Santa Cruz CountyLocal Government

2023-101 Cluster name: WIOA Cluster Assistance Listings numbers and names: 17.258 WIOA Adult Program 17.259 WIOA Youth Activities 17.278 WIOA Dislocated Worker Formula Grants Award number and years: Dl21-002288 A1, April 1, 2021 through June 30, 2023 Federal agency: U.S. Department of Labor Pass-through grantor: Arizona Department of Economic Security Compliance requirement: Earmarking Questioned costs: $116,512 Condition—Contrary to federal regulation, the County’s Workforce Development Department (Department) failed to ensure that it spent the required 75 percent, or $305,536, of WIOA Youth Activities monies earmarked to provide services to out-of-school youth from April 2021 through June 2023. Instead, the Department spent only 46 percent, or $189,024, of the required 75 percent and spent the remaining 29 percent, or $116,512, to provide services to in-school youth, which was an allowable activity because it did not meet the earmarking requirements. Effect—County out-of-school youth did not receive $116,512 in services that the federal program intended. Cause—The Department used a tracking mechanism to report its in-school youth and out-of-school youth spending throughout the fiscal year but did not have written policies and procedures requiring it to properly monitor and adjust its spending to provide in-school and out-of-school youth services to ensure earmarking requirements are met during the fiscal year and throughout the award period. While the Department submitted a waiver to the pass-through grantor to modify the earmarking ratio to address the demographic constraints experienced by the County, the Department lacked sufficient time to implement prior-year audit recommendations during fiscal year 2023 due to the County’s fiscal year 2022 single audit report not being issued until September 29, 2023, nearly 3 months after the end of the County’s 2023 fiscal year-end. Criteria—Federal regulation requires the Department to earmark and spend no less than 75 percent of its WIOA Youth Activities monies on out-of-school youth services. Additionally, federal regulation also requires the Department to monitor such expenditures and report them to the pass-through grantor monthly throughout the award period to ensure it is spending the monies in a timely manner to meet the earmarking requirement (20 CFR §681.410). Also, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The Department should: 1. Spend no less than the required 75 percent of its WIOA Youth Activities monies to provide out-of-school youth services. 2. Develop written policies and procedures for its WIOA Youth Activities program to: a. Work with the pass-through grantor to develop an effective strategy to recruit and retain qualified out-of-school youth who will benefit from program services. b. Monitor its out-of-school services spending throughout the fiscal year and award period. c. Adjust spending to meet the earmarking requirement if out-of-school youth participation is lower than expected. The County’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. This finding is similar to prior-year finding 2022-101 and was initially reported in fiscal year 2022.

Assistance Listings number and name: 97.067 Homeland Security Grant Program Award numbers and years: 19-AZDOHS-OPSG-190427-03, June 1, 2022 through May 31, 2023; 20-AZDOHS-OPSG-200431-02, January 1, 2021 through April 30, 2023; 21-AZDOHS-OPSG-210440-01/02, March 1, 2022 through March 31, 2023; and 22-AZDOHS-OPSG-220435-01/02, April 1, 2023 through March 31, 2024 Federal agency: U.S. Department of Homeland Security Pass-through grantor: Arizona Department of Homeland Security Compliance requirements: Reporting Questioned costs: None Condition—Contrary to federal guidance and the County Sheriff’s Office (Sheriff’s Office) State grant award terms, the Sheriff's Office did not prepare and submit timely program information to the Arizona Department of Homeland Security (AZDOHS) for monitoring. Specifically, the Sheriff’s Office submitted 17 of 25 required quarterly reports late, ranging from 5 to 213 days late, averaging 28 days late. Effect—The Sheriff’s Office reporting untimely program information delayed its receiving federal reimbursement for program expenditures and negatively impacts AZDOHS’s ability to effectively monitor the Sheriff’s Office program administration and compliance with program requirements, prevent and detect fraud, and evaluate the program’s success. The Sheriff’s Office is also at risk that this finding applies to other federal programs that it administers. Cause—The Sheriff’s Office relied on its office manager to prepare quarterly reports and ensure the reports were submitted within 15 days after the quarter’s end. However, the office manager retired during the fiscal year, and the Sheriff’s Office assigned multiple staff who either did not have sufficient time available to prepare these reports timely or were not properly trained on the preparation of these reports. Further, the County and Sheriff’s Office lacked policies and procedures ensuring required reports were submitted timely to the awarding agency. Criteria—The Sheriff’s Office federal award terms require them to submit quarterly financial and programmatic reports to the AZDOHS no later than 15 days after each quarter’s end. Also, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations— 1. The County and Sheriff’s Office should develop and implement written policies and procedures for federal grant awards, train staff on these policies, and monitor its departments’ required reporting for federal awards by tracking when reports are due to be submitted to ensure reports are completed and submitted on time. 2. The Sheriff’s Office should immediately complete and submit any late or missing federal grant award reports to the AZDOHS. The County’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy.

Assistance Listings number and name: 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Award number and year: SLFRP1826, May 1, 2021 through December 31, 2026 Federal agency: U.S. Department of the Treasury Compliance requirements: Reporting Questioned costs: N/A Condition—Contrary to federal guidance, the County’s Finance Department (Department) reported inaccurate program information to the federal grantor agency in its 2023 annual project and expenditure report submitted in April 2023. Specifically, the Department reported that it incurred cumulative expenditures totaling the entirety of its $9,031,691 award amount, when it had only spent $3,170,013, resulting in an overstatement of $5,861,678 of the cumulative expenditures reported. Effect—The Department’s reporting inaccurate program information impacts the federal agency's ability to effectively monitor the Department’s program administration and compliance with program requirements, prevent and detect fraud, and evaluate the program’s success. The County is also at risk that this finding applies to other federal programs that it administers. Cause—The County did not have written policies and procedures requiring the Department to perform and document an independent, detailed review and approval of the program’s report before submitting it to the federal agency. Additionally, although the former County Manager initialed the report as approved, the review was not sufficient enough to detect the nearly $6 million in overstated expenditure reporting errors we identified. Criteria—Federal agency guidance requires the County to verify and confirm that all program information that it reports is accurate and approved before submission, in addition to reporting the total dollar value of cumulative expenditures for the project.1 Also, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The County should: 1. Develop and implement written policies and procedures requiring all County departments to perform and document an independent, detailed review and approval of all federal reports before submitting them to the federal agency or grantor to ensure the reports are accurate, agree to County records, and contain only allowable expenditures. 2. After developing and implementing the policies and procedures in recommendation 1, train department employees who are responsible for preparing and reviewing federal reports on the information required to be gathered and documented. 3. Adjust or resubmit reports the Department submitted to the federal agency when errors are detected, and inform the federal agency of those errors on previously submitted reports. The County’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy. 1 U.S. Department of Education. (2023). Compliance and Reporting Guidance – State and Local Fiscal Recovery Funds. Retrieved 3/19/2024 from SLFRF-Compliance-and-Reporting-Guidance.pdf (treasury.gov).

Condition—Contrary to federal regulation, the County’s Workforce Development Department (Department) failed to ensure that it spent the required 75 percent, or $289,562, of WIOA Youth Activities monies earmarked to provide services to out-of-school youth from April 2020 through June 2022. Instead, the Department spent only 45 percent, or $175,338, of the required 75 percent and spent the remaining 30 percent, or $114,224, to provide services to in-school youth, which was an allowable activity for the program but did not meet the earmarking requirements. Criteria—Federal regulation requires the Department to earmark and spend no less than 75 percent of its WIOA Youth Activities monies on out-of-school youth services. Additionally, federal regulation also requires the Department to monitor such expenditures and report them to the pass-through grantor monthly throughout the award period to ensure it is spending the monies in a timely manner to meet the earmarking requirement (20 CFR §681.410). Also, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Cause—The Department used a tracking mechanism to report its in-school youth and out-of-school youth spending throughout the fiscal year but did not have written policies and procedures requiring it to properly monitor and adjust its spending to provide in-school and out-of-school youth services to ensure earmarking requirements are met during the fiscal year and throughout the award period. Also, the Department reported that, due to the demographic constraints within the County, it did not have an effective strategy to recruit and retain qualified out-of-school youth who would benefit from the federal program services. Effect—County out-of-school youth did not receive the $114,224 in services that the federal program intended. Recommendations—The Department should: 1. Spend no less than the required 75 percent of its WIOA Youth Activities monies to provide out-of-school youth services. 2. Develop written policies and procedures for its WIOA Youth Activities program to: a. Work with the pass-through grantor or federal agency to develop an effective strategy to recruit and retain qualified out-of-school youth who will benefit from program services. b. Monitor its out-of-school services spending throughout the fiscal year and award period. c. Adjust spending to meet the earmarking requirement if out-of-school youth participation is lower than expected. The County’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy.

Condition—Contrary to the County’s award terms with the Arizona Department of Health Services (ADHS), the County’s Health Services Department (Department) requested and received reimbursement of federal program monies related to the County’s Border Region Partnership award (award number CTR057133 for the period of December 1, 2021 through May 1, 2022) for services it did not provide and for which it was ineligible to be reimbursed. Specifically, the Department requested and received reimbursement totaling $83,330 when its records reflected that it incurred only $16,346 in program expenditures during the award period and during the fiscal year. Effect—The Department received $66,984 of federal program monies for which it did not provide services, such as vaccinations and related education services to the Arizona border region’s residents. As a result, Arizona’s border residents may not have received needed services that these monies could have provided. Further, the County may be required to repay these monies to ADHS. We extended auditing procedures and determined that these questioned costs affected only the County’s Border Region Partnership award, representing approximately 8 percent of the County’s total program expenditures of $788,255 for fiscal year 2022. Cause—County management reported that it misinterpreted the award’s payments arrangements, which it believed to be made on a monthly fixed-price basis regardless of the number of service units the County provided and subsequently received reimbursement for $83,330 during the award’s 6-month term, rather than requesting and being paid for the actual number of service units provided. Additionally, the County lacked written policies and procedures for the Department to follow to record or prepare and maintain documentation supporting the number of service units the Department provided under the award. Criteria—The County’s Border Region Partnership award agreement with ADHS specified it was a cost-reimbursement award with a fixed price per service unit that required the County to be reimbursed based on the number of service units it provided. The monthly fixed price amount included in the award represented the maximum amount ADHS would pay the County for providing the services each month as long as the monthly reimbursement did not exceed that amount. Also, federal regulation requires the County to establish and maintain effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Recommendations—The County should: 1. Require the Department to request reimbursement of federal program monies for only those reasonable and allowable actual program costs it incurs that are funded on a cost-reimbursement basis. 2. Work with the pass-through grantor, ADHS, to repay award amounts the County received in excess of amounts it was eligible to receive. 3. Develop and implement written policies and procedures for recording the actual number of units of goods or services it provides when providing services under a federal award with fixed price per unit arrangements. These policies and procedures should include steps for departments to follow to document the support for costs when requesting reimbursement of federal program monies to help ensure that they request reimbursement for only actual costs incurred under federal programs. The County’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy.

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