Finding 978846 (2022-002)

The City did not have adequate internal controls for ensuring compliance with federal subrecipient monitoring requirements. Assistance Listing Number and Title: 21.027 – COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: SLT-3787 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program is to respond to the COVID-19 pandemic’s negative effects on public health and the economy, provide premium pay to essential workers during the pandemic, provide government services to the extent COVID-19 caused a reduction in revenues collected, and make necessary investments in water, sewer or broadband infrastructure. During 2022, the City spent $1,326,819 in program funds to cover expenditures related to supporting public health and safety services and paying employees who perform essential government services. The program funds included $158,284 passed through to three subrecipients in 2022 to fulfill components of the program’s objectives. Federal regulations require recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. When the City passes on federal funds to subrecipients, federal regulations require the City to ensure every subaward agreement clearly identifies that it is a federal award and includes the applicable federal requirements. The City is required to report 14 federal award identification elements in each subaward agreement. Whenever passing federal funding to subrecipients, federal regulations require the City to monitor them and ensure they comply with the terms and conditions of the federal award. Description of Condition Our audit found the City’s internal controls were ineffective for ensuring it included all 14 required elements in any of its subaward agreements. The missing elements included: • Subrecipient’s Unique Entity Identifier • Federal Award Identification Number (FAIN) • Federal award date • Amount of federal funds obligated • Total amount of federal funds obligated • Total amount of the federal award committed • Federal award project description • Name of the federal awarding agency • Assistance Listing Number and program title We consider this deficiency in internal controls to be a significant deficiency. Cause of Condition The City experienced turnover in one position involved in this process, and other key staff involved did not have adequate training or understanding of these requirements. Two of the three subrecipients were already subrecipients of the City for other federal programs. The City did not enter into new agreements with these subrecipients when it passed SLFRF funds to them. Instead, the City relied on the agreements that were already in place, but they did not include any information about SLFRF funding. The City entered into a professional services agreement with the third subrecipient instead of a subaward agreement, so it did not include any federal award information. Effect of Condition When subaward agreements do not include the required information, subrecipients are at an increased risk of not knowing they received federal funding and need to comply with specific program requirements, which could lead to spending the funds for unallowable purposes. The City did not provide evidence that it subsequently shared the missing federal award information with the three subrecipients. Recommendation We recommend the City ensure it includes all required elements in federally funded subaward agreements. City’s Response The City of Bremerton appreciates the opportunity to respond to the Washington State Auditor’s Office’s (SAO) conclusions. The City is committed to establishing and following effective internal controls for administering federal grants and for compliance with federal uniform guidance for grant administration. The City will ensure every subaward agreement clearly identifies that it is a federal award and includes the applicable federal requirements for programs funded with Coronavirus State and Local Fiscal Recovery Funds and other federal funding. Auditor’s Remarks We thank the City for its cooperation and assistance during the audit and acknowledge its commitment to resolve this finding. We will review the corrective action taken 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 200, Uniform Guidance, section 332, Requirements for passthrough entities, establishes subrecipient monitoring and management requirements for pass through entities.