Internal Audit Department Performance Audit Report Of Grants (Disbursed by Cily of Wilmington In amounts greater than 000) Audit 15?18 Table of Contents City Auditor?s Executive Summary Statement of Auditing Standards Statement of Objectives Statement of Scope Statement of Methodology Findings and Recommendations Exhibits Page 2 of 18 CITY EXECUTIVE SUMMARY As part of our audit plan, we conducted a performance audit] of grants issued by the City of Wilmington for the period of July 1, 2014 to June 30, 2015. Our objectives were a) to determine if the grantee is complying with the applicable requirements of City of Wilmington, Delaware code section 2?368 (occasionally, hereinafter, ?Section 2?368?), b) to determine if controls over grant funds are in place and functioning appropriately, c) to determine if grant funds were used for the purpose in which they were intended, and d) to determine if the use of grant funds were accurately recorded and documented by the City. Our examination revealed signi?cant weaknesses2 or reportable weaknesses 3 that appeared pervasive in their effects on the issuance and monitoring of grant funds. The Internal Audit Department (hereinafter, occasionally, evaluated all grants that were $5,000 or greater issued during the selected period. The following summary provides management with an overview of conditions requiring attention: Signi?cant Weaknesses: There are weak internal controls over the issuance of funds to recipients with delinquent monies owed to the city. IAD examined 19 grants issued by the City and 17 of the grants did not have proof that delinquent taxes, fees, or ?nes were not owed to the City prior to issuing funds to the grantee. According to City code section 2?368 (2), all grant applicants must provide ?adequate proof? that there are no monies owed to the City. In addition, the code states that no funds shall be disbursed by the city to a grantee until taxes were paid or there is a payment agreement with the city. During testing, identi?ed two grants; Casale Construction, LLC and Wilmington Hope Commission, that received funds, but had delinquent taxes, fees or ?nes on the books. The amounts of monies owed were small, but the grantees should have paid the balances prior to receiving any grant funds. Grantees did not provide regular reports to the City department issuing the grant and to the City Auditor. After receiving grant funds from the City, grantees are required to send quarterly program or activity reports to the department issuing the grant and to the City Auditor?s Of?ce. IAD identi?ed at least 38 reports that should have been reported submitted to the City from grantees. The grantor department received 26 of 38 or 68% reports from grantees. The City Auditor received no reports. IAD recommends that departments issuing grants contact Finance prior to approval of a grant application. In this communication, Finance will be requested to conduct an assessment of delinquent fees or taxes owed to the City. In addition, departments should proactively inform grantees of obligations to the City in accordance with City Code. Reportable Weakness: The City issued funds to grantees in violation of Section 2-368 (8). IAD identi?ed 4 grants that did not have a signed statement of acknowledgement from the grantee. This code section states that ?the grant recipient shall acknowledge, via signature, its understanding of and intent to comply with the provisions ofthis section.? A performance audit is a study of an organization?s internal controls and the efficiency and effectiveness of its procedures and processes with due regard for economy and the express aim that it leads to improvements. 2 in performance audits, signi?cant weaknesses in internal controls are identi?ed as key sources of de?cient performance. 3 Reportable weaknesses are internal control weaknesses that are less signi?cant yet warranting communication to management. Page 3 of 18 recommends that departments ensure that grantees sign a statement of acknowledgement prior to payment of grants. Documentation concerning the appropriateness of grants and grantee activities is inconsistent. There is not a set standard for the administration of grants. Each department issues grants differently, and the code does not address the administration of grants. At the end of the report, created an application form and a checklist for grant requests and grant procedures. This form could be used by all departments issuing grants $5,000 or greater to ensure compliance of the City Code. Use of the attached application and checklist will standardize the grant process for all City departments. in our opinion, the operational and administrative controls for the City?s grant process as of June 30, 2015, taken as a whole, were suf?cient to meet the objectives stated in the report. Speci?c limitations that may hinder the effectiveness of an otherwise adequate system of controls include, but are not limited to: a) a lack of automation, b) resource constraints, 0) faulty judgments, d) unintentional errors, e) circumvention by collusion, and i) management overrides. An audit may not always detect the presence of these limitations or the extent of the adverse effect that such limitations may have on the process and procedures under study. Moreover, establishing a system of controls that would be competent to effectively address and remediate all of these limitations may not be cost effective. Earl T. eter, CPA City Auditor August 21, 2015 Page 4 of 18 Statement of Auditing Standards The Internal Audit Department conducted a performance audit of the grants issued by the City of Wilmington for the ?scal year ended June 30, 2015. All grants greater than $5,000 were examined. The objective of the audit was to determine whether internal controls are adequately designed and operating effectively. Except as discussed in the following paragraph, we conducted our audit in accordance with Generally Accepted Government Auditing Standards These standards require that we plan and perform the audit to obtain suf?cient, appropriate evidence to provide a reasonable basis for our ?ndings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our ?ndings and conclusions based on our audit objectives. An internal control system consists of many policies and procedures designed to provide management with reasonable assurance that organizational goals and objectives will be achieved. Management is responsible for establishing and maintaining an effective system of internal control. Internal Audit Department City of Wilmington Wilmington, Delaware August 21, 2015 Page 5 of 18 Statement of Obiectives - Determine if the grantee is complying with the applicable requirements Section 2-368. 0 Determine if controls over grant ?inds are in place and functioning appropriately. 0 Determine if grant funds were used for the purpose in which the grant was intended. 0 Determine if the use of grant ?Jnds were accurately recorded and documented by the City. Statement of Scope 0 The sc0pe includes grants of $5,000 or greater issued by the City of Wilmington for the period between July 1, 2014 and June 30, 2015. 0 As of June 1, 2015, there were a total of 24 grants of $5,000 or greater identi?ed for ?scal year 2015. Statement of Methodology The information used to perform this audit was obtained through: 0 Review of the City of Wilmington, Delaware code, a Discussion and interviews with City personnel, and 0 Evaluation of City and Grantee documents, agreements, ?nancial records, and/or ?nancial statements pertaining to the issued funds Page 6 of 18 Findings and Recommendations Finding No. 1. There are weak internal controls over the issuance of funds to recipients with delinquent monies owed to the City. 4 Discussion and Background Overall, an absence of a documented review for delinquent monies was noted. For 17 of the 19 selections there was no documentation concerning a review of outstanding bills prior to the funds being issued. It could not be determined if reviews had been performed to ensure that the recipients did not owe delinquent monies to the City. The above finding relates to the grants listed in the table below. City ouncil 1. 2. Stop the Violence Prayer Chain 3. Triangle Neighborhood Associates 4. University of Delaware Center of Community Mayor's Office 5. American Red Cross 6. Bethel AME/Delaware Community Foundation 7. Casale Construction LLC 8. One Village Alliance 9. University of Delaware Center of Community 10. Wilmington Economic Devel0pment Corporation 11. Wilmington HOPE Commission 12. Wilmington Jaycees 13. The Wilmington Library 14. Wilmington Rowing Center Of?ce Of Economic Development 15. Greater Wilmington and Brandywine Valley 16. Wilmington Renaissance Corporation Parks and Recreation 17. Grand Opera House, inc. For 2 ofthe l9 selections, it was determined that the grantee had delinquent monies clue to the City at the time the grant was issued. For the first grant recipient, there are a 10 delinquent bills ranging in amounts from $57.16 to $397.29. These bills pertained to charges prior to ?scal year 2015 consisted ofpast due taxes, storm water fees, According to City of Wilmington, Delaware code section 2-368 (2), all grant application for grants greater than $5,000 must agree to: To submit adequate proof, as determined by the director of ?nance, that there are no delinquent fees, taxes or other monies that are owed to the city. No grant funds shall be disbursed by the city to any grantee until all delinquent fees, taxes or other monies owed to the city by such grantee have been paid in full, unless the applicant has a payment agreement with the city. No applicant shall be eligible for a grant who is delinquent in payments under a current payment agreement with the finance department's revenue enforcement division. Page 7 of 18 license fees, and a delinquent instant ticket. For the second grant recipient, there are $129.02 in delinquent monies owed to the City for past due wage taxes from ?scal year 2013. The 2 grants with delinquent monies owed the City are listed in the table below. Casale Construction LLC Wilmington HOPE Commission .Mayor 8 Of?ce Based on interviews with various departments including the ?nance department, it was determined that the Delinquent Accounts Supervisor is responsible for performing the review of outstanding bills. We also noted the Delinquent Accounts Supervisor was not made aware of pending grants for the two delinquent accounts. The departments believed that Finance automatically performed a search for delinquencies at disbursement of grants. Issue The City and grantees are not in compliance with Section 2-368 (2). Causes The departments issuing the grant do not take steps to comply with Section 2-3 68 (2). ecz? Funding was provided by the City to recipients who are past due on monies owed to the City. Recommendation Department should notify Finance upon grant request for a review of delinquent accounts. Management should take steps to collect on delinquent bills. Page 8 of 13 Management Responses City Council Agree. The department should notify Finance upon completed. Marchelle Basnight grant request for review of delinquent accounts. If there are delinquent bills, those bills should be resolved prior to issuing any grant funds. This was done for all City Council grants listed in this audit. Mayor's The Mayor?s Of?ce agrees with this recommendation in the last two ?scal years, the Mayor?s David Sophrin Of?ce ??om the Auditor?s Of?ce of running all debt checks at Of?ce has shifted the review of larger Cheryl Mitchell the point in time when the grant is received, rather than grant requests to the start of the ?scal after it has been approved but prior to processing, and year, rather than spread out throughout will move forward with its implementation. Previously, the year. While there is obviously still when handling annual grant requests, the Mayor?s the potential for a larger grant request to Of?ce procedure has been to request that the Finance be submitted to the Mayor?s Of?ce Department run a debt check on an entity requesting a between the current date and the end of grant after a decision is made by the Mayor?s Of?ce to the ?scal year, application of this grant an organization an amount greater than $5,000. In recommendation on a large scale will the event that the Finance Department determined that a take place at the start of the next ?scal debt was owed to the City by that entity, the Mayor?s year. However, in the event that any Office would contact that entity to notify them of the large grant is submitted to the Mayor?s debt owed, and inform them that all debts must be paid Of?ce between the current date and the before any grant could be processed. By implementing end of this current year, the Mayor?s this recommendation, the placing of the debt check Of?ce will implement and apply this earlier in the grants review process will allow the Of?ce recommendation. to not only prevent any grants from being issued to entities that owe debts to the City, but will also allow the Mayor?s Of?ce to ?lter out any requests where such a review and decision is unnecessary. Furthermore, if any entity requesting a grant greater than $5,000 is determined to owe a debt to the City, the Mayor?s Of?ce will notify the entity of any steps that must be taken before their grant will be reviewed and considered. Office Of Agree. 01/01/16 Alfred Lance Economic Development Parks and Agree. Once attached forms are approved Catrina Woody Recreation Page 9 of 18 Finding No. 2. Grantees did not provide regular reports to the City department issuing the grant and the City Auditor. Discussion and Background Pursuant to Section 2?368, grantees receiving funds greater than $5,000 are required to provide quarterly program activity reports to the City Auditor and the grant issuing department.5 During the period audited, a minimum of 38 quarterly reports should have been provided to the City department issuing the grant and the City Auditor. - For 100% (all 38 instances), no report was provided to the City Auditorinstances), no report was provided to the City department issuing the grant. The 26 grants with missing reports are listed in the table below. s33: City Council Education Voices Friends of Historic Riverview Cemetery Step the Violence Prayer Chain Triangle Neighborhood Associates Cultural Affairs Cityfest TheaterN Wilmington Children?s Chorus Mayor?s Of?ce Bethe] AME/Delaware Community Foundation Casale Construction LLC One Village Alliance Wilmington HOPE Commission Wilmington Jaycees The Wilmington Library Wilmington Rowing Center Parks and Recreation Cease Violence Wilmington, Inc. Grand Opera House, Inc. Total of Reports: Ix.) Ox When prompted during the audit, the grantee provided 1 missing report. When prompted during the audit, the grantee provided 2 missing reports. 5 According to City of Wilmington, Delaware code section 2?368 (7), all grant application for grants greater than $5,000 must: Submit to the city auditor and the department overseeing the grant program a brief quarterly report identifying how the program activity met its goals and objectives and to provide a financial accounting of the grant program funds. Such reports must be submitted during the grant program and at the conclusion when all funds have been expended. Page 10 of 18 Issue City management and grantees are not in compliance with Section 2-368 Causes There is a lack of follow?up by the City regarding compliance with the code. Also, there is a lack of initiative by the grantee to proactively provide reports to the City on a quarterly basis. ?eets The City cannot evaluate whether the grantee is meetings its goals and objectives. Moreover, the City cannot determine the ?nancial position of the grantee. Recommendation The City department should proactively contact the grantee concerning the reporting requirements of Section 2-368 (7), and remind the grantee of Section 2-368 (9) as it relates to the revocation of grants. 6 6 According to City of Wilmington, Delaware code section 2-368 (9): Failure to comply with the provisions of this section may resuit in revocation of the grant. Page 11 of 18 Management Responses taiioqt City Council This is already stipulated 1n the City code and the code section is attached with all disbursements ??om City Council that is $5,000 or more. In addition, all program grants, the information is attached on the grant application, which the grantee signs and acknowledges. Completed. Marchelle Basnight Mayor's Of?ce The Mayor?s Of?ce disagrees with the recommendation from the Auditor?s Of?ce recommendation that the granting City department should be more proactive in contacting the grantee concerning the required reporting requirements of Sect. 2-368 (7), as well as remind them about the possible revocation of previously approved and processed grants (Sect. 2-368 (9). It has already been the Operating procedures of the Mayor?s Of?ce to provide each approved grant recipient with a standard grant letter, along with the relevant city code section (2-3 68) after a grant is approved but before a grant is processed. Each recipient is asked to review the letter and code section, and once they understand and agree to the code requirements in Sect. 2-368, they sign the grant letter and return it to the Mayor?s Of?ce. Under this process, each recipient has been fully educated on the requirements that the city code mandates for granter greater than $5,000, including the need for quarterly reports and the potential for revocation of the grant, and has accepted those requirements. Due to the limited staff hours available, it will not be practically feasible for the Mayor?s Of?ce to regularly communicate with every grant recipient and make sure that they have turned in every required document. However, to further stress the importance of the grant recipients turning in all required documentation, the Mayor?s Of?ce will work with City Council to try to deveIOp an ordinance that will amend Sect. 2-368 (9), so that any future recipient understands that failure to turn in required documentation may not only result in the possibility of revocation of the grant, but could also impact whether a future grant is awarded to that recipient. Communications with City Council regarding the concept of amending the aforementioned Code section will begin immediately. David Sophrin Cheryl Mitchell Of?ce Of Economic Development Agree. 01/01/16 Alfred Lance Parks and Recreation Agree. 12/15/15 Catrina Woody Page 12 of 18 Finding No. 3. The City issued funds to grantees in violation of Section 2?368.7 Discussion and Background For 4 of the 19 selections, there were no signed statement of acknowledgement from the grantee acknowledging an understanding and intent to comply with the provisions Section 2?368. As a result, the City made payments in violation of City code. The 4 grants that lack signed statements of acknowledgment are listed in the table below. mania Friends of Historic Riverview Cemetery ?2 Triangle Neighborhood Associates Of?ce Of Economic DeveIOpment Greater Wilmington and Brandywine Valley :3?ow Wilmington Renaissance Corporation 135i There was a lack of signed documentation from grantees concerning compliance with City Code Section 2-368. The departments issuing the grant disregarded Section 2-368 (8). ecz? There is a lack of accountability for the grantee. Recommendation Management should make efforts to obtain signed statements of acknowledgement from the 4 grantees listed in this finding. When a grantee agreement is signed, management must ensure that the grantee understands and intends to comply with the provisions of Section 2?368. To this end, management should consider creating an application for prospective grantees. (See Exhibit 1 for a recommended of a grant application) 7 According to City ofWilmington, Delaware code section 2-368 (8): the grant recipient shall acknowledge, via signature, its understanding of and intent to comply with the provisions ofthis section Page 13 of 18 Management Responses . . . . .. City Council Disagree Each of the above grantees for City Not applicable Marchelie Basnight Council was one-time grants, and not for program grants. In instances when it is for an actual program with measures and outcomes, a grant application is provided, and there is a line on grant application stating acknowledgement. Each of the above grantees were provided c0pies of the City code section. Mayor's This recommendation from the Auditor's This recommended process has David Sophrin Of?ce Of?ce for grant recipient entities to sign statements already been implemented by the Cheryl Mitchell of acknowledgement has already been implemented Mayor?s Of?ce. by the Mayor?s Of?ce. It has been the regular operating procedure of the Mayor?s Of?ce to have statements of acknowledgement signed before a grant is processed. Of?ce Of Agree. 01/01/16 Alfred Lance Economic Development Parks and Not applicable. Not applicable. Not applicable. Recreation Page 14 of 18 Finding No. 4. Documentation concerning the appropriateness of grants and grantee activities is inconsistent. Discussion and Background During testing, documentation regarding important grant items was not consistent. These items include documentation on a) potential con?icts of interest, b) the strategic purpose of the grant, c) the legitimacy of the grant and the grantee?s intended use of the funds, d) the nonpro?t status of the grantee, and e) the goals and objectives of the grantee. Issue Documentation on grants can be improved. Causes No set procedures for grant administration in the departments. ect There is a risk City funding will be distributed without a practice of accountability. Recommendation It is recommended that a checklist be designed and obtained for all grants issued by the City in excess of $5,000. This checklist should include the verification that a) con?icts of inertest do not exist, b) the grant is aligned with the City?s strategic mission, 0) the grantor and grantee are in compliance with existing laws, d) the grant recipient is registered as a non?profit, and e) the grantee?s goals and objectives are stated in writing prior to the issuance of the grant. (Please see Exhibit 2 for an example of a checklist) Page 15 of 18 Management Responses a) ,6 $11.0. a - irri?ementation? City Council City Council-already has a grant application, but will modify to have an internal control check list. Completed Marchelle Basnight Mayor's Office The Mayor?s Of?ce has already had in place a process by which those entities requesting grants needed to submit a variety of documents before a grant that may eventually be approved is processed. Examples of required documents have included: a formal grant request letter, a budget of how the requested funds would be spent, a signed grant acknowledgement letter (should a grant be offered to the entity), 3 clear project programming organizational description, and outcome goals of what the precise purpose of the programming services of the entity. However, a uniform checklist document has not been previously utilized. Moving forward, the Mayor?s Of?ce will develop a standardized grantee application. This application, which will be made available to the public, will adopt many of the features in the checklist proposed in the Auditor?s Report. Through this checklist, inef?ciencies such as having to circle back to grant requesters repeatedly for additional required information will be cut down, since this new standardized application will require all of that information at the outset of the grant request. The standardized grant application will be develOped by the Mayor?s Of?ce? Admin. Division by the end of November, 2015. David Sophrin Cheryl Mitchell Of?ce Of Economic Development Agree. Ol/Ol/l6 Al??ed Lance Parks and Recreation Agree. Once attached forms are approved. Catrina Woody Page 16 of 18 Exhibit 1: Example Grantee Application In order to receive grant funding from the City of Wilmington, the information below must be completed in entirety. Gran tee: Contact Person: Address: Phone: Amonnt requested: Time period for grant: Purpose of grant: Quarterly goals and objectives: In order to receive grant funding from the City of Wilmington, all items listed below must be attached to this grant application form. 1) A written request, which speci?es the intended use of the grant funds 2) A budget or ?nancial statements for the amount requested (to be submitted to the Department Issuing the grant and the City of Wilmington Auditor) 3) Documentation of your status as a registered 501(c) organization or a registered 503 corporation In signing this grant application, you acknowledge that: a) You have no con?icts of interest with the City of Wilmington. b) You will not utilize City funds for activities that would violate City code, State code, or Federal law. c) You do not owe the City of Wilmington delinquent monies. (1) You understand and intent to comply with the provisions of City of Wilmington, Delaware code section 2?368. 9 Failure to comply with section 2-368 may result in revocation of the grant. e) You agree to submit to the City Auditor and the department overseeing the grant program brief quarterly reports identifying how the program/activity met its goals and objectives and to provide financial accountings of the grant program funds. -) Such reports must be submitted during the grant program and at the conclusion when all funds have been expended. Signature of Date: Prospective Grantee: Page 17 of 18 Exhibit 2: Recommended GrantApplication Checklist In order for the City to issue funding for a grant, all questions listed below must be answered ?leg.? Grantee Written Request Yes No 1) 2) Was a written request for a grant received from the Grantee? in the request, did the Grantee Specify the intended use of the grant funds? Contact Information 3) Is there documentation of a Grantee contact (who can answer questions about the submitted grant request letter)? Deiinq uent Monies 4) Is there written proof from Finance that there are no deiinquent monies owed to the City of Wilmington by the prospective Grantee? Budget Financial Statements 5) Has the Grantee submitted to the City Auditor a budget or ?nancial statements? Grantee Goals and Obiectives 6) Has the Grantee provided the department issuing the grant a listing of the goals and objectives about which the Grantee will be reporting on each quarter? Signed Acknowledgment from Grantee 7) Has the Grantee acknowledged, via signature, its understanding of and intent to comply with the provisions of City of Wilmington, Delaware code section See. 2?368? Risk Assessment 8) Is there documented verification of the grant recipient?s status as a registered 501(0) organization or a registered 503 corporation? 9) Is there an absence of con?icts of interest between the City representative authorizing the disbursement and the funding recipient? 10) Is the issued funding aligned with the City of Wilmington?s overall strategic mission? 1 1) Is the issuance of funds by the City of Wilmington to the Grantee permitted under City code, State code, or Federal law? 12) Has the Grantee acknowledged via signature, that he or she will not utilize City funds for activities that would violate City code, State code, or Federal law? Signature oft/1e City Representative Department Issuing the Grant: Date: 8* See City of Wilmington, Delaware code section 2-368 Con?ict ofimerest is interpreted in accordance with the applicable provisions ofthe City's Code of Conduct, principally City of Wilmington, Delaware code section 2-340 Page 18 of 18