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Single Audit Report For the Year Ended June 30, 2013 Office of the State Auditor Beth A. Wood, CPA State Auditor State of North Carolina STATE OF NORTH CAROLINA SINGLE AUDIT REPORT 2 0 1 3 OFFICE OF THE STATE AUDITOR BETH A. WOOD, CPA STATE AUDITOR STATE OF NORTH CAROLINA TABLE OF CONTENTS TRANSMITTAL ....................................................................................................................................... 1 AUDITOR’S SECTION Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards .................................................. 5 Independent Auditor’s Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance; and Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 ........................................................................ 7 Schedule of Findings and Questioned Costs ......................................................................................... 13 AUDITEE’S SECTION Schedule of Expenditures of Federal Awards ..................................................................................... 145 Summary ..................................................................................................................................... 146 Detail........................................................................................................................................... 157 By State Agency .......................................................................................................................... 226 Notes to the Schedule of Expenditures of Federal Awards ......................................................... 309 Summary Schedule of Prior Audit Findings ....................................................................................... 313 Corrective Action Plan ........................................................................................................................ 367 Ordering Information .......................................................................................................................... 395 North Carolina Office of the State Auditor Our Mission and Our Commitment The Office of the State Auditor protects the interests of taxpayers and others who provide financial resources to the State of North Carolina. Specifically, we provide objective information to interested parties about whether economic resources are properly accounted for, reported and managed; as well as whether publically-funded programs are achieving desired results. The Office of the State Auditor’s mission is accomplished by conducting thorough audits and investigations. These audits and investigations are performed by highly competent and professional staff and result in useful and practical recommendations to improve services provided by North Carolina state government. This office will always strive for the highest standards in professional conduct, independence and integrity as we pursue our mission. If we find financial management deficiencies, we will report them without apology because our ultimate responsibility is to the citizens and taxpayers of North Carolina. Beth A. Wood, CPA State Auditor Beth A. Wood, CPA State Auditor STATE OF NORTH CAROLINA Office of the State Auditor 2 S. Salisbury Street 20601 Mail Service Center Raleigh, NC 27699-0601 Telephone: (919) 807-7500 Fax: (919) 807-7647 Internet http://www.ncauditor.net March 26, 2014 The Honorable Pat McCrory, Governor The General Assembly of North Carolina We are pleased to submit the Single Audit Report for the State of North Carolina for the fiscal year ended June 30, 2013. The audit was conducted in accordance with standards contained in Government Auditing Standards issued by the Comptroller General of the United States, the requirements of the Single Audit Act Amendments of 1996, and the provisions of the Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. This Single Audit Report reflects federal awards of $22.3 billion. This report includes significant deficiencies and material weaknesses in internal control relating to major federal programs and instances of noncompliance, including several that we believe constitute material noncompliance, that meet the criteria of OMB Circular A-133. The North Carolina Comprehensive Annual Financial Report for the fiscal year ended June 30, 2013, has been issued in a separate report by the Office of the State Controller. In accordance with Government Auditing Standards, we are issuing our report on our consideration of the State of North Carolina’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements that have an effect on the financial statements. The deficiencies in internal control and instances of noncompliance arising from our audit that are required to be reported by Governmental Auditing Standards or the Single Audit Act and OMB Circular A-133 are described in the Schedule of Findings and Questioned Costs. We wish to acknowledge the assistance of the North Carolina Office of the State Controller and the cooperation of other state agencies, community colleges, and universities in the preparation of this report. Respectfully submitted, Beth A. Wood, CPA State Auditor [ This Page Left Blank Intentionally ] STATE OF NORTH CAROLINA AUDITOR’S SECTION [ This Page Left Blank Intentionally ] Beth A. Wood, CPA State Auditor STATE OF NORTH CAROLINA Office of the State Auditor 2 S. Salisbury Street 20601 Mail Service Center Raleigh, NC 27699-0601 Telephone: (919) 807-7500 Fax: (919) 807-7647 Internet http://www.ncauditor.net INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS The Honorable Pat McCrory, Governor The General Assembly of North Carolina We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the State of North Carolina, as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the State’s basic financial statements (not presented herein), and have issued our report thereon dated November 25, 2013. Our report includes a reference to other auditors who audited the financial statements of the North Carolina State Lottery Fund, the North Carolina Turnpike Authority, the North Carolina Housing Finance Agency, the State Education Assistance Authority, the University of North Carolina System – University of North Carolina Health Care System – Rex Healthcare, the Supplemental Retirement Income Plan of North Carolina, and the cash basis claims and benefits of the North Carolina State Health Plan, as described in our report on the State’s financial statements. This report does not include the results of the other auditors’ testing of internal control over financial reporting or compliance and other matters that are reported on separately by those auditors. The financial statements of the University of North Carolina System – University of North Carolina Health Care System – Rex Healthcare and the Supplemental Retirement Income Plan of North Carolina were not audited in accordance with Government Auditing Standards. As of the date of our report on the financial statements of the State of North Carolina, the financial statements of the State Education Assistance Authority were not audited in accordance with Government Auditing Standards; however, subsequent to that date, an audit in accordance with Government Auditing Standards was completed. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the State of North Carolina’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our STATE OF NORTH CAROLINA opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the State’s internal control. Accordingly, we do not express an opinion on the effectiveness of the State’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the State of North Carolina’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the State of North Carolina’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Beth A. Wood, CPA State Auditor Raleigh, North Carolina November 25, 2013 Beth A. Wood, CPA State Auditor STATE OF NORTH CAROLINA Office of the State Auditor 2 S. Salisbury Street 20601 Mail Service Center Raleigh, NC 27699-0601 Telephone: (919) 807-7500 Fax: (919) 807-7647 Internet http://www.ncauditor.net INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY OMB CIRCULAR A-133 The Honorable Pat McCrory, Governor The General Assembly of North Carolina Report on Compliance for Each Major Federal Program We have audited the State of North Carolina’s compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the State of North Carolina’s major federal programs for the year ended June 30, 2013. The State of North Carolina’s major federal programs are identified in Section I, Summary of Auditor’s Results, in the accompanying Schedule of Findings and Questioned Costs. The State of North Carolina’s financial reporting entity includes the operations of the State Education Assistance Authority and the North Carolina Housing Finance Agency. These agencies reported $2.46 billion and $281 million, respectively, in federal awards which are not included in the Schedule of Expenditures of Federal Awards during the year ended June 30, 2013. Our audit, described below, did not include the operations of the State Education Assistance Authority and the North Carolina Housing Finance Agency because these agencies engaged other auditors to perform an audit in accordance with OMB Circular A-133. Management’s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable its federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of the State of North Carolina’s major federal programs based on our audit of the types of compliance requirements referred to above. The State of North Carolina arranges with local government social services agencies to perform the “intake function” to determine eligibility for the following major programs: Medicaid Cluster, Temporary Assistance for Needy Families Cluster, Special Supplemental Nutrition Program for Women, Infants and Children, Children’s Health Insurance Program, and Adoption Assistance. We designated these programs to be audited as major programs at certain local governments by their local government auditors. The results STATE OF NORTH CAROLINA of these audits were furnished to us, and our opinion, insofar as it relates to the intake function for these programs, is based on the other auditors’ results. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non- Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the State of North Carolina’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit and the work of the other auditors provide a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the State of North Carolina’s compliance with those requirements. Basis for Qualified Opinion on Certain Major Federal Programs As described in Section III, Federal Award Findings and Questioned Costs, in the accompanying Schedule of Findings and Questioned Costs, the State of North Carolina did not comply with several compliance requirements that are applicable to several of its major federal programs, as follows: Finding Number Type of Compliance Requirement CFDA Major Federal Program 2013-006 Reporting 10.561 State Administrative Matching Grants for the Supplemental Nutrition Assistance Program 2013-007 Cash Management 14.228 Community Development Block Grants/State's Program and Non-Entitlement Grants in Hawaii 2013-011 Reporting 14.228 Community Development Block Grants/State's Program and Non-Entitlement Grants in Hawaii 2013-025 Special Tests and Provisions 20.205 Highway Planning and Construction 2013-027 Procurement and Suspension and Debarment 20.319 High Speed Rail Corridors and Intercity Passenger Rail Service – Capital Assistance Grants 2013-029 Reporting 20.319 High Speed Rail Corridors and Intercity Passenger Rail Service – Capital Assistance Grants 2013-031 Reporting 20.509 Formula Grants for Rural Areas 2013-032 Reporting 20.509 Formula Grants for Rural Areas 2013-033 Subrecipient Monitoring 20.509 Formula Grants for Rural Areas 2013-035 Subrecipient Monitoring 66.458 Capitalization Grants for Clean Water State Revolving Funds STATE OF NORTH CAROLINA Finding Number Type of Compliance Requirement CFDA Major Federal Program 2013-037 Subrecipient Monitoring 66.468 Capitalization Grants for Drinking Water State Revolving Funds 2013-046 Cash Management 84.031 Higher Education-Institutional Aid 2013-047 Reporting 84.031 Higher Education-Institutional Aid 2013-049 Matching, Level of Effort, Earmarking 84.048 Career and Technical Education – Basic Grants to States 2013-058 Special Tests and Provisions 84.268 Federal Direct Student Loans 2013-059 Special Tests and Provisions 84.268 Federal Direct Student Loans 2013-074 Allowable Costs/Cost Principles 93.767 Children’s Health Insurance Program 2013-076 Allowable Costs/Cost Principles 93.778 Medical Assistance Program 2013-082 Cash Management 93.917 HIV Care Formula Grants 2013-083 Eligibility 93.917 HIV Care Formula Grants 2013-084 Subrecipient Monitoring 93.959 Block Grants for Prevention and Treatment of Substance Abuse 2013-086 Reporting 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) 2013-089 Equipment and Real Property Management Various Research and Development Cluster 2013-090 Subrecipient Monitoring Various Research and Development Cluster 2013-091 Subrecipient Monitoring Various Research and Development Cluster Compliance with such requirements is necessary, in our opinion, for the State of North Carolina to comply with the requirements applicable to those programs. Qualified Opinion on Certain Major Programs In our opinion, based on our audit and the work of other auditors, except for the noncompliance described in the Basis for Qualified Opinion paragraph above, the State of North Carolina complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2013. Unmodified Opinion of Each of the Other Major Federal Programs In our opinion, based on our audit and the work of other auditors, the State of North Carolina complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its other major federal programs identified in Section I, Summary of Auditor’s Results, in the accompanying Schedule of Findings and Questioned Costs for the year ended June 30, 2013. STATE OF NORTH CAROLINA Other Matters The results of our auditing procedures disclosed other instances of noncompliance, which are required to be reported in accordance with OMB Circular A-133 and which are described in the accompanying Schedule of Findings and Questioned Costs as items 2013-001, 2013-005, 2013-016, 2013-34, 2013-36, 2013-51, 2013-52, 2013-57, 2013-071, 2013-072, 2013-074, 2013-075, 2013-076, 2013-077, 2013-079, and 2013-083. Our opinion on each major federal program is not modified with respect to these matters. The State of North Carolina’s responses to the noncompliance findings identified in our audit are described in Section III, Federal Award Findings and Questioned Costs, of the accompanying Schedule of Findings and Questioned Costs. The State of North Carolina’s responses were not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the responses. Report on Internal Control Over Compliance Management of the State of North Carolina is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the State of North Carolina’s internal control over compliance with the types of requirements that could have a direct and material effect on a major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the State of North Carolina’s internal control over compliance. Our consideration of internal control over compliance was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in the internal control over compliance that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as discussed below, we identified certain deficiencies in internal control over compliance that we consider to be material weaknesses and other deficiencies that we consider to be significant deficiencies. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. We consider the deficiencies in internal control over compliance described in Section III, Federal Award Findings and Questioned Costs, of the accompanying Schedule of Findings and Questioned Costs as items 2013-006, 2013-007, 2013-008, 2013-009, 2013-010, 2013-011, 2013-012, 2013-015, 2013-018, 2013-020, 2013-022, 2013-025, 2013-027, 2013-029, 2013-031, 2013-032, STATE OF NORTH CAROLINA 2013-033, 2013-035, 2013-037, 2013-046, 2013-047, 2013-049, 2013-058, 2013-059, 2013-074, 2013-076, 2013-082, 2013-083, 2013-084, 2013-086, 2013-088, 2013-089, 2013-090, and 2013-091, to be material weaknesses. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. We consider the deficiencies in internal control over compliance described in Section III, Federal Award Findings and Questioned Costs, of the accompanying Schedule of Findings and Questioned Costs as items, 2013-001, 2013-002, 2013-003, 2013-004, 2013-013, 2013-014, 2013-016, 2013-017, 2013-019, 2013-021, 2013-023, 2013-024, 2013-026, 2013-028, 2013-030, 2013-034, 2013-036, 2013-038, 2013-039, 2013-040, 2013-041, 2013-042, 2013-043, 2013-044, 2013-045, 2013-048, 2013-050, 2013-051, 2013-052, 2013-053, 2013-054, 2013-055, 2013-056, 2013-057, 2013-060, 2013-061, 2013-062, 2013-063, 2013-064, 2013-065, 2013-066, 2013-067, 2013-068, 2013-069, 2013-070, 2013-073, 2013-077, 2013-078, 2013-080, 2013-081, 2013-085, and 2013-087 to be significant deficiencies. The State of North Carolina’s responses to the internal control over compliance findings identified in our audit are described in Section III, Federal Award Findings and Questioned Costs, of the accompanying Schedule of Findings and Questioned Costs. The State of North Carolina’s responses were not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the responses. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 We have audited the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the State of North Carolina as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the State of North Carolina’s basic financial statements (not presented herein). We issued our report thereon dated November 25, 2013, which contained unmodified opinions on those financial statements. Our report includes a reference to other auditors. As discussed in Note 22 to the financial statements, during the year ended June 30, 2013, the State implemented Governmental Accounting Standards Board Statement No. 61, The Financial Reporting Entity: Omnibus. Our opinion was not modified with respect to this matter. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. STATE OF NORTH CAROLINA Other auditors audited the financial statements of the North Carolina State Lottery Fund, the North Carolina Turnpike Authority, the North Carolina Housing Finance Agency, the State Education Assistance Authority, the University of North Carolina System – University of North Carolina Health Care System – Rex Healthcare, the Supplemental Retirement Income Plan of North Carolina, and the cash basis claims and benefits of the North Carolina State Health Plan, as described in our report on the State’s financial statements. The financial statements of the University of North Carolina System – University of North Carolina Health Care System – Rex Healthcare and the Supplemental Retirement Income Plan of North Carolina were not audited in accordance with Government Auditing Standards. As of the date of our report on the State of North Carolina’s financial statements, the financial statements of the State Education Assistance Authority were not audited in accordance with Government Auditing Standards; however, subsequent to that date, an audit in accordance with Government Auditing Standards was completed. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by OMB Circular A-133 and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the Schedule of Expenditure of Federal Awards is fairly stated in all material respects in relation to the basic financial statements as a whole. Beth A. Wood, CPA State Auditor Raleigh, North Carolina March 14, 2014 (except as related to the Report on the Schedule of Expenditures of Federal Awards, as to which the date is November 25, 2013 STATE OF NORTH CAROLINA SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Fiscal Year Ended June 30, 2013 I. Summary of Auditor’s Results .................................................................................................................. 15 II. Financial Statement Findings ................................................................................................................... 19 III. Federal Award Findings and Questioned Costs .................................................................................... 21 10.551 Supplemental Nutrition Assistance Program ....................................................................... 22 10.553 School Breakfast Program ................................................................................................... 24 10.555 National School Lunch Program .......................................................................................... 27 10.556 Special Milk Program for Children ....................................................................................... 28 10.557 Special Supplemental Nutritional Program for Women, Infants, and Children .................... 29 10.561 State Administrative Matching Grants for the Supplemental Nutrition Assistance Program ................................................................................................... 30 14.228 Community Development Block Grants / State’s Program and Non-Entitlement Grants in Hawaii ......................................................................................................... 31 16.738 Edward Bryne Memorial Justice Assistance Grant Program ............................................... 43 16.803 Recovery Act – Edward Bryne Memorial Justice Assistance Grant (JAG) Program / Grants to States and Territories ................................................................................. 45 17.225 Unemployment Insurance .................................................................................................... 46 17.258 WIA Adult Program .............................................................................................................. 51 17.259 WIA Youth Activities ............................................................................................................. 53 17.278 WIA Dislocated Workers Formula Grants ............................................................................ 54 20.205 Highway Planning and Construction .................................................................................... 55 20.319 High-Speed Rail Corridors and Intercity Passenger Rail Service – Capital Assistance Grants ...................................................................................................... 58 20.509 Formula Grants for Rural Areas ........................................................................................... 63 66.458 Capitalization Grants for Clean Water State Revolving Funds ........................................... 68 66.468 Capitalization Grants for Drinking Water State Revolving Funds ........................................ 70 84.010 Title I Grants to Local Educational Agencies ....................................................................... 74 84.027 Special Education – Grants to States .................................................................................. 80 84.031 Higher Education – Institutional Aid ..................................................................................... 82 84.048 Career and Technical Education – Basic Grants to States ................................................. 87 84.063 Federal Pell Grant Program ................................................................................................. 89 84.126 Rehabilitation Services – Vocational Rehabilitation Grants to States ................................. 90 84.173 Special Education – Preschool Grants ................................................................................ 93 84.268 Federal Direct Student Loans .............................................................................................. 94 STATE OF NORTH CAROLINA 84.367 Improving Teacher Quality State Grants ............................................................................. 97 84.377 School Improvement Grants ................................................................................................ 98 84.388 ARRA – School Improvement Grants .................................................................................. 99 84.395 ARRA – State Fiscal Stabilization Fund (SFSF) – Race-To-The-Top Incentive Grants, Recovery Act ............................................................................................................ 100 84.410 Education Jobs Fund ......................................................................................................... 101 93.558 Temporary Assistance for Needy Families – State Programs ........................................... 103 93.659 Adoption Assistance – Title IV-E ........................................................................................ 104 93.767 Children’s Health Insurance Program ................................................................................ 106 93.778 Medical Assistance Program ............................................................................................. 109 93.917 HIV Care Formula Grants .................................................................................................. 117 93.959 Block Grants for Prevention and Treatment of Substance Abuse ..................................... 119 97.036 Disaster Grants – Public Assistance (Presidentially Declared Disasters) ......................... 122 RD Research and Development Cluster .................................................................................. 123 Summary of Findings and Questioned Costs ............................................................................................ 133 By Federal Agency ............................................................................................................................ 134 By State Agency............................................................................................................................... 139 STATE OF NORTH CAROLINA SCHEDULE OF FINDINGS AND QUESTIONED COSTS I. Summary of Auditor’s Results For the Fiscal Year Ended June 30, 2013 Financial Statements Type of auditor’s report issued? Unqualified Internal control over financial reporting: Material weaknesses identified? No Significant deficiencies identified that are not considered to be material weaknesses? No Noncompliance material to financial statements noted? No Federal Awards Internal control over major programs: Material weaknesses identified? Yes Significant deficiencies identified that are not considered to be material weaknesses? Yes Type of auditor’s report issued on compliance for major programs? Unqualified for all major programs except for State Administrative Matching Grants for the Supplemental Nutrition Assistance Program; Community Development Block Grants / State’s Program and Non- Entitlement Grants in Hawaii; Highway Planning and Construction; High-Speed Rail Corridors and Intercity Passenger Rail Service – Capital Assistance Grants; Formula Grants for Rural Areas; Capitalization Grants for Clean Water State Revolving Funds; Capitalization Grants for Drinking Water State Revolving Funds; Higher Education – Institutional Aid; Career and Technical Education – Basic Grants to States; Federal Direct Student Loans; Children’s Health Insurance Program; Medical Assistance Program; HIV Care Formula Grants; Block Grants for Prevention and Treatment of Substance Abuse; Disaster Grants – Public Assistance STATE OF NORTH CAROLINA SCHEDULE OF FINDINGS AND QUESTIONED COSTS I. Summary of Auditor’s Results For the Fiscal Year Ended June 30, 2013 (Presidentially Declared Disasters), and Research and Development Cluster which is qualified. Any audit findings disclosed that are required to be reported in accordance with section 510(a) of Circular A-133? Yes Identification of major programs: CFDA Number Name of Federal Program or Cluster CCDF CCDF Cluster CHNC Child Nutrition Cluster DISI Disability Insurance/SSI Cluster HPCC Highway Planning and Construction Cluster JAGP JAG Program Cluster MEDC Medicaid Cluster RD Research and Development Cluster SCPC CDBG – State-Administered CDBG Cluster SFAC Student Financial Assistance Cluster SIGC School Improvement Grants Cluster SNAP Supplemental Nutrition Assistance Program (SNAP) Cluster SPED Special Education Cluster (IDEA) TANF TANF Cluster TIPA Title I, Part A Cluster WIAC WIA Cluster 10.557 Special Supplemental Nutrition Program for Women, Infants, and Children 17.225 Unemployment Insurance 20.319 High-Speed Rail Corridors and Intercity Passenger Rail Service – Capital Assistance Grants 20.509 Formula Grants for Rural Areas 66.458 Capitalization Grants for Clean Water State Revolving Funds 66.468 Capitalization Grants for Drinking Water State Revolving Funds 84.031 Higher Education – Institutional Aid 84.048 Career and Technical Education – Basic Grants to States 84.126 Rehabilitation Services – Vocational Rehabilitation Grants to States STATE OF NORTH CAROLINA SCHEDULE OF FINDINGS AND QUESTIONED COSTS I. Summary of Auditor’s Results For the Fiscal Year Ended June 30, 2013 CFDA Number Name of Federal Program or Cluster (continued) 84.367 Improving Teacher Quality State Grants 84.395 ARRA – State Fiscal Stabilization Fund (SFSF) – Race-to-the-Top Incentive Grants, Recovery Act 84.410 Education Jobs Fund 93.568 Low-Income Home Energy Assistance 93.658 Foster Care – Title IV-E 93.659 Adoption Assistance 93.667 Social Services Block Grant 93.767 Children's Health Insurance Program 93.917 HIV Care Formula Grants 93.959 Block Grants for Prevention and Treatment of Substance Abuse 97.036 Disaster Grants – Public Assistance (Presidentially Declared Disasters) Dollar threshold used to distinguish between type A and type B programs? $33,408,674 Auditee qualified as low-risk auditee? No [ This Page Left Blank Intentionally ] STATE OF NORTH CAROLINA SCHEDULE OF FINDINGS AND QUESTIONED COSTS II. Financial Statement Findings For the Fiscal Year Ended June 30, 2013 Type of Finding Findings and Recommendations No reportable findings and recommendations resulted from our audit of the State of North Carolina’s basic financial statements. [ This Page Left Blank Intentionally ] STATE OF NORTH CAROLINA SCHEDULE OF FINDINGS AND QUESTIONED COSTS III. Federal Award Findings and Questioned Costs For the Fiscal Year Ended June 30, 2013 The following findings, recommendations, and questioned costs are the results of the single audit of the State of North Carolina for the fiscal year ended June 30, 2013. Each finding is referenced with a four-digit number representing the fiscal year audited and a sequential number. The findings are presented by federal program and are classified according to federal and state department, type of compliance requirement, category of internal control weakness, and category of noncompliance. Findings included in this section are related to major programs. Category of Internal Control Weakness If the finding represents a weakness in internal control over compliance, one of the following designations will appear: Significant Deficiency – A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Material Weakness – A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. Category of Noncompliance Findings If the finding represents an instance of noncompliance, one of the following designations will appear: Material Noncompliance – A finding related to a major federal program which discusses conditions representing noncompliance with federal laws, regulations, contracts, or grants, the effects of which have a material effect in relation to a type of compliance requirement or an audit objective identified in OMB Circular A-133 Compliance Supplement. Questioned Cost Finding – A finding which discusses known or likely questioned costs that are greater than $10,000 for a type of compliance requirement, unless the conditions giving rise to the questioned costs are otherwise reported as a material noncompliance finding. STATE OF NORTH CAROLINA 10.551 SUPPLEMENTAL NUTRITION ASSISTANCE PROGRAM III. Federal Award Findings and Questioned Costs U.S. Department of Agriculture N.C. Department of Health and Human Services For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-001 Special Tests and Provisions: Significant Deficiency Questioned Cost Finding $2,694 Noncompliance with SNAP Requirements Deficiencies in the Department’s procedures related to participants’ certification periods in the North Carolina Families Accessing Services through Technology (NCFAST) system resulted in noncompliance with Supplemental Nutritional Assistance Program (SNAP) regulations. NCFAST is the new system that is used to determine eligibility and authorize benefits for SNAP. Deficiencies identified included: The system was not set up to prevent county case workers from establishing certification periods for longer than the participant was entitled. County case workers were given the ability to modify the certification period because of a defect in the system. After auditor inquiry, the Department provided a report of 1,683 cases that contained errors in the certification periods. The certification period for these cases ranged from 12 - 36 months while the normal certification period is 6 months. The system allowed county case workers to reopen cases closed by the system due to failure of the participant to recertify; however, there was no review of system overrides for appropriateness. We identified five instances in a sample of 40 where the case worker reactivated the case even though the participant did not submit the required recertification paperwork timely. By overriding the closed case, the participant received benefits for ineligible periods for total known questioned costs of $2,694 and likely questioned costs greater than $10,000 in the population. Federal regulation 7 CFR section 273.10(a)(2) states that if a participant submits an application after the certification period has expired, that application shall be considered an initial application and benefits for that month shall be prorated. In addition, sufficient documentation was not present to support testing of system changes in accordance with Department standard procedures. These standard procedures require a minimum of performance testing, functional testing, and user acceptance testing for major and minor releases. While evidence was present that some testing was performed on fixes to system defects, there was no evidence that user acceptance testing was performed. Changes that are not thoroughly tested can potentially result in improper system functionality, which could cause noncompliance with federal regulations. STATE OF NORTH CAROLINA 10.551 SUPPLEMENTAL NUTRITION ASSISTANCE PROGRAM (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Agriculture N.C. Department of Health and Human Services For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations Federal Award Information: This finding affects the Supplemental Nutritional Assistance Program for the federal fiscal year ended September 30, 2013. Recommendation: The Department should (1) follow up on the known cases with incorrect certification periods and take appropriate action; (2) establish internal controls to identify system overrides and determine the effect on case eligibility; and (3) ensure that user acceptance testing is performed and specifically documented before system changes are put into production. Agency Response: The Department has initiated the following actions: 1. The majority of the cases identified with incorrect certification periods were converted from the legacy Food Stamp Information System. As of December 6, 2013, the cases identified with incorrect certification periods were corrected and clients were mailed recertification forms. In addition, a hard stop validation edit was added to the system to prevent workers from extending the certification period beyond 12 months for regular Food Nutrition Service. 2. Based on the results of the evaluation, the appropriate change requirements will be submitted to North Carolina Families Accessing Services through Technology (NC FAST) to ensure system controls are in place to identify system overrides and the effect on case eligibility. The ability to reopen a case was designed in the system based on the business requirement to provide a method to reopen a closed case unit. The Department will evaluate the reopen process. 3. NC FAST program has defined User Acceptance Procedures (UAT) in place that included business stakeholder acceptance before any system change can be released into production. NC FAST has implemented additional steps based on these findings to clearly provide documented business stakeholder approval. STATE OF NORTH CAROLINA 10.553 SCHOOL BREAKFAST PROGRAM III. Federal Award Findings and Questioned Costs U.S. Department of Agriculture N.C. Department of Public Instruction For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-002 Subrecipient Monitoring: Significant Deficiency Monitoring Results Not Reported Timely The Department did not review fiscal monitoring reports in a timely manner, which resulted in the late communication of monitoring results to the subrecipients. Also, the Department did not ensure subrecipients took timely corrective action on issues identified during the fiscal monitoring visits. As a result, there is an increased risk that subrecipients did not take timely corrective actions on noncompliance issues identified. We selected 11 sample items out of 53 fiscal monitoring visits performed during the year and reviewed the fiscal monitoring documentation. Our test revealed that: The Department did not review the reports and communicate the results of the fiscal monitoring visits to 11 subrecipients in a timely manner. The monitoring reports were issued between 59 and 201 business days after the date of the monitoring visit. The Department did not ensure that four subrecipients took timely corrective action on the issues noted during the monitoring visits that occurred in October and November of 2012. As of October 31, 2013, three of the subrecipients had not yet provided the documentation requested by the Department to show that corrective actions were taken. One subrecipient did not take corrective action until August 21, 2013. The Department’s policy does not specify a timeline for reviewing monitoring reports and communicating results to the subrecipients. The Department does have a policy that requires subrecipients to respond to report findings within 30 business days of receipt of the report. OMB Circular A-133 requires pass-through entities to monitor the subrecipient’s use of federal awards through reporting, site visits, regular contact or other means to provide reasonable assurance that the subrecipient administers federal awards in compliance with laws and regulations. In addition, it requires pass-through entities to ensure subrecipients took appropriate and timely corrective action on its findings. Aspects of this finding were reported in the prior year. Federal Award Information: This finding impacts these federal programs: a. School Breakfast Program, National Lunch Program, & Special Milk Program for Children: Federal funding periods: 1) October 1, 2011 - STATE OF NORTH CAROLINA 10.553 SCHOOL BREAKFAST PROGRAM (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Agriculture N.C. Department of Public Instruction For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations September 30, 2012 (5NC300327); and 2) October 1, 2012 - September 30, 2013 (5NC300327). b. Title I Grants to Local Education Agencies: Federal funding periods: 1) July 1, 2011 - September 30, 2012 (S010A110033A); and 2) July 1, 2012 - September 30, 2013 (S010A120033A). c. Career and Technical Education: Federal funding periods July 1, 2011 - September 30, 2012 (V048A110033-11B); and July 1, 2012 - September 30, 2013 (V048A120033-12A). d. Special Education - Grants to States: Federal funding periods: 1) July 1, 2011 - September 30, 2012 (H027A110092A); and 2) July 1, 2012 - September 30, 2013 (H027A120092A). e. Special Education - Preschool Grants: Federal funding periods: 1) July 1, 2011 - September 30, 2012 (H173A110096); and 2) July 1, 2012 - September 30, 2013 (H173A120096). f. Improving Teacher Quality State Grants: Federal funding periods: 1) July 1, 2011 - September 30, 2012 (S367A110032A); and 2) July 1, 2012 - September 30, 2013 (S367A120032A). g. Education Jobs Fund: Federal funding period August 10, 2010 - September 30, 2011 (S410A100034). h. Race to the Top: Federal funding period September 24, 2010 - September 23, 2014 (S395A100069). i. School Improvement Grants: Federal funding periods 1) July 1, 2009 – September 30, 2010 (S377A090034A); 2) July 1, 2010 – September 30, 2011 (S377A100034); and 3) July 1, 2012 – September 30, 2013 (S377A120034). j. School Improvement Grants, Recovery Act: Federal funding period February 17, 2009 – September 30, 2010 (S388A090034A). Recommendation: The Department should develop and implement policies and procedures that ensure fiscal monitoring reports are reviewed and results are communicated to the subrecipient within a reasonable period of time. In addition, the Department should comply with its policy by ensuring that subrecipients respond to noncompliance issues within 30 business days of receipt of the report. STATE OF NORTH CAROLINA 10.553 SCHOOL BREAKFAST PROGRAM (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Agriculture N.C. Department of Public Instruction For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations Agency Response: The Department concurs with the Auditor's finding and recommendation. As stated in the responses, the Monitoring and Compliance Section's fiscal monitoring policies and procedures are in the process of being revised. Updated policies and procedures will include a reasonable period from the actual on-site visit date for the completion, review and issuance of the final monitoring report as well as include noncompliance consequences for those subrecipients who fail to submit requested corrective action plans within the time allotted. The Department implemented formal monitoring report cover letter and report templates in February 2014 for use with all 2013-2014 fiscal monitoring visits which includes language for potential consequences if the LEA or Charter School fails to respond to the request for a formal response, corrective action plan and documentation when applicable. STATE OF NORTH CAROLINA 10.555 NATIONAL SCHOOL LUNCH PROGRAM III. Federal Award Findings and Questioned Costs U.S. Department of Agriculture N.C. Department of Public Instruction For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-003 Subrecipient Monitoring: Significant Deficiency Monitoring Results Not Reported Timely The Department did not review fiscal monitoring reports in a timely manner, which resulted in the late communication of monitoring results to the subrecipients. Also, the Department did not ensure subrecipients took timely corrective action on issues identified during the fiscal monitoring visits. As a result, there is an increased risk that subrecipients did not take timely corrective actions on noncompliance issues identified. See finding 2013-002 for a description. STATE OF NORTH CAROLINA 10.556 SPECIAL MILK PROGRAM FOR CHILDREN III. Federal Award Findings and Questioned Costs U.S. Department of Agriculture N.C. Department of Public Instruction For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-004 Subrecipient Monitoring: Significant Deficiency Monitoring Results Not Reported Timely The Department did not review fiscal monitoring reports in a timely manner, which resulted in the late communication of monitoring results to the subrecipients. Also, the Department did not ensure subrecipients took timely corrective action on issues identified during the fiscal monitoring visits. As a result, there is an increased risk that subrecipients did not take timely corrective actions on noncompliance issues identified. See finding 2013-002 for a description. STATE OF NORTH CAROLINA 10.557 SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS, AND CHILDREN III. Federal Award Findings and Questioned Costs U.S. Department of Agriculture N.C. Department of Health and Human Services For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-005 Eligibility: Questioned Cost Finding Deficiencies in County Eligibility Determination Processes County departments of social services offices process applications related to the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). Certified Public Accountants performing the county audits tested 1,366 case files and found eligibility documentation deficiencies in 13 cases. These files were missing items such as verification of identity, verification of residency, appropriate signatures, and identification of nutritional risk. There were no questioned costs identified by the county auditors; however, it is likely questioned costs exceed $10,000 in the population. Federal Award Information: This finding affects Special Supplemental Nutrition Program for Women, Infants, and Children federal grant award 5NC700705 for the federal fiscal years ended September 30, 2012 and 2013. Recommendation: The county auditors recommended that policies and procedures be put in place or reinforced at the counties to ensure that all documentation is obtained and maintained in the case file. Agency Response: In March, 2014, the Department immediately researched each of the cases identified as deficient and verified that eligibility documentation was included in the WIC Automated Data Processing System for twelve (12) of the thirteen (13) cases cited although the client case files did not contain all the required supporting paper documentation; and, the clients were in fact eligible on the service dates assessed by the county auditors. In addition, the Department verified that corrective action for the one deficient case was implemented and fully resolved. The Department will continue to work with county health department staff to ensure that existing policies and procedures are reinforced and documentation is maintained to support case files. STATE OF NORTH CAROLINA 10.561 STATE ADMINISTRATIVE MATCHING GRANTS FOR THE SUPPLEMENTAL NUTRITION ASSISTANCE PROGRAM III. Federal Award Findings and Questioned Costs U.S. Department of Agriculture N.C. Department of Health and Human Services For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-006 Reporting: Material Weakness Material Noncompliance Federal Funding Accountability Transparency Act Reporting Not Completed Timely The Department did not report on state administration subaward obligations within the required time frame, and therefore, did not comply with the Federal Funding Accountability and Transparency Act (FFATA) reporting requirements. These obligations totaled approximately $74 million. Federal regulations require states to report subaward actions obligating $25,000 or more in federal funds, excluding American Recovery and Reinvestment Act funds, no later than the end of the month following the month in which the obligation was made. The Department did not submit the subaward obligations for federal fiscal year 2013 until one year after the due date. There were some functionality problems with the federal reporting system, but the Department would have been able to upload the majority of the required data. Federal Award Information: This finding affects State Administrative Matching Grants for the Supplemental Nutrition Assistance Program for the federal fiscal year ended September 30, 2013. Recommendation: The Department should ensure FFATA reports are submitted timely in accordance with federal requirements. Agency Response: In June 2012, the Department reported to the federal service desk the functionality problems with the federal reporting system and did not report subaward information until the issues were resolved in December 2013. All required subaward information was reported in the FFATA Subaward Reporting System (FSRS) on January 10, 2014. To ensure that FFATA reports are submitted timely, the Department will enter required data into FSRS as the system allows and will maintain periodic contact with federal partners to resolve any system issues. STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-007 Cash Management: Material Weakness Material Noncompliance Inaccurate Cash Management Improvement Act Analysis Deficiencies were identified in the preparation and review process of the Department of Commerce’s Community Development Block Grant Cash Management Improvement Act (CMIA) Analysis. The lack of controls over the CMIA Analysis resulted in failure to report all cash draws and disbursements in the year-end report submitted to the State Controller. The Department’s analysis is used by the State Controller to prepare the Statewide CMIA report to the federal government. The weaknesses in the preparation and review processes increase the likelihood that excessive balances may be maintained beyond the federally allowable timeframe or that inadequate funds are drawn down, thereby affecting the computed interest due to or from the U.S. Treasury. The Department prepares monthly reports of cash draws and disbursements which are then accumulated into the year-end CMIA Analysis report. A test of the year-end report revealed that $11.4 million of draws and disbursements were omitted as follows: $7.9 million draws and disbursements were omitted from both the monthly and year-end report. This included $5.5 million in draws and disbursements related to Neighborhood Stabilization Program (NSP), which the Department incorrectly treated as not subject to the Treasury State Agreement. $3.5 million draws and disbursements were included in the monthly reports, but were not transferred to the year-end report. The failure of the review process to identify errors did not ensure the total draws and disbursements reported reconciled to the program expenditures and draws per the accounting records. This failure increases the risk of noncompliance with federal cash management requirements and the Treasury-State Agreement. Additionally, the failure to properly report impacts the statewide calculation of interest due to or from the U. S. Treasury. Federal Award Information: This finding affects CFDA 14.228 Community Development Block Grant award B-12-DC-37-0001 awarded April 4, 2012; B- 11-DC-37-0001 awarded January 1, 2011; award B-10-DC-37-0001 awarded January 1, 2010; award B-09-DC-37-0001 awarded January 1, 2009; award B- 08-DC-37-0001 awarded January 1, 2008; and award B-07-DC-37-0001 awarded January 1, 2007. STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations Recommendation: The Department should strengthen internal controls to ensure compliance with the Treasury State agreement and that the year-end reports are completed accurately. Agency Response: DCA will strengthen its internal controls to ensure that all cash draws and disbursements are included in the year-end report submitted to the Office of the State Controller. DCA will implement the following procedure. Upon receipt of the CDBG and NSP draw worksheets two verifications of each draw will be performed. Once these verifications have been performed and the information matches that which was submitted by DCA an email is sent to DCA indicating concurrence. If the information does not match, DCA will be notified of any differences and a corrected draw worksheet will be sent by DCA to Fiscal Management with the updated information. When agreement between Cash Management, the Doc. ID Logs, DCA, and Commerce Fiscal has been achieved the CMIA worksheet and the draw worksheet will be sent by email to Office of the State Controller, DCA, and all concerned. 2013-008 Matching, Level of Effort, Earmarking: Material Weakness Inability to Support Compliance with Earmarking Requirements The Department of Commerce’s Division of Community Assistance (DCA) did not maintain sufficient documentation to support compliance with federal earmarking requirements for planning and administrative expenditures in the Community Development Block Grant. As a result, there is an increased risk that planning and administrative costs of the State and general local governments (subrecipients) could exceed the 20% allowed under 24 CFR 570.489(a)(3) and not be detected. Per federal regulations, the total amount expended on planning and administrative costs by the State and local governments combined must not exceed 20%. Detail cost data by type for subrecipients is maintained in the Grants Management System (GMS). However, the total costs from GMS data provided did not reconcile to the Department’s accounting records. For fiscal year 2013, expenditures in the accounting records exceeded the GMS costs by $2.5 million. Additionally, the Department could not provide further evidence to support the actual cumulative amounts of subrecipients’ planning and administrative costs. Based on analysis of the subrecipient data in GMS and State costs from the accounting records, the earmarking requirement has not been exceeded. However, without sufficient documentation to support the accuracy of the STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations subrecipient data, there is no way to be assured that the 20% was not or would not be exceeded if costs have been excluded from GMS. Federal Award Information: This finding affects CFDA 14.228 Community Development Block Grant award B-12-DC-37-0001 awarded 04/04/2012; award B-11-DC-37-0001 awarded January 1, 2011; award B-10-DC-37-0001 awarded January 1, 2010; award B-9-DC-37-0001 awarded January 1, 2009; award B-08-DC-37-0001 awarded January 1, 2008, and award B-07-DC-37-0001 awarded January 1, 2007. Recommendation: The Department should strengthen controls to ensure that adequate documentation is maintained to support compliance with federal earmarking requirements. The Department should ensure that subrecipient costs are accurately tracked and reconciled to the accounting records to ensure earmarking compliance. Agency Response: DCA will maintain a grants management system to record, monitor and produce required reports to ensure that the amount expended on planning and administrative costs does not exceed twenty percent (20%). The data contained in the grants management system will be reconciled with DCA accounting records and other systems. 2013-009 Matching, Level of Effort, Earmarking: Material Weakness Reporting: Material Weakness Management’s Implementation of Corrective Action Was Inadequate The Department of Commerce management has not ensured implementation of corrective action on all prior year audit findings for three major federal programs audited for fiscal year ended June 30, 2013. Failure to timely implement corrective action to ensure compliance allows federal funds to potentially be used for unallowable expenditures or fail to be properly reported to the federal oversight agency. Four of the eight findings below for 2013 repeat aspects of findings from the prior years. Although, the Department had identified corrective action plans to address these areas in prior years, there has been a breakdown in the implementation of those corrective actions to prevent further issues. Here are some of the details: The failure to segregate duties for maintaining and operating the Grants Management System (GMS) for the Community Development STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations Block Grant program has contributed to findings related to both federal reporting and earmarking compliance requirements. Department information system staff, who are unfamiliar with the system, have been trying to provide the needed data and reports for program staff. However, success has been limited and the auditors have been unable to rely on data from the system. A backlog of investigative cases for potential benefit overpayment in the Unemployment Insurance program continued. In prior year the backlog was over 16,000 assigned cases, but during 2013 was only decreased to near 14,000 cases. Additionally, the timeliness of case closure has not significantly improved. The procedures for performing subrecipient monitoring for the Workforce Investment Act Cluster were not updated in accordance with the prior corrective action plan. The monitoring procedures did not provide evidence that all participants receiving services from the program are being documented in the Workforce Plus System. This system is used to generate performance reports to demonstrate that use of federal funds is meeting the expected performance goals for serving participants. OMB Circular A-133 section .300 requires that auditees, State agency, maintain internal control over federal programs to ensure compliance federal regulations. It further states that auditees are responsible for following up and taking corrective action for audit findings. Also, North Carolina General Statute 143D, State Government Accountability and Internal Control Act, provides that each State agency is fully responsible for establishing and maintaining a proper system of internal controls. The Office of the State Controller requires State agencies to make satisfactory progress in resolving deficiencies in internal control determined by any internal or external auditor of the agency. If the State Controller determines deficiencies are not being resolved in a reasonable period after the audit report date, the State Controller may recommend disciplinary action after consultation with the State Auditor. Federal Award Information: This finding affects the following programs and awards: CFDA 14.228 Community Development Block Grant award B-12-DC-37-0001 awarded April 4, 2012; award B-11-DC-37-0001 awarded January 1, 2011; STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations award B-10-DC-37-0001 awarded January 1, 2010; award B-9-DC-37-0001 awarded January 1, 2009; award B-08-DC-37-0001awarded January 1, 2008, and award B-07-DC-37-0001 awarded January 1, 2007. CFDA 17.258 WIA Adult Program, CFDA 17.259 WIA Youth Activities, and CFDA 17.278 WIA Dislocated Workers awards AA-20205-10-55-A-37 for the award period July 1, 2010 - June 30, 2013, AA-21407-11-55-A-37 for the award period July 1, 2011 - June 30, 2014 and AA-22947-12-55-A-37 for the award period July 1, 2012 - June 30, 2015. Unemployment Insurance – funding from the State and Federal Unemployment Trust Funds. This finding affects funds administered under the American Recovery and Reinvestment Act. Recommendation: The Department and Division management should ensure that appropriate follow-up on audit findings is performed. Follow-up should include well defined corrective action plans, establishment of deadlines for implementation of the plan and identification of individuals responsible for implementation. Agency Response: The Department acknowledges its failure to ensure proper implementation of corrective action plans for past audits. These prior findings occurred during the previous administration, but the Department has new leadership in place and is committed to ensuring that all corrective action plan items for this and previous audits are completed. 2013-010 Matching, Level of Effort, Earmarking: Material Weakness Reporting: Material Weakness Subrecipient Monitoring: Material Weakness Lack of Segregation of Duties in the Administration of Grants Management System The Department of Commerce’s Division of Community Assistance did not properly segregate duties for the administration of the Grant Management System (GMS). As a result, there is an increased risk that data integrity could be compromised and noncompliance with federal regulations could occur. Duties for production and programming of the GMS are not separated. Instead, a single individual is responsible for all duties related to the system. A review is not conducted by another person after changes to the database and programs have been implemented to ensure accuracy. The GMS system is used to track and maintain all grant data for over 400 subawards, which may include multiple awards to the same subrecipient. The Department disbursed approximately $50 million during the 2013 fiscal year to subrecipients. STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations The Statewide Information Security Manual states that agency management must ensure that there is proper segregation of duties to reduce the risk of agency system misuse and fraud. In addition, the manual states that system development and system change management shall be performed by different personnel, and system operations and system security administration shall be performed by different personnel. Additionally, in April 2013, the individual responsible for maintaining and operating the GMS left the Department and the position has not been filled as of February 2014. The Department does not have other personnel knowledgeable of the system operation and queries to generate accurate data for federal reporting and to ensure compliance with federal requirements. Aspects of this finding were also reported in the prior two years. Federal Award Information: This finding affects CFDA 14.228 Community Development Block Grant award B-12-DC-37-0001 awarded April 4, 2012; award B-11-DC-37-0001 awarded January 1, 2011; award B-10-DC-37-0001 awarded January 1, 2010; award B-9-DC-37-0001 awarded January 1, 2009; award B-08-DC-37-0001 awarded January 1, 2008, and award B-07-DC-37-0001 awarded January 1, 2007. Recommendation: The Department should adequately segregate duties for the administration of the Grant Management System. Also, the Department should ensure that knowledgeable staff is put in place to maintain and operate the Grants Management System. Agency Response: DCA’s current grants management system is a proprietary software program that was built and modified by a single individual since its inception, and that individual is no longer employed by the Department. The system uses non-standard database programming techniques and has now become almost impossible to manage and extract data. As a result, the Department has submitted a budget expansion request to the Office of State Budget and Management (OSBM) to receive additional funds to purchase and install a new grants management software program. In addition, a comprehensive plan is currently under development regarding the Grants Management System (GMS) that will: a. Identify the weaknesses of the system and establish new temporary operational procedures to ensure proper segregation of duties and data integrity; STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations b. Develop a hiring plan to ensure the proper segregation of duties and workload regarding the grants management solution; c. Develop a plan and timeline to adopt a new out-of-the-box (non-proprietary) grant management software solution; d. Verify the validity of the current GMS data and make corrections using formalized change management procedures; e. Migrate the GMS data to the new grant management software solution; and f. Develop a set of formalized policies and procedures regarding proper segregation of duties, data validation, staff training, and system security, and maintenance. DCA will develop and adopt a set of formal policies and procedures that will ensure the proper segregation of duties, protect data integrity, implement security protocols, and ensure that scheduled software maintenance and updates are conducted. The policies and procedures will be developed according the Statewide Information Security Manual and other best practices. 2013-011 Reporting: Material Weakness Material Noncompliance Inaccurate Federal Reporting The Department of Commerce’s Division of Community Assistance submitted Community Development Block Grant (CDBG) reports to the federal agency that were misstated. While testing the federal reports, the following errors and internal control deficiencies were noted: The Department did not maintain nor provide complete data to support and ensure the accuracy of the information in the 2012 CDBG Performance and Evaluation Report (PER). The Grants Management System (GMS) is used to record grant expenditures and cash drawdowns which is used to generate the PER Summary. The GMS data did not reconcile to the Department’s accounting records and did not agree with the PER report submitted to the federal agency. The total of all expenditures reported was $9 million overstated compared to the underlying GMS data. Additionally, issues with the data prevented verification of amounts reported by National Objective and federal allocation year within the PER. STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations While testing the Section 3 Summary Report, Economic Opportunities for Low – and Very Low-Income Persons, supporting documentation for a sample of 63 subrecipients was reviewed and errors were found for six subrecipients. Each of these six subrecipients had one or more of the following types of errors: lack of documentation to support amounts reported; subrecipients’ data not reported; or discrepancies between supporting documentation and the amount reported in the Section 3 Summary report. As a result, not all activity was accurately included in the annual report submitted to U.S. Department of Housing and Urban Development (HUD). The Department is in noncompliance with reporting requirements under the Federal Funding Accountability and Transparency Act (FFATA). It failed to report, as required, CDBG sub-awards of $25,000 or more made during fiscal year 2013 in the FFATA Subaward Reporting System. There were 134 subawards that met the criteria for reporting. The Department entered 98 subawards subsequent to year end, but did not complete the submission until December 2013. The other 36 were not entered or submitted. Aspects of this finding were reported in the prior three years. Federal Award Information: This finding affects CFDA 14.228 Community Development Block Grant award B-12-DC-37-0001 awarded April 4, 2012; award B-11-DC-37-0001 awarded January 1, 2011; award B-10-DC-37-0001 awarded January 1, 2010; award B-9-DC-37-0001 awarded January 1, 2009; award B-08-DC-37-0001 awarded January 1, 2008, and award B-07-DC-37-0001 awarded January 1, 2007. Recommendation: The Department should strengthen internal controls to ensure reports are prepared in accordance with federal reporting requirements. The Department should implement procedures to ensure the accuracy of the data in the Grants Management System and ensure it reconciles to the Department’s accounting records and federal reporting. Agency Response: DCA will strengthen its internal controls to ensure that reports are prepared in accordance with federal reporting requirements and will implement a grants management system to capture and maintain subrecipient and financial data. DCA will ensure that the data contained in the STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations grants management system is reconciled with Department accounting records and federal reporting. DCA will implement and maintain a new grants management system to record, manage and produce accurate data regarding grant expenditures and cash drawdowns for the Performance Evaluation Report (PER) and other compliance reporting requirements. DCA will ensure that data contained in the grants management system is reconciled with the Department’s accounting data and other systems. The Director, Compliance Section Chief and Business Officer are responsible for implementing this corrective action. DCA will strengthen its internal controls to ensure that accurate data is collected for and reported in the Section 3 Summary Report. The corrective action will include multiple checkpoints to ensure that subrecipient Annual Performance Report (APR) data are collected and reported accurately. DCA will strengthen its internal controls to ensure that all subrecipient awards of $25,000 and greater are entered into the FSRS (FFATA Sub-Award Reporting System) as required by the Federal Funding Accountability and Transparency Act (FFATA). 2013-012 Subrecipient Monitoring: Material Weakness Deficiencies in Subrecipient Monitoring We identified deficiencies in the Department of Commerce’s Division of Community Assistance subrecipient monitoring procedures for the Community Development Block Grant (CDBG). As a result, there is an increased risk that noncompliance at the subrecipient level could occur and not be detected or corrected in a timely manner. Subrecipients received approximately $50 million of Community Development Block Grant funds. The CDBG program is State administered and local government operated. In accordance with 24 CFR 85.40, the Department is responsible for monitoring the local governments receiving CDBG funds to ensure compliance with federal requirements. Our review of the monitoring efforts identified the following deficiencies described below: The Department does not have an adequate monitoring plan to ensure subrecipients are sufficiently monitored throughout the award period for compliance with federal requirements. There was no schedule of when monitoring visits will take place nor was there formal documentation of a subrecipient risk assessment. In accordance with STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 24 CFR 570.492, the state should perform monitoring, including on-site, as may be necessary and appropriate to ensure subrecipients are in compliance with program requirements. The U.S. Department of Housing and Urban Development – Managing CDBG - A Guidebook for Grantees on Subrecipient Oversight Manual provides guidance for monitoring strategies and procedures. Guidance for monitoring includes the following: monitoring should be an on-going process; a monitoring plan should be developed at the beginning of the program year; a formal risk assessment should be performed to identify which subrecipients require comprehensive monitoring; checklists should be used that specify the particular items or documents to be reviewed in the course of the visit; and checklists should be annotated with notes and identify documentation reviewed to arrive at conclusions. We reviewed on-site monitoring files for 29 out of 183 CDBG subrecipients with grant expenditures during the 2013 fiscal year. There were deficiencies noted in the Department’s internal policies and procedures and documentation as follows: a) The Grants Management Standard Operating Procedures (SOP) Manual used by the grant representative has not been updated since May 2010. The manual identifies which checklists should be used to perform site visits, however, it does not provide guidance on the documentation that should be reviewed and maintained to support the conclusions on the checklist. b) No guidance was provided in the SOP for what type transactions or documents are to be reviewed during monitoring visits, nor how many items should be reviewed. c) Monitoring checklists contained little or no supporting documentation or notations of the items reviewed to support the work performed and basis for conclusion on subrecipients compliance with a particular requirement. d) There were instances of questions on the compliance checklists being unanswered or partially answered. Specifically, there were 2 instances when the question regarding compliance with allowable costs guidelines, pursuant to OMB Circular A-87, were answered incorrectly as not applicable with no explanation. STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations The grant representative performed the close out of one subaward for more than $190,000 without reviewing the subrecipients final audit report as required by the Department’s administrative code, 04 NCAC 19L.913. OMB Circular A-133 requires pass-through entities to monitor the activities of subrecipients as necessary to ensure that federal awards are used for authorized purposes in compliance with laws, regulations and the provisions of contracts or grant agreements and to ensure that performance goals are achieved. In addition to our audit, an investigation was performed by the North Carolina Office of State Budget and Management Office of Internal Audit, at the request of the Department of Commerce, related to a third party CDBG program administrator at 26 local governments. The report was issued February 2014, and contained recommendations for the Department that coincide with the results and recommendations of our audit. Federal Award Information: This finding affects CFDA 14.228 Community Development Block Grant award B-12-DC-37-0001 awarded April 4, 2012; award B-11-DC-37-0001 awarded January 1, 2011; award B-10-DC-37-0001 awarded January 1, 2010; award B-9-DC-37-0001 awarded January 1, 2009; award B-08-DC-37-0001 awarded January 1, 2008, and award B-07-DC-37-0001 awarded January 1, 2007. Recommendation: The Department should document a monitoring plan to ensure subrecipients are sufficiently monitored for compliance with federal requirements on an on-going basis. The Department should enhance procedures and guidelines for monitoring activities to ensure documentation is complete and supportive of the conclusions reached regarding subrecipients compliance. Department management should implement procedures to ensure that monitoring procedures are well-defined and staff is consistently following procedures when performing subrecipient monitoring visits and in the completion of checklists. Agency Response: DCA will strengthen its internal controls to ensure that the activities of subrecipients are used for authorized purposes in compliance with laws, regulations and the provisions of contracts or grant agreements and to ensure that performance goals are achieved. STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations DCA will revise its subrecipient monitoring plan to identify subrecipients that require more comprehensive monitoring based on identified risk. Subrecipients identified as higher risk will receive additional desk and on-site monitoring reviews throughout the life of the grant. DCA will update its Standard Operating Procedure Manual to include guidance on the types and number of transactions and documents that should be reviewed during monitoring visits and the documentation that should be maintained to support conclusions drawn by monitors and reported on the monitoring checklists. Monitoring checklists and other documents will be revised where necessary to add supporting documentation and/or notations of the items received to support the basis for conclusions of sub-recipient compliance requirements. STATE OF NORTH CAROLINA 16.738 EDWARD BRYNE MEMORIAL JUSTICE ASSISTANCE GRANT PROGRAM III. Federal Award Findings and Questioned Costs U.S. Department of Justice N.C. Department of Public Safety For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-013 Subrecipient Monitoring: Significant Deficiency Review of Subrecipient Audit Reports Needs Improvement While the Department adequately tracked and obtained subrecipient audit reports, it did not have procedures in place to identify audit findings relevant to its programs and ensure that subrecipients took timely and appropriate corrective action on the findings. As a result, there was an increased risk that deficiencies identified at the subrecipient level would not be corrected. However, in our audit we did not identify any subrecipient audit findings relevant to the Department’s programs. OMB Circular A-133 requires pass-through agencies to issue a management decision on audit findings within six months after receipt of the subrecipient’s report and ensure the subrecipient took timely and appropriate action. Significant aspects of this finding were reported in previous years. Federal Award Information: This finding affects the following: CFDA 16.738 Edward Byrne Memorial Justice Assistance Grant Program award 2008-DJ-BX-0032 for the award period October 1, 2007 – September 30, 2012; award 2008-DJ-BX-0768 for the award period October 1, 2007 –September 30, 2012; award 2009-DJ-BX-0839 for the award period October 1, 2008 – September 30, 2013; award 2010-DJ-BX-0045 for the award period October 1, 2009 – September 30, 2014; award 2011-DJ-BX-2091 for award period October 1, 2010 – September 30, 2014; and award 2012-DJ-BX-0640 for award period October 1, 2011 – September 30, 2015. CFDA 16.803 Recovery Act – Edward Byrne Memorial Justice Assistance Grant (JAG) Program / Grants to States and Territories award 2009-SU-B9-0054 for the award period March 1, 2009 – February 28, 2013. CFDA 97.036 Disaster Grants – Public Assistance program disasters NC Severe Storms, Tornadoes, and Flooding award FEMA-1969-DR-NC and NC Hurricane Irene award FEMA-4019-DR-NC. Recommendation: The Department should implement procedures to ensure management decisions are issued and corrective action is taken on relevant subrecipient audit findings. The Department should also ensure that the appropriate guidance and training is provided to staff given these responsibilities. STATE OF NORTH CAROLINA 16.738 EDWARD BRYNE MEMORIAL JUSTICE ASSISTANCE GRANT PROGRAM (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Justice N.C. Department of Public Safety For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations Agency Response: The Department agrees with this finding. The Department will ensure there is follow-up with the sub recipient on audit findings. Also, the communication and result of the corrective action will be documented on the audit tracking mechanism. STATE OF NORTH CAROLINA 16.803 RECOVERY ACT - EDWARD BRYNE MEMORIAL JUSTICE ASSISTANCE GRANT (JAG) PROGRAM / GRANTS TO STATES AND TERRITORIES III. Federal Award Findings and Questioned Costs U.S. Department of Justice N.C. Department of Public Safety For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-014 Subrecipient Monitoring: Significant Deficiency Review of Subrecipient Audit Reports Needs Improvement While the Department adequately tracked and obtained subrecipient audit reports, it did not have procedures in place to identify audit findings relevant to its programs and ensure that subrecipients took timely and appropriate corrective action on the findings. As a result, there was an increased risk that deficiencies identified at the subrecipient level would not be corrected. However, in our audit we did not identify any subrecipient audit findings relevant to the Department’s programs. See finding 2013-013 for a description. STATE OF NORTH CAROLINA 17.225 UNEMPLOYMENT INSURANCE III. Federal Award Findings and Questioned Costs U.S. Department of Labor N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-015 Eligibility: Material Weakness Management’s Implementation of Corrective Action Was Inadequate The Department of Commerce management has not ensured implementation of corrective action on all prior year audit findings for three major federal programs audited for fiscal year ended June 30, 2013. Failure to timely implement corrective action to ensure compliance allows federal funds to potentially be used for unallowable expenditures or fail to be properly reported to the federal oversight agency. Here are some of the details: A backlog of investigative cases for potential benefit overpayment in the Unemployment Insurance program continued. In prior year the backlog was over 16,000 assigned cases, but during 2013 was only decreased to near 14,000 cases. Additionally, the timeliness of case closure has not significantly improved. See finding 2013-009 for a description. 2013-016 Eligibility: Significant Deficiency Questioned Cost Finding $602 Deficiencies in Processing and Monitoring of Overpayment Investigations The Department of Commerce’s Division of Employment Security has not been able to investigate and adjudicate potentially inappropriate benefit payments timely; has not maintained adequate records to support investigation findings and has not established overpayments for benefits deemed to be paid improperly. Lack of timely investigation and failure to establish identified overpayments impacts the ability to recover and/or prevent overpayments. Additionally, the lack of adequate documentation impacts the ability to support that the investigation was properly completed and the correct conclusions reached. Potential overpayments due to both fraud and error result from a weekly cross-match with the National Directory of New Hires database and other tips and leads. The Benefit Audit, Reporting, and Tracking System (BARTS) and the Inventory Tracking System (ITS) are used to document these potential overpayments and completed case investigations. A review of the open cases within the Benefit Audit, Reporting and Tracking System as of June 30, 2013 resulted in the following timeliness issues: a. Of the 14,060 open and assigned cases, 7,984 (56.8%) had been open greater than a year. STATE OF NORTH CAROLINA 17.225 UNEMPLOYMENT INSURANCE (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Labor N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations b. 3,512 of those open and assigned cases had been open for more than two years. The most delinquent case had been open for 1601 days (approximately 4.4 years). c. 513 cases have been open for more than one year before being assigned for investigation indicating the potential that cases may remain without action or follow-up for an extended period of time. The Division of Employment Security records indicated 5,715 benefit integrity investigation cases were closed during state fiscal year 2013. A sample of 60 closed cases identified 29 cases with insufficient documentation to determine that the investigation took place, that the correct determination was reached or that appropriate overpayments were established. a. Records for three cases could not be produced. One case had been deleted from BARTS and the case file may have been shredded in violation of the division’s records retention policy leaving no record of the investigation, relevant evidence or the basis for the conclusion. b. Three cases identified overpayments totaling $602 that should have been established but no overpayments had been established in the UI Benefits System to facilitate the recovery of the overpayments. These overpayments will be questioned. c. Sixteen cases had limited or no supporting documentation. Division practice is to scan all supporting documentation and link it to the BARTS record. These cases had either no linked documents or only blank documents. Documents critical to the investigation such as Wage Audit Notices returned by employers and the listing of wages actually paid were missing. d. One case exposed a system override capability where a case originally opened, investigated and closed in 2011 was reopened in fiscal year 2013. The case open date in BARTS was changed from 2011 to 2013, leading to the appearance that the case had been opened and closed on the same day during the audit period. The ability to override the original open date provides the opportunity for investigators and managers to change ‘overdue’ cases to ‘current’ and affect the metrics used by management to assess job performance and federal reporting data. e. Five cases did not contain the necessary documentation to support the decision to or not to establish an overpayment. Two cases had STATE OF NORTH CAROLINA 17.225 UNEMPLOYMENT INSURANCE (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Labor N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations overpayments established in the UI Benefit System for the same weeks investigated in the case, but no overpayment was noted in the case or BARTS. The three other cases contained documentation to suggest an overpayment should have been established but was not. f. One case had been opened in 2011 and determined to be overpaid. However, due to a BARTS printing problem the overpayment notice was not sent. The case was set aside for two years and finally resolved in 2013. Additionally, within the sample of 60 closed cases, six cases had been open and assigned for more than one year before being closed. Cases that remain open for an extended period of time can allow benefits to continue after the potential for fraud has been identified and the total overpayment to be larger than if prompt action had been taken. Unemployment Insurance Program Letter 19-11A, Improper Payments, indicates that integrity programs must be designed to discourage fraud and uncover potential issues of fraud at the earliest possible time. Additionally, the Division’s record retention and disposition policy requires that records subject to audit or legally required for ongoing official proceedings must be retained until released from such audits or official proceedings. These investigation files are subject to audit and are used as evidence in claimant appeals and legal proceeding for suspected fraud. Aspects of this finding were reported in the prior year. Federal Award Information: Unemployment Insurance – funding from the State and Federal Unemployment Trust Funds. This finding affects funds administered under the American Recovery and Reinvestment Act. Recommendation: The Division should improve review of case log reports to ensure cases are handled in a reasonable time period which should be established in policy. Additionally, management should implement procedures to address the current and prevent future case backlogs. The Division should enhance policies outlining the procedures investigators should use in investigating and documenting cases, which should include supervisory review to ensure documentation is sufficient and supports the resolution. The Division should adhere to Division and State record retention policies. STATE OF NORTH CAROLINA 17.225 UNEMPLOYMENT INSURANCE (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Labor N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations Finally, the Division should investigate the underlying causes for the deficiencies noted and implement procedures to address. Agency Response: For fiscal year ending 2013, DES identified more than 16,000 cases within the backlog as reported from the BARTS application that required investigation and/or review for potential inappropriate benefit payments. Using the corrective action methods as communicated for fiscal year ending 2012, DES was able to reduce the backlog by more than 2,000 within fiscal year 2013. Although DES showed improvement in 2013, DES recognizes the need to use more automation to more quickly and more accurately address the backlog. Therefore, DES is currently working with Onpoint Technology to fully maximize and utilize the BARTS application and hope to significantly reduce the backlog to no more than 5000 cases by fiscal year ending 2014. In addition to working with the vendor to improve the use of BARTS, DES has made some organizational changes to improve the supervision of the unit charged with investigating those that may be receiving unemployment benefits while potentially having active employment. 2013-017 Reporting: Significant Deficiency Inaccurate Federal Reporting Deficiencies were identified in the preparation and review process for the quarterly ETA 227 – Overpayment Detection and Recovery Activities reports which resulted in misreporting the change in overpayment receivables by $10 million and inaccuracies in the reported number of overpayments established. The Department of Commerce’s Division of Employment Security prepares the ETA 227 report using reports from the UI Benefit system, spreadsheets and manual paper notepad calculations. The transfer of data between manual calculations and spreadsheets increases the risk of keying errors and miscalculations. The December 2012 and June 2013 quarterly ETA 227 reports were tested and the following errors were noted: One line on the December report was left blank due to a failure to transfer the data from the supporting documentation. This resulted in nine cases not being counted. On the June report, a $10 million keying error in the calculation of the change in overpayment receivable resulted in reporting an increase of $9,759,594 in the receivable balance, when it should have been a STATE OF NORTH CAROLINA 17.225 UNEMPLOYMENT INSURANCE (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Labor N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations $240,406 decrease. The mistake was due to a manual notepad calculation error. Based on the Unemployment Insurance Reports Handbook No. 401 line by line instructions for the ETA 227, 243 tips and leads type cases were added to the wrong line on the December report, while 668 of the same type counts were excluded from the June report. No overpayment dollars were added in relation to these cases. The Division could not provide evidence that these dollars were or were not already included in the report nor could they explain how dollars, and not case counts, would be captured in the system report use to develop the data. Therefore, it is unclear if the December report is overstated or the June report is understated. Based on errors noted, the review process was not sufficient to prevent significant errors and increases the risk that federal reporting will be incomplete, inaccurate and noncompliant. Federal Award Information: Unemployment Insurance – funding from the State and Federal Unemployment Trust Funds. This finding affects funds administered under the American Recovery and Reinvestment Act. Recommendation: The Division should improve controls over the ETA 227 federal report to ensure it is prepared in accordance with federal reporting guidelines and sufficiently reviewed for completeness and accuracy. Agency Response: DES will develop extract files from the Guide application to assist the Benefits Integrity unit in creating the ETA 227 report. These extract files will be made available to the LEAD unit for comparison and review. These extracts will feed into spreadsheets that will calculate both dollars and counts for the ETA 227, thus eliminating human error. This will also reduce the need to tally both counts and dollars manually on notepads, thus allowing for more accurate reporting of the ETA 227. In addition to these changes, the LEAD unit will be required to double check the ETA 227 report entries with Benefits Integrity management before submission to the United States Department of Labor. LEAD and Benefit Integrity management's review will be evidence by appropriate personnel signing off on the report certifying that the report is complete and accurate. Future inaccurate submissions of the ETA 227 report will be reflected in the performance management documents of personnel responsible. STATE OF NORTH CAROLINA 17.258 WIA ADULT PROGRAM III. Federal Award Findings and Questioned Costs U.S. Department of Labor N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-018 Subrecipient Monitoring: Material Weakness Management’s Implementation of Corrective Action Was Inadequate The Department of Commerce management has not ensured implementation of corrective action on all prior year audit findings for three major federal programs audited for fiscal year ended June 30, 2013. Failure to timely implement corrective action to ensure compliance allows federal funds to potentially be used for unallowable expenditures or fail to be properly reported to the federal oversight agency. Here are some of the details: The procedures for performing subrecipient monitoring for the Workforce Investment Act Cluster were not updated in accordance with the prior corrective action plan. The monitoring procedures did not provide evidence that all participants receiving services from the program are being documented in the Workforce Plus System. This system is used to generate performance reports to demonstrate that use of federal funds is meeting the expected performance goals for serving participants. See finding 2013-009 for a description. 2013-019 Subrecipient Monitoring: Significant Deficiency Deficiencies in Subrecipient Monitoring The Department did not document that monitoring procedures were performed to ensure that data for all participants receiving Workforce Investment Act (WIA) Cluster funds was included in the Workforce Plus system. This system is used to track and evaluate WIA performance for federal reporting purposes. Without effective monitoring procedures, there is an increased risk federal reports may not contain all activity of the period. The Division of Workforce Solutions (DWS) Workforce Investment Act Oversight & Review Guide requires DWS financial and programmatic monitors to verify that participants enrolled in WIA were entered into Workforce Plus. During our review of five out of 23 local area Workforce Development Board monitoring visits, none of the five monitoring files included evidence that the reconciliations of participants between the Workforce Plus and the local area’s participant expense accounting system were completed and reviewed by the monitors. OMB Circular A-133 requires pass-through entities to monitor the activities of subrecipients as necessary to ensure that federal awards are used for authorized purposes in compliance with laws, regulations, and the provisions of grant agreements and to ensure that performance goals are achieved. This STATE OF NORTH CAROLINA 17.258 WIA ADULT PROGRAM (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Labor N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations monitoring should include ensuring that all activity is reported by the subrecipients to be included in the pass-through entities federal performance reports. This finding was also reported in the prior year. Federal Award Information: This finding affects CFDA 17.258 WIA Adult Program, CFDA 17.259 WIA Youth Activities, and CFDA 17.278 WIA Dislocated Workers awards AA-20205-10-55-A-37 for the award period July 1, 2010 - June 30, 2013,AA-21407-11-55-A-37 for the award period July 1, 2011 - June 30, 2014 and AA-22947-12-55-A-37 for the award period July 1, 2012 - June 30, 2015. Recommendation: The Department should ensure that all necessary monitoring procedures are performed and documented, including procedures to ensure that participant data is properly included in the Workforce Plus system. Agency Response: In November 2013, DWS staff added questions to address this finding to the Oversight Review Guide, the document used to monitor sub-recipient activities funded through the Workforce Investment Act. While the U.S. Department of Labor has not yet issued a final management decision, USDOL staff has indicated that it will accept the changes as submitted. STATE OF NORTH CAROLINA 17.259 WIA YOUTH ACTIVITIES III. Federal Award Findings and Questioned Costs U.S. Department of Labor N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-020 Subrecipient Monitoring: Material Weakness Management’s Implementation of Corrective Action Was Inadequate The Department of Commerce management has not ensured implementation of corrective action on all prior year audit findings for three major federal programs audited for fiscal year ended June 30, 2013. Failure to timely implement corrective action to ensure compliance allows federal funds to potentially be used for unallowable expenditures or fail to be properly reported to the federal oversight agency. Here are some of the details: The procedures for performing subrecipient monitoring for the Workforce Investment Act Cluster were not updated in accordance with the prior corrective action plan. The monitoring procedures did not provide evidence that all participants receiving services from the program are being documented in the Workforce Plus System. This system is used to generate performance reports to demonstrate that use of federal funds is meeting the expected performance goals for serving participants. See finding 2013-009 for a description. 2013-021 Subrecipient Monitoring: Significant Deficiency Deficiencies in Subrecipient Monitoring The Department did not document that monitoring procedures were performed to ensure that data for all participants receiving Workforce Investment Act (WIA) Cluster funds was included in the Workforce Plus system. This system is used to track and evaluate WIA performance for federal reporting purposes. Without effective monitoring procedures, there is an increased risk federal reports may not contain all activity of the period. See finding 2013-019 for a description. STATE OF NORTH CAROLINA 17.278 WIA DISLOCATED WORKERS FORMULA GRANTS III. Federal Award Findings and Questioned Costs U.S. Department of Labor N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-022 Subrecipient Monitoring: Material Weakness Management’s Implementation of Corrective Action Was Inadequate The Department of Commerce management has not ensured implementation of corrective action on all prior year audit findings for three major federal programs audited for fiscal year ended June 30, 2013. Failure to timely implement corrective action to ensure compliance allows federal funds to potentially be used for unallowable expenditures or fail to be properly reported to the federal oversight agency. Here are some of the details: The procedures for performing subrecipient monitoring for the Workforce Investment Act Cluster were not updated in accordance with the prior corrective action plan. The monitoring procedures did not provide evidence that all participants receiving services from the program are being documented in the Workforce Plus System. This system is used to generate performance reports to demonstrate that use of federal funds is meeting the expected performance goals for serving participants. See finding 2013-009 for a description. 2013-023 Subrecipient Monitoring: Significant Deficiency Deficiencies in Subrecipient Monitoring The Department did not document that monitoring procedures were performed to ensure that data for all participants receiving Workforce Investment Act (WIA) Cluster funds was included in the Workforce Plus system. This system is used to track and evaluate WIA performance for federal reporting purposes. Without effective monitoring procedures, there is an increased risk federal reports may not contain all activity of the period. See finding 2013-019 for a description. STATE OF NORTH CAROLINA 20.205 HIGHWAY PLANNING AND CONSTRUCTION III. Federal Award Findings and Questioned Costs U.S. Department of Transportation N.C. Department of Transportation For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-024 Procurement and Suspension and Debarment: Significant Deficiency Justification for Awarding Contracts Not Documented The Department of Transportation did not adequately document the rationale for awarding consultant contracts when the selected firms were not identified as the best qualified. As a result, there was an increased risk of noncompliance with federal procurement requirements. We tested 45 contracts funded fully or partially with Highway Planning and Construction Cluster funds, which included 34 consultant contracts. We identified four consultant contracts awarded to firms that were not identified as the best qualified firm based on Department selection criteria. The total value of the four contracts was $10 million, with current year federal expenditures of $1.9 million. For consultant contracts, the Department uses a centralized selection committee to evaluate and rank qualified firms based on past performance, applicable work experience, present workload, and other factors. Each committee member ranks the firms and then they meet to discuss the rankings and make a final selection. In most cases the top ranked firm will be awarded the contract, but if the committee makes a different selection, the rationale for the decision was not documented. The OMB Circular A-133 Compliance Supplement requires states to use the same state policies and procedures they use for procurements from non-federal funds. North Carolina General Statute 143-64.31 requires state agencies to select firms qualified to provide services on the basis of demonstrated competence and qualification. The Department’s internal “Policies and Procedures for Major or Specialized Service Contracts” requires that the results of the selection committee meeting be maintained. Federal Award Information: CFDA 20.205 Highway Planning and Construction Cluster 2013. This finding also applies to CFDA 20.319 High Speed Rail Corridors and Intercity Passenger Rail Service – Capital Assistance Grants. Recommendation: The Department should fully document the rationale for procurement decisions. Agency Response: Since the audited period, a leadership change has been made in the Director of Technical Services position. The Department of Transportation will prepare formal documentation that summarizes the results of the selection committee meetings and outlines the rationale/justification of the selections. Completion Date: March 1, 2014 STATE OF NORTH CAROLINA 20.205 HIGHWAY PLANNING AND CONSTRUCTION (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Transportation N.C. Department of Transportation For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-025 Special Tests and Provisions: Material Weakness Material Noncompliance Quality Assurance Procedures Not Followed The Department of Transportation did not consistently perform its quality assurance procedures for testing concrete used to pave bridges. As a result, the Department did not comply with federal quality assurance requirements. Federal regulations require the Department to follow an approved quality assurance program to validate the quality of the products used in highway construction. The Department’s quality assurance program for concrete used in bridge paving requires that acceptance testing and independent assurance tests be conducted at specified intervals for all concrete used on a project. Both the acceptance tests and the assurance tests are to be executed by qualified sampling technicians and compression strength testers. We tested 60 contracts for bridge concrete to determine if the Department followed its quality assurance procedures and noted the following: While the proper number of acceptance tests was performed, the Department did not meet its standards for independent assurance tests for 20 of the contracts. No independent assurance tests were conducted for 16 contracts, and in four additional cases the tests did not meet the Department’s minimum requirements. Although the Department monitored to assess if the required number of independent assurance tests had been performed, they did not follow-up when the minimum number was not met. The Department did not have a formal policy defining what skills and training staff must have to be deemed a qualified compression strength tester. As a result the Department could not provide documentation to demonstrate that its 22 compression strength testers were qualified. In contrast, the Department requires sampling technicians to obtain a specific certification, and we found the Department had documentation that the certifications were attained for those in our test. Federal Award Information: CFDA 20.205 Highway Planning and Construction Cluster 2013. Recommendation: The Department should ensure the required number of independent assurance tests is performed. The Department should develop and implement procedures that clearly demonstrate personnel are qualified to perform concrete compression strength tests. STATE OF NORTH CAROLINA 20.205 HIGHWAY PLANNING AND CONSTRUCTION (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Transportation N.C. Department of Transportation For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations Agency Response: This finding is the result of transitioning to a new Independent Assurance Program in partnership with the North Carolina Federal Highway Administration (FHWA). In 2012, the Department designed a new approach that is allowed by the Code of Federal Regulations. FHWA encouraged the Department to pilot this approach before full implementation. In April 2013, the Department began the pilot and was to continue the previously FHWA approved approach. However, the approach in effect for fiscal 2013 was not always properly performed. NCDOT received concurrence from FHWA to fully implement the new approach effective in January 2014. With this new approach, the Materials and Tests Unit has a technician who is responsible for monitoring all Independent Assurance activities and notifies the field employees and their management of the status of compliance through formal reports sent via email monthly (office specific) and quarterly (overall effectiveness). The target for calendar year 2014 is to assess 80 percent of all actively testing technicians. The Department will institute a formal policy defining the expected training and qualifying laboratory technicians inclusive of the expected documentation process. In December 2013, a portion of the personnel (nine technicians) responsible for compressive strength testing received training and obtained the American Concrete Institute’s Concrete Strength Testing Technician Level I certification. Another session will be held in March 2014 to certify ten of the remaining technicians. Others will be trained in the same fashion as needed. This exceeds the requirements of the CCRL for this particular test. Also, the five Materials and Tests Regional laboratories will obtain AMRL and CCRL accreditation by December 31, 2014. This will ensure that annual documentation of the testing protocol/procedure by each technician is maintained properly. Anticipated Completion Date: Changes will be fully implemented by December 2014. STATE OF NORTH CAROLINA 20.319 HIGH-SPEED RAIL CORRIDORS AND INTERCITY PASSENGER RAIL SERVICE – CAPITAL ASSISTANCE GRANTS III. Federal Award Findings and Questioned Costs U.S. Department of Transportation N.C. Department of Transportation For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-026 Davis-Bacon Act: Significant Deficiency Certified Payrolls Not Obtained The Department of Transportation did not ensure contractors and subcontractors of the Rail Division’s construction contracts submitted the required weekly certified payrolls. As a result, the Department did not comply with federal Davis-Bacon requirements. In addition, there was an increased risk that wages paid to laborers did not comply with the wage requirements. We tested wage requirements for five construction contracts and 19 weeks of work. We noted that for two of the five contracts and seven of the 19 work weeks, the contractors and subcontractors did not submit all of the required certified payrolls. The two contracts noted as errors had a total value of $3.3 million with current year federal expenditures of $472,230, but it is unknown how much of this cost was related to contractors’ and subcontractors’ payroll. The two errors were contracts monitored by the Rail Division. The Division did not follow Department procedures to accurately document the collection of the required certified payrolls. In addition, the Department’s standard documentation for identifying which certified payrolls had been received was often completed by a prime contractor and not a Division employee. There was no evidence the Division reviewed the documents prepared by the contractor or the certified payrolls to ensure laborers were paid the prevailing wage rates. The OMB Circular A-133 Compliance Supplement requires that contractors and subcontractors submit to the state awarding agency a certified payroll for each week in which any contract work is performed. The awarding agency it to review the payrolls to ensure all laborers and mechanics employed by contractors and subcontractors to work on construction contracts in excess of $2,000 are paid wages not less than those established for the locality of the project (prevailing wage rates) by the Department of Labor. Federal Award Information: This finding affects federal award FR-HSR-0006-10-01 for the award period of May 24, 2010 – September 30, 2017. Recommendation: The Department should ensure all certified payrolls are obtained and reviewed for compliance with federal regulations. In addition, management should ensure staff that oversee or coordinate construction projects are properly trained on how to document and execute the Department’s designed procedures. STATE OF NORTH CAROLINA 20.319 HIGH-SPEED RAIL CORRIDORS AND INTERCITY PASSENGER RAIL SERVICE – CAPITAL ASSISTANCE GRANTS (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Transportation N.C. Department of Transportation For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations Agency Response: The Rail Division will ensure certified payrolls for contractors and sub-contractors will be obtained and that the certified payrolls will be reviewed by a DOT employee. Completion Date: March 1, 2014 2013-027 Procurement and Suspension and Debarment: Material Weakness Material Noncompliance Buy-American Provisions Excluded From Contract Terms The Department of Transportation did not ensure all the Buy-American provisions were included in its ARRA-funded contracts for the maintenance or repair of a public building. As a result the Department did not comply with this federal requirement and there is an increased risk that the manufactured goods used in these projects were not produced in the United States. The Department awarded four ARRA-funded contracts, with a total contract value of $6.6 million, to maintain or repair rail stations. None of the four contracts included the Buy-America provision for manufactured goods. Per Department personnel, the initial contracts that involved construction, alteration, maintenance, or repair only included a clause that the steel and iron products used for a project be produced in the United States. The Department did not update the standard contract provisions to include manufactured goods. Title 2 CFR section 176.140 requires a contract using ARRA funds for the construction, alteration, maintenance, or repairs of a public building or work include an award clause that all of the iron, steel, and manufacture
Object Description
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Title | Single audit report for the year ended... |
Other Title | State of North Carolina... single audit report |
Date | 2013-06-30 |
Description | 2013 |
Digital Characteristics-A | 54.2 MB; 403 p. |
Digital Format | application/pdf |
Pres File Name-M | pubs_serial_singleauditreportstateauditor2013.pdf |
Pres Local File Path-M | \Preservation_content\StatePubs\pubs_borndigital\images_master\ |
Full Text | Single Audit Report For the Year Ended June 30, 2013 Office of the State Auditor Beth A. Wood, CPA State Auditor State of North Carolina STATE OF NORTH CAROLINA SINGLE AUDIT REPORT 2 0 1 3 OFFICE OF THE STATE AUDITOR BETH A. WOOD, CPA STATE AUDITOR STATE OF NORTH CAROLINA TABLE OF CONTENTS TRANSMITTAL ....................................................................................................................................... 1 AUDITOR’S SECTION Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards .................................................. 5 Independent Auditor’s Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance; and Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 ........................................................................ 7 Schedule of Findings and Questioned Costs ......................................................................................... 13 AUDITEE’S SECTION Schedule of Expenditures of Federal Awards ..................................................................................... 145 Summary ..................................................................................................................................... 146 Detail........................................................................................................................................... 157 By State Agency .......................................................................................................................... 226 Notes to the Schedule of Expenditures of Federal Awards ......................................................... 309 Summary Schedule of Prior Audit Findings ....................................................................................... 313 Corrective Action Plan ........................................................................................................................ 367 Ordering Information .......................................................................................................................... 395 North Carolina Office of the State Auditor Our Mission and Our Commitment The Office of the State Auditor protects the interests of taxpayers and others who provide financial resources to the State of North Carolina. Specifically, we provide objective information to interested parties about whether economic resources are properly accounted for, reported and managed; as well as whether publically-funded programs are achieving desired results. The Office of the State Auditor’s mission is accomplished by conducting thorough audits and investigations. These audits and investigations are performed by highly competent and professional staff and result in useful and practical recommendations to improve services provided by North Carolina state government. This office will always strive for the highest standards in professional conduct, independence and integrity as we pursue our mission. If we find financial management deficiencies, we will report them without apology because our ultimate responsibility is to the citizens and taxpayers of North Carolina. Beth A. Wood, CPA State Auditor Beth A. Wood, CPA State Auditor STATE OF NORTH CAROLINA Office of the State Auditor 2 S. Salisbury Street 20601 Mail Service Center Raleigh, NC 27699-0601 Telephone: (919) 807-7500 Fax: (919) 807-7647 Internet http://www.ncauditor.net March 26, 2014 The Honorable Pat McCrory, Governor The General Assembly of North Carolina We are pleased to submit the Single Audit Report for the State of North Carolina for the fiscal year ended June 30, 2013. The audit was conducted in accordance with standards contained in Government Auditing Standards issued by the Comptroller General of the United States, the requirements of the Single Audit Act Amendments of 1996, and the provisions of the Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. This Single Audit Report reflects federal awards of $22.3 billion. This report includes significant deficiencies and material weaknesses in internal control relating to major federal programs and instances of noncompliance, including several that we believe constitute material noncompliance, that meet the criteria of OMB Circular A-133. The North Carolina Comprehensive Annual Financial Report for the fiscal year ended June 30, 2013, has been issued in a separate report by the Office of the State Controller. In accordance with Government Auditing Standards, we are issuing our report on our consideration of the State of North Carolina’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements that have an effect on the financial statements. The deficiencies in internal control and instances of noncompliance arising from our audit that are required to be reported by Governmental Auditing Standards or the Single Audit Act and OMB Circular A-133 are described in the Schedule of Findings and Questioned Costs. We wish to acknowledge the assistance of the North Carolina Office of the State Controller and the cooperation of other state agencies, community colleges, and universities in the preparation of this report. Respectfully submitted, Beth A. Wood, CPA State Auditor [ This Page Left Blank Intentionally ] STATE OF NORTH CAROLINA AUDITOR’S SECTION [ This Page Left Blank Intentionally ] Beth A. Wood, CPA State Auditor STATE OF NORTH CAROLINA Office of the State Auditor 2 S. Salisbury Street 20601 Mail Service Center Raleigh, NC 27699-0601 Telephone: (919) 807-7500 Fax: (919) 807-7647 Internet http://www.ncauditor.net INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS The Honorable Pat McCrory, Governor The General Assembly of North Carolina We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the State of North Carolina, as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the State’s basic financial statements (not presented herein), and have issued our report thereon dated November 25, 2013. Our report includes a reference to other auditors who audited the financial statements of the North Carolina State Lottery Fund, the North Carolina Turnpike Authority, the North Carolina Housing Finance Agency, the State Education Assistance Authority, the University of North Carolina System – University of North Carolina Health Care System – Rex Healthcare, the Supplemental Retirement Income Plan of North Carolina, and the cash basis claims and benefits of the North Carolina State Health Plan, as described in our report on the State’s financial statements. This report does not include the results of the other auditors’ testing of internal control over financial reporting or compliance and other matters that are reported on separately by those auditors. The financial statements of the University of North Carolina System – University of North Carolina Health Care System – Rex Healthcare and the Supplemental Retirement Income Plan of North Carolina were not audited in accordance with Government Auditing Standards. As of the date of our report on the financial statements of the State of North Carolina, the financial statements of the State Education Assistance Authority were not audited in accordance with Government Auditing Standards; however, subsequent to that date, an audit in accordance with Government Auditing Standards was completed. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the State of North Carolina’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our STATE OF NORTH CAROLINA opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the State’s internal control. Accordingly, we do not express an opinion on the effectiveness of the State’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the State of North Carolina’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the State of North Carolina’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Beth A. Wood, CPA State Auditor Raleigh, North Carolina November 25, 2013 Beth A. Wood, CPA State Auditor STATE OF NORTH CAROLINA Office of the State Auditor 2 S. Salisbury Street 20601 Mail Service Center Raleigh, NC 27699-0601 Telephone: (919) 807-7500 Fax: (919) 807-7647 Internet http://www.ncauditor.net INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY OMB CIRCULAR A-133 The Honorable Pat McCrory, Governor The General Assembly of North Carolina Report on Compliance for Each Major Federal Program We have audited the State of North Carolina’s compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the State of North Carolina’s major federal programs for the year ended June 30, 2013. The State of North Carolina’s major federal programs are identified in Section I, Summary of Auditor’s Results, in the accompanying Schedule of Findings and Questioned Costs. The State of North Carolina’s financial reporting entity includes the operations of the State Education Assistance Authority and the North Carolina Housing Finance Agency. These agencies reported $2.46 billion and $281 million, respectively, in federal awards which are not included in the Schedule of Expenditures of Federal Awards during the year ended June 30, 2013. Our audit, described below, did not include the operations of the State Education Assistance Authority and the North Carolina Housing Finance Agency because these agencies engaged other auditors to perform an audit in accordance with OMB Circular A-133. Management’s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable its federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of the State of North Carolina’s major federal programs based on our audit of the types of compliance requirements referred to above. The State of North Carolina arranges with local government social services agencies to perform the “intake function” to determine eligibility for the following major programs: Medicaid Cluster, Temporary Assistance for Needy Families Cluster, Special Supplemental Nutrition Program for Women, Infants and Children, Children’s Health Insurance Program, and Adoption Assistance. We designated these programs to be audited as major programs at certain local governments by their local government auditors. The results STATE OF NORTH CAROLINA of these audits were furnished to us, and our opinion, insofar as it relates to the intake function for these programs, is based on the other auditors’ results. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non- Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the State of North Carolina’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit and the work of the other auditors provide a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the State of North Carolina’s compliance with those requirements. Basis for Qualified Opinion on Certain Major Federal Programs As described in Section III, Federal Award Findings and Questioned Costs, in the accompanying Schedule of Findings and Questioned Costs, the State of North Carolina did not comply with several compliance requirements that are applicable to several of its major federal programs, as follows: Finding Number Type of Compliance Requirement CFDA Major Federal Program 2013-006 Reporting 10.561 State Administrative Matching Grants for the Supplemental Nutrition Assistance Program 2013-007 Cash Management 14.228 Community Development Block Grants/State's Program and Non-Entitlement Grants in Hawaii 2013-011 Reporting 14.228 Community Development Block Grants/State's Program and Non-Entitlement Grants in Hawaii 2013-025 Special Tests and Provisions 20.205 Highway Planning and Construction 2013-027 Procurement and Suspension and Debarment 20.319 High Speed Rail Corridors and Intercity Passenger Rail Service – Capital Assistance Grants 2013-029 Reporting 20.319 High Speed Rail Corridors and Intercity Passenger Rail Service – Capital Assistance Grants 2013-031 Reporting 20.509 Formula Grants for Rural Areas 2013-032 Reporting 20.509 Formula Grants for Rural Areas 2013-033 Subrecipient Monitoring 20.509 Formula Grants for Rural Areas 2013-035 Subrecipient Monitoring 66.458 Capitalization Grants for Clean Water State Revolving Funds STATE OF NORTH CAROLINA Finding Number Type of Compliance Requirement CFDA Major Federal Program 2013-037 Subrecipient Monitoring 66.468 Capitalization Grants for Drinking Water State Revolving Funds 2013-046 Cash Management 84.031 Higher Education-Institutional Aid 2013-047 Reporting 84.031 Higher Education-Institutional Aid 2013-049 Matching, Level of Effort, Earmarking 84.048 Career and Technical Education – Basic Grants to States 2013-058 Special Tests and Provisions 84.268 Federal Direct Student Loans 2013-059 Special Tests and Provisions 84.268 Federal Direct Student Loans 2013-074 Allowable Costs/Cost Principles 93.767 Children’s Health Insurance Program 2013-076 Allowable Costs/Cost Principles 93.778 Medical Assistance Program 2013-082 Cash Management 93.917 HIV Care Formula Grants 2013-083 Eligibility 93.917 HIV Care Formula Grants 2013-084 Subrecipient Monitoring 93.959 Block Grants for Prevention and Treatment of Substance Abuse 2013-086 Reporting 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) 2013-089 Equipment and Real Property Management Various Research and Development Cluster 2013-090 Subrecipient Monitoring Various Research and Development Cluster 2013-091 Subrecipient Monitoring Various Research and Development Cluster Compliance with such requirements is necessary, in our opinion, for the State of North Carolina to comply with the requirements applicable to those programs. Qualified Opinion on Certain Major Programs In our opinion, based on our audit and the work of other auditors, except for the noncompliance described in the Basis for Qualified Opinion paragraph above, the State of North Carolina complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2013. Unmodified Opinion of Each of the Other Major Federal Programs In our opinion, based on our audit and the work of other auditors, the State of North Carolina complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its other major federal programs identified in Section I, Summary of Auditor’s Results, in the accompanying Schedule of Findings and Questioned Costs for the year ended June 30, 2013. STATE OF NORTH CAROLINA Other Matters The results of our auditing procedures disclosed other instances of noncompliance, which are required to be reported in accordance with OMB Circular A-133 and which are described in the accompanying Schedule of Findings and Questioned Costs as items 2013-001, 2013-005, 2013-016, 2013-34, 2013-36, 2013-51, 2013-52, 2013-57, 2013-071, 2013-072, 2013-074, 2013-075, 2013-076, 2013-077, 2013-079, and 2013-083. Our opinion on each major federal program is not modified with respect to these matters. The State of North Carolina’s responses to the noncompliance findings identified in our audit are described in Section III, Federal Award Findings and Questioned Costs, of the accompanying Schedule of Findings and Questioned Costs. The State of North Carolina’s responses were not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the responses. Report on Internal Control Over Compliance Management of the State of North Carolina is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the State of North Carolina’s internal control over compliance with the types of requirements that could have a direct and material effect on a major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the State of North Carolina’s internal control over compliance. Our consideration of internal control over compliance was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in the internal control over compliance that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as discussed below, we identified certain deficiencies in internal control over compliance that we consider to be material weaknesses and other deficiencies that we consider to be significant deficiencies. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. We consider the deficiencies in internal control over compliance described in Section III, Federal Award Findings and Questioned Costs, of the accompanying Schedule of Findings and Questioned Costs as items 2013-006, 2013-007, 2013-008, 2013-009, 2013-010, 2013-011, 2013-012, 2013-015, 2013-018, 2013-020, 2013-022, 2013-025, 2013-027, 2013-029, 2013-031, 2013-032, STATE OF NORTH CAROLINA 2013-033, 2013-035, 2013-037, 2013-046, 2013-047, 2013-049, 2013-058, 2013-059, 2013-074, 2013-076, 2013-082, 2013-083, 2013-084, 2013-086, 2013-088, 2013-089, 2013-090, and 2013-091, to be material weaknesses. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. We consider the deficiencies in internal control over compliance described in Section III, Federal Award Findings and Questioned Costs, of the accompanying Schedule of Findings and Questioned Costs as items, 2013-001, 2013-002, 2013-003, 2013-004, 2013-013, 2013-014, 2013-016, 2013-017, 2013-019, 2013-021, 2013-023, 2013-024, 2013-026, 2013-028, 2013-030, 2013-034, 2013-036, 2013-038, 2013-039, 2013-040, 2013-041, 2013-042, 2013-043, 2013-044, 2013-045, 2013-048, 2013-050, 2013-051, 2013-052, 2013-053, 2013-054, 2013-055, 2013-056, 2013-057, 2013-060, 2013-061, 2013-062, 2013-063, 2013-064, 2013-065, 2013-066, 2013-067, 2013-068, 2013-069, 2013-070, 2013-073, 2013-077, 2013-078, 2013-080, 2013-081, 2013-085, and 2013-087 to be significant deficiencies. The State of North Carolina’s responses to the internal control over compliance findings identified in our audit are described in Section III, Federal Award Findings and Questioned Costs, of the accompanying Schedule of Findings and Questioned Costs. The State of North Carolina’s responses were not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the responses. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 We have audited the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the State of North Carolina as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the State of North Carolina’s basic financial statements (not presented herein). We issued our report thereon dated November 25, 2013, which contained unmodified opinions on those financial statements. Our report includes a reference to other auditors. As discussed in Note 22 to the financial statements, during the year ended June 30, 2013, the State implemented Governmental Accounting Standards Board Statement No. 61, The Financial Reporting Entity: Omnibus. Our opinion was not modified with respect to this matter. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. STATE OF NORTH CAROLINA Other auditors audited the financial statements of the North Carolina State Lottery Fund, the North Carolina Turnpike Authority, the North Carolina Housing Finance Agency, the State Education Assistance Authority, the University of North Carolina System – University of North Carolina Health Care System – Rex Healthcare, the Supplemental Retirement Income Plan of North Carolina, and the cash basis claims and benefits of the North Carolina State Health Plan, as described in our report on the State’s financial statements. The financial statements of the University of North Carolina System – University of North Carolina Health Care System – Rex Healthcare and the Supplemental Retirement Income Plan of North Carolina were not audited in accordance with Government Auditing Standards. As of the date of our report on the State of North Carolina’s financial statements, the financial statements of the State Education Assistance Authority were not audited in accordance with Government Auditing Standards; however, subsequent to that date, an audit in accordance with Government Auditing Standards was completed. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by OMB Circular A-133 and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the Schedule of Expenditure of Federal Awards is fairly stated in all material respects in relation to the basic financial statements as a whole. Beth A. Wood, CPA State Auditor Raleigh, North Carolina March 14, 2014 (except as related to the Report on the Schedule of Expenditures of Federal Awards, as to which the date is November 25, 2013 STATE OF NORTH CAROLINA SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Fiscal Year Ended June 30, 2013 I. Summary of Auditor’s Results .................................................................................................................. 15 II. Financial Statement Findings ................................................................................................................... 19 III. Federal Award Findings and Questioned Costs .................................................................................... 21 10.551 Supplemental Nutrition Assistance Program ....................................................................... 22 10.553 School Breakfast Program ................................................................................................... 24 10.555 National School Lunch Program .......................................................................................... 27 10.556 Special Milk Program for Children ....................................................................................... 28 10.557 Special Supplemental Nutritional Program for Women, Infants, and Children .................... 29 10.561 State Administrative Matching Grants for the Supplemental Nutrition Assistance Program ................................................................................................... 30 14.228 Community Development Block Grants / State’s Program and Non-Entitlement Grants in Hawaii ......................................................................................................... 31 16.738 Edward Bryne Memorial Justice Assistance Grant Program ............................................... 43 16.803 Recovery Act – Edward Bryne Memorial Justice Assistance Grant (JAG) Program / Grants to States and Territories ................................................................................. 45 17.225 Unemployment Insurance .................................................................................................... 46 17.258 WIA Adult Program .............................................................................................................. 51 17.259 WIA Youth Activities ............................................................................................................. 53 17.278 WIA Dislocated Workers Formula Grants ............................................................................ 54 20.205 Highway Planning and Construction .................................................................................... 55 20.319 High-Speed Rail Corridors and Intercity Passenger Rail Service – Capital Assistance Grants ...................................................................................................... 58 20.509 Formula Grants for Rural Areas ........................................................................................... 63 66.458 Capitalization Grants for Clean Water State Revolving Funds ........................................... 68 66.468 Capitalization Grants for Drinking Water State Revolving Funds ........................................ 70 84.010 Title I Grants to Local Educational Agencies ....................................................................... 74 84.027 Special Education – Grants to States .................................................................................. 80 84.031 Higher Education – Institutional Aid ..................................................................................... 82 84.048 Career and Technical Education – Basic Grants to States ................................................. 87 84.063 Federal Pell Grant Program ................................................................................................. 89 84.126 Rehabilitation Services – Vocational Rehabilitation Grants to States ................................. 90 84.173 Special Education – Preschool Grants ................................................................................ 93 84.268 Federal Direct Student Loans .............................................................................................. 94 STATE OF NORTH CAROLINA 84.367 Improving Teacher Quality State Grants ............................................................................. 97 84.377 School Improvement Grants ................................................................................................ 98 84.388 ARRA – School Improvement Grants .................................................................................. 99 84.395 ARRA – State Fiscal Stabilization Fund (SFSF) – Race-To-The-Top Incentive Grants, Recovery Act ............................................................................................................ 100 84.410 Education Jobs Fund ......................................................................................................... 101 93.558 Temporary Assistance for Needy Families – State Programs ........................................... 103 93.659 Adoption Assistance – Title IV-E ........................................................................................ 104 93.767 Children’s Health Insurance Program ................................................................................ 106 93.778 Medical Assistance Program ............................................................................................. 109 93.917 HIV Care Formula Grants .................................................................................................. 117 93.959 Block Grants for Prevention and Treatment of Substance Abuse ..................................... 119 97.036 Disaster Grants – Public Assistance (Presidentially Declared Disasters) ......................... 122 RD Research and Development Cluster .................................................................................. 123 Summary of Findings and Questioned Costs ............................................................................................ 133 By Federal Agency ............................................................................................................................ 134 By State Agency............................................................................................................................... 139 STATE OF NORTH CAROLINA SCHEDULE OF FINDINGS AND QUESTIONED COSTS I. Summary of Auditor’s Results For the Fiscal Year Ended June 30, 2013 Financial Statements Type of auditor’s report issued? Unqualified Internal control over financial reporting: Material weaknesses identified? No Significant deficiencies identified that are not considered to be material weaknesses? No Noncompliance material to financial statements noted? No Federal Awards Internal control over major programs: Material weaknesses identified? Yes Significant deficiencies identified that are not considered to be material weaknesses? Yes Type of auditor’s report issued on compliance for major programs? Unqualified for all major programs except for State Administrative Matching Grants for the Supplemental Nutrition Assistance Program; Community Development Block Grants / State’s Program and Non- Entitlement Grants in Hawaii; Highway Planning and Construction; High-Speed Rail Corridors and Intercity Passenger Rail Service – Capital Assistance Grants; Formula Grants for Rural Areas; Capitalization Grants for Clean Water State Revolving Funds; Capitalization Grants for Drinking Water State Revolving Funds; Higher Education – Institutional Aid; Career and Technical Education – Basic Grants to States; Federal Direct Student Loans; Children’s Health Insurance Program; Medical Assistance Program; HIV Care Formula Grants; Block Grants for Prevention and Treatment of Substance Abuse; Disaster Grants – Public Assistance STATE OF NORTH CAROLINA SCHEDULE OF FINDINGS AND QUESTIONED COSTS I. Summary of Auditor’s Results For the Fiscal Year Ended June 30, 2013 (Presidentially Declared Disasters), and Research and Development Cluster which is qualified. Any audit findings disclosed that are required to be reported in accordance with section 510(a) of Circular A-133? Yes Identification of major programs: CFDA Number Name of Federal Program or Cluster CCDF CCDF Cluster CHNC Child Nutrition Cluster DISI Disability Insurance/SSI Cluster HPCC Highway Planning and Construction Cluster JAGP JAG Program Cluster MEDC Medicaid Cluster RD Research and Development Cluster SCPC CDBG – State-Administered CDBG Cluster SFAC Student Financial Assistance Cluster SIGC School Improvement Grants Cluster SNAP Supplemental Nutrition Assistance Program (SNAP) Cluster SPED Special Education Cluster (IDEA) TANF TANF Cluster TIPA Title I, Part A Cluster WIAC WIA Cluster 10.557 Special Supplemental Nutrition Program for Women, Infants, and Children 17.225 Unemployment Insurance 20.319 High-Speed Rail Corridors and Intercity Passenger Rail Service – Capital Assistance Grants 20.509 Formula Grants for Rural Areas 66.458 Capitalization Grants for Clean Water State Revolving Funds 66.468 Capitalization Grants for Drinking Water State Revolving Funds 84.031 Higher Education – Institutional Aid 84.048 Career and Technical Education – Basic Grants to States 84.126 Rehabilitation Services – Vocational Rehabilitation Grants to States STATE OF NORTH CAROLINA SCHEDULE OF FINDINGS AND QUESTIONED COSTS I. Summary of Auditor’s Results For the Fiscal Year Ended June 30, 2013 CFDA Number Name of Federal Program or Cluster (continued) 84.367 Improving Teacher Quality State Grants 84.395 ARRA – State Fiscal Stabilization Fund (SFSF) – Race-to-the-Top Incentive Grants, Recovery Act 84.410 Education Jobs Fund 93.568 Low-Income Home Energy Assistance 93.658 Foster Care – Title IV-E 93.659 Adoption Assistance 93.667 Social Services Block Grant 93.767 Children's Health Insurance Program 93.917 HIV Care Formula Grants 93.959 Block Grants for Prevention and Treatment of Substance Abuse 97.036 Disaster Grants – Public Assistance (Presidentially Declared Disasters) Dollar threshold used to distinguish between type A and type B programs? $33,408,674 Auditee qualified as low-risk auditee? No [ This Page Left Blank Intentionally ] STATE OF NORTH CAROLINA SCHEDULE OF FINDINGS AND QUESTIONED COSTS II. Financial Statement Findings For the Fiscal Year Ended June 30, 2013 Type of Finding Findings and Recommendations No reportable findings and recommendations resulted from our audit of the State of North Carolina’s basic financial statements. [ This Page Left Blank Intentionally ] STATE OF NORTH CAROLINA SCHEDULE OF FINDINGS AND QUESTIONED COSTS III. Federal Award Findings and Questioned Costs For the Fiscal Year Ended June 30, 2013 The following findings, recommendations, and questioned costs are the results of the single audit of the State of North Carolina for the fiscal year ended June 30, 2013. Each finding is referenced with a four-digit number representing the fiscal year audited and a sequential number. The findings are presented by federal program and are classified according to federal and state department, type of compliance requirement, category of internal control weakness, and category of noncompliance. Findings included in this section are related to major programs. Category of Internal Control Weakness If the finding represents a weakness in internal control over compliance, one of the following designations will appear: Significant Deficiency – A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Material Weakness – A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. Category of Noncompliance Findings If the finding represents an instance of noncompliance, one of the following designations will appear: Material Noncompliance – A finding related to a major federal program which discusses conditions representing noncompliance with federal laws, regulations, contracts, or grants, the effects of which have a material effect in relation to a type of compliance requirement or an audit objective identified in OMB Circular A-133 Compliance Supplement. Questioned Cost Finding – A finding which discusses known or likely questioned costs that are greater than $10,000 for a type of compliance requirement, unless the conditions giving rise to the questioned costs are otherwise reported as a material noncompliance finding. STATE OF NORTH CAROLINA 10.551 SUPPLEMENTAL NUTRITION ASSISTANCE PROGRAM III. Federal Award Findings and Questioned Costs U.S. Department of Agriculture N.C. Department of Health and Human Services For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-001 Special Tests and Provisions: Significant Deficiency Questioned Cost Finding $2,694 Noncompliance with SNAP Requirements Deficiencies in the Department’s procedures related to participants’ certification periods in the North Carolina Families Accessing Services through Technology (NCFAST) system resulted in noncompliance with Supplemental Nutritional Assistance Program (SNAP) regulations. NCFAST is the new system that is used to determine eligibility and authorize benefits for SNAP. Deficiencies identified included: The system was not set up to prevent county case workers from establishing certification periods for longer than the participant was entitled. County case workers were given the ability to modify the certification period because of a defect in the system. After auditor inquiry, the Department provided a report of 1,683 cases that contained errors in the certification periods. The certification period for these cases ranged from 12 - 36 months while the normal certification period is 6 months. The system allowed county case workers to reopen cases closed by the system due to failure of the participant to recertify; however, there was no review of system overrides for appropriateness. We identified five instances in a sample of 40 where the case worker reactivated the case even though the participant did not submit the required recertification paperwork timely. By overriding the closed case, the participant received benefits for ineligible periods for total known questioned costs of $2,694 and likely questioned costs greater than $10,000 in the population. Federal regulation 7 CFR section 273.10(a)(2) states that if a participant submits an application after the certification period has expired, that application shall be considered an initial application and benefits for that month shall be prorated. In addition, sufficient documentation was not present to support testing of system changes in accordance with Department standard procedures. These standard procedures require a minimum of performance testing, functional testing, and user acceptance testing for major and minor releases. While evidence was present that some testing was performed on fixes to system defects, there was no evidence that user acceptance testing was performed. Changes that are not thoroughly tested can potentially result in improper system functionality, which could cause noncompliance with federal regulations. STATE OF NORTH CAROLINA 10.551 SUPPLEMENTAL NUTRITION ASSISTANCE PROGRAM (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Agriculture N.C. Department of Health and Human Services For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations Federal Award Information: This finding affects the Supplemental Nutritional Assistance Program for the federal fiscal year ended September 30, 2013. Recommendation: The Department should (1) follow up on the known cases with incorrect certification periods and take appropriate action; (2) establish internal controls to identify system overrides and determine the effect on case eligibility; and (3) ensure that user acceptance testing is performed and specifically documented before system changes are put into production. Agency Response: The Department has initiated the following actions: 1. The majority of the cases identified with incorrect certification periods were converted from the legacy Food Stamp Information System. As of December 6, 2013, the cases identified with incorrect certification periods were corrected and clients were mailed recertification forms. In addition, a hard stop validation edit was added to the system to prevent workers from extending the certification period beyond 12 months for regular Food Nutrition Service. 2. Based on the results of the evaluation, the appropriate change requirements will be submitted to North Carolina Families Accessing Services through Technology (NC FAST) to ensure system controls are in place to identify system overrides and the effect on case eligibility. The ability to reopen a case was designed in the system based on the business requirement to provide a method to reopen a closed case unit. The Department will evaluate the reopen process. 3. NC FAST program has defined User Acceptance Procedures (UAT) in place that included business stakeholder acceptance before any system change can be released into production. NC FAST has implemented additional steps based on these findings to clearly provide documented business stakeholder approval. STATE OF NORTH CAROLINA 10.553 SCHOOL BREAKFAST PROGRAM III. Federal Award Findings and Questioned Costs U.S. Department of Agriculture N.C. Department of Public Instruction For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-002 Subrecipient Monitoring: Significant Deficiency Monitoring Results Not Reported Timely The Department did not review fiscal monitoring reports in a timely manner, which resulted in the late communication of monitoring results to the subrecipients. Also, the Department did not ensure subrecipients took timely corrective action on issues identified during the fiscal monitoring visits. As a result, there is an increased risk that subrecipients did not take timely corrective actions on noncompliance issues identified. We selected 11 sample items out of 53 fiscal monitoring visits performed during the year and reviewed the fiscal monitoring documentation. Our test revealed that: The Department did not review the reports and communicate the results of the fiscal monitoring visits to 11 subrecipients in a timely manner. The monitoring reports were issued between 59 and 201 business days after the date of the monitoring visit. The Department did not ensure that four subrecipients took timely corrective action on the issues noted during the monitoring visits that occurred in October and November of 2012. As of October 31, 2013, three of the subrecipients had not yet provided the documentation requested by the Department to show that corrective actions were taken. One subrecipient did not take corrective action until August 21, 2013. The Department’s policy does not specify a timeline for reviewing monitoring reports and communicating results to the subrecipients. The Department does have a policy that requires subrecipients to respond to report findings within 30 business days of receipt of the report. OMB Circular A-133 requires pass-through entities to monitor the subrecipient’s use of federal awards through reporting, site visits, regular contact or other means to provide reasonable assurance that the subrecipient administers federal awards in compliance with laws and regulations. In addition, it requires pass-through entities to ensure subrecipients took appropriate and timely corrective action on its findings. Aspects of this finding were reported in the prior year. Federal Award Information: This finding impacts these federal programs: a. School Breakfast Program, National Lunch Program, & Special Milk Program for Children: Federal funding periods: 1) October 1, 2011 - STATE OF NORTH CAROLINA 10.553 SCHOOL BREAKFAST PROGRAM (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Agriculture N.C. Department of Public Instruction For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations September 30, 2012 (5NC300327); and 2) October 1, 2012 - September 30, 2013 (5NC300327). b. Title I Grants to Local Education Agencies: Federal funding periods: 1) July 1, 2011 - September 30, 2012 (S010A110033A); and 2) July 1, 2012 - September 30, 2013 (S010A120033A). c. Career and Technical Education: Federal funding periods July 1, 2011 - September 30, 2012 (V048A110033-11B); and July 1, 2012 - September 30, 2013 (V048A120033-12A). d. Special Education - Grants to States: Federal funding periods: 1) July 1, 2011 - September 30, 2012 (H027A110092A); and 2) July 1, 2012 - September 30, 2013 (H027A120092A). e. Special Education - Preschool Grants: Federal funding periods: 1) July 1, 2011 - September 30, 2012 (H173A110096); and 2) July 1, 2012 - September 30, 2013 (H173A120096). f. Improving Teacher Quality State Grants: Federal funding periods: 1) July 1, 2011 - September 30, 2012 (S367A110032A); and 2) July 1, 2012 - September 30, 2013 (S367A120032A). g. Education Jobs Fund: Federal funding period August 10, 2010 - September 30, 2011 (S410A100034). h. Race to the Top: Federal funding period September 24, 2010 - September 23, 2014 (S395A100069). i. School Improvement Grants: Federal funding periods 1) July 1, 2009 – September 30, 2010 (S377A090034A); 2) July 1, 2010 – September 30, 2011 (S377A100034); and 3) July 1, 2012 – September 30, 2013 (S377A120034). j. School Improvement Grants, Recovery Act: Federal funding period February 17, 2009 – September 30, 2010 (S388A090034A). Recommendation: The Department should develop and implement policies and procedures that ensure fiscal monitoring reports are reviewed and results are communicated to the subrecipient within a reasonable period of time. In addition, the Department should comply with its policy by ensuring that subrecipients respond to noncompliance issues within 30 business days of receipt of the report. STATE OF NORTH CAROLINA 10.553 SCHOOL BREAKFAST PROGRAM (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Agriculture N.C. Department of Public Instruction For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations Agency Response: The Department concurs with the Auditor's finding and recommendation. As stated in the responses, the Monitoring and Compliance Section's fiscal monitoring policies and procedures are in the process of being revised. Updated policies and procedures will include a reasonable period from the actual on-site visit date for the completion, review and issuance of the final monitoring report as well as include noncompliance consequences for those subrecipients who fail to submit requested corrective action plans within the time allotted. The Department implemented formal monitoring report cover letter and report templates in February 2014 for use with all 2013-2014 fiscal monitoring visits which includes language for potential consequences if the LEA or Charter School fails to respond to the request for a formal response, corrective action plan and documentation when applicable. STATE OF NORTH CAROLINA 10.555 NATIONAL SCHOOL LUNCH PROGRAM III. Federal Award Findings and Questioned Costs U.S. Department of Agriculture N.C. Department of Public Instruction For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-003 Subrecipient Monitoring: Significant Deficiency Monitoring Results Not Reported Timely The Department did not review fiscal monitoring reports in a timely manner, which resulted in the late communication of monitoring results to the subrecipients. Also, the Department did not ensure subrecipients took timely corrective action on issues identified during the fiscal monitoring visits. As a result, there is an increased risk that subrecipients did not take timely corrective actions on noncompliance issues identified. See finding 2013-002 for a description. STATE OF NORTH CAROLINA 10.556 SPECIAL MILK PROGRAM FOR CHILDREN III. Federal Award Findings and Questioned Costs U.S. Department of Agriculture N.C. Department of Public Instruction For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-004 Subrecipient Monitoring: Significant Deficiency Monitoring Results Not Reported Timely The Department did not review fiscal monitoring reports in a timely manner, which resulted in the late communication of monitoring results to the subrecipients. Also, the Department did not ensure subrecipients took timely corrective action on issues identified during the fiscal monitoring visits. As a result, there is an increased risk that subrecipients did not take timely corrective actions on noncompliance issues identified. See finding 2013-002 for a description. STATE OF NORTH CAROLINA 10.557 SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS, AND CHILDREN III. Federal Award Findings and Questioned Costs U.S. Department of Agriculture N.C. Department of Health and Human Services For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-005 Eligibility: Questioned Cost Finding Deficiencies in County Eligibility Determination Processes County departments of social services offices process applications related to the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). Certified Public Accountants performing the county audits tested 1,366 case files and found eligibility documentation deficiencies in 13 cases. These files were missing items such as verification of identity, verification of residency, appropriate signatures, and identification of nutritional risk. There were no questioned costs identified by the county auditors; however, it is likely questioned costs exceed $10,000 in the population. Federal Award Information: This finding affects Special Supplemental Nutrition Program for Women, Infants, and Children federal grant award 5NC700705 for the federal fiscal years ended September 30, 2012 and 2013. Recommendation: The county auditors recommended that policies and procedures be put in place or reinforced at the counties to ensure that all documentation is obtained and maintained in the case file. Agency Response: In March, 2014, the Department immediately researched each of the cases identified as deficient and verified that eligibility documentation was included in the WIC Automated Data Processing System for twelve (12) of the thirteen (13) cases cited although the client case files did not contain all the required supporting paper documentation; and, the clients were in fact eligible on the service dates assessed by the county auditors. In addition, the Department verified that corrective action for the one deficient case was implemented and fully resolved. The Department will continue to work with county health department staff to ensure that existing policies and procedures are reinforced and documentation is maintained to support case files. STATE OF NORTH CAROLINA 10.561 STATE ADMINISTRATIVE MATCHING GRANTS FOR THE SUPPLEMENTAL NUTRITION ASSISTANCE PROGRAM III. Federal Award Findings and Questioned Costs U.S. Department of Agriculture N.C. Department of Health and Human Services For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-006 Reporting: Material Weakness Material Noncompliance Federal Funding Accountability Transparency Act Reporting Not Completed Timely The Department did not report on state administration subaward obligations within the required time frame, and therefore, did not comply with the Federal Funding Accountability and Transparency Act (FFATA) reporting requirements. These obligations totaled approximately $74 million. Federal regulations require states to report subaward actions obligating $25,000 or more in federal funds, excluding American Recovery and Reinvestment Act funds, no later than the end of the month following the month in which the obligation was made. The Department did not submit the subaward obligations for federal fiscal year 2013 until one year after the due date. There were some functionality problems with the federal reporting system, but the Department would have been able to upload the majority of the required data. Federal Award Information: This finding affects State Administrative Matching Grants for the Supplemental Nutrition Assistance Program for the federal fiscal year ended September 30, 2013. Recommendation: The Department should ensure FFATA reports are submitted timely in accordance with federal requirements. Agency Response: In June 2012, the Department reported to the federal service desk the functionality problems with the federal reporting system and did not report subaward information until the issues were resolved in December 2013. All required subaward information was reported in the FFATA Subaward Reporting System (FSRS) on January 10, 2014. To ensure that FFATA reports are submitted timely, the Department will enter required data into FSRS as the system allows and will maintain periodic contact with federal partners to resolve any system issues. STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-007 Cash Management: Material Weakness Material Noncompliance Inaccurate Cash Management Improvement Act Analysis Deficiencies were identified in the preparation and review process of the Department of Commerce’s Community Development Block Grant Cash Management Improvement Act (CMIA) Analysis. The lack of controls over the CMIA Analysis resulted in failure to report all cash draws and disbursements in the year-end report submitted to the State Controller. The Department’s analysis is used by the State Controller to prepare the Statewide CMIA report to the federal government. The weaknesses in the preparation and review processes increase the likelihood that excessive balances may be maintained beyond the federally allowable timeframe or that inadequate funds are drawn down, thereby affecting the computed interest due to or from the U.S. Treasury. The Department prepares monthly reports of cash draws and disbursements which are then accumulated into the year-end CMIA Analysis report. A test of the year-end report revealed that $11.4 million of draws and disbursements were omitted as follows: $7.9 million draws and disbursements were omitted from both the monthly and year-end report. This included $5.5 million in draws and disbursements related to Neighborhood Stabilization Program (NSP), which the Department incorrectly treated as not subject to the Treasury State Agreement. $3.5 million draws and disbursements were included in the monthly reports, but were not transferred to the year-end report. The failure of the review process to identify errors did not ensure the total draws and disbursements reported reconciled to the program expenditures and draws per the accounting records. This failure increases the risk of noncompliance with federal cash management requirements and the Treasury-State Agreement. Additionally, the failure to properly report impacts the statewide calculation of interest due to or from the U. S. Treasury. Federal Award Information: This finding affects CFDA 14.228 Community Development Block Grant award B-12-DC-37-0001 awarded April 4, 2012; B- 11-DC-37-0001 awarded January 1, 2011; award B-10-DC-37-0001 awarded January 1, 2010; award B-09-DC-37-0001 awarded January 1, 2009; award B- 08-DC-37-0001 awarded January 1, 2008; and award B-07-DC-37-0001 awarded January 1, 2007. STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations Recommendation: The Department should strengthen internal controls to ensure compliance with the Treasury State agreement and that the year-end reports are completed accurately. Agency Response: DCA will strengthen its internal controls to ensure that all cash draws and disbursements are included in the year-end report submitted to the Office of the State Controller. DCA will implement the following procedure. Upon receipt of the CDBG and NSP draw worksheets two verifications of each draw will be performed. Once these verifications have been performed and the information matches that which was submitted by DCA an email is sent to DCA indicating concurrence. If the information does not match, DCA will be notified of any differences and a corrected draw worksheet will be sent by DCA to Fiscal Management with the updated information. When agreement between Cash Management, the Doc. ID Logs, DCA, and Commerce Fiscal has been achieved the CMIA worksheet and the draw worksheet will be sent by email to Office of the State Controller, DCA, and all concerned. 2013-008 Matching, Level of Effort, Earmarking: Material Weakness Inability to Support Compliance with Earmarking Requirements The Department of Commerce’s Division of Community Assistance (DCA) did not maintain sufficient documentation to support compliance with federal earmarking requirements for planning and administrative expenditures in the Community Development Block Grant. As a result, there is an increased risk that planning and administrative costs of the State and general local governments (subrecipients) could exceed the 20% allowed under 24 CFR 570.489(a)(3) and not be detected. Per federal regulations, the total amount expended on planning and administrative costs by the State and local governments combined must not exceed 20%. Detail cost data by type for subrecipients is maintained in the Grants Management System (GMS). However, the total costs from GMS data provided did not reconcile to the Department’s accounting records. For fiscal year 2013, expenditures in the accounting records exceeded the GMS costs by $2.5 million. Additionally, the Department could not provide further evidence to support the actual cumulative amounts of subrecipients’ planning and administrative costs. Based on analysis of the subrecipient data in GMS and State costs from the accounting records, the earmarking requirement has not been exceeded. However, without sufficient documentation to support the accuracy of the STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations subrecipient data, there is no way to be assured that the 20% was not or would not be exceeded if costs have been excluded from GMS. Federal Award Information: This finding affects CFDA 14.228 Community Development Block Grant award B-12-DC-37-0001 awarded 04/04/2012; award B-11-DC-37-0001 awarded January 1, 2011; award B-10-DC-37-0001 awarded January 1, 2010; award B-9-DC-37-0001 awarded January 1, 2009; award B-08-DC-37-0001 awarded January 1, 2008, and award B-07-DC-37-0001 awarded January 1, 2007. Recommendation: The Department should strengthen controls to ensure that adequate documentation is maintained to support compliance with federal earmarking requirements. The Department should ensure that subrecipient costs are accurately tracked and reconciled to the accounting records to ensure earmarking compliance. Agency Response: DCA will maintain a grants management system to record, monitor and produce required reports to ensure that the amount expended on planning and administrative costs does not exceed twenty percent (20%). The data contained in the grants management system will be reconciled with DCA accounting records and other systems. 2013-009 Matching, Level of Effort, Earmarking: Material Weakness Reporting: Material Weakness Management’s Implementation of Corrective Action Was Inadequate The Department of Commerce management has not ensured implementation of corrective action on all prior year audit findings for three major federal programs audited for fiscal year ended June 30, 2013. Failure to timely implement corrective action to ensure compliance allows federal funds to potentially be used for unallowable expenditures or fail to be properly reported to the federal oversight agency. Four of the eight findings below for 2013 repeat aspects of findings from the prior years. Although, the Department had identified corrective action plans to address these areas in prior years, there has been a breakdown in the implementation of those corrective actions to prevent further issues. Here are some of the details: The failure to segregate duties for maintaining and operating the Grants Management System (GMS) for the Community Development STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations Block Grant program has contributed to findings related to both federal reporting and earmarking compliance requirements. Department information system staff, who are unfamiliar with the system, have been trying to provide the needed data and reports for program staff. However, success has been limited and the auditors have been unable to rely on data from the system. A backlog of investigative cases for potential benefit overpayment in the Unemployment Insurance program continued. In prior year the backlog was over 16,000 assigned cases, but during 2013 was only decreased to near 14,000 cases. Additionally, the timeliness of case closure has not significantly improved. The procedures for performing subrecipient monitoring for the Workforce Investment Act Cluster were not updated in accordance with the prior corrective action plan. The monitoring procedures did not provide evidence that all participants receiving services from the program are being documented in the Workforce Plus System. This system is used to generate performance reports to demonstrate that use of federal funds is meeting the expected performance goals for serving participants. OMB Circular A-133 section .300 requires that auditees, State agency, maintain internal control over federal programs to ensure compliance federal regulations. It further states that auditees are responsible for following up and taking corrective action for audit findings. Also, North Carolina General Statute 143D, State Government Accountability and Internal Control Act, provides that each State agency is fully responsible for establishing and maintaining a proper system of internal controls. The Office of the State Controller requires State agencies to make satisfactory progress in resolving deficiencies in internal control determined by any internal or external auditor of the agency. If the State Controller determines deficiencies are not being resolved in a reasonable period after the audit report date, the State Controller may recommend disciplinary action after consultation with the State Auditor. Federal Award Information: This finding affects the following programs and awards: CFDA 14.228 Community Development Block Grant award B-12-DC-37-0001 awarded April 4, 2012; award B-11-DC-37-0001 awarded January 1, 2011; STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations award B-10-DC-37-0001 awarded January 1, 2010; award B-9-DC-37-0001 awarded January 1, 2009; award B-08-DC-37-0001awarded January 1, 2008, and award B-07-DC-37-0001 awarded January 1, 2007. CFDA 17.258 WIA Adult Program, CFDA 17.259 WIA Youth Activities, and CFDA 17.278 WIA Dislocated Workers awards AA-20205-10-55-A-37 for the award period July 1, 2010 - June 30, 2013, AA-21407-11-55-A-37 for the award period July 1, 2011 - June 30, 2014 and AA-22947-12-55-A-37 for the award period July 1, 2012 - June 30, 2015. Unemployment Insurance – funding from the State and Federal Unemployment Trust Funds. This finding affects funds administered under the American Recovery and Reinvestment Act. Recommendation: The Department and Division management should ensure that appropriate follow-up on audit findings is performed. Follow-up should include well defined corrective action plans, establishment of deadlines for implementation of the plan and identification of individuals responsible for implementation. Agency Response: The Department acknowledges its failure to ensure proper implementation of corrective action plans for past audits. These prior findings occurred during the previous administration, but the Department has new leadership in place and is committed to ensuring that all corrective action plan items for this and previous audits are completed. 2013-010 Matching, Level of Effort, Earmarking: Material Weakness Reporting: Material Weakness Subrecipient Monitoring: Material Weakness Lack of Segregation of Duties in the Administration of Grants Management System The Department of Commerce’s Division of Community Assistance did not properly segregate duties for the administration of the Grant Management System (GMS). As a result, there is an increased risk that data integrity could be compromised and noncompliance with federal regulations could occur. Duties for production and programming of the GMS are not separated. Instead, a single individual is responsible for all duties related to the system. A review is not conducted by another person after changes to the database and programs have been implemented to ensure accuracy. The GMS system is used to track and maintain all grant data for over 400 subawards, which may include multiple awards to the same subrecipient. The Department disbursed approximately $50 million during the 2013 fiscal year to subrecipients. STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations The Statewide Information Security Manual states that agency management must ensure that there is proper segregation of duties to reduce the risk of agency system misuse and fraud. In addition, the manual states that system development and system change management shall be performed by different personnel, and system operations and system security administration shall be performed by different personnel. Additionally, in April 2013, the individual responsible for maintaining and operating the GMS left the Department and the position has not been filled as of February 2014. The Department does not have other personnel knowledgeable of the system operation and queries to generate accurate data for federal reporting and to ensure compliance with federal requirements. Aspects of this finding were also reported in the prior two years. Federal Award Information: This finding affects CFDA 14.228 Community Development Block Grant award B-12-DC-37-0001 awarded April 4, 2012; award B-11-DC-37-0001 awarded January 1, 2011; award B-10-DC-37-0001 awarded January 1, 2010; award B-9-DC-37-0001 awarded January 1, 2009; award B-08-DC-37-0001 awarded January 1, 2008, and award B-07-DC-37-0001 awarded January 1, 2007. Recommendation: The Department should adequately segregate duties for the administration of the Grant Management System. Also, the Department should ensure that knowledgeable staff is put in place to maintain and operate the Grants Management System. Agency Response: DCA’s current grants management system is a proprietary software program that was built and modified by a single individual since its inception, and that individual is no longer employed by the Department. The system uses non-standard database programming techniques and has now become almost impossible to manage and extract data. As a result, the Department has submitted a budget expansion request to the Office of State Budget and Management (OSBM) to receive additional funds to purchase and install a new grants management software program. In addition, a comprehensive plan is currently under development regarding the Grants Management System (GMS) that will: a. Identify the weaknesses of the system and establish new temporary operational procedures to ensure proper segregation of duties and data integrity; STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations b. Develop a hiring plan to ensure the proper segregation of duties and workload regarding the grants management solution; c. Develop a plan and timeline to adopt a new out-of-the-box (non-proprietary) grant management software solution; d. Verify the validity of the current GMS data and make corrections using formalized change management procedures; e. Migrate the GMS data to the new grant management software solution; and f. Develop a set of formalized policies and procedures regarding proper segregation of duties, data validation, staff training, and system security, and maintenance. DCA will develop and adopt a set of formal policies and procedures that will ensure the proper segregation of duties, protect data integrity, implement security protocols, and ensure that scheduled software maintenance and updates are conducted. The policies and procedures will be developed according the Statewide Information Security Manual and other best practices. 2013-011 Reporting: Material Weakness Material Noncompliance Inaccurate Federal Reporting The Department of Commerce’s Division of Community Assistance submitted Community Development Block Grant (CDBG) reports to the federal agency that were misstated. While testing the federal reports, the following errors and internal control deficiencies were noted: The Department did not maintain nor provide complete data to support and ensure the accuracy of the information in the 2012 CDBG Performance and Evaluation Report (PER). The Grants Management System (GMS) is used to record grant expenditures and cash drawdowns which is used to generate the PER Summary. The GMS data did not reconcile to the Department’s accounting records and did not agree with the PER report submitted to the federal agency. The total of all expenditures reported was $9 million overstated compared to the underlying GMS data. Additionally, issues with the data prevented verification of amounts reported by National Objective and federal allocation year within the PER. STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations While testing the Section 3 Summary Report, Economic Opportunities for Low – and Very Low-Income Persons, supporting documentation for a sample of 63 subrecipients was reviewed and errors were found for six subrecipients. Each of these six subrecipients had one or more of the following types of errors: lack of documentation to support amounts reported; subrecipients’ data not reported; or discrepancies between supporting documentation and the amount reported in the Section 3 Summary report. As a result, not all activity was accurately included in the annual report submitted to U.S. Department of Housing and Urban Development (HUD). The Department is in noncompliance with reporting requirements under the Federal Funding Accountability and Transparency Act (FFATA). It failed to report, as required, CDBG sub-awards of $25,000 or more made during fiscal year 2013 in the FFATA Subaward Reporting System. There were 134 subawards that met the criteria for reporting. The Department entered 98 subawards subsequent to year end, but did not complete the submission until December 2013. The other 36 were not entered or submitted. Aspects of this finding were reported in the prior three years. Federal Award Information: This finding affects CFDA 14.228 Community Development Block Grant award B-12-DC-37-0001 awarded April 4, 2012; award B-11-DC-37-0001 awarded January 1, 2011; award B-10-DC-37-0001 awarded January 1, 2010; award B-9-DC-37-0001 awarded January 1, 2009; award B-08-DC-37-0001 awarded January 1, 2008, and award B-07-DC-37-0001 awarded January 1, 2007. Recommendation: The Department should strengthen internal controls to ensure reports are prepared in accordance with federal reporting requirements. The Department should implement procedures to ensure the accuracy of the data in the Grants Management System and ensure it reconciles to the Department’s accounting records and federal reporting. Agency Response: DCA will strengthen its internal controls to ensure that reports are prepared in accordance with federal reporting requirements and will implement a grants management system to capture and maintain subrecipient and financial data. DCA will ensure that the data contained in the STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations grants management system is reconciled with Department accounting records and federal reporting. DCA will implement and maintain a new grants management system to record, manage and produce accurate data regarding grant expenditures and cash drawdowns for the Performance Evaluation Report (PER) and other compliance reporting requirements. DCA will ensure that data contained in the grants management system is reconciled with the Department’s accounting data and other systems. The Director, Compliance Section Chief and Business Officer are responsible for implementing this corrective action. DCA will strengthen its internal controls to ensure that accurate data is collected for and reported in the Section 3 Summary Report. The corrective action will include multiple checkpoints to ensure that subrecipient Annual Performance Report (APR) data are collected and reported accurately. DCA will strengthen its internal controls to ensure that all subrecipient awards of $25,000 and greater are entered into the FSRS (FFATA Sub-Award Reporting System) as required by the Federal Funding Accountability and Transparency Act (FFATA). 2013-012 Subrecipient Monitoring: Material Weakness Deficiencies in Subrecipient Monitoring We identified deficiencies in the Department of Commerce’s Division of Community Assistance subrecipient monitoring procedures for the Community Development Block Grant (CDBG). As a result, there is an increased risk that noncompliance at the subrecipient level could occur and not be detected or corrected in a timely manner. Subrecipients received approximately $50 million of Community Development Block Grant funds. The CDBG program is State administered and local government operated. In accordance with 24 CFR 85.40, the Department is responsible for monitoring the local governments receiving CDBG funds to ensure compliance with federal requirements. Our review of the monitoring efforts identified the following deficiencies described below: The Department does not have an adequate monitoring plan to ensure subrecipients are sufficiently monitored throughout the award period for compliance with federal requirements. There was no schedule of when monitoring visits will take place nor was there formal documentation of a subrecipient risk assessment. In accordance with STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 24 CFR 570.492, the state should perform monitoring, including on-site, as may be necessary and appropriate to ensure subrecipients are in compliance with program requirements. The U.S. Department of Housing and Urban Development – Managing CDBG - A Guidebook for Grantees on Subrecipient Oversight Manual provides guidance for monitoring strategies and procedures. Guidance for monitoring includes the following: monitoring should be an on-going process; a monitoring plan should be developed at the beginning of the program year; a formal risk assessment should be performed to identify which subrecipients require comprehensive monitoring; checklists should be used that specify the particular items or documents to be reviewed in the course of the visit; and checklists should be annotated with notes and identify documentation reviewed to arrive at conclusions. We reviewed on-site monitoring files for 29 out of 183 CDBG subrecipients with grant expenditures during the 2013 fiscal year. There were deficiencies noted in the Department’s internal policies and procedures and documentation as follows: a) The Grants Management Standard Operating Procedures (SOP) Manual used by the grant representative has not been updated since May 2010. The manual identifies which checklists should be used to perform site visits, however, it does not provide guidance on the documentation that should be reviewed and maintained to support the conclusions on the checklist. b) No guidance was provided in the SOP for what type transactions or documents are to be reviewed during monitoring visits, nor how many items should be reviewed. c) Monitoring checklists contained little or no supporting documentation or notations of the items reviewed to support the work performed and basis for conclusion on subrecipients compliance with a particular requirement. d) There were instances of questions on the compliance checklists being unanswered or partially answered. Specifically, there were 2 instances when the question regarding compliance with allowable costs guidelines, pursuant to OMB Circular A-87, were answered incorrectly as not applicable with no explanation. STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations The grant representative performed the close out of one subaward for more than $190,000 without reviewing the subrecipients final audit report as required by the Department’s administrative code, 04 NCAC 19L.913. OMB Circular A-133 requires pass-through entities to monitor the activities of subrecipients as necessary to ensure that federal awards are used for authorized purposes in compliance with laws, regulations and the provisions of contracts or grant agreements and to ensure that performance goals are achieved. In addition to our audit, an investigation was performed by the North Carolina Office of State Budget and Management Office of Internal Audit, at the request of the Department of Commerce, related to a third party CDBG program administrator at 26 local governments. The report was issued February 2014, and contained recommendations for the Department that coincide with the results and recommendations of our audit. Federal Award Information: This finding affects CFDA 14.228 Community Development Block Grant award B-12-DC-37-0001 awarded April 4, 2012; award B-11-DC-37-0001 awarded January 1, 2011; award B-10-DC-37-0001 awarded January 1, 2010; award B-9-DC-37-0001 awarded January 1, 2009; award B-08-DC-37-0001 awarded January 1, 2008, and award B-07-DC-37-0001 awarded January 1, 2007. Recommendation: The Department should document a monitoring plan to ensure subrecipients are sufficiently monitored for compliance with federal requirements on an on-going basis. The Department should enhance procedures and guidelines for monitoring activities to ensure documentation is complete and supportive of the conclusions reached regarding subrecipients compliance. Department management should implement procedures to ensure that monitoring procedures are well-defined and staff is consistently following procedures when performing subrecipient monitoring visits and in the completion of checklists. Agency Response: DCA will strengthen its internal controls to ensure that the activities of subrecipients are used for authorized purposes in compliance with laws, regulations and the provisions of contracts or grant agreements and to ensure that performance goals are achieved. STATE OF NORTH CAROLINA 14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS / STATE’S PROGRAM AND NON-ENTITLEMENT GRANTS IN HAWAII (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations DCA will revise its subrecipient monitoring plan to identify subrecipients that require more comprehensive monitoring based on identified risk. Subrecipients identified as higher risk will receive additional desk and on-site monitoring reviews throughout the life of the grant. DCA will update its Standard Operating Procedure Manual to include guidance on the types and number of transactions and documents that should be reviewed during monitoring visits and the documentation that should be maintained to support conclusions drawn by monitors and reported on the monitoring checklists. Monitoring checklists and other documents will be revised where necessary to add supporting documentation and/or notations of the items received to support the basis for conclusions of sub-recipient compliance requirements. STATE OF NORTH CAROLINA 16.738 EDWARD BRYNE MEMORIAL JUSTICE ASSISTANCE GRANT PROGRAM III. Federal Award Findings and Questioned Costs U.S. Department of Justice N.C. Department of Public Safety For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-013 Subrecipient Monitoring: Significant Deficiency Review of Subrecipient Audit Reports Needs Improvement While the Department adequately tracked and obtained subrecipient audit reports, it did not have procedures in place to identify audit findings relevant to its programs and ensure that subrecipients took timely and appropriate corrective action on the findings. As a result, there was an increased risk that deficiencies identified at the subrecipient level would not be corrected. However, in our audit we did not identify any subrecipient audit findings relevant to the Department’s programs. OMB Circular A-133 requires pass-through agencies to issue a management decision on audit findings within six months after receipt of the subrecipient’s report and ensure the subrecipient took timely and appropriate action. Significant aspects of this finding were reported in previous years. Federal Award Information: This finding affects the following: CFDA 16.738 Edward Byrne Memorial Justice Assistance Grant Program award 2008-DJ-BX-0032 for the award period October 1, 2007 – September 30, 2012; award 2008-DJ-BX-0768 for the award period October 1, 2007 –September 30, 2012; award 2009-DJ-BX-0839 for the award period October 1, 2008 – September 30, 2013; award 2010-DJ-BX-0045 for the award period October 1, 2009 – September 30, 2014; award 2011-DJ-BX-2091 for award period October 1, 2010 – September 30, 2014; and award 2012-DJ-BX-0640 for award period October 1, 2011 – September 30, 2015. CFDA 16.803 Recovery Act – Edward Byrne Memorial Justice Assistance Grant (JAG) Program / Grants to States and Territories award 2009-SU-B9-0054 for the award period March 1, 2009 – February 28, 2013. CFDA 97.036 Disaster Grants – Public Assistance program disasters NC Severe Storms, Tornadoes, and Flooding award FEMA-1969-DR-NC and NC Hurricane Irene award FEMA-4019-DR-NC. Recommendation: The Department should implement procedures to ensure management decisions are issued and corrective action is taken on relevant subrecipient audit findings. The Department should also ensure that the appropriate guidance and training is provided to staff given these responsibilities. STATE OF NORTH CAROLINA 16.738 EDWARD BRYNE MEMORIAL JUSTICE ASSISTANCE GRANT PROGRAM (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Justice N.C. Department of Public Safety For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations Agency Response: The Department agrees with this finding. The Department will ensure there is follow-up with the sub recipient on audit findings. Also, the communication and result of the corrective action will be documented on the audit tracking mechanism. STATE OF NORTH CAROLINA 16.803 RECOVERY ACT - EDWARD BRYNE MEMORIAL JUSTICE ASSISTANCE GRANT (JAG) PROGRAM / GRANTS TO STATES AND TERRITORIES III. Federal Award Findings and Questioned Costs U.S. Department of Justice N.C. Department of Public Safety For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-014 Subrecipient Monitoring: Significant Deficiency Review of Subrecipient Audit Reports Needs Improvement While the Department adequately tracked and obtained subrecipient audit reports, it did not have procedures in place to identify audit findings relevant to its programs and ensure that subrecipients took timely and appropriate corrective action on the findings. As a result, there was an increased risk that deficiencies identified at the subrecipient level would not be corrected. However, in our audit we did not identify any subrecipient audit findings relevant to the Department’s programs. See finding 2013-013 for a description. STATE OF NORTH CAROLINA 17.225 UNEMPLOYMENT INSURANCE III. Federal Award Findings and Questioned Costs U.S. Department of Labor N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-015 Eligibility: Material Weakness Management’s Implementation of Corrective Action Was Inadequate The Department of Commerce management has not ensured implementation of corrective action on all prior year audit findings for three major federal programs audited for fiscal year ended June 30, 2013. Failure to timely implement corrective action to ensure compliance allows federal funds to potentially be used for unallowable expenditures or fail to be properly reported to the federal oversight agency. Here are some of the details: A backlog of investigative cases for potential benefit overpayment in the Unemployment Insurance program continued. In prior year the backlog was over 16,000 assigned cases, but during 2013 was only decreased to near 14,000 cases. Additionally, the timeliness of case closure has not significantly improved. See finding 2013-009 for a description. 2013-016 Eligibility: Significant Deficiency Questioned Cost Finding $602 Deficiencies in Processing and Monitoring of Overpayment Investigations The Department of Commerce’s Division of Employment Security has not been able to investigate and adjudicate potentially inappropriate benefit payments timely; has not maintained adequate records to support investigation findings and has not established overpayments for benefits deemed to be paid improperly. Lack of timely investigation and failure to establish identified overpayments impacts the ability to recover and/or prevent overpayments. Additionally, the lack of adequate documentation impacts the ability to support that the investigation was properly completed and the correct conclusions reached. Potential overpayments due to both fraud and error result from a weekly cross-match with the National Directory of New Hires database and other tips and leads. The Benefit Audit, Reporting, and Tracking System (BARTS) and the Inventory Tracking System (ITS) are used to document these potential overpayments and completed case investigations. A review of the open cases within the Benefit Audit, Reporting and Tracking System as of June 30, 2013 resulted in the following timeliness issues: a. Of the 14,060 open and assigned cases, 7,984 (56.8%) had been open greater than a year. STATE OF NORTH CAROLINA 17.225 UNEMPLOYMENT INSURANCE (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Labor N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations b. 3,512 of those open and assigned cases had been open for more than two years. The most delinquent case had been open for 1601 days (approximately 4.4 years). c. 513 cases have been open for more than one year before being assigned for investigation indicating the potential that cases may remain without action or follow-up for an extended period of time. The Division of Employment Security records indicated 5,715 benefit integrity investigation cases were closed during state fiscal year 2013. A sample of 60 closed cases identified 29 cases with insufficient documentation to determine that the investigation took place, that the correct determination was reached or that appropriate overpayments were established. a. Records for three cases could not be produced. One case had been deleted from BARTS and the case file may have been shredded in violation of the division’s records retention policy leaving no record of the investigation, relevant evidence or the basis for the conclusion. b. Three cases identified overpayments totaling $602 that should have been established but no overpayments had been established in the UI Benefits System to facilitate the recovery of the overpayments. These overpayments will be questioned. c. Sixteen cases had limited or no supporting documentation. Division practice is to scan all supporting documentation and link it to the BARTS record. These cases had either no linked documents or only blank documents. Documents critical to the investigation such as Wage Audit Notices returned by employers and the listing of wages actually paid were missing. d. One case exposed a system override capability where a case originally opened, investigated and closed in 2011 was reopened in fiscal year 2013. The case open date in BARTS was changed from 2011 to 2013, leading to the appearance that the case had been opened and closed on the same day during the audit period. The ability to override the original open date provides the opportunity for investigators and managers to change ‘overdue’ cases to ‘current’ and affect the metrics used by management to assess job performance and federal reporting data. e. Five cases did not contain the necessary documentation to support the decision to or not to establish an overpayment. Two cases had STATE OF NORTH CAROLINA 17.225 UNEMPLOYMENT INSURANCE (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Labor N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations overpayments established in the UI Benefit System for the same weeks investigated in the case, but no overpayment was noted in the case or BARTS. The three other cases contained documentation to suggest an overpayment should have been established but was not. f. One case had been opened in 2011 and determined to be overpaid. However, due to a BARTS printing problem the overpayment notice was not sent. The case was set aside for two years and finally resolved in 2013. Additionally, within the sample of 60 closed cases, six cases had been open and assigned for more than one year before being closed. Cases that remain open for an extended period of time can allow benefits to continue after the potential for fraud has been identified and the total overpayment to be larger than if prompt action had been taken. Unemployment Insurance Program Letter 19-11A, Improper Payments, indicates that integrity programs must be designed to discourage fraud and uncover potential issues of fraud at the earliest possible time. Additionally, the Division’s record retention and disposition policy requires that records subject to audit or legally required for ongoing official proceedings must be retained until released from such audits or official proceedings. These investigation files are subject to audit and are used as evidence in claimant appeals and legal proceeding for suspected fraud. Aspects of this finding were reported in the prior year. Federal Award Information: Unemployment Insurance – funding from the State and Federal Unemployment Trust Funds. This finding affects funds administered under the American Recovery and Reinvestment Act. Recommendation: The Division should improve review of case log reports to ensure cases are handled in a reasonable time period which should be established in policy. Additionally, management should implement procedures to address the current and prevent future case backlogs. The Division should enhance policies outlining the procedures investigators should use in investigating and documenting cases, which should include supervisory review to ensure documentation is sufficient and supports the resolution. The Division should adhere to Division and State record retention policies. STATE OF NORTH CAROLINA 17.225 UNEMPLOYMENT INSURANCE (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Labor N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations Finally, the Division should investigate the underlying causes for the deficiencies noted and implement procedures to address. Agency Response: For fiscal year ending 2013, DES identified more than 16,000 cases within the backlog as reported from the BARTS application that required investigation and/or review for potential inappropriate benefit payments. Using the corrective action methods as communicated for fiscal year ending 2012, DES was able to reduce the backlog by more than 2,000 within fiscal year 2013. Although DES showed improvement in 2013, DES recognizes the need to use more automation to more quickly and more accurately address the backlog. Therefore, DES is currently working with Onpoint Technology to fully maximize and utilize the BARTS application and hope to significantly reduce the backlog to no more than 5000 cases by fiscal year ending 2014. In addition to working with the vendor to improve the use of BARTS, DES has made some organizational changes to improve the supervision of the unit charged with investigating those that may be receiving unemployment benefits while potentially having active employment. 2013-017 Reporting: Significant Deficiency Inaccurate Federal Reporting Deficiencies were identified in the preparation and review process for the quarterly ETA 227 – Overpayment Detection and Recovery Activities reports which resulted in misreporting the change in overpayment receivables by $10 million and inaccuracies in the reported number of overpayments established. The Department of Commerce’s Division of Employment Security prepares the ETA 227 report using reports from the UI Benefit system, spreadsheets and manual paper notepad calculations. The transfer of data between manual calculations and spreadsheets increases the risk of keying errors and miscalculations. The December 2012 and June 2013 quarterly ETA 227 reports were tested and the following errors were noted: One line on the December report was left blank due to a failure to transfer the data from the supporting documentation. This resulted in nine cases not being counted. On the June report, a $10 million keying error in the calculation of the change in overpayment receivable resulted in reporting an increase of $9,759,594 in the receivable balance, when it should have been a STATE OF NORTH CAROLINA 17.225 UNEMPLOYMENT INSURANCE (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Labor N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations $240,406 decrease. The mistake was due to a manual notepad calculation error. Based on the Unemployment Insurance Reports Handbook No. 401 line by line instructions for the ETA 227, 243 tips and leads type cases were added to the wrong line on the December report, while 668 of the same type counts were excluded from the June report. No overpayment dollars were added in relation to these cases. The Division could not provide evidence that these dollars were or were not already included in the report nor could they explain how dollars, and not case counts, would be captured in the system report use to develop the data. Therefore, it is unclear if the December report is overstated or the June report is understated. Based on errors noted, the review process was not sufficient to prevent significant errors and increases the risk that federal reporting will be incomplete, inaccurate and noncompliant. Federal Award Information: Unemployment Insurance – funding from the State and Federal Unemployment Trust Funds. This finding affects funds administered under the American Recovery and Reinvestment Act. Recommendation: The Division should improve controls over the ETA 227 federal report to ensure it is prepared in accordance with federal reporting guidelines and sufficiently reviewed for completeness and accuracy. Agency Response: DES will develop extract files from the Guide application to assist the Benefits Integrity unit in creating the ETA 227 report. These extract files will be made available to the LEAD unit for comparison and review. These extracts will feed into spreadsheets that will calculate both dollars and counts for the ETA 227, thus eliminating human error. This will also reduce the need to tally both counts and dollars manually on notepads, thus allowing for more accurate reporting of the ETA 227. In addition to these changes, the LEAD unit will be required to double check the ETA 227 report entries with Benefits Integrity management before submission to the United States Department of Labor. LEAD and Benefit Integrity management's review will be evidence by appropriate personnel signing off on the report certifying that the report is complete and accurate. Future inaccurate submissions of the ETA 227 report will be reflected in the performance management documents of personnel responsible. STATE OF NORTH CAROLINA 17.258 WIA ADULT PROGRAM III. Federal Award Findings and Questioned Costs U.S. Department of Labor N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-018 Subrecipient Monitoring: Material Weakness Management’s Implementation of Corrective Action Was Inadequate The Department of Commerce management has not ensured implementation of corrective action on all prior year audit findings for three major federal programs audited for fiscal year ended June 30, 2013. Failure to timely implement corrective action to ensure compliance allows federal funds to potentially be used for unallowable expenditures or fail to be properly reported to the federal oversight agency. Here are some of the details: The procedures for performing subrecipient monitoring for the Workforce Investment Act Cluster were not updated in accordance with the prior corrective action plan. The monitoring procedures did not provide evidence that all participants receiving services from the program are being documented in the Workforce Plus System. This system is used to generate performance reports to demonstrate that use of federal funds is meeting the expected performance goals for serving participants. See finding 2013-009 for a description. 2013-019 Subrecipient Monitoring: Significant Deficiency Deficiencies in Subrecipient Monitoring The Department did not document that monitoring procedures were performed to ensure that data for all participants receiving Workforce Investment Act (WIA) Cluster funds was included in the Workforce Plus system. This system is used to track and evaluate WIA performance for federal reporting purposes. Without effective monitoring procedures, there is an increased risk federal reports may not contain all activity of the period. The Division of Workforce Solutions (DWS) Workforce Investment Act Oversight & Review Guide requires DWS financial and programmatic monitors to verify that participants enrolled in WIA were entered into Workforce Plus. During our review of five out of 23 local area Workforce Development Board monitoring visits, none of the five monitoring files included evidence that the reconciliations of participants between the Workforce Plus and the local area’s participant expense accounting system were completed and reviewed by the monitors. OMB Circular A-133 requires pass-through entities to monitor the activities of subrecipients as necessary to ensure that federal awards are used for authorized purposes in compliance with laws, regulations, and the provisions of grant agreements and to ensure that performance goals are achieved. This STATE OF NORTH CAROLINA 17.258 WIA ADULT PROGRAM (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Labor N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations monitoring should include ensuring that all activity is reported by the subrecipients to be included in the pass-through entities federal performance reports. This finding was also reported in the prior year. Federal Award Information: This finding affects CFDA 17.258 WIA Adult Program, CFDA 17.259 WIA Youth Activities, and CFDA 17.278 WIA Dislocated Workers awards AA-20205-10-55-A-37 for the award period July 1, 2010 - June 30, 2013,AA-21407-11-55-A-37 for the award period July 1, 2011 - June 30, 2014 and AA-22947-12-55-A-37 for the award period July 1, 2012 - June 30, 2015. Recommendation: The Department should ensure that all necessary monitoring procedures are performed and documented, including procedures to ensure that participant data is properly included in the Workforce Plus system. Agency Response: In November 2013, DWS staff added questions to address this finding to the Oversight Review Guide, the document used to monitor sub-recipient activities funded through the Workforce Investment Act. While the U.S. Department of Labor has not yet issued a final management decision, USDOL staff has indicated that it will accept the changes as submitted. STATE OF NORTH CAROLINA 17.259 WIA YOUTH ACTIVITIES III. Federal Award Findings and Questioned Costs U.S. Department of Labor N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-020 Subrecipient Monitoring: Material Weakness Management’s Implementation of Corrective Action Was Inadequate The Department of Commerce management has not ensured implementation of corrective action on all prior year audit findings for three major federal programs audited for fiscal year ended June 30, 2013. Failure to timely implement corrective action to ensure compliance allows federal funds to potentially be used for unallowable expenditures or fail to be properly reported to the federal oversight agency. Here are some of the details: The procedures for performing subrecipient monitoring for the Workforce Investment Act Cluster were not updated in accordance with the prior corrective action plan. The monitoring procedures did not provide evidence that all participants receiving services from the program are being documented in the Workforce Plus System. This system is used to generate performance reports to demonstrate that use of federal funds is meeting the expected performance goals for serving participants. See finding 2013-009 for a description. 2013-021 Subrecipient Monitoring: Significant Deficiency Deficiencies in Subrecipient Monitoring The Department did not document that monitoring procedures were performed to ensure that data for all participants receiving Workforce Investment Act (WIA) Cluster funds was included in the Workforce Plus system. This system is used to track and evaluate WIA performance for federal reporting purposes. Without effective monitoring procedures, there is an increased risk federal reports may not contain all activity of the period. See finding 2013-019 for a description. STATE OF NORTH CAROLINA 17.278 WIA DISLOCATED WORKERS FORMULA GRANTS III. Federal Award Findings and Questioned Costs U.S. Department of Labor N.C. Department of Commerce For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-022 Subrecipient Monitoring: Material Weakness Management’s Implementation of Corrective Action Was Inadequate The Department of Commerce management has not ensured implementation of corrective action on all prior year audit findings for three major federal programs audited for fiscal year ended June 30, 2013. Failure to timely implement corrective action to ensure compliance allows federal funds to potentially be used for unallowable expenditures or fail to be properly reported to the federal oversight agency. Here are some of the details: The procedures for performing subrecipient monitoring for the Workforce Investment Act Cluster were not updated in accordance with the prior corrective action plan. The monitoring procedures did not provide evidence that all participants receiving services from the program are being documented in the Workforce Plus System. This system is used to generate performance reports to demonstrate that use of federal funds is meeting the expected performance goals for serving participants. See finding 2013-009 for a description. 2013-023 Subrecipient Monitoring: Significant Deficiency Deficiencies in Subrecipient Monitoring The Department did not document that monitoring procedures were performed to ensure that data for all participants receiving Workforce Investment Act (WIA) Cluster funds was included in the Workforce Plus system. This system is used to track and evaluate WIA performance for federal reporting purposes. Without effective monitoring procedures, there is an increased risk federal reports may not contain all activity of the period. See finding 2013-019 for a description. STATE OF NORTH CAROLINA 20.205 HIGHWAY PLANNING AND CONSTRUCTION III. Federal Award Findings and Questioned Costs U.S. Department of Transportation N.C. Department of Transportation For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-024 Procurement and Suspension and Debarment: Significant Deficiency Justification for Awarding Contracts Not Documented The Department of Transportation did not adequately document the rationale for awarding consultant contracts when the selected firms were not identified as the best qualified. As a result, there was an increased risk of noncompliance with federal procurement requirements. We tested 45 contracts funded fully or partially with Highway Planning and Construction Cluster funds, which included 34 consultant contracts. We identified four consultant contracts awarded to firms that were not identified as the best qualified firm based on Department selection criteria. The total value of the four contracts was $10 million, with current year federal expenditures of $1.9 million. For consultant contracts, the Department uses a centralized selection committee to evaluate and rank qualified firms based on past performance, applicable work experience, present workload, and other factors. Each committee member ranks the firms and then they meet to discuss the rankings and make a final selection. In most cases the top ranked firm will be awarded the contract, but if the committee makes a different selection, the rationale for the decision was not documented. The OMB Circular A-133 Compliance Supplement requires states to use the same state policies and procedures they use for procurements from non-federal funds. North Carolina General Statute 143-64.31 requires state agencies to select firms qualified to provide services on the basis of demonstrated competence and qualification. The Department’s internal “Policies and Procedures for Major or Specialized Service Contracts” requires that the results of the selection committee meeting be maintained. Federal Award Information: CFDA 20.205 Highway Planning and Construction Cluster 2013. This finding also applies to CFDA 20.319 High Speed Rail Corridors and Intercity Passenger Rail Service – Capital Assistance Grants. Recommendation: The Department should fully document the rationale for procurement decisions. Agency Response: Since the audited period, a leadership change has been made in the Director of Technical Services position. The Department of Transportation will prepare formal documentation that summarizes the results of the selection committee meetings and outlines the rationale/justification of the selections. Completion Date: March 1, 2014 STATE OF NORTH CAROLINA 20.205 HIGHWAY PLANNING AND CONSTRUCTION (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Transportation N.C. Department of Transportation For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-025 Special Tests and Provisions: Material Weakness Material Noncompliance Quality Assurance Procedures Not Followed The Department of Transportation did not consistently perform its quality assurance procedures for testing concrete used to pave bridges. As a result, the Department did not comply with federal quality assurance requirements. Federal regulations require the Department to follow an approved quality assurance program to validate the quality of the products used in highway construction. The Department’s quality assurance program for concrete used in bridge paving requires that acceptance testing and independent assurance tests be conducted at specified intervals for all concrete used on a project. Both the acceptance tests and the assurance tests are to be executed by qualified sampling technicians and compression strength testers. We tested 60 contracts for bridge concrete to determine if the Department followed its quality assurance procedures and noted the following: While the proper number of acceptance tests was performed, the Department did not meet its standards for independent assurance tests for 20 of the contracts. No independent assurance tests were conducted for 16 contracts, and in four additional cases the tests did not meet the Department’s minimum requirements. Although the Department monitored to assess if the required number of independent assurance tests had been performed, they did not follow-up when the minimum number was not met. The Department did not have a formal policy defining what skills and training staff must have to be deemed a qualified compression strength tester. As a result the Department could not provide documentation to demonstrate that its 22 compression strength testers were qualified. In contrast, the Department requires sampling technicians to obtain a specific certification, and we found the Department had documentation that the certifications were attained for those in our test. Federal Award Information: CFDA 20.205 Highway Planning and Construction Cluster 2013. Recommendation: The Department should ensure the required number of independent assurance tests is performed. The Department should develop and implement procedures that clearly demonstrate personnel are qualified to perform concrete compression strength tests. STATE OF NORTH CAROLINA 20.205 HIGHWAY PLANNING AND CONSTRUCTION (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Transportation N.C. Department of Transportation For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations Agency Response: This finding is the result of transitioning to a new Independent Assurance Program in partnership with the North Carolina Federal Highway Administration (FHWA). In 2012, the Department designed a new approach that is allowed by the Code of Federal Regulations. FHWA encouraged the Department to pilot this approach before full implementation. In April 2013, the Department began the pilot and was to continue the previously FHWA approved approach. However, the approach in effect for fiscal 2013 was not always properly performed. NCDOT received concurrence from FHWA to fully implement the new approach effective in January 2014. With this new approach, the Materials and Tests Unit has a technician who is responsible for monitoring all Independent Assurance activities and notifies the field employees and their management of the status of compliance through formal reports sent via email monthly (office specific) and quarterly (overall effectiveness). The target for calendar year 2014 is to assess 80 percent of all actively testing technicians. The Department will institute a formal policy defining the expected training and qualifying laboratory technicians inclusive of the expected documentation process. In December 2013, a portion of the personnel (nine technicians) responsible for compressive strength testing received training and obtained the American Concrete Institute’s Concrete Strength Testing Technician Level I certification. Another session will be held in March 2014 to certify ten of the remaining technicians. Others will be trained in the same fashion as needed. This exceeds the requirements of the CCRL for this particular test. Also, the five Materials and Tests Regional laboratories will obtain AMRL and CCRL accreditation by December 31, 2014. This will ensure that annual documentation of the testing protocol/procedure by each technician is maintained properly. Anticipated Completion Date: Changes will be fully implemented by December 2014. STATE OF NORTH CAROLINA 20.319 HIGH-SPEED RAIL CORRIDORS AND INTERCITY PASSENGER RAIL SERVICE – CAPITAL ASSISTANCE GRANTS III. Federal Award Findings and Questioned Costs U.S. Department of Transportation N.C. Department of Transportation For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations 2013-026 Davis-Bacon Act: Significant Deficiency Certified Payrolls Not Obtained The Department of Transportation did not ensure contractors and subcontractors of the Rail Division’s construction contracts submitted the required weekly certified payrolls. As a result, the Department did not comply with federal Davis-Bacon requirements. In addition, there was an increased risk that wages paid to laborers did not comply with the wage requirements. We tested wage requirements for five construction contracts and 19 weeks of work. We noted that for two of the five contracts and seven of the 19 work weeks, the contractors and subcontractors did not submit all of the required certified payrolls. The two contracts noted as errors had a total value of $3.3 million with current year federal expenditures of $472,230, but it is unknown how much of this cost was related to contractors’ and subcontractors’ payroll. The two errors were contracts monitored by the Rail Division. The Division did not follow Department procedures to accurately document the collection of the required certified payrolls. In addition, the Department’s standard documentation for identifying which certified payrolls had been received was often completed by a prime contractor and not a Division employee. There was no evidence the Division reviewed the documents prepared by the contractor or the certified payrolls to ensure laborers were paid the prevailing wage rates. The OMB Circular A-133 Compliance Supplement requires that contractors and subcontractors submit to the state awarding agency a certified payroll for each week in which any contract work is performed. The awarding agency it to review the payrolls to ensure all laborers and mechanics employed by contractors and subcontractors to work on construction contracts in excess of $2,000 are paid wages not less than those established for the locality of the project (prevailing wage rates) by the Department of Labor. Federal Award Information: This finding affects federal award FR-HSR-0006-10-01 for the award period of May 24, 2010 – September 30, 2017. Recommendation: The Department should ensure all certified payrolls are obtained and reviewed for compliance with federal regulations. In addition, management should ensure staff that oversee or coordinate construction projects are properly trained on how to document and execute the Department’s designed procedures. STATE OF NORTH CAROLINA 20.319 HIGH-SPEED RAIL CORRIDORS AND INTERCITY PASSENGER RAIL SERVICE – CAPITAL ASSISTANCE GRANTS (continued) III. Federal Award Findings and Questioned Costs U.S. Department of Transportation N.C. Department of Transportation For the Fiscal Year Ended June 30, 2013 Type of Finding/ Questioned Costs Findings and Recommendations Agency Response: The Rail Division will ensure certified payrolls for contractors and sub-contractors will be obtained and that the certified payrolls will be reviewed by a DOT employee. Completion Date: March 1, 2014 2013-027 Procurement and Suspension and Debarment: Material Weakness Material Noncompliance Buy-American Provisions Excluded From Contract Terms The Department of Transportation did not ensure all the Buy-American provisions were included in its ARRA-funded contracts for the maintenance or repair of a public building. As a result the Department did not comply with this federal requirement and there is an increased risk that the manufactured goods used in these projects were not produced in the United States. The Department awarded four ARRA-funded contracts, with a total contract value of $6.6 million, to maintain or repair rail stations. None of the four contracts included the Buy-America provision for manufactured goods. Per Department personnel, the initial contracts that involved construction, alteration, maintenance, or repair only included a clause that the steel and iron products used for a project be produced in the United States. The Department did not update the standard contract provisions to include manufactured goods. Title 2 CFR section 176.140 requires a contract using ARRA funds for the construction, alteration, maintenance, or repairs of a public building or work include an award clause that all of the iron, steel, and manufacture |
OCLC number | 24364949 |