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
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STATE OF NORTH CAROLINA
AUDITOR’S SECTION
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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
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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.
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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