King County Regional Homelessness Authority

King County Regional Homelessness Authority January 1, 2023 through December 31, 2023 2023-001 The Authority’s internal controls were inadequate for ensuring compliance with federal requirements for subrecipient monitoring. 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: N/A Pass-through Entity Name: King County, City of Seattle and the Washington State Department of Commerce Pass-through Award/Contract Number: 6277361 DM22-5212 SFY23-46141-002 Known Questioned Cost Amount: $0 Prior Year Audit Finding: Yes, Finding 2022-002 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 2023, the Authority spent $23,641,074 in program funds to provide homelessness and shelter services. Of this amount, the Authority passed through $21,665,841.56 in 41 subaward agreements to 21 subrecipients to fulfill some of the program’s objectives. The program funds the Authority passed through to its subrecipients funded homelessness mitigation projects related to COVID-19. These projects included COVID-19 mitigation in shelters, capacity building, providing emergency housing services assistance to households, rapid rehousing, safe parking and non-congregate shelter resources. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. When the Authority passes on federal funds to subrecipients, federal regulations require the Authority to ensure every subaward agreement clearly identifies that it is a federal award and includes the applicable requirements. Federal regulations require the Authority to include 14 federal award identification elements in each subaward agreement. When passing federal funding to subrecipients, federal regulations also require the Authority to monitor them and ensure they comply with the federal award’s terms and conditions. Description of Condition Our audit found the Authority’s internal controls were ineffective for ensuring it included all 14 required elements in the subaward agreements. Specifically, the Authority did not include the following elements: • Subrecipients’ Unique Entity Identifiers • Federal Award Identification Number (FAIN) • Federal award date • Amount of federal funds obligated • Total amount of the federal award • Name of the federal awarding agency • Assistance Listing Number and program title • All federal program requirements imposed by the pass-through entity • Indirect cost rate We consider this deficiency in internal controls to be a significant deficiency. Cause of Condition The Authority was recently established and began full-scale operations in 2022. It was still expanding its finance and accounting staff and developing its subrecipient monitoring procedures during the 2023 audit period. The Authority implemented processes and procedures to ensure it included all 14 required elements in any new subaward agreements after receiving the prior audit finding. However, due to staff turnover and technical limitations in its grant management software, the Authority was unable to issue amendments to existing subawards to include these required elements promptly to ensure compliance. Effect of Condition The Authority did not include all the required information in 11 subaward agreements. When subaward agreements do not include the required information, subrecipients are at an increased risk of not knowing they need to comply with specific program requirements, which could lead them to spend the funds for unallowable purposes. Recommendation We recommend the Authority include all required elements in its subrecipient agreements. We also recommend the Authority strengthen its controls to ensure compliance with federal subrecipient monitoring requirements. This should include: • Dedicating the necessary resources and adequately training staff responsible for administering federal programs • Continuing to develop and establish policies and procedures to ensure compliance with subrecipient monitoring requirements Authority’s Response KCRHA agrees with the auditors' recommendations, and the following action will be taken to address the finding: • New grant management software will be implemented in Q4 2024 to significantly reduce error prone manual processes. • Experienced accountants were hired in Q1 and Q2 2024 to replace consultants and build the knowledge and expertise of the KCRHA team and improve controls, policies, and procedures. • Training efforts will continue to enhance team skills and a knowledge base, which will be increasingly effective with a stabilizing workforce. • Certain key positions (e.g., Dir. of Contracts and Compliance) have been and will continue to be added to strengthen the oversight of federal compliance. The Contracts and Compliance teams hired experienced FTE’s in Q2 and Q3. Auditor’s Remarks We thank the Authority 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.

CORRECTIVE ACTION PLAN FOR FINDINGS REPORTED UNDER UNIFORM GUIDANCE King County Regional Homelessness Authority January 1, 2023 through December 31, 2023 This schedule presents the corrective action planned by the Authority for findings reported in this report in accordance with Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Finding ref number: 2023-001 Finding caption: The Authority’s internal controls were inadequate for ensuring compliance with federal requirements for subrecipient monitoring. Name, address, and telephone of Authority contact person: James Rouse, CFO, 400 Yesler Way, Seattle WA 98104, 206-795-4613 Corrective action the auditee plans to take in response to the finding: • Implement system-driven and nonmanual processes with software solutions (e.g., Salesforce). • Continue strengthening internal controls with consistent and repeatable processes utilizing online forms and detailed procedures. • Enhance staffing where needed and increase training to support continuous improvement efforts. • Refine contract review, approval, and monitoring processes to incorporate internal and external stakeholders’ input and suggestions. Anticipated date to complete the corrective action: 10/31/2024

2022-002

2022-002 The Authority?s internal controls were inadequate for ensuring compliance with federal requirements for subrecipient monitoring. 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: N/A Pass-through Entity Name: City of Seattle and the Washington State Department of Commerce Pass-through Award/Contract Numbers: DM22-5212 SFY23-46141-002 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 Authority spent $11,107,274 in program funds to provide homelessness and shelter services. Of this amount, the Authority passed through $10,079,848 in 19 subaward agreements to 14 subrecipients to fulfill components of the program?s objectives. The portion of program funds the Authority passed through to the subrecipients funded homelessness mitigation projects related to COVID-19. These projects included COVID-19 mitigation in shelters, capacity building, emergency housing services assistance to households, rapid rehousing, safe parking, and non-congregate shelter resources. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. When the Authority passes on federal funds to subrecipients, federal regulations require the Authority to ensure every subaward agreement clearly identifies that it is a federal award and includes the applicable requirements. The Authority is required to include 14 federal award identification elements in each subaward agreement. Whenever passing federal funding to subrecipients, federal regulations require the Authority to monitor them and ensure they comply with the terms and conditions of the federal award. Description of Condition Our audit found the Authority?s internal controls were ineffective for ensuring it included all 14 required elements in the subaward agreements. The Authority did not include all 14 required elements for 11 subaward agreements. The missing elements included: ? Subrecipients? Unique Entity Identifier ? Federal Award Identification Number (FAIN) ? Federal award date ? Amount of federal funds obligated ? Total amount of the federal award ? Name of the federal awarding agency ? Assistance Listing Number and program title ? All federal program requirements imposed by the pass-through entity ? Indirect cost rate We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition The Authority is a recently established local government that began full-scale operations in 2022, and it was still expanding its finance and accounting staff and developing its subrecipient monitoring procedures during the audit period. Since the Authority is a newer government and not yet fully staffed, employees lacked adequate experience and knowledge about federal programs to ensure that all required information was included in the subaward agreements. Effect of Condition The Authority did not include all the required information in 11 subaward agreements. When subaward agreements do not include the required information, subrecipients are at an increased risk of not knowing they need to comply with specific program requirements, which could lead to spending the funds for unallowable purposes. Subsequently, the Authority shared some of the missing information with the subrecipients through its grant contract management system. Recommendation We recommend the Authority include all required elements in its subrecipient agreements. We also recommend the Authority strengthen its controls to ensure compliance with federal subrecipient monitoring requirements. This should include: ? Dedicating the necessary resources and adequately training staff responsible for administering federal programs. ? Continuing to develop and establish policies and procedures to ensure compliance with subrecipient monitoring requirements. Authority?s Response KCRHA greatly appreciates the recommendation and has already taken significant steps to implement many of the necessary components in our contracting year for 2023. We have been actively involved in recruiting experienced personnel and providing on-job trainings to strengthen our contract and grant management and compliance monitoring. Furthermore, KCHRA continues our current efforts to enhance our policies and procedures and implement best practices for federal grant compliance. We are very confident that we will successfully address the deficiency in 2023. Auditor?s Remarks We appreciate the Authority?s commitment to resolving this finding, and we thank the Authority for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular 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.

Finding ref number: 2022-002 Finding caption: The Authority?s internal controls were inadequate for ensuring compliance with federal requirements for subrecipient monitoring. Name, address, and telephone of Authority contact person: Bill Reichert, Interim CFO, 400 Yesler Way, Seattle WA 98104, 206-795-4613 Corrective action the auditee plans to take in response to the finding: ? Refine contract review and approval process. ? Recent HUD contract review offered guidance for federal contract compliance which we are implementing. ? Refinement of our contract monitoring process to incorporate suggested changes by external agencies. ? Reduce manual processes and establish good workflows for processing data. ? Continue to add staff and training with technical expertise necessary to support these activities. Anticipated date to complete the corrective action: 10/31/2023