following general criteria in order to be allowable under federal awards: (1) Be necessary and reasonable for the performance of the federal award and be allocable thereto under the principles in 2 CFR Part 200, Subpart E., and (2) be adequately documented, among other things.
The Assistance Program to Municipalities Program Closure Report does not constitute a list of transactions nor adequate supporting documentation of the transactions totaling $373,670. It also does not explain the inconsistencies in supporting documentation observed for disbursements totaling $8,579.
Audit Status:
Unresolved