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REPORT OF THE STATEWIDE SINGLE AUDIT OF THE
COMMONWEALTH OF KENTUCKY
VOLUME II
For the Year Ended
June 30, 2022
MIKE HARMON
AUDITOR OF PUBLIC ACCOUNTS
auditor.ky.gov
209 ST. CLAIR STREET
FRANKFORT, KY 40601-1817
(502) 564-5841
March 27, 2023
Honorable Andy Beshear, Governor
Cabinet Secretaries and Agency Heads
Members of the Commonwealth of Kentucky General Assembly
As the Assistant Auditor of Public Accounts, I am pleased to transmit herewith our report of the Statewide
Single Audit of the Commonwealth of Kentucky-Volume II for the year ended June 30, 2022. Our
Statewide Single Audit of the Commonwealth of Kentucky report will be transmitted in two volumes in
order to meet reporting guidelines established by the American Institute of Certified Public Accountants.
Volume I contains financial statement findings identified during our audit of the Annual Comprehensive
Financial Report, the Schedule of Expenditures of Federal Awards (SEFA), related notes, and our opinion
thereon, as well as the 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. Volume I was issued under a separate cover. Volume II contains the Report on
Compliance For Each Major Federal Program and Report on Internal Control Over Compliance in
Accordance With the Uniform Guidance and federal award findings and questioned costs identified during
our audit.
The Auditor of Public Accounts determines the federal programs to be audited for internal controls and
compliance based on Title 2 U.S. Code of Federal Regulations (CFR) part 200, Uniform Administrative
Requirements, Cost Principles, and Audit Requirements for Federal Awards.
On behalf of the Auditor of Public Accounts’ Office, I wish to thank the employees of the Commonwealth
for their cooperation during the course of our audit. Should you have any questions concerning this report,
please contact Jason Johnson, Executive Director of the Office of State Government Audits and
Technology or me.
Respectfully Submitted,
Farrah Petter, CPA
Assistant Auditor of Public Accounts
CONTENTS
Page
INTRODUCTION ............................................................................................................................................ 1
REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL
OVER COMPLIANCE IN ACCORDANCE WITH THE UNIFORM GUIDANCE ....................................................... 5
SCHEDULE OF FINDINGS AND QUESTIONED COSTS ................................................................................... 11
SECTION 1 – SUMMARY OF AUDITOR’S RESULTS ...................................................................................... 11
SECTION 2 – FINANCIAL STATEMENT FINDINGS ......................................................................................... 14
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS…………….……..………...……….15
Material Weaknesses Relating to Internal Controls and/or Noncompliances
FINDING 2022-016: The Cabinet For Health And Family Services Did Not Have Procedures In
Place To Monitor American Rescue Plan Act Stabilization Funding Eligibility Determinations And
Expenditures ............................................................................................................................................. 15
FINDING 2022-017: The Kentucky Department Of Agriculture Failed To Comply With Federal
Cash Management Requirements ............................................................................................................. 17
FINDING 2022-018: The Kentucky Department Of Agriculture Failed To Adequately Document
And Perform Required Annual Inventories .............................................................................................. 20
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-019: The Cabinet For Health And Family Services Did Not Identify And Correct
Beneficiaries Impacted By A Classification Coding Error ....................................................................... 23
FINDING 2022-020: The Cabinet For Health And Family Services Failed To Cease Prevention
Benefits When Continued Eligibility Was No Longer Indicated ............................................................. 26
FINDING 2022-021: The Cabinet For Health And Family Services Did Not Have Adequate Policies
And Procedures In Place Over Subrecipient Allowable Costs For The Child Support Enforcement
Program ..................................................................................................................................................... 29
FINDING 2022-022: The Cabinet For Health And Family Services Failed To Ensure Contracted
Subrecipients Were Not Federally Suspended Or Debarred..................................................................... 34
FINDING 2022-023: The Department Of Workforce Development Failed To Submit Accurate
Reports ...................................................................................................................................................... 38
FINDING 2022-024: The Kentucky Department Of Agriculture Failed To Follow Established
Internal Controls To Ensure Contracted Subrecipients Were Not Federally Suspended Or Debarred. ... 41
FINDING 2022-025: The Office Of Unemployment Insurance Did Not Ensure The Kentucky
Electronic Workplace For Employment Services Was Properly Secured ................................................ 44
FINDING 2022-026: The Office Of Unemployment Insurance Does Not Have Adequate Technical
Documentation Associated With The Kentucky Electronic Workplace For Employment Services
System ....................................................................................................................................................... 45
FINDING 2022-027: The Office Of Unemployment Insurance Does Not Comply With Certain
Federal And State Enterprise Policies Related To System Security ......................................................... 46
FINDING 2022-028: The Office Of Unemployment Insurance Did Not Comply With Certain
Federal Regulations Related To Income Eligibility And Verification Systems ....................................... 47
FINDING 2022-029: The Office Of Unemployment Insurance Failed To Meet Benefits Accuracy
Measurement Standards ............................................................................................................................ 48
FINDING 2022-030: The Office Of Unemployment Insurance Failed To Ensure Adequate Internal
Controls Were In Place For Federal Reports ............................................................................................ 53
FINDING 2022-031: The Office Of Unemployment Insurance Failed To Maintain Reemployment
Services And Eligibility Assessment Records .......................................................................................... 58
APPENDIX .................................................................................................................................................. 63
INTRODUCTION
Page 1
COMMONWEALTH OF KENTUCKY
INTRODUCTION
FOR THE YEAR ENDED JUNE 30, 2022
Single Audit
The Single Audit Act of 1984, subsequent amendments, and corresponding regulations require an annual
audit of the financial statements and compliance with requirements applicable to major federal programs.
The Auditor of Public Accounts (APA) meets these requirements and submits audit findings required to
be reported by auditing standards generally accepted in the United States of America, Government
Auditing Standards, and Title 2 U.S. Code of Federal Regulations part 200, Uniform Administrative
Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) through
our opinion on the Commonwealth’s Annual Comprehensive Financial Report and through the Statewide
Single Audit of Kentucky (SSWAK). Our SSWAK report is contained in two volumes as noted below.
SSWAK - Volume I contains financial reporting information based on our audit of the Annual
Comprehensive Financial Report. It includes the APA’s opinion on the Schedule of Expenditures of
Federal Awards (SEFA) in relation to the financial statements, the 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, and financial statement findings related
to internal control and compliance.
SSWAK - Volume II contains elements required under the Uniform Guidance, including the Report on
Compliance for Each Major Federal Program and Report on Internal Control over Compliance in
Accordance with the Uniform Guidance, and the Schedule of Findings and Questioned Costs.
Schedule of Findings and Questioned Costs
The Schedule of Findings and Questioned Costs consists of three sections: Summary of Auditor’s Results,
Financial Statement Findings, and Federal Award Findings and Questioned Costs. The Summary of
Auditor’s Results, presented within this report, summarizes the types of audit reports issued and lists major
programs audited. The Financial Statement Findings section is reported in SSWAK Volume I. The
Federal Award Findings and Questioned Costs section, also presented within this report, lists findings
related to federal awards. For the Federal Award Findings, material weaknesses and material instances of
noncompliance are presented first, then significant deficiencies and reportable instances of
noncompliance. Management responses are presented after each Financial Statement and Federal Award
Finding, if provided.
Corrective Action Plans and the Summary Schedule of Prior Audit Findings
Corrective Action Plans, prepared by management of the various agencies audited, related to audit findings
reported in the Schedule of Findings and Questioned Costs for fiscal year (FY) 2022, as well as the
Summary Schedule of Prior Audit Findings, are included in the data collection package submitted to the
Federal Audit Clearinghouse and can be found at https://harvester.census.gov/facweb/.
Page 2
COMMONWEALTH OF KENTUCKY
INTRODUCTION
FOR THE YEAR ENDED JUNE 30, 2022
Audit Approach
The scope of the FY 2022 SSWAK included:
Financial
• An audit of the basic financial statements and combining financial statements;
• Limited procedures applied to required supplementary information;
• An audit of the SEFA sufficient to give an opinion in relation to the basic financial statements;
• Tests of compliance with certain provisions of laws, regulations, contracts, and grants, and
tests of internal controls, where applicable; and
• Findings related to internal controls over financial reporting when noted during the audit of the
Annual Comprehensive Financial Report.
Federal Awards
• An audit of compliance with the compliance requirements described in the U.S. Office of
Management and Budget (OMB) Compliance Supplement that could have a direct and material
effect on each major federal program;
• Tests of internal control over compliance in accordance with the Uniform Guidance; and
• Findings related to compliance and internal controls over compliance when noted during the
audit of major federal programs.
Component Units
The Single Audit Act Amendments permit the single audit to cover the entire operations of the entity or
include a series of audits covering departments, agencies, or other organizational units expending federal
awards. Component units are included in the audit of the basic financial statements but are not included
in the Commonwealth’s audit of major federal programs. Component units expending more than
$750,000 in federal awards obtain separate audits in accordance with the Uniform Guidance. Thus,
component units are not included in the Report on Compliance for Each Major Federal Program And
Report on Internal Control Over Compliance in Accordance with the Uniform Guidance, and the
corresponding Schedule of Findings and Questioned Costs.
REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM
AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE IN
ACCORDANCE WITH THE UNIFORM GUIDANCE
Report on Compliance For Each Major Federal Program and
Report on Internal Control Over Compliance In Accordance
With the Uniform Guidance
Independent Auditor’s Report
Honorable Andy Beshear, Governor
Cabinet Secretaries and Agency Heads
Members of the Commonwealth of Kentucky General Assembly
Report on Compliance for Each Major Federal Program
Qualified and Unmodified Opinions
We have audited the Commonwealth of Kentucky’s (Commonwealth) compliance with the types of
compliance requirements identified as subject to audit in the U.S. Office of Management and Budget
(OMB) Compliance Supplement that could have a direct and material effect on each of the
Commonwealth’s major federal programs for the year ended June 30, 2022. The Commonwealth’s major
federal programs are identified in the Summary of Auditor’s Results section of the accompanying
Schedule of Findings and Questioned Costs.
The Commonwealth’s basic financial statements include the operations of certain agencies and component
units, which expended federal awards that are not included in the Commonwealth’s Schedule of
Expenditures of Federal Awards for the year ended June 30, 2022. Our audit, described below, did not
include the operations of these agencies and component units since they were audited by other auditors.
Qualified Opinion on ALN 10.565, 10.568, 10.569, 93.575 and 93.596
In our opinion, except for the noncompliances described in the Basis for Qualified and Unmodified
Opinions section of our report, the Commonwealth complied, in all material respects, with the 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, 2022.
Unmodified Opinion on Each of the Other Major Federal Programs
In our opinion, the Commonwealth 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 the Summary of Auditor’s Results section of the accompanying Schedule
of Findings and Questioned Costs for the year ended June 30, 2022.
Page 6
Report on Compliance For Each Major Federal Program and
Report on Internal Control Over Compliance In Accordance With the Uniform Guidance
(Continued)
Basis for Qualified and Unmodified Opinions
We conducted our audit of compliance in accordance with auditing standards generally accepted in the
United States of America (GAAS); the standards applicable to financial audits contained in Government
Auditing Standards issued by the Comptroller General of the United States; and the audit requirements of
Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost
Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Our responsibilities under
those standards and the Uniform Guidance are further described in the Auditor’s Responsibilities for the
Audit of Compliance section of our report.
We are required to be independent of the Commonwealth and to meet our other ethical responsibilities, in
accordance with relevant ethical requirements relating to our audit. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our opinion on compliance for each major
federal program. Our audit does not provide a legal determination of the Commonwealth’s compliance
with the compliance requirements referred to above.
Matters Giving Rise to Qualified Opinions on ALN 10.565, 10.568, 10.569, 93.575 and 93.596
As described in the accompanying Schedule of Findings and Questioned Costs, the Commonwealth did
not comply with requirements regarding ALN 10.565 Commodity Supplemental Food Program, 10.568
Emergency Food Assistance Program (Administrative Costs), and 10.569 Emergency Food Assistance
Program (Food Commodities) as described in finding number 2022-017 for Cash Management and finding
number 2022-018 for Special Tests and Provisions. The Commonwealth also did not comply with
requirements regarding ALN 93.575 Child Care and Development Block Grant and 93.596 Child Care
Mandatory and Matching Funds of the Child Care and Development Fund as described in finding number
2022-016 for Eligibility and Special Tests and Provisions. Compliance with such requirements is
necessary, in our opinion, for the Commonwealth to comply with the requirements applicable to those
programs.
Responsibilities of Management for Compliance
Management is responsible for compliance with the requirements referred to above and for the design,
implementation, and maintenance of effective internal control over compliance with the requirements of
laws, statutes, regulations, rules, and provisions of contracts or grant agreements applicable to the
Commonwealth’s federal programs.
Auditor’s Responsibilities for the Audit of Compliance
Our objectives are to obtain reasonable assurance about whether material noncompliance with the
compliance requirements referred to above occurred, whether due to fraud or error, and express an opinion
on the Commonwealth’s compliance based on our audit. Reasonable assurance is a high level of assurance
but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with
GAAS, Government Auditing Standards, and the Uniform Guidance will always detect material
noncompliance when it exists. The risk of not detecting material noncompliance resulting from fraud is
higher than for that resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control. Noncompliance with the compliance requirements
Page 7
Report on Compliance For Each Major Federal Program and
Report on Internal Control Over Compliance In Accordance With the Uniform Guidance
(Continued)
referred to above is considered material, if there is a substantial likelihood that, individually or in the
aggregate, it would influence the judgment made by a reasonable user of the report on compliance about
the Commonwealth’s compliance with the requirements of each major federal program as a whole.
In performing an audit in accordance with GAAS, Government Auditing Standards, and the Uniform
Guidance, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit.
• Identify and assess the risks of material noncompliance, whether due to fraud or error, and design
and perform audit procedures responsive to those risks. Such procedures include examining, on a
test basis, evidence regarding the Commonwealth’s compliance with the compliance requirements
referred to above and performing such other procedures as we considered necessary in the
circumstances.
• Obtain an understanding of the Commonwealth’s internal control over compliance relevant to the
audit in order to design audit procedures that are appropriate in the circumstances and to test and
report on internal control over compliance in accordance with the Uniform Guidance, but not for
the purpose of expressing an opinion on the effectiveness of the Commonwealth’s internal control
over compliance. Accordingly, no such opinion is expressed.
We are required to communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit and any significant deficiencies and material weaknesses in internal
control over compliance that we identified during the audit.
Other Matters
The results of our auditing procedures disclosed other instances of noncompliance which are required to
be reported in accordance with the Uniform Guidance and which are described in the accompanying
Schedule of Findings and Questioned Costs as item 2022-019. Our opinion on each major federal program
is not modified with respect to these matters.
Government Auditing Standards requires the auditor to perform limited procedures on the
Commonwealth’s response to the noncompliance findings identified in our compliance audit described in
the accompanying schedule of findings and questioned costs. The Commonwealth’s response was not
subjected to the other auditing procedures applied in the audit of compliance and, accordingly, we express
no opinion on the response.
Report on Internal Control Over Compliance
Our consideration of internal control over compliance was for the limited purpose described in the
Auditor’s Responsibilities for the Audit of Compliance section above and was not designed to identify all
deficiencies in internal control over compliance that might be material weaknesses or significant
deficiencies in internal control over compliance and therefore, material weaknesses or significant
deficiencies may exist that were not identified. However, as discussed below, we did identify certain
deficiencies in internal control over compliance that we consider to be material weaknesses and significant
deficiencies.
Page 8
Report on Compliance For Each Major Federal Program and
Report on Internal Control Over Compliance In Accordance With the Uniform Guidance
(Continued)
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 the accompanying Schedule of Findings and Questioned
Costs as items 2022-016, 2022-017, and 2022-018 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 the accompanying Schedule of Findings and Questioned Costs as
items 2022-019 through 2022-031 to be significant deficiencies.
Our audit was not designed for the purpose of expressing an opinion on the effectiveness of internal control
over compliance. Accordingly, no such opinion is expressed.
Government Auditing Standards requires the auditor to perform limited procedures on the
Commonwealth’s response to the internal control over compliance findings identified in our audit
described in the accompanying schedule of findings and questioned costs. The Commonwealth’s response
was not subjected to the other auditing procedures applied in the audit of compliance and, accordingly,
we express no opinion on the response.
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 the Uniform
Guidance. Accordingly, this report is not suitable for any other purpose.
Respectfully Submitted,
Farrah Petter, CPA
Assistant Auditor of Public Accounts
Frankfort, Kentucky
March 3, 2023
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
Page 11
COMMONWEALTH OF KENTUCKY
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
FOR THE YEAR ENDED JUNE 30, 2022
SECTION 1 – SUMMARY OF AUDITOR’S RESULTS
Financial Statements
Financial Statements: We issued unmodified opinions on the governmental activities, business-type
activities, aggregate discretely presented component units, each major fund, and aggregate remaining fund
information of the Commonwealth as of and for the year ended June 30, 2022.
Internal Control Over Financial Reporting: Our consideration of the Commonwealth’s internal control
over financial reporting disclosed five material weaknesses and 10 significant deficiencies.
Compliance: In relation to the audit of the basic financial statements of the Commonwealth, the results
of our tests disclosed no instances of noncompliance that are required to be reported under Government
Auditing Standards.
Federal Awards
Compliance: We issued a qualified opinion on the Commonwealth’s compliance for the following major
federal programs: ALN 10.565, 10.568, 10.569, 93.575, and 93.596. An unmodified opinion was issued
for the Commonwealth’s compliance for all other major federal programs. The results of our auditing
procedures resulted in three findings that disclosed material noncompliances. Additionally, our procedures
identified one other instance of noncompliance required to be reported under Uniform Guidance.
Internal Control Over Compliance: Our consideration of the Commonwealth’s internal control over
compliance disclosed three material weaknesses and 13 significant deficiencies.
Page 12
SECTION 1 – SUMMARY OF AUDITOR’S RESULTS (CONTINUED)
Identification of Major Programs
Type B Major Programs are highlighted in gray.
ALN
Cluster or Program Title
10.558
Child and Adult Care Food Program
10.565, 10.568, 10.569
Food Distribution Cluster
14.228
Community Development Block Grants/State's Program and Non-Entitlement Grants in Hawaii
17.225
Unemployment Insurance
17.258, 17.259, 17.278
WIOA Cluster
20.205, 20.219
Highway Planning and Construction Cluster
21.023
Emergency Rental Assistance
21.027
Coronavirus State and Local Fiscal Recovery Funds
23.002
Appalachian Area Development
84.367
Supporting Effective Instruction State Grants
84.425
Education Stabilization Fund
93.044, 93.045, 93.053
Aging Cluster
93.472
Title IV-E Prevention and Family Services and Programs
93.575, 93.596
CCDF Cluster
93.775, 93.777, 93.778
Medicaid Cluster
93.958
Block Grants for Community Mental Health Services
Page 13
SECTION 1 – SUMMARY OF AUDITOR’S RESULTS (CONTINUED)
Dollar Threshold Used To Distinguish Between Type A and Type B Programs
The maximum dollar threshold used to distinguish between Type A and Type B programs was
$32,486,703.
Auditee Risk
The Commonwealth did not qualify as a low-risk auditee.
Page 14
SECTION 2 – FINANCIAL STATEMENT FINDINGS
See the Report of the Statewide Single Audit of the Commonwealth of Kentucky Volume I for Financial
Statement Findings 2022-001 through 2022-015.
Page 15
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Material Weaknesses Relating to Internal Controls and/or Noncompliances
FINDING 2022-016: The Cabinet For Health And Family Services Did Not Have Procedures In
Place To Monitor American Rescue Plan Act Stabilization Funding Eligibility Determinations And
Expenditures
State Agency: Cabinet for Health and Family Services
Federal Program: ALN 93.575 – Child Care and Development Block Grant
ALN 93.575 – COVID-19 Child Care and Development Block Grant
ALN 93.596 – Child Care Mandatory and Matching Funds of the Child Care and
Development Fund
Federal Award Number and Year: 2101KYCCDF – 2021
Federal Agency: U.S. Department of Health and Human Services
Pass-Through: Not Applicable
Compliance Area: Eligibility; Special Tests and Provisions
Questioned Costs: $0
During the fiscal year (FY) 2022 audit of the Child Care Development Fund (CCDF) program,
administered by the Cabinet for Health and Family Services (CHFS), internal controls over the eligibility
for child care providers receiving CCDF American Rescue Plan Act (ARPA) stabilization funds were
reviewed. The CHFS Division of Child Care (DCC) contracts with a consultant to determine child care
provider ARPA eligibility, calculate child care provider payments, and provide technical assistance to the
child care providers applying for ARPA stabilization funding. During FY 2022, DCC expended ARPA
stabilization funding with no formal monitoring process to review the activities of the consultant.
Per the agreement DCC provided the consultant with a list of child care providers, the application for the
child care providers to complete, and the requirements the consultant should use in the application review
process (including the three tier categories). The consultant developed and implemented the application
process, received and evaluated child care provider applications, and calculated the quarterly payments
for each provider based on the assigned funding tier. The consultant also developed a weekly meeting
agenda to discuss any problems or concerns with DCC. While DCC had weekly meetings with the
consultant, there was no formal monitoring process to review the:
• applications received by the consultant or
• consultant’s eligibility determinations or
• ARPA stabilization payment calculations.
DCC did not have internal controls in place to monitor the provider application eligibility determinations
or payment calculations performed by the consultant.
While the consultant provided valuable services to CHFS, failure to implement formal contract monitoring
procedures could create a significant risk and opportunity for fraud or abuse. Contracts should be enacted
to adequately safeguard an entity and mitigate the risk from the potential loss of resources due to the
failure of a party to perform or provide funding per the agreed terms. Without internal controls in place to
monitor compliance with the established contract requirements, DCC cannot ensure the child care
providers are:
• eligible for funding and
• receiving the correct amount of funding based on the established tier system.
Page 16
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Material Weaknesses Relating to Internal Controls and/or Noncompliances
FINDING 2022-016: The Cabinet For Health And Family Services Did Not Have Procedures In
Place To Monitor American Rescue Plan Act Stabilization Funding Eligibility Determinations And
Expenditures (Continued)
In addition, without adequate internal controls, CHFS cannot ensure the consultant is operating according
to federal regulations.
45 CFR 98.11 Administration under contracts and agreements states:
(a)
The Lead Agency has broad authority to administer the program through other
governmental or non-governmental agencies. In addition, the Lead Agency can use
other public or private local agencies to implement the program; however:
(1) The Lead Agency shall retain overall responsibility for the administration of the
program, as defined in paragraph (b) of this section…
(b)
In retaining overall responsibility for the administration of the program, the Lead
Agency shall:
(1) Determine the basic usage and priorities for the expenditure of CCDF funds;
(2) Promulgate all rules and regulations governing overall administration of the Plan;
(3) Submit all reports required by the Secretary;
(4) Ensure that the program complies with the approved Plan and all Federal
requirements;
(5) Oversee the expenditure of funds by subrecipients and contractors, in accordance
with 75 CFR parts 351 to 353;
(6) Monitor programs and services;
(7) Fulfill the responsibilities of any subgrantee in any: disallowance under subpart G;
complaint or compliance action under subpart J; or hearing or appeal action under
part 99 of this chapter; and
(8) Ensure that all State and local or non-governmental agencies through which the
State administers the program, including agencies and contractors that determine
individual eligibility, operate according to the rules established for the program.
Recommendation
We recommend DCC evaluate internal controls to ensure contractors are in compliance with contract
provisions and federal regulations relating to child care provider eligibility and funding calculations.
Management’s Response and Planned Corrective Action
The Division of Child Care will randomly select provider applications per quarter for further review.
DCC staff will review all necessary information/documentation from the provider as well as calculations
completed by PCG based on tier. For the remaining payments, DCC will complete this analysis prior to
payments being issued.
Page 17
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Material Weaknesses Relating to Internal Controls and/or Noncompliances
FINDING 2022-017: The Kentucky Department Of Agriculture Failed To Comply With Federal
Cash Management Requirements
State Agency: Kentucky Department of Agriculture
Federal Program: ALN 10.565 – Commodity Supplemental Food Program
ALN 10.565 – COVID-19 Commodity Supplemental Food Program
ALN 10.568 – Emergency Food Assistance Program (Administrative Costs)
ALN 10.568 – COVID-19 Emergency Food Assistance Program (Administrative
Costs)
10.569 – Emergency Food Assistance Program (Food Commodities)
10.569 – COVID-19 Emergency Food Assistance Program (Food Commodities)
Federal Award Number and Year: Various
Federal Agency: U.S. Department of Agriculture
Pass-Through: Not Applicable
Compliance Area: Cash Management
Questioned Costs: $0
This is a repeat finding as reported in the 2021 Statewide Single Audit of Kentucky (SWWAK) Volume
II as finding 2021-021.
The Food and Nutrition Service (FNS) of the United States Department of Agriculture (USDA) entered
into agreements with the Kentucky Department of Agriculture (KDA) to support the Commodity
Supplemental Food Program (CSFP) and The Emergency Food Assistance Program (TEFAP), which
comprise the Food Distribution Cluster. The agreements allow for the distribution of USDA foods and
provide funding for the administrative costs incurred in operating the programs. KDA failed to comply
with federal cash management requirements for the Food Distribution Cluster in order to minimize the
time between the drawdown and subsequent disbursement of funds for federal program purposes in
accordance with 31 CFR 205.33.
Analysis of financial activity pertaining to the Food Distribution Cluster programs revealed KDA
generally completes a cash drawdown of federal funds closer to when funds are made available, operating
off of any excess funds until more funding is made available and necessary. Additionally, KDA indicated
that it could not directly identify which payments to subrecipients supported and reconciled to the amount
of each federal drawdown.
KDA failed to implement adequate internal controls to ensure the drawdown of federal funds was in
compliance with federal regulations. While a written procedure existed, it did not provide adequate detail
to ensure compliance with federal cash management requirements. Additionally, available funding for
the Food Distribution Cluster programs is not immediately known or communicated to KDA until later in
a federal fiscal year. This complicates the administration and planning of program related activity,
including determining the distribution and subsequent drawdown of federal funds.
Page 18
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Material Weaknesses Relating to Internal Controls and/or Noncompliances
FINDING 2022-017: The Kentucky Department Of Agriculture Failed To Comply With Federal
Cash Management Requirements (Continued)
KDA was noncompliant with federal cash management requirements as no mechanism was in place to
ensure that drawdowns were for the actual and immediate cash need for federal program purposes. Any
excess federal funding receipts not needed to reimburse allowable costs would be due back to the Federal
Government. While the current process of cash management at KDA makes this determination difficult,
compounded by program activities crossing fiscal years, it does appear that subrecipients had sufficient
costs that were supported and eligible for reimbursement in excess of what was available for federal
reimbursement.
31 CFR 205.33 How are funds transfers processed? states:
(a)
A state must minimize the time between the drawdown of Federal funds from the
Federal Government and their disbursement for Federal program purposes. A
Federal program agency must limit a funds transfer to a state to the minimum
amounts needed by the State and must time the disbursement to be in accord with
the actual, immediate cash requirements of the State in carrying out a Federal
assistance program or project. The timing and amount of funds transfers must be as
close as is administratively feasible to a State's actual cash outlay for direct program
costs and the proportionate share of any allowable indirect costs. States should
exercise sound cash management in funds transfers to sub-grantees in accordance
with OMB Circular A-102 (For availability, see 5 CFR 1310.3.).
(b)
Neither a State nor the Federal Government will incur an interest liability under this
part on the transfer of funds for a Federal assistance program subject to this subpart
B.
2 CFR 200.303 states the non-federal entity must:
(a)
Establish and maintain effective internal control over the Federal award that
provides reasonable assurance that the non-Federal entity is managing the Federal
award in compliance with Federal statutes, regulations, and the terms and
conditions of the Federal award. These internal controls should be in compliance
with guidance in “Standards for Internal Control in the Federal Government” issued
by the Comptroller General of the United States or the “Internal Control Integrated
Framework”, issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
Recommendation
We recommend KDA implement adequate internal controls and properly manage grant activities
to ensure compliance with cash management and grant requirements in accordance with federal
regulations. KDA should consult with USDA for additional guidance as deemed necessary.
Page 19
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Material Weaknesses Relating to Internal Controls and/or Noncompliances
FINDING 2022-017: The Kentucky Department Of Agriculture Failed To Comply With Federal
Cash Management Requirements (Continued)
Management’s Response and Planned Corrective Action
The FY2022 audit did not give KDA sufficient time to demonstrate compliance with the findings
from the FY2021 audit, which resulted in these repeat findings. Available federal funding for the
Federal Programs listed here is not immediately known or communicated to KDA by USDA until
later in a federal fiscal year. For example, funds are often made available by congressional
continuing resolutions. This does complicate the administration and planning of program-related
activity, including determining the distribution and subsequent drawdown of federal funds. KDA
will more closely monitor and complete federal fund drawdowns so that these drawdowns occur
closer to an “actual, immediate cash requirement” as stated in 31 CFR 205.33. KDA has consulted
with USDA and FNS for additional guidance. Additionally, KDA already maintains separate
accounts for each grant to ensure that funds are not mixed and are used for authorized purposes
only, and KDA does not at any time incur an interest liability on the transfer of these federal funds.
Auditor’s Reply
The FY 2021 audit report was issued in accordance with established timeframes per federal
guidance and regulations. The auditor will review any implemented corrective action effective
during the FY 2023 audit cycle.
Page 20
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Material Weaknesses Relating to Internal Controls and/or Noncompliances
FINDING 2022-018: The Kentucky Department Of Agriculture Failed To Adequately Document
And Perform Required Annual Inventories
State Agency: Kentucky Department of Agriculture
Federal Program: ALN 10.565 – Commodity Supplemental Food Program
ALN 10.565 – COVID-19 Commodity Supplemental Food Program
ALN 10.568 – Emergency Food Assistance Program (Administrative Costs)
ALN 10.568 – COVID-19 Emergency Food Assistance Program (Administrative
Costs)
10.569 – Emergency Food Assistance Program (Food Commodities)
10.569 – COVID-19 Emergency Food Assistance Program (Food Commodities)
Federal Award Number and Year: Various
Federal Agency: U.S. Department of Agriculture
Pass-Through: Kentucky Department of Agriculture
Compliance Area: Special Tests and Provisions
Questioned Costs: $0
This is a repeat finding as reported in the 2021 Statewide Single Audit of Kentucky (SSWAK) Volume II
as finding 2021-020.
The Commodity Supplemental Food Program (CSFP) and The Emergency Food Assistance Program
(TEFAP) provide food commodities through the United States Department of Agriculture (USDA) for the
distribution by subrecipient food banks to qualifying low-income households and individuals. The
Kentucky Department of Agriculture (KDA) failed to maintain and provide sufficient documentation
substantiating a complete and thorough annual physical inventory had been conducted at the three storage
facilities KDA observed during state fiscal year 2022. Additionally, KDA failed to maintain
documentation that reconciled the observed annual inventory with storage and inventory records
maintained on file with KDA. As a result, KDA was noncompliant with federal regulations 7 CFR 247.28
and 7 CFR 250.12.
KDA did not have sufficient written policies and procedures to ensure the annual physical inventories
were completed in a consistent manner, well documented, and reconciled to inventory records in
accordance with federal regulations. Inventory procedures had been informally communicated and passed
down to staff, and as a result the annual inventory methodology and objectives were not clearly
established. In the current year under review KDA has worked with its federal partners to develop suitable
policies and procedures to ensure compliance with federal regulations, which will be implemented in fiscal
year 2023.
While KDA acknowledges completing a monthly book inventory reconciliation based upon subrecipient
reports, the physical annual inventory serves as the standard for validating food commodities on hand are
complete and accurate while assisting to identify any potential loss due to fraud, waste, abuse, or error.
Failure to complete a physical inventory and reconciliation could lead to improper distribution and loss of
USDA food commodities. KDA is required to report donated food losses and ensure that restitution is
made for such losses when appropriate.
Page 21
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Material Weaknesses Relating to Internal Controls and/or Noncompliances
FINDING 2022-018: The Kentucky Department Of Agriculture Failed To Adequately Document
And Perform Required Annual Inventories (Continued)
7 CFR 247.28 Storage and inventory of commodities, states:
(b)
What are the requirements for storage of commodities? A physical inventory of all
USDA commodities must be conducted annually at each storage and distribution
site where these commodities are stored. Results of the physical inventory must be
reconciled with inventory records and maintained on file by the State or local
agency.
7 CFR 250.12 Storage and inventory management at the distributing agency level, states:
(b)
Inventory management. The distributing agency must ensure that donated foods at
all storage facilities used by the distributing agency (or by a subdistributing agency)
are stored in a manner that permits them to be distinguished from other foods, and
must ensure that a separate inventory record of donated foods is maintained. The
distributing agency's system of inventory management must ensure that donated
foods are distributed in a timely manner and in optimal condition. On an annual
basis, the distributing agency must conduct a physical review of donated food
inventories at all storage facilities used by the distributing agency (or by a
subdistributing agency), and must reconcile physical and book inventories of
donated foods. The distributing agency must report donated food losses to FNS,
and ensure that restitution is made for such losses.
Recommendation
We recommend KDA implement adequate internal controls and properly manage inventory
control activities to ensure compliance with inventory requirements in accordance with federal
regulations. KDA should establish written policies and procedures to ensure annual physical
inventory procedures are consistently applied, well documented, and meet the objectives of federal
regulations. KDA should consult with USDA for additional guidance when necessary.
Management’s Response and Planned Corrective Action
The FY2022 audit did not give KDA sufficient time to demonstrate compliance with the findings
from the FY2021 audit, which resulted in these repeat findings. KDA regularly monitors Food
Bank inventories and conducts required annual physical inventories in compliance with federal
regulations and federal timelines. KDA acknowledges that those inventories and records were not
always consistently documented, especially with disruptions caused by the COVID-19 pandemic.
In response to this finding, KDA will follow the guidance contained in USDA Food Distribution
National Policy Memorandum FD-058, and will ensure that annual physical inventory procedures
are consistently applied and well documented. KDA has consulted with USDA and FNS at length
on this procedure. KDA also has communicated this procedure to the Food Banks.
Page 22
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Material Weaknesses Relating to Internal Controls and/or Noncompliances
FINDING 2022-018: The Kentucky Department Of Agriculture Failed To Adequately Document
And Perform Required Annual Inventories (Continued)
Management’s Response and Planned Corrective Action (Continued)
KDA has also established a standard physical inventory form, attached, that will be used for all
future Food Bank annual inventories. The form includes reconciliation of the physical inventory
to book records and meets federal guidelines. This form, along with records of receipts, shipments,
and losses, will be retained in accordance with federal and state records retention guidelines.
Auditor’s Reply
The FY 2021 audit report was issued in accordance with established timeframes per federal
guidance and regulations. Management’s Response identified that the required annual physical
inventories were conducted; however, those records were not always consistently documented.
KDA should ensure future documentation is adequate to provide sufficient appropriate evidence
to support compliance with federal regulations. Discussions with management identified newly
implemented policies and procedures will be effective for FY 2023. The auditor will review those
polices and compliance to regulations during the FY 2023 audit cycle.
Page 23
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-019: The Cabinet For Health And Family Services Did Not Identify And Correct
Beneficiaries Impacted By A Classification Coding Error
State Agency: Cabinet for Health and Family Services
Federal Program: ALN 93.775 – State Medicaid Fraud Control Units
ALN 93.777 – State Survey and Certification of Health Care Providers and Suppliers
(Title XVIII) Medicare
ALN 93.777 – COVID-19 State Survey and Certification of Health Care Providers and
Suppliers (Title XVIII) Medicare
ALN 93.778 – Medical Assistance Program
ALN 93.778 – COVID-19 Medical Assistance Program
ALN 93.778 – ARRA Medical Assistance Program
Federal Award Number and Year: Various
Federal Agency: U.S. Department of Health and Human Services
Pass-Through: Not Applicable
Compliance Area: Activities Allowed or Unallowed; Allowable Costs/Cost Principles
Questioned Costs: $73,936
During the fiscal year (FY) 2022 Medical Assistance Program (Medicaid) audit, capitation rates and
contracts were reviewed for allowable activities and allowable costs. The Cabinet for Health and Family
Services (CHFS) contracts with six Managed Care Organizations (MCOs) to deliver medical services to
Kentucky’s population of Medicaid recipients. MCOs are compensated by capitation rates designated by
assigned rate cells, and incorrectly assigned rate cells will result in incorrect capitation payments to MCOs.
Testing identified a case in which an incorrect rate cell was assigned to a Medicaid beneficiary. In this
instance, there was an incongruence between the claimant’s age and the predetermined capitation age
category sent from Integrated Eligibility and Enrollment System (IEES) and recorded in Medicaid
Management Information System (MMIS). The auditors inquired further and learned CHFS had
previously identified a system coding error. The coding error was corrected during FY 2022; however,
the beneficiaries impacted by the coding error were not identified and corrected, resulting in overpayments
to the MCOs. According to CHFS, this error dated back to 2018 capitation payments and affected 404
individuals with a result of $73,936 in overpayments.
Medicaid recipients were automatically assigned the incorrect rate cell when a null value was applied in
place of an end date for their capitation category. This error occurred when the recipient either aged out
of their former category or when they moved from one type of assistance to another. This issue was
identified and fixed in the IEES and MMIS systems, but cleanup of the affected members was not
performed as a part of the resolution in IEES.
Internal controls to maintain proper payments to MCOs and to ensure the actuarial soundness of capitation
rates were not functioning effectively in IEES. This led to the failure to follow clean-up procedures to
ensure compliance with allowed activity requirements in accordance with federal laws and regulations.
Excluding a cleanup of the affected data from the coding fix resulted in incorrectly assigned rate cells and
the continuation of improperly paid capitation amounts for a total of 404 Medicaid recipients. $73,936 in
funds were incorrectly expended over the course of this error for the affected individuals.
Page 24
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-019: The Cabinet For Health And Family Services Did Not Identify And Correct
Beneficiaries Impacted By A Classification Coding Error (Continued)
Capitation rates should comply with contractual requirements. Capitation payments based on incorrect
rate cell data are not in compliance with the contract’s section 11.1 Calculation of Rates “The Capitation
Rates are attached as Appendix A “Capitation Payment Rates” and shall be deemed incorporated into this
Contract and shall be binding to the Contractor and the Department, subject to CMS’ approval.” In
addition, per the contract, incorrect payments to MCOs must be either recouped (overpayments) or
reimbursed (underpayments).
The regulatory authority governing payments to MCOs and the setting of capitation rates is 42 CFR 438.
Section § 438.3, standard contract requirements, states, in part, that:
(c) (1) The final capitation rate for each MCO, PIHP or PAHP must be:
(i) Specifically identified in the applicable contract submitted for CMS review and
approval.
(ii) The final capitation rates must be based only upon services covered under the State
plan and additional services deemed by the State to be necessary to comply with
the requirements of subpart K of this part (applying parity standards from the
Mental Health Parity and Addiction Equity Act), and represent a payment amount
that is adequate to allow the MCO, PIHP or PAHP to efficiently deliver covered
services to Medicaid-eligible individuals in a manner compliant with contractual
requirements.
Section § 438.4 on actuarial soundness states, in part, that:
(a)
Actuarially sound capitation rates are projected to provide for all reasonable,
appropriate, and attainable costs that are required under the terms of the contract
and for the operation of the MCO, PIHP, or PAHP for the time period and the
population covered under the terms of the contract, and such capitation rates are
developed in accordance with the requirements in paragraph (b) of this section.
(b)
CMS review and approval of actuarially sound capitation rates. Capitation rates for
MCOs, PIHPs, and PAHPs must be reviewed and approved by CMS as actuarially
sound. To be approved by CMS, capitation rates must…
(4)
Be specific to payments for each rate cell under the contract.
2 CFR 200.303 indicates that the internal controls required to be established by a non-federal entity
receiving federal awards should be in compliance with the guidance in “Standards for Internal Control in
the Federal Government,” issued by the Comptroller General of the United States [Green Book] or the
“Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The non-Federal entity must establish and maintain effective internal
control over federal awards.
Recommendation
We recommend CHFS establish internal control processes to ensure clean-up procedures are
included in every error resolution and compliance with the contract and federal regulations.
Page 25
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-019: The Cabinet For Health And Family Services Did Not Identify And Correct
Beneficiaries Impacted By A Classification Coding Error (Continued)
Management’s Response and Planned Corrective Action
The Department strives to consistently comply with contractual requirements and state and federal
regulations. The “Effect” in this finding states: “Internal controls to maintain proper payments
to MCOs and to ensure the actuarial soundness of capitation rates was not functioning effectively.
This led to the failure to follow clean-up procedures to ensure compliance with allowed activity
requirements in accordance with federal laws and regulations. Excluding a clean-up of the
affected data from the coding fix resulted in incorrectly assigned rate cells and the continuation
of improperly paid capitation amounts for a total of 404 Medicaid recipients. $73,936 in funds
was incorrectly expended over the course of this error for the affected individuals.”
We disagree with this finding. IEES monthly analysis activity identified this defect prior to the
auditor’s findings and TFS item 485615 was created on 6/20/2022.
In the instance of defect 485615 there was a delay in creating the corresponding data fix 498409
because the systems’ vendor team waited until they had identified all details needed to develop the
data fix script before they created the TFS data fix item. We have discussed this with the system
vendor, and they are taking action to ensure all team members are creating TFS items for data
fixes at the time a defect is identified.
On 11/18/2022 the data fix ran, which corrected the rate cells for the impacted population. This
information was sent to the MMIS system, which then took action to recoup any overpayment that
occurred as a result.
Auditor’s Reply
We acknowledge CHFS identified the original error in June 2022; however, the beneficiaries
impacted by the coding error were not identified and corrected, resulting in overpayments to the
MCOs. Internal controls ensuring that data fixes are implemented at the time the defect is identified
should result in accurate beneficiary coding in IEES and MMIS. Also please note the beneficiaries
impacted were not “cleaned up” during FY 2022.
Page 26
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-020: The Cabinet For Health And Family Services Failed To Cease Prevention
Benefits When Continued Eligibility Was No Longer Indicated
State Agency: Cabinet for Health and Family Services
Federal Program: ALN 93.472 – Title IV-E Prevention Program
ALN 93.472 – COVID-19 Title IV-E Prevention Program
Federal Award Number and Year: 2101KYPSGP – 2021; 2201KYPSGP – 2022
Federal Agency: U.S Department of Health and Human Services
Pass-Through: Not Applicable
Compliance Area: Eligibility
Questioned Costs: $0
During the fiscal year (FY) 2022 audit of Title IV-E Prevention Services, administered by the Cabinet for
Health and Family Services (CHFS), internal controls and compliance for eligibility determinations were
tested. To be eligible to receive prevention services, participants must be assessed to meet the specific
program requirements and undergo continual review to ensure they remain eligible. Every six months,
CHFS completes a case plan form which indicates if the participant is continually eligible for prevention
services. Once participants are deemed no longer eligible, prevention services should cease.
During the review of 25 prevention services eligibility files, it was noted that CHFS indicated on the case
plan form that one participant was not eligible; however, prevention service benefits continued to be
provided for over seven months after the determination.
CHFS did not have internal controls in place to ensure services are no longer provided to participants
deemed ineligible per the case plan. The case plan form for one participant did not indicate continued
eligibility for Title IV-E prevention services.
Without the appropriate documentation supporting ongoing prevention services, the eligibility status of
the individual cannot be determined to be in compliance with federal regulations. Failure to correctly
document the continued eligibility of the participant in the case file increases the risk of CHFS making
payments for ineligible individuals.
Kentucky CHFS Prevention Plan, Assessment and Consultation Processes states:
Children will be assessed on an ongoing basis to determine if risk factors are still present
or if they have been reduced and parental capacity has been enhanced, negating the need
for prevention services. This will be achieved through ongoing provider consultation
utilizing assessment tools, such as the NCFAS [North Carolina Family Assessment Scale],
and ongoing frontline worker assessment and periodic case plan assessment.
Page 27
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-020: The Cabinet For Health And Family Services Failed To Cease Prevention
Benefits When Continued Eligibility Was No Longer Indicated (Continued)
Kentucky CHFS Prevention Plan, Safety and Risk Assessment throughout the Course of the Investigation
(4) states:
When the determination is made that a child is at immediate risk at any point during contact
with the family:
1. Negotiates a prevention plan with the family clearly documenting the
preventive services and interventions agreed upon with the family;
2. Utilizes Family Preservation (FPP) and other in home services to prevent
removal whenever possible and documents why less restrictive alternatives
were not utilized in the assessment;
Kentucky CHFS Prevention Plan, Safety and Risk Assessment throughout the Course of the Investigation
(8) states, “Consults with FSOS immediately to discontinue the prevention plan when there are no
remaining safety threats that require the provisions of the prevention plan.”
2 CFR 200.303 states the non-Federal entity must:
(a)
Establish and maintain effective internal control over the Federal award that
provides reasonable assurance that the non-Federal entity is managing the Federal
award in compliance with Federal statutes, regulations, and the terms and
conditions of the Federal award. These internal controls should be in compliance
with guidance in “Standards for Internal Control in the Federal Government” issued
by the Comptroller General of the United States or the “Internal Control Integrated
Framework”, issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
Recommendation
We recommend CHFS develop internal controls to ensure continued eligibility is documented in
accordance with federal requirements in the case plan.
Management’s Response and Planned Corrective Action
Current controls are in place to ensure eligibility of candidates for foster care beyond 12 months.
These include regional continuous quality improvement (CQI) specialists’ use of TWIST
management reports to communicate to field staff when Family First Prevention Services Act
(FFPSA) case planning is required to capture Child Specific Prevention Planning. These also
include Standards of Practice guidance to field staff in place to ensure completion of FFPSA case
planning required to capture Child Specific Prevention Planning; chapter 6, sections 1, 2, 3, and
chapter 3, section 4.
Page 28
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-020: The Cabinet For Health And Family Services Failed To Cease Prevention
Benefits When Continued Eligibility Was No Longer Indicated (Continued)
Management’s Response and Planned Corrective Action (Continued)
Further efforts to ensure internal controls are being built currently within the state Child Welfare
Information System, TWIST. These include automation of foster care candidacy end 12 months
from the start when a new FFPSA case plan and Child Specific Prevention Plan is not created.
This change is anticipated to be released 7/1/23.
In additional to the above, DCBS along with the Office of Application Technology (OATS) are
exploring additional changes within the TWIST system to further strengthen internal controls.
Auditor’s Reply
CHFS response is centered around a 12-month eligibility and controls to be built into the TWIST
system. The finding is focused on the State Plan requirement of a 6 month review that CHFS
mandates to be completed. It was during one of these reviews where CHFS identified the need to
cease Title IV-E Prevention Services, yet the participant continued to receive benefits.
Page 29
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-021: The Cabinet For Health And Family Services Did Not Have Adequate Policies
And Procedures In Place Over Subrecipient Allowable Costs For The Child Support Enforcement
Program
State Agency: Cabinet for Health and Family Services
Federal Program: ALN 93.563 – Child Support Enforcement
Federal Award Number and Year: 2001KYCSES – 2021, 2001KYCSES - 2022
Federal Agency: U.S. Department of Health and Human Services
Pass-Through: Not Applicable
Compliance Area: Activities Allowed or Unallowed; Allowable Costs/Cost Principles
Questioned Costs: $0
This is a repeat finding as reported in the 2021 Statewide Single Audit of Kentucky (SSWAK) Volume II
as finding 2021-033.
The Child Support Enforcement (CSE) Program, administered by the Cabinet for Health and Family
Services (CHFS), contracts with county attorneys (subrecipients) to administer the CSE program at the
local level, establishes budget amounts in contracts, and monitors the subrecipients to ensure compliance
with Federal regulations. The salaries and benefits of employees working in the subrecipient offices may
be fully or partially funded by the CSE program if the employee works on CSE activities. Title 2 of the
Code of Federal Regulations (CFR) 200.430 requires compensation for employees funded by federal
grants to be reasonable, which is defined as being “consistent with that paid for similar work in other
activities.” In addition, the CSE contracts require that no employee of contracting officials may receive a
higher rate of pay for child support activities than received for non-child support activities.
During the FY 2021 and FY 2022 audit, two issues were identified:
• CHFS did not have an internal control system in place to ensure compliance with the Federal
regulation or the contract requirements related to the compensation of employees in the
subrecipient offices.
• CHFS’ internal policies and procedures did not provide specific information related to the
monitoring of compensation for the subrecipient’s CSE employees to ensure compliance with
2 CFR 200.430. While the CSE program’s Guidelines for Reimbursement document, provided to
contracting officials, contains information related to employee compensation, the guidelines do
not contain the provision that employee compensation for CSE should be consistent with that paid
for work in other activities.
Per CHFS, a new division was formed in FY 2023 and policies were in the process of being developed to
address the issues.
Additionally, in FY 2021 and FY 2022, the CHFS CSE program awarded the funding to the subrecipients
based on the prior year funding amounts. The contract amounts are carried forward each fiscal year for
multiple fiscal years. CHFS does not have a policy or methodology in place to re-evaluate the amounts
awarded in the subrecipient contracts each fiscal year based on any other criteria. Instead, subrecipients
may request additional funding or, if a subrecipient has a surplus, the funds may be re-allocated to another
subrecipient. While CHFS has implemented a new methodology for the calculation of funding awarded
to subrecipients, the procedures were not in place during FY 2022.
Page 30
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-021: The Cabinet For Health And Family Services Did Not Have Adequate Policies
And Procedures In Place Over Subrecipient Allowable Costs For The Child Support Enforcement
Program (Continued)
CHFS does not have internal controls in place to detect noncompliance with the compensation
requirements. CHFS has written procedures related to allowable expenses, but the procedures do not
specifically address a method to ensure CSE staff in the subrecipients’ offices are not paid more or
provided more benefits than other staff in the subrecipient offices. CHFS did not have a methodology
documented in FY 2022 to determine the allocation amounts from one year to the next and relied on the
subrecipient to request additional funds or provide surplus funds, if available.
Without an adequate internal control system and policies and procedures in place to adequately monitor
compliance with federal regulations, there is an increased risk of reimbursement of unallowable costs. In
addition, CHFS could be considered noncompliant with 2 CFR 200.430 requiring compensation for
employees funded by federal grants to be consistent with compensation paid for similar work by other
employees.
Without re-evaluating the amounts provided to the subrecipients annually, some subrecipients could be
overfunded and other subrecipients underfunded. Consistently providing the same funding to each office
may incentivize some offices to spend any extra funds on unnecessary items to ensure there is no surplus
of funds.
2 CFR 200.430 states:
(a) General. Compensation for personal services includes all remuneration, paid currently
or accrued, for services of employees rendered during the period of performance under
the Federal award, including but not necessarily limited to wages and salaries.
Compensation for personal services may also include fringe benefits which are
addressed in § 200.431. Costs of compensation are allowable to the extent that they
satisfy the specific requirements of this part, and that the total compensation for
individual employees:
(1) Is reasonable for the services rendered and conforms to the established written
policy of the non-Federal entity consistently applied to both Federal and non-
Federal activities;
(2) Follows an appointment made in accordance with a non-Federal entity's laws
and/or rules or written policies and meets the requirements of Federal statute,
where applicable…
(b) Reasonableness. Compensation for employees engaged in work on Federal awards
will be considered reasonable to the extent that it is consistent with that paid for similar
work in other activities of the non-Federal entity. In cases where the kinds of employees
required for Federal awards are not found in the other activities of the non-Federal
entity, compensation will be considered reasonable to the extent that it is comparable
to that paid for similar work in the labor market in which the non-Federal entity
competes for the kind of employees involved.
Page 31
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-021: The Cabinet For Health And Family Services Did Not Have Adequate Policies
And Procedures In Place Over Subrecipient Allowable Costs For The Child Support Enforcement
Program (Continued)
In addition, 2 CFR 200.303 states the non-Federal entity must:
(a)
Establish and maintain effective internal control over the Federal award that
provides reasonable assurance that the non-Federal entity is managing the Federal
award in compliance with Federal statutes, regulations, and the terms and
conditions of the Federal award. These internal controls should be in compliance
with guidance in ‘‘Standards for Internal Control in the Federal Government’’
issued by the Comptroller General of the United States or the ‘‘Internal Control
Integrated Framework’’, issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).
(b)
Comply with the U.S. Constitution, Federal statutes, regulations, and the terms and
conditions of the Federal awards.
(c)
Evaluate and monitor the non-Federal entity’s compliance with statutes, regulations
and the terms and conditions of Federal awards.
Section 10.03 – Design of Appropriate Types of Control Activities, within the Standards for Internal
Control in the Federal Government states, in part,
Management clearly documents internal control and all transactions and other significant
events in a manner that allows the documentation to be readily available for examination.
The documentation may appear in management directives, administrative policies, or
operating manuals, in either paper or electronic form. Documentation and records are
properly managed and maintained.
Contracts should be properly developed and utilized to formalize agreements and ensure each party has a
clear understanding of their roles and responsibilities, including ensuring CSE employees and other
employees receive the same pay and benefits for performing similar job duties. The contract language
states:
10. Assistant County Attorneys shall not receive a higher rate of pay for child support
activities than they receive for non-child support functions in the Second Party's office.
Reimbursement for time worked by an Assistant County Attorney on the Title IV-D
Child Support Program shall not to exceed $65 per hour. The Second Party shall
disclose Assistant County Attorney reimbursement rates for non-child support
functions at the beginning of the contract term;
11. Other staff members in the employ of the Second Party shall not receive a higher rate
of pay for child support activities than they receive for non-child support functions in
the Second Party's office. The second party shall disclose reimbursement rates of other
staff members for non-child support functions at the beginning of the contract term;…
Page 32
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-021: The Cabinet For Health And Family Services Did Not Have Adequate Policies
And Procedures In Place Over Subrecipient Allowable Costs For The Child Support Enforcement
Program (Continued)
Written policies and procedures reduce the risk of mistakes, noncompliance, and inconsistency treatment of
accounting transactions. Good internal controls dictate the procedures address issues that could potentially
result in noncompliance with Federal requirements.
The Guidelines for Reimbursement state:
Salaries and wages are allowable for reimbursement for the time spent working for the
Child Support program. […]
2. The rate of pay for the employee shall be the rate of pay reported in the Employee
area of MDPS. If the employee’s actual rate of pay is less than the rate of pay
shown in MDPS, the reimbursement must be reduced accordingly.
If the employee’s actual rate of pay is more than the rate of pay shown in MDPS,
a thorough explanation is required via separate memo, as well as the approval
from the CSE Commissioner both of which must be included with the MDPS
submission.
Proper internal controls dictate that policies and procedures should be created and documented to provide
direction to staff in regards budgets in contracts. These policies and procedures should guide staff in
determining the amount of funding to the subrecipients.
Recommendation
We recommend CHFS continue to document policies and procedures and re-evaluate internal
controls to ensure the CSE employees are receiving the same rate of pay as other employees in the
CSE offices and thus ensure compliance with federal regulations. We further recommend CHFS
continue to re-evaluate and document the policy of carrying forward the same amount of funding
annually to ensure subrecipients are receiving appropriate funding.
Management’s Response and Planned Corrective Action
Management’s Response
Since the Division of Fiscal Management’s (DFM) creation, positions have been filled and actively
being filled. The primary goal of this division is to ensure public integrity of federal and state
funding.
The FY23/24 CSE Biennial Budget for County Attorney subrecipients was based on the cost per
open case for each county. For FY23, each county was appropriated the median amount of
$175/per open case which was based on FY21 data. The subrecipient contracts were re-evaluated
to ensure the median amount of $175/per open case was met for FY23. Subrecipient contracts that
had not previously met the median amount received additional funding to ensure all contracts had
a minimum budget of $175/per open case.
Page 33
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-021: The Cabinet For Health And Family Services Did Not Have Adequate Policies
And Procedures In Place Over Subrecipient Allowable Costs For The Child Support Enforcement
Program (Continued)
Management’s Response and Planned Corrective Action (Continued)
DFM did present a proposal to the Federal Office of Child Support (OCSE) to adjust the CSE
equitable rate of pay calculation to include compensation for personal services that may include
fringe benefits that should be allocated in proportion to the work effort given. OCSE agreed that
this calculation is acceptable since it is in the 45 CFR 75.430 (a) and 2 CFR 200.430 (a) state
“Compensation for personal services includes all remuneration, paid currently or accrued, for
services of employees rendered during the period of performance under the Federal award,
including but not necessarily limited to wages and salaries. Compensation for personal services
may also include fringe benefits.”
Corrective Action Plan
Procedures and guidance to calculate the equitable rate of pay are being developed and will be
included in the third version of the County Attorney Reimbursement Guidelines.
FY24 Biennial Budget is for the second budget year therefore the median amount of $175 per open
case will be the initial budget contract amount. Efforts are currently underway to assess FY23
County Attorney reimbursements and forecasted remaining FY23 expenditures to determine the
amount to be included in each of the FY24 County Attorney Contracts.
Page 34
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-022: The Cabinet For Health And Family Services Failed To Ensure Contracted
Subrecipients Were Not Federally Suspended Or Debarred
State Agency: Cabinet for Health and Family Services
Federal Program: ALN 93.323 – Epidemiology and Laboratory Capacity for Infectious Diseases
ALN 93.323 – COVID-19 Epidemiology and Laboratory Capacity for Infectious
Diseases
Federal Award Number and Year: NU50CK000505 – 2020, NU50CK000505 – 2021
Federal Agency: U.S. Department of Health and Human Services
Pass-Through: Not Applicable
Compliance Area: Procurement, Suspension, and Debarment
Questioned Costs: $0
This is a repeat finding as reported in the 2021 Statewide Single Audit of Kentucky (SSWAK) Volume II
as finding 2021-031.
The Cabinet for Health and Family Services (CHFS) Department for Public Health (DPH) contracts with
subrecipients to assist in the testing and tracing of infectious diseases for the Epidemiology and Laboratory
Capacity for Infectious Diseases (ELC) (ALN 93.323) program. DPH failed to have internal control
procedures in place to ensure subrecipients contracted to participate in the ELC program were not
suspended or debarred, in accordance with federal regulations and state policies, prior to awarding the
contracts. DPH contracts with vendors using Master Agreements (MA) through the Finance and
Administration Cabinet (FAC) as well as contracts initiated by CHFS.
During the audit, one FAC MA and one emergency procurement did not contain language related to
suspension and debarment within the agreement. While a contract provision related to suspension and
debarment is included in the agreements initiated by DPH, the contract language is not consistently present
in Commonwealth initiated Master Agreements or solicitations utilized by DPH. Although internal
control procedures were not in place, compliance testing did not identify any suspended or debarred
subrecipients for ELC during fiscal year (FY) 2022. During FY 2023, DPH developed a policy and
procedure manual to address suspension and debarment.
Although the Commonwealth has a formal policy regarding federal debarment, CHFS’ ELC program did
not have a process in place to verify all contracted entities were not suspended or debarred related to
federal funds in FY 2022.
Failure to comply with state and federal suspension and debarment requirements could lead to
inappropriate and unallowable payments to unauthorized entities. Any unallowable transactions would
be subject to repayment to the Federal government, which could impact the operations and effectiveness
of the ELC program.
Per 2 CFR 180.300:
When you enter into a covered transaction with another person at the next lower tier, you
must verify that the person with whom you intend to do business is not excluded or
disqualified. You do this by:
(a) Checking SAM Exclusions; or
(b) Collecting a certification from that person; or
(c) Adding a clause or condition to the covered transaction with that person.
Page 35
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-022: The Cabinet For Health And Family Services Failed To Ensure Contracted
Subrecipients Were Not Federally Suspended Or Debarred (Continued)
2 CFR 200.318 General procurement standards, states:
(a)
The non-Federal entity must have and use documented procurement procedures,
consistent with State, local, and tribal laws and regulations and the standards of this
section, for the acquisition of property or services required under a Federal award
or subaward. The non-Federal entity's documented procurement procedures must
conform to the procurement standards identified in §§ 200.317 through 200.327.
The Finance and Administration Cabinet Policy FAP 111-59-00 Federal Disbarment states:
1.
Agencies initiating a procurement of $100,000 or more, any amount of which is
federally funded, shall ensure that the successful vendor is not debarred from doing
business with federal agencies. This verification shall be completed prior to
awarding the contract.
2. Verification Process: The agency shall choose one (1) or more of the following methods
to verify that the vendor is not debarred from doing business with federal agencies:
a. Verification may be made through the federal website that is used for federal
procurement and awards processes.
b. An agency may include in a Solicitation a statement that the vendor’s signature on
a Solicitation response certifies that the vendor is not debarred from doing business
with federal agencies and that, if debarred during the life of the contract, the vendor
shall notify the Commonwealth buyer of record within seventy two (72) hours of
the federal debarment.
c. If the Solicitation does not contain the verification statement within the Solicitation,
it shall require the vendor to submit a written certification statement on letterhead
stating that it is not debarred from doing business with federal agencies and that, if
debarred during the life of an extended term contract, the vendor shall notify the
Commonwealth buyer of record within seventy-two (72) hours of the federal
debarment. This statement shall be submitted with the vendor’s Solicitation
response.
2 CFR 200.303 (a) states the non-federal entity must:
Establish and maintain effective internal control over the Federal award that provides
reasonable assurance that the non-Federal entity is managing the Federal award in
compliance with Federal statutes, regulations, and the terms and conditions of the Federal
award. These internal controls should be in compliance with guidance in “Standards for
Internal Control in the Federal Government” issued by the Comptroller General of the
United States or the “Internal Control Integrated Framework”, issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
Page 36
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-022: The Cabinet For Health And Family Services Failed To Ensure Contracted
Subrecipients Were Not Federally Suspended Or Debarred (Continued)
Recommendation
We recommend CHFS continue implementing internal controls to ensure compliance with
Procurement, Suspension and Disbarment requirements in accordance with state and federal
regulations.
Management’s Response and Planned Corrective Action
The Cabinet for Health and Family Services, Division of Procurement and Grant Oversight will
implement the following requirements for all covered transactions:
1. All CHFS issued or requested solicitations and contracts (including purchase orders resulting
from Request for Quotes) that meet the federal and state requirements will contain boilerplate
language stating:
Certification Regarding Debarment, Suspension, Ineligibility, and Voluntary Exclusion, Lower
Tier Covered Transactions
In accordance with Federal Acquisition Regulation 52.209-5, 2 CFR 180.300, 2 CFR 200.318,
2 CFR 200.303, and FAP 111-59-00 the Vendor shall certify, by signing the Solicitation, that
to the best of its knowledge and belief, the Vendor and/or its Principals is (are) not presently
debarred, suspended, proposed for debarment, or declared ineligible for the award of
contracts by any state or federal agency. If debarred during the life of the contract, the vendor
shall notify the Commonwealth buyer of record within seventy-two (72) hours of the federal
debarment.
For this certification, “Principals,” means officers, directors, owners, partners, and persons
having primary management or supervisory responsibilities within a business entity (e.g.,
general manager, plant manager, head of a subsidiary, division, or business segment, and
similar positions.)
2. For applicable orders against Finance OPS issued agreements, buyers will review the
solicitation and/or contract to verify that it included a statement similar to the one above to
ensure it meets all requirements.
a. If the contract contains the language, the buyer will add the following statement to the
Determination and Finding or add a document comment to the delivery order:
“Vendor certified to the best of their knowledge and belief that they are not presently debarred,
suspended, proposed for debarment, or declared ineligible for the award of contracts by any
state or federal agency by submitting a proposal and/or signing the contract. The vendor is
required contractually to notify the Cabinet within 48 hours of an exclusion or debarment.”
Page 37
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-022: The Cabinet For Health And Family Services Failed To Ensure Contracted
Subrecipients Were Not Federally Suspended Or Debarred (Continued)
Management’s Response and Planned Corrective Action (Continued)
b. If the contract does not contain the language, the buyer will manually verify against the
SAM.gov exclusions list.
i. If not excluded:
1. The buyer will add the following statement to the Determination and Finding or add a
document comment to the delivery order:
“Verified SAM.gov Exclusion List – Not Excluded”
ii. If excluded:
1. The buyer will document the finding in the PPATS file;
2. The order will not be placed to the vendor; and
3. The buyer will reevaluate procurement options.
Page 38
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-023: The Department Of Workforce Development Failed To Submit Accurate
Reports
State Agency: Department of Workforce Development
Federal Program: ALN 17.258 WIOA Adult Program
ALN 17.259 WIOA Youth Activities
ALN 17.278 WIOA Dislocated Worker Formula Grants
Federal Award Number and Year: Various
Federal Agency: U.S. Department of Labor
Pass-Through: Not Applicable
Compliance Area: Reporting
Questioned Costs: $0
Under the Workforce Innovation and Opportunity Act (WIOA), all grantees are required to submit
quarterly financial (9130) reports for each grant award they receive for the United States Department of
Labor (U.S. DOL). The 9130 reports are submitted quarterly and provide U.S. DOL the financial status
of each of the federal grants awarded to the Commonwealth. Review of 12 of the 176 reports that were
completed and submitted during Fiscal Year (FY) 2022 indicated the Department for Workforce
Development (DWD) did not submit accurate 9130 reports to U.S. DOL.
The following issues were noted in four reports out of 12 reports reviewed, some of which had more than
one error:
• One report did not accurately report cash receipts and cash disbursements on the 9130 report. Cash
receipts were underreported by $1,000,000 and cash disbursements were underreported by the
same amount.
• One report did not agree with accounting records for the total federal funds authorized for the
program. It was overstated by a total of $176,419.
• One report did not accurately report the cumulative federal share of expenditures. It was overstated
by $263,025.
• One report did not accurately report the cumulative administrative expenditures for the program.
It was understated by a total of $452,977.
• One report did not accurately report the total federal share of unliquidated obligations. It was
understated by a total of $1,259,975.
• Four reports did not accurately report additional obligation and expenditure data required by the
9130 report. The net error amount reported was understated by $4,042,198.
The submitted reports did not agree to either the state’s accounting system or the agency-provided support.
Internal controls over the review of the 9130 reports did not detect these errors.
Federal reports were submitted in FY 2022 with errors that went undetected by DWD. Without adequate
review of the reports to verify the accuracy of the data, the risk of inaccurate reporting is increased. Failure
to ensure the accuracy of financial reports submitted to the U.S. DOL could lead to noncompliance with
federal regulations.
Page 39
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-023: The Department Of Workforce Development Failed To Submit Accurate
Reports (Continued)
2 CFR section 200.300 – Statutory and national policy requirements, paragraph (b) states, in part, “[t]he
non-Federal entity is responsible for complying with all requirements of the Federal award.”
2 CFR section 200.302 – Financial management, paragraph (b)(2) states, in part, that the non-Federal
entity’s financial management system must provide “[a]ccurate, current, and complete disclosure of the
financial results of each Federal award or program...”
2 CFR section 200.303 – Internal Controls indicates that the non-Federal entity must:
Establish and maintain effective internal control over the Federal award that provides
reasonable assurance that the non-Federal entity is managing the Federal award in
compliance with Federal statutes, regulations, and the terms and conditions of the Federal
award. These internal controls should be in compliance with guidance in “Standards for
Internal Control in the Federal Government” issued by the Comptroller General of the
United States [Green Book] or the “Internal Control Integrated Framework”, issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Recommendation
We recommend DWD review internal controls to ensure the federal reporting process for WIOA
is operating within federal reporting guidelines. This may involve establishing processes for DWD
staff to review and maintain supporting documentation with the prepared reports prior to
submission. We also recommend DWD resubmit corrected reports for those reports containing
errors.
Management’s Response and Planned Corrective Action
The Education and Labor Cabinet (ELC) has received the above finding and recommendation.
ELC has reviewed and acknowledges the identified errors within the 9130 reports for the WIOA
grants. We have reached out to the U.S. Department of Labor to determine if amended reports
need to be filed or if corrections are necessary. In addition, ELC staff are reviewing internal
controls and procedures related to these reporting areas. Any deficiencies noted in internal
processes will be strengthened to ensure further errors do not occur. ELC has already established
a review process that allows the reports and supporting documentation to be reconciled to ensure
accuracy prior to submitting the 9130 reports to the Department of Labor. Additionally, ELC is
working to standardize a set of monthly reports for staff to review.
Further, the State Auditor and the Office of the State Auditor are in violation of both state law and
applicable auditing standards. See AICPA Code, 1.110.010.12, Conflicts of Interest for Members
in Public Practice, Disclosure of a Conflict of Interest and Consent; AICPA Code, 0.300.050,
Objectivity and Independence, .01-.02; GAO-21-368O, Government Auditing Standards, 3.11,
Objectivity; GAO 21-3680, Government Auditing Standards, 3.15, Proper Use of Government
Information, Resources, and Positions; KRS 11A.020-.030. The State Auditor is aware of, failed
to disclose, and chooses to ignore this clear conflict of interest.
Page 40
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-023: The Department Of Workforce Development Failed To Submit Accurate
Reports (Continued)
Auditor’s Reply
As noted in the FY 21 Statewide Single Audit of Kentucky, the Auditor of Public Accounts is in
compliance with all applicable laws and auditing standards. The APA has safeguards in place, both
statutorily and procedurally, to assure that objectivity and independence are maintained in
accordance with professional auditing standards. Strong safeguards have been in place for decades
at the APA to insulate the agency’s audit work from any political bias resulting from the fact that
every four years, a sitting State Auditor may again run for statewide office in a partisan election.
These longstanding safeguards were enhanced to provide additional assurance and to mitigate the
perceived conflict of interest. This information was clearly spelled out in memos addressed to the
Kentucky Labor Cabinet Secretary - dated August 17, 2021 and August 30, 2021.
Page 41
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-024: The Kentucky Department Of Agriculture Failed To Follow Established
Internal Controls To Ensure Contracted Subrecipients Were Not Federally Suspended Or
Debarred
State Agency: Kentucky Department of Agriculture
Federal Program: ALN 10.565 – Commodity Supplemental Food Program
ALN 10.565 – COVID-19 Commodity Supplemental Food Program
ALN 10.568 – Emergency Food Assistance Program (Administrative Costs)
ALN 10.568 – COVID-19 Emergency Food Assistance Program (Administrative
Costs)
10.569 – Emergency Food Assistance Program (Food Commodities)
10.569 – COVID-19 Emergency Food Assistance Program (Food Commodities)
Federal Award Number and Year: Various
Federal Agency: U.S. Department of Agriculture
Pass-Through: Not Applicable
Compliance Area: Procurement, Suspension and Disbarment
Questioned Costs: $0
This is a repeat finding as reported in the 2021 Single Audit of Kentucky (SWWAK) Volume II as finding
2021-036.
The Kentucky Department of Agriculture (KDA) contracts with subrecipients to assist in the distribution
of USDA food commodities. KDA failed to ensure subrecipients contracted to participate in the
Commodity Supplemental Food Program (CSFP) and The Emergency Food Assistance Program (TEFAP)
were not disbarred prior to awarding the contracts in accordance with 2 CFR 200.318 and the
Commonwealth’s policy FAP 111-59-00. While procedures were not followed, it should be noted that all
contracted subrecipients for CSFP and TEFAP were not federally suspended or disbarred.
While a policy was formalized for the Commonwealth, there was confusion on who was responsible to
verify contracted entities were not debarred when involving federal funds. FAP 111-59-00 identifies the
agency is responsible for ensuring compliance with established requirements. In the prior year KDA
confirmed they had not adhered to the established policy or implemented internal controls and procedures
to comply with State and federal regulations. Additionally, the prior year’s finding response by KDA
indicated that corrective action would not take place until FY2023.
Failure to comply with State and federal suspension and debarment requirements could lead to
inappropriate and unallowable payments to unauthorized entities. Any unallowable transactions would
be subject to repayment to the Federal Government, which would severely impact the operations and
effectiveness of the impacted programs. The greatest impact would be program participants who could
lose access to available assistance until resolved.
Page 42
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-024: The Kentucky Department Of Agriculture Failed To Follow Established
Internal Controls To Ensure Contracted Subrecipients Were Not Federally Suspended Or
Debarred (Continued)
2 CFR 200.303 (a) states the non-federal entity must:
Establish and maintain effective internal control over the Federal award that provides
reasonable assurance that the non-Federal entity is managing the Federal award in
compliance with Federal statutes, regulations, and the terms and conditions of the Federal
award. These internal controls should be in compliance with guidance in “Standards for
Internal Control in the Federal Government” issued by the Comptroller General of the
United States or the “Internal Control Integrated Framework”, issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
2 CFR 200.318 General procurement standards, states in part:
(a)
The non-Federal entity must have and use documented procurement procedures,
consistent with State, local, and tribal laws and regulations and the standards of this
section, for the acquisition of property or services required under a Federal award
or subaward. The non-Federal entity's documented procurement procedures must
conform to the procurement standards identified in §§ 200.317 through 200.327.
FAP 111-59-00 Federal Disbarment states:
1.
Agencies initiating a procurement of $100,000 or more, any amount of which is
federally funded, shall ensure that the successful vendor is not debarred from doing
business with federal agencies. This verification shall be completed prior to
awarding the contract.
2.
Verification Process: The agency shall choose one (1) or more of the following
methods to verify that the vendor is not debarred from doing business with federal
agencies:
a. Verification may be made through the federal website that is used for federal
procurement and awards processes.
b. An agency may include in a Solicitation a statement that the vendor’s signature
on a Solicitation response certifies that the vendor is not debarred from doing
business with federal agencies and that, if debarred during the life of the contract,
the vendor shall notify the Commonwealth buyer of record within seventy two
(72) hours of the federal debarment.
Page 43
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-024: The Kentucky Department Of Agriculture Failed To Follow Established
Internal Controls To Ensure Contracted Subrecipients Were Not Federally Suspended Or
Debarred (Continued)
c. If the Solicitation does not contain the verification statement within the
Solicitation, it shall require the vendor to submit a written certification statement
on letterhead stating that it is not debarred from doing business with federal
agencies and that, if debarred during the life of an extended term contract, the
vendor shall notify the Commonwealth buyer of record within seventy-two (72)
hours of the federal debarment. This statement shall be submitted with the
vendor’s Solicitation response.
Recommendation
We recommend KDA implement adequate internal controls and properly manage grant activities
to ensure compliance with Procurement, Suspension and Disbarment requirements in accordance
with State and federal regulations.
Management’s Response and Planned Corrective Action
The FY2022 audit did not give KDA sufficient time to demonstrate compliance with the findings
from the FY2021 audit, which resulted in these repeat findings. KDA has adequate internal
controls and properly manages grant activities to ensure compliance with Procurement,
Suspension and Debarment requirements in accordance with State and federal regulations. Per
FAP 111-59-00, KDA has included the statement below on all of our contracts moving forward:
SUSPENSIONS AND DEBARMENT
By signing this Agreement for an amount in excess of One Hundred Thousand Dollars ($100,000)
in federal funds, the Second Party certifies by its signature that the Second Party and its principals
are not suspended or debarred from federal or state procurement. If it is found that the Second
Party or any principal of the Second Party is suspended or debarred before or during the
Agreement period, then this Agreement shall be immediately rendered null and void. All funds
paid under this Agreement to the Second Party shall be refunded by the Second Party with a two
percent (2%) penalty within thirty (30) days of the Department’s notification of the Agreement. If
debarred during the life of the contract, the vendor shall notify the Commonwealth buyer of record
within seventy two (72) hours of the federal debarment.
Auditor’s Reply
The FY 2021 audit report was issued in accordance with established timeframes per federal
guidance and regulations. The additional KDA statement was not observed in contracts during FY
2022. The auditor will review any implemented corrective action effective during the FY 2023
audit cycle.
Page 44
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-025: The Office Of Unemployment Insurance Did Not Ensure The Kentucky
Electronic Workplace For Employment Services Was Properly Secured
State Agency: Office of Unemployment Insurance
Federal Program: ALN 17.225 – Unemployment Insurance
ALN 17.225 – COVID-19 Unemployment Insurance
Federal Award Number and Year: Various
Federal Agency: U.S. Department of Labor
Pass-Through: Not Applicable
Compliance Area: Eligibility
Questioned Costs: $0
This finding was reported in full in the 2022 Report of the Statewide Single Audit of the Commonwealth
of Kentucky (SSWAK) Volume I as financial statement finding 2022-011. Management’s response and
planned corrective action for finding 2022-011 can be found in the SSWAK Volume I. The finding also
identified matters impacting federal program compliance as described below.
This is a repeat finding as reported in the FY 2021 Statewide Single Audit of Kentucky (SSWAK) Volume
II as finding 2021-043. The Office of Unemployment Insurance (OUI) did not monitor an account used
by six individuals to administer the Kentucky Electronic Workplace for Employment Services System
(KEWES) during fiscal year 2022. Six users were granted access to the Siebel Administrator account,
SADMIN. Siebel provides a graphical interface to unemployment insurance (UI) data stored within an
Oracle database. According to OUI, the purpose of the SADMIN account is to perform administrative
duties associated with Siebel. However, since multiple users have access to one account, there is no way
to track or identify who is using the account. While OUI staff stated the SADMIN account is used in rare
circumstances to view system data, they did not log or monitor this account’s activity. As such, auditors
could not verify if this account was in fact being used strictly for administrative purposes. Even though
this account is not used regularly by OUI staff, access to an account with elevated privileges poses a
significant risk to system security.
Also, OUI did not implement the corrective actions they provided in their response to the prior year
finding. OUI indicated, in their response to the prior year finding, the SADMIN account would be
restricted from being used as a group account and those requiring access would be given individual
accounts based on need and separation of duties. In addition, OUI stated they would set an alert to monitor
the account. None of these actions were taken by the agency during FY 2022.
Page 45
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-026: The Office Of Unemployment Insurance Does Not Have Adequate Technical
Documentation Associated With The Kentucky Electronic Workplace For Employment Services
System
State Agency: Office of Unemployment Insurance
Federal Program: ALN 17.225 – Unemployment Insurance
ALN 17.225 – COVID-19 Unemployment Insurance
Federal Award Number and Year: Various
Federal Agency: U.S. Department of Labor
Pass-Through: Not Applicable
Compliance Area: Eligibility
Questioned Costs: $0
This finding was reported in full in the 2022 Report of the Statewide Single Audit of the Commonwealth
of Kentucky (SSWAK) Volume I as finding 2022-012. Management’s response and planned corrective
action for finding 2022-012 can be found in the SSWAK Volume I. The finding also identified matters
impacting federal program compliance as described below.
This is a repeat finding as reported in the fiscal year 2021 Statewide Single Audit of Kentucky (SSWAK)
Volume II as finding 2021-042. Complete system documentation describing processing, data entry, system
validations, edits, audits, and errors established within the Kentucky Electronic Workplace for
Employment Services (KEWES) was not maintained by the Kentucky Labor Cabinet’s Office of
Unemployment Insurance (OUI) during fiscal year 2022. KEWES is the system used by OUI to process
Unemployment Insurance (UI) for the Commonwealth of Kentucky.
Claims data is sent to OUI multiple ways for entry into KEWES including fax, mail, e-mail, scan, claimant
upload, and e-claimants. OUI confirmed there is not one single document that explains all of the data
entry processes. Given the complexity of UI processes, all data entry methods should be documented
within a single manual.
Since a complete population of system errors and security alerts could not be provided, OUI staff provided
examples of system errors and security alerts that occur during processing. OUI also has files depicting
the proposed flow of data for account registration, claim filing, and tracking the number of weeks in which
benefits were paid to claimants. However, this documentation does not describe system functionality,
edits, audits, alerts, or errors processed by the system. Edits verify the accuracy, validity, required
presence, format, consistency, allowable values, and integrity of data submitted. Audits determine if there
are any restrictions based on historical claims. An error message alerts users of a problem that has already
occurred.
Furthermore, the Commonwealth Office of Technology (COT) Production Services Branch is responsible
for production batch operations and scheduling UI job streams. These Mainframe jobs interact with
KEWES to process things including UI benefits payments. The auditor was previously provided 25
schedules reflecting UI jobs running in production. These schedules run jobs daily, weekly, on weekends,
or as needed. While the various jobs have a description associated with them, the schedules do not have
descriptions indicating their purpose or explain why certain jobs are running as part of that schedule. One
schedule may run two jobs daily while another schedule may run five jobs daily.
Page 46
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-027: The Office Of Unemployment Insurance Does Not Comply With Certain
Federal And State Enterprise Policies Related To System Security
State Agency: Office of Unemployment Insurance
Federal Program: ALN 17.225 – Unemployment Insurance
ALN 17.225 – COVID-19 Unemployment Insurance
Federal Award Number and Year: Various
Federal Agency: U.S. Department of Labor
Pass-Through: Not Applicable
Compliance Area: Eligibility
Questioned Costs: $0
This finding was reported in full in the 2022 Report of the Statewide Single Audit of the Commonwealth
of Kentucky (SSWAK) Volume I as finding 2022-013. Management’s response and planned corrective
action for finding 2022-013 can be found in the SSWAK Volume I. The finding also identified matters
impacting federal program compliance as described below.
This is a repeat finding as reported in the fiscal year 2021 Statewide Single Audit of Kentucky (SSWAK)
Volume II as finding 2021-022. The Kentucky Labor Cabinet’s (Labor) Office of Unemployment
Insurance (OUI) did not comply with certain Commonwealth enterprise policies related to information
system security as it pertains to the Kentucky Electronic Workplace for Employment Services (KEWES)
during fiscal year (FY) 2022.
OUI is required to follow enterprise policies established by the Commonwealth Office of Technology
(COT). One of these policies, CIO-112 Security Planning Policy, requires state agencies to develop and
manage system security plans (SSP) for IT systems under their control. In addition, CIO-093 Risk
Assessment Policy, requires state agencies to categorize their information systems by assigning a Security
Categorization (SC) and document it within the SSP. Discussions with the agency revealed OUI has not
developed an SSP for KEWES, but has categorized KEWES as ‘Confidential’. The SSP describes
components included within a system, the environment in which a system operates, how security
requirements are implemented, and relationships with or connections to other systems.
Page 47
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-028: The Office Of Unemployment Insurance Did Not Comply With Certain
Federal Regulations Related To Income Eligibility And Verification Systems
State Agency: Office of Unemployment Insurance
Federal Program: ALN 17.225 – Unemployment Insurance
ALN 17.225 – COVID-19 Unemployment Insurance
Federal Award Number and Year: Various
Federal Agency: U.S. Department of Labor
Pass-Through: Not Applicable
Compliance Area: Eligibility
Questioned Costs: $0
This finding was reported in full in the 2022 Report of the Statewide Single Audit of the Commonwealth
of Kentucky (SSWAK) Volume I as finding 2022-014. Management’s response and planned corrective
action for finding 2022-014 can be found in the SSWAK Volume I. The finding also identified matters
impacting federal program compliance as described below.
The Office of Unemployment Insurance (OUI) has not completed quarterly wage crossmatches for
Unemployment Insurance (UI), Pandemic Unemployment Assistance (PUA), and Pandemic
Unemployment Emergency Compensation (PUEC) claims for Calendar Year (CY) 2021 and CY 2022.
Due to the workload created for staff because of the COVID-19 pandemic, OUI is currently running the
fourth quarter cross match for CY 2021 in November of 2022. 20 CFR 603.23 (Code of Federal
Regulations) requires state Unemployment Compensation (UC) agencies to crossmatch quarterly wage
information with UC payment information to identify ineligibility for benefits and prevent or discover
incorrect payments.
Page 48
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-029: The Office Of Unemployment Insurance Failed To Meet Benefits Accuracy
Measurement Standards
State Agency: Office of Unemployment Insurance
Federal Program: ALN 17.225 – Unemployment Insurance
ALN 17.225 – COVID-19 Unemployment Insurance
Federal Award Number and Year: Various
Federal Agency: U.S. Department of Labor
Pass-Through: Not Applicable
Compliance Area: Special Tests and Provisions
Questioned Costs: $0
This is a repeat finding as reported in the fiscal year 2021 Statewide Single Audit of Kentucky (SSWAK)
Volume II as finding 2021-047.
The Office of Unemployment Insurance (OUI) uses the Benefits Accuracy Measurement (BAM) program
as a quality control to assess the accuracy of both paid benefit claims and denied claims. The BAM
program and requirements are designed by the United States Department of Labor (U.S. DOL) and
distributed to states in a Benefit Accuracy Measurement State Operations Handbook. The BAM program
is used to identify payment errors and to extrapolate those payment errors to estimate both a payment error
rate and estimate the dollar amount of improperly paid or denied claims. The results of each state’s BAM
reviews are reported by U.S. DOL as required by the Improper Payments Information Act and the
Improper Payments Elimination and Recovery Act.
States are required to select samples of paid and denied claims to investigate each week, and to complete
the review of these cases by a federally determined time limit. BAM case investigations are completed by
selecting a sample of claims each week and reviewing records as well as communicating with claimants,
employers, and third parties regarding the facts and circumstances of that sample of claims. The BAM
results also identify how and where an error occurred in the claims process if there was one. During fiscal
year (FY) 22, OUI completed 327 BAM reviews of paid claims and 441 BAM reviews of denied claims.
Auditors evaluated internal controls over compliance with federal requirements by interviewing OUI
personnel. It was determined that OUI does not complete a supervisory review for accuracy and
completeness of all BAM case investigations. In addition, during compliance testing it was noted that
cases were missing the required documentation to support the BAM conclusion. The lack of a supervisory
review to ensure complete and accurate BAM assessments is indicative of absent or ineffective internal
controls.
Page 49
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-029: The Office Of Unemployment Insurance Failed To Meet Benefits Accuracy
Measurement Standards (Continued)
The following issues were noted during compliance testing:
•
Six paid claims out of 33 reviews sampled lacked the required documentation in the case file
to adequately perform the review. The files were provided to auditors in a subsequent review.
•
Four denied claims out of 45 reviews sampled did not contain the required documentation in
the case file to adequately perform the review. The files were provided to auditors in a
subsequent review.
•
OUI failed to meet the timeliness standard for paid claims reviewed under BAM for fiscal year
2022. Based on the information provided, OUI completed review of 35.59% of the sampled
paid claims cases within 90 days. The BAM program standard is to complete review of 95%
of the sampled paid claims cases within 90 days.
•
OUI failed to meet the timeliness standard for denied claims reviewed under BAM for fiscal
year 2022. Based on the information provided, OUI completed review of 82.69% of monetary
denied claims, 52.56% of separation denied claims, and 61.98% nonseparation denied claims
cases within 90 days. The BAM program standard is to complete review of 85% of the sampled
denied claims cases within 90 days.
OUI did not follow U.S. DOL requirements for maintaining file documentation and timeliness. OUI did
not ensure internal controls over compliance were effective and able to prevent and detect errors in BAM
review documentation. OUI staffing levels and an increased workload may be contributing to the agency’s
inability to meet the timeliness deadlines.
Failure to implement effective internal controls over compliance could create inaccurate BAM
determinations on individuals’ claims, potentially establishing improper overpayments or underpayments.
Prompt completion of investigations is important to ensure the integrity of the information being collected
by questioning claimants and employers before the passage of time adversely affects recollections. Prompt
entry of associated data is necessary for both the State Workforce Agency and the U.S. DOL to maintain
current databases. Failure to complete reviews in a timely manner undermines these goals and leads to
noncompliance with federal program requirements.
2 CFR section 200.303 (a) indicates that the non-Federal entity must:
Establish and maintain effective internal control over the Federal award that provides
reasonable assurance that the non-Federal entity is managing the Federal award in
compliance with Federal statutes, regulations, and the terms and conditions of the Federal
award. These internal controls should be in compliance with the guidance in “Standards
for Internal Control in the Federal Government,” issued by the Comptroller General of the
United States [Green Book] or the “Internal Control Integrated Framework”, issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Page 50
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-029: The Office Of Unemployment Insurance Failed To Meet Benefits Accuracy
Measurement Standards (Continued)
According to the Benefit Accuracy Measurement State Operations Handbook published by the U.S. DOL:
Chapter VI, paragraph 13 states:
Therefore, the following time limits are established for completion of all [paid] cases for
the year. (The “year” includes all batches of weeks ending in the calendar year):
-
a minimum of 70 percent of cases must be completed within 60 days of the
week ending date of the batch, and 95 percent of cases must be completed
within 90 days of the week ending date of the batch; and
-
a minimum of 98 percent of cases for the year must be completed within 120
days of the ending date of the calendar year.
Chapter VIII, paragraph 7 states:
However, due to the fact that contacting the claimant and obtaining claimant information
is more difficult than in paid claims, the timeliness standards differ as the following
indicates:
-
a minimum of 60 percent of cases must be completed within 60 days of the
week ending date of the batch, and 85 percent of cases must be completed
within 90 days of the week ending date of the batch; and
-
a minimum of 98 percent of cases for the year must be completed within 120
days of the ending date of the Calendar Year.
-
Chapter VII, paragraph 2 – Documentation:
Each file must contain, at a minimum, a copy of all agency documents from the claimant’s
original claim file in addition to any documents pertaining to the BAM investigation that
were utilized.
20 CFR 602.21: Each State shall:
(a)
Perform the requirements of this section in accordance with instructions issued by
the Department, pursuant to §602.30(a) of this part, to ensure standardization of
methods and procedures in a manner consistent with this part;…
(e)
Make and maintain records pertaining to the QC program, and make all such
records available in a timely manner for inspection, examination, and audit by such
Federal officials as the Secretary may designate or as may be required or authorized
by law.
Per 20 CFR Section 602.30(a), “The Department shall establish required methods and procedures (as
specified in 602.21 of this part); and provide technical assistance as needed on the QC process.”
Page 51
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-029: The Office Of Unemployment Insurance Failed To Meet Benefits Accuracy
Measurement Standards (Continued)
Recommendation
We recommend OUI establish and maintain effective internal controls over federal award
compliance as required by federal guidelines. We recommend OUI follow the U.S. DOL
procedures when investigating BAM cases. This includes filing all required documentation in the
BAM case folder. OUI should also update their internal procedures regularly to ensure all
necessary documentation is included in the case folder.
Additionally, we recommend OUI work to ensure the BAM timeliness standards are met in
accordance with federal standards.
Management’s Response and Planned Corrective Action
The Kentucky Education and Labor Cabinet (ELC) has received the above finding and
recommendation. Challenges with staffing and workload continued to persist throughout the fiscal
year. ELC has sought funding from the Kentucky General Assembly to expand the number of OUI
employees and the General Assembly has repeatedly denied those requests. Despite these
challenges, ELC has increased case review rates and broadened staff knowledge by having current
staff help review cases outside their normal workload. In addition, ELC has implemented a review
process for each case before final submission to improve internal controls and limit typos and
document omission errors. Again, internal controls have been strengthened and improvement in
case review rates has occurred since the audit. Timeliness of case completions is an ongoing area
of focus for improvement with existing staff. Despite being understaffed, restricted from overtime,
and having increased workloads due to additional case review and internal control measures, staff
are completing cases in a timely manner.
Further, the State Auditor and the Office of the State Auditor are in violation of both state law and
applicable auditing standards. See AICPA Code, 1.110.010.12, Conflicts of Interest for Members
in Public Practice, Disclosure of a Conflict of Interest and Consent; AICPA Code, 0.300.050,
Objectivity and Independence, .01-.02; GAO-21-368O, Government Auditing Standards, 3.11,
Objectivity; GAO 21-3680, Government Auditing Standards, 3.15, Proper Use of Government
Information, Resources, and Positions; KRS 11A.020-.030. The State Auditor is aware of, failed
to disclose, and chooses to ignore this clear conflict of interest.
Page 52
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-029: The Office Of Unemployment Insurance Failed To Meet Benefits Accuracy
Measurement Standards (Continued)
Auditor’s Reply
As noted in the FY 21 Statewide Single Audit of Kentucky, the Auditor of Public Accounts is in
compliance with all applicable laws and auditing standards. The APA has safeguards in place, both
statutorily and procedurally, to assure that objectivity and independence are maintained in
accordance with professional auditing standards. Strong safeguards have been in place for decades
at the APA to insulate the agency’s audit work from any political bias resulting from the fact that
every four years, a sitting State Auditor may again run for statewide office in a partisan election.
These longstanding safeguards were enhanced to provide additional assurance and to mitigate the
perceived conflict of interest. This information was clearly spelled out in memos addressed to the
Kentucky Labor Cabinet Secretary - dated August 17, 2021 and August 30, 2021.
Page 53
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-030: The Office Of Unemployment Insurance Failed To Ensure Adequate Internal
Controls Were In Place For Federal Reports
State Agency: Office of Unemployment Insurance
Federal Program: ALN 17.225 – Unemployment Insurance
ALN 17.225 – COVID-19 Unemployment Insurance
Federal Award Number and Year: Various
Federal Agency: U.S. Department of Labor
Pass-Through: Not Applicable
Compliance Area: Reporting; Special Tests and Provisions
Questioned Costs: $0
This is a repeat finding as reported in the fiscal year 2021 Statewide Single Audit of Kentucky (SSWAK)
Volume II as finding 2021-044.
As a part of the audit of the Commonwealth’s federal compliance with the Unemployment Insurance (UI)
program, ten report types were tested. Report descriptions and any errors identified in the testing are
detailed below:
• The Unemployment Insurance Financial Transaction Summary Report (ETA 2112) is a monthly
summary of transactions, which accounts for all funds received by, passed through, or paid out of
the State Unemployment fund. An overstatement error totaling $1,339,548 was noted in one report
out of four tested.
• The Time Lapse of All First Payments Except Workshare Report (ETA 9050) provides monthly
information on first payment time lapse. This report concerns the time it takes states to pay benefits
to claimants for the first compensable week of unemployment. None of the four reports tested
agreed to supporting documentation for the performance measurements.
• The Nonmonetary Determination Time Lapse Detection Report (ETA 9052) provides monthly
information on the time it takes states to issue nonmonetary determinations from the date the issues
are first detected by the agency. Single-claimant and multi-claimant nonmonetary determinations
are included in the report. One report out of four tested contained errors and did not agree with
supporting documentation for the performance measurements.
• The Financial Status Report (ETA 9130) is a quarterly report used to report program and
administrative expenditures for each grant awarded to OUI, including unemployment insurance
(UI). Inquiry with the agency indicated OUI staff members shared a personal identification number
in the Grant Reporting System which could not distinguish between the individuals certifying or
preparing the reports.
• In the testing of two out of four UI-3 Quarterly UI Above-Base Earnings (ETA 2208a) reports
submitted in FY 2022, it was discovered that one report’s supporting documentation did not match
the reported amount. Additionally, incorrect formulas were used to calculate amounts reported on
one ETA 2208a.
Page 54
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-030: The Office Of Unemployment Insurance Failed To Ensure Adequate Internal
Controls Were In Place For Federal Reports (Continued)
Although the following tested reports did not contain errors, internal controls related to reviewing the
reports for accuracy and completeness were not in place during FY 2022:
• The Reemployment Services and Eligibility Assessment (RESEA) Workload Report (ETA 9128)
and RESEA Outcomes Report (ETA 9129) provide quarterly information on RESEA activities
and outcomes of claimants who are most likely to exhaust their UI benefits and are selected to
participate in the RESEA program. While there was a process to review the reports prior to
submission, there was no documentation retained indicating the review occurred in FY 2022.
• The Appeals Case Aging Reports (ETA 9055L and ETA 9055H) provide monthly information on
the inventory of lower authority (9055L) and higher authority (9055H) single claimant appeals
cases that have been filed but not decided. Inquiry with the report preparer indicates OUI did not
have an internal process for a second individual to verify the accuracy of the ETA 9055L and
9055H data prior to submission until June 2022.
OUI did not have an internal process for a supervisory or second level review to verify the accuracy of
the ETA 2112, ETA 9050, ETA 9052, ETA 9055L, ETA 9055H, ETA 9128, and ETA 9129 reports prior
to submission. In addition, there was no segregation of duties in the submission and certification
procedures for the ETA 9130 report. Although there was evidence of review of the ETA 2208a, the
agency’s review of the report and supporting workbook was not operating effectively to detect or prevent
the errors.
Federal reports were submitted in FY 2022 with errors that went undetected by OUI. Without adequate
review of the reports and without OUI maintaining adequate supporting documentation, the risk of
inaccurate reporting increases. Failure to ensure the accuracy of financial reports submitted to United
States Department of Labor (U.S.DOL) and not segregating the submission and certification duties could
lead to noncompliance with federal regulations.
2 CFR section 200.300 – Statutory and national policy requirements, paragraph (b) states, in part, “[t]he
non-Federal entity is responsible for complying with all requirements of the Federal award.”
2 CFR section 200.302 – Financial management, paragraph (b)(2) states, in part, that the non-Federal
entity’s financial management system must provide “[a]ccurate, current, and complete disclosure of the
financial results of each Federal award or program…”
Page 55
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-030: The Office Of Unemployment Insurance Failed To Ensure Adequate Internal
Controls Were In Place For Federal Reports (Continued)
2 CFR section 200.303 – Internal Controls indicates that the non-Federal entity must:
Establish and maintain effective internal control over the Federal award that provides
reasonable assurance that the non-Federal entity is managing the Federal award in
compliance with Federal statutes, regulations, and the terms and conditions of the Federal
award. These internal controls should be in compliance with guidance in “Standards for
Internal Control in the Federal Government” issued by the Comptroller General of the
United States [Green Book] or the “Internal Control Integrated Framework”, issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
2 CFR 200.334 – Retention requirements for records states:
Financial records, supporting documents, statistical records, and all other non-Federal
entity records pertinent to a Federal award must be retained for a period of three years from
the date of submission of the final expenditure report or, for Federal awards that are
renewed quarterly or annually, from the date of the submission of the quarterly or annual
financial report, respectively, as reported to the Federal awarding agency…
The GAO Green Book, Section 10.03 – Design of Appropriate Types of Control Activities, states, in part:
Management designs appropriate types of control activities for the entity’s internal control
system. Control activities help management fulfill responsibilities and address identified
risk responses in the internal control system … Management divides or segregates key
duties and responsibilities among different people to reduce the risk of error, misuse, or
fraud.
The GAO Green Book, Section 10.12 – Segregation of Duties, states, in part, “Management considers
segregation of duties in designing control activity responsibilities so that incompatible duties are
segregated and, where such segregation is not practical, designs alternative control activities to address
the risk.”
Recommendation
We recommend OUI implement adequate internal controls to ensure the federal reports are
reviewed for accuracy before submission to the U.S. DOL. We also recommend documentation of
this review and support for the reports be retained in accordance with federal regulations. OUI
should also work with U.S. DOL to obtain unique certification pin codes for each authorized
reviewer to ensure adequate segregation of duties in the report review process.
Page 56
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-030: The Office Of Unemployment Insurance Failed To Ensure Adequate Internal
Controls Were In Place For Federal Reports (Continued)
Management’s Response and Planned Corrective Action
The Education and Labor Cabinet (ELC) has received the above finding and recommendations.
ELC is aware this is a repeat finding; however, the prior recommendation for correction was
received on April 29, 2022 and ELC created a plan to improve, update and actively place internal
controls on these reports. This plan had an implementation date of May 31, 2022 and was met by
ELC staff. The present review was completed for the 2022 fiscal year and only included two months
of the time period impacted by the May 2022 improvements to internal controls. Each report
mentioned in the above finding is addressed below listing the corrective actions taken.
ELC is aware there are several amended returns required for the ETA 2112 report; however, due
to errors on other reports that impact the 2112 report, all amendments will be addressed oldest to
newest. Our intended schedule for the ETA 2112 reports is as follows:
FY2020 amendments, completed by 3/15/23
FY2021 amendments, completed by 4/15/23
FY2022 amendments, completed by 5/15/23
FY2023 amendments, completed by 6/15/23
In addition, ELC is cognizant there were four amended returns required for the ETA 9050 report
during the FY 2022 audit and all were for months prior to the corrective action plan created from
the previous audit. Those four amended reports have already been completed and submitted on
the below dates:
August 2021 on 2/6/23
September 2021 on 2/8/23
October 2021 on 2/12/23
November 2021 on 1/28/23
The auditor’s review revealed there was one ETA 9052 report during the FY 2022 audit that
needed amendment; this report error was also prior to the corrective action plan created by ELC.
This report was corrected, and an amended report was filed for the October 2022 report on
02/08/23.
ELC was made aware that there was a discrepancy between the workbook provided by ELC’s
Division of Fiscal Management and the submitted ETA 2208a for December 2021 on 1/31/23. ELC
reviewed and recognized this data was inaccurate; however, an amended return could not be
submitted to ETA based on the federal system’s limitation to amending this report after 12/31/22.
ELC did ensure the correct data would not have affected the net dollar amount US DOL would
have issued for above base funding.
Page 57
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-030: The Office Of Unemployment Insurance Failed To Ensure Adequate Internal
Controls Were In Place For Federal Reports (Continued)
Management’s Response and Planned Corrective Action (Continued)
The Quality Control Branch manager of the Office of Unemployment Insurance (OUI) has updated
internal instructions for this report to ensure accuracies, along with meeting with the Division of
Fiscal Management to improve their review of data and adding a 2nd review of the report data
prior to submission to the ETA report system. These updates will be in force by 5/1/23.
The instructions and process for ETA reports 9128 and 9129 have already changed. The Quality
Control Branch manager of OUI updated the instructions and trained the Career Development
Office staff working on the Reemployment Services and Eligibility Assessment (RESEA) program.
RESEA staff took ownership of building the report effective 7/06/22. RESEA staff provide the
report data to the Quality Control Branch manager, who then reviews the data for accuracies,
asks for corrections (if needed) and submits the final report to the ETA federal report system.
Lastly, the instructions for ETA 9055 (lower and higher authority) report were updated 8/31/22,
and a virtual training was held with Quality Control (QC) staff on 6/24/22. Prior to transmitting
the data through the federal report system, QC staff must provide the manager with a screen shot
of the entries with the data used to build it. The manager then reviews the data for accuracies,
asks for corrections if needed, and informs the QC staff to submit the final report to the ETA
federal report system. All review requests and approvals are done via email and saved to the
report’s file.
Further, the State Auditor and the Office of the State Auditor are in violation of both state law and
applicable auditing standards. See AICPA Code, 1.110.010.12, Conflicts of Interest for Members
in Public Practice, Disclosure of a Conflict of Interest and Consent; AICPA Code, 0.300.050,
Objectivity and Independence, .01-.02; GAO-21-368O, Government Auditing Standards, 3.11,
Objectivity; GAO 21-3680, Government Auditing Standards, 3.15, Proper Use of Government
Information, Resources, and Positions; KRS 11A.020-.030. The State Auditor is aware of, failed
to disclose, and chooses to ignore this clear conflict of interest.
Auditor’s Reply
As noted in the FY 21 Statewide Single Audit of Kentucky, the Auditor of Public Accounts is in
compliance with all applicable laws and auditing standards. The APA has safeguards in place, both
statutorily and procedurally, to assure that objectivity and independence are maintained in
accordance with professional auditing standards. Strong safeguards have been in place for decades
at the APA to insulate the agency’s audit work from any political bias resulting from the fact that
every four years, a sitting State Auditor may again run for statewide office in a partisan election.
These longstanding safeguards were enhanced to provide additional assurance and to mitigate the
perceived conflict of interest. This information was clearly spelled out in memos addressed to the
Kentucky Labor Cabinet Secretary - dated August 17, 2021 and August 30, 2021.
Page 58
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-031: The Office Of Unemployment Insurance Failed To Maintain Reemployment
Services And Eligibility Assessment Records
State Agency: Office of Unemployment Insurance
Federal Program: ALN 17.225 – Unemployment Insurance
ALN 17.225 – COVID-19 Unemployment Insurance
Federal Award Number and Year: Various
Federal Agency: U.S. Department of Labor
Pass-Through: Not applicable
Compliance Area: Special Tests and Provisions
Questioned Costs: $23,682
This is a repeat finding as reported in the fiscal year 2021 Statewide Single Audit of Kentucky (SSWAK)
Volume II as finding 2021-048.
During the fiscal year (FY) 22 Federal compliance audit of the Commonwealth of Kentucky, the Career
Development Office’s (CDO) Reemployment Services and Eligibility Assessment (RESEA) program was
reviewed to determine whether it met Worker Profiling and Reemployment Services (WPRS) Standards.
The objective of these programs is to identify, from a pool of claimants receiving Unemployment
Compensation (UC) benefits, those individuals whose unemployment duration could be shortened through
providing reemployment services. Once identified and invited to participate in the program, Kentucky law
requires the claimant to participate in the reemployment services program to remain eligible for UC
benefits.
Individuals selected for participation in RESEA are sent a notification that details the date, time, and
location of an orientation event. The notice includes the RESEA candidate’s eligibility condition,
requirements, benefits, and clear warnings regarding the consequences of failing to complete required
elements. Each participant meets with RESEA personnel biweekly, and RESEA personnel note in the
participant’s file if there have been any changes to the participant’s eligibility. Nonparticipation in the
RESEA program would result in the claimant’s unemployment benefits being stopped for non-eligibility.
A review of 60 RESEA participants revealed seven did not meet program requirements. The participant
case files did not contain information indicating the claimants completed the required RESEA activities.
Altogether, five of the claimants received a total of $23,682 in unemployment benefits after the required
orientation date. The Office of Unemployment Insurance (OUI) was unable to provide the auditors with
any evidence these claimants attended the orientation or completed the RESEA trainings; therefore, the
$23,682 is considered questioned costs.
Page 59
SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-031: The Office Of Unemployment Insurance Failed To Maintain Reemployment
Services And Eligibility Assessment Records (Continued)
RESEA staff did not follow up on all cases when claimants missed training. Without this input, non-
eligibility determinations could not be rendered. As a result, ineligible claimants continued to receive
benefits.
The number of individuals selected to participate in RESEA was 3,315. As noted earlier, seven participants
in the sample of 60 did not have evidence of whether the participants completed the required RESEA
activities or not, possibly allowing claimants to receive benefits when failure to complete the required
RESEA activities should have resulted in a disqualification from receiving benefits. The total cost of
potential overpayments could not be reasonably determined due to other factors that may affect the claims,
beyond the benefit payments identified in the sample, totaling $23,682, which are considered questioned
costs.
Per 42 USCA 503(j)(1):
(j)(1) The State agency charged with the administration of the State law shall establish and
utilize a system of profiling all new claimants for regular compensation that –
A. identifies which claimants will be likely to exhaust regular compensation and will
need job search assistance services to make a successful transition to new
employment;
B. refers claimants identified pursuant to subparagraph (A) to reemployment services,
such as job search assistance services, available under any State or Federal law;
C. collects follow-up information relating to the services received by such claimants
and the employment outcomes for such claimants subsequent to receiving such
services and utilizes such information in making identifications pursuant to
subparagraph (A); and
D. meets such other requirements as the Secretary of Labor determines are
appropriate.
Per Unemployment Insurance Program Letter (UIPL) No. 10-22, Fiscal Year (FY) 2022 Funding
Allotments and Operating Guidance for Unemployment Insurance (UI) Reemployment Services and
Eligibility Assessment (RESEA) Grants, paragraph 4.d.ii – “Once a state notifies claimants of their
selection to participate in the RESEA program, participation is a mandatory condition of UC eligibility.
This includes: 1) the initial RESEA; 2) any subsequent RESEAs; and 3) any reemployment services to
which they are referred.”
Recommendation
We recommend CDO continue its efforts to increase the RESEA staff’s ability to administer the
RESEA participation process. This effort could include the timely recording of RESEA selectee
nonparticipation and sending Notices of Determination for selectees who have had an eligibility
issue determined. OUI should review the nonparticipating individuals that continued to receive
UC benefits to determine if overpayments need to be established on each individual’s claim.
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SECTION 3 – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Significant Deficiencies Relating to Internal Controls and/or Noncompliances
FINDING 2022-031: The Office Of Unemployment Insurance Failed To Maintain Reemployment
Services And Eligibility Assessment Records (Continued)
Management’s Response and Planned Corrective Action
The Education and Labor Cabinet has received the above finding and reviewed the
recommendation. The Career Development Office (CDO) staff have strengthened internal controls
to ensure errors do not occur again. Staff have reviewed processes and added additional steps for
review and monitoring. Every month, RESEA staff will review the participant report and provide
evidence of spot-checks for quality assurance, correct any information or follow-up as necessary.
This documentation will be reviewed by CDO staff and maintained in a shared drive. Additionally,
RESEA staff will complete a more extensive quarterly review to ensure the report submitted to the
U.S. Department of Labor is accurate and complete.
Further, the State Auditor and the Office of the State Auditor are in violation of both state law and
applicable auditing standards. See AICPA Code, 1.110.010.12, Conflicts of Interest for Members
in Public Practice, Disclosure of a Conflict of Interest and Consent; AICPA Code, 0.300.050,
Objectivity and Independence, .01-.02; GAO-21-368O, Government Auditing Standards, 3.11,
Objectivity; GAO 21-3680, Government Auditing Standards, 3.15, Proper Use of Government
Information, Resources, and Positions; KRS 11A.020-.030. The State Auditor is aware of, failed
to disclose, and chooses to ignore this clear conflict of interest.
Auditor’s Reply
As noted in the FY 21 Statewide Single Audit of Kentucky, the Auditor of Public Accounts is in
compliance with all applicable laws and auditing standards. The APA has safeguards in place, both
statutorily and procedurally, to assure that objectivity and independence are maintained in
accordance with professional auditing standards. Strong safeguards have been in place for decades
at the APA to insulate the agency’s audit work from any political bias resulting from the fact that
every four years, a sitting State Auditor may again run for statewide office in a partisan election.
These longstanding safeguards were enhanced to provide additional assurance and to mitigate the
perceived conflict of interest. This information was clearly spelled out in memos addressed to the
Kentucky Labor Cabinet Secretary - dated August 17, 2021 and August 30, 2021.
APPENDIX
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COMMONWEALTH OF KENTUCKY
APPENDIX
FOR THE YEAR ENDED JUNE 30, 2022
This report is available on the Auditor of Public Accounts’ website, auditor.ky.gov. The Commonwealth’s
FY 2022 Annual Comprehensive Financial Report is available on the Finance and Administration
Cabinet’s website, finance.ky.gov.
The following is a list of individuals by state agency to contact regarding major programs audited for
FY 2022.
Agency
Contact
Cabinet for Health and Family Services
Leesa Harrison, Director
Division of General Accounting
275 East Main Street 4E-A
Frankfort, KY 40601
Phone: (502) 545-8416
Department for Local Government
Billie R. Johnson, Executive Director
Office of Federal Grants
100 Airport Road
Frankfort, KY 40601
Phone: (502) 892-3449
Department of Workforce Development
Beth Brinly, Deputy Secretary
Department of Workforce Development
500 Mero Street, 4th Floor
Phone: (502)-564-1817
Department of Education
Karen Wirth, Director
Division of Budget and Finance
300 Sower Blvd. Suite 524
Frankfort, KY 40601
Phone: (502) 564-1979
Kentucky Transportation Cabinet
Teri Harmon, Assistant Director
Division of Audit Services
200 Mero Street – 4th Floor East
Frankfort, KY 40601
Phone: (502) 782-4073
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Agency
Contact
Department of Agriculture
Dana Feldman, Executive Director
Office for Consumer & Environmental Protection
107 Corporate Drive
Frankfort, KY 40601
Phone: (502) 573-0282
Finance and Administration Cabinet
Brian Thomas, Executive Director
Finance & Administration Cabinet
Office of General Counsel
200 Mero Street, 5th Floor
Frankfort, KY 40604
Phone: (502) 564-6660
Office of Unemployment Insurance
Buddy Hoskinson, Executive Director
Office of Unemployment Insurance
500 Mero Street, 4th Floor
Frankfort, KY 40601
Phone: (502) 564-2900