Auditors flag half of Washington counties over COVID-19 aid

Findings of fraud or misuse remained rare, despite tight deadlines for local governments to spend billions of dollars in emergency aid.

By Jacob Jones / Crosscut.com / March 23, 2023

As billions of dollars in COVID-19 relief flowed into Washington communities, many local officials appeared to have bypassed background checks on contractors or detailed accounting of money passed to nonprofit partners.

Recent audits by the Washington State Auditor’s Office show that about half of the state’s counties had problems tracking and verifying federal grant spending amid evolving guidelines for compliance with multiple emergency aid programs.

Local officials noted that most audits found relatively minor procedural oversights, while misuse or fraud remained rare. State auditors acknowledged that local agencies faced many new challenges in administering the unprecedented federal aid, but noted that detailed monitoring helped guard against abuse.

These audits of federal spending will trigger additional scrutiny of financial practices in the agency’s next annual audit and in some rare cases may lead to requests from the federal government to return funds. Crosscut has not found any Washington cases where an audit has led to money being returned to the federal government.

Walla Walla County Auditor Karen Martin said some of their smaller departments had no prior experience handling federal grant money. Some departments simply struggled with falling funding rates.

“There is no allegation … that any of those dollars were misappropriated,” she said of their latest audit. “[It’s] people just send a lot of money at once.”

Walla Walla County had five new “findings” about deficiencies in accounting practices in its 2021 federal spending audit released last week. Agencies that spend more than $750,000 in federal funds in a year must undergo a special audit.

Sadie Armijo, Director of State Audit and Special Investigations in the Washington State Auditor’s office, works in her office in Olympia, Washington, March 2, 2022. (Lindsey Wasson for Crosscut)

Auditors noted inadequate monitoring of organizations the county paid to administer rental assistance and incomplete checks to ensure those organizations, classified as “subrecipients” of federal funding, were eligible for federal dollars.

The county had accumulated just three findings in all of 15 previous federal funding audits since 2007.

Kelly Collins, director of Local Audits at the State Auditor’s Office, said Walla Walla County reflected a broader increase the agency has seen in findings for Washington cities and counties still accounting for federal spending at the height of the pandemic. Many local governments have failed to properly document how subrecipients spent the money they received, or have missed risk assessments for those service providers. Officials must check to see if contractors have not previously been disqualified from receiving federal funds.

“They’re not used to monitoring to see how those nonprofits are using those funds,” Collins said. “It’s not something they’re comfortable or used to doing.”

Of the 36 counties that have issued 2,021 federal audits, 21 received findings of deficiencies in accounting for federal grants. (Three counties have yet to be audited.) Dozens of cities and towns have received similar financial warnings in recent months. State-level agencies also issued a number of findings on their past pandemic relief spending. https://docs.google.com/spreadsheets/d/e/2PACX-1vRwzR6mOlmJHwTCmzPFPjE00jSaWYr5yBPPgxKH2ZUfJhzQJpxGn9bE5kPR_GnRc1joCX3vdgeh9EZ

Eric Johnson, executive director of the Washington State Association of Counties, said some federal programs, such as the Coronavirus Relief Fund, sent hundreds of millions of dollars to local agencies with unclear instructions and just months to spend the money.

“It was really a time crunch,” he said, adding, “There’s a lot of technique in some of this [audit] the findings we would argue were pretty bureaucratic.”

Johnson said local officials had a hard time getting clarification on how they should use and document federal spending. The US Treasury Department would not always provide timely technical assistance on grant expenditures, and the State Auditor’s Office cannot provide direct advice because that would undermine an independent audit.

“It wasn’t a very cooperative approach to making sure our members stayed out of trouble,” he said. “I think that was frustrating for our members at times.”

WSAC policy analyst Curtis Steinhauer said the direct funding to local governments in the American Rescue Plan created new vetting requirements for contractors, in some cases requiring new risk assessments of providers the agencies had worked with. many years. Other changes in spending rules over time have left officials haggling with auditors about how they interpreted the rules at different stages.

Steinhauer noted that smaller governments failed to plan their staffing or financial practices around the large influx of federal aid in 2020 and 2021. And in some cases, instructions from federal officials conflicted with state laws or standards.

“It’s pretty amazing that this amount of money is pouring into every local government in the state and the findings we’re seeing are like we’ve lost some of the paperwork,” he said. “I think overall the counties have done an outstanding job.”

State auditors acknowledge that local officials faced a shifting and complex set of rules for spending federal aid under tight deadlines. Collins said their audits still turned up some significant deficiencies or outdated practices.

Auditors identified $215,408 in questionable costs for pandemic-era pay raises and related benefits given to Island County employees for hours spent on sick or other leave. County officials argued in their response that auditors had misread federal guidelines and the premium payment could cover additional forms of compensation.

In Douglas County, auditors found officials charged $276,530 in unallowable road project costs to Federal State and Local Fiscal Recovery Funds outside the mandated spending time period. County officials responded that they originally planned to use other funds to pay for the road project, but did not realize that some of the work had occurred before the spending period.

In Cowlitz County, auditors issued two findings for closer monitoring of subrecipients on business and rental assistance programs. Cowlitz County Accounting Manager Brooke Poor said the county has reviewed its practices and is working on a new risk assessment tool to provide better oversight of those expenditures.

“It was challenging for our district because the funds came to us so quickly,” she said. “These were new types of funds.”

Cowlitz County last year lost, then recovered, about $184,000 in county funds to a phishing scheme in which someone provided a fraudulent bank account for a public works contractor, according to a separate accountability audit. The county also paid $21,000 to a vendor that reportedly never delivered their agreed-upon services.

Poor said the district has since worked to introduce new cybersecurity training for staff and account verification practices.

Sadie Armijo, director of State Audit and Special Investigations at SAO, said security and verification around electronic payments will continue to be a focus for both auditors and local officials as they continue to spend federal aid. She noted the details governments must share about their project bids can sometimes make them more vulnerable to impersonating vendors or contractors.

“You have to be very deliberate and very careful,” she said.

Johnson with the Washington State Association of Counties said local leaders appreciate the auditors’ work and they hope to continue partnering with them to make sure public money is spent wisely. He said he expects local governments will need guidance on how they can commit or adjust the remaining American Rescue Plan dollars as the 2024 and 2026 deadlines approach.

“They are very committed to holding these resources accountable,” he said. “We want this money to go to legitimate uses.”

State and local officials gathered in Walla Walla this week for a conference of county auditors to discuss ongoing challenges with accounting for public funding, including federal COVID-19 relief money. Martin, the local county auditor, said she believes her office will be better equipped to address audit concerns now that they’ve gone through several cycles of federal relief.

“We learn from all these audits all the time,” she said. “Departments take them seriously.”

Collins at the State Auditor’s Office expected similar improvements in future audits.

“It has to be better,” she said. “They should have the knowledge now.”

FEATURED IMAGE: State auditors say they’ve seen an increase in accounting issues for federal funding as local government officials have spent millions of dollars in pandemic aid since 2020. (Lindsey Wasson for Crosscut)

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