North Carolina Office of the State Auditor, Oversight of Coronavirus Relief Funds, Office of State Budget and Management, Pandemic Recovery Office (PER-2021-3005A, May 2021)
Summary
Performance audit report "Oversight of Coronavirus Relief Funds" on the Office of State Budget and Management's North Carolina Pandemic Recovery Office, issued by the North Carolina Office of the State Auditor (Beth A. Wood, CPA, State Auditor) in May 2021. The audit scope covered March 1, 2020, through November 30, 2020. The key findings are that $3.1 billion of Coronavirus Relief Funds was distributed with limited monitoring and distributed without ensuring all recipients had a method to measure results. The report states the Pandemic Recovery Office did not independently verify spending until November 2020, and it recommends independent verification of recipients' self-reported spending. The report closes with the Office of State Budget and Management's response and a State Auditor's response.
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
STATE OF NORTH CAROLINA
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OFFICE OF THE STATE AUDITOR
BETH A. WOOD, CPA
OVERSIGHT OF CORONAVIRUS RELIEF FUNDS
OFFICE OF STATE BUDGET AND MANAGEMENT
PANDEMIC RECOVERY OFFICE
PERFORMANCE AUDIT
MAY 2021
The key findings and recommendations in this summary may not be inclusive of all the findings and recommendations
in this report.
EXECUTIVE SUMMARY
PURPOSE
The purpose of this audit was to determine whether the North Carolina Office of State Budget and
Management’s (OSBM) North Carolina Pandemic Recovery Office (NCPRO) designed and
implemented procedures to ensure that:
(1) Coronavirus Relief Funds were being spent in accordance with the 2020 COVID-19
Recovery Act and subsequent amendments.
(2) Programs that received Coronavirus Relief Funds were achieving their legislatively
intended result.
BACKGROUND
On May 4, 2020, the North Carolina General Assembly enacted the 2020 COVID-19 Recovery
Act (Recovery Act). 1 The Recovery Act established the State’s Coronavirus Relief Fund 2 for the
purpose of providing necessary and appropriate relief and assistance from the effects of
COVID-19. It provided approximately $3.6 billion in federal assistance to various entities across
the State.
The Recovery Act required OSBM to administer the Coronavirus Relief Fund to carry out the
provisions of the law and to ensure the proper reporting and accounting of the Coronavirus Relief
Fund. 3
The Recovery Act also directed OSBM to create a temporary NCPRO to oversee and coordinate
funds made available under Recovery Act legislation. 4 NCPRO is responsible for providing
technical assistance, ensuring coordination of federal funds received by state agencies and local
governments, and ensuring proper reporting and accounting of all funds.
KEY FINDINGS
• $3.1 billion of Coronavirus Relief Funds distributed with limited monitoring.
• $3.1 billion of Coronavirus Relief Funds distributed without ensuring all recipients had a
method to measure results.
KEY RECOMMENDATIONS
• NCPRO should perform independent verification of recipients’ self-reported Coronavirus
Relief Fund spending to ensure funds are being spent in accordance with the Recovery
Act.
• NCPRO should develop policies and procedures to ensure all recipients (1) have
objectives for what they will do with the funds to achieve legislatively intended results, (2)
have goals for how they will accomplish their objectives, and (3) measure their progress
towards meeting their goals.
• The North Carolina General Assembly should consider including specific monitoring
requirements (including requirements for independent verification, measurement of
progress towards intended results, and timeliness of monitoring activities) in future
legislation regarding the spending of Coronavirus Relief Funds or other emergency relief
funds.
1 Session Law 2020-4.
2 Session Law 2020-4 Section 2.2.
3 Session Law 2020-4 Section 4.3.
4 Ibid.
STATE OF NORTH CAROLINA
Office of the State Auditor
2 S. Salisbury Street
20601 Mail Service Center
Raleigh, NC 27699-0600
Telephone: (919) 807-7500
Fax: (919) 807-7647
Beth A. Wood, CPA http://www.auditor.nc.gov
State Auditor
AUDITOR’S TRANSMITTAL
The Honorable Roy Cooper, Governor
Members of the North Carolina General Assembly
Charles Perusse, State Budget Director, Office of State Budget and Management
Stephanie McGarrah, Executive Director, NC Pandemic Recovery Office
Ladies and Gentlemen:
We are pleased to submit this performance audit report titled Oversight of Coronavirus Relief
Funds. The audit objectives were to determine whether the North Carolina Office of State
Budget and Management’s (OSBM) North Carolina Pandemic Recovery Office (NCPRO)
designed and implemented procedures to ensure that:
(1) Coronavirus Relief Funds were being spent in accordance with the 2020
COVID-19 Recovery Act and subsequent amendments.
(2) Programs that received Coronavirus Relief Funds were achieving their legislatively
intended result.
The State Budget Director reviewed a draft copy of this report. His written comments are
included starting on page 15.
This audit was conducted in accordance with Chapter 147, Article 5A of the North Carolina
General Statutes.
We appreciate the courtesy and cooperation received from management and the employees
of OSBM and NCPRO during our audit.
Respectfully submitted,
Beth A. Wood, CPA
State Auditor
TABLE OF CONTENTS
PAGE
BACKGROUND ............................................................................... 1
OBJECTIVES, SCOPE, AND METHODOLOGY ...................................... 4
RESULTS AND CONCLUSIONS ...................................................... …6
FINDINGS, RECOMMENDATIONS, AND RESPONSES
Beth A. Wood, CPA
State Auditor 1. $3.1 BILLION OF CORONAVIRUS RELIEF FUNDS DISTRIBUTED
WITH LIMITED MONITORING .................................................... 7
2. $3.1 BILLION OF CORONAVIRUS RELIEF FUNDS DISTRIBUTED
WITHOUT ENSURING ALL RECIPIENTS HAD A METHOD TO
MEASURE RESULTS ............................................................... 9
APPENDIX.................................................................................... 13
STATE AUDITOR’S RESPONSE ....................................................... 14
RESPONSE FROM OFFICE OF STATE BUDGET AND MANAGEMENT ... 15
ORDERING INFORMATION ............................................................. 18
Chapter 147, Article 5A of the North Carolina General Statutes, gives the Auditor broad powers to examine all books,
records, files, papers, documents, and financial affairs of every state agency and any organization that receives public
funding. The Auditor also has the power to summon people to produce records and to answer questions under oath.
BACKGROUND
BACKGROUND
On March 27, 2020, the President of the United States signed into law the Coronavirus Aid,
Relief, and Economic Security (CARES) Act. 5 The CARES Act established the federal
Coronavirus Relief Fund and appropriated $150 billion to this fund for distribution to state, local,
and tribal governments. 6 The State of North Carolina received approximately $3.6 billion in
financial assistance through the federal Coronavirus Relief Fund. In addition, eligible North
Carolina local governments also received approximately $481.5 million in CARES Act
assistance directly from the U.S. Department of the Treasury. 7
Federal CARES Act
Federal Eligible North Carolina Local
Coronavirus Relief Fund Governments
$150 Billion $481.5 Million
State of North Carolina
Coronavirus Relief Fund
$3.6 Billion
The purpose of these funds was to provide financial assistance to cover costs that were:
1) Necessary expenditures incurred due to the public health emergency with respect to
the Coronavirus Disease 2019 (COVID–19)
2) Not accounted for in the budget most recently approved as of March 27, 2020, (the
date the CARES Act was enacted) for the State or local governments
3) Incurred during the period that begins on March 1, 2020, and ends on
December 31, 2021 8
The North Carolina General Assembly enacted the 2020 COVID-19 Recovery Act 9 (Recovery
Act) on May 4, 2020, to assist local governments, communities, families, workers and other
individuals and businesses by providing federal relief and recovery funds from the CARES Act.
The Recovery Act established the State’s Coronavirus Relief Fund that is to be maintained as
a special fund, administered by the North Carolina Office of State Budget and Management
(OSBM), to carry out the provisions of the law. The funds are to be used “in a manner that is
consistent with the authorizing federal legislation and that responsibly provides for the public
health and economic well-being of the State.” 10 The State’s Coronavirus Relief Fund does not
include amounts received directly from the U.S. Department of the Treasury by eligible North
Carolina local governments, and accordingly, these funds are not included within the scope
of this audit.
5 U.S. Public Law 116-136.
6 https://home.treasury.gov/system/files/136/Payments-to-States-and-Units-of-Local-Government.pdf.
7 Eligible local governments included the City of Charlotte ($154.6 million), Guilford County ($93.7 million),
Mecklenburg County ($39.2 million), and Wake County ($194 million).
8 The President of the United States signed H.R. 133 (Consolidated Appropriations Act, 2021) into law on
December 27, 2020. One of the provisions of this law (Section 1001) extended the period during which allowable
costs could be incurred from December 30, 2020, to December 31, 2021.
9 Session Law 2020-4.
10 Session Law 2020-4 Section 1.3.
1
BACKGROUND
Through a series of legislation, the State appropriated approximately $3.6 billion to various
state, local, and private entities through the Coronavirus Relief Fund as shown in the following
illustration:
State of North Carolina
Coronavirus Relief Fund
$3.6 Billion
Offset State
Local
State Agencies Education General Fund Nonprofits Hospitals
Governments
$1.67 billion $524 million Expenditures $341 million $102 million
$317 million
$645 million
The Recovery Act required OSBM to administer the Coronavirus Relief Fund to carry out the
provisions of the law and to ensure the proper reporting and accounting of the Coronavirus
Relief Fund. Specifically, OSBM is required to:
• Allocate and disburse Coronavirus Relief Funds as directed by the Recovery Act.
• Ensure adherence with the compliance requirements established by the U.S.
Department of the Treasury.
• Account for the Coronavirus Relief Fund in accordance with generally accepted
accounting principles and the requirements established by the North Carolina Office of
the State Controller. 11
• Adhere to the reporting requirements established by the Recovery Act.
The Recovery Act also directed OSBM to create a temporary North Carolina Pandemic
Recovery Office (NCPRO) to oversee and coordinate funds made available under Recovery
Act legislation. 12 NCPRO is responsible for:
• Providing technical assistance
• Ensuring coordination of federal funds received by state agencies and local
governments
• Ensuring proper reporting and accounting of all funds
Key terms discussed in this report include:
CARES Act - The federal Coronavirus Aid, Relief, and Economic Security Act (U.S. Public
Law 116-136) that created the federal Coronavirus Relief Fund.
Recovery Act - The 2020 COVID-19 Recovery Act 13 and subsequent legislation enacted
by the State of North Carolina to establish the Coronavirus Relief Fund and assist local
governments, communities, families, workers and other individuals and businesses by
providing federal relief and recovery funds from the CARES Act.
11 North Carolina Office of the State Controller, Memorandum 20-30.
12 Session Law 2020-4 Section 4.3.
13 Session Law 2020-4.
2
BACKGROUND
Coronavirus Relief Fund - The fund established by the State to provide necessary and
appropriate relief from the effects of COVID-19.
COVID-19 - The severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) that
emerged in December 2019.
Monitoring - Activities management establishes and operates to assess the quality of
performance over time and promptly resolve identified issues.
Responsible parties discussed in this report include:
North Carolina Office of State Budget and Management (OSBM) - OSBM delivers budget
development and management services for the State. The Recovery Act established a
Coronavirus Relief Fund that is to be maintained as a special fund, administered by OSBM,
to carry out the provisions of the law.
North Carolina Pandemic Recovery Office (NCPRO) - The temporary North Carolina
Pandemic Recovery Office created to oversee and coordinate funds made available under
Recovery Act legislation.
3
OBJECTIVES, SCOPE, AND
METHODOLOGY
OBJECTIVES, SCOPE, AND METHODOLOGY
The audit objectives were to determine whether the North Carolina Office of State Budget and
Management’s (OSBM) North Carolina Pandemic Recovery Office (NCPRO) designed and
implemented procedures to ensure that:
(1) Coronavirus Relief Funds were being spent in accordance with the 2020 COVID-19
Recovery Act and subsequent amendments.
(2) Programs that received Coronavirus Relief Funds were achieving their legislatively
intended result.
The audit scope included the period of March 1, 2020, through November 30, 2020.
The audit scope did not include:
• Funds received by eligible North Carolina local governments directly from the U.S.
Department of the Treasury.
• Whether OSBM accounted for, allocated, and disbursed amounts appropriated to the
State of North Carolina’s Coronavirus Relief Fund in accordance with 2020 COVID-19
Recovery Act legislation (Recovery Act). 14
To achieve the audit objectives, auditors:
• Reviewed relevant laws and regulations
• Interviewed NCPRO personnel
• Reviewed financial data for Coronavirus Relief Fund disbursements
• Reviewed NCPRO’s policies and procedures for monitoring the recipients of the
Coronavirus Relief Fund
• Reviewed monthly program performance reports 15 submitted by Coronavirus Relief
Fund recipients
Auditors also performed the following tests:
1. Risk Assessment - Auditors examined NCPRO’s risk assessment of Coronavirus Relief
Fund recipients to determine whether it complied with NCPRO’s chosen criteria for
conducting risk assessments, which was the National Institute of Standards and
Technology’s “Guide for Conducting Risk Assessments.” 16
2. Monitoring Procedures - Auditors tested NCPRO’s policies and procedures for
monitoring recipient spending to determine whether the procedures complied with the
United States Treasury, Office of the Inspector General, Prime Recipient Desk Reviews
guidance and the AICPA Sampling Guide. Auditors also reviewed the nature, timing,
and extent of monitoring procedures performed or planned to be performed by NCPRO.
14 This was the objective of the Office of State Budget and Management Coronavirus Relief Fund Preliminary
Financial Audit released in March 2021.
15 NCPRO required all entities that received Coronavirus Relief Funds to report on their use of the funds (including
how much was spent, what the funds were spent on, and how relief would be provided) each month until all
funds were spent.
16 The National Institute of Standards and Technology is a physical sciences laboratory and a non-regulatory
agency of the United States Department of Commerce.
4
OBJECTIVES, SCOPE, AND METHODOLOGY
3. Monthly Program Performance Reports - Auditors tested all (100%) reports submitted
during July 2020 - November 2020 17 from the 490 (100%) recipients of Recovery Act
allocations through October 2020 18 to determine whether the recipients:
• Had objectives for what they would do with the funds
• Had goals for how they would accomplish their objectives
• Measured their progress towards meeting their goals
Because of the test nature and other inherent limitations of an audit, together with limitations
of any system of internal and management controls, this audit would not necessarily disclose
all performance weaknesses or instances of noncompliance.
As a basis for evaluating internal control, auditors applied the internal control guidance
contained in professional auditing standards. However, our audit does not provide a basis for
rendering an opinion on internal control, and consequently, we have not issued such an
opinion. See the Appendix for internal control components and underlying principles that were
significant to our audit objectives.
We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives.
17 The period during our audit scope for which Monthly Program Performance Reports were available. Recipients
were not required to report prior to July 2020.
18 Monthly Program Performance Reports were submitted in the month following the previous month’s recipient
activities. For example, recipient November 2020 reports covered activities through October 2020.
5
RESULTS AND
CONCLUSIONS
RESULTS AND CONCLUSIONS
The North Carolina Office of State Budget and Management’s (OSBM) North Carolina
Pandemic Recovery Office (NCPRO) did not design and implement procedures to ensure that
Coronavirus Relief Funds were being spent in accordance with the 2020 COVID-19 Recovery
Act (Recovery Act) or that programs that received Coronavirus Relief Funds were achieving
their legislatively intended results. Specifically, NCPRO:
• Performed limited monitoring 19 to ensure that federal funds distributed to provide
economic support in the wake of COVID-19 were being spent in accordance with the
Recovery Act. Specifically, it did not independently verify spending until
November 2020.
• Distributed approximately $3.1 billion 20 of Coronavirus Relief Funds to provide
economic support in the wake of COVID-19 without ensuring that all recipients 21
(1) had objectives for what they would do with the funds, (2) had goals for how they
would accomplish their objectives, and (3) measured their progress towards meeting
their goals.
As a result, there was an increased risk that recipients could have misused the funds without
the misuse being detected and corrected timely. Additionally, NCPRO was limited in its ability
to know whether funds were achieving legislatively intended results and take timely corrective
action if necessary.
19 Monitoring activities are established and operated by management to assess the quality of performance over
time and promptly resolve identified issues.
20 According to NCPRO records as of October 31, 2020.
21 Recipients include state agencies, colleges, universities, local governments, hospitals, and nonprofits.
6
FINDINGS,
RECOMMENDATIONS, AND
RESPONSES
FINDINGS, RECOMMENDATIONS, AND RESPONSES
1. $3.1 BILLION OF CORONAVIRUS RELIEF FUNDS DISTRIBUTED WITH LIMITED MONITORING
The North Carolina Pandemic Recovery Office (NCPRO) performed limited monitoring 22 to
ensure that federal funds distributed to provide economic support in the wake of
COVID-19 were being spent in accordance with the 2020 COVID-19 Recovery Act
(Recovery Act). Specifically, it did not independently verify spending until November 2020.
As a result, there was an increased risk that recipients 23 could have misused the funds
without the misuse being detected and corrected timely. NCPRO did not independently
verify spending because it stated it prioritized (1) coordinating and distributing funds and
(2) providing technical assistance to recipients instead. However, federal regulations
required NCPRO to monitor recipient spending of Coronavirus Relief Funds.
Limited Monitoring of Coronavirus Relief Fund Spending for Six Months
NCPRO’s limited monitoring procedures did not ensure that recipients were spending
approximately $3.1 billion 24 of Coronavirus Relief Funds in accordance with the Recovery
Act. NCPRO required recipients to submit monthly spending reports with supporting
documentation.
However, NCPRO did not independently verify recipient spending by comparing the
supporting documents (i.e. invoices, receipts, payroll records) to expenditures reported by
recipients until November 2020, after the majority of funds were already spent.
Before November 2020, NCPRO performed some monitoring procedures and other
activities including:
• Providing guidance to recipients on allowable uses of the funds using Frequently
Asked Questions documents (FAQs)
• Executing contracts with non-state entity recipients (included hospitals,
not-for-profits, etc.)
• Reviewing required spending plans 25 before distribution of funds to recipients
• Requiring recipients to submit monthly spending reports to NCPRO with supporting
documentation
• Reconciliation of reported spending to accounting records and legislative allocations
• Review of reported spending for obvious errors in expense categories and for
expenditures that appeared unreasonable
However, all of the information that NCPRO used for monitoring was self-reported by
recipients. NCPRO did not independently verify that the spending information was
accurate26 and in accordance with the Recovery Act. While the above activities performed
by NCPRO were necessary, the procedures were limited in their ability to ensure that
federal funds were being spent in accordance with the Recovery Act.
22 Monitoring activities are established and operated by management to assess the quality of performance over
time and promptly resolve identified issues.
23 Recipients include state agencies, colleges, universities, local governments, hospitals, and non-profits.
24 According to NCPRO records as of October 31, 2020.
25 Some allocations in legislation were for specific purposes. For those that were not explicitly defined, plans were
required.
26 Meaning the spending information would agree to supporting documents (i.e. invoices, receipts, payroll records).
7
FINDINGS, RECOMMENDATIONS, AND RESPONSES
Resulted in Increased Risk of Undetected and Uncorrected Misuse
Without independent verification, NCPRO could not detect misuse of the funds that could
occur due to misunderstandings, errors, or omissions.
For example, NCPRO could not ensure that recipients were only using funds for:
• Necessary expenditures incurred due to the public health emergency with respect to
the Coronavirus Disease 2019 (COVID–19)
• Expenditures that were not accounted for in the budget most recently approved as of
March 27, 2020 for the State or government
• Expenditures incurred during the period that begins on March 1, 2020, and ends on
December 30, 2020 27
• Activities and programs to meet the requirements specified by legislators in the
Recovery Act. For example,
o $14 million for the development of a COVID-19 vaccine and a low-cost
COVID-19 test for active infections
o $12.6 million to expand a COVID-19 study
o $10.5 million for the distribution of COVID-19 tests and personal protective
equipment to skilled nursing facilities in the state
And since independent verification was not completed before November 2020, it increased
the risk that NCPRO would not identify misuse and take timely corrective action.
Performing monitoring activities, such as independent verification of spending, while funds
were being spent would have allowed for:
• More timely detection and correction of misuse
• Training opportunities for recipients that misused funds
• The potential that future misuse is reduced
Caused by NCPRO Prioritizing Funds Distribution and Technical Assistance
NCPRO stated it did not independently verify spending prior to November 2020 because it
chose to prioritize (1) coordinating and distributing funds and (2) providing technical
assistance to recipients instead.
Additionally, NCPRO stated that it took longer than expected to complete the above
activities because of subsequent Recovery Act legislation that updated the distribution of
the funds and constantly changing guidance received from the U.S. Treasury on allowable
uses of the funds.
27 Subsequent legislation extended the deadline for expending Coronavirus Relief Funds to December 31, 2021.
8
FINDINGS, RECOMMENDATIONS, AND RESPONSES
Federal Regulations Required NCPRO to Monitor Spending
Federal regulations required NCPRO to monitor recipient spending of Coronavirus Relief
Funds. 28 Specifically, NCPRO must:
Monitor the activities of the subrecipient 29 as necessary to ensure that the
subaward is used for authorized purposes, in compliance with Federal statutes,
regulations, and the terms and conditions of the subaward; and that subaward
performance goals are achieved.
RECOMMENDATIONS
NCPRO should perform independent verification of recipients’ self-reported Coronavirus
Relief Fund spending timely to ensure funds are being spent in accordance with the
Recovery Act.
The North Carolina General Assembly should consider including specific monitoring
requirements (including requirements for independent verification and timeliness of
monitoring activities) in future legislation regarding the spending of Coronavirus Relief
Funds or other emergency relief funds.
AGENCY RESPONSE
See page 16 for the agency’s response to this finding.
2. $3.1 BILLION OF CORONAVIRUS RELIEF FUNDS DISTRIBUTED WITHOUT ENSURING ALL
RECIPIENTS HAD A METHOD TO MEASURE RESULTS
The North Carolina Pandemic Recovery Office (NCPRO) distributed approximately
$3.1 billion 30 of Coronavirus Relief Funds to provide economic support in the wake of
COVID-19 without ensuring that all recipients 31 (1) had objectives for what they would do
with the funds, (2) had goals for how they would accomplish their objectives, and
(3) measured their progress towards meeting their goals. As a result, NCPRO was limited
in its ability to know whether Coronavirus Relief Funds were achieving legislatively
intended results and to take timely corrective action if necessary. NCPRO did not ensure
all recipients had a method to measure results because it stated it prioritized
(1) coordinating and distributing funds and (2) providing technical assistance to recipients
instead. However, best practices required NCPRO to determine whether legislatively
intended results were achieved.
28 2 CFR 200.332(d).
29 State agencies, colleges, universities, local governments, hospitals, and non-profits are considered
subrecipients.
30 According to NCPRO records as of October 31, 2020.
31 Recipients include state agencies, colleges, universities, local governments, hospitals, and nonprofits.
9
FINDINGS, RECOMMENDATIONS, AND RESPONSES
Limited Procedures Established to Ensure Recipients Measured Results of
Spending
NCPRO distributed approximately $3.1 billion of Coronavirus Relief Funds without
ensuring that all recipients had a way to measure whether the funds distributed by NCPRO
were achieving legislatively intended results.
The North Carolina General Assembly enacted the 2020 COVID-19 Recovery Act
(Recovery Act) to assist local governments, communities, families, workers and other
individuals, and businesses by providing federal relief and recovery funds.
Examples include: 32
• $562 million disbursed to the Department of Health and Human Services to
support the COVID-19 recovery effort such as COVID-19 testing, contact tracing,
behavioral health crisis services, and early childhood initiatives.
• $307.8 million disbursed to local governments for medical, public health, and
economic support expenses.
• $84.9 million disbursed to hospitals to offset expenses incurred to provide patient
care including those related to personnel, personal protective equipment, and
medical supplies.
NCPRO required recipients to submit monthly program performance reports that provided
updates on:
• How much was spent
• What the funds were spent on
• How relief would be provided
However, NCPRO did not establish procedures to ensure that all recipients planned for
and measured the results of their spending. Specifically, NCPRO did not ensure all
recipients (1) had objectives for what they would do with the funds, (2) had goals for how
they would accomplish their objectives, and (3) measured their progress towards meeting
their goals. Auditors tested all (100%) of the Recovery Act disbursements to 490 recipients
through October 2020 and found:
• 43 of 490 (9%) recipients did not report objectives for what they would do with the
funds.
• 302 of 447 (68%) recipients reported objectives for what they would do with the funds
but not goals for how they would accomplish their objectives.
• 57 of 145 (39%) recipients reported objectives for what they would do with the funds
and goals for how they would accomplish their objectives, but did not measure their
progress towards meeting their goals.
32 According to NCPRO records as of October 31, 2020.
10
FINDINGS, RECOMMENDATIONS, AND RESPONSES
Resulted in Limited Ability to Know Whether Intended Results Were Being Achieved
Since NCPRO did not ensure that all recipients planned for and measured the results of
their spending, it was limited in its ability to know whether funds were achieving legislatively
intended results.
For example, based on audit tests, 33 NCPRO has no way to know whether:
• $423 million (75%) of the $562 million disbursed to the Department of Health
and Human Services were supporting the COVID-19 recovery effort such as
COVID-19 testing, contact tracing, behavioral health crisis services, and early
childhood initiatives.
• $101.8 million (33%) of the $307.8 million disbursed to local governments were
providing aid related to medical, public health, and economic support expenses.
• $33.6 million (40%) of the $84.9 million disbursed to hospitals were providing an
offset to expenses incurred to provide patient care including those related to
personnel, personal protective equipment, and medical supplies.
And since NCPRO was limited in its ability to know whether funds were achieving
legislatively intended results, it could not take timely corrective action. If NCPRO ensured
that recipients planned for and measured the results of their spending, it would be able
to monitor and:
• Detect and correct poor performance timely
• Train recipients that were not achieving results
• Improve the chance that funds were achieving legislatively intended results
Caused by NCPRO Prioritizing Funds Distribution and Technical Assistance
NCPRO stated it did not ensure all recipients had a method to measure results because it
chose to prioritize (1) coordinating and distributing funds and (2) providing technical
assistance to recipients instead.
Additionally, NCPRO stated that it took longer than expected to complete the above
activities because of subsequent Recovery Act legislation that updated the distribution of
the funds and constantly changing guidance received from the U.S. Treasury on allowable
use of the funds.
33 Based on review of monthly program performance reports for disbursements from May 2020 – October 2020,
auditors calculated the percentage of each total disbursement for which recipients did not provide an objective
for what they would do to provide relief, how they would accomplish their objective, and how they would measure
their progress toward doing so.
11
FINDINGS, RECOMMENDATIONS, AND RESPONSES
Best Practices Required NCPRO to Determine Whether Results Were Achieved
Best practices identified by the Government Accountability Office (GAO) required
management to determine whether legislatively intended results were being achieved. The
GAO states:
Legislators, oversight bodies, those charged with governance, and the public
need to know whether… government programs are achieving their objectives
and desired outcomes. 34
Management determines whether performance measures for the defined
objectives are appropriate for evaluating the entity’s performance in achieving
those objectives. 35
Management establishes activities to monitor performance measures and
indicators. These may include comparisons and assessments relating different
sets of data to one another so that analyses of the relationships can be made
and appropriate actions taken. 36
RECOMMENDATIONS
NCPRO should develop policies and procedures to ensure all recipients (1) have objectives
for what they will do with the funds to achieve legislatively intended results, (2) have goals
for how they will accomplish their objectives, and (3) measure their progress towards
meeting their goals.
The North Carolina General Assembly should consider including specific monitoring
requirements (including requirements for measurement progress towards intended results)
in future legislation regarding the spending of Coronavirus Relief Funds or other
emergency relief funds.
AGENCY RESPONSE
See page 17 for the agency’s response to this finding.
34 United States Government Accountability Office, Government Auditing Standards, July 2018.
35 United States Government Accountability Office, Standards for Internal Control in the Federal Government,
September 2014.
36 Ibid.
12
APPENDIX
APPENDIX
Internal Control Components and Principles Significant to the Audit Objective
Our audit objectives were to determine whether the Office of State Budget and Management’s
North Carolina Pandemic Recovery Office designed and implemented procedures to ensure that:
1) Coronavirus Relief Funds were being spent in accordance with the 2020 COVID-19
Recovery Act and subsequent amendments.
2) Programs that received Coronavirus Relief Funds were achieving their legislatively
intended result.
Internal control components and underlying principles that were significant to our audit objective
are identified in the table below.
COMPONENTS AND PRINCIPLES OBJECTIVE 1 OBJECTIVE 2
CONTROL ENVIRONMENT
1. The oversight body and management should demonstrate a commitment to integrity and ethical values.
2. The oversight body should oversee the entity’s internal control system.
3. Management should establish an organizational structure, assign responsibility, and delegate authority to
achieve the entity’s objectives.
4. Management should demonstrate a commitment to recruit, develop, and retain competent individuals.
5. Management should evaluate performance and hold individuals accountable for their internal control
responsibilities.
RISK ASSESSMENT
6. Management should define objectives clearly to enable the identification of risks and define risk tolerances. X X
7. Management should identify, analyze, and respond to risks related to achieving the defined objectives. X X
8. Management should consider the potential for fraud when identifying, analyzing, and responding to risks.
9. Management should identify, analyze, and respond to significant changes that could impact the internal
X X
control system.
CONTROL ACTIVITIES
10. Management should design control activities to achieve objectives and respond to risks. X X
11. Management should design the entity’s information system and related control activities to achieve
objectives and respond to risks.
12. Management should implement control activities through policies. X X
INFORMATION AND COMMUNICATION
13. Management should use quality information to achieve the entity’s objectives. X X
14. Management should internally communicate the necessary quality information to achieve the entity’s
objectives.
15. Management should externally communicate the necessary quality information to achieve the entity’s
X X
objectives.
MONITORING ACTIVITIES
16. Management should establish and operate monitoring activities to monitor the internal control system and
X X
evaluate the results.
17. Management should remediate identified internal control deficiencies on a timely basis. X X
13
STATE AUDITOR’S
RESPONSE
STATE AUDITOR’S RESPONSE
The Office of the State Auditor (OSA) is required to provide additional explanation when an
agency’s response could potentially cloud an issue, mislead the reader, or inappropriately
minimize the importance of the auditor findings.
Generally Accepted Government Auditing Standards state,
When the audited entity’s comments are inconsistent or in conflict with the
findings, conclusions, or recommendations in the draft report, the auditors
should evaluate the validity of the audited entity’s comments. If the auditors
disagree with the comments, they should explain in the report their reasons for
disagreement.
In its response, the Office of State Budget and Management (OSBM) agreed with the results
of this audit. However, OSBM stated in its response:
To combat the disadvantages associated with inadequate staffing to monitor
the federal funds, NCPRO established a nine-part monitoring process as
outlined below that balanced the legislative intent of disbursing over $3.3 billion
in CRF Funds to all intended recipients in a timely manner with monitoring the
expenditures of 490 recipients each month.
1. Control 1 – Independent Verification and Validation of Self-Reported
Documentation
Recipients were required to submit expenditure information with supporting
documentation on the first of each month starting July 1, 2020.
This response could mislead the reader to believe that OSBM independently verified and
validated self-reported documentation starting in July 2020.
It did not. As the report states, NCPRO did not independently verify recipient spending by
comparing the supporting documents (i.e. invoices, receipts, payroll records) to expenditures
reported by recipients until November 2020, after the majority of funds were already spent.
As a result, there was an increased risk that recipients could have misused the funds without
the misuse being detected and corrected in a timely manner.
14
RESPONSE FROM OFFICE
OF STATE BUDGET AND
MANAGEMENT
RESPONSE FROM OFFICE OF STATE BOARD AND MANAGEMENT
15
RESPONSE FROM OFFICE OF STATE BOARD AND MANAGEMENT
16
RESPONSE FROM OFFICE OF STATE BOARD AND MANAGEMENT
17
ORDERING INFORMATION
COPIES OF THIS REPORT MAY BE OBTAINED BY CONTACTING:
Office of the State Auditor
State of North Carolina
2 South Salisbury Street
20601 Mail Service Center
Raleigh, North Carolina 27699-0600
Telephone: 919-807-7500
Facsimile: 919-807-7647
Internet: http://www.auditor.nc.gov
To report alleged incidents of fraud, waste or abuse in state government contact the
Office of the State Auditor Fraud Hotline:
Telephone:1-800-730-8477
Internet: http://www.auditor.nc.gov/pub42/Hotline.aspx
For additional information contact the
North Carolina Office of the State Auditor at:
919-807-7666
This audit required 1,666 hours of auditor effort at an approximate cost of $173,264.
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