Report 2020-610 Recommendation 4 Responses

Report 2020-610: State High Risk—Federal COVID-19 Funding: Coronavirus Relief Fund (Release Date: January 2021)

Recommendation #4 To: Finance, Department of

To follow up on any concerns Finance may have identified during its readiness reviews, it should ensure that affected state departments have taken appropriate steps to resolve those issues.

The State Auditor's recommendation was fully implemented on August 10, 2023, with the completion of the first audit that included readiness review assessment results in the engagement's audit procedures. The readiness assessment results were included as a risk factor in the statewide State Fiscal Recovery Funds (SFRF) risk assessment process and were used to assess the impact of the results on the current audit. The audit team then developed audit procedures to ensure the prior identified weaknesses had been mitigated. Finance continues to incorporate the readiness assessment results in all SFRF audits it performs when applicable.

California State Auditor's Assessment of Status: Fully Implemented

Previously, Finance demonstrated that it had incorporated the results from the readiness reviews as part of a risk-based approach to support its long-term monitoring and oversight of federal stimulus and recovery funds. Until now, Finance did not provide evidence that it had followed up with state departments. Finance provided us with a copy of the audit it completed in August 2023 and Finance demonstrated that, as part of that audit, it incorporated the readiness reviews it conducted in 2020 to follow up on any concerns they identified. We assess the status of this recommendation as fully implemented because Finance established long-term monitoring and oversight that is informed by the readiness reviews and, as part of that monitoring and oversight, conducts audits to follow up on any concerns it may have identified during the readiness reviews.

As previously mentioned, Finance's Office of State Audits and Evaluations State Fiscal Recovery Funds (SFRF) audit team incorporated the Readiness Assessment results in its audit plan. On September 6, 2022, the SFRF audit team began an audit of a SFRF program for an entity that previously received a Readiness Assessment in 2020. The draft audit report was issued today, July 10, 2023, with the expected final report issuance date in late July.

California State Auditor's Assessment of Status: Pending

As previously mentioned, Finance's Office of State Audits and Evaluations State Fiscal Recovery Funds (SFRF) audit team incorporated the Readiness Assessment results in its audit plan. On September 6, 2022, the SFRF audit team began an audit of a SFRF program for an entity that previously received a Readiness Assessment in 2020. The end of fieldwork date for the engagement was March 21, 2023, with a projected draft report issuance date of early/mid-May.

California State Auditor's Assessment of Status: Pending

As previously mentioned, Finance's Office of State Audits and Evaluations State Fiscal Recovery Funds (SFRF) audit team incorporated the Readiness Assessment results in its audit plan. On September 6, 2022, the SFRF audit team began an audit of a SFRF program for an entity that previously received a Readiness Assessment in 2020. The audit team is still in the process of conducting audit fieldwork. We do not have an estimated completion date at this time.

California State Auditor's Assessment of Status: Pending

As previously mentioned, Finance's Office of State Audits and Evaluations State Fiscal Recovery Funds (SFRF) audit team incorporated the Readiness Assessment results in its audit plan. On September 6, 2022, the SFRF audit team began an audit of a SFRF program for an entity that previously received a Readiness Assessment in 2020. The SFRF audit team will apply procedures to the relevant Readiness Assessment results to evaluate progress in addressing the identified risks. The audit's estimated completion date is February 2023.

California State Auditor's Assessment of Status: Pending

As mentioned in our April 14, 2022 response, Finance's Office of State Audits and Evaluations State Fiscal Recovery Funds (SFRF) audit teams are incorporating the individual Readiness Review results into its audit plan. Further, procedures were developed and were emailed to you on April 20, 2022, to address risks identified in the Readiness Reviews for specific state entities. We continue to review and plan to review state entities that received both SFRF and Coronavirus Relief Funds as well as other entities receiving SFRF funds that had more significant risk factors.

California State Auditor's Assessment of Status: Partially Implemented

Based on its prior responses, Finance is incorporating the results from the readiness reviews into the statewide State Fiscal Recovery Funds risk assessment process and into its audit plan. However, Finance has not yet provided documentation to substantiate that it followed up with state departments to ensure they had taken appropriate steps to resolve issues Finance may have identified in the readiness reviews.

As mentioned in our January 19, 2022 response, to support ongoing monitoring and oversight of federal stimulus and recovery funds, the Federal Funds Accountability and Cost Tracking (FFACT) Unit and Office of State Audits and Evaluations (OSAE) performed risk assessments of the state entities that were allocated State Fiscal Recovery Funds (SFRF). Of the 20 state entities to receive SFRF, 9 entities were part of OSAE's COVID 19 Federal Funding Readiness Assessments (Readiness Assessment). As previously shared, the Readiness Assessment results were included as a risk factor in the statewide SFRF risk assessment process. Further, the SFRF audit teams are incorporating the individual Readiness Review results into its audit plan. By determining the impact of the results on the current audit, the audit team will develop audit procedures to ensure the prior identified weaknesses have been mitigated.

California State Auditor's Assessment of Status: Partially Implemented

Finance is incorporating the results from the readiness reviews into the statewide State Fiscal Recovery Funds risk assessment process and into its audit plan. However, Finance has not yet provided documentation to substantiate that it followed up with state departments to ensure they had taken appropriate steps to resolve issues Finance may have identified in the readiness reviews. Although Finance indicates that nine state entities included in the readiness reviews also received State Fiscal Recovery Funds, we found and confirmed with Finance that it is incorporating the results from the readiness reviews it conducted at six state entities that were subsequently allocated State Fiscal Recovery Funds.

As part of Finance's efforts to support ongoing monitoring and oversight of federal stimulus and recovery funds, the Federal Funds Accountability and Cost Tracking (FFACT) Unit and Office of State Audits and Evaluations (OSAE) are performing risk assessments of the state entities that were allocated State Fiscal Recovery Funds (SFRF). The ongoing SFRF risk assessment focuses on the state entity's system of internal control in the areas of procurement, expenditures, reimbursement and reporting, performance goals and metrics, subrecipient monitoring, and records retention as it relates to SFRF compliance with federal laws and regulations. Among other factors, OSAE's risk assessment takes into consideration FFACT's risk assessment, the amount of federal funds awarded and projects administered, prior experience with federal funds, and the COVID 19 Federal Funding Readiness Assessments (Readiness Assessments) previously performed in July 2020. Four state entities included in the July 2020 COVID-19 Readiness Assessments also received SFRF. Those entities have been incorporated into the broader SFRF risk assessment and will be monitored for SFRF compliance accordingly. The risk assessment is an ongoing process and will continue until SFRF has been exhausted. Finance will continue to provide guidance to inform state agencies and subrecipients of reporting requirements and oversight responsibilities.

California State Auditor's Assessment of Status: Partially Implemented

Finance demonstrated through documentation that it had incorporated the results from the readiness reviews as part of a risk-based approach to support its long-term monitoring and oversight of federal stimulus and recovery funds. However, Finance did not provide evidence that it had followed up with state departments to ensure they had taken appropriate steps to resolve issues Finance may have identified in the readiness reviews. Although Finance indicates that only four state entities included in the readiness reviews also received State Fiscal Recovery Funds, we found that Finance had incorporated results from the readiness reviews it conducted at six state entities that were subsequently allocated State Fiscal Recovery Funds.

As noted in our prior 90-Day Report, Finance will continue to work with all departments to address concerns identified in our oversight and coordination roll of federal stimulus funds and preparation of the annual Single Audit. Using resources included in the 2021 Budget Act, Finance is developing a risk-based approach to support ongoing monitoring and oversight of federal stimulus and recovery funds over the long-term. This framework will determine risk factors that may include Single Audit risk assessment, amount of federal funding awarded, previously performed readiness assessments, and CSA designation as high risk. This team will support a combination of proactive monitoring and periodic compliance audits. This team will also provide guidance to inform state agencies and subrecipients of reporting requirements and responsibilities and provide best practices.

California State Auditor's Assessment of Status: Partially Implemented

As part of a risk-based approach Finance is developing to support long-term monitoring and oversight of federal stimulus and recovery funds, Finance plans to use the readiness reviews it previously completed. As stated on page 8 of our report, the readiness reviews are a valuable tool to identify and mitigate risks in departments' management of COVID-19 funding. To the extent Finance identified concerns during the readiness reviews, we believe that incorporating the results from those reviews as part of its ongoing monitoring efforts will enable it to provide guidance to state agencies so they may take appropriate steps to resolve those concerns. We have assessed the status of this recommendation as partially implemented because Finance has not yet used the readiness reviews to inform its long-term monitoring and oversight efforts.

Readiness reviews provided a very early assessment of the departments' activities and understanding of requirements related to federal stimulus funds and follow up on these early activities is not needed. As noted in the April report, Finance will continue to work with all departments to address concerns identified in our oversight and coordination roll of federal stimulus funds and preparation of the annual Single Audit. Finance continues to work with state departments to address any issues identified after review of the departments' monthly reports required in Budget Letter 21-03. Finance also continues to provide guidance to departments on expenditure and tracking of federal stimulus funds consistent with applicable state laws and federal requirements. Given the importance of oversight related to the unprecedented level of federal funds provided to California, the 2021 Budget Act includes funding for a new unit at the Department of Finance to continue to support the tracking and oversight of federal stimulus and recovery funds over the long-term.

California State Auditor's Assessment of Status: Pending

We disagree with Finance's assertion that follow up on the readiness reviews it performed is not needed. As we state on page 8 of our report, the readiness reviews are a valuable tool to identify and mitigate risks in departments' management of COVID-19 funding. Finance indicates that it will continue to work with departments to address concerns identified in its oversight and coordination of federal stimulus funds and preparation of the annual Single Audit, which can identify problems after funds have been spent. Finance also states that the 2021 Budget Act included funding for a new unit at Finance to support the tracking and oversight of federal stimulus and recovery funds. We encourage Finance to use its new unit to also follow up on concerns Finance identified in the readiness reviews to ensure state departments have taken appropriate steps to resolve any issues identified in those reviews.

Readiness reviews provided a very early assessment of the departments' activities and understanding of requirements related to federal stimulus funds and follow up on these early activities is not needed. Finance will continue to work with all departments to address concerns identified in our oversight and coordination roll of federal stimulus funds and preparation of the annual Single Audit. For example, Finance issued recent guidance in Budget Letter 21-03 regarding COVID-19 tracking and reporting and is working with state departments to address any issues identified after review of the departments' monthly reports. Finance continues to provide guidance to departments on expenditure and tracking of federal stimulus funds consistent with applicable state laws and federal requirements.

California State Auditor's Assessment of Status: Pending

We disagree with Finance's assertion that follow up on the readiness reviews it performed is not needed. As we state on page 8 of our report, the readiness reviews are a valuable tool to identify and mitigate risks in departments' management of COVID-19 funding. Finance indicates that it will work with departments to address concerns identified in its oversight and coordination of federal stimulus funds and preparation of the annual Single Audit, which can identify problems after funds have been spent. However, to the extent that its readiness reviews identified risks, Finance should monitor the respective departments to ensure they are taking appropriate steps to address those risks and correct potential problems before they have spent the majority of their COVID-19-related funding.

All Recommendations in 2020-610

Agency responses received are posted verbatim.