METROPOLITAN TRANSIT AUTHORITY OF HARRIS COUNTY, TEXAS

Criteria: Per Title 2 CFR § 200.516, the auditor must report known questioned costs greater than $25,000 for a Federal program that is not audited as a major program. In addition, Title 2 CFR § 200.303 requires the recipient of federal funds establish and maintain effective internal control over the federal award that provides reasonable assurance that the non-federal entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. Condition: As part of a review performed by METRO’s internal audit department (METRO IA) over the activities of the vanpool department in fiscal year 2024, METRO IA identified certain questioned costs incurred and reimbursed as part of the Highway Planning and Construction program administered by the Texas Department of Transportation (TXDOT). These questioned costs were communicated by METRO management to TXDOT and they are working with TXDOT on final resolution. The Highway Planning and Construction program was not a major program in fiscal year 2024 subject to a single audit. We did not identify any other similar costs in the major programs tested. Total questioned cost identified through the METRO IA procedures was $262,794. Total expenditures for the Highway Planning and Construction program were $744,358. Cause: The Vanpool department did not have adequate internal controls and processes in place to ensure that department personnel properly understood grant requirements and that program costs were properly calculated and allowable in accordance with the grant agreements. Effect: Certain of the costs incurred and submitted for reimbursement by METRO were unallowable. Auditor’s Recommendation: METRO should establish appropriate processes and controls to guide personnel in the determination of allowable costs in accordance with grant agreements. In particular, management should focus on the processes and controls associated with the vanpool department.

Criteria: Per section 3401(a) of the American Rescue Plan (ARP) Act of 2021, ARP funds shall be available for reimbursement for: (a) payroll of public transportation entities, (b) operating costs to maintain service due to lost revenue due as a result of the coronavirus public health emergency, and (c) paying administrative leave of operations or contractor personnel due to reductions of service. In addition, Title 2 CFR § 200.303 requires the recipient of federal funds establish and maintain effective internal control over the federal award that provides reasonable assurance that the non-federal entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. Moreover, Title 2 CFR 200.403 (a) and (b) state that except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) be necessary and reasonable for the performance of the Federal award and be allocable thereto under 2 CFR part 200, subpart E, and (b) conform to any limitations or exclusions set forth in 2 CFR part 200, subpart E or in the Federal award as to types or amount of cost items. Condition: As part of audit procedures over a sample of 25 non-payroll transactions we identified one transaction for $8,510 relating to legislative consulting services which was not an allowable activity under the grant agreement. As a result of further review of the general ledger account in which the above item was recorded, we identified 13 additional transactions for similar unallowable activities representing $581,987. We did not identify any indirect costs that were associated with these unallowable costs. Total questioned cost identified through the audit procedures performed was approximately $590,403. Total expenditures for the Federal Transit Cluster were approximately $243,258,597. Cause: Historically, grants received by METRO have generally been specific to specified projects, which allowed METRO to establish projects in advance for tracking, accumulating, and approving/monitoring costs incurred. As such, METRO’s internal controls are designed with this project-based focus in mind. In the current year METRO received this grant which allows them to seek reimbursement for certain prior year costs not already reimbursed by the Federal government. Given the broad nature of costs allowed under this grant and the ability to seek reimbursement for prior year costs, management identified costs which were included in general ledger accounts not typically subject to detailed allowability assessments in accordance with federal requirements, and as a result METRO inadvertently placed an increased reliance on the knowledge of grants department personnel to understand the nature of general ledger accounts and transactions, as well as an increased reliance on reviewers identifying unallowable costs in the summary of expenditures submitted for reimbursement. Effect: Certain of the costs incurred and submitted for reimbursement by METRO were unallowable. Auditor’s Recommendation: METRO should establish appropriate processes and controls to guide grant personnel in the aggregation of grant costs. In particular, management should focus on the processes and controls associated with grants for which predefined projects are not established in advance of incurring grant related expenditures.