Audit 323720

#2024‐001 – Material Weakness – Operating Deficiency – Classification of Expenses Coronavirus State and Local Fiscal Recovery Funds, ALN #21.027 Criteria Expenses incurred during normal operations are required to be recorded in accordance with their natural classification. Condition During the course of the audit, it was determined that expenses related to administrative fees charged to certain grants were reclassified out of their natural classification and into a program specific line item. Cause Accounting staff and outsourced consultants were unclear about the recognition of administrative fees within the Foundation’s accounting system. Effect The potential effects of misclassifying the administrative expenses resulted in an adjustment of $73,053 to record expenses in accordance with natural classifications. Questioned Costs None Perspective Information The finding noted related to each of the four (4) quarterly administrative billings charged to the grant. Identification as a repeat finding There was no similar finding in the prior year. Recommendation We recommend that administrative expenses be recorded in accordance to the natural classification of the underlying expense, but be allocated to the grant award by reclassifying the expense to the correct class within the accounting system. View of Responsible Official Management acknowledges deficiencies in the process of recording administrative expenses. The Foundation records expenses in their natural classification at the time of initial recognition. In the current period, management later reclassified certain expenses (e.g. Payroll) from natural class to functional class (e.g. program expenses) to address an accounting recommendation made by the auditor during the prior audit. Upon identifying the error, management restored the impacted expenses to their natural classifications. The adjustment had no effect on net assets or total expenses and did not impact any disbursement of federal grant funds. The Foundation will continue to record expenses by natural classification at point of entry and will not make any subsequent reclassifications to the underlying expense.

#2024‐002 – Material Weakness – Eligibility Coronavirus State and Local Fiscal Recovery Funds, ALN #21.027 Criteria The grant document No. OB‐2023‐01 states “[scholarship awards can be made] up to $2,000 per academic year for full‐time students and $1,000 for part‐time or non‐credit bearing classes.” Condition During the course of the audit, it was determined that the Organization did not verify the enrollment status of applicants before awarding scholarships to the applicable university. Cause The cause is human error. Enrollment status was verified via a questionnaire sheet sent to the various universities that applicants attended. Several universities returned the questionnaire sheet, but left questions unanswered, including the enrollment status of several applicants, and no follow up with the universities was performed until after the scholarship funds were disbursed. Effect The potential effect of not verifying applicant enrollment status is awarding scholarship funds to an ineligible recipient. Questioned Costs None Perspective Information The finding noted related to test work performed for forty (40) applicants where no verification of enrollment status prior to award disbursement was noted on four (4) applicants. Identification as a repeat finding There was no similar finding in the prior year. Recommendation We recommend verifying each applicant’s enrollment status with all universities prior to disbursement of scholarship funding. View of Responsible Official The Foundation receives information directly from PASSHE universities to verify enrollment status of applicants. Universities submit information to the Foundation on an electronic form, which includes Student Name, Student ID, Scholarship Amount, Student Enrollment Status, etc. Authorized officials enter their approval by changing “Pending Review” to either “Scholarship Eligible” or “Not Eligible” on the form and keying in the scholarship amount the student is eligible for based on their verified enrollment status, for example: $1,000 for a part time student or $2,000 for a full‐time student. For 4 of the 40 applicants sampled during the audit, a PASSHE university created an inconsistency on the form, having not completed or updated the enrollment status column to be consistent with the final amount they verified approved for payment. The key control, i.e. the University’s entry and approval of the eligible amount, prevented any errors from occurring.The Foundation verified the enrollment status for the four applicants identified in the audit, noting that the scholarships were properly disbursed. Going forward the Foundation has updated its verification process with the universities to ensure proper classification of the applicant’s enrollment status is verified in accordance with the eligibility requirements of the grant.

#2024‐001 – Material Weakness – Operating Deficiency – Classification of Expenses Coronavirus State and Local Fiscal Recovery Funds, ALN #21.027 Criteria Expenses incurred during normal operations are required to be recorded in accordance with their natural classification. Condition During the course of the audit, it was determined that expenses related to administrative fees charged to certain grants were reclassified out of their natural classification and into a program specific line item. Cause Accounting staff and outsourced consultants were unclear about the recognition of administrative fees within the Foundation’s accounting system. Effect The potential effects of misclassifying the administrative expenses resulted in an adjustment of $73,053 to record expenses in accordance with natural classifications. Questioned Costs None Perspective Information The finding noted related to each of the four (4) quarterly administrative billings charged to the grant. Identification as a repeat finding There was no similar finding in the prior year. Recommendation We recommend that administrative expenses be recorded in accordance to the natural classification of the underlying expense, but be allocated to the grant award by reclassifying the expense to the correct class within the accounting system. View of Responsible Official Management acknowledges deficiencies in the process of recording administrative expenses. The Foundation records expenses in their natural classification at the time of initial recognition. In the current period, management later reclassified certain expenses (e.g. Payroll) from natural class to functional class (e.g. program expenses) to address an accounting recommendation made by the auditor during the prior audit. Upon identifying the error, management restored the impacted expenses to their natural classifications. The adjustment had no effect on net assets or total expenses and did not impact any disbursement of federal grant funds. The Foundation will continue to record expenses by natural classification at point of entry and will not make any subsequent reclassifications to the underlying expense.

#2024‐002 – Material Weakness – Eligibility Coronavirus State and Local Fiscal Recovery Funds, ALN #21.027 Criteria The grant document No. OB‐2023‐01 states “[scholarship awards can be made] up to $2,000 per academic year for full‐time students and $1,000 for part‐time or non‐credit bearing classes.” Condition During the course of the audit, it was determined that the Organization did not verify the enrollment status of applicants before awarding scholarships to the applicable university. Cause The cause is human error. Enrollment status was verified via a questionnaire sheet sent to the various universities that applicants attended. Several universities returned the questionnaire sheet, but left questions unanswered, including the enrollment status of several applicants, and no follow up with the universities was performed until after the scholarship funds were disbursed. Effect The potential effect of not verifying applicant enrollment status is awarding scholarship funds to an ineligible recipient. Questioned Costs None Perspective Information The finding noted related to test work performed for forty (40) applicants where no verification of enrollment status prior to award disbursement was noted on four (4) applicants. Identification as a repeat finding There was no similar finding in the prior year. Recommendation We recommend verifying each applicant’s enrollment status with all universities prior to disbursement of scholarship funding. View of Responsible Official The Foundation receives information directly from PASSHE universities to verify enrollment status of applicants. Universities submit information to the Foundation on an electronic form, which includes Student Name, Student ID, Scholarship Amount, Student Enrollment Status, etc. Authorized officials enter their approval by changing “Pending Review” to either “Scholarship Eligible” or “Not Eligible” on the form and keying in the scholarship amount the student is eligible for based on their verified enrollment status, for example: $1,000 for a part time student or $2,000 for a full‐time student. For 4 of the 40 applicants sampled during the audit, a PASSHE university created an inconsistency on the form, having not completed or updated the enrollment status column to be consistent with the final amount they verified approved for payment. The key control, i.e. the University’s entry and approval of the eligible amount, prevented any errors from occurring.The Foundation verified the enrollment status for the four applicants identified in the audit, noting that the scholarships were properly disbursed. Going forward the Foundation has updated its verification process with the universities to ensure proper classification of the applicant’s enrollment status is verified in accordance with the eligibility requirements of the grant.