Denver Fails to Resolve Risks from Audit of Pandemic Relief Funding

Published on July 07, 2022

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DENVER – The city remains exposed to potential errors and undetected fraud after failing to implement most recommendations from last year’s audit of the initial federal pandemic aid Denver received, according to a new follow-up report from Denver Auditor Timothy M. O’Brien, CPA.

“We saw huge amounts of money coming into the city from the federal government and going out the door just as quickly,” Auditor O’Brien said. “There was a high risk of errors, misuse, or even potential fraud, and I hoped to see quick implementation of our recommendations to ensure strong stewardship of emergency resources.”

Our 2021 audit found the city was largely doing a good job managing the $126.9 million it received from the federal Coronavirus Relief Fund, which Congress created through the Coronavirus Aid, Relief, and Economic Security, or CARES, Act.

But the audit also flagged several gaps the Department of Finance needed to fix — especially as it prepared to take in hundreds of millions of dollars more in federal funds to help with the city’s ongoing pandemic response.

Our follow-up work found interest earned on some federal pandemic relief funds is still not accurately reflected in the city’s records or monitored regularly by grant managers. And the risk of errors or undetected fraud remains, because the city is not sufficiently ensuring it reconciles certain bank records on a regular basis.

The department’s procedures for tracking interest overlook critical steps, which render them ineffective. They do not ensure city staff post interest earnings in a timely and accurate manner each month and that grant managers then monitor their grants to account for the interest earned.

Because of this, the city risks not using all available dollars when the money must be used by a certain date. Our original audit found this happened with about $1.8 million in interest earnings the city was unaware it had in 2020 as it was planning pandemic-related projects. While that error was eventually corrected, it could have kept additional relief dollars out of city services and programs through 2020.

“By still not adequately accounting for interest, the city risks forfeiting additional valuable aid it could otherwise use to help the Denver community as our residents continue recovering from the pandemic,” Auditor O’Brien said. “I hope the Department of Finance will continue working to fill in these crucial gaps in its process.”

Our recent follow-up work also found another significant concern: The risk of errors or undetected fraud remains in the department’s bank reconciliations process.

The Department of Finance still has not sufficiently cross-trained its staff, and it does not yet have sufficient policies to ensure staff reconcile bank accounts each month — and that supervisors then verify that those bank reconciliations actually happen.

Bank reconciliations are an important procedure in any accounting system, because they help ensure accurate records and reduce the risk of errors and fraud. But as of our follow-up, the Finance Department had failed to reconcile some bank accounts related to pandemic relief funding for at least two months and supervisors had not reviewed some reconciliations for at least four months.

The Department of Finance had committed to implementing all five recommendations from our original audit by September 2021 — but more than six months later, four of those recommendations are not implemented.

The department was successful in implementing our recommendation that it provide more detailed guidance to city staff on what kinds of documentation they need to keep so they can prove that an expense was related to the pandemic.

“While I’m pleased the city is offering better guidance on documentation, implementing only one recommendation is not good enough considering the high risks and high-dollar amounts involved with pandemic relief funding,” Auditor O’Brien said.

Federal aid in 2020 helped Denver pay for a wide array of unexpected costs related to its pandemic response. The money from the Coronavirus Relief Fund was used to support food assistance, public health efforts, economic support, and individual support. The largest amount was planned to pay for shelter and housing.

Other sources of pandemic relief aid were not part of our 2021 audit. In total, the City and County of Denver was awarded more than $604 million in pandemic-related funding from various sources, as of April 2021. And as of last summer, Denver was to receive another $308 million from the American Rescue Plan, which it will need to spend by Dec. 31, 2024.


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AUDITOR TIMOTHY O'BRIEN, CPA
Denver's Auditor


Denver Auditor's Office
201 W. Colfax Ave. #705 Denver, CO 80202
Email: auditor@denvergov.org 
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