City of EverettLocal Government

2020-001 The City lacked adequate internal controls for ensuring compliance with federal reporting requirements. CFDA Number and Title: 14.218 COVID 19 - Community Development Block Grants/Entitlement Grants Federal Grantor Name: U.S. Department of Housing and Urban Development (HUD) Federal Award/Contract Number: B-14MC-53-0004, B-15MC-53-0004 B-16MC-53-0004, B-17MC-53-0004 B-18MC-53-0004, B-19MC-53-0004 COVID19 B-20MC-53-0004 Pass-through Entity Name: NA Pass-through Award/Contract Number: NA Questioned Cost Amount: $0 Description of Condition The primary objective of the Community Development Block Grants/Entitlement Grants (CDBG) is to help provide decent and affordable housing, particularly for people with moderate, low and very low incomes. Funds also help recipients implement strategies for achieving an adequate supply of decent housing and providing suitable living environments and expanded economic opportunities for people with low incomes. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. The City spent $1,942,877 in CDBG funds during the 2020 fiscal year. Financial Reporting To comply with federal reporting requirements, the City must submit financial and performance reports to the U.S. Department of Housing and Urban Development (HUD). Beginning in 2020, financial reporting requirements require CDBG funding recipients to submit the new Cash on Hand Quarterly Report (PR29) instead of the Federal Financial Report standard form, SF-425, which was eliminated. The City must submit the new Cash on Hand Quarterly Report to its local HUD field office within 30 days after the end of the reporting period. We found the City did not submit any of these quarterly reports during the 2020 fiscal year. Federal Funding Accountability and Transparency Act (FFATA) Reporting The Federal Funding Accountability and Transparency Act (FFATA) requires the City to report its subaward information through the FFATA Subaward Reporting System (FSRS). Beginning in 2020, all COVID-19 programs, with the exception of the Coronavirus Relief Fund, became subject to FFATA reporting requirements of 2 CFR 170. The FFATA requires the Office of Management and Budget (OMB) to ensure the existence and operation of a single, searchable website for federal awards. The City has until the end of the month, plus one additional month after the subaward is obligated, to fulfill this reporting requirement. During 2020, the City awarded 14 subawards totaling $1,233,762, with six of those subawards exceeding the $25,000 threshold requiring FFATA reporting. The City did not do any FFATA reporting for the 2020 fiscal year. We consider these deficiencies in internal controls to be a material weakness that led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition Due to staff transitioning to remote work and the timing of the updated guidance in response to the COVID-19 pandemic, staff were unable to complete the new Cash on Hand Quarterly Reports. Additionally, staff were unaware of the FFATA reporting requirements for the 2020 fiscal year. Effect of Condition Financial Reporting Because the City did not submit the required Cash on Hand Quarterly Reports, HUD could not assess the City?s program funding. Failure to report the necessary information to the grantor delays this assessment. Federal Funding Accountability and Transparency Act (FFATA) Reporting When the City does not report its federal subaward information on time, OMB cannot ensure the existence and operation of a single, searchable website for federal awards. This prevents interested parties from accessing information about the City?s subawards in a timely manner. Recommendation We recommend the City strengthen its internal controls for ensuring required reports for each grant are accurate, reviewed, and submitted on time. City?s Response The City agrees with the Finding and appreciates the work of the State Auditor?s Office. The first three months of 2020 were a very challenging time, with new IDISI cash on hand reporting requirements and the transition to remote work due to Covid-19. An unprecedented amount of CDBG-CV funding awarded in early 2020 resulted in staff efforts focusing significantly on COVID-19 response as well as maintaining operational activities well into 2021. Cash on hand reports were reconfigured and completed in 2021 and filing brought up to date to come into compliance with PR29 requirements. Staff will update existing procedure RPRT 6031 for compiling cash on hand reports going forward, including ensuring that reports are filed timely. The CDBG Grant Manager and Accounting support staff have been instructed in FFATA reporting requirements and will bring all delinquent reports current by February 28, 2022. FFATA reports will be filled timely in the future. Auditor?s Remarks We appreciate the steps the City has taken to resolve this issue and will review the condition 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. Title 2 CFR Part 170, Reporting Subaward and Executive Compensation Information, Uniform Guidance, section 200 Federal Awarding Agency Reporting Requirements, establishes the Federal Funding Accountability and Transparency Act (FFATA) requirements of reporting the subaward information through the FFATA Subaward Reporting System (FSRS). Title 2 CFR Part 200, Uniform Guidance, Section 302, Financial Management, establishes requirements for financial management systems and reporting accurate, current and complete financial results of Federal awards. Title 2 CFR Part 200 Uniform Guidance, Section 328, Financial Reporting, establishes requirements for recipients? financial information. 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.

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