City of Port Angeles

SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS City of Port Angeles January 1, 2020 through December 31, 2020 2020-001 The City lacked adequate internal controls for ensuring the Coronavirus Relief Fund was used for allowable purposes. CFDA Number and Title: COVID-19 20.019 Coronavirus Relief Fund Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: N/A Pass-through Entity Name: Washington State Department of Commerce and Clallam County Pass-through Award/Contract Number: 20-6541C-287 20-6541C-00 Questioned Cost Amount: $64,205 Background The purpose of the Coronavirus Relief Fund program is to provide payments to state, territorial, tribal and certain eligible local governments to cover necessary expenditures incurred because of the COVID-19 pandemic. The City used Coronavirus Relief Fund program funds to provide mortgage and utility assistance payments to citizens financially affected by COVID-19, and to cover additional costs the City incurred due to the pandemic, including payroll, supplies and sick leave. During fiscal year 2020, the City spent $1,061,800 in Coronavirus Relief Fund program funds. 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. Description of Condition The City accepted applications from people seeking financial assistance for rental, mortgage or utility payments. The City spent $544,200 on this program, which was funded through both the Washington Department of Commerce and Clallam County. To be eligible for assistance, people had to have been laid off or had their work hours reduced due to COVID-19. The City did not have an effective process for ensuring rental, mortgage and utility assistance payments were paid only to eligible people. Separately, the City made duplicate reimbursement requests for some COVID-19-related sick leave. The City tracked most grant-related expenditures using a work-order system, but told staff to track COVID-19 sick leave using the payroll system. Some staff entered COVID-19 sick leave in both places. Ultimately the payroll system registered $121,948 in COVID-19 sick leave, and $64,030 of that was also listed in the work-order system. The City did not adequately review its grant reimbursement request to remove duplicates before submitting it to Commerce. When taken together, these internal control deficiencies represent a significant deficiency. This issue was not reported as a finding in the prior audit. Cause of Condition In order to react quickly to the COVID-19 pandemic, the City assigned multiple employees to work on programs funded by this new grant. Some of those employees did not have previous experience working on grant-funded programs. The City did not dedicate necessary time and resources to establish effective control processes for this new grant, and did not spend enough time to ensure everyone working on grant-funded programs understood the requirements. Effect of Condition and Questioned Costs We used statistical sampling to select and test 44 rental, mortgage and utility transactions charged to the grant program. We identified one unallowable utility assistance payment of $175 and estimated overpayments of $14,565. We also tested all COVID-19 sick leave charges and identified $64,030 in duplicate charges. As a result, we are questioning $64,205 in costs charged to the grant. Recommendation We recommend the City evaluate its policies and procedures for implementing new grant programs, and dedicate the necessary resources for adequately training staff and establishing effective controls that ensure compliance with grant requirements. City?s Response Thank you for the opportunity to respond to the audit finding for the 2020 audit of the City of Port Angeles. The City appreciates the efforts of the State Auditor?s Office regarding the audit and review of federal grant funding. The City takes full accountability for the error documented in the audit finding and have proactively taken steps to prevent reoccurrence of the issue. We have also prioritized resolving the issue directly with the granting agency. While we acknowledge the City error, we have made every effort to correct the situation. In the midst of a declared emergency and unprecedented pandemic the City was doing everything in its power to provide direct relief to our citizens and businesses struggling to stay afloat. The federal CARES act program was a never-before-seen program with an immense amount of guidance and regulatory framework. The City was tasked with learning and adapting to the emergent funding stream with limited notice or support and no additional resources to administer these funds. The City has learned from the error and already taken steps to prevent this in the future. We also understand that due to federal single audit requirements this error was deemed a finding, but feel that in light of the extraordinary circumstances a lessor reporting may have been more appropriate considering the direct benefit we were trying to convey to the citizens of Port Angeles. There are two components to this audit finding, and it is important to note that the City of Port Angeles self-disclosed $64,030 of the $64,205 in duplicated and unallowable costs that were included in the finding. In response to the state of emergency declared from the 2019 Coronavirus public health pandemic, programs were quickly put into place to provide much needed immediate assistance to residents and businesses of the City of Port Angeles and to recover additional related costs incurred by the City from emergency relief funds as provided by the federal government. This occurred concurrently with the City taking appropriate measures to mitigate the pandemic impacts to employees and our community as well as interpret changing guidance regarding Coronavirus Relief funding. At the same time the City was experiencing a key staffing vacancy as related to grant management and as a result assigned grant related duties to employees that typically do not work in this field. Specific responses to the two components of this finding are included below: 1. COVID Relief Program ? In response to the unallowable utility assistance payment of $175, the City will provide additional training to City staff who typically do not perform grant management related duties but will also be performing work on grants. In addition, we will also increase the level of review to ensure compliance with grant requirements and program eligibility as well as provide further internal controls over grant management. 2. Duplicate Charges ? When the City became aware of $64,030 of duplicate sick leave charges that were included in the submission for reimbursement to the Washington State Department of Commerce, the City self-disclosed this oversight to the State Auditor?s Office. Furthermore, the City has been proactive in resolving this issue and has since been in active conversations with the Department of Commerce to seek guidance on corrective action. It is important to note that additional eligible costs were identified, but not submitted for reimbursement, because the City believed at the time of submittal that it would exceed the original grant award. The Department of Commerce has notified the City that these eligible expenses may be submitted for reimbursement as an amendment to the original submittal. Additionally, the City took steps to provide comprehensive instructions to staff on how to record their sick time properly to accurately capture allowable grant costs, however, the City will implement stronger controls for verification that instructions were understood and followed. Finally, early in 2021 the City filled the vacant position that oversees grant processing and will ensure adequate training is received by this employee to provide assistance and guidance to other departments on the proper recording of grant related expenses as well as oversight of reporting to grant providers. As recommended, the City intends to review grant management policies and procedures, provide additional training to staff and improve the existing controls to ensure compliance with grant requirements. As we continue to respond to the state of emergency resulting from the COVID 19 pandemic, we look forward to continuing a positive relationship with the State Auditor?s office for the benefit of the citizens of Port Angeles. Auditor?s Remarks We thank the City for its cooperation throughout the audit and the steps it is taking to address these concerns. We will review the status of the City?s corrective action 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 42 U.S. Code of Federal Regulations (CFR) Part 801, Coronavirus Relief Fund establishes allowable costs of the grant program.