Audit finds more than $2M in dubious NEG grant costs
Independent auditors have identified unallowable costs and non-compliance by the sub-recipient and the American Samoa Government (ASG) in the administration of the Workforce Investment Act (WIA) and National Emergency Grant (NEG) funding provided by the U.S. Department of Labor.
According to the auditors, they identified questionable costs of more than $2 million.
Conducted by the off-island firm of Moss & Adams, this audit finding on the WIA/NEG was among several findings and issues cited in the Single Audit Report of the American Samoa Government for the period ending Sept. 30, 2012 (FY 2012).
The auditing firm first pointed out that costs charged to federal programs must be allocable (or capable of being allocated) based on the general purpose of the program and special terms of the grant agreement. Additionally, costs charged to the grant must meet general criteria, which include being necessary and reasonable for the performance and administration of the award and being allocable to the grant.
It then obtained the financial statements and monthly reports of the sub-recipient (who was not identified by name) and found charges to the grant that “are unallowable”.
The sub-recipient was not identified by name in the audit report, but Samoa News should point out the Native Hawaiian Holding Company was awarded the contract to train NEG participants.
For example, for the $1.67 million for a ‘Medical Mobile Telepresence’, the auditor said the training costs are beyond necessary and reasonable criterion. It explained the purpose of the grant is to provide needed training and skills to make participants employable and to find appropriate placement for on the job training or temporary placement leading to full employment.
It says and noted that given the level of the participants, the Telepresence training is not allocable to the grant and does not meet the purpose of the grant as most individuals do not have the background skill/level to justify the cost.
“Telepresence costs were nearly $250,000 a month and the primary beneficiary of these costs would be skilled medical professionals, not employed workers with no medical background or experience,” it says. “In addition, the territory does not have a system in place that supports employment for medical mobile telepresence.”
Another unallowable cost is $513,855 in “professional fees”, which are not allocable to the grant, the auditors said and noting the fees are cited as administration costs. However, “we note that the company providing the services is a logistics coordinator for the shipping industry,” it says. (The logistics coordinator was not named in the audit report)
The auditors also cited as questionable cost the $140,000 for “training” which was performed by “a vendor not allocable to the grant given that there is currently no industry on island to place participants trained in bio-energy”.
Another questionable cost is $52,736 in “transportation costs”. The auditors say supportive services like transportation stipends are allowable costs, which are to provide transportation for participants to training and skill development.
However, the cost noted in the sub-recipient’s detail profit and loss schedule are not for supportive service, said auditors.
Other unallowable costs cited by the auditors:
• $2,252 in meeting expenses, which were expenses for food not provided to the participants and therefore ineligible;
• $6,943 for auto expenses but since no vehicles were purchased with federal funds, auto expenses are ineligible;
• $105,115 in “outside service” and the costs are not allocable to the grant as they do not relate to supportive services, training expenses, on the job training expenses or administrative expenses; and
• $44,486 in “travel” — the costs are not allocable to the grant as they do not relate to supportive services, training expense or administrative expenses.
“Questioned costs identified as a result of our review of the sub-recipient’s financial data total $2,538,651 (or $2.53 million),” according to the auditors. “Costs... charged to the federal grant by the sub-recipient are unallowable.”
Additionally, during the sub-award process, applicable compliance requirements were not formally communicated to the sub-recipient. Moreover, compliance with activities allowed/un-allowed and allowable costs and cost principles is necessary for the Territory to comply with the requirements of this program.
The auditors recommend the Territory work with the sub-recipient to ensure it understands general administrative requirements and specific compliance requirements applicable to the grant award.
It also recommenders the Territory provide appropriate oversight of the grant award to ensure the costs incurred meet the program’s criteria as allowable cost activities.
In its response, ASG said it concurs with the recommendation, adding that the local Treasury Department will work closely with the sub-recipient and Human Resources Department to help them become fully cognizant of the magnitude of non-compliance and the impact to its approved activities.
“The questioned costs are currently being reviewed by the sub-recipient to substantiate the alleged questioned costs,” said ASG.
According to the auditors, compliance with sub-recipient monitoring is necessary for the Territory to comply with the requirements of this program. It says ASG didn’t comply with monitoring requirements.
It says that the sub-recipient, a private contractor, has characteristics of both a vendor and a sub-recipient, but their ability to make programmatic decisions related to the participants implies they were more appropriately categorized as sub-recipient.
Since the private contractor was initially set up as a vendor, the territory did not have formal policies and procedures to properly identify and monitor sub-recipients. As a result, federal award information and applicable compliance requirements were not formally communicated to the sub-recipient during the award process.
While there were no questionable costs identified in this issue, the auditors did recommend that ASG develop and implement policies and procedures to ensure entities are appropriately identified as sub-recipients and that required federal award information and compliance requirements are communicated during the sub-award.
ASG concurs with the recommendation.
Participants in the NEG program must demonstrate they meet the definition of “long-term unemployed”, which are “individuals who at the time of registration are unemployed and have been unemployed for any 12 weeks out of the last 26 weeks” The 12 weeks do not have to be consecutive.
However, the auditors say the unemployment status for participants was not verified against any external documents or records. Auditors tested a sample of 25 participants and found the unemployment status had not been verified against tax records or other similar external records.
Auditors believe the cause of this problem is “insufficient training or knowledge of the program requirements”.
It did say case managers for the NEG/WIA grant often knew the participants and their history and accordingly didn’t require participants to provide external documentation of long-term unemployment status beyond the individual’s own claims.
The auditors recommended, and ASG concurred, for the government to verify long-term unemployment status of all applicants to the WIA/NEG program against the records maintained at the tax office in addition to the inquiry on the participants' intake form.
According to the auditors, there are no instances here of questioned costs.
It also said verification procedures performed by territory personnel subsequent to its audit finding confirmed through review of tax documents that the participants they had selected for their testing 'met the definition of long term unemployed’.”
Samoa News will report in future editions on other findings and issues cited in the Single Audit Report as well as the audit of the ASG Financial Statement for FY 2012.
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