Finding 588958 (2022-003)

Finding 2022-003 ? Subrecipient and Contractor Determinations Program: Coronavirus State and Local Fiscal Recovery Funds Assistance Listing No.: 21.027 Federal Agency: U.S. Department of the Treasury Passed Through: N/A ? Direct Program Award Year: Fiscal Year 2021-2022 Compliance Requirement: Subrecipient Monitoring Questioned Costs: $0 Criteria Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) ?200.303 states that the non- Federal entity (County) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in ?Standards for Internal Control in the Federal Government? issued by the Comptroller General of the United States or the ?Internal Control Integrated Framework,? issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per ?200.331, a pass-through entity (the County) must make case-by-case determinations whether each agreement it makes for the disbursement of Federal program funds casts the party receiving the funds in the role of a subrecipient or a contractor. A pass-through entity (the County) with subrecipients is required to evaluate each subrecipient?s risk of noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward for purposes of determining the appropriate subrecipient monitoring. Depending upon the pass-through entity?s assessment of risk posed by the subrecipient, the entity must develop techniques/tools to ensure proper accountability and compliance with program requirements and achievement of performance goals by the subrecipient. Condition During our testing of compliance with the subrecipient monitoring requirement, we noted that the County did not have formal, written subrecipient monitoring policies or procedures in place, as the Subrecipient Monitoring Policy document was adopted on June 21, 2022. In addition, management did not conduct pre-award evaluations of whether the agreements made by the County for the disbursement of CSLFRF payments cast the party receiving the funds in the role of a subrecipient or contractor, as four out of four CSLFRF recipients were missing documentation regarding the characteristics which support the classifications and the judgments used to make such determinations. Also, the County did not evaluate each subrecipient?s risk of noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward. 20 Cause of Condition The County?s existing internal control system is not properly designed to meet the control objectives under subrecipient monitoring. Repeat Finding No. Effect of Condition There is increased risk of noncompliance with the subrecipient monitoring requirement as set forth in the U.S. Office of Management and Budget (OMB) Compliance Supplement, which can jeopardize future federal funding as well as result in the payback of federal awards. Failure to perform a comprehensive risk assessment prior to executing subaward agreements may result in an incomplete understanding of a subrecipient?s risk profile, and insufficient monitoring or only relying on self-reporting can allow certain risks to go unaddressed and lead to noncompliance with grant requirements. In addition, an incorrect determination could have a significant impact on whether the party receiving federal funds is required to have an audit. Recommendation We recommend the County design and implement internal control activities over the subrecipient monitoring compliance requirement under the Uniform Guidance. We also recommend the County establish policies and procedures, especially documentation requirements, to make pre-award determinations of whether each agreement it makes for the disbursement of Federal award funds casts the party receiving the funds in the role of a subrecipient or a contractor. In addition, we recommend the County implement a training program for all staff directly involved in the administration of Federal award funds to become knowledgeable of the cost principles and requirements under the Uniform Guidance. Management Response and Corrective Action Plan Management agrees with the findings and has provided the following corrective action plan. 1. County will assess existing policies, design, and implement additional internal control activities over the subrecipients to improve monitoring compliance requirements under the Uniform Guidance. 2. County will establish policies and procedures to document pre-award determinations of whether each agreement it makes for the disbursement of Federal award funds casts the party receiving the funds in the role of a subrecipient or a contractor. 3. County will implement a training program for all staff directly involved in the administration of Federal award funds to become knowledgeable of the cost principles and requirements under the Uniform Guidance.