Finding 503772 (2023-004)

Condition: Although the City drewdown and received approximately $2.5M in grant funds, it had expended only approximately $1.49M for the fiscal year ended September 30, 2023. Criteria: Non-federal entities must minimize the time elapsing between the transfer of funds from the U.S. Treasury or pass-through entity and disbursement by the non-federal entity for direct program or project costs and the proportionate share of allowable indirect costs whether the payment is made by electronic funds transfer, or issuance or redemption of checks, warrants, or payment by other means (2 CFR section 200.305(b), 45 CFR Part 75.305(b)). According to the Office of Management and Budget 2023 Compliance Supplement, what constitutes minimized elapsed time for funds transfer depends on the method of payment the auditee uses. The U.S. Department of Health and Human Services (HHS) processes its financial transaction through its Program Support Center, which uses the Payment Management System (PMS). Payments requested through the HHS PMS are generally available to the auditee the next business day. Under the advance payment method, payment may be made to the auditee prior to the auditee's disbursement of program funds, so long as the auditee "...maintains, or demonstrates the willingness to maintain, both written procedures that minimize the time elapsing between the transfer of funds from the U.S. Treasury and disbursement by the non-federal entity..." Cause: The City requested and received grant funds prior to having a need for such funds. Effect: The City did not comply with cash management requirements as set forth by the Office of Management and Budget (OMB), 2 CFR section 200.305(b), and 45 CFR Part 75.305(b). As a result, at the end of the fiscal year, the City had in more than $1M in HHS funds in its financial institution account. Questioned costs: N/A Recommendation: We recommend that the City develop and implement procedures to ensure that federal funds are only either requested as reimbursement for allowable program disbursement. In those instances where a federal program allow advance payments, procedures should be implemented to ensure that those payments are for immediate cash needs City's Response: The City will not draw down any grant funds prior to incurring the expenditure.