Finding 971375 (2023-002)

Reference Number: 2023-002 Prior Year Finding: No Federal Agency: U.S. Department of Treasury Federal Program: COVID-19 – Coronavirus State and Local Fiscal Recovery Funds Assistance Listing Number: 21.027 Award Number and Year: ARP17SL1 (5/23/2021 - 12/31/2026) Compliance Requirement: Earmarking and Reporting Type of Finding: Material Weakness in Internal Control Over Compliance, Material Noncompliance (Modified Opinion) Criteria or specific requirement: Compliance: Earmarking – Under Treasury’s Final Rule that became effective on April 1, 2022, recipients can calculate lost revenue for the years 2020, 2021, 2022, and 2023 based on the formula provided in the Final Rule to determine the amount of State and Local Fiscal Recovery Funds (SLFRF) that can be used for the “provision of government services.” To calculate revenue loss at each of these dates, recipients must follow a four-step process which includes: a. Calculate revenues collected in the most recent full fiscal year prior to the public health emergency (i.e., last full fiscal year before January 27, 2020), called the base year revenue. b. Estimate counterfactual revenue, which is equal to the following formula, where n is the number of months elapsed since the end of the base year to the calculation date: base year revenue x (1 + growth adjustment) n/12. The growth adjustment is the greater of either a standard growth rate—5.2 percent—or the recipient’s average annual revenue growth in the last full three fiscal years prior to the COVID-19 public health emergency. c. Identify actual revenue, which equals revenues collected over the twelve months immediately preceding the calculation date. d. Revenue loss for the calculation date is equal to counterfactual revenue minus actual revenue (adjusted for tax changes) for the twelve-month period. Further, the Final Rule defines the term general revenue to include revenues collected by a recipient and generated from its underlying economy and would capture a range of different types of tax revenues, as well as other types of revenue that are available to support government services. In calculating revenue, recipients should sum across all revenue streams covered as general revenue. Reporting – Per 2 CFR 200.328 and 31 CFR section 35.4(c), States, territories, metropolitan cities, counties, and Tribal governments were required to submit one interim report and quarterly Project and Expenditure reports thereafter. A Key Line Item containing critical information, as defined by Treasury, in these reports is the Revenue Replacement section. Control: Per 2 CFR section 200.303(a), a non-Federal entity 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 comply 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). Condition: Prince George’s County (the County) did not calculate their revenue loss in accordance with the Final Rule. As a result, amounts reported under the Revenue Replacement section of the Project and Expenditure reports were inaccurate for all quarters within the fiscal year ended June 30, 2023 Context: The County used incorrect base year revenues in their revenue loss calculation. Only general fund revenue was used in the calculation instead of summing across all revenue streams as defined by the Final Rule. Further, the County used an incorrect growth rate of 4.0% instead of 5.2% as required by the Final Rule. The Revenue Replacement section of the Project and Expenditure reports were inaccurate due to these errors. Cause: The County’s policies and procedures were not sufficient to ensure that their revenue loss calculation was in accordance with the Final Rule and that accurate information was reported in their Project and Expenditure reports under the Revenue Replacement section. Effect: The County was not in compliance with federal requirements, and failure to comply with those requirements could jeopardize future funding. Questioned costs: Undetermined. Recommendation: We recommend that the County revise the revenue loss calculation to be in accordance with the U.S. Treasury’s guidance as outlined by the Final Rule and submit a revised Project and Expenditure report to the U.S. Treasury’s SLFRF portal. Views of responsible officials: At the time that the Office of Management and Budget (OMB) calculated the revenue loss it was unclear whether it applied to only general funds or all funds. Guidance from the U.S. Treasury Department was updated frequently following enactment of the American Rescue Plan Act of 2021. Based on the finding of the audit that revenue loss calculation is not in accord with the Final Rule, OMB staff re-calculated the data using all funds.