North Carolina Department of Commerce Faces Scrutiny Over $8.5 Million in Questioned Costs in 2024 Audit

Theresa Opeka

Carolina Journal

The North Carolina Department of Commerce is once again under scrutiny in the 2024 Statewide Single Audit conducted by the North Carolina Office of the State Auditor (NCOSA).

NCOSA audited 22 programs covering $25.65 billion in spending from funds awarded by the federal government.

In total, for the year ending June 30, 2024, North Carolina spent $36.58 billion in federal awards from 618 programs managed by 103 different state entities.

The office found $8.5 million in questioned costs and 11 total findings.

According to State Auditor Dave Boliek, most of the questioned costs can be attributed to the NC Department of Commerce, which incorrectly used $8.5 million of Unemployment Insurance (UI) Administration funds by charging expenditures to the wrong timeframe allowed by each award.

Auditors tested 151 out of 1,294 UI administrative expenditures, totaling $17.5 million, and found 21 prohibited expenditures totaling $8,476,188.

Specifically:

• Eight expenditures totaling $8,461,082 were charged to an award in the consortium-only automation period but were not consortium automation activities.

• Thirteen expenditures totaling $15,106 were charged to an award before it even started.

As a result, the $8,476,188 is considered questioned costs, and the department may be required to pay the funds back to the federal government. Auditors also noted that the funds could have been used to upgrade the UI benefits system with things like software improvements.

NCOSA recommends that department management provide clear guidance and training to employees on charging costs during the allowable timeframe. In addition, department management should develop and implement detailed review procedures related to expenditures to ensure compliance with federal award requirements.

The Department’s Division of Employment Security (DES) agrees with the auditors’ findings and recommendations. They note DES’ Finance and Budget Unit experienced major staff turnover/shortages, and it wasn’t until recently that three major finance and budget senior staff positions were filled. The DES Finance and Budget team said it is establishing a strong code of ethics and effectively implementing checks and balances to avoid misrepresentation of data. Also, going forward, all managers will be monitoring transactions daily to ensure costs are reasonable, allowable, and allocable. Additionally, accounting technicians are being retrained and cross-trained to help ensure this process is monitored.

Addressing the 13 expenditures totaling $15,106 charged to an award before it started, DES Leadership has instituted internal controls to review and ensure the proper grant year is coded for expenditures when invoices are paid. Staff responsible for paying invoices were retrained on the importance of understanding the federal grant calendar year as part of their duties and assignments.

In addition, Boliek’s office found that the NC Department of Commerce didn’t adequately monitor $55 million in federal funds that were designated for employment and training programs for adults, dislocated workers, and youth who face barriers to employment.

Auditors reviewed the monitoring procedures of all 20 subrecipients who received Workforce Innovation and Opportunity Act (WIOA) cluster funds during the audit period, which required annual, onsite financial, and programmatic monitoring. However, they found no evidence that monitoring was completed as required for 15 subrecipients (75%).

Additionally, NCOSA reviewed the monitoring procedures for all 20 subrecipients that were required to have an audit in accordance with uniform guidance and found that the department did not obtain or review the audit reports for two subrecipients (10%)

Department management told NCOSA that employee turnover in recent years prevented monitoring completion.

Auditors recommended that management prioritize developing and implementing a contingency plan to ensure annual monitoring is completed when employee turnover occurs. In addition, they should continue to monitor the corrective action plan to ensure it is effective and sustainable.

The Department’s Division of Workforce Solutions (DWS) told NCOSA that it understands its responsibility to monitor subrecipients annually and acknowledges that it is catching up on monitoring local workforce development boards after significant delays. The monitoring should have been completed by March 31.

This has been a repeated problem for the department.

In the 2023 Statewide Single Audit, auditors found that the department didn’t adequately monitor $58 million in federal funds for the same programs.

Auditors also found that the NC Department of Commerce submitted the Federal Unemployment Tax Act (FUTA) certification to the Internal Revenue Service 120 days late. In addition, they did not review the quality of the FUTA certification data to ensure it was complete and reliable.

The IRS relies on the Department’s FUTA certification to verify the employer’s federal tax credit matches what the employer paid in state unemployment tax.

NCOSA recommended management develop and implement a review and approval process to ensure the FUTA certification is completed as required. In addition, management should provide clear guidance and training to employees on the certification procedures using the new tax system.

Management told auditors that the FUTA certification was not completed as required because only one individual was responsible for the certification without a backup, or review and approval process in place.

Further, staff did not know how to perform the certification using the department’s new tax system, resulting in delays.

The DES Division said they have now started tracking deadlines in Outlook to remind them of key dates pertaining to the FUTA certification process. Reminders were set up for the chief of tax, assistant chief of tax, and the tax operations manager, notifying them five days before the due dates.

They have also implemented a minimum two-person task approach for FUTA certification. One person ensures that all steps are presented on the Annual FUTA certification signoff spreadsheet, that it is maintained, and that tasks are conducted properly by them both. Each staff member must enter the date and their name and check off the step once completed.

To address the limited familiarity with the new tax system (NCSUITS), which was blamed for process delays, the primary and secondary responsible staff received training on the system and the NCSUITS process instructions were revised to include the updates.

NCOSA’s 2024 Statewide Single Audit also had findings from North Carolina Department of Health and Human Services (DHHS), the North Carolina Department of Public Safety, Elizabeth City State University, North Carolina Central University, and Winston-Salem State University.

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