City of Phoenix Coronavirus Relief Fund Desk Review (OIG-CA-23-032) — Treasury OIG, July 21, 2023

Summary

A July 21, 2023 memorandum for Jessica Milano, Acting Chief Recovery Officer, from Deborah L. Harker, Assistant Inspector General for Audit, with the subject Desk Review of Phoenix, Arizona's Use of Coronavirus Relief Fund Proceeds (OIG-CA-23-032). It attaches a desk review by Wayne Ference of Castro & Company, LLC, which states that Treasury issued a CRF payment to Phoenix of $293,320,141.10. Castro found that expenditures for Grants greater than or equal to $50,000 did not comply with the CARES Act and Treasury's Guidance, identified total questioned costs of $147,379.46, and determined the risk of unallowable use of funds to be moderate. It recommends that Treasury OIG pursue the missing documentation and determine if a focused audit is feasible for those grants.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Full text

OFFICE OF
INSPECTOR GENERAL
DEPARTM ENT OF THE TREASURY
WASHINGTON, D.C.  20220

July 21, 2023

MEMORANDUM FOR JESSICA MILANO, ACTING CHIEF RECOVERY OFFICER,
DEPARTMENT OF THE TREASURY

FROM:

Deborah L. Harker /s/
Assistant Inspector General for Audit

SUBJECT:
Desk Review of Phoenix, Arizona’s Use of Coronavirus
Relief Fund Proceeds (OIG-CA-23-032)

Please find the attached desk review memorandum1 on Phoenix, Arizona’s
(Phoenix) use of Coronavirus Relief Fund (CRF) proceeds. The CRF is authorized
under Title VI of the Social Security Act, as amended by Title V, Division A of the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Under a contract
monitored by our office, Castro & Company, LLC (Castro), a certified independent
public accounting firm, performed the desk review. Castro performed the desk
review in accordance with the Council of the Inspectors General on Integrity and
Efficiency, Quality Standards for Federal Offices of Inspector General standards of
independence, due professional care, and quality assurance.

In its desk review, Castro found that Phoenix was compliant with the required
quarterly Financial Progress Reports (FPR) submission timeline as required under
Department of the Treasury’s (Treasury) guidance for cycles 12 through 8.3 In
addition, Castro personnel reviewed documentation for a selection of 29
transactions reported in the quarterly reports through cycle 54. Castro’s review of
Phoenix’s documentation supporting its uses of CRF proceeds found that the
expenditures for the Contracts greater than or equal to $50,000, Direct Payments
greater than or equal to $50,000, Aggregate Reporting less than $50,000, and
Aggregate Payments to Individuals complied with the CARES Act and Treasury’s
Guidance.

1 The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) assigned the Department of
the Treasury Office of Inspector General with responsibility for compliance monitoring and
oversight of the receipt, disbursement, and use of Coronavirus Relief Fund (CRF) payments. The
purpose of the desk review is to perform monitoring procedures of the prime recipient’s receipt,
disbursement, and use of CRF proceeds as reported in the grants portal on a quarterly basis.
2 Calendar quarter ending June 30, 2020.
3 The scope of the desk review included the period March 1, 2020 to March 31, 2022 (Cycles 1 to 8);
however, Phoenix submitted its final GrantSolutions closeout submission in Cycle 5 (Calendar
quarter ending June 30, 2021).
4 Calendar quarter ending June 30, 2021.

Page 2

Castro found that CRF proceeds for the Grants greater than or equal to $50,000
payment type did not comply with the CARES Act and Treasury’s Guidance.

Based on the totality of the work performed, Castro identified total questioned
costs of $147,379.46 and determined Phoenix’s risk of unallowable use of funds to
be moderate. Based on Castro’s desk review, Treasury Office of Inspector General
(OIG) is questioning unsupported expenditures of $147,379.46. See the
attachment to this transmittal for the definition of a questioned cost.

Castro recommends that Treasury OIG pursue obtaining the missing
documentation from Phoenix personnel. Further, based on Phoenix’s
responsiveness to Treasury OIG’s requests and its ability to provide
documentation, Castro recommends Treasury OIG determine if a focused audit is
feasible for Grants greater than or equal to $50,000. Treasury OIG and Castro met
with Phoenix management to discuss the questioned costs. Phoenix management
stated they would provide additional documentation to Treasury OIG to support
the questioned costs.

In connection with the contract, we reviewed Castro’s desk review memorandum
and related documentation and inquired of its representatives. Our review, as
differentiated from an audit performed in accordance with generally accepted
government auditing standards, was not intended to enable us to express an
opinion on Phoenix’s use of the CRF proceeds. Castro is responsible for the
attached desk review memorandum and the conclusions expressed therein. Our
review found no instances in which Castro did not comply in all material respects
with the Quality Standards for Federal Offices of Inspectors General.

We appreciate the courtesies and cooperation provided to Castro and our staff
during the desk review. If you have any questions or require further information,
please contact me at (202) 486-1420, or a member of your staff may contact Lisa
DeAngelis, Deputy Assistant Inspector General for Audit, at (202) 487-8371.

Attachment
cc:
Michelle. A. Dickerman, Deputy Assistant General Counsel, Department of
the Treasury

Victoria Collin, Chief Compliance & Finance Officer, Office of Recovery
Programs, Department of the Treasury

Christopher Sun, Director of Data and Reporting, Department of the
Treasury

Kathleen Gitkin, Chief Financial Officer, Phoenix, Arizona
Wayne Ference, Partner, Castro & Company, LLC

Page 3

Attachment

Schedule of Monetary Benefits

According to the Code of Federal Regulations,5 a questioned cost is a cost that is
questioned due to a finding:

(a) which resulted from a violation or possible violation of a statute,
regulation, or the terms and conditions of a Federal award, including for
funds used to match Federal funds;

(b) where the costs, at the time of the review, are not supported by
adequate documentation; or

(c) where the costs incurred appear unreasonable and do not reflect the
actions a prudent person would take in the circumstances.

Questioned costs are to be recorded in the Department of the Treasury’s
(Treasury) Joint Audit Management Enterprise System (JAMES).6 The amount will
also be included in the Office of Inspector General (OIG) Semiannual Report to
Congress. It is Treasury management's responsibility to report to Congress on the
status of the agreed to recommendations with monetary benefits in accordance
with 5 USC Section 405(b) of the Inspector General Act of 1978.

Recommendation

Questioned Costs
Recommendation No. 1

$147,379.46

The questioned cost represents amounts provided by Treasury under the
Coronavirus Relief Fund. As discussed in the attached desk review, $147,379.46 is
Phoenix’s total expenditures reported in the grants reporting portal that lacked
supporting documentation.

5 2 CFR § 200.84 – Questioned Cost
6 JAMES is Treasury’s audit recommendation tracking system.

Desk Review of Phoenix, Arizona
1

1635 King Street
Alexandria, VA 22314
Phone: 703.229.4440
Fax: 703.859.7603
www.castroco.com

July 21, 2023

OIG-CA-23-032

MEMORANDUM FOR DEBORAH L. HARKER,
ASSISTANT INSPECTOR GENERAL FOR AUDIT

FROM:
Wayne Ference

Partner, Castro & Company, LLC

SUBJECT:
Desk Review of Phoenix, Arizona

On June 14, 2022, we initiated a desk review of Phoenix, Arizona’s (herein referred
to as “Phoenix”) use of the Coronavirus Relief Fund (CRF) authorized under Title
VI of the Social Security Act, as amended by Title V, Division A of the Coronavirus
Aid, Relief, and Economic Security Act (CARES Act).1 The objective of our desk
review was to evaluate Phoenix’s documentation supporting its uses of CRF
proceeds as reported in the GrantSolutions2 portal and to assess the risk of
unallowable use of funds. The scope of our desk review was limited to obligation
and expenditure data for the period of March 1, 2020 through March 31, 2022 as
reported in Cycles 13 through 84 in the GrantSolutions portal.

As part of our desk review, we performed the following:
1) reviewed Phoenix’s quarterly Financial Progress Reports (FPRs) submitted
in the GrantSolutions portal through June 30, 2021;5
2) reviewed the U.S. Department of the Treasury’s (Treasury) Coronavirus
Relief Fund Guidance as published in the Federal Register on
January 15, 2021;6

1 P.L. 116-136 (March 27, 2020).
2 GrantSolutions, a grant and program management Federal shared service provider under the
U.S. Department of Health and Human Services, developed a customized and user-friendly
reporting solution to capture the use of CRF payments from recipients.
3 Calendar quarter ending June 30, 2020.
4 Calendar quarter ending March 31, 2022.
5 The scope of our desk review included the period March 1, 2020 to March 31, 2022 (Cycles 1 to 8);
however, Phoenix submitted its final GrantSolutions closeout submission in Cycle 5 (Calendar
quarter ending June 30, 2021).
6 Coronavirus Relief Fund Guidance as published in the Federal Register (January 15, 2021)
https://home.treasury.gov/system/files/136/CRF-Guidance-Federal-Register_2021-00827.pdf

Desk Review of Phoenix, Arizona
2

3) reviewed Treasury Office of Inspector General’s (OIG) Coronavirus Relief
Fund Frequently Asked Questions Related to Reporting and
Recordkeeping;7
4) reviewed Treasury OIG’s monitoring checklists8 of Phoenix’s quarterly FPR
submissions for reporting deficiencies;
5) reviewed other audit reports issued, such as Single Audit reports, and
those issued by the Government Accountability Office and other applicable
Federal agency OIGs for internal control or other deficiencies that may
pose risk or impact Phoenix’s uses of CRF proceeds;
6) reviewed Treasury OIG Office of Investigations (OI), the Council of the
Inspectors General on Integrity and Efficiency Pandemic Response
Accountability Committee (PRAC),9 and Treasury OIG Office of Counsel
input on issues that may pose risk or impact Phoenix’s uses of CRF
proceeds;
7) interviewed key personnel responsible for preparing and certifying
Phoenix’s GrantSolutions portal quarterly FPR submissions, as well as
officials responsible for obligating and expending CRF proceeds;
8) made a non-statistical selection of Contracts, Grants, Direct Payments,
Aggregate Reporting,10 and Aggregate Payments to Individuals11 data
identified through GrantSolutions reporting; and
9) evaluated documentation and records used to support Phoenix’s quarterly
FPRs.

7 Department of the Treasury Office of Inspector General Coronavirus Relief Fund Frequently Asked
Questions Related to Reporting and Recordkeeping OIG-20-028R; March 2, 2021.
8 The checklists are used by Treasury OIG personnel to monitor the progress of prime recipient
reporting in the GrantSolutions portal. GrantSolutions quarterly submission reviews are designed
to identify material omissions and significant errors, and where necessary, include procedures for
notifying prime recipients of misreported data for timely correction. Treasury OIG follows the CRF
Prime Recipient Quarterly GrantSolutions Submissions Monitoring and Review Procedures Guide,
OIG-CA-20-029R to monitor the prime recipients quarterly.
9 Section 15010 of P.L. 116-136 established the Pandemic Response Accountability Committee
within the Council of the Inspectors General on Integrity and Efficiency to promote transparency
and conduct and support oversight of covered funds (see Footnote 18 for a definition of covered
funds) and the coronavirus response to (1) prevent and detect fraud, waste, abuse, and
mismanagement; and (2) mitigate major risks that cut across program and agency boundaries.
10 Recipients are required to report CRF transactions greater than or equal to $50,000 in detail in
the GrantSolutions portal. Transactions less than $50,000 can be reported as an aggregate lump-
sum amount by type (contracts, grants, loans, direct payments, and transfers to other government
entities).
11 Obligations and expenditures for payments made to individuals, regardless of amount, are
required to be reported in the aggregate in the GrantSolutions portal to prevent inappropriate
disclosure of personally identifiable information.

Desk Review of Phoenix, Arizona
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Based on the results of our desk review, we determined that documentation
supporting the uses of Phoenix’s CRF proceeds related to Grants greater than or
equal to $50,000 did not comply with the CARES Act and Treasury’s Guidance.
Our desk review resulted in total identified questioned costs of $147,379.46.

Based on the totality of work performed, we determined that Phoenix’s risk of
unallowable use of funds is moderate. As such, Castro recommends Treasury OIG
pursue obtaining documentation from Phoenix management and follow-up on
necessary reporting corrections. Further, based on Phoenix’s responsiveness to
Treasury OIG’s requests and its ability to provide sufficient documentation, we
recommend Treasury OIG determine if a focused audit is feasible for Grants
greater than or equal to $50,000.

Non-Statistical Transaction Selection Methodology
Treasury issued a CRF payment to Phoenix of $293,320,141.10. As of Cycle 5,12
Phoenix’s cumulative obligations and expenditures were $293,320,141.10.
Phoenix’s cumulative obligations and expenditures by payment type, as reported
in GrantSolutions through Cycle 5, are summarized below.

Payment Type
Cumulative
Obligations
Cumulative
Expenditures
Contracts >= $50,000
$      38,550,333.26
$      38,550,333.26
Grants >= $50,000
$      52,051,662.83
$      52,051,662.83
Loans >= $50,000
$                            -
$                            -
Transfers >= $50,000
$                            -
$                            -
Direct Payments >= $50,000
$        1,871,788.00
$        1,871,788.00
Aggregate Reporting < $50,000
$      16,683,308.99
$      16,683,308.99
Aggregate Payments to Individuals
(in any amount)
$    184,163,048.02
$    184,163,048.02
Totals
$    293,320,141.10
$    293,320,141.10

Castro made a non-statistical selection of Contracts greater than or equal to
$50,000, Grants greater than or equal to $50,000, Direct Payments greater than or
equal to $50,000, Aggregate Reporting less than $50,000, and Aggregate
Payments to Individuals transactions. Selections were made using auditor
judgment based on information and risks identified while reviewing audit reports,
the GrantSolutions portal reporting anomalies13 identified by the Treasury OIG
CRF monitoring team, and review of Phoenix’s quarterly FPR submissions. Castro
noted Phoenix did not obligate or expend CRF proceeds for Loans greater than or

12 Calendar quarter ending June 30, 2021.
13 Treasury OIG has a pre-defined list of risk indicators that are triggered based on data submitted
by recipients in the FPR submissions that meet certain criteria. Castro reviewed these results
provided by Treasury OIG for Phoenix.

Desk Review of Phoenix, Arizona
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equal to $50,000, or Transfers14 greater than or equal to $50,000; therefore, we did
not make a selection of transactions from these payment categories.

The number of transactions (28) we selected to test were based on Phoenix’s total
CRF award amount and our overall risk assessment of Phoenix. To allocate the
number of transactions (28) by payment type (Contracts greater than or equal to
$50,000, Grants greater than or equal to $50,000, Direct Payments greater than or
equal to $50,000, Aggregate Reporting less than $50,000, and Aggregate
Payments to Individuals), we compared the obligation type dollar amounts as a
percentage of cumulative obligations for Cycle 5.15 Additionally, Treasury OIG
identified an additional anomaly in the form of a potential duplicate payment,
which had not already been included within our transaction selection. As a result,
our transaction selection was increased from 28 to 29 transaction selections.

Background

The CARES Act appropriated $150 billion to establish the CRF. Under the CRF,
Treasury made payments for specified uses to States and certain local
governments; the District of Columbia and U.S. Territories, including the
Commonwealth of Puerto Rico, the United States Virgin Islands, Guam, American
Samoa, and the Commonwealth of the Northern Mariana Islands; and Tribal
governments. Treasury issued a CRF payment to Phoenix for $293,320,141.10.

The CARES Act stipulates that a recipient may only use the funds to cover costs
that—
(1) are necessary expenditures incurred due to the public health emergency
with respect to the coronavirus disease 2019 (COVID-19);
(2) were not accounted for in the budget most recently approved as of
March 27, 2020; and
(3) were incurred between March 1, 2020 and December 31, 2021.16

14 A transfer to another government entity is a disbursement or payment to a government entity
that is legally distinct from the prime recipient.
15 Calendar quarter ending June 30, 2021.
16 P.L. 116-260 (December 27, 2020). The period of performance end date of the CRF was extended
through December 31, 2021 by the Consolidated Appropriations Act, 2021. The period of
performance end date for tribal entities was further extended to December 31, 2022 by the State,
Local, Tribal, and Territorial Fiscal Recovery, Infrastructure, and Disaster Relief Flexibility Act,
Division LL of the Consolidated Appropriations Act, 2023, P.L. 117-328, December 29, 2022, 136
Stat. 4459.

Desk Review of Phoenix, Arizona
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Section 15011 of the CARES Act requires each covered recipient17 to submit to
Treasury and the PRAC, no later than 10 days after the end of each calendar
quarter, a report that contains (1) the total amount of large covered funds18,19
received from Treasury; (2) the amount of large covered funds received that were
expended or obligated for each project or activity; (3) a detailed list of all projects
or activities for which large covered funds were expended or obligated; and (4)
detailed information on any level of sub-contracts or sub-grants awarded by the
covered recipient or its sub-recipients.

The CARES Act assigned Treasury OIG the responsibility for compliance
monitoring and oversight of the receipt, disbursement, and use of CRF proceeds.
Treasury OIG also has authority to recoup funds in the event that it is determined
a recipient failed to comply with requirements of subsection 601(d) of the Social
Security Act, as amended, (42 U.S.C. 801(d)).

Desk Review Results

Financial Progress Reports
Our review of Phoenix’s quarterly FPR submissions through June 30, 2021 found
that Phoenix complied with the Reporting Timeline as required under Treasury
OIG Guidance OIG CA-20-021, Coronavirus Relief Fund Reporting and Record
Retention Requirements.

Summary of Testing Results
We determined that Grants greater than or equal to $50,000 did not comply with
the CARES Act or Treasury’s Guidance. We also found that Contracts greater than
or equal to $50,000, Direct Payments greater than or equal to $50,000, Aggregate
Reporting less than $50,000, and Aggregate Payments to Individuals were
necessary expenditures due to the COVID-19 public health emergency, were not
accounted for in the budget most recently approved as of March 27, 2020, and
were incurred during the covered period. The transactions selected for testing
were not selected statistically, and therefore results cannot be extrapolated to the
total universe of transactions.

17 Section 15011 of P.L. 116-136 defines a covered recipient as any entity that receives large
covered funds and includes any State, the District of Columbia, and any territory or possession of
the United States.
18 Section 15010 of P.L. 116-136 defines covered funds as any funds, including loans, that are made
available in any form to any non-Federal entity, not including an individual, under Public Laws 116-
123, 127, and 136, as well as any other law which primarily makes appropriations for Coronavirus
response and related activities.
19 Section 15011 of P.L. 116-136 defines large covered funds as covered funds that amount to more
than $150,000.

Desk Review of Phoenix, Arizona
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The following table includes the total cumulative expenditure population amount
and the expenditure amount tested. Within the table below, we have included a
summary of unsupported and ineligible expenditures identified as questioned
costs. Additionally, in the far-right column, we have identified the expenditures
that Castro tested without exceptions noted. See the Desk Review Results section
below this table for a detailed discussion of questioned costs and other issues
identified throughout the course of our desk review.

Summary of Expenditure Testing and Recommended Results – As of Cycle 520
Payment Type
Cumulative
Expenditure
Population
Amount
Cumulative
Expenditure
Tested Amount
Unsupported
Reconciling
Items21
Unsupported
Exception
Ineligible
Exception
Castro Reviewed
Value Without
Exception
(per Support)
Contracts >=
$50,000
 $     38,550,333.26
 $       5,022,366.29
 $                 -     $                -     $               -     $     5,022,366.29
Grants >=
$50,000
 $     52,051,662.83
 $       5,299,292.33
 $    11,065.46
 $  136,314.00
 $               -     $     5,162,978.33
Loans >= $50,000
 $                           -    $                           -    $                 -     $                -     $               -     $                       -
Transfers >=
$50,000
 $                           -    $                           -    $                 -     $                -     $               -     $                       -
Direct Payments
>= $50,000
 $       1,871,788.00
 $          257,927.63
 $                 -     $                -     $               -     $        257,927.63
Aggregate
Reporting <
$50,000
 $     16,683,308.99
 $            47,566.73
 $                 -     $                -     $               -     $          47,566.73
Aggregate
Payments to
Individuals (in
any amount)
 $   184,163,048.02
 $   127,456,016.91
 $                 -     $                -     $               -     $ 127,456,016.91
Totals
 $   293,320,141.10
 $   138,083,169.89
 $   11,065.46
 $ 136,314.00
 $               -     $ 137,946,855.89

20 The scope of our desk review included the period March 1, 2020 to March 31, 2022 (Cycles 1 to
8); however, Phoenix submitted its final GrantSolutions closeout submission in Cycle 5 (Calendar
quarter ending June 30, 2021). Therefore, for testing purposes we utilized data from Phoenix’s
GrantSolutions submission for the calendar quarter ending June 30, 2021.
21 As a result of our reconciliation procedures, we determined that expenditures recorded in
GrantSolutions for one sub-recipient transaction selected (prior to sub-selections) were
$8,341,750.00 while the expenditures per the general ledger detail were $8,330,684.54, resulting in
a variance of $11,065.46. However, we did not test detailed support for these amounts. As such, we
excluded this balance from the “Cumulative Expenditure Tested Amount” column.

Desk Review of Phoenix, Arizona
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Grants Greater Than or Equal to $50,000
We selected seven transactions to test. From those seven selections, we made 35
sub-selections22 to obtain coverage at the detailed transaction level. From those
transactions, we determined that Phoenix’s Grants greater than or equal to
$50,000 payment type did not comply with the CARES Act and Treasury’s
Guidance.

In total, we question $147,379.46 in expenditures. We question $136,314 in
unsupported expenditures related to administrative costs for running the grant
program. We also identified $540.36 in understated expenditures incurred, but not
reported, related to administrative costs; however, we are not questioning these
costs because the amount represents understated expenditures. We are also
questioning $11,065.46 because sub-recipient general ledger (GL) detail support
provided was less than total costs that had been entered into the GrantSolutions
portal.

Castro was told by Phoenix Neighborhood Services Department (NSD) personnel
that NSD would not complete the CRF funds post-grant monitoring risk
assessment for sub-recipients until on or after June 30, 2023. As Phoenix did not
complete these efforts prior to submitting and certifying its GrantSolutions
submission as accurate, Castro deemed delayed sub-recipient monitoring efforts
to be a major contributing root cause of these errors.

Castro performed a reconciliation from our initial cumulative expenditure
transaction selection amounts to the cumulative expenditure amounts supported
by Phoenix’s sub-recipient GL detail. During our reconciliation, for one out of
seven initial selections, we noted discrepancies between the total amount of
cumulative expenditures reported by Phoenix within its Cycle 523 GrantSolutions
submission and the total amount of cumulative expenditures in its sub-recipient’s
GL detail to support CRF amounts claimed. Specifically, sub-recipient GL detail
support provided for cumulative expenditures of $8,330,684.54 was less than total
costs of $8,341,750.00 entered into the GrantSolutions portal. Therefore, we
question cumulative expenditure amounts of $11,065.46 for Grants greater than or
equal to $50,000.

Upon further inquiry, Phoenix confirmed the $11,065.46 as an exception within its
Cycle 524 submission. Phoenix personnel confirmed that they planned to correct
this error in future GrantSolutions submissions by decreasing cumulative

22 Due to the number of transactions at the original selection level, we utilized the general ledger
detail listing to obtain a sub-selection of obligations and expenditures to test at the detailed
transaction level.
23 Calendar quarter ending June 30, 2021.
24 Calendar quarter ending June 30, 2021.

Desk Review of Phoenix, Arizona
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expenditures claimed by the total amount of administrative costs of $11,065.46
from grant award number 152087, and by increasing expenditure amounts
claimed in grant award number 152106 by the same amount.

For one of 35 sub-selections, Phoenix did not provide any invoice or expenditure
support, resulting in unsupported expenditures totaling $136,314 in administrative
costs incurred by its sub-recipients for running the grant program.

Phoenix management did not agree with this finding. NSD is the department
responsible for sub-recipient monitoring. The NSD personnel told us that for grant
agreement number 152383, they included terms in the grant agreement that
would support the advance payment of the administrative and direct service
portions of this agreement for the total award of $29 million. NSD management
told us that this grant agreement was prioritized in an effort to respond to the
COVID-19 pandemic, and that Phoenix would have traditionally entered into a
reimbursement contract; however, the level of accounting necessary to support a
reimbursement contract would have been a barrier to the expedited delivery of
services needed. This barrier was removed by executing an advance payment
grant that tied the administrative payments from NSD to the sub-recipient for the
level of direct service dollars expended; NSD management told us that this was
also deemed necessary to address agency capacity for the immediate response
needed to provide these emergency services. This payment structure accounted
for administrative dollars proportionate to the amount of direct service dollars
awarded. Thus, it provided the sub-recipient with the flexibility to provide
emergency services without the level of accounting, dollar for dollar, for the
expenditure of the administrative costs associated with this contract.

NSD management told us that the sub-recipient had appropriate accounting
controls in place; however, the grant agreement terms did not require the level of
accounting that would require Phoenix’s administrative payments to tie to specific
sub-recipient administrative expenditures.

Castro noted that the Federal Register Notice Volume 86, Number 10,25
Coronavirus Relief Fund for States, Tribal Governments, and Certain Eligible Local
Governments, Supplemental Guidance on Use of Funds To Cover Administrative
Costs, General, indicates the following:

"Payments from the Fund are not administered as part of a traditional grant
program and the provisions of the Uniform Guidance, 2 CFR part 200, that
are applicable to indirect costs do not apply. Recipients may not apply their
indirect costs rates to payments received from the Fund. Recipients may, if

25 Coronavirus Relief Fund Guidance as published in the Federal Register (January 15, 2021)
https://home.treasury.gov/system/files/136/CRF-Guidance-Federal-Register_2021-00827.pdf

Desk Review of Phoenix, Arizona
9

they meet the conditions specified in the guidance for tracking time
consistently across a department, use payments from the Fund to cover the
portion of payroll and benefits of employees corresponding to time spent
on administrative work necessary due to the COVID-19 public health
emergency. (In other words, such costs would be eligible direct costs of the
recipient).”

Castro noted that the CRF program requirements for prime recipients also applies
to their sub-recipients (as described in 2 CFR 200.101(b)(2)). Therefore, we
determined the CRF guidance doesn't permit CRF recipients to charge indirect
costs to their CRF award or for sub-recipients to charge indirect costs to their CRF
sub-awards (either with a Negotiated Indirect Cost Rate Agreement or using the
de minimis indirect cost rate per 2 CFR 200.414(f)). Since these costs were charged
as direct administrative costs to the CRF sub-award, the sub-recipient must
provide supporting documentation for it to be considered allowable (as required
by 2 CFR 200.413 – Direct Costs). Therefore, Castro determined that these
administrative expenses were unsupported and questions $136,314 in
administrative costs claimed.

For one of 35 sub-selections, we identified expenditures related to administrative
costs for running the grant program that were incurred but were not reported as
expenditures for this grant within GrantSolutions. Phoenix personnel reported
cumulative expenditures totaling $495,989.27 while we received a reconciliation
prepared by Phoenix personnel that showed $496,529.63 in expenditures should
have been reported within GrantSolutions, resulting in a $540.36 understatement
of expenditures. We are not questioning these costs because the amount
represents understated expenditures.

Phoenix management told us that the department was not able to provide the
support for these administrative costs before the deadline, and that this error
occurred due to two grant sub-recipients moving funds between two programs
with Phoenix’s programmatic personnel approval. However, they did not notify
the Phoenix finance department of this change. As such, this movement of costs
between grant programs was not properly recorded in Phoenix’s accounting
system and in the Cycle 526 GrantSolutions submission. Phoenix personnel told us
that if required, they would make an adjustment in a future GrantSolutions cycle
for the project “Business and Employee Assistance”, ID number 350011, by
decreasing the grant award number 152106, and increasing the grant award
number 152087 by $540.36.

26 Calendar quarter ending June 30, 2021.

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Conclusion

We found that Phoenix personnel timely filed quarterly FPR reports in the
GrantSolutions portal. We also found that the expenditures related to the Grants
greater than or equal to $50,000 payment type did not comply with the CARES Act
and Treasury’s Guidance. As a result, we identified $147,379.46 in questioned
costs. The Contracts greater than or equal to $50,000, Direct Payments greater
than or equal to $50,000, Aggregate Reporting less than $50,000, and Aggregate
Payments to Individuals payment types were supported by documentation and
are allowable CRF expenditures. Based on the work performed, we determined
Phoenix’s risk of unallowable use of funds is moderate.

Castro recommends Treasury OIG follow-up with Phoenix management on the
finalization of its reconciliation and reporting corrections. Based on Phoenix
management’s responsiveness to Treasury OIG’s requests, and its ability to
provide sufficient documentation, we recommend that Treasury OIG determine if
a focused audit is feasible for Grants greater than or equal to $50,000.

*****

All work completed with this letter complies with the Council of the Inspectors
General on Integrity and Efficiency’s Quality Standards for Federal Offices of
Inspectors General, which require that the work adheres to the professional
standards of independence, due professional care, and quality assurance to
ensure the accuracy of the information presented.27 We appreciate the courtesies
and cooperation provided to our staff during the desk review.

Sincerely,

Wayne Ference
Partner, Castro & Company, LLC

27 https://www.ignet.gov/sites/default/files/files/Silver%20Book%20Revision%20-%208-20-12r.pdf

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