Audit 306682

2023-001 – Improper Allocation Methodology for Administrative Personnel Salaries Legal Services Corporation Basic Field Grant Assistance Listing No. – 09.643030 LSC Regulation Code – 45 C.F.R. Part 1630 Condition: During our audit, we noted MALS’ methodology for allocating administrative personnel salary expenses to the grant did not align with the requirements in the LSC Financial Guide. Criteria: LSC Financial Guide states: “LSC requires recipients to maintain accounting systems sufficient to demonstrate the proper allocation of costs to each funding source. The cost allocation policy must address the following: 1) direct and indirect cost definitions: 2) direct cost allocation methodology(ies); 3) indirect cost allocation methodology(ies) including allocation bases (e.g., total direct costs, direct salaries and wages, attorney hours, number of cases, numbers of employees); 4) frequency of allocation; 5) who conducts the allocation and who performs the review; 6) documentation requirements to support the allocation (e.g., labor distribution report, personnel activity reports, calculation work papers); 7) reconciliation process related to salaries and wages directly charged to LSC grants and contracts; and 8) methodology to address “exception for certain indirect costs.” Cause: LSC released an updated Financial Guide for recipients effective January 1, 2023. MALS did not update the Organization’s Accounting Manual regarding the allocation of indirect costs to comply with the LSC Financial Guide. MALS current allocation of administrative salaries is to first charge other non- LSC funders for the amount of indirect costs allowed by the grant and any remainder is charged between LSC (unless the cost is prohibited by regulations or the LSC Act) and other unrestricted funds. Effect: While the Organization’s allocation methodology was acceptable in prior years under the previous guidance, the allocation base used to allocate administrative salaries was not cost-driven, as required by the updated Financial Guide. Context: A sample of 20 payroll transactions were selected for testing. 5 out of the 20 related to allocated administrative salaries, which were inaccurately charged to the grant. Recommendation: We recommend that management implement an appropriate allocation methodology that complies with the LSC Financial Guide, in addition to reviewing the Guide to ensure all of MALS policies relating to LSC comply with the guidance. Management’s Response: See management’s corrective action plan.

2023-002 – Timesheets Not Properly Reviewed and Approved by Supervisor Legal Services Corporation Basic Field Grant Assistance Listing No. – 09.643030 LSC Regulation Code – 45 C.F.R. Part 1635 Condition: During our audit, we noted several instances where timesheets were not being properly reviewed and approved by the employees’ supervisor. Criteria: LSC Financial Guide states: “Recipients must maintain time and attendance records for each employee that provide reasonable assurance that the recorded hours for payroll are authorized, complete and accurate. Further, recipients must maintain documentation that indicate employees’ time and attendance records have been reviewed and approved by supervisors (or alternative personnel in a managerial role).” Cause: MALS did not follow internal control policies in place. Effect: While employees were paid appropriately based on hours reported, internal control policies were not followed to review timesheets in order to verify employees’ attendance and number of hours worked for the related pay period. Context: A sample of 20 payroll transactions were selected for testing. 7 out of the 20 timesheets selected lacked documentation of approval by the employees’ supervisor. Recommendation: We recommend MALS follow the policies and procedures in place. Management’s Response: See management’s corrective action plan.

2023-003 – Reports Required by LSC Not Submitted or Submitted Incomplete or Untimely Legal Services Corporation Basic Field Grant Assistance Listing No. – 09.643030 Compliance Requirement – Reporting Condition: During our audit, we noted instances where the following reports required to be submitted to LSC were either not properly submitted in GrantEase system, submitted with incomplete information, or submitted untimely. Certification on Program Integrity – Not submitted in GrantEase. Annual Report on Review of Priorities – Not submitted timely. Legislative and Rulemaking Activity Report – Information was incomplete. Case Disclosure Report – Not submitted timely and information was incomplete. Criteria: The 2023 grant agreement states: “You are also required to annually and semiannually report certain data about your grant activities to LSC. These reports must be submitted through LSC’s GrantEase system.” Additionally, the Legal Services Corporation Regulations (45 C.F.R. Parts 1600- 1644) states the following: 45 C.F.R. 1610.8(b) – Certification on Program Integrity – Report format is contained in a LSC Program Letter 22-3 dated August 26, 2022. Report should be submitted via the GrantEase System by December 31. 45 C.F.R. 1620.7(c) – Annual Report on Review of Priorities – Report should be submitted via the GrantEase system by December 31. 45 C.F.R 1612.10(c) – Legislative and Rulemaking Activity Report – Report should be submitted whether or not there is legislative or rulemaking activity to report. Report should be submitted via the GrantEase system semi-annually by January 31 and July 31. C.F.R. 1644.4(b) – Case Disclosure Report – Report should be submitted via the GrantEase system semi-annually by January 31 and July 31. Cause: There are inadequate procedures and internal controls in place for the submission of reports to grantors. Effect: LSC reporting requirements were not met. Context: The Legal Services Corporation Regulations (45 C.F.R. Parts 1600-1644) were reviewed to ensure compliance requirements were met and the above exceptions were noted during testing. Recommendation: We recommend management review LSC’s reporting requirements and designate the appropriate personnel to be responsible for submitting the required reports. Management’s Response: See management’s corrective action plan.

2023-001 – Improper Allocation Methodology for Administrative Personnel Salaries Legal Services Corporation Basic Field Grant Assistance Listing No. – 09.643030 LSC Regulation Code – 45 C.F.R. Part 1630 Condition: During our audit, we noted MALS’ methodology for allocating administrative personnel salary expenses to the grant did not align with the requirements in the LSC Financial Guide. Criteria: LSC Financial Guide states: “LSC requires recipients to maintain accounting systems sufficient to demonstrate the proper allocation of costs to each funding source. The cost allocation policy must address the following: 1) direct and indirect cost definitions: 2) direct cost allocation methodology(ies); 3) indirect cost allocation methodology(ies) including allocation bases (e.g., total direct costs, direct salaries and wages, attorney hours, number of cases, numbers of employees); 4) frequency of allocation; 5) who conducts the allocation and who performs the review; 6) documentation requirements to support the allocation (e.g., labor distribution report, personnel activity reports, calculation work papers); 7) reconciliation process related to salaries and wages directly charged to LSC grants and contracts; and 8) methodology to address “exception for certain indirect costs.” Cause: LSC released an updated Financial Guide for recipients effective January 1, 2023. MALS did not update the Organization’s Accounting Manual regarding the allocation of indirect costs to comply with the LSC Financial Guide. MALS current allocation of administrative salaries is to first charge other non- LSC funders for the amount of indirect costs allowed by the grant and any remainder is charged between LSC (unless the cost is prohibited by regulations or the LSC Act) and other unrestricted funds. Effect: While the Organization’s allocation methodology was acceptable in prior years under the previous guidance, the allocation base used to allocate administrative salaries was not cost-driven, as required by the updated Financial Guide. Context: A sample of 20 payroll transactions were selected for testing. 5 out of the 20 related to allocated administrative salaries, which were inaccurately charged to the grant. Recommendation: We recommend that management implement an appropriate allocation methodology that complies with the LSC Financial Guide, in addition to reviewing the Guide to ensure all of MALS policies relating to LSC comply with the guidance. Management’s Response: See management’s corrective action plan.

2023-002 – Timesheets Not Properly Reviewed and Approved by Supervisor Legal Services Corporation Basic Field Grant Assistance Listing No. – 09.643030 LSC Regulation Code – 45 C.F.R. Part 1635 Condition: During our audit, we noted several instances where timesheets were not being properly reviewed and approved by the employees’ supervisor. Criteria: LSC Financial Guide states: “Recipients must maintain time and attendance records for each employee that provide reasonable assurance that the recorded hours for payroll are authorized, complete and accurate. Further, recipients must maintain documentation that indicate employees’ time and attendance records have been reviewed and approved by supervisors (or alternative personnel in a managerial role).” Cause: MALS did not follow internal control policies in place. Effect: While employees were paid appropriately based on hours reported, internal control policies were not followed to review timesheets in order to verify employees’ attendance and number of hours worked for the related pay period. Context: A sample of 20 payroll transactions were selected for testing. 7 out of the 20 timesheets selected lacked documentation of approval by the employees’ supervisor. Recommendation: We recommend MALS follow the policies and procedures in place. Management’s Response: See management’s corrective action plan.

2023-003 – Reports Required by LSC Not Submitted or Submitted Incomplete or Untimely Legal Services Corporation Basic Field Grant Assistance Listing No. – 09.643030 Compliance Requirement – Reporting Condition: During our audit, we noted instances where the following reports required to be submitted to LSC were either not properly submitted in GrantEase system, submitted with incomplete information, or submitted untimely. Certification on Program Integrity – Not submitted in GrantEase. Annual Report on Review of Priorities – Not submitted timely. Legislative and Rulemaking Activity Report – Information was incomplete. Case Disclosure Report – Not submitted timely and information was incomplete. Criteria: The 2023 grant agreement states: “You are also required to annually and semiannually report certain data about your grant activities to LSC. These reports must be submitted through LSC’s GrantEase system.” Additionally, the Legal Services Corporation Regulations (45 C.F.R. Parts 1600- 1644) states the following: 45 C.F.R. 1610.8(b) – Certification on Program Integrity – Report format is contained in a LSC Program Letter 22-3 dated August 26, 2022. Report should be submitted via the GrantEase System by December 31. 45 C.F.R. 1620.7(c) – Annual Report on Review of Priorities – Report should be submitted via the GrantEase system by December 31. 45 C.F.R 1612.10(c) – Legislative and Rulemaking Activity Report – Report should be submitted whether or not there is legislative or rulemaking activity to report. Report should be submitted via the GrantEase system semi-annually by January 31 and July 31. C.F.R. 1644.4(b) – Case Disclosure Report – Report should be submitted via the GrantEase system semi-annually by January 31 and July 31. Cause: There are inadequate procedures and internal controls in place for the submission of reports to grantors. Effect: LSC reporting requirements were not met. Context: The Legal Services Corporation Regulations (45 C.F.R. Parts 1600-1644) were reviewed to ensure compliance requirements were met and the above exceptions were noted during testing. Recommendation: We recommend management review LSC’s reporting requirements and designate the appropriate personnel to be responsible for submitting the required reports. Management’s Response: See management’s corrective action plan.