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DEPARTMENT OF THE TREASURY
W ASHINGTON, D.C. 20220
OFFICE OF
INSPECTOR GENERAL
October 23, 2024
MEMORANDUM FOR JESSICA MILANO, CHIEF PROGRAM OFFICER, OFFICE OF
CAPITAL ACCESS, DEPARTMENT OF THE TREASURY
FROM: Deborah L. Harker /s/
Assistant Inspector General for Audit
SUBJECT: Desk Review of the State of North Carolina’s Use of
Coronavirus Relief Fund Proceeds (OIG-CA-25-005)
Please find the attached desk review memorandum 1 on the State of North
Carolina’s (North Carolina) 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 personnel reviewed documentation for a non-statistical
selection of 28 transactions in the quarterly Financial Progress Reports (FPR) and
identified unsupported questioned costs of $476,115 (see attached schedule of
monetary benefits).
Castro determined that North Carolina complied with the CARES Act, but not
Department of the Treasury’s (Treasury) Guidance for Grants greater than or
equal to $50,000, Direct Payments greater than or equal to $50,000, and Aggregate
Reporting less than $50,000. 2 Castro found that expenditures for Transfers greater
than or equal to $50,000, and Aggregate Payments to Individuals 3 did not comply
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
Recipients are required to report CRF transactions greater than or equal to $50,000 in detail in the
grants 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).
3
Obligations and expenditures for payments made to individuals, regardless of amount, are
required to be reported in the aggregate in the grants portal to prevent inappropriate disclosure of
personally identifiable information.
Page 2
with the CARES Act and Treasury’s Guidance. Additionally, Castro determined
that North Carolina’s risk of unallowable use of funds is moderate.
Castro recommends that Treasury Office of Inspector General (OIG) confirm the
transactions noted as unsupported expenditures within the Transfers greater than
or equal to $50,000 and Aggregate Payments to Individuals payment types are
recouped or replaced by other eligible expenditures, not previously charged to
CRF, that were incurred during the period of performance. Based on North
Carolina’s responsiveness to Treasury OIG’s requests and its ability to provide
sufficient documentation, Castro recommends that Treasury OIG determine the
feasibility of conducting an audit of Transfers greater than or equal to $50,000 and
Aggregate Payments to Individuals.
Castro also identified matters throughout the course of the desk review and
recommends Treasury OIG follow-up with North Carolina’s management to:
1) determine the feasibility of performing additional follow-up with North
Carolina to determine if there were other instances of unsupported
balances within the remaining untested portion of the Childcare Provider
Operational Grants claimed by North Carolina within their Aggregate
Payments to Individuals non-payroll expenditures; and
2) determine the feasibility of performing additional follow-up with North
Carolina to determine if there were other instances of unsupported
balances within the remaining untested portion of the Aggregate Payments
to Individuals substantially dedicated payroll expenditures 4 claimed by
North Carolina.
Treasury OIG and Castro met with North Carolina management to discuss the
questioned costs. North Carolina management stated they would provide
additional documentation to Treasury OIG to replace the questioned costs with
other eligible expenditures.
In connection with our contract with Castro, 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 the North Carolina’s use of the CRF proceeds. Castro is
4
Substantially dedicated payroll expenditures are costs for personnel that must have dedicated
over 50 percent of their time to responding to or mitigating COVID-19. Treasury’s Federal Register
guidance indicated: “The full amount of payroll and benefits expenses of substantially dedicated
employees may be covered using payments from the Fund. Treasury has not developed a precise
definition of what "substantially dedicated" means given that there is not a precise way to define
this term across different employment types. The relevant unit of government should maintain
documentation of the "substantially dedicated" conclusion with respect to its employees.”
Page 3
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.
cc: Michelle. A. Dickerman, Deputy Assistant General Counsel, Department of
the Treasury
Danielle Christensen, Deputy Chief Program Officer, Office of Capital
Access, Department of the Treasury
Wayne Ference, Partner, Castro & Company, LLC
Stephanie McGarrah, Executive Director of the North Carolina Pandemic
Recovery Office, North Carolina Office of State Budget and Management
Kristin Walker, North Carolina State Budget Director, North Carolina Office
of State Budget and Management
Page 4
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.
Recommendation Questioned Costs
Recommendation No. 1 $476,115
The questioned cost represents amounts provided by Treasury under the
Coronavirus Relief Fund. As discussed in the attached desk review, $476,115 is
North Carolina’s expenditures reported in the grant-reporting portal that lacked
supporting documentation.
5
2 CFR § 200.84 – Questioned Cost
6
JAMES is Treasury’s audit recommendation tracking system.
1635 King Street
Alexandria, VA 22314
Phone: 703.229.4440
Fax: 703.859.7603
www.castroco.com
Desk Review of the State of North Carolina
October 23, 2024
OIG-CA-25-005
MEMORANDUM FOR DEBORAH L. HARKER,
ASSISTANT INSPECTOR GENERAL FOR AUDIT
FROM: Wayne Ference
Partner, Castro & Company, LLC
SUBJECT: Desk Review of the State of North Carolina
On September 12, 2023, we initiated a desk review of the State of North Carolina’s
(North Carolina) 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 North Carolina’s documentation supporting its uses of CRF
proceeds as reported in the GrantSolutions 2 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 June 30, 2023 3 as
reported in the GrantSolutions portal.
As part of our desk review, we performed the following:
1) reviewed North Carolina’s quarterly Financial Progress Reports (FPRs)
submitted in the GrantSolutions portal through June 30, 2023;
2) reviewed the Department of the Treasury’s (Treasury) Coronavirus Relief
Fund Guidance as published in the Federal Register on January 15, 2021; 4
1
P.L. 116-136 (March 27, 2020).
2
GrantSolutions, a grant and program management Federal shared service provider under the
United States (U.S.) Department of Health and Human Services, developed a customized and user-
friendly reporting solution to capture the use of CRF payments from prime recipients.
3
At the start of this desk review on September 12, 2023, North Carolina’s last submitted Financial
Progress Report (FPR) was as of June 30, 2023. Castro set June 30, 2023 as the end of the scope
period to align with the information available when the desk review started. North Carolina
subsequently submitted an FPR for the period ending September 30, 2023.
4
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
1
Desk Review of the State of North Carolina
3) reviewed Treasury Office of Inspector General’s (OIG) Coronavirus Relief
Fund Frequently Asked Questions Related to Reporting and
Recordkeeping; 5
4) reviewed Treasury OIG’s monitoring checklists 6 of North Carolina’s
quarterly FPR submissions for reporting deficiencies;
5) reviewed other audit reports issued, such as Single Audit Act reports, 7 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 North Carolina’s uses of CRF proceeds;
6) reviewed Treasury OIG Office of Investigations, the Council of the
Inspectors General on Integrity and Efficiency Pandemic Response
Accountability Committee, 8 and Treasury OIG Office of Counsel input on
issues that may pose risk or impact North Carolina’s uses of CRF proceeds;
7) interviewed key personnel responsible for preparing and certifying North
Carolina’s GrantSolutions portal quarterly FPR submissions, as well as
officials responsible for obligating and expending CRF proceeds;
5
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.
6
The checklists were used by Treasury OIG personnel to monitor the progress of prime recipient
reporting in the GrantSolutions portal. GrantSolutions quarterly submission reviews were
designed to identify material omissions and significant errors, and where necessary, included
procedures for notifying prime recipients of misreported data for timely correction. Treasury OIG
followed the CRF Prime Recipient Quarterly GrantSolutions Submissions Monitoring and Review
Procedures Guide, OIG-CA-20-029R to monitor the prime recipients on a quarterly basis.
7
P. L. 104-156 (July 5, 1996) The Single Audit Act of 1984, as amended in 1996, requires entities
who receive federal funds in excess of $750,000 to obtain an annual audit of those Federal funds.
Enacted for the purpose of promoting sound financial management, including effective internal
controls, with respect to Federal awards administered by non-Federal entities and to establish
uniform requirements for audits. This prime recipient was subject to those audit requirements, and
Castro reviewed applicable prior year single audit reports as part of our desk review risk
assessment procedures.
8
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 16 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.
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Desk Review of the State of North Carolina
8) made a non-statistical selection of Contracts, Grants, Loans, Transfers, 9
Direct Payments, Aggregate Reporting, 10 and Aggregate Payments to
Individuals 11 data identified through GrantSolutions portal reporting; and
9) evaluated documentation and records used to support North Carolina’s
quarterly FPRs.
Based on our review of North Carolina’s documentation supporting the uses of its
CRF proceeds as reported in the GrantSolutions portal, we determined that the
expenditures related to the Contracts greater than or equal to $50,000 and Loans
greater than or equal to $50,000 payment types complied with the CARES Act and
Treasury’s Guidance. Also, we determined that North Carolina complied with the
CARES Act, but not Treasury’s Guidance for the Grants greater than or equal to
$50,000, Direct Payments greater than or equal to $50,000, and Aggregate
Reporting less than $50,000 payment types. Additionally, we determined that the
expenditures related to the Transfers greater than or equal to $50,000 and
Aggregate Payments to Individuals payment types did not comply with the CARES
Act and Treasury’s Guidance. We identified unsupported questioned costs of
$476,115. We also determined North Carolina’s risk of unallowable use of funds is
moderate.
Castro recommends Treasury OIG confirm the transactions noted as unsupported
expenditures within the Transfers greater than or equal to $50,000 and Aggregate
Payments to Individuals payment types are recouped or replaced by other eligible
expenditures, not previously charged to CRF, that were incurred during the period
of performance. Based on North Carolina’s responsiveness to Treasury OIG’s
requests and its ability to provide sufficient documentation, we recommend
Treasury OIG determine the feasibility of conducting an audit for Transfers greater
than or equal to $50,000 and Aggregate Payments to Individuals.
Non-Statistical Transaction Selection Methodology
Treasury issued a $3,585,391,176 CRF payment to North Carolina. As of
June 30, 2023, North Carolina reported both cumulative obligations and
expenditures for CRF proceeds of $3,585,186,605. North Carolina returned a total
of $204,571 in CRF proceeds to Treasury, which consisted of unused funds from
9
A transfer to another government entity is a disbursement or payment to a government entity
that is legally distinct from the prime recipient.
10
Prime recipients were required to report CRF transactions greater than or equal to $50,000 in
detail in the GrantSolutions portal. Transactions less than $50,000 could 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, were
required to be reported in the aggregate in the GrantSolutions portal to prevent inappropriate
disclosure of personally identifiable information.
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Desk Review of the State of North Carolina
different sub-recipients. North Carolina’s cumulative obligations and expenditures
by payment type are summarized below.
Cumulative Cumulative
Payment Type Obligations Expenditures
Contracts >= $50,000 $ 94,290,057 $ 94,290,057
Grants >= $50,000 $ 362,973,378 $ 362,973,378
Loans >= $50,000 12 $ 80,665,758 $ 80,665,758
Transfers >= $50,000 $ 664,830,539 $ 664,830,539
Direct Payments >= $50,000 $ 1,034,271,899 $ 1,034,271,899
Aggregate Reporting <
$50,000 $ 54,519,210 $ 54,519,210
Aggregate Payments to
Individuals (in any amount) $ 1,293,635,764 $ 1,293,635,764
Totals $ 3,585,186,605 $ 3,585,186,605
Castro made a non-statistical selection of payments in the Contracts greater than
or equal to $50,000, Grants greater than or equal to $50,000, Loans greater than or
equal to $50,000, Transfers 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. Selections were made using
auditor judgment based on information and risks identified in reviewing audit
reports, the GrantSolutions portal reporting anomalies 13 identified by the Treasury
OIG CRF monitoring team, and review of North Carolina’s FPR submissions.
The number of transactions (28) we selected to test were based on North
Carolina’s total CRF award amount and our overall risk assessment of North
Carolina. 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, Loans
12
While North Carolina did not report any Loans greater than or equal to $50,000 in the
GrantSolutions portal as of June 30, 2023, we noted from a review of North Carolina’s general
ledger that North Carolina did use CRF proceeds in the amount of $80,665,758 for a small business
assistance loan program. As of June 30, 2023, proceeds used for the small business assistance
loan program were reported in the Grants greater than or equal to $50,000 payment type in the
GrantSolutions portal. North Carolina updated their GrantSolutions portal reporting as of
September 30, 2023 to reflect the small business assistance loan program within the appropriate
payment type, Loans greater than or equal to $50,000. Since North Carolina had a significant
amount of expenditures that should have been reported in the Loans greater than or equal to
$50,000 payment type as of our scope period of June 30, 2023, we included the balance in this
payment type from the general ledger as part of our transaction selections.
13
Treasury OIG had a pre-defined list of risk indicators that were triggered based on data
submitted by prime recipients in the FPR submissions that met certain criteria. Castro reviewed
these results provided by Treasury OIG for the prime recipient.
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Desk Review of the State of North Carolina
greater than or equal to $50,000, Transfers 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 payment type
total dollar amounts as a percentage of cumulative obligations as of
June 30, 2023. The transactions selected for testing were not selected statistically,
and therefore results could not be extrapolated to the total universe of
transactions.
Additionally, Treasury OIG provided information on anomalies identified for North
Carolina. We performed limited testing on 13 potential duplicate payments to
determine that the payments were not duplicates.
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 U.S. Virgin Islands, Guam, American Samoa,
and the Commonwealth of the Northern Mariana Islands; and Tribal governments
(collectively referred to as “prime recipients”). Treasury issued a $3,585,391,176
CRF payment to North Carolina. The CARES Act stipulates that a prime recipient
may only use the funds to cover costs that—
(1) were 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 during the covered period between March 1, 2020 and
December 31, 2021. 14
Section 15011 of the CARES Act required each covered recipient 15 to submit to
Treasury and the Pandemic Response Accountability Committee, no later than 10
days after the end of each calendar quarter, a report that contained (1) the total
14
P.L. 116-260 (December 27, 2020). The covered period end date of the CRF was extended through
December 31, 2021 by the Consolidated Appropriations Act, 2021. The covered period 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.
15
Section 15011 of P.L. 116-136 defined a covered recipient as any entity that received large,
covered funds and included any State, the District of Columbia, and any territory or possession of
the United States.
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Desk Review of the State of North Carolina
amount of large covered funds 16,17 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
We reviewed North Carolina’s quarterly FPRs through June 30, 2023, and found
that North Carolina timely filed quarterly FPRs in the GrantSolutions portal in
compliance with Treasury OIG’s reporting requirements for the period of
June 30, 2020 through June 30, 2023. North Carolina management returned funds
to Treasury which had not been used as of June 30, 2023 and made subsequent
changes to their reporting for the final reporting period (September 30, 2023). Due
to the small business assistance loan program, North Carolina was not able to
close out their reporting in the GrantSolutions portal as the loans will be repaid
over the next 11 years and funds will need to be returned to Treasury. During this
time, Treasury’s Office of Capital Access will provide instructions to North
Carolina for tracking and reporting of the status of the loan program until the
loans are considered repaid or closed.
North Carolina’s Records Did Not Reconcile to GrantSolutions Reporting and We
Found Financial Reporting Internal Control Issues
North Carolina was unable to provide a complete general ledger detail for the
population of CRF expenditures that reconciled to the data reported by payment
type in the GrantSolutions portal as of June 30, 2023. North Carolina operated in a
decentralized reporting structure that placed responsibility on the state
departments and agencies to maintain, reconcile, and monitor the CRF proceeds.
We determined North Carolina’s decentralized reporting structure prevented them
16
Section 15010 of P.L. 116-136 defined covered funds as any funds, including loans, that were
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 made appropriations for
Coronavirus response and related activities.
17
Section 15011 of P.L. 116-136 defined large covered funds as covered funds that amounted to
more than $150,000.
6
Desk Review of the State of North Carolina
from performing a complete reconciliation of their GrantSolutions portal reported
payment types. In addition, North Carolina explained that they were in the process
of changing their statewide accounting system, which had been the system used
for approximately 30 years, and when the accounting system change was
completed, it affected their ability to pull general ledger data, which attributed to
the reconciliation issues. Further, we did not report questioned costs related to the
reconciliation errors noted. As an alternative procedure, North Carolina, at
Castro’s request, completed a dashboard that Castro used for testing, which
summarized CRF proceeds that were distributed to state agencies/departments,
non-profits, counties, universities, and other recipients.
Summary of Testing Results
We found that the Contracts greater than or equal to $50,000 and Loans greater
than or equal to $50,000 payment types complied with the CARES Act and
Treasury’s Guidance. Also, we determined that North Carolina complied with the
CARES Act, but not Treasury’s Guidance for the Grants greater than or equal to
$50,000, Direct Payments greater than or equal to $50,000, and Aggregate
Reporting less than $50,000 payment types. Additionally, we determined that the
Transfers greater than or equal to $50,000 and Aggregate Payments to Individuals
payment types did not comply with the CARES Act and Treasury’s Guidance
because we were unable to determine if all tested expenditures were necessary
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 could not be extrapolated to the total universe
of transactions.
Within the table below, we have included a summary of unsupported and
ineligible expenditures identified as questioned costs, which did not comply with
the CARES Act and Treasury’s Guidance. 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.
7
Desk Review of the State of North Carolina
Summary of Expenditures Testing and Recommended Results
As of June 30, 2023
Cumulative
Expenditure Cumulative Unsupported Ineligible
Population Expenditure Questioned Questioned Total Questioned
Payment Type Amount Tested Amount Costs Costs Costs
Contracts >=
$50,000 $ 94,290,057 $ 36,974,805 $ - $ - $ -
Grants >= $50,000 $ 362,973,378 $ 24,215,220 $ - $ - $ -
Loans >= $50,000 $ 80,665,758 $ 1,516,051 $ - $ - $ -
Transfers >=
$50,000 $ 664,830,539 $ 4,359,238 $ 122 $ - $ 122
Direct Payments
>= $50,000 $ 1,034,271,899 $ 206,023,248 $ - $ - $ -
Aggregate
Reporting <
$50,000 $ 54,519,210 $ 1,028,418 $ - $ - $ -
Aggregate
Payments to
Individuals (in any
amount) $ 1,293,635,764 $ 2,490,125 $ 475,993 $ - $ 475,993
Totals $ 3,585,186,605 $ 276,607,105 $ 476,115 $ - $ 476,115
Contracts Greater Than or Equal to $50,000
We determined North Carolina’s Contracts greater than or equal to $50,000
complied with the CARES Act and Treasury’s Guidance. We tested three contracts
totaling $36,974,805 and identified no exceptions. The contracts tested included
expenditures for the purchase of public health expenses related to COVID-19
testing and contact tracing services, and consulting costs associated with
infrastructure and project management services in response to COVID-19.
Grants Greater Than or Equal to $50,000
We determined North Carolina’s Grants greater than or equal to $50,000 complied
with the CARES Act but did not comply with Treasury’s Guidance. We tested two
transactions totaling $24,215,220 and identified no exceptions. The transactions
tested included expenditures for purchase of personal protective equipment,
public health expenses related to medical supplies and equipment, and research
efforts related to the impact of COVID-19.
We identified transactions for $80,665,758 related to a small business assistance
loan program that were erroneously classified in the GrantSolutions portal in the
Grants greater than or equal to $50,000 payment type. These transactions should
have been classified in the Loans greater than or equal to $50,000 payment type.
The misclassified transactions did not have an impact on the eligible or allowable
8
Desk Review of the State of North Carolina
use of the CRF proceeds. We also confirmed North Carolina properly classified the
expenditures under the Loans greater than or equal $50,000 payment type as of
September 30, 2023 in the GrantSolutions portal. As discussed in footnote 12, we
have included these amounts as Loans greater than or equal to $50,000 in the
tables in this report.
Loans Greater Than or Equal to $50,000
We determined North Carolina’s Loans greater than or equal to $50,000 complied
with the CARES Act and Treasury’s Guidance. We tested one overall loan
transaction related to nine individual loans, totaling $1,516,051 and identified no
exceptions. North Carolina appropriated $83,000,000 in CRF proceeds to be used
as a small business assistance loan program to defray operating costs during the
COVID-19 pandemic, which North Carolina expended $80,665,758. 18 The loan
program required small businesses to use the funds for employee compensation,
mortgages, rent, utilities, and other operating costs incurred by the small
business. We noted the loan agreements were structured on a 120-month term
and amortized over the term of the loan with an interest rate of 5.5 percent, with
principal payments deferred to begin after 18 months. North Carolina tracked the
principal payments and accrued interest through amortization schedules. As
discussed in footnote 12, we have included these amounts as Loans greater than
or equal to $50,000 in the tables in this report.
Transfers Greater Than or Equal to $50,000
We determined North Carolina’s Transfers greater than or equal to $50,000 did not
comply with the CARES Act and Treasury’s Guidance. We tested five transfers
totaling $4,359,238 and identified unsupported questioned costs totaling $122, as
detailed below. The transfers tested included expenditures for financial assistance
for North Carolina educational institutions related to facilitating distance learning
and preparing for student return to classrooms, and providing meals to students
during the pandemic.
For one transfer tested totaling $10,592, Union County, North Carolina used CRF
proceeds to reimburse payroll costs of school cafeteria staff. The staff dedicated
time to handing out meals to students during the pandemic. We determined the
documentation for these expenditures were not sufficiently supported to arrive at
the tested amount. We confirmed there were more expenditures in the payroll
register than reimbursed with CRF proceeds; however, North Carolina was unable
to recalculate the employees’ salary and/or wages to the amounts claimed for
reimbursement resulting in unsupported questioned costs of $122.
18
The $80,665,758 expended amount included $3.4 million in administrative costs associated with
administering the loan program.
9
Desk Review of the State of North Carolina
Direct Payments Greater Than or Equal to $50,000
We determined North Carolina’s Direct Payments greater than or equal to $50,000
complied with the CARES Act but did not comply with Treasury’s Guidance. We
tested 10 transactions totaling $206,023,248 and identified no exceptions. The
direct payments tested included expenditures for facilitating telework capabilities,
purchasing medical supplies and personal protective equipment, depopulating
animals due to COVID-19 related closures of meat processing facilities,
administering vaccinations, purchasing for food programs, and advertising to
promote tourism social distancing.
We identified GrantSolutions portal reporting misclassifications related to Direct
Payments greater than or equal to $50,000. The misclassified transactions did not
have an impact on the eligible or allowable use of the CRF proceeds. We found
that North Carolina erroneously reported three state departments as sub-
recipients in the GrantSolutions portal within Direct Payments greater than or
equal to $50,000. 19 In addition, we identified one transaction that was misclassified
in the GrantSolutions portal within Direct Payments greater than or equal to
$50,000 that should have been reported in Aggregate Payments to Individuals.
Aggregate Reporting Less Than $50,000
We determined North Carolina’s Aggregate Reporting less than $50,000 complied
with the CARES Act but did not comply with Treasury’s Guidance. We tested three
transactions totaling $1,028,418 and identified no exceptions. The aggregate
reporting transactions tested included expenditures for the purchase of personal
protective equipment, and miscellaneous contract services related to surge
staffing for COVID-19 testing and contact tracing.
We noted one Aggregate Reporting less than $50,000 reporting misclassification
in the GrantSolutions portal. The transaction’s amount exceeded the threshold of
$50,000 and should have been reported as a Contract greater than or equal to
$50,000.
19
Department of the Treasury OIG-CA-20-028R5 guidance #9 states: If the prime recipient
distributes funds to an agency or department within the prime recipient’s government, is the
agency or department considered the prime recipient or a sub-recipient when funds obligated are
$50,000 or more? The agency or department is considered part of the prime recipient as they are
all part of the same legal entity that received a direct CRF payment from Treasury. Obligations and
expenditures that the agency or department incurs with the CRF proceeds must be collected by
and reported in the GrantSolutions portal by the prime recipient as if they were obligated or
expended by the prime recipient.
10
Desk Review of the State of North Carolina
Aggregate Payments to Individuals
CRF payments made to individuals, regardless of amount, were required to be
reported in the aggregate in the GrantSolutions portal to prevent inappropriate
disclosure of personally identifiable information. The Aggregate Payments to
Individuals payment type consists of four broad types of potential costs defined in
Treasury’s guidance as published in the Federal Register. 20 Prime recipients may
or may not have claimed all these types of expenditures. The four types are as
follows:
Public Health and Safety Payroll 21 – consists of payroll costs for public
health and safety department personnel.
Substantially Dedicated Payroll 22 – consists of payroll costs for non-public
health and safety personnel who were substantially dedicated to
mitigating or responding to the COVID-19 public health emergency.
Non-Substantially Dedicated Payroll 23 – consists of payroll costs for
personnel who performed COVID-19 related tasks on a part-time basis.
Non-Payroll Expenditures – consists of financial assistance payments to
citizens due to hardship or loss of income, unemployment claims, and
other non-payroll related expenditures made to individuals.
20
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
21
Treasury’s Federal Register guidance provided the following examples of public health and
safety employees: “police officers (including state police officers), sheriffs and deputy sheriffs,
firefighters, emergency medical responders, correctional and detention officers, and those who
directly support such employees such as dispatchers and supervisory personnel…employees
involved in providing medical and other health services to patients and supervisory personnel,
including medical staff assigned to schools, prisons, and other such institutions, and other support
services essential for patient care (e.g., laboratory technicians) as well as employees of public
health departments directly engaged in matters related to public health and related supervisory
personnel.”
22
Substantially dedicated payroll costs meant that personnel must have dedicated over 50 percent
of their time to responding or mitigating COVID-19. Treasury’s Federal Register guidance
indicated: “The full amount of payroll and benefits expenses of substantially dedicated employees
may be covered using payments from the Fund. Treasury has not developed a precise definition of
what "substantially dedicated" means given that there is not a precise way to define this term
across different employment types. The relevant unit of government should maintain
documentation of the "substantially dedicated" conclusion with respect to its employees.”
23
Payroll costs that were not substantially dedicated were payroll costs that were not public health
and safety, and which were not substantially dedicated to performing COVID-19 related tasks.
Treasury’s Federal Register guidance defined more stringent tracking requirements for these types
of payroll costs. Specifically, Treasury’s Federal Register stated: “track time spent by employees
related to COVID-19 and apply Fund payments on that basis but would need to do so consistently
within the relevant agency or department. This means, for example, that a government could
cover payroll expenses allocated on an hourly basis to employees' time dedicated to mitigating or
responding to the COVID-19 public health emergency.”
11
Desk Review of the State of North Carolina
The North Carolina Aggregate Payments to Individuals balance consisted of the
following types of claimed costs.
Aggregate Payments to Individuals Total Expenses
Category Types 24 Claimed
Public Health and Safety Payroll $ 771,107,539
Substantially Dedicated Payroll $ 27,460,985
Non-Payroll Expenditures 25 $ 495,067,240
Totals $ 1,293,635,764
Castro noted that public health and safety payroll transactions were subject to
Treasury’s administrative accommodation, 26 and therefore, were subject to less
detailed documentation requirements. Castro tested public health and safety
payroll transactions by reviewing itemized payroll distribution reports to support
these balances. Substantially dedicated payroll balances were not subject to this
administrative accommodation, and therefore, Castro tested these transactions by
reviewing payroll distribution files and by performing tests over specific employee
timesheet submissions or other documentation provided by the prime recipient to
confirm the “substantially dedicated” conclusion with respect to its employees.
Non-Payroll expenditure balances were also not subject to this administrative
accommodation, and therefore, Castro tested these transactions by reviewing the
24
North Carolina did not report any non-substantially dedicated payroll within its Aggregate
Payments to Individuals payment type, and so these were not included within the Aggregate
Payments to Individuals Category Types.
25
The Non-Payroll Expenditures consisted of hardship payments, including $379,257,293 related to
the Extra Credit Grant Program. For the Extra Credit Grant Program, North Carolina appropriated
CRF proceeds to the North Carolina Department of Revenue to provide economic assistance to
families during the pandemic with qualified children in amounts up to $350 for virtual schooling
and childcare costs. The program stipulated a qualified child was determined based on the
families’ submitted 2019 tax returns. Additionally, there were $81,801,172 of payments related to
the North Carolina Department of Health and Human Services (DHHS) programs to assist
individuals and providers. DHHS awarded funds for supplemental foster care payments, early
childhood initiatives, childcare provider grants, and assistance to low income families – remote
learning, and Medicaid provider relief. Also, North Carolina had $34,008,775 related to
unemployment benefit CRF-related expenditures. We analyzed North Carolina’s unemployment
trust fund balance and noted the balance decreased by $1.3 billion during the covered period. We
determined the amount of CRF proceeds used to cover those eligible unemployment expenditures
was reasonable.
26
Treasury’s Federal Register guidance stated that an administrative accommodation was, “In
recognition of the particular importance of public health and public safety workers to State, local,
and tribal government responses to the public health emergency, Treasury has provided, as an
administrative accommodation, that a State, local, or tribal government may presume that public
health and public safety employees meet the substantially dedicated test…This means that, if this
presumption applies, work performed by such employees is considered to be a substantially
different use than accounted for in the most recently approved budget as of March 27, 2020. All
costs of such employees may be covered using payments from the Fund for services provided
during the period that begins on March 1, 2020, and ends on December 31, 2021.”
12
Desk Review of the State of North Carolina
state legislation and program requirements, and requested specific supporting
documentation to determine eligibility and allowable use.
We determined that North Carolina’s Aggregate Payments to Individuals did not
comply with the CARES Act and Treasury’s Guidance. We tested four transactions
($735,479 of public health and safety, $209,387 of substantially dedicated, and
$1,545,259 of non-payroll transactions) totaling $2,490,125, resulting in
unsupported questioned costs totaling $475,993, as detailed below. The
Aggregate Payments to Individuals transactions tested included expenditures for
public health and safety payroll costs, substantially dedicated personnel payroll
costs, and non-payroll costs such as child hardship payments issued by the
following North Carolina state agencies: Department of Public Safety, Department
of Revenue, Department of Natural and Cultural Resources, and Department of
Human and Health Services (DHHS).
The $475,993 in questioned costs included testing related to one transaction
totaling $266,606 where North Carolina provided childcare provider operational
grants issued through DHHS. Per North Carolina’s General Assembly legislation,
the state appropriated CRF proceeds to provide operational grants to licensed
childcare providers. Providers who received the awards under this program used
the funds for various operating costs in response to the COVID-19 pandemic. We
inspected the childcare provider operational grants program criteria. We
confirmed the providers were required to submit emergency applications and
complete open enrollment surveys to track the total number of children at a
facility. The survey included several other factors such as total children served,
childcare star rating, infant/toddler enrollment, and percentage of subsidy for
children served to recalculate the amounts of CRF proceeds issued to the
provider. This formula was documented in a table which was utilized by North
Carolina’s DHHS to arrive at the total dollar amounts to be distributed. North
Carolina was unable to recalculate the amounts based on the formulas and other
factors listed above; therefore, the amounts were not substantiated during our
desk review, resulting in unsupported questioned costs of $266,606.
Castro tested $266,606 out of the total amount of $58,200,000 in Childcare
Provider Operational Grants claimed by North Carolina. Since Castro identified
unsupported questioned costs within these Aggregate Payments to Individuals
Non-Payroll expenditures tested, we recommend Treasury OIG determine the
feasibility of performing additional follow-up with North Carolina to determine if
there were other instances of unsupported balances within the remaining portion
of this balance.
The $475,993 in questioned costs included testing related to testing of one
transaction totaling $209,387 where North Carolina used CRF proceeds to
13
Desk Review of the State of North Carolina
reimburse expenditures for payroll costs of museum employees issued through
the Department of Natural and Cultural Resources. North Carolina explained that
the employees were considered substantially dedicated due to their time spent
working on COVID-19 related tasks, however, North Carolina did not provide
documentation of the "substantially dedicated" conclusion with respect to these
employees. Per Treasury’s CRF Federal Register 2021-00827 - Supplemental
Guidance on Use of Funds to Cover Payroll and Benefits of Public Employees
states: “The relevant unit of government should maintain documentation of the
substantially dedicated conclusion with respect to its employees”. We also noted
that North Carolina reimbursed the payroll costs based on estimates and not
actuals and did not provide official timesheets or other documentation to support
the hours charged to the project. Per Treasury’s CRF Guidance 27: “As provided in
FAQ A.47, a State, local, or tribal government may also track time spent by
employees related to COVID-19 and apply fund payments on that basis but would
need to do so consistently within the relevant agency or department. This means,
for example, that a government could cover payroll expenses allocated on an
hourly basis to employee’s time dedicated to mitigating or responding to the
COVID-19 public health emergency.” North Carolina expressed that they took a
conservative approach on the amount of proceeds disbursed. We determined
these costs were not properly supported, resulting in unsupported questioned
costs totaling $209,387.
Castro tested $209,387 out of the total amount of $27,460,985 in Substantially
Dedicated Payroll claimed by North Carolina. Since Castro identified unsupported
questioned costs within these Aggregate Payments to Individuals Substantially
Dedicated Payroll expenditures tested, we recommend Treasury OIG determine
the feasibility of performing additional follow-up with North Carolina to determine
if there were other instances of unsupported balances within the remaining
portion of this balance.
We also identified reporting misclassifications where Aggregate Payments to
Individuals transactions were misclassified in the GrantSolutions portal under the
incorrect payment type. The identified misclassifications should have been
reported as Direct Payments greater than or equal to $50,000 and Grants greater
than or equal to $50,000.
27
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
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Desk Review of the State of North Carolina
Conclusion
We determined that North Carolina complied with the CARES Act and Treasury’s
Guidance for Contracts greater than or equal to $50,000 and Loans greater than or
equal to $50,000. Also, we determined that North Carolina complied with the
CARES Act, but did not comply with Treasury’s Guidance for Grants greater than
or equal to $50,000, Direct Payments greater than or equal to $50,000, and
Aggregate Reporting less than $50,000. In addition, we determined that North
Carolina did not comply with the CARES Act and Treasury’s Guidance due to
issues noted with Transfers greater than or equal to $50,000, and Aggregate
Payments to Individuals, resulting in total unsupported questioned costs of
$476,115.
Additionally, North Carolina’s risk of unallowable use of funds is moderate. As a
result of this desk review, we recommend Treasury OIG:
Confirm the transactions noted as unsupported expenditures within the
Transfers greater than or equal to $50,000 and Aggregate Payments to
Individuals payment types are recouped or replaced by other eligible
expenditures, not previously charged to CRF, that were incurred during
the period of performance. Based on North Carolina’s responsiveness to
Treasury OIG’s requests and its ability to provide sufficient
documentation, we recommend Treasury OIG determine the feasibility of
conducting an audit for Transfers greater than or equal to $50,000 and
Aggregate Payments to Individuals.
Castro also identified other matters throughout the course of our desk review,
which warrant recommendations to Treasury OIG for additional action. Castro
recommends Treasury OIG:
Determine the feasibility of performing additional follow-up with North
Carolina to determine if there were other instances of unsupported
balances within the remaining portion of the Childcare Provider
Operational Grants claimed by North Carolina within their Aggregate
Payments to Individuals Non-Payroll expenditures.
Determine the feasibility of performing additional follow-up with North
Carolina to determine if there were other instances of unsupported
balances within the remaining portion of the Aggregate Payments to
Individuals Substantially Dedicated Payroll expenditures claimed by
North Carolina.
15
Desk Review of the State of North Carolina
*****
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. 28 We appreciate the courtesies
and cooperation provided to our staff during the desk review.
Sincerely,
Wayne Ference
Partner, Castro & Company, LLC
28
https://www.ignet.gov/sites/default/files/files/Silver%20Book%20Revision%20-%208-20-12r.pdf
16