HomeMy WebLinkAboutGrant deliverablesGrant Deliverables #11/12-7 June 2012
Grant Deliverables
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Deschutes County,
Oregon
David Givans, CPA, CIA
Deschutes County Internal Auditor
PO Box 6005
1300 Wall Street, Suite 200
Bend, OR 97708-6005
(541) 330-7674
David.Givans@deschutes.org
Audit committee:
Michael Shadrach, Chair - Public member
Chris Earnest - Public member
Gayle McConnell - Public member
Jean Pedelty - Public member
Greg Quesnel - Public member
Jennifer Welander - Public member
Anthony DeBone, County Commissioner
Tom Anderson, Community Development Director
Scot Langton, County Assessor
Grant Deliverables #11/12-7 June 2012
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Grant Deliverables #11/12-7 June 2012
TABLE OF
CONTENTS:
EXECUTIVE SUMMARY
1. INTRODUCTION
1.1. Background on Audit …………..……………………………………......………………...…… 1
1.2. Objectives and Scope ………………….……………………………..………………….......... 1
1.3. Methodology ...…………….……………………......…........................................................ 1
2. BACKGROUND ……..………………………………………………….………………..… 2-4
3. FINDINGS AND OBSERVATIONS
3.1. Service partner observations ………………………………………..……………………... 5-8
3.2. Community and discretionary grants ……………………………………………………... 8-11
4. MANAGEMENT RESPONSE ……..……………………………..……................... 12-14
Grant Deliverables #11/12-7 June 2012
HIGHLIGHTS
Why this audit was
performed:
To review deliverables
from grants made
primarily with video
lottery funds.
What is recommended
Recommendations
include
Developing due
diligence
expectations for the
forgivable loan
program
Reviewing date
conditions for
forgivable loan
contracts.
Developing a
reappointment
process for EDCO
board seats.
Consolidating
community grant
payments and
management to the
same grant
recipient.
Grant Deliverables
What was found
The audit confirmed that for the community grants reviewed that there was no indication that
deliverables were not received. The organizations selected for review were responsive and
complied with information requests.
The audit confirmed receipt of calendar year 2011 lottery payments and reviewed the state’s
calculation of such payments by relative composition of lottery net revenues by county.
The County’s forgivable loan program is operated by EDCO, a County Service Partner. The
audit reviewed the contract for the County’s first forgivable loan program and found that the loan
was not currently due (as anticipated due to some usage of a contract template), and the
Company was making good progress towards meeting the anticipated conditions. EDCO was
not able to provide documentation of the due diligence efforts that took place for the forgivable
loan.
A number of organizations receiving community grants had not submitted their final reports at the
completion of the fiscal year. The requirements for some of the grants seemed a little excessive,
such as requiring audited financial statements and preparing performance measures.
Some of the Administration grant monies were to grant agencies also being managed by the
Children and Families Commission (CFC). The additional management and payment process of
these grants by Administration seemed duplicative.
Deschutes County Internal Audit
Grant Deliverables #11/12-7 June 2012
Page 1 of 14
1.
Introduction
1.1 BACKGROUND ON AUDIT
Audit Authority/purpose:
The Deschutes County Audit Committee authorized the review of grant deliverables in the audit workplan. The
grant deliverables selected for review are being funded with video lottery monies.
1.2 OBJECTIVES and SCOPE
Objectives included:
1. For selected grants funded by the video lottery, identify and review deliverables and associated
requirements.
2. Review how the County receives video lottery funds.
Scope:
The audit focus was on grants funded with video lottery monies for the period 7/1/09 through 6/30/2011. Grants
were selected from three categories: service partners, community grants, and discretionary grants. When multi-
year grants were there, a focus was made on the most recent grant.
1.3 METHODOLOGY
Audit procedures included:
Discussions with County Administration and other staff regarding grants.
Research on similar audits and nature of findings from those reports.
Recalculate anticipated video lottery fund receipts from state reports on video lottery net receipts.
Video lottery funds are disbursed to Counties under a legislatively determined formu la and process. The
video lottery net receipts per county were obtained for 2011. With this information, it was possible to
recalculate and compare the video lottery receipts paid to Deschutes County.
Review of associated revenue and expenditure data for the grants and the selected organizations
receiving funds.
Obtain additional information from grantee organizations, as necessary.
We conducted this performance audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide
a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.
DESCHUTES COUNTY
INTERNAL AUDIT
REPORT
DESCHUTES COUNTY
INTERNAL AUDIT
REPORT
DESCHUTES COUNTY
INTERNAL AUDIT
REPORT
Grant Deliverables #11/12-7 June 2012
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2.
Background
Chart I
Composition of
video lottery
grants in dollars
(FY 2011)
The County historically has provided video lottery fund grants to a number of organizations. In FY 2011, grants of
$539 thousand were made. These consist of the service partner, community and discretionary grants shown in
Chart 1.
Service partners – Services received are aligned with monies the County receives dedicated to that specific
purpose. Some of these relate to services the County would otherwise have to provide. The County has
identified 11 such organizations, of which four are supported using lottery funds in FY 2011 by $85,650. In
addition to the lottery funds received from the state, the County provided $119,350 to these agencies in FY 2011.
Community grants - Used to fund programs that are consistent with County priorities. These are applied for and
funded each fiscal year in association with funds made available in the budget. Grants are to local nonprofits for
providing services in specific areas of need that include, providing emergency food, clothing or shelter, protecting
abused or neglected individuals, health and mental health treatment for those lacking resources or juve nile crime
prevention programs. These grants range from $2,500 to $31,500 and are awarded once a year by a committee
consisting of County employees and community members. These grants in FY 2011 amounted to $284,925.
Discretionary grants - Intended to assist eligible organizations with specific, short-term projects or activities,
which positively affect the economic health of either a specific community within Deschutes County or the County
at large. Applications are accepted throughout the year until available funds have been expended. Grants range
in amount from $300 to $5,000 and are reviewed and awarded on a monthly basis by the Board of County
Commissioners. These grants in FY 2011 amounted to $49,259.
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Chart II -
Trend in video
lottery fund
expenditures
(Fund 165)
Chart III -
Trend in video
lottery fund
resources
(Fund 165)
All of the community and discretionary grants are funded through the County’s Video Lottery Fund, which is
supported by state video lottery proceeds. Depending on the grant, contracts and associated requirements may
vary.
{Source: County financial systems}
Grants are consistently 94% of the expenditures.
{Source: County financial systems}
Grant Deliverables #11/12-7 June 2012
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Chart IV -
Trend in video
lottery resources
from State (Fund
165) (includes
estimated future
revenues)
Video lottery grants have been supplemented in recent years by funds from the general fund.
{Source: County financial systems and video lottery information}
Video lottery funds are provided to counties for economic development. As one would expect, the definition of
economic development is broad. It includes, but is not limited to, providing financial assistance to non -profit
businesses. Lottery net receipts available to the counties in the 11/13 biennium were set by the legislature.
County monies received will only change based on the relative proportion of County net receipts to the other
counties. The percentage a county gets is based partly upon their county’s proportion of video lottery net
receipts. Therefore, the future proceeds noted in Chart IV for 2012 and 2013 are estimates. Deschutes
County’s fourth quarter of 2011 proportion is 3.38% of the video lottery net receipts. After the biennium, the
calculation will be based on actual video lottery net receipts (unless changed by further legislation).
Calendar year 2011 lottery payments were tied to County receipts. Deschutes County’s portion of the state
calculated payments agreed to state quarterly reports indicating relative composition of lottery proceeds by
county.
3. Findings
and
Observations
These findings are intended to assist the County in reviewing the deliverables from grants. Audit findings result
from incidents of non-compliance with stated procedures and/or departures from prudent operation. The
findings are, by nature, subjective. The audit disclosed certain policies, procedures and /or practices that could
be improved. The audit was neither designed nor intended to be a comprehensive study of all grants made.
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Accordingly, the opportunities for improvement presented in the report may not be all-inclusive of areas where
improvement may be needed and do not replace efforts needed to design an effective system of internal control.
The audit focus was on selected grantees who received video lottery monies for the period 7/1/09 through
6/30/2011. Grants were selected from three categories: service partners, community grants, and discretionary
grants. The most recent grant was the focus when multiple-year grants were awarded.
Service partner: (1 selected)
o Economic Development of Central Oregon, Inc. (EDCO)
Manages County forgivable loan program – selected Agere Pharmaceuticals, Inc.
Community grants: (7 selected)
o Cascade Peer and Self-Help Center
o Family Resource Center
o First Step to Success
o Healthy Families of the High Desert
o LaPine Community Kitchen
o NeighborImpact
o The KIDS Center
Discretionary grants: (7 selected)
o Cloverdale Volunteer Fire Fighters Association
o Common Table
o Deschutes Water Alliance
o Redmond Chamber of Commerce
o Redmond-Sisters Hospice
o Volunteer Insights
o Volunteers In Medicine
3.1 Service
partner
observations
Economic Development for Central Oregon, Inc. (EDCO)
Economic Development for Central Oregon, Inc.’s mission is to lead the region's economic and business
development through effective marketing, recruitment, retention/expansion, formation of public/private
partnerships and fostering entrepreneurship. The County provided EDCO in FY 2011 with $110 thousand to
support and participate in the organization. In addition to the service partner relationship, the County has a
memorandum of understanding for managing the County’s forgivable loan monies. In calendar year 2011, there
was $220 thousand loaned to seven companies in support of this program.
County’s first forgivable business loan recipient is still working on loan conditions.
EDCO is responsible for managing the County’s forgivable loan program. The County’s first forgivable business
loan was with Agere Pharmaceuticals, Inc. (the Company). The loan was made in January 2011 and was for
$14 thousand dollars. The County programmatically (through the forgivable loan program) is promoting local
economic activity by creating new jobs and investment. The Bend Company, at the time of consideration, had
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four (4) employees. The agreement with the Company requires two primary objectives; grow full time
employment to eleven (11) by March 2012, and sustain that employment level for any 12 months by September
2013.
Inquiry of Company officials indicates the initial goal of hiring 11 by March 2012 was achieved. In fact, it was
achieved by August 2011. The secondary goal of sustaining that employment will be measured in the coming
months. They have satisfied nine of the twelve months so far and have continued to grow full time employment.
This would suggest they should have little problem in meeting the goal.
Should the company meet all of the obligations of the loan agreement; the County will convert the loan to a grant.
Otherwise, In the absence of satisfying all of the obligations, some or all of the loan will become payable at 8%
per annum.
The above observations will be communicated to County Administration for further resolution or discussion with
the Board.
Forgivable loan due diligence documentation can be improved.
EDCO utilizes regional economic teams to address potential loan applicants. EDCO’s file did not include
information on the due diligence performed in recommending the company. In addition, EDCO ha d not received
or requested quarterly status reports as required under the loan agreement.
EDCO provides a service to the County in vetting potential candidates for the County’s forgivable loan program.
Contractually under the memorandum of understanding, EDCO is to assess
The long-term ability of a business to repay a loan or comply with claw back provisions of grant;
The likelihood that the award of a grant or loan will result in the creation of new jobs in Deschutes
County;
The marketplace viability of the business in question and the likelihood that the business would
relocate and/or expand with the loan or grant.
In addition, the agreements for the forgivable loans require information be provided to EDCO. Timely information
can have an impact on the County’s ability to respond to potential events of default.
In order to demonstrate their conclusions and demonstrate their ability to manage these relationships, EDCO
should retain some documentation of their due diligence and management process. In addition, there should be
some form of routine communication with the County on the status of the Companies under the forgivable loan
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program.
In the absence of sufficient research into these companies, the County may take unacceptable risks with these
loans. In the absence of timely information on the company and the status of their growth, the County may not
be able to trigger loan provisions for repayment.
As this review included the first of such loans, EDCO had not established a process for do cumenting the process.
After discussion with the due diligence team members who interviewed this company, it was clear there was
some due diligence performed and the company had met their expectations.
It is recommended for County Administration to develop expectations on documentation with EDCO for
maintaining sufficient information on their due diligence process and on reporting of the status of the
companies.
For due diligence reporting, a short memo or checklist outlining the extent of the due diligence performed
would be appropriate. It does not have to include specific financial or operational references to be
sufficient. This should include the consideration, discussion and review of financial information and
interview of management. Ultimately, the team’s recommendation to EDCO for consideration under the
program would be meaningful. They should identify any potential reservations or issues they might have
in making a recommendation.
Forgivable loan contracts could be improved.
In review of the forgivable loan agreement, there were some potential problems identified with application of the
dates. Dates were not consistently used and, in the case of Agere Pharmaceuticals, the note was scheduled to
become due on the second date (the date employment growth was achieved). The agreement also had miss-
references and an incorrect example for application of the partial conversion. Through reading the balance of the
agreement, it was possible to decipher the underlying intent.
There are three dates of importance in the contract:
the agreement start date for initial employment levels,
the date where the anticipated employment goal is reached, and
the date by when there should be 12 months of sustained employment at the referenced employment
goal.
The legal agreement documents the understanding of the conditions for repayment of the loan. In the absence
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of appropriate and relevant language, it will be difficult to determine how repayment should occur.
The County used an agreement template developed with EDCO. It appears that when the contract template was
modified for this agreement, that some of the dates/examples were not properly changed. The most recent
forgivable loan agreement being worked on had some similar issues.
It is recommended for County Administration to include County Finance in the review of these
documents. They are most familiar with assuring they have sufficient information to calculate the loan
under the provisions set forth.
{Finance and Administration are currently working on improvements to the agreement template.}
County Commissioners can be more involved in appointing board seats for EDCO.
From review of the correspondence on recent reappointments, it was not clear that the County Commissioners
had been much involved with the appointment of EDCO board seats. In at least one case, the recommendation
for original appointment came from an EDCO recommendation.
The County is entitled to appoint three (3) seats on the EDCO Board of Directors. The most recent appointees
by the County include:
Dave Kanner, Deschutes County Administrator
(recently replaced by Anthony DeBone, Commissioner)
Leland Smith, LaPine Industrial Group
Lorie Harris Hancock, Attorney
Given that EDCO has risen in importance as way to encourage the economic growth of the region, it would seem
appropriate for the County to make sure that their representatives to the organization are representing the
County’s interest. In the absence of appropriate appointments, the County‘s intere sts may not be shared.
It is recommended for the Board of County Commissioners to consider in future appointments or
reappointments a process for these EDCO board seats similar to other important committee
assignments.
Important committee and County appointments generally include a public solicitation and interviews when
members are solicited outside of County management. It is also possible, that County
management/Board will want to take a more active role with the organization.
Grant Deliverables #11/12-7 June 2012
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3.2
Community
and
discretionary
grant
observations
No issues noted on deliverables from community and discretionary grants.
The audit was able to verify there were associated deliverables reported on by the organizations. To a varying
extent, additional information supporting the deliverables was requested and received. The documentation
varied by the sophistication of the organization.
The best kind of documentation received resulted from organizations that established a tracking of expenditures
for that particular grant. This might be excessive for a small grant, but for larger grants, it provided an excellent
trail for how the funds were disbursed.
The support received provided some evidence indicating the organizations were delivering on the grant
proposals made.
Payment process for grants could be improved.
County Administration currently makes payments on community grants as follows:
half of the grant is paid up front upon signature of the contract with no evidence of underlying expense,
and
the second half of the grant is paid on receipt of the completed grant progress report half way through the
year.
It was noted, for a number of the contracts, that final grant progress reports indicating how the funds were spent
on completion were not received.
Typically, grant payment processes are performed on a reimbursement basis. A quarter of the grant can be
advanced to an organization in hardship situations.
In the absence of an expense reporting prior to payment, we cannot be sure the services will be supplied as
identified. In many cases, since the nonprofits have received their monies, we are not receiving the final
accounting of the grant. The County can still request the information on how the proceeds were used.
The grant reporting process was streamlined to get monies into use, but staff do not have the time to always
following up on the final reports. These reports were sometimes addressed during the application process for
the next period. In all of the cases where missing final reports were identified, the organizations were very good
about producing those for the audit.
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It is recommended that larger community grants be paid out on a reimbursement basis with a provision
for an advance in cases of hardship.
{Administration indicates they will now be distributing new grant payments until final reports are received
from the prior period.}
County could reduce requirements for Community grants.
For many of the community grants given for 2010/2011 the County had certain requirements. Those generally
included providing
a mid-year grant progress report and an end-of-year grant progress report. These included certain
measures developed during the grant application and award process;
a copy of the audited annual financial statement; and
an endorsement for the County on the entity’s commercial general liability (CGL) insurance .
For a number of the grants, the final grant progress report could not be located. These reports were provided by
the organization on request. For the larger organizations, the audited financial statements were available but for
a couple of the smaller organizations they did not have audited financial statements. All organizations had
provided CGL insurance but some may not have sufficiently completed the County endorsement. Measures
provided were mostly used in evaluating subsequent grant requests.
Requirements placed on the grants should be realistic and reasonable given the monies given. Information that
is requested should be collected, utilized and reported on. County legal counsel maintains that the commercial
general liability insurance is a requirement that should be continued.
Audits can be expensive and should be utilized when appropriate. The fact that an audit is obtained will not
assure the monies are spent as requested. Those agencies that had accounted for funds as restricted monies
were best able to articulate and provide a detail accounting.
The County is striving to make sure these grant monies are making an impact.
It is recommended the County consider lessening the audit requirement for all but the largest
organizations.
{Administration indicates that for FY 2012 grants the audited financial statements were not required as
part of the application but could be requested.}
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If the County is going to request measures, they should develop a report that assesses the
outcomes/benefits achieved from the grant. These could be then used to recommend the agency in a
future grant cycle.
Grant management is duplicated for some grants.
A number of the community grants reviewed were combined contractually with Children and Families
Commission (CFC) grants. However, the grant recipient ended up receiving two separate payment streams .
Community grants were paid out on two semi-annual payments by County Administration, whereas the CFC
grants were paid out quarterly. CFC collected and provided supporting information to County Administration to
process payments.
In terms of efficiency, one department as opposed to two could handle the payment process. Currently, CFC is
probably best situated to make payments based on receiving reports and meeting the associated goals or
measures. Community grant payments could be done quarterly and based upon submitted expense reports.
Three of the selected grants had some combined oversight through CFC. By far, the CFC grant amounts
exceeded the community grants and required much more extensive reporting.
It is recommended that County Administration consider, when they can, consolidating community grant
payments and management to the same grant recipient.
Grant Deliverables #11/12-7 June 2012
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4.
Management
response
(David
Inbody,
Assistant to
the County
Administrator)
Having designed and managed most of the programs reviewed, I appreciate the insight provided through this audit
and agree with most of the suggestions. The following are my comments regarding grant allocation by the Co unty.
Service Partner Grants
This grant program was established in FY 2009 to address several issues: (1) an absence of guidelines for
granting funds as line items in the County’s budget. Often these grants had past significance that had since been
lost to history. Additionally, these grants were being granted from a variety of funds for various levels of support
automatically on an annual basis. No application process or reporting requirements were required. In most cases,
these organizations did not sign a grant agreement. This program was intended to identify organizations for whom
grant funds or pass through funds are provided annually, as required by law, in lieu of the County providing
services , or due to the County’s role in establishing the organ ization. These stipulations resulted in several
organizations being eliminated from automatically receiving County grant funds annually.
Identifying the value of this classification to an organization, organizations have begun to solicit the Board of
Commissioners and Budget Committee in an effort to receive this distinction. It is critical that specific parameters
be established in proceeding with this effort. I would suggest that service partners be separated into the following
two subcategories with clear criteria for inclusion:
1. Organizations receiving revenue dedicated to a specific purpose or providing services otherwise
required for the County to provide.
2. Organizations created by or governing board appointed by the Board of County Commissioners.
Economic Development Forgivable Loans
I agree with the observations associated with this program. Contracts are now reviewed by both the Administrative
Services and Finance Departments before they are forwarded to the recipient. In the most recent contract, the
County has requested that quarterly updates from recipients be sent to both EDCO and the County, instead of
only EDCO. It is necessary to establish a process for review of recipients at the critical junctures identified in the
report to verify requirements have been met and the loan can be forgiven.
Grant Deliverables #11/12-7 June 2012
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Management
response
(continued)
Community Grants
Several of the observations in the report have already been incorporated in the FY 2012 or FY 2013 cycle.
Beginning in FY 2012, audited financial statements are no longer required due to the inability of smaller
organizations to meet this requirement. The failure of some organizations to submit final reports resulted in a
stipulation that FY 2013 recipients will not receive initial funding unless their FY 2012 final report is received. I
disagree that the requirement for performance outcomes, which is included as part of the semi-annual report, is
excessive. These reports are used not only in consideration of the allocation of grants in future years, but also in
justification of the use of the funds.
One suggested change is to remove juvenile crime prevention as one of the Community Grant objectives. It was
added in FY 2011 to replace a portion of County General Funds transfer previously sent to the Crime Prevention
Fund. This represents the majority of the County General Fund transfer to the Video Lottery Fund each year.
Since these funds are dedicated to juvenile crime prevention, the Community Grant Selection Committee has
dedicated these funds exclusively to juvenile crime prevention. Th e result has been several organizations
receiving significantly more grant funds based on this distinction alone. These funds should either go directly to
the Children & Families Commission, who ultimately manages these grants or a separate process should be
established for juvenile crime prevention.
I do not support the suggestion that grant funds be provided on a reimbursement basis. The vast majority of the
organizations receiving grants are providing ongoing services, such as food kitchens, child abuse protection,
health services, etc… These funds are intended to support these efforts. Unlike many grant programs, these funds
are not necessarily intended for added services, special projects or new programs. They are intended to support
the core services of organizations that are consistent with the County’s objectives.
I do support consolidating administration of the grants shared with Children & Families Commission and would
welcome CFC taking the lead role in managing the grants. They have the necessary skills, often have
relationships with the organizations, and in some cases provide additional grants to the same organizations.
Discretionary Grants
This program is the least restrictive of all the grant programs. As a result, the guidelines for fund a llocation are by
nature “discretionary.” There are instances in which recipients of other funding programs also request
discretionary funding. I think it would be more appropriate for organizations to be identified by only one grant
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Management
response
(continued)
program and be allocated funds from that program alone.
There are also a number of organizations returning on an annual basis for funding through this program to support
an annual event, such as a rodeo, fundraiser, etc… Since it is rare that these organizations are refused fun ding, it
might be a reasonable consideration that support for such events be identified at the start of each fiscal year.
This program has also been partially funded by the County General Fund the last several years. Monies have
been transferred when the funds initially allocated are exhausted.
Other Grants
Many organizations receiving funds through these programs also receive additional funding from other County
departments. There are some providing services in collaboration with departments, most notab ly the Health
Services Department. The Sheriff’s Office provides grant funding to Community Grant recipients such as
Deschutes Family Recovery and the KIDS Center. There are also organizations receiving grant funding
exclusively from departments, such as the Environmental Center receiving funds from the Solid Waste
Department for recycling education. It would be valuable for the County to seek some parameters for grant
allocation that ensure funding levels are commensurate with County identified objectives, minimizing of “double
dipping” and full understanding of all funding being received by an organization from the County.
{End of Report}