WORCESTER — An outside audit done for the city found instances of “material weaknesses” and “significant deficiencies” in regards to its internal controls over the compliance and expenditure of federal grant awards during the previous fiscal year.
The biggest problems were found with the city’s lack of monitoring over how agencies expended federal money it gave them through the Community Development Block Grant and HOME grant programs, and with final inspections of rehabilitation projects paid for with block grant funds.
The city, which allocates federal grant monies to third-party agencies, must monitor the work done by those so-called subrecipients, according to federal guidelines. The city must ensure that those agencies receiving more than $500,000 in federal awards during a fiscal year meet federal audit requirements.
But the audit found that none of the files for the 17 subrecipients contained any documentation of monitoring activities being performed.
Also, the city did not obtain sufficient documentation from subrecipients to support each of the reimbursements requested and paid from the grant funds.
That has led to more than $461,000 in questionable costs, according to the audit.
“There was material noncompliance with, a material weakness in internal control over, the federal award program’s subrecipient monitoring requirements,” the audit said. “In addition, noncompliance by the city’s subrecipients could occur and not be detected and corrected timely.”
The audit, done for the city by CliftonLarsonAllen LLP, also found that two of the three project rehabilitation files that were reviewed did not contain final inspection reports to serve as evidence that the city verified that the rehabilitation work was completed in accordance with the contracts.
“The rehabilitation expenses charged to the grant program for which final inspections were not performed are subject to disallowance if the work was not completed properly and may be considered questioned costs,” the audit said.
It added that those questionable costs could amount to as much as $170,000.
In addition, the audit said there was no evidence in the seven files it reviewed that the city complied with the requirement to monitor those agencies expending more than $500,000 in federal awards to make sure they have met federal audit requirements.
That has raised $1.9 million worth of questionable costs, according to the audit.
The audit also cited other instances of “significant deficiencies” over compliance for other federal grant programs. Though such a designation is considered less severe than a material weakness it is considered important enough to merit attention.
City officials said steps have been taken to address several of the issues raised in the audit.
In many instances, they said, the city has worked in concert with the U.S. Department of Housing and Urban Development’s Office of the Inspector General and the Region 1 field office to redesign internal process and procedures for the block grant and HOME entitlement programs.
Work is also under way to address other deficiencies. An issue concerning indirect reimbursement rate charges for federal grants remains unresolved.
City Auditor Robert V. Stearns said the audit report did not identify any material weaknesses in the city’s internal controls in regards to financial reporting. He said it did not disclose any instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
One problem area identified was the city’s practice of charging indirect costs for federal grants that are in excess of rates identified in the approved grants. The city charged a 3 percent indirect charge for the administration of those grants while the grant contracts stipulated a 1 percent rate, according to the audit.
That difference has led to nearly $350,000 worth of questioned costs in the federal grant contracts that were reviewed as part of the audit.
The grant-reimbursement rate has been a particular source of contention between City Hall and the School Department.
In fiscal 1992 the city began assessing all federal grants a 1 percent indirect cost-rate reimbursement, as allowed by the federal Office of Management and Budget.
But in fiscal 2010, the city, with permission from HUD, increased its indirect charge for the administration of federal grants to 3 percent.
The School Committee and school administration have objected to that, saying any such increase must be authorized by the School Committee.
The city’s Law Department and the state Department of Elementary and Secondary Education have also had contrary opinions on the matter, which has been referred the Office of Management and Budget for a final determination.
Other problem areas identified in the audit were:
Determining eligibility and maintaining lunch applications for federal Child Nutrition grants.
The lunch status of two of the 54 student applications tested were found to be incorrect based on the income information provided on the application. The two students received free school lunches when they shouldn’t have.
In addition, the lunch status of six students could not be verified for accuracy because there were not any applications on file for them.
Determining eligibility, maintaining tenant applications, computing rents, and monitoring property management for HOME grants.
The audit found that of the 47 tenants’ rents it tested, the city charged 10 people living in one of its four rental housing projects rent that exceeded the maximum high HOME rent limits established by HUD.
It also found that one of the 47 tenants tested was not income eligible to participate in the HOME Investment Partnerships Program, and that tenant applications were not maintained for one of the four housing units tested.
“There was noncompliance with, and a significant deficiency in internal control over, the federal award program’s eligibility requirements,” the audit said.
Verifying whether vendors with contracts of more than $25,000 have not been suspended from or barred from receiving federal grants.
Lack of time sheets for salaries charged to the Head Start program.
Salary charges for 13 Head Start employees who also work on other grant or non-grant related activities are subject to disallowance because they were not supported by the required time and effort reports.
The amount of questionable costs raised by the audit in this area is nearly $85,000.
Needing to minimize the time lapsing between receipt and disbursement of Race to The Top federal education grant funds.
In total, the audit looked at eight major programs with federal expenditures totaling $44 million.
Contact Nick Kotsopoulos at firstname.lastname@example.org. Follow him on Twitter @NCKotsopoulos