Snohomish CountyLocal Government

2022-002 The County had inadequate internal controls for ensuring compliance with the Housing Quality Standards inspection requirements of its Home Investment Partnerships Program. "See Schedule of Federal Award Findings and Questioned Costs for chart/table" Description of Condition During fiscal year 2022, the County spent $3,010,680 under the Home Investment Partnerships Program (HOME Program). The objectives of the HOME Program include: (1) Expanding the supply of decent and affordable housing, particularly housing for people with low-and very low-incomes (2) Strengthening the abilities of state and local governments to design and implement strategies for achieving adequate supplies of decent, affordable housing (3) Providing financial and technical assistance to participating jurisdictions, including the development of model programs for affordable low-income housing (4) Extending and strengthening partnerships among all levels of government and the private sector, including for-profit and nonprofit organizations, in the production and operation of affordable housing 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. During the period of affordability (i.e., the period for which the nonfederal entity must maintain subsidized housing) for HOME-assisted rental housing, the participating jurisdiction must perform on-site inspections to determine compliance with property standards and verify the information submitted by the owners. These inspections must be completed no less than: ? Every three years for projects containing one to four units ? Every two years for projects containing five to 25 units ? Every year for projects containing 26 or more units However, in response to the COVID-19 pandemic, the U.S. Department of Housing and Urban Development (HUD) issued a waiver of Housing Quality Standards (HQS) inspections. The waiver period spanned from April 10, 2020, to December 31, 2021, and required on-site inspections to resume within 180 days of the end of the waiver period. Our audit found the County did not have adequate internal controls for ensuring compliance with the HOME Program?s HQS requirement to resume on-site inspections when the HUD waiver expired. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. Cause of Condition The County was operating under COVID-19 pandemic protocols during the audit period. The state and County rescinded the emergency order on October 31, 2022, and the federal government rescinded the emergency declaration on May 11, 2023. Therefore, during the period under audit, grant administrators were operating with limited in-person contact, and they determined that HQS inspections should be delayed until fiscal year 2023 when all levels of emergency orders were lifted. Effect of Condition The County did not conduct any HQS inspections during fiscal year 2022. As such, the County could not demonstrate that the HOME Program properties it was managing met HQS inspection requirements and were being maintained in a decent, safe and sanitary manner. Recommendation We recommend the County strengthen internal controls to ensure its HOME Program properties meet HQS compliance requirements. Specifically, the County should ensure it performs HQS inspections within the prescribed timeframe. County?s Response The County disagrees that there were inadequate controls. The County has had and does have procedures for conducting physical inspections in conformance with statutory and regulatory guidance and maintains a database for tracking inspections due and completed. Those procedures were suspended as a direct result of the COVID-19 pandemic and associated federal, state, and local directives and guidance. The County has been fully aware of the institution of U.S. Department of Housing and Urban Development (HUD) waiver of the requirement to conduct physical inspections of HOME units as well as their notification that inspections should be resumed. The County communicated with HUD regarding the suspension of HOME inspections during the public health emergency and continuing COVID-19 protocols that impacted the timing for resuming inspections. The County planned for the resumption of inspections and updated those plans based on the COVID-19 emergency and protocols at the federal, state, and local levels which did not align with the end of the HUD waiver nationally. The County and state COVID-19 health emergency did not end until October 31, 2022 and the federal COVID-19 National Public Health emergency did not end until May 11, 2023. The County planned for safely resuming physical inspections at the end of the federal emergency declaration taking into consideration the risk for County staff, agency staff, and tenants to best address the regulatory requirements during this global pandemic. The County communicated with the HUD Seattle Field Office on the planned resumption of HOME unit inspections. In addition to communications with HUD, the information was included in the HUD Consolidated Annual Performance and Evaluation Report (CAPER). The CAPER provides annual reporting on performance, including the HOME Program. HUD approved the 2021 (July 2021 ? June 2022) CAPER which indicated the County did not perform inspections during this timeframe due to the COVID 19 pandemic. The 2022 CAPER (July 2022 -June 2023) is currently in the public comment phase to be submitted in September 2023. It includes an update on inspections consistent with the information provided to HUD that the County was still under COVID 19 protocols during almost all of that timeframe and planned to resume inspections in 2023 as was to be included in the 2022 CAPER in conformance with HUD guidance. The County resumed HOME inspections in June 2023 utilizing our standard protocols and controls. Auditor?s Remarks We appreciate the County?s assistance throughout our audit and its planned corrective action to resolving this matter. We performed our audit in accordance with requirements from the Federal agency, the U.S. Department of Housing and Urban Development, which required physical inspections to resume 180 days after December 31, 2021. We reaffirm our finding 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. 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. Memorandum from the U.S. Department of Housing and Urban Development, Additional Revision, and Extension of December 2020 and April 2020 Memorandum ? Availability of Waivers and Suspensions of the HOME Program Requirements in Response to COVID-19 Pandemic. Title 24 CFR Part 92, Home Investment Partnerships Program, section 92.504(d)(1)(iii), Annual inspections, describes the tenant-based rental assistance program requirements for annual inspections. Title 24 CFR Part 92, Home Investment Partnerships Program, sections 92.209(i), 92.251(f), and 92.504(d), Housing Quality Inspection requirements, describe the program specific requirements for performing on-site inspections and determining compliance with quality standards.

2022-003 The County did not have adequate internal controls for ensuring federal match contributions from subrecipients were adequately supported. "See Schedule of Federal Award Findings and Questioned Costs for chart/table" Background The Continuum of Care (CoC) program is designed to promote community-wide commitment to the goal of ending homelessness. The program provides funding to quickly rehouse homeless people and families while minimizing the trauma and dislocation homelessness causes, promote access to and effective use of mainstream programs by homeless people and families, and optimize self-sufficiency among people and families experiencing homelessness. Federal regulations require recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established internal controls. Federal regulations also require that match contributions be adequately documented and come from allowable expenditures meeting federal cost principles. The CoC program requires recipients and subrecipients to provide nonfederal matching funds of 25 percent of their total federal expenditures. The County provided this match through its own funds and funds provided by its subrecipients. For the program year ending on June 30, 2022, the County and its subrecipients were required to provide a total match of $2,714,574. As the prime recipient, the County is responsible for monitoring the activities of the subrecipients to ensure they comply with federal regulations, including that subrecipient match contributions are adequately documented. Description of Condition The County?s controls were inadequate for ensuring it reviewed and retained subrecipient match contribution documentation to gain assurance that match costs came from allowable sources. The County contractually requires subrecipients to provide documentation of match contributions monthly, but it only enforces this requirement for the first and last month of each program year. In addition, the County?s subrecipient monitoring procedures state that it samples the remaining program months and reviews match documentation, but staff did not perform this process for fiscal year 2022. We consider these deficiencies in internal controls to be a material weakness. Cause of Condition Employees responsible for administering the program determined the review of the first and last month of match documentation of each program year, along with the review performed as part of subrecipient monitoring, would be sufficient to ensure match amounts were adequately supported and came from allowable sources. However, in April 2022, the County experienced turnover in the position responsible for performing subrecipient monitoring reviews over documentation of match contributions, and this position remained vacant for more than a year. As a result, a key part of the process for reviewing a sample of match documentation throughout the year was not performed during the audit period. Effect of Condition During fiscal year 2022, the County provided a total match of $4,432,463. Although this amount in total exceeded the required match of $2,714,574, the County did not review and obtain adequate documentation of subrecipient match contributions totaling $3,536,545, or 79.8 percent of total match contributions. Without adequate documentation to support subrecipient match contributions, the County is not in compliance with the granting agency?s recordkeeping requirements. Further, the County cannot assure federal grantors that matching contributions reported are accurate and valid. In addition, unsupported match contributions could result in a reduction of future federal awards. During the audit, the County obtained additional documentation from subrecipients to support match contributions. This reduced the amount of unsupported subrecipient match contributions to $896,966, or 20.2 percent of total match contributions. As the County initially provided match contributions that were more than the amount required, the remaining supported amount met the overall match requirements. As such, we are not questioning costs. Recommendation We recommend the County strengthen internal controls over federal match contributions from subrecipients to ensure it reviews and retains adequate documentation of the source and allowability of the match. County?s Response The County does have established internal controls for matching requirements. These controls include remote review of Program Income and Match Reports (summary, GL for cash match, in-kind summary sheet), first and last month review of source documentation, additional requests for backup documentation if concerns are identified, monthly staff review of match report sheet breaking down reported match amounts by eligible category for each agency providing in-kind match, and onsite review of match source documentation for selected months other than first/last month. The County?s contract language for agencies to provide the match documentation was further detailed in a memo to CoC agencies. The memo identified the types of documentation agencies are to submit, and that the agencies are not expected to provide all source documentation on months 2-11. The County wrote the contract language to generally require match documentation monthly and implemented its intent specifically through the memo. CFR part 578.73 requires the recipient or subrecipient to document and maintain match documentation. The County as recipient and CoC subrecipients maintained source documentation. One of the agencies for which supporting documentation was requested during the audit, did not have adequate time to provide the documentation, as the agency had moved offices and most of the support documentation had not been unboxed. Another factor was some of the support documentation contains HIPAA-covered personal identifiable information (PII) that needs to be handled and maintain under strict confidential requirements. This would require additional time to redact PII to maintain confidentiality. The agency was able to provide most but not all of the support documentation by the deadline under these statutory restrictions. While we do have established internal controls, the County was unable to perform onsite match monitoring during 2022 due to staff turnover and Covid-19 restrictions. Labor market conditions during 2022 were extremely challenging, and as a result it took a considerable amount of time to fill the Housing and Community Services Financial Compliance Officer 1 (FCO1) position. The FCO1 performs remote and onsite monitoring activities for cash and in-kind match and works closely with program staff and fiscal staff. The position was filled with onboarding and training occurring in the later part of 2022 and first part of 2023. Onsite and remote FCO1 match monitoring resumed in 2023 and the FCO1 will review current practices to recommend possible improvements for implementation. Auditor?s Remarks We appreciate the County?s commitment to resolve this finding and thank the County 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. Title 2 CFR Part 200, Uniform Guidance, section 306, Cost sharing or matching, describes the requirements for match contributions to be allowable under federal cost principles. Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting allowability of costs, describes the requirements for federal expenditures to be adequately documented. Title 24 CFR Part 578, Continuum of Care Program, section 103, Recordkeeping requirements, describes the requirements for recipients to keep records of the source and use of match contributions.

2021-001 The County did not have adequate internal controls for ensuring compliance with federal reporting requirements. "See Schedule of Findings and Questioned Costs for chart/table" Description of Condition The objective of the Airport Improvement Program is to help sponsors, owners or operators of public-use airports to develop a nationwide system of airports adequate to meet the needs of civil aeronautics. Snohomish County, as the award recipient, is the sponsor of Paine Field Airport, and spent $6,655,212 in federal program funds in 2021. 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. To comply with reporting requirements, the County must submit the Financial Government Payment Report (FAA 5100-126) and the Operating and Financial Summary (FAA 5100-127) reports to the U.S. Department of Transportation?s Federal Aviation Administration (FAA) on an annual basis. The FAA 5100-126 reports amounts paid and services provided to other units of government, and the 5100-127 reports revenues and expenditures for the airport as of the County?s fiscal year-end. Our audit found the County did not have adequate controls in place to ensure it submitted complete and accurate annual FAA 5100-126 and FAA 5100 127 reports in accordance with the terms of the award agreement. We consider this internal control deficiency to be a significant deficiency. This issue was not reported as a finding in the prior audit. Cause of Condition County staff evaluated FAA guidance to determine the applicability of these reports and how to prepare them. During this evaluation, staff incorrectly determined the FAA 5100-126 report was not applicable based on the County?s activity, and further misinterpreted reporting guidance and used incorrect records to prepare the FAA 5100-127 report. Effect of Condition The County did not prepare or submit the required annual FAA 5100-126 report. The County did prepare and submit the FAA 5100-127 report, but referenced incorrect source records when determining what amounts to report. As a result, we identified several inaccuracies in the report during our review, including an overstatement of unrestricted cash and investments by $2,049,351, understatement of total reported expenses by $1,563,052, and several other less significant errors. The FAA uses these financial reports to monitor the program and evaluate for risks of revenue diversion. However, the agency does not solely use these reports for this purpose because it can obtain similar information from other financial reports. Recommendation We recommend the County establish internal controls to ensure it prepares and submits all required reports for its federal programs. Further, we recommend the County strengthen internal controls over its review of these reports to ensure they are accurate and complete prior to submission. County?s Response Narrative 5100-126 Regarding FAA Form 5100-126, this is a new report due to the start of commercial passenger service under FAR (14CFR) Part 139. The airport has never submitted one of these reports and furthermore it has never been requested to submit it since commercial service began in 2019. It?s worth notating this and that the airport was getting established while the entire country was going through a public health emergency (COVID-19). This may be an institutional report at other airports, but it?s a new report to Paine Field among many new programs and reports due that go with the territory of establishing a new commercial service airport. Since making us aware of this report we are working diligently to get the appropriate historical years updated accurately and will have this reflected and uploaded to FAA?s CATS website by October 7, 2022. Appropriate controls have been put in place for the ongoing continued submission of this report and shall be monitored closely for compliance. Narrative 5100-127 Regarding FAA Form 5100-127, this again is a new report due to the start of commercial passenger service at the airport under FAR (14CFR) Part 139. This also occurred during the same timeline as FAA Form 5100-126 during the public health emergency (COVID-19). The airport has started many new programs and reporting that go along with the establishment of a commercial service airport. The airport is always learning as we establish these new programs. Line items were reported inaccurately, and as such, adequate controls have been put in place as to ensure line items are consistently verified for compliance against the unaudited and audited ACFR. FAA requests unaudited numbers to be submitted if not available annually by April 30th; therefore, we have established a follow-up secondary compliance verification check to strengthen the accuracy of our internal controls for external reporting. This secondary follow-up verification will provide a second layer of compliance to verify our unaudited submission against final published audited financial statements. The airport staff take compliance very seriously at the airport and have been working diligently to correct misstated line items and will have FAA?s website updated with this information no later than October 7, 2022. Furthermore, we appreciate the guidance that has been provided and your time for going through and analyzing our newly established reporting requirements here at the airport. Auditor?s Remarks We appreciate the steps the County is taking to resolve this issue. We 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. 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 327, Financial reporting, establishes requirements for reporting financial information related to Federal awards. Section 111(a) of the Federal Aviation Administration Authorization Act of 1994 requires sponsors to report payments their airports made to other units of government and the purpose of those payments. It also requires sponsors to report all services and property their airports provided to other units of government and the amount of compensation received. FAA Form 5100-126 satisfies these requirements. The report is due within 120 days of the end of the airport?s fiscal year. Section 111(b) requires sponsors to report funds collected and spent at their airports. FAA Form 5100-127 satisfies this requirement. The report is due within 120 days of the end of the airport?s fiscal year.

2021-002 The County lacked adequate internal controls for ensuring compliance with federal subrecipient monitoring requirements. "See Schedule of Findings and Questioned Costs for chart/table" Background The purpose of the Coronavirus Relief Fund (CRF) 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. During 2021, the County spent $34,316,138 in CRF program funds under four awards; it received one award directly from the U.S. Department of the Treasury and three awards from two pass-through agencies. The County passed through $21,022,720 of these funds to 38 subrecipients to provide assistance to small businesses and County residents (for food, rental assistance, and other services). 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. Whenever the County passes on federal funding to subrecipients, federal regulations require the County to clearly identify the subawards as federal awards and include all applicable program requirements. Further, the County must monitor its subrecipients to ensure they comply with the terms and conditions of the federal award. To determine the appropriate level of monitoring, the County must evaluate each subrecipient?s risk of noncompliance with federal requirements. For awards dependent on participant eligibility, monitoring would include verifying the subrecipients only provided assistance to participants who met program eligibility requirements. The amount of verification would depend on each subrecipient?s risk of noncompliance. Description of Condition The County provided funds to subrecipients under its direct award from the U.S. Department of the Treasury and award number 21-4614C-124 from the Washington State Department of Commerce to administer COVID-19 assistance programs to the public. Our audit found the County did not establish three subaward agreements and did not include all required elements in one of the subawards. Additionally, the County did not perform risk assessments or adequately monitor four subrecipients, as federal regulations require. We consider this deficiency in internal controls to be a significant deficiency. This issue was reported as a finding in the prior audit as finding 2020-001. Cause of Condition The County has an established process to create subawards, perform risk assessments and monitor subrecipients. However, due to the effects of the COVID-19 pandemic, it was crucial for the County to establish programs and disburse available funds quickly to assist the public. As a result, the County expedited its processes to disburse funds to subrecipients and did not consistently follow its established procedures for all of its subrecipients. Additionally, the County relied on existing interlocal agreements with cities instead of establishing new contracts for the CRF subawards. Effect of Condition We selected 15 out of the 38 subawards to review during the audit. We found the County did not establish subaward contracts with three subrecipients, and it did not include most required elements in one of its subaward contracts, such as the name of the federal awarding agency, CFDA number, and all program requirements to comply with federal regulations and the terms and conditions of the federal award. The County also did not perform risk assessments for these four subrecipients or adequately monitor them to ensure they only provided assistance to participants who met program eligibility criteria, as federal regulations require. Without this information, subrecipients are at an increased risk of not knowing that the award comes from a federal program. This also increases the risk that subrecipients would not know that they need to comply with specific program requirements, which could potentially lead to spending funds for unallowable purposes. Additionally, without performing risk assessments and monitoring, the County?s subrecipients are at risk of not complying with program requirements. The County received a finding related to this deficiency in the prior audit. In response to our audit recommendation, the County performed retroactive subrecipient monitoring. The County randomly selected participants who received assistance from the four subrecipients to verify they obtained documentation demonstrating the participants were eligible for program assistance. However, for all of these subrecipients, we found the County did not establish eligibility criteria or allowable documentation that participants must submit to satisfy eligibility requirements. Therefore, we identified $942,883 in unsupported payments for these subrecipients out of the $21,022,720 in total funds the County passed through to them. Recommendation We continue to recommend the County clearly identify its subawards as federal awards and include all required elements in its subrecipient contracts. Additionally, we recommend the County assess subrecipients? risk and monitor them accordingly to verify they are complying with federal regulations and the terms and conditions of the subaward. County?s Response This finding during the 2021 audit was based on County actions that occurred in January to February 2021 for an agreement that was made in late 2020. The actual corrective action plan was not implemented until mid-2021. The 2020 finding, as well as the 2021 finding were not disclosed until after mid-2021. The County?s corrective action plan associated with this finding was to follow the internal controls and past practices that do comply with Uniform Guidance and 2 CFR 200. The decision not to follow past internal controls and past practices that resulted in the original finding was done conscientiously to address the issue of aiding ailing businesses while under the extreme administrative conditions the County found itself in. Since the original finding was reported, the County has been more judicious in its use of self-certification. The County has re-instated all past practices and internal controls by mid-year 2021 and continues to adhere to these practices. During 2021, the County spent $34,316,138 in CARES (Coronavirus Aid, Relief and Economic Security Act) award from the U.S. Treasury. In order to get sorely needed funds to ailing businesses the County had to consciously make decisions that may not have complied with Uniform Guidance or its own internal controls or typical practices as described in the State Auditor?s Office findings. To save time and to execute the City/County Agreement program in the short time frame given to the County by U.S. Treasury, the County chose not to perform formal risk assessments or document the informal ones they performed. The risk assessment that the County relied upon was the knowledge that the sub-recipients were all public/municipal entities that were regularly audited by the State Auditor?s Office and had to have existing aid to ailing business programs to distribute the State?s allocation of CARES Act funding. To expedite the distribution of funds the County chose to utilize existing emergency aid contracts that the County already had with the various municipalities. Although those agreements did not largely have the typical elements that would be found in a Uniform Guidance type contract as outlined in the State Auditor?s Office?s finding, they did authorize the distribution of aid to cities so they could benefit ailing businesses. However, unlike how the rest of the cities were treated, the County was able to get an agreement that was more in conformance with 2 CFR200 with the City of Everett. Excluding the City of Everett, the contracts mentioned above that were used to distribute the money to the cities did not contemplate sub-recipient monitoring nor unsupported payments. Again, the County chose to utilize these existing aid agreements to expeditiously fund the City/County Agreement program. The County was acting on the premise that should the County have gone through the process of developing Uniform Guidance compliant agreements, the funding would not have been distributed to ailing business in time to meet the original award deadline of December 30, 2020. Finally, the County disputes the issue that the self-certification was not valid to use to determine beneficiary eligibility. The FAQ cited by the State Auditor?s Office was released on October 19, 2020, which was after the vast majority of beneficiaries had been determined to receive aid. The beneficiaries and the County relied on the previous guidance and FAQ?s that did not state self-certification could not be used. In fact, no guidance has yet been cited to the County that explicitly states self-certification cannot be used. Should the County have waited until all guidance was issued the County would not have been able to get any aid out to beneficiaries based on the original December 30, 2020 deadline. Auditor?s Remarks We appreciate the County?s assistance throughout our audit and its planned corrective action to resolving this matter. Although the County passed funds to beneficiaries prior to the FAQ released on October 19, 2020, it did not change its eligibility determinations after the guidance was issued. We reaffirm our finding 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. 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. 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.

2020-001 The County had inadequate internal controls for ensuring compliance with federal subrecipient monitoring requirements, and it improperly charged the Coronavirus Relief Fund for unallowable expenditures. "See Schedule of Findings and Questioned Costs for chart/table" Background The purpose of the Coronavirus Relief Fund (CRF) 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. During 2020, the County spent $128,594,732 in CRF program funds under six awards; it received one award directly from the U.S. Department of the Treasury and five awards from two pass-through agencies. The County passed through $73,462,170 of these funds to 61 subrecipients to provide assistance to small businesses and County residents (for food, rental assistance, and other services). 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. Subrecipient Monitoring Whenever the County passes on federal funding to subrecipients, federal regulations require the County to clearly identify the subawards as federal awards and include all applicable program requirements. Further, the County must monitor its subrecipients to ensure they comply with the terms and conditions of the federal award. To determine the appropriate level of monitoring, the County must evaluate each subrecipient?s risk of noncompliance with federal requirements. For awards dependent on participant eligibility, monitoring would include verifying the subrecipients only provided assistance to participants who met program eligibility requirements. The amount of verification would depend on each subrecipient?s risk of noncompliance. Allowable Activities and Costs For the CRF program, the costs that recipients submit for federal reimbursement must have been necessary for responding to the COVID-19 pandemic and not previously included in budgets prior to March 27, 2020. All costs recipients charge to the CRF program must comply with program requirements and be supported by proper documentation demonstrating that costs are specifically related to COVID 19 activities. Further, recipients may not submit claims for reimbursement more than once for the same expenditure or use payments from the CRF program to cover expenditures that other federal funding sources will be reimbursing. Description of Condition Subrecipient Monitoring The County provided funds to subrecipients under its direct award from the U.S. Department of the Treasury and award number 21-4614C-124 from the Washington State Department of Commerce (Commerce) to administer COVID-19 assistance programs to the public. The County did not include all required elements in the subawards, and it did not perform risk assessments or adequately monitor subrecipients, as federal regulations require. We consider this internal control deficiency to be a material weakness that led to material noncompliance. Allowable Activities and Costs In December 2020, Commerce awarded the County $1,404,933 in CRF program funds (contract number 20-326CC-081) to assist with the operation of its Low Income Home Energy Assistance Program (LIHEAP). LIHEAP is a federal grant program funded by the U.S. Department of Housing and Urban Development. Commerce instructed the County to transfer expenditures of $1,068,660, which were already reimbursed under its LIHEAP award, to the CRF award. Out of the total transferred amount, the County spent $412,334 for regular LIHEAP clients without considering whether the expenditures were necessary due to COVID-19. The costs were also considered as budgeted under the original LIHEAP grant and, therefore, do not meet the first two requirements to be allowable under the CRF award. These issues were not reported as a finding in the prior audit. Cause of Condition Subrecipient Monitoring The County has an established process to create subawards, perform risk assessments and monitor subrecipients. However, due to the effects of the COVID 19 pandemic, it was crucial for the County to establish programs and disburse available funds quickly to assist the public. As a result, the County expedited its processes to disburse funds to subrecipients and did not consistently follow its established procedures for all of its subrecipients. Additionally, the County relied on existing interlocal agreements with cities instead of establishing new contracts for the CRF subawards. Allowable Activities and Costs Based on Commerce?s directive, the County transferred its reimbursed expenditures from the LIHEAP grant to the CRF award without considering the specific requirements of the CRF award. Effect of Condition and Questioned Costs Subrecipient Monitoring We selected 25 subawards to review, including all subawards with payments to beneficiaries. We found the County did not establish subaward contracts with eight subrecipients, and it did not include most required elements in one of its subaward contracts, such as the name of the federal awarding agency, CFDA number, and all program requirements to comply with federal regulations and the terms and conditions of the federal award. The County also did not perform risk assessments for these subrecipients. Additionally, the County did not monitor 14 subrecipients to ensure they only provided assistance to participants who met program eligibility criteria, as federal regulations require. Without this information, subrecipients are at an increased risk of not knowing that the award comes from a federal program. This also increases the risk that subrecipients would not know that they need to comply with specific program requirements, which could potentially lead to spending funds for unallowable purposes. Additionally, without performing risk assessments and monitoring, the County?s subrecipients are at risk of not complying with program requirements. Because the County did not perform risk assessments and monitoring of its subrecipients, we gave the County the opportunity to perform monitoring during the audit and verify subrecipients obtained documentation demonstrating participants were eligible for program assistance. The County randomly selected 413 participants who received assistance from 14 subrecipients to verify they obtained documentation demonstrating the participants were eligible for program assistance. However, for 11 of these subrecipients, we found the County did not establish eligibility criteria or allowable documentation that participants must submit to satisfy eligibility requirements. Therefore, we identified $2,828,507 in known and $31,689,207 in estimated unsupported payments for these subrecipients. Allowable Activities and Costs The County charged $412,334 in unallowable expenditures to the CRF program that did not comply with program requirements. As a result, we are questioning these costs. Recommendation We recommend the County clearly identify its subawards as federal awards and include all required elements in its subrecipient contracts. Additionally, we recommend the County assess subrecipients? risk and monitor them accordingly to verify they are complying with federal regulations and the terms and conditions of the subaward. Further, we recommend the County ensure it only charges allowable costs to federal programs. County?s Response Sub-recipient Monitoring: In late March 2020 the County received $143,447,144 CARES Act award from the U.S. Treasury. At the time as the County received the funding no guidance or rules were given to the County on how the money was to be spent. Later, on April 22, 2020 a thin draft on how to use the money was issued by U.S. Treasury that was later significantly updated on September 2, 2020 and a further update on October 19, 2020. The original time frame on the award was that the money had to be spent by December 30, 2020 (cash basis). In order for the County to spend the money, the County had to: ? Develop a plan that most benefited the community ? Set up a sub-fund, programs and object code numbers ? Approve appropriations ? Develop programs ? Seek community partners and vendors ? Craft contracts ? Setup internal controls ? Execute said agreements ? Pay contractors All of this was to be conducted: ? Within the span of eight months (April 22 to December 30) ? During a pandemic ? While transitioning to social distancing/working from home policy ? Cutting the County budget ? Shrinking staff due to a hiring freeze due to the pandemic ? Implementation of several other nonfunded Federal pandemic related mandates. With that said, in order to get sorely needed funds to ailing businesses the County had to consciously make decisions that may not have complied with Uniform Guidance or its own internal controls or typical practices as described in the State Auditor?s Office findings. As sited in the State Auditor?s Office finding, the program that largely did not comply was the City/County Agreements program. The City/County Agreement program required the County to give the portion of the County?s CARES Act funding to cities within Snohomish County for those cities to distribute financial aid to ailing businesses utilizing an existing program that the cities developed to distribute the State?s CARES Act allocation. To save time and to execute the City/County Agreement program in the short time frame given to the County by U.S. Treasury, the County chose not to perform formal risk assessments or document the informal ones they performed. The risk assessment that the County relied upon was the knowledge that the sub-recipients were all public/municipal entities that were regularly audited by the State Auditor?s Office and had to have existing aid to ailing business programs to distribute the State?s allocation of CARES Act funding. To expedite the distribution of funds the County chose to utilize existing emergency aid contracts that the County already had with the various municipalities. Although those agreements did not largely have the typical elements that would be found in a Uniform Guidance type contract as outlined in the State Auditor?s Office?s finding, they did authorize the distribution of aid to cities so they could benefit ailing businesses. Further, the contracts mentioned above that were used to distribute the money to the cities did not contemplate sub-recipient monitoring nor unsupported payments. Again, the County chose to utilize these existing aid agreements to expeditiously fund the City/County Agreement program. The County was acting on the premise that should the County have gone through the process of developing Uniform Guidance compliant agreements, the funding would not have been distributed to ailing business in time to meet the original award deadline of December 30, 2020. Finally, the County disputes the issue of the self-certification was not valid to use to determine beneficiary eligibility. The FAQ that the State Auditor?s Office cited was only released on October 19, 2020, which was after the vast majority of beneficiaries had been determined to receive aid. The beneficiaries and the County relied on the previous guidance and FAQ?s that did not state self-certification could not be used. In fact, no guidance has yet been cited to the County that explicitly states self-certification cannot be used. Should the County have waited until all guidance was issued the County would not have been able to get any aid out to beneficiaries based on the original December 30, 2020 deadline. The County?s corrective action plan associated with this part is basically to go back and follow the internal controls and past practices that do comply with Uniform Guidance and 2 CFR 200. The decision not to follow past internal controls and past practices that resulted in this finding was done conscientiously to address the issue of aiding ailing businesses while under the extreme administrative conditions the County found itself in. Further, in the future the County will be more judicious in its use of self-certification. The County has re-instated all past practices and internal controls by mid-year 2021. Allowable Activities and Costs: Low Income Home Energy Assistance Program (LIHEAP) funds are generally administered by the U.S. Department of Health and Human Services. For the Coronavirus Aid, Relief, and Economic Security (CARES) Act, PL-116-136, sec. 5001 Coronavirus Relief Fund, these funds were administered at the federal level by the U.S. Department of the Treasury. All LIHEAP funds have been passed on to Snohomish County by the Washington State Department of Commerce (Commerce). During the timeframe in question, Snohomish County had three separate LIHEAP contracts: #20-32606-081, #20-3260C-081, and #20-326CC-081. All three were intended to serve households that meet the same categorical LIHEAP eligibility criteria. #20-326CC-081 which was funded with dollars awarded under the CARES Act had an additional criterion that households indicated that they had been impacted by the COVID-19 pandemic. The Scope of Work in contract #20-326CC-081 specified that services were to be delivered in conformance with the LIHEAP COVID-19 Emergency Declaration Contingent Benefit Clarifications and the Frequently Asked Questions (FAQs) provided by Commerce. The contingent benefit policy update issued by Commerce indicated that the contingent benefit could be awarded to otherwise LIHEAP-eligible households in impacted counties. It also clarified that all 39 counties in Washington were impacted in this statewide emergency declared by Governor Inslee which persists until this day, thereby establishing a nexus to the COVID-19 pandemic. The documentation to be included in the individual household file included no mention of documentation of a household indicating that it had been impacted by the COVID-19 pandemic. Further, the FAQs indicate the following: ?Q: If an approved LIHEAP or LIRAP client states that they were financially affected by this virus, we can just provide them the additional $500 benefit, right? A: That is correct - so long as they also have been, or will be, awarded a LIHEAP or LIRAP benefit during this program year (or at the same time as their $500 COVID-19 crisis benefit). Although we do not require documented proof that the client was adversely affected by COVID-19 [emphasis added], the proper documentation procedures may be found below in the Documentation section of this FAQ.? The Documentation section is silent on this point. Additional clarification is provided: ?Q: I want to clarify that we can only do the contingent benefit for clients that have been affected by COVID-19. If they are on Social Security or their hours have not been affected, then they do not qualify ? is that correct? A: If the client has been adversely financially affected by COVID-19, and they are eligible for and have been (or will be) awarded LIHEAP or LIRAP, then the Agency may choose to provide the benefit to them. We do not require verification of the adverse financial impact brought on by COVID-19 [emphasis added]. Fixed income, or a regular work schedule, does not necessarily fully financially protect the client form the crisis. The final discretion is left to the LIHEAP administering agency [emphasis added].? Snohomish County sent an email to the State Auditor?s Office on October 13, 2021 in reference to a request for additional information. The email and attachments clarified that Commerce did not require the County to document this criterion for households to receive the CARES Contingent Benefit in either its policy update or the LIHEAP COVID-19 Emergency Declaration Contingent Benefit Clarifications and Frequently Asked Questions. That guidance was predicated on guidance promulgated by the U.S. Department of the Treasury in its FAQs. No mention was made regarding documentation of household eligibility in any version of those FAQs until publication of an update on October 19, 2020. The update issued was silent on documentation of eligibility other than in relation to Paycheck Protection Program (PPP) loans which had no relevance to LIHEAP. Further, FAQs do not carry the force of statute and the October 19, 2020 update specifically did not prescribe eligibility documentation processes. The County acknowledges that we were awarded contract #20-326CC-081 from Commerce to ??provide assistance to a greater number of low-income households who are impacted by the COVID-19 pandemic and cannot pay their energy bills.? A total of $1,404,933 was awarded under this contract with a term of 7/1/2020 ? 12/30/2020. On January 11, 2021, the County received written instruction from Commerce to allocate and charge all December 2020 costs associated with the above LIHEAP contracts to contract #20-326CC-081 once that contract was executed. The contract was executed on January 12, 2021 and the County allocated expenditures to the contract as instructed for the month of December. These expenditures totaled $1,068,660.45. On February 18, 2021, the County was notified by Commerce that Commerce had completed journal entries transferring associated expenses from the other LIHEAP contracts to contract #20-326CC-081 for the period of July 1, 2020 through December 30, 2020, but they were still working on data reconciliation in the Contract Management System which is the State?s portal for submitting monthly requests for reimbursement. On March 15, 2021, the County was notified of the result of the journal entries made by Commerce as follows: ? $333,889.96 in expenditures previously charged to contract #20-32606-081 during the time period of 7/1/2020 ? 12/30/2020 had been transferred to contract #20-326CC-081; ? $2,382.59 in expenditures previously charged to contract #20-3260C-081 during the time period of 7/1/2020 ? 12/30/2020 had been transferred to contract #20-326CC-081; and ? A total of $336,272.55 ($333,889.96 + $2,382.59) in expenditures previously charged to contract #s 20-32606-081 and 20-3260C-081 had been transferred to contract #20-326CC-081. The combination of allowable expenditures charged to this contract by the County for the month of December 2020 plus the total transferred by Commerce from the other two LIHEAP contracts resulted in total expenditures equal to the total award of $1,404,933.00. The County was instructed by Commerce to allocate all costs associated with LIHEAP grants in December to contract #20-326CC-081 and Commerce later transferred additional costs in the amount of $336,272.55 from the two other LIHEAP contracts into contract #20-326CC-081 in order to fully expended that contract within the timeframe allowed by statute. The services provided were eligible for payment under contract #20-326CC-081. The individuals to whom they were provided were eligible for the services received under contract #20-326CC-081. There was a greater level of service provided to the individuals served than could have been provided with any funds that were allocated within the County?s budget prior to March 27, 2020. The County allocated the associated expenses for these eligible services to eligible individuals as instructed by Commerce. Therefore, it is the County?s position that these costs were allowable and should not be questioned. Auditor?s Remarks We appreciate the County?s assistance throughout our audit and its planned corrective action to resolving this matter. Subrecipient Monitoring Although the County passed funds to beneficiaries prior to the FAQ released on October 19, 2020, it did not change its eligibility determinations after the guidance was issued. Allowable Activities and Costs As the recipient of the Coronavirus Relief Funds, the County is responsible for ensuring only eligible costs are charged to the program. We reaffirm our finding 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 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes subrecipient monitoring and management requirements for pass through entities. 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 program. Supplemental Guidance on Use of Funds Federal Register/Vol. 86, No.10: ?The requirement that expenditures be incurred ``due to?? the public health emergency means that expenditures must be used for actions taken to respond to the public health emergencyThe CARES Act also requires that payments be used only to cover costs that . . . were not accounted for in the budget most recently approved as of March 27, 2020. A cost meets this requirement if either (a) the cost cannot lawfully be funded using a line item, allotment, or allocation within that budget or (b) the cost is for a substantially different use from any expected use of funds in such a line item, allotment, or allocation.? Federal Register/Vol. 86, No.10: ?The prime recipient is responsible for determining the level and detail of documentation needed from the subrecipient of small business assistance to satisfy [the requirements of section 601(d) of the Social Security Act], however there would need to be some proof that the small business was impacted by the public health emergency and was thus eligible for the CRF funds.?