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DEPARTMENT OF THE TREASURY
W ASHINGTON, D. C. 20220
OFFICE OF
INSPECTOR GENERAL
December 12, 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 State of Arizona’s Use of Coronavirus
Relief Fund Proceeds (OIG-CA-25-016)
Please find the attached desk review memorandum 1 on the State of Arizona’s
(Arizona) 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 25 transactions reported in the quarterly Financial Progress Reports
(FPR) and identified a combination of unsupported and ineligible questioned costs
of $135,747,413 and $74,044, respectively, resulting in total questioned costs of
$135,821,457 (see attached schedule of monetary benefits).
Castro also identified reporting misclassifications related to Transfers greater than
or equal to $50,0002 and Aggregate Payments to Individuals3 that did not comply
with Department of the Treasury’s (Treasury) 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 grant-reporting portal on a quarterly
basis.
2
A transfer to another government entity is a disbursement or payment to a government entity
that is legally distinct from the prime recipient.
3
Obligations and expenditures for payments made to individuals, regardless of amount, are
required to be reported in the aggregate in the grant-reporting portal to prevent inappropriate
disclosure of personally identifiable information.
Page 2
Castro determined that the expenditures related to the Aggregate Reporting less
than $50,0004 payment type complied with the CARES Act and Treasury’s
Guidance. Castro also determined that the expenditures related to Grants greater
than or equal to $50,000, 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. Additionally, Castro determined that Arizona’s risk
of unallowable use of funds is high.
Castro recommends that Treasury Office of Inspector General (OIG) follow-up with
Arizona’s management to confirm if the $135,747,413 noted as unsupported costs
within the Transfers greater than or equal to $50,000 and Aggregate Payments to
Individuals payment types can be supported. If support is not provided, Treasury
OIG should recoup the funds or request Arizona’s management to provide support
for replacement expenses, not previously charged, that were eligible during the
CRF period of performance.
In addition, Castro recommends that Treasury OIG request that Arizona’s
management provide support for replacement expenses, not previously charged,
that were eligible during the CRF period of performance for the $74,044 of
ineligible costs charged to the Grants greater than or equal to $50,000 and
Aggregate Payments to Individuals payment types. If support is not provided,
Treasury OIG should recoup the funds.
Further, based on Arizona management’s responsiveness to Treasury OIG’s
requests and management’s ability to provide sufficient documentation and/or
replace unsupported and ineligible transactions charged to CRF with valid
expenditures, Castro recommends Treasury OIG determine the feasibility of
conducting an audit for the Grants greater than or equal to $50,000, Transfers
greater than or equal to $50,000, and Aggregate Payments to Individuals payment
types.
Castro also noted that Arizona had findings in its Single Audit Act reports for fiscal
years 2020, 2021, and 2022. Castro recommends that Treasury OIG follow-up with
Treasury’s Office of Capital Access to ensure that management decision letters are
issued on the findings identified by the auditor in the Single Audit reports, which
are summarized below.
1) Arizona’s fiscal year 2020 Single Audit Act report was published on
October 27, 2021. In this Single Audit report, the auditor identified
4 Recipients are required to report CRF transactions greater than or equal to $50,000 in detail in the
grant-reporting 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).
Page 3
$25,579,909 in CRF related questioned costs.
2) Arizona’s fiscal year 2021 Single Audit Act report was published on
November 28, 2022. In this Single Audit Act report, the auditor identified
$1,256,302 in unsupported CRF related questioned costs.
3) Arizona’s fiscal year 2022 Single Audit Act report was published on
December 20, 2023. In this Single Audit Act report, the auditor included
control related findings, but the auditor did not identify any questioned
costs.
Castro also recommends Treasury OIG follow-up with Arizona to obtain a copy of
its fiscal year 2023 Single Audit Act report as this was not available to Castro at
the time of its desk review planning procedures.
Additionally, Castro identified other matters throughout the course of its desk
review, which warranted recommendations to Treasury OIG for additional action.
Castro recommends Treasury OIG follow-up on these issues:
1) Castro noted that Arizona's reported Transfers greater than or equal to
$50,000 did not comply with Treasury's Guidance. Based on the state’s
invoice level general ledger detail provided, there was a scope limitation for
five of six transactions selected for testing. Arizona management did not
complete a true reconciliation of the expenses incurred by Arizona state
agencies and the amount of invoice level transactions provided to Castro
did not agree to the amount claimed within the grant-reporting portal.
Without this level of detail, Castro could not determine whether expenditure
amounts reported were properly supported and could not perform
adequate invoice-level testing. Castro recommends Treasury OIG request
that Arizona’s management completes a reconciliation of its Transfers
greater than or equal to $50,000 population utilizing state agency incurred
expenditures at the invoice level. Based on Arizona management’s ability to
provide a sufficient general ledger detail reconciliation for Transfers greater
than or equal to $50,000, Castro recommends Treasury OIG determine the
feasibility of performing additional testing over Transfers greater than or
equal to $50,000.
2) Castro recommends Treasury OIG request Arizona’s management perform
an assessment over whether there were any additional indirect costs, above
those identified by Castro, claimed within its Grants greater than or equal to
$50,000 CRF submission, and identify those for removal and repayment to
Treasury, as applicable.
Page 4
3) Castro recommends Treasury OIG request that Arizona’s management
performs an assessment of whether it had any additional annual leave
payouts that were earned prior to the covered period and claimed as CRF
expenses, above those identified by Castro, and identify those for reversal
and repayment to Treasury, as applicable.
4) Castro tested $3,692,832 out of $112,240,073 in substantially dedicated
payroll claimed by Arizona. Since Castro identified unsupported questioned
costs within these Aggregate Payments to Individuals Substantially
Dedicated Payroll expenditures tested, Castro recommends Treasury OIG
determine the feasibility of performing additional follow-up with Arizona’s
management to determine if there were other instances of unsupported
balances within the remaining portion of this balance.
Arizona management opted to forgo meeting with Treasury OIG and Castro to
further discuss the questioned costs. Arizona management stated it preferred to
spend the time completing reconciliations necessary to address the findings and
that it believes Arizona can provide supporting documentation upon additional
review, if requested.
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 Arizona’s use of 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 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, Audit Director, 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
Jean Bell, Accounting Manager, State of Arizona
Deidre Mai, Deputy Director, Grants & Federal Resources, Governor’s
Office of Strategic Planning and Budgeting, State of Arizona
Wayne Ference, Partner, Castro & Company, LLC
Page 5
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 $135,821,457
The questioned cost represents amounts provided by Treasury under the
Coronavirus Relief Fund. As discussed in the attached desk review, $135,821,457
is Arizona’s expenditures reported in the grant-reporting portal that were
ineligible or 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 Arizona
December 12, 2024
OIG-CA-25-016
MEMORANDUM FOR DEBORAH L. HARKER,
ASSISTANT INSPECTOR GENERAL FOR AUDIT
FROM: Wayne Ference
Partner, Castro & Company, LLC
SUBJECT: Desk Review of the State of Arizona
On April 3, 2024 we initiated a desk review of the State of Arizona’s (Arizona) 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 Arizona’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 December 31, 2022, 3 as reported in
the GrantSolutions portal.
As part of our desk review, we performed the following:
1) reviewed Arizona’s quarterly Financial Progress Reports (FPRs) submitted
in the GrantSolutions portal through December 31, 2022;
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
Arizona fully expended their total CRF proceeds as of December 31, 2022. Castro set the scope
end date to December 31, 2022, which was the date of Arizona’s last reporting submission within
the GrantSolutions portal.
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 Arizona
3) reviewed Treasury’s Office of Inspector General (OIG) Coronavirus Relief
Fund Frequently Asked Questions Related to Reporting and
Recordkeeping;5
4) reviewed Treasury OIG’s monitoring checklists6 of Arizona’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 Arizona’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 Arizona’s uses of CRF proceeds;
7) interviewed key personnel responsible for preparing and certifying
Arizona’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 undergo an annual audit of those Federal funds.
The act was 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, the CARES Act, 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.
2
Desk Review of the State of Arizona
8) made a non-statistical selection of Grants, Transfers, 9 Aggregate
Reporting, 10 Aggregate Payments to Individuals11,12 data identified through
GrantSolutions reporting; and
9) evaluated documentation and records used to support Arizona’s quarterly
FPRs.
Based on our review of Arizona’s documentation supporting the uses of its CRF
proceeds as reported in the GrantSolutions portal, we determined that the
expenditures related to the Aggregate Reporting less than $50,000 payment type
complied with the CARES Act and Treasury’s Guidance. Additionally, we
determined that the expenditures related to the Grants greater than or equal to
$50,000, Transfers greater than or equal to $50,000, and Aggregate Payment to
Individuals payment types did not comply with the CARES Act and Treasury’s
Guidance.
We identified unsupported and ineligible questioned costs of $135,747,413 and
$74,044, respectively, with total questioned costs of $135,821,457. We also
determined Arizona’s risk of unallowable use of funds is high.
Castro recommends that Treasury OIG follow-up with Arizona’s management to
confirm if the $135,747,413 noted as unsupported expenditures within the
Transfers greater than or equal to $50,000 and Aggregate Payments to Individuals
payment types can be supported. If support is not provided, Treasury OIG should
recoup the funds or request Arizona’s management to provide support for
replacement expenses, not previously charged, that were eligible during the CRF
period of performance.
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.
12
Castro identified a misclassification in reporting that did not comply with Treasury’s Guidance.
Arizona reported $609,316,321 of payments to individuals in the Transfers greater than or equal to
$50,000 payment type rather than the Aggregate Payments to Individuals payment type. Due to the
errors in GrantSolutions reporting, Castro utilized Arizona’s general ledger balances for transaction
selection purposes for the Transfers greater than or equal to $50,000 and Aggregate Payments to
Individuals payment types. See Non-Statistical Transaction Selection Methodology section below
for additional details.
3
Desk Review of the State of Arizona
In addition, Castro recommends that Treasury OIG request Arizona management
provide support for replacement expenses, not previously charged, that were
eligible during the CRF period of performance for the $74,044 of ineligible costs
charged to the Grants greater than or equal to $50,000 and Aggregate Payments
to Individuals payment types. If support is not provided, Treasury OIG should
recoup the funds.
Further, based on Arizona’s responsiveness to Treasury OIG’s requests and its
ability to provide sufficient documentation and/or replace unsupported and
ineligible transactions charged to CRF with valid expenditures, Castro
recommends Treasury OIG determine the feasibility of conducting an audit for the
Grants greater than or equal to $50,000, Transfers greater than or equal to
$50,000, and Aggregate Payments to Individuals payment types.
At the time of our fieldwork, Castro noted that Arizona had findings in their Single
Audit reports for fiscal years 2020, 2021, and 2022. Castro recommends that
Treasury OIG follow-up with Treasury’s Office of Capital Access to ensure that
management decision letters are issued on the findings identified by the auditor
in the Single Audit reports, which we have summarized below.
o Arizona’s fiscal year 2020 Single Audit report was published on
October 27, 2021. In this Single Audit report, the auditor identified
$25,579,909 in CRF-related questioned costs.
o Arizona’s fiscal year 2021 Single Audit report was published on
November 28, 2022. In this Single Audit report, the auditor identified
$1,256,302 in unsupported CRF-related questioned costs.
o Arizona’s fiscal year 2022 Single Audit report was published on
December 20, 2023. In this Single Audit report, the auditor did include
control related findings, but the auditor did not identify any
questioned costs.
We also recommend Treasury OIG follow-up with Arizona to obtain a copy of its
fiscal year 2023 Single Audit report as this was not available to Castro at the time
of our desk review planning procedures.
4
Desk Review of the State of Arizona
Non-Statistical Transaction Selection Methodology
Treasury issued a $1,856,987,708 CRF payment to Arizona. As of
December 31, 2022, Arizona’s cumulative obligations and expenditures were both
$1,856,174,237. Arizona returned a total of $813,471 in CRF proceeds to Treasury
prior to its final GrantSolutions portal submission of December 31, 2022. 13
Arizona’s cumulative obligations and expenditures by payment type are
summarized below.
Cumulative Cumulative Cumulative
Obligations per Expenditures per Expenditures per
Payment Type FPR FPR GL Populations
Contracts >= $50,000 $ - $ - $ -
Grants >= $50,000 $ 811,750,946 $ 811,750,946 $ 811,750,946
Loans >= $50,000 $ - $ - $ -
Transfers >= $50,000 $ 1,043,233,941 $ 1,043,233,941 $ 433,917,620
Direct Payments >= $50,000 $ - $ - $ -
Aggregate Reporting < $50,000 $ 1,189,350 $ 1,189,350 $ 1,189,350
Aggregate Payments to
Individuals (in any amount)14 $ - $ - $ 609,316,321
Totals $ 1,856,174,237 $ 1,856,174,237 $ 1,856,174,237
13
Arizona confirmed that as part of its state agency reconciliation requested as part of Castro’s
desk review, the Arizona Department of Economic Security identified $133,213 of additional
unused funds that Arizona returned to Treasury after its final GrantSolutions portal reporting
submission date of December 31, 2022. See Transfers greater than or equal to $50,000 section
within the Desk Review Results section below for questioned costs identified during Castro’s tie-
out procedures performed at the state agency level. This $133,213 is included within those
questioned costs. Since the return of these funds to Treasury happened during our desk review,
this amount was not excluded from the amounts subject to testing during our desk review.
14
Castro identified a misclassification in reporting that did not comply with Treasury’s
Guidance. Arizona reported $609,316,321 of payments to individuals in the Transfers greater
than or equal to $50,000 payment type rather than the Aggregate Payments to Individuals
payment type. Due to the errors in GrantSolutions reporting, Castro utilized Arizona’s general
ledger balances for transaction selection purposes for the Transfers greater than or equal to
$50,000 and Aggregate Payments to Individuals payment types.
5
Desk Review of the State of Arizona
Castro made a non-statistical selection of the Grants greater than or equal
to $50,000, Transfers 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 15 identified
by the Treasury OIG CRF monitoring team, and review of Arizona’s FPR
submissions. Arizona did not obligate or expend CRF proceeds for the Contracts
greater than or equal to $50,000, Loans greater than or equal to $50,000, and
Direct Payments greater than or equal to $50,000 payment types; therefore, we did
not make a selection of transactions from these payment types.
The number of transactions (25) we selected to test was based on Arizona’s total
CRF award amount and our overall risk assessment of Arizona. To allocate the
number of transactions (25) by payment type (Grants greater than or equal
to $50,000, Transfers greater than or equal to $50,000, Aggregate Reporting less
than $50,000, and Aggregate Payments to Individuals), we compared the payment
type dollar amounts as a percentage of cumulative expenditures as of
December 31, 2022. The transactions selected for testing were not selected
statistically, and therefore results could not be extrapolated to the total universe
of transactions.
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 $1,856,987,708
CRF payment to Arizona. 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
15
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.
6
Desk Review of the State of Arizona
(3) were incurred during the covered period between March 1, 2020 and
December 31, 2021.16
Section 15011 of the CARES Act required each covered recipient 17 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
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 the 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 Arizona’s quarterly FPRs through December 31, 2022, and found that
Arizona timely filed quarterly FPRs in the GrantSolutions portal in compliance
with Treasury OIG’s reporting requirements for the periods ending June 30, 2020
through December 31, 2022.
16
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.
17
Section 15011 of P.L. 116-136, the CARES Act, 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.
18
Section 15010 of P.L. 116-136, the CARES Act, 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.
19
Section 15011 of P.L. 116-136 defined large, covered funds as covered funds that amounted to
more than $150,000.
7
Desk Review of the State of Arizona
Summary of Testing Results
We found that the expenditures related to the Aggregate Reporting less
than $50,000 payment type complied with the CARES Act and Treasury’s
Guidance. Additionally, we found that the Grants greater than or equal to $50,000,
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 Table 1 below, we have included a summary of $135,766,044 in
unsupported and ineligible expenditures identified as questioned costs through
our testing of detailed transactions, which did not comply with the CARES Act and
Treasury’s Guidance. Castro also identified other matters throughout the course
of our desk review procedures which we considered to be questioned costs that
were not part of our testing of detailed transactions. Table 2 below combines the
questioned costs identified in Table 1 with the other questioned costs of $55,413
identified separately from our detailed transaction testing to account for total
questioned costs of $135,821,457. See the Desk Review Results section below
Table 2 for a detailed discussion of questioned costs and other issues identified
throughout the course of our desk review.
8
Desk Review of the State of Arizona
Table 1 - Summary of Expenditures Testing and Recommended Results
As of December 31, 2022
Cumulative Unsupported Ineligible
Expenditures per Cumulative Tested Tested Total Tested
GL Populations Expenditure Questioned Questioned Questioned
Payment Type Amount Tested Amount Costs Costs Costs
Contracts >=
$50,000 $ - $ - $ - $ - $ -
Grants >= $50,000
$ 811,750,946 $ 111,407,588 $ - $ - $ -
Loans >= $50,000
$ - $ - $ - $ - $ -
Transfers >=
$50,000 $ 433,917,620 $ 119,614,002 $ 117,614,002 $ - $ 117,614,002
Direct Payments
>= $50,000 $ - $ - $ - $ - $ -
Aggregate
Reporting <
$50,000 $ 1,189,350 $ 88,586 $ - $ - $ -
Aggregate
Payments to
Individuals (in any
amount) $ 609,316,321 $ 522,361,307 $ 18,133,411 $ 18,631 $ 18,152,042
Totals $ 1,856,174,237 $ 753,471,483 $ 135,747,413 $ 18,631 $ 135,766,044
9
Desk Review of the State of Arizona
Table 2 – Summary of Tested and Other Matters Identified Questioned Costs
As of December 31, 2022
Ineligible
Reconciliation Total
Unsupported Ineligible Errors Total Questioned
Tested Tested Questioned Ineligible Costs (Tested
Questioned Questioned Costs (Other Questioned & Other
Payment Type Costs Costs Matter) Costs Matter)
Contracts >= $50,000 $ - $ - $ - $ - $ -
Grants >= $50,000 $ - $ - $ 55,413 $ 55,413 $ 55,413
Loans >= $50,000 $ - $ - $ - $ - $ -
Transfers to Other
Government Agencies
>= $50,000 $ 117,614,002 $ - $ - $ - $ 117,614,002
Direct Payments >=
$50,000 $ - $ - $ - $ - $ -
Aggregate Reporting <
$50,000 $ - $ - $ - $ - $ -
Aggregate Payments to
Individuals (in any
amount) $ 18,133,411 $ 18,631 $ - $ 18,631 $ 18,152,042
Totals $ 135,747,413 $ 18,631 $ 55,413 $ 74,044 $ 135,821,457
Grants Greater Than or Equal to $50,000
We determined Arizona’s Grants greater than or equal to $50,000 did not comply
with the CARES Act and Treasury’s Guidance. We tested a total of $111,407,588 in
transaction expenditures for 10 grants and identified no testing exceptions. The
grants tested included expenditures related to public health and safety payroll; 20
payroll for election campaign employees; safe re-opening of schools; facilitation
of distance learning; mobile voting equipment; tablet purchases used for
communication and conferences in response to COVID-19; and advertising that
marketed free summer teacher trainings that were run by the grant program to
help give teachers the skillset needed to teach in a virtual environment during the
pandemic. Although there were no exceptions identified with the 10 grants tested,
we identified other ineligible questioned costs of $55,413 that were not part of the
transactions we selected for detailed testing. These costs were identified during
20
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.”
10
Desk Review of the State of Arizona
Castro’s grants reconciliation procedures between the general ledger (GL) and
GrantSolutions.
During our grants reconciliation procedures, Castro reviewed the sub-recipient GL
documentation provided and determined that Arizona had a balance of indirect
costs in the amount of $55,413. Arizona management told us that they claimed
these costs to cover a portion of the salaries for three employees who supported
the grant. Arizona claimed 15 percent, 20 percent, and 26 percent of the total
salary costs covered by the grant for these three employees, respectively. Arizona
and its sub-recipients claimed indirect cost rates by employing guidance from the
Code of Federal Regulations (CFR), 2 CFR 200.414(f)), Grants and Agreements,
Uniform Administrative Requirements, Cost Principles, and Audit Requirements
for Federal Awards, Direct and Indirect (F&A) Costs. 21 This guidance defined
indirect cost rates and sets forth the 10 percent de minimis22 indirect cost rate that
could be used indefinitely instead of charging the actual administrative costs.
Treasury’s CRF guidance published in the Federal Register 23 stated that this
provision did not apply to the use of CRF funds and recipients could not apply
their indirect costs rates to payments received from the CRF. Therefore, Arizona,
by applying the indirect cost rate, did not comply with Treasury’s requirements,
resulting in an unallowable use of CRF proceeds in the amount of $55,413. Castro
questions $55,413 as other matter ineligible costs.
Castro recommends Treasury OIG request Arizona perform an assessment
over whether there were any additional indirect costs claimed within its Grants
greater than or equal to $50,000 CRF submission, and identify those for removal
and repayment to Treasury, as applicable.
21
Code of Federal Regulations (CFR), 2 CFR 200.414(f)), Grants and Agreements, Uniform
Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, Direct
and Indirect (F&A) Costs states: “…any non-Federal entity that does not have a current negotiated
(including provisional) rate…may elect to charge a de minimis rate of 10% of modified total direct
costs (MTDC) which may be used indefinitely. No documentation is required to justify the 10% de
minimis indirect cost rate. As described in § 200.403, costs must be consistently charged as either
indirect or direct costs but may not be double charged or inconsistently charged as both. If chosen,
this methodology once elected must be used consistently for all Federal awards until such time as
a non-Federal entity chooses to negotiate for a rate, which the non-Federal entity may apply to do
at any time.”
22
De minimis means lacking significance or importance: so minor as to merit disregard.
23
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.
11
Desk Review of the State of Arizona
Transfers to Greater Than or Equal to $50,000
We determined Arizona’s Transfers greater than or equal to $50,000 did not
comply with the CARES Act and Treasury’s Guidance. We selected six transfers
for testing totaling $119,614,002 out of a total GL detail population of
$433,917,620. Of the six transfers, Castro tested one transfer totaling $2 million
without exception. The transfer tested without exception included expenditures
related to advertisement and digital media that: marketed for critical industries
impacted by the supply chain disruption during the pandemic; provided
information to small businesses to receive CRF proceeds to support state agency
efforts during the COVID-19 crisis; provided information for upskilling displaced
workers; and communicated COVID-19 updates.
For the remaining five of six transfer selections, we determined that Arizona
management could not provide accurate or complete populations for Castro to
select transactions to test at the invoice level, which resulted in a scope limitation.
This scope limitation resulted from Arizona management not completing a true
reconciliation of the expenses incurred by the applicable Arizona state agencies,
resulting in the remaining Transfers greater than or equal to $50,000 testing
balance of $117,614,002 to be unsupported questioned costs, as detailed below.
Additionally, Castro determined that Arizona's reported Transfers greater than or
equal to $50,000 did not comply with Treasury's Guidance, because the guidance
considered state agencies and departments to be part of the prime recipient
government, and transactions from those state agencies should have been
reported in the GrantSolutions portal by the prime recipient as if they were
obligated or expended by the prime recipient. Transfers should involve payments
to units of government separate from the state. Castro also determined Arizona’s
reported Transfers greater than or equal to $50,000 did not comply with
Treasury’s Guidance, because Arizona reported payroll transactions as Transfers
rather than as Aggregate Payments to Individuals.
For all six transfer testing selections, Castro determined that Arizona reported
Transfers greater than or equal to $50,000 as payments from the prime recipient
government to itself (e.g., to Arizona state agencies). Arizona reported these
expenditures in this manner because the Arizona Governor's Office entered into
agreements with Arizona state agencies to cover COVID-19 related expenses paid
for by those agencies. Arizona considered these agreements to be recognized as
formal sub-recipient obligations based on their interpretation of Treasury’s
Guidance.
12
Desk Review of the State of Arizona
Castro considered this to be a reporting error that did not comply with Treasury's
Guidance24 because the guidance considered state agencies and departments to
be all part of the prime recipient government, and transactions from those state
agencies should have been reported in the GrantSolutions portal by the prime
recipient as if they were obligated or expended by the prime recipient.
For five out of six transfers selected for testing totaling $117,614,002, Castro
requested GL details at the transactional level to support the claimed expenditures
and to select transactions at the invoice level to facilitate determining CRF
eligibility. Arizona provided budgetary GL details at the batched level (non-
transaction level) that agreed to the amounts claimed in the GrantSolutions portal.
However, Castro noted the following issues related to these five transfer
selections:
The GL data included budgetary entries to transfer funds between different
state agencies. This budgetary data was not true expenditure data and did
not reflect amounts paid to entities outside of Arizona’s prime recipient
government needed for Castro to complete our testing and reconciling
procedures related to our transaction selections.
The GL data contained manual journal voucher postings to transfer
underlying state agencies’ incurred expenditure transactions from state
agency funding codes (e.g., general fund) to the CRF expenditure fund.
Arizona management told us that the state agencies had their own
accounting records detailing the expenses incurred at the vendor invoice
level and explained that this transferred balance was an aggregate journal
voucher entry (e.g., one balance could have over 100 invoices with different
vendors). Without this level of detail, Castro could not determine whether
expenditure amounts reported were properly supported. We also could not
perform a complete evaluation of the expenditures claimed to complete our
risk assessment and make additional invoice level selections.
Department of the Treasury Office of Inspector General Coronavirus Relief Fund Frequently
24
Asked Questions (FAQ) Related to Reporting and Recordkeeping OIG-20-028R; March 2, 2021, FAQ
numbers 1 and 5, stated the following:
“1. Who is a prime recipient?
A prime recipient is an entity that received a CRF payment directly from Treasury in
accordance with the CARES Act, including: All 50 States…
5. 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.”
13
Desk Review of the State of Arizona
Many transactions in the GL detail population were missing invoice
numbers and vendor names. Without this level of detail, Castro could not
determine whether expenditure amounts reported were properly supported
and facilitate our invoice level testing to determine CRF eligibility.
Castro discussed with Arizona management that we considered this GL detail to
be at the batched level, which was insufficient for the purposes of our
reconciliation procedures. We requested the invoice level transaction expenditure
detail so there was sufficient insight into how these funds were spent to
determine their CRF eligibility.
Arizona did not complete a true reconciliation of the expenses incurred by Arizona
state agencies and the amount of invoice level transactions provided to us did not
agree to the amount claimed within the GrantSolutions portal. Without this level
of detail, Castro could not determine whether expenditure amounts reported were
properly supported and could not perform invoice-level testing to determine CRF
eligibility for these five transfers selected for testing. Castro questions
$117,614,002 as unsupported due to this scope limitation.
Additionally, Arizona’s Transfers greater than or equal to $50,000 payment type
included payroll transactions incurred by Arizona state agencies that should have
been reported in the GrantSolutions portal within the Aggregate Payments to
Individuals payment type. Castro requested and Arizona provided the portion of
the transfers that related to payroll and the portion that related to state agency
incurred non-payroll expenses. See Aggregate Payments to Individuals Analysis
within the Aggregate Payments to Individuals section of our Desk Review Results
below for additional details.
Castro recommends Treasury OIG request that Arizona management completes a
reconciliation of its Transfers greater than or equal to $50,000 population utilizing
state agency incurred expenditures at the invoice level. Based on Arizona
management’s ability to provide a sufficient general ledger detail reconciliation
for Transfers greater than or equal to $50,000, we recommend Treasury OIG
determine the feasibility of performing additional testing over Transfers greater
than or equal to $50,000.
Aggregate Reporting Less Than $50,000
We determined Arizona’s Aggregate Reporting less than $50,000 complied with
the CARES Act and Treasury’s Guidance. We tested a total of $88,586 of
transaction expenditures for one aggregate reporting transaction and identified no
exceptions. The transaction tested included expenditures related to the purchase
of computers for students and janitorial services to support local education
14
Desk Review of the State of Arizona
agencies and charter schools in Arizona with the safe re-opening of schools due to
the COVID-19 pandemic.
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. Castro notes that Aggregate
Payments to Individuals consists of the following broad types of potential costs,
which we have defined from Treasury’s Guidance as published in the Federal
Register.25 Prime recipients may or may not have claimed all of these types of
expenditures.
Public Safety/Health Payroll – consisted of payroll costs for public health
and safety department personnel.
Substantially Dedicated Payroll26 – consisted 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 Payroll27 –consisted of payroll costs for
personnel who performed COVID-19 related tasks on a part-time basis.
Non-Payroll Expenditures – consisted of financial assistance payments to
citizens due to hardship or loss of income, unemployment claims, and other
non-payroll related expenses made to individuals.
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
26
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 stated
that: “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.”
27
Payroll costs that are not substantially dedicated meant payroll costs that are 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, the Treasury’s Federal Register stated that agencies must: “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.”
15
Desk Review of the State of Arizona
Arizona’s Aggregate Payments to Individuals balance consisted of payroll and
other transactions from the following types of claimed costs.
Aggregate Payments to Individuals Category Total Expenses
Types Claimed
Public Health and Safety Payroll $ 418,381,379
Substantially Dedicated Payroll $ 112,240,073
Non-Substantially Dedicated Payroll $ 2,587,433
Non-Payroll Transactions28 $ 76,107,436
Totals $ 609,316,321
Castro noted that public health and safety payroll transactions were subject to
Treasury’s administrative accommodation,29 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 Arizona’s "substantially dedicated" conclusion with respect to its
employees and payroll distribution files, and by performing tests over specific
employee timesheet submissions, as needed. Non-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.
We determined Arizona’s Aggregate Payments to Individuals did not comply with
the CARES Act and Treasury’s Guidance. We tested a total of $522,361,307 in
expenditures for eight Aggregate Payments to Individuals transactions. The
Aggregate Payments to Individuals expenditures tested related to one non-payroll
transaction for Unemployment Insurance (UI) Trust Fund replenishment
payments, one non-substantially dedicated payroll transaction, four public health
and safety payroll transactions, and two substantially dedicated payroll
transactions. For the non-payroll transaction tested, Castro determined the UI
payments were replenishments and not augmentations, which we consider to be
28
This entire balance related to unemployment replenishment payments that Arizona made into its
Unemployment Insurance Trust fund. See Unemployment Insurance Trust Fund Replenishment
Analysis section below for additional discussion.
29
Treasury’s Federal Register Guidance stated that the administrative accommodation meant, “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.”
16
Desk Review of the State of Arizona
tested without exception. We identified exceptions for one public health and
safety payroll transaction and one substantially dedicated payroll transaction,
resulting in unsupported questioned costs of $18,133,411 and ineligible
questioned costs of $18,631, respectively, for a total of $18,152,042 of questioned
costs.
Public Health and Safety Payroll – Unsupported and Ineligible Questioned Costs
For one of the public health and safety transaction selections for the Arizona
Department of Corrections, Castro obtained and reviewed the payroll distribution
report provided and identified a total amount of $293,726,641, which did not agree
to the transaction selection amount claimed of $309,170,396, resulting in a total
variance of $15,443,755. Castro questions the $15,443,755 as unsupported. The
Arizona Department of Corrections management told us that the payroll
expenditures transferred into the CRF came from a legacy system that aggregated
into their current payroll system, and that it would not be possible to provide a
payroll file that would agree to the claimed amount because of the aggregation.
Out of the $293,726,641 included in the payroll distribution report mentioned
above, Castro identified $18,631 that we considered to be ineligible. These
ineligible costs were related to annual leave payouts to public health and safety
personnel. On April 9, 2020, Arizona charged $18,631 in annual leave payout
expenses to the CRF for one public health and safety employee that was retiring
during that pay period. This amount was for a payout of 359 hours of accrued
annual leave. Treasury’s Guidance, Federal Register Notice Volume 86, Number
10 for the CRF, published January 15, 2021, states that payments from the fund
may only be used to cover costs that were incurred during the period that begins
on March 1, 2020 and ends on December 31, 2021 (the covered period). Castro
determined that using CRF proceeds for this annual leave payout covered costs
for hours that were accrued prior to the start of the pandemic and the covered
period. As a result, Castro questions the $18,631 annual leave payout as ineligible.
Castro noted that Arizona’s Single Audit Act auditor also questioned annual leave
payouts claimed by Arizona within the Fiscal Year 2020 Single Audit Report.
Castro recommends Treasury OIG request that Arizona management performs an
assessment of whether it had any additional annual leave payouts that were
earned prior to the covered period and claimed as CRF expenses and identify
those for reversal and repayment to Treasury, as applicable.
17
Desk Review of the State of Arizona
Substantially Dedicated Personnel - Unsupported Questioned Costs
Castro tested two substantially dedicated payroll transaction selections totaling
$3,692,832. For one of the substantially dedicated payroll transaction selections
related to the Arizona Department of Administration, Castro obtained and
reviewed the payroll distribution report provided and identified a total amount of
$987,008 which did not agree to the transaction selection amount claimed of
$3,676,664, resulting in a total variance of $2,689,656. We requested that Arizona
provide an explanation and additional support for the variance, and Arizona
responded by providing us with the budgetary GL details that showed the
interagency transfer of funds to the Arizona Department of Administration, which
agreed to the amount of $3,676,664. Castro did not consider this a sufficient
response to our request, as the additional information provided was not a payroll
distribution report showing how the payroll was expended. We received only
$987,008 in payroll distribution reports, therefore Castro questions $2,689,656 as
unsupported.
Castro tested $3,692,832 out of the total amount of $112,240,073 in Substantially
Dedicated Payroll claimed by Arizona. 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 Arizona to determine if
there were other instances of unsupported balances within the remaining portion
of this balance.
Unemployment Insurance Trust Fund Replenishment Analysis
The non-payroll transaction tested consisted of $76,107,436 in payments from
March 2020 through August 2021 to replenish Arizona’s UI Trust Fund. Arizona
performed an unemployment claim analysis supporting how it determined that
the change in this balance (unemployment claims paid) occurred due to the
COVID-19 pandemic and not due to unemployment claims that would have been
paid regardless of the pandemic.
Castro obtained and inspected the bank statements to support key UI Trust Fund
balances included within Arizona’s unemployment claim analysis and which were
needed to justify the eligibility of unemployment expenditures claimed as CRF
expenditures. Castro also obtained a written confirmation from the Arizona
personnel responsible for managing the UI Trust Fund, which stated that Arizona
utilized other federal funding sources to reimburse its UI Trust Fund; however,
Castro accounted for those in our analysis and noted that Arizona’s UI trust fund
balance decreased by more than the amount of other federal funding sources
used.
18
Desk Review of the State of Arizona
Castro concluded that Arizona’s CRF replenishment payment consisted of an UI
Trust Fund replenishment payment and not an augmentation to the UI Trust Fund.
Additionally, Castro determined these payments were necessary due to the
COVID-19 pandemic and did not represent unemployment claims that would have
been paid regardless of the pandemic.
Conclusion
We determined that the expenditures related to the Aggregate Reporting less
than $50,000 payment type complied with the CARES Act and Treasury’s
Guidance. Additionally, we determined that the Grants greater than or equal to
$50,000, 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 and ineligible questioned costs of $135,747,413 and
$74,044, respectively, with total questioned costs of $135,821,457. Also, we
identified GrantSolutions portal misclassification reporting issues related to
Transfers greater than or equal to $50,000 and Aggregate Payments to Individuals
that did not comply with Treasury’s Guidance.
Additionally, Arizona’s risk of unallowable use of funds is high.
Castro recommends that Treasury OIG follow-up with Arizona’s management to
confirm if the $135,747,413 noted as unsupported expenditures within the
Transfers greater than or equal to $50,000 and Aggregate Payments to Individuals
payment types can be supported. If support is not provided, Treasury OIG should
recoup the funds or request Arizona’s management to provide support for
replacement expenses, not previously charged, that were eligible during the CRF
period of performance.
In addition, Castro recommends that Treasury OIG request that Arizona
management provide support for replacement expenses, not previously charged,
that were eligible during the CRF period of performance for the $74,044 of
ineligible costs charged to the Grants greater than or equal to $50,000 and
Aggregate Payments to Individuals payment types. If support is not provided,
Treasury OIG should recoup the funds.
19
Desk Review of the State of Arizona
Further, based on Arizona management’s responsiveness to Treasury OIG’s
requests and management’s ability to provide sufficient documentation and/or
replace unsupported and ineligible transactions charged to CRF with valid
expenditures, Castro recommends Treasury OIG determine the feasibility of
conducting an audit for the Grants greater than or equal to $50,000, Transfers
greater than or equal to $50,000, and Aggregate Payments to Individuals payment
types.
At the time of our fieldwork, Castro noted that Arizona had findings in their Single
Audit reports for fiscal years 2020, 2021, and 2022. Castro recommends that
Treasury OIG follow-up with Treasury’s Office of Capital Access to ensure that
management decision letters are issued on the findings identified by the auditor
in the Single Audit reports, which we have summarized below.
Arizona’s fiscal year 2020 Single Audit report was published on
October 27, 2021. In this Single Audit report, the auditor identified
$25,579,909 in CRF related questioned costs.
Arizona’s fiscal year 2021 Single Audit report was published on
November 28, 2022. In this Single Audit report, the auditor identified
$1,256,302 in unsupported CRF related questioned costs.
Arizona’s fiscal year 2022 Single Audit report was published on
December 20, 2023. In this Single Audit report, the auditor included
control related findings, but the auditor did not identify any questioned
costs.
We also recommend Treasury OIG follow-up with Arizona to obtain a copy of its
fiscal year 2023 Single Audit report as this was not available to Castro at the time
of our desk review planning procedures.
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 follow-up on these issues:
Castro noted that Arizona's reported Transfers greater than or equal to
$50,000 did not comply with Treasury's Guidance. Based on the state’s
invoice level general ledger detail provided, there was a scope limitation
for five of six transactions selected for testing. Castro recommends
Treasury OIG request that Arizona management completes a
reconciliation of its Transfers greater than or equal to $50,000 population
utilizing state agency incurred expenditures at the invoice level. Based on
Arizona management’s ability to provide a sufficient general ledger detail
reconciliation for Transfers greater than or equal to $50,000, we
recommend Treasury OIG determine the feasibility of performing
20
Desk Review of the State of Arizona
additional testing over Transfers greater than or equal to $50,000.
Castro recommends Treasury OIG request Arizona perform an
assessment over whether there were any additional indirect costs
claimed within its Grants greater than or equal to $50,000 CRF
submission, and identify those for removal and repayment to Treasury,
as applicable.
Castro recommends Treasury OIG request that Arizona’s management
performs an assessment of whether it had any additional annual leave
payouts that were earned prior to the covered period and claimed as CRF
expenses, and identify those for reversal and repayment to Treasury, as
applicable.
Castro tested $3,692,832 out of $112,240,073 in substantially dedicated
payroll claimed by Arizona. 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 Arizona management to determine if there were other instances of
unsupported balances within the remaining portion of this balance.
*****
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.30 We appreciate the courtesies
and cooperation provided to our staff during the desk review.
Sincerely,
Wayne Ference
Partner, Castro & Company, LLC
30
https://www.ignet.gov/sites/default/files/files/Silver%20Book%20Revision%20-%208-20-12r.pdf
21