MONTGOMERY COUNTY, MARYLANDLocal Government

Finding 2022-001 U.S. Department of Health and Human Services Assistance Listing Number 93.600 ? Head Start Cluster Non-compliance with Reporting Repeat Findings: No Criteria: Under the requirements of the Federal Funding Accountability and Transparency Act (Pub. L. No. 109-282), as amended by Section 6202 of Pub. L. No. 110-252, hereafter referred as the ?Transparency Act? that are codified in 2 CFR Part 170, recipients (i.e., direct recipients) of grants or cooperative agreements are required to report first-tier subawards of $30,000 or more to the Federal Funding Accountability and Transparency Act Subaward Reporting System (FSRS). Condition and Context: The County is a direct recipient of Head Start funds from the Department of Health and Human Services. Additionally, the County provided first-tier subawards greater than $30,000. Cause: The County did not report its first-tier subawards in accordance with the Transparency Act requirements. Transactions tested Subaward not reported Report not timely Subaward amount incorrect Subaward missing key elements 1 1 N/A N/A N/A Dollar amount of tested transactions Subaward not reported Report not timely Subaward amount incorrect Subaward missing key elements $4,607,236 $4,607,236 N/A N/A N/A Effect or Potential Effect: The County was not in compliance with the reporting requirements of the grant. Questioned Costs: None. Recommendation: We recommend the County establish and implement controls to maintain compliance with reporting requirements. Views of Responsible Officials: The County agrees with the finding and will incorporate the auditors? recommendation. See Section V for the corrective action plan.

Finding 2022-002 U.S. Department of Health and Human Services Assistance Listing Number 93.044, 93.045, 93.053 ? Aging Cluster Non-compliance with Subrecipient Monitoring Repeat Findings: No Criteria: A pass-through entity (PTE) must clearly identify to the subrecipient the award as a subaward at the time of subaward (or subsequent subaward modification) by providing the information described in 2 CFR section 200.331(a)(1); all requirements imposed by the PTE on the subrecipient so that the Federal award is used in accordance with Federal statutes, regulations, and the terms and conditions of the award (2 CFR section 200.331(a)(2)); and any additional requirements that the PTE imposes on the subrecipient in order for the PTE to meet its own responsibility for the Federal award (e.g., financial, performance, and special reports) (2 CFR section 200.331(a)(3)). Condition and Context: For 6 out of 6 selections, the agreement with the subrecipient did not clearly identify the Federal assistance listing. Additionally, the agreement did not contain the information described in 2 CFR section 200.331(a). Cause: The County did not inform its subrecipients of Federal requirements included in Uniform Guidance related to procedures required for subrecipient monitoring. Effect or Potential Effect: The subrecipient may not be in compliance with Uniform Guidance, therefore causing the County to not be in compliance with Uniform Guidance. Questioned Costs: Unknown. Recommendation: We recommend that the County creates a subaward template document that includes all of the required disclosures per the Uniform Guidance, and ensure that the document is used to prepare all subaward contracts throughout the County. Views of Responsible Officials: The County agrees with the finding and notes that the required disclosures per the Uniform Guidance are presented to departments during the Department of Finance?s annual year-end training sessions. This material is available for departments to refer back to throughout the year. The Department of Finance will work to ensure these requirements are presented to targeted individuals who are responsible for subaward contracts. See Section V for the corrective action plan.

Criteria: The period of performance for the award begins on the date the awards are issued (i.e., the date funds are disbursed to recipients) and ends on December 31, 2026, pursuant to the Financial Assistance Agreement. Recipients may only use funds to cover costs incurred during the period beginning on March 3, 2021 and ending on December 31, 2024 per section 602(g)(1) of the Social Security Act as added by section 9901 of the American Rescue Plan Act of 2021, Pub. L. No. 117-2 and Treasury?s Interim Final Rule at 31 C.F.R. ? 35.5(a). Recipients must liquidate all obligations incurred by December 31, 2024 under the award no later than December 31, 2026, which is the end of the period of performance. As such, auditors should test that recipients only used award funds to cover costs incurred from the period beginning on March 3, 2021 and ending on December 31, 2024. Auditors should also test that recipients did not incur and apply to their award any new costs during the period beginning December 31, 2024 and ending on December 31, 2026. During this two-year period, recipients are only permitted to liquidate all obligations they incurred by December 31, 2024. In accordance with 2 CFR ?200.303: The non-Federal entity must: (a) Establish and maintain effective internal controls 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 the guidance in Standards for Internal Control in the Federal Government issued by the Comptroller General of the United States and Internal Control - Integrated Framework issued by the Committee of Sponsor Organizations of the Treadway Commission (COSO). Condition and Context: For 3 out of 40 selections, the service period occurred between February 1, 2021 and February 29, 2021; however, the grant award can only be used to cover costs incurred during the period beginning on March 3, 2021. Cause: Expenses were incurred outside the allowable period of performance. The County did not have controls in place to prevent costs incurred outside the period of performance being charged to the grant. Effect or Potential Effect: The County is not in compliance with the period of performance requirements. Questioned Costs: $37,671 Recommendation: We recommend the County establish and implement controls to allow only costs within a period of performance to be charged to the grant and ensure adequate reviews are in place to monitor the control. Views of Responsible Officials: The County agrees with the finding but notes it is specific to the American Recover Plan Act. The County has controls in place that provides reasonable assurance that the County is managing Federal awards in compliance with Federal statutes. As noted in the corrective action plan below, this finding is specific to identifying costs of government services to the extent of the revenue loss due to the pandemic. Due to the unique circumstances of this one-time event, a new process was put in place to identify eligible costs from a population of significant size. While this process inadvertently picked up $37,671 of costs incurred between February 1, 2021 and February 29, 2021, the County has determined there are also approximately $20.5 million of eligible government services costs that were not applied against the revenue loss but could have been. Please refer to the Corrective Action Plan Section in this report.

Criteria: A pass-through entity (PTE) must clearly identify to the subrecipient the award as a subaward at the time of subaward (or subsequent subaward modification) by providing the information described in 2 CFR section 200.331(a)(1); all requirements imposed by the PTE on the subrecipient so that the Federal award is used in accordance with Federal statutes, regulations, and the terms and conditions of the award (2 CFR section 200.331(a)(2)); and any additional requirements that the PTE imposes on the subrecipient in order for the PTE to meet its own responsibility for the Federal award (e.g., financial, performance, and special reports) (2 CFR section 200.331(a)(3)). Condition and Context: For 2 out of 3 selections, the agreement with the subrecipient did not clearly identify the Federal assistance listing. Additionally, the agreement did not contain the information described in 2 CFR section 200.331(a). Cause: The County did not inform its subrecipients of Federal requirements included in Uniform Guidance related to procedures required for subrecipient monitoring. Effect or Potential Effect: The subrecipient may not be in compliance with Uniform Guidance, therefore causing the County to not be in compliance with Uniform Guidance. Questioned Costs: Unknown. Recommendation: We recommend that the County prepare and maintain a written plan to ensure subrecipients are aware of the Uniform Guidance requirements. Views of Responsible Officials: The County agrees with the finding but notes it is specific to the Coronavirus Relief Fund (CRF). The unusual one-time nature and evolving Federal guidance surrounding the CRF contributed to this instance of noncompliance. The County will incorporate the auditors? recommendation into its existing processes and procedures. Please refer to the Corrective Action Plan Section in this report.

Criteria: In accordance with 2 CFR ?200.303: The non-Federal entity must: (a) Establish and maintain effective internal controls 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 the guidance in Standards for Internal Control in the Federal Government issued by the Comptroller General of the United States and Internal Control - Integrated Framework issued by the Committee of Sponsor Organizations of the Treadway Commission (COSO). In accordance with 2 CFR 200.302: Financial management. (a) Each State must expend and account for the Federal award in accordance with state laws and procedures for expending and accounting for the state?s own funds. In addition, the state?s and the other non-Federal entity?s financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. Condition and Context: We were unable to agree the expenditures reported in the Final SF-425 Federal Financial Report to the amount recorded in the general ledger. Cause: The County provided the General Ledger backup support of the grant expenditures for the Final SF-425 Federal Financial Report submitted for grant EMW-2016-CA-00029 for the period end August 31, 2019 that did not support the amount reported. We identified a variance of $142,080.78 between amount reported and amount supported by General Ledger. Effect or Potential Effect: The County may have incorrectly reported expenditures. Failure to comply with grant award requirements could jeopardize future funding. Questioned Costs: None.Recommendation: We recommend the County to establish and implement a review process to ensure the amounts reported as expenditures are properly supported to comply with reporting requirements. Views of Responsible Officials: Management agrees with the finding. Refer to the Corrective Action Plan Section in this report.