Audit 307522

Finding number: 2023-002 AL number: 21.027 AL title: Coronavirus State and Local Recovery Funds Name of federal agency: U.S. Department of the Treasury Name of pass-through entity: State Bar of California, Legal Aid Foundation of Los Angeles, and Bet Tzedek Legal Services Repeat finding: No Criteria: The Uniform Guidance Cost principles require consistency in treatment of costs and, specifically, that compensation costs be consistent. In addition, the Uniform Guidance requires that there be a system of internal control which provides reasonable assurance that the charges are accurate, allowable and properly allocated and conform to the established accounting policies and practices of the Organization. Condition: For at least a portion of the fiscal year, costs allocated to Federal grants were calculated by multiplying the hourly rate times the number of hours worked on the Federal grant. This methodology is effective for hourly employees, but can result in a variance in amounts charged to Federal programs when salaried employees work more or less than the base hours. Additionally, in part as a result of transition to a new system, approvals were not consistently recorded for time entered. Cause: The underlying method for allocation did not take into account the fact that salaried employees might work more than the base amount. In addition, the allocation journal entries were prepared on a grant-by-grant basis after the total compensation expense was posted to a cost pool. Re-allocation of one funding source at a time obscured that fact that costs were not being allocated on a fully pro rata basis. In addition, changes to the Organization’s software and procedures occurred during the year, resulting in some inconsistency in application of controls. Possible effect: Minor discrepancies were found in the amounts allocated to Federal programs, though analysis indicated that a material impact was unlikely. Management was not able to provide documentation for certain allocation approvals. Context: We tested 40 allocations of compensation expense to the Federal programs, noting nine items for which pay rate documentation differed from the amount paid, and 20 items for which time allocation approval was unavailable. Recommendation: Management should ensure that new processes reflect all compliance requirements, including the ability to produce evidence of the execution of relevant controls. 30

Finding number: 2023-002 AL number: 21.027 AL title: Coronavirus State and Local Recovery Funds Name of federal agency: U.S. Department of the Treasury Name of pass-through entity: State Bar of California, Legal Aid Foundation of Los Angeles, and Bet Tzedek Legal Services Repeat finding: No Criteria: The Uniform Guidance Cost principles require consistency in treatment of costs and, specifically, that compensation costs be consistent. In addition, the Uniform Guidance requires that there be a system of internal control which provides reasonable assurance that the charges are accurate, allowable and properly allocated and conform to the established accounting policies and practices of the Organization. Condition: For at least a portion of the fiscal year, costs allocated to Federal grants were calculated by multiplying the hourly rate times the number of hours worked on the Federal grant. This methodology is effective for hourly employees, but can result in a variance in amounts charged to Federal programs when salaried employees work more or less than the base hours. Additionally, in part as a result of transition to a new system, approvals were not consistently recorded for time entered. Cause: The underlying method for allocation did not take into account the fact that salaried employees might work more than the base amount. In addition, the allocation journal entries were prepared on a grant-by-grant basis after the total compensation expense was posted to a cost pool. Re-allocation of one funding source at a time obscured that fact that costs were not being allocated on a fully pro rata basis. In addition, changes to the Organization’s software and procedures occurred during the year, resulting in some inconsistency in application of controls. Possible effect: Minor discrepancies were found in the amounts allocated to Federal programs, though analysis indicated that a material impact was unlikely. Management was not able to provide documentation for certain allocation approvals. Context: We tested 40 allocations of compensation expense to the Federal programs, noting nine items for which pay rate documentation differed from the amount paid, and 20 items for which time allocation approval was unavailable. Recommendation: Management should ensure that new processes reflect all compliance requirements, including the ability to produce evidence of the execution of relevant controls. 30