Audit 326592

Finding 2022-001 Criteria: As stated in the U.S. Department of Health and Human Services (HHS) Grants Policy Statement, grant recipients are required to meet the standards and requirements for financial management systems set forth or referenced in 45 CFR 74.21 or 92.20, as applicable. Further, financial systems must enable grant recipients to do the following: • Provide accurate, current, and complete financial information about Federal awards. • Maintain records that adequately identify the sources of funds for federally assisted activities and the purposes for which the award was used. • Maintain effective control over and accountability for all cash, real and personal property, and other assets under the award. • Compare actual expenditures or outlays with the approved budget for the award. • Determine the allowability of costs in accordance with the applicable federal cost principles, program regulations, and other regulations cited in the Notice of Award. • Minimize the time elapsing between any advance payment under the award(s) and disbursement of the funds for direct program costs and the proportionate share of any allowable indirect or facilities and administrative costs. Condition: The Association’s controls were not effective to ensure the financial systems migration from Intuit QuickBooks Enterprise to MIP Fund Accounting satisfied the requirements for financial reporting as stipulated by federal regulations and HHS. The initial financial reports provided by the Association did not provide accurate or complete information about the federal awards under its management. Further, initial bank reconciliation reports did not provide proof of effective control over and accountability for cash assets held under the award. This internal control deficiency is considered to be a material weakness. Context: Procedures included examining bank reconciliation reports, general ledger detail reports, and budget vs. actual reports by program and tracing to supporting documentation for a sample of transactions in each operations cycle (cash receipts, cash disbursements, payroll disbursements, journal entries). Cause: The Association changed the software used for maintaining its financial systems from Intuit QuickBooks Enterprise to MIP Fund Accounting in July 2020, beginning with their payroll processing. Full implementation of all other operating cycles occurred effective in January 2021. The system migration did not include adequate vendor support for building a chart of accounts or custom reporting tools to allow for a level of reporting required to produce timely and accurate financial statements for federal reporting needs. Further, the beginning subledgers for accounts receivable and accounts payable, and beginning outstanding reconciling items for cash accounts, were not properly built into the MIP Fund Accounting system during the early implementation process, resulting in the Association having difficulties reconciling their cash accounts. Effect: By not successfully implementing a financial system as required under federal and HHS agency regulations, the Association cannot demonstrate compliance with grantor’s requirements that require accurate, current, and complete financial information regarding the federal awards under its management. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number was 2021-001. Recommendation: The Association continue to work internally and with the software vendor and outside consultants as needed to implement a chart of accounts and custom reporting tools that will assist them in complying with federal regulations regarding its financial system. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association’s procedures for processing expenditures, and primarily allocating expenditures to programs, should include controls that ensure expenditures are properly charged to program and allocated in accordance with the federal grant requirements. The objective of the Assistance Listing 93.600 Head Start program (including Early Head Start and Early Head Start Partnerships) is to promote school readiness of low-income children (including American Indians, Alaska Natives and migrant and seasonal farm workers) by enhancing children’s cognitive, social and emotional development. During the fiscal year ending December 31, 2022, the Association expended $4,546,478 in major program funding. Federal regulations require award recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Federal regulations require the Association to have adequate time-and-effort documentation to support all payroll costs charged to the Head Start awards. 2 CFR 200.430, Compensation – personal services, states, in part: “(i) Standards for Documentation of Personnel Expenses (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (ii) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated…”. Depending on the number and types of activities employees perform, time and effort documentation can be in the form of semi-annual certification or monthly personnel activity reports, such as a timesheet. Condition: The Association’s controls were not effective to ensure it maintained adequate time and effort documentation, as required by federal regulations and the grantor. During review of payroll costs for the year ended December 31, 2022, it was noted payroll costs were charged according to budgeted time rather than reconciling to actual hours worked. This internal control deficiency is considered to be a significant deficiency. Questioned Costs: None. Context: Procedures included examining payroll charges for 40 randomly selected employees for January through December 2022. Cause: The Association changed the software used for payroll processing from QuickBooks to MIP in July 2020. They then changed their fiscal accounting software from QuickBooks to MIP in January 2021. The new software implementation was fraught with many challenges, one of which being implementing electronic processes that met the time and effort requirements outlined in the Association’s policy manual. Effect: By not keeping proper time-and-effort records, the Association cannot demonstrate compliance with grantor’s requirements that require support for payroll costs charged to the federal program. The Association provided alternate documentation that demonstrated the payroll costs charged to the program were allowable. Therefore, we are not questioning costs. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number 2021-004. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: The Association follow its own documented controls to ensure it prepares adequate time-and-effort documentation to support payroll costs charged to the federal grant. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association’s procedures for processing expenditures, and primarily allocating expenditures to programs, should include controls to ensure that expenditures are charged to proper programs and allocated in accordance with the cost allocation plan. Condition: Expenditures were not properly charged to programs or allocated in accordance with the cost allocation plan. Five of the forty general disbursements tested did not agree to the cost allocation plan. Questioned Costs: None. Context: Our procedures included examining 40 general disbursements from the year under audit. We examined allocation percentages and vendor invoices. We found there were five transactions with allocations that did not agree to the Association’s 2022 cost allocation plan. The transactions tested resulted in an immaterial over-charging to the Head Start program. The effect was not material to the financial statements or to the major program.   Cause: The Association experienced challenges in implementing a new financial reporting system in 2021 that continued throughout the 2022 fiscal year. As part of this, the cost allocation plan was not always correctly applied to payments, ensuring that the appropriate program was charged its correct applicable share. In addition, there was no subsequent review to ensure that the cost allocation plan was applied correctly or that subsequent federal reports were revised. Effect: Expenditures were not charged to programs or allocated correctly. Recommendation: We recommend the Association ensure that expenditures are properly charged to the programs or allocated in accordance with the cost allocation plan. We also recommend the Association re-evaluate and consider simplifying their cost allocation methodology. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: Federal regulations award recipients to submit semi-annual and annual reports in accordance with timelines defined in the award. Amounts reported are required to be complete, accurate and prepared in accordance with the entity’s basis of accounting and be supported by financial statements and schedule of expenditures of federal awards. Condition: The Associations controls were not effective to ensure that reports were submitted timely and that amounts reported were supported by adequate documentation. • The December 31, 2022 annual SF-425 was due April 30, 2023. The report was submitted May 17, 2023. • The December 31, 2022 annual SF-425 overstated total expenditures by $8,634 for award number 10CH01204402. Questioned Costs: None. Context: Our procedures included testing four SF-429 (Real Property Status Reports) and four SF-425 (Federal Financial Report) reports that were required as part of the grant contract provisions and federal reporting requirements. Cause: The Association experienced challenges in implementing a new financial reporting system in 2021 that continued throughout the 2022 fiscal year. As a result, there was no reconciliation or support for amounts reported. Effect: Incorrect financial and non-financial data submitted via these reports may result in potential errors in analysis or other determinations by the federal grantor. This finding did not result in questioned costs since the reports were not used to request reimbursement. Recommendation: We recommend that the Association establishes controls that require timely reporting and support amounts reported. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: As stated in the U.S. Department of Health and Human Services (HHS) Grants Policy Statement, grant recipients are required to implement financial systems that enable grant recipients to maintain effective control over and accountability for all cash under the award. Condition: The Association’s controls were not effective to ensure it performed the bank reconciliation process on an accurate or timely basis. This internal control deficiency is considered to be a significant deficiency. Context: Procedures included examining bank reconciliation reports for the December 2022 period. Bank reconciliations were reviewed for unusual transactions, large reconciling items, and a sample of transactions was traced to supporting documentation such as copies of cleared checks, bank statements, or other items. Cause: The Association changed the software used for processing its bank reconciliations from Intuit QuickBooks Enterprise to MIP Fund Accounting in January 2021. The system migration did not include entering detailed outstanding reconciling items for cash accounts as of December 31, 2020, resulting in the Association having difficulties reconciling their cash accounts on a timely basis. The initial reconciliations included large journal entries to cash accounts that did not have sufficient documentation as support and resulted in the bank reconciliations being redone to properly account for outstanding uncleared items that carried over from the prior fiscal year. This continued throughout the 2022 fiscal year. Additionally, the reconciliation for the general checking account was changed/updated after receipt of the initial trial balance for the 2022 audit, indicating the bank reconciliations are still not being accurately or timely completed. Effect: By not reconciling the bank accounts on a timely basis, the financial reports initially provided for the audit were not accurate. This resulted in the delay of the audit until the bank reconciliations could be properly completed to account for outstanding uncleared items that carried over from prior fiscal years. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number was 2021-002. Recommendation: The Association follow its own documented controls to ensure it prepares bank reconciliations on a timely and accurate basis. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: Accounting principles generally accepted in the United States of America require that amounts be recognized as revenues, with corresponding receivables if applicable, when the product or service has been delivered to a customer and when the dollar amount is readily determinable. Additionally, standards require that advanced payments of funds received, but which are unearned, be recognized as deferred revenue on the statements of financial position. Condition: The Association’s controls were not effective to ensure it was recognizing revenues, receivables, and deferred revenue for reimbursement-based programming in the same period the expenditure occurred. This internal control deficiency is considered to be a significant deficiency. Context: Procedures included examining subsequent cash receipts and vouching to expenditures made during the fiscal year, identifying several such receipts that should have been posted as receivables as of December 31, 2022 but were not. Additionally, we examined general ledger detail and grant agreements related to advanced funding received, but not yet expended, in determining whether or not a liability for unearned revenue existed. Cause: The Association typically records cash receipts on a cash basis instead of accrual basis as stipulated in U.S. GAAP. Effect: By not recording receivables in the correct period, revenues from reimbursement-based awards could be materially misstated. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number was 2021-003. Recommendation: The Association establish controls that allow for the timely and accurate recording of grants and contracts receivable from reimbursement-based awards in the same period as their corresponding expenditures. Additionally, we recommend the Association establish controls to ensure that funds received from advance awards are recognized as revenue when earned. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association is required by a US Department of Agriculture (USDA) loan agreement to fund a reserve account at the sum of $204 each month until a balance of $24,480 is achieved (see Note 4 to the financial statements). Condition: The Association’s controls were not effective to ensure that the required reserve funding deposits were made during the year, per the terms of the loan agreement. This internal control deficiency is considered to be a significant deficiency. Context: Our procedures included examining the reserve account bank statements and bank reconciliation reports. Cause: The Association had turnover in their finance director position and those remaining with the entity did not have familiarity with the terms of the loan agreement. Effect: By not transferring the required amount of funds to the reserve account, they are not in compliance with the terms of their loan agreement. Recommendation: We recommend that Association staff familiarize themselves with the terms of the loan agreement and put controls in place to ensure funds are properly transferred to the reserve account at least annually. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association’s payroll liability accounts did not agree with the actual liabilities owed at year end and required material adjustments were made as part of the audit process. Condition: The Association’s controls were not effective to ensure transactions recorded to payroll liability accounts were appropriate and balances were accurately stated at year end on the trial balance. This internal control deficiency is considered to be a significant deficiency. Context: Our procedures included examining payroll tax filings, payroll registers, and general ledger detail reports and comparing supporting documentation to account balances as of December 31, 2022. Cause: The payroll software is not configured in a way that allows for proper mapping of payroll liability accruals to correct accounts. Additionally, no reconciliation is being performed on a regular basis to ensure liabilities are properly stated. Effect: By not reconciling payroll liabilities on a regular basis, the Association is not able to identify material misstatements in liability balances in a timely manner. Recommendation: We recommend the Association adopt controls to reconcile payroll liability balances at least quarterly. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: As stated above in Finding 2022-001, grant recipients are required to implement financial systems capable of maintaining records that adequately identify the sources of funds for federally assisted activities and the purposes for which the award was used. Condition: A cash disbursement for the purchase of a vehicle did not include documentation supporting the solicitation of at least three bids or a purchase requisition form as required by the client’s internal controls surrounding their procurement procedures. This internal control deficiency is considered to be a significant deficiency. Context: Our procedures included examining general cash disbursements related to the acquisition of property and equipment. Cause: Due to the abrupt departure of their long-tenured finance director, there was no transfer of knowledge on processing of invoices in compliance with the Association’s policy and procedure manual. Effect: By not following their own documented internal controls procedures, the Association puts themselves at risk for material misstatement of financial statements or possible misappropriation of Association assets. Recommendation: We recommend the Association follow its own documented internal controls procedures and ensure that all cash disbursements have proper supporting documentation and proper management approval. View of Responsible Officials: There is no disagreement with this audit finding.

Finding 2022-001 Criteria: As stated in the U.S. Department of Health and Human Services (HHS) Grants Policy Statement, grant recipients are required to meet the standards and requirements for financial management systems set forth or referenced in 45 CFR 74.21 or 92.20, as applicable. Further, financial systems must enable grant recipients to do the following: • Provide accurate, current, and complete financial information about Federal awards. • Maintain records that adequately identify the sources of funds for federally assisted activities and the purposes for which the award was used. • Maintain effective control over and accountability for all cash, real and personal property, and other assets under the award. • Compare actual expenditures or outlays with the approved budget for the award. • Determine the allowability of costs in accordance with the applicable federal cost principles, program regulations, and other regulations cited in the Notice of Award. • Minimize the time elapsing between any advance payment under the award(s) and disbursement of the funds for direct program costs and the proportionate share of any allowable indirect or facilities and administrative costs. Condition: The Association’s controls were not effective to ensure the financial systems migration from Intuit QuickBooks Enterprise to MIP Fund Accounting satisfied the requirements for financial reporting as stipulated by federal regulations and HHS. The initial financial reports provided by the Association did not provide accurate or complete information about the federal awards under its management. Further, initial bank reconciliation reports did not provide proof of effective control over and accountability for cash assets held under the award. This internal control deficiency is considered to be a material weakness. Context: Procedures included examining bank reconciliation reports, general ledger detail reports, and budget vs. actual reports by program and tracing to supporting documentation for a sample of transactions in each operations cycle (cash receipts, cash disbursements, payroll disbursements, journal entries). Cause: The Association changed the software used for maintaining its financial systems from Intuit QuickBooks Enterprise to MIP Fund Accounting in July 2020, beginning with their payroll processing. Full implementation of all other operating cycles occurred effective in January 2021. The system migration did not include adequate vendor support for building a chart of accounts or custom reporting tools to allow for a level of reporting required to produce timely and accurate financial statements for federal reporting needs. Further, the beginning subledgers for accounts receivable and accounts payable, and beginning outstanding reconciling items for cash accounts, were not properly built into the MIP Fund Accounting system during the early implementation process, resulting in the Association having difficulties reconciling their cash accounts. Effect: By not successfully implementing a financial system as required under federal and HHS agency regulations, the Association cannot demonstrate compliance with grantor’s requirements that require accurate, current, and complete financial information regarding the federal awards under its management. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number was 2021-001. Recommendation: The Association continue to work internally and with the software vendor and outside consultants as needed to implement a chart of accounts and custom reporting tools that will assist them in complying with federal regulations regarding its financial system. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association’s procedures for processing expenditures, and primarily allocating expenditures to programs, should include controls that ensure expenditures are properly charged to program and allocated in accordance with the federal grant requirements. The objective of the Assistance Listing 93.600 Head Start program (including Early Head Start and Early Head Start Partnerships) is to promote school readiness of low-income children (including American Indians, Alaska Natives and migrant and seasonal farm workers) by enhancing children’s cognitive, social and emotional development. During the fiscal year ending December 31, 2022, the Association expended $4,546,478 in major program funding. Federal regulations require award recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Federal regulations require the Association to have adequate time-and-effort documentation to support all payroll costs charged to the Head Start awards. 2 CFR 200.430, Compensation – personal services, states, in part: “(i) Standards for Documentation of Personnel Expenses (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (ii) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated…”. Depending on the number and types of activities employees perform, time and effort documentation can be in the form of semi-annual certification or monthly personnel activity reports, such as a timesheet. Condition: The Association’s controls were not effective to ensure it maintained adequate time and effort documentation, as required by federal regulations and the grantor. During review of payroll costs for the year ended December 31, 2022, it was noted payroll costs were charged according to budgeted time rather than reconciling to actual hours worked. This internal control deficiency is considered to be a significant deficiency. Questioned Costs: None. Context: Procedures included examining payroll charges for 40 randomly selected employees for January through December 2022. Cause: The Association changed the software used for payroll processing from QuickBooks to MIP in July 2020. They then changed their fiscal accounting software from QuickBooks to MIP in January 2021. The new software implementation was fraught with many challenges, one of which being implementing electronic processes that met the time and effort requirements outlined in the Association’s policy manual. Effect: By not keeping proper time-and-effort records, the Association cannot demonstrate compliance with grantor’s requirements that require support for payroll costs charged to the federal program. The Association provided alternate documentation that demonstrated the payroll costs charged to the program were allowable. Therefore, we are not questioning costs. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number 2021-004. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: The Association follow its own documented controls to ensure it prepares adequate time-and-effort documentation to support payroll costs charged to the federal grant. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association’s procedures for processing expenditures, and primarily allocating expenditures to programs, should include controls to ensure that expenditures are charged to proper programs and allocated in accordance with the cost allocation plan. Condition: Expenditures were not properly charged to programs or allocated in accordance with the cost allocation plan. Five of the forty general disbursements tested did not agree to the cost allocation plan. Questioned Costs: None. Context: Our procedures included examining 40 general disbursements from the year under audit. We examined allocation percentages and vendor invoices. We found there were five transactions with allocations that did not agree to the Association’s 2022 cost allocation plan. The transactions tested resulted in an immaterial over-charging to the Head Start program. The effect was not material to the financial statements or to the major program.   Cause: The Association experienced challenges in implementing a new financial reporting system in 2021 that continued throughout the 2022 fiscal year. As part of this, the cost allocation plan was not always correctly applied to payments, ensuring that the appropriate program was charged its correct applicable share. In addition, there was no subsequent review to ensure that the cost allocation plan was applied correctly or that subsequent federal reports were revised. Effect: Expenditures were not charged to programs or allocated correctly. Recommendation: We recommend the Association ensure that expenditures are properly charged to the programs or allocated in accordance with the cost allocation plan. We also recommend the Association re-evaluate and consider simplifying their cost allocation methodology. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: Federal regulations award recipients to submit semi-annual and annual reports in accordance with timelines defined in the award. Amounts reported are required to be complete, accurate and prepared in accordance with the entity’s basis of accounting and be supported by financial statements and schedule of expenditures of federal awards. Condition: The Associations controls were not effective to ensure that reports were submitted timely and that amounts reported were supported by adequate documentation. • The December 31, 2022 annual SF-425 was due April 30, 2023. The report was submitted May 17, 2023. • The December 31, 2022 annual SF-425 overstated total expenditures by $8,634 for award number 10CH01204402. Questioned Costs: None. Context: Our procedures included testing four SF-429 (Real Property Status Reports) and four SF-425 (Federal Financial Report) reports that were required as part of the grant contract provisions and federal reporting requirements. Cause: The Association experienced challenges in implementing a new financial reporting system in 2021 that continued throughout the 2022 fiscal year. As a result, there was no reconciliation or support for amounts reported. Effect: Incorrect financial and non-financial data submitted via these reports may result in potential errors in analysis or other determinations by the federal grantor. This finding did not result in questioned costs since the reports were not used to request reimbursement. Recommendation: We recommend that the Association establishes controls that require timely reporting and support amounts reported. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: As stated in the U.S. Department of Health and Human Services (HHS) Grants Policy Statement, grant recipients are required to implement financial systems that enable grant recipients to maintain effective control over and accountability for all cash under the award. Condition: The Association’s controls were not effective to ensure it performed the bank reconciliation process on an accurate or timely basis. This internal control deficiency is considered to be a significant deficiency. Context: Procedures included examining bank reconciliation reports for the December 2022 period. Bank reconciliations were reviewed for unusual transactions, large reconciling items, and a sample of transactions was traced to supporting documentation such as copies of cleared checks, bank statements, or other items. Cause: The Association changed the software used for processing its bank reconciliations from Intuit QuickBooks Enterprise to MIP Fund Accounting in January 2021. The system migration did not include entering detailed outstanding reconciling items for cash accounts as of December 31, 2020, resulting in the Association having difficulties reconciling their cash accounts on a timely basis. The initial reconciliations included large journal entries to cash accounts that did not have sufficient documentation as support and resulted in the bank reconciliations being redone to properly account for outstanding uncleared items that carried over from the prior fiscal year. This continued throughout the 2022 fiscal year. Additionally, the reconciliation for the general checking account was changed/updated after receipt of the initial trial balance for the 2022 audit, indicating the bank reconciliations are still not being accurately or timely completed. Effect: By not reconciling the bank accounts on a timely basis, the financial reports initially provided for the audit were not accurate. This resulted in the delay of the audit until the bank reconciliations could be properly completed to account for outstanding uncleared items that carried over from prior fiscal years. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number was 2021-002. Recommendation: The Association follow its own documented controls to ensure it prepares bank reconciliations on a timely and accurate basis. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: Accounting principles generally accepted in the United States of America require that amounts be recognized as revenues, with corresponding receivables if applicable, when the product or service has been delivered to a customer and when the dollar amount is readily determinable. Additionally, standards require that advanced payments of funds received, but which are unearned, be recognized as deferred revenue on the statements of financial position. Condition: The Association’s controls were not effective to ensure it was recognizing revenues, receivables, and deferred revenue for reimbursement-based programming in the same period the expenditure occurred. This internal control deficiency is considered to be a significant deficiency. Context: Procedures included examining subsequent cash receipts and vouching to expenditures made during the fiscal year, identifying several such receipts that should have been posted as receivables as of December 31, 2022 but were not. Additionally, we examined general ledger detail and grant agreements related to advanced funding received, but not yet expended, in determining whether or not a liability for unearned revenue existed. Cause: The Association typically records cash receipts on a cash basis instead of accrual basis as stipulated in U.S. GAAP. Effect: By not recording receivables in the correct period, revenues from reimbursement-based awards could be materially misstated. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number was 2021-003. Recommendation: The Association establish controls that allow for the timely and accurate recording of grants and contracts receivable from reimbursement-based awards in the same period as their corresponding expenditures. Additionally, we recommend the Association establish controls to ensure that funds received from advance awards are recognized as revenue when earned. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association is required by a US Department of Agriculture (USDA) loan agreement to fund a reserve account at the sum of $204 each month until a balance of $24,480 is achieved (see Note 4 to the financial statements). Condition: The Association’s controls were not effective to ensure that the required reserve funding deposits were made during the year, per the terms of the loan agreement. This internal control deficiency is considered to be a significant deficiency. Context: Our procedures included examining the reserve account bank statements and bank reconciliation reports. Cause: The Association had turnover in their finance director position and those remaining with the entity did not have familiarity with the terms of the loan agreement. Effect: By not transferring the required amount of funds to the reserve account, they are not in compliance with the terms of their loan agreement. Recommendation: We recommend that Association staff familiarize themselves with the terms of the loan agreement and put controls in place to ensure funds are properly transferred to the reserve account at least annually. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association’s payroll liability accounts did not agree with the actual liabilities owed at year end and required material adjustments were made as part of the audit process. Condition: The Association’s controls were not effective to ensure transactions recorded to payroll liability accounts were appropriate and balances were accurately stated at year end on the trial balance. This internal control deficiency is considered to be a significant deficiency. Context: Our procedures included examining payroll tax filings, payroll registers, and general ledger detail reports and comparing supporting documentation to account balances as of December 31, 2022. Cause: The payroll software is not configured in a way that allows for proper mapping of payroll liability accruals to correct accounts. Additionally, no reconciliation is being performed on a regular basis to ensure liabilities are properly stated. Effect: By not reconciling payroll liabilities on a regular basis, the Association is not able to identify material misstatements in liability balances in a timely manner. Recommendation: We recommend the Association adopt controls to reconcile payroll liability balances at least quarterly. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: As stated above in Finding 2022-001, grant recipients are required to implement financial systems capable of maintaining records that adequately identify the sources of funds for federally assisted activities and the purposes for which the award was used. Condition: A cash disbursement for the purchase of a vehicle did not include documentation supporting the solicitation of at least three bids or a purchase requisition form as required by the client’s internal controls surrounding their procurement procedures. This internal control deficiency is considered to be a significant deficiency. Context: Our procedures included examining general cash disbursements related to the acquisition of property and equipment. Cause: Due to the abrupt departure of their long-tenured finance director, there was no transfer of knowledge on processing of invoices in compliance with the Association’s policy and procedure manual. Effect: By not following their own documented internal controls procedures, the Association puts themselves at risk for material misstatement of financial statements or possible misappropriation of Association assets. Recommendation: We recommend the Association follow its own documented internal controls procedures and ensure that all cash disbursements have proper supporting documentation and proper management approval. View of Responsible Officials: There is no disagreement with this audit finding.

Finding 2022-001 Criteria: As stated in the U.S. Department of Health and Human Services (HHS) Grants Policy Statement, grant recipients are required to meet the standards and requirements for financial management systems set forth or referenced in 45 CFR 74.21 or 92.20, as applicable. Further, financial systems must enable grant recipients to do the following: • Provide accurate, current, and complete financial information about Federal awards. • Maintain records that adequately identify the sources of funds for federally assisted activities and the purposes for which the award was used. • Maintain effective control over and accountability for all cash, real and personal property, and other assets under the award. • Compare actual expenditures or outlays with the approved budget for the award. • Determine the allowability of costs in accordance with the applicable federal cost principles, program regulations, and other regulations cited in the Notice of Award. • Minimize the time elapsing between any advance payment under the award(s) and disbursement of the funds for direct program costs and the proportionate share of any allowable indirect or facilities and administrative costs. Condition: The Association’s controls were not effective to ensure the financial systems migration from Intuit QuickBooks Enterprise to MIP Fund Accounting satisfied the requirements for financial reporting as stipulated by federal regulations and HHS. The initial financial reports provided by the Association did not provide accurate or complete information about the federal awards under its management. Further, initial bank reconciliation reports did not provide proof of effective control over and accountability for cash assets held under the award. This internal control deficiency is considered to be a material weakness. Context: Procedures included examining bank reconciliation reports, general ledger detail reports, and budget vs. actual reports by program and tracing to supporting documentation for a sample of transactions in each operations cycle (cash receipts, cash disbursements, payroll disbursements, journal entries). Cause: The Association changed the software used for maintaining its financial systems from Intuit QuickBooks Enterprise to MIP Fund Accounting in July 2020, beginning with their payroll processing. Full implementation of all other operating cycles occurred effective in January 2021. The system migration did not include adequate vendor support for building a chart of accounts or custom reporting tools to allow for a level of reporting required to produce timely and accurate financial statements for federal reporting needs. Further, the beginning subledgers for accounts receivable and accounts payable, and beginning outstanding reconciling items for cash accounts, were not properly built into the MIP Fund Accounting system during the early implementation process, resulting in the Association having difficulties reconciling their cash accounts. Effect: By not successfully implementing a financial system as required under federal and HHS agency regulations, the Association cannot demonstrate compliance with grantor’s requirements that require accurate, current, and complete financial information regarding the federal awards under its management. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number was 2021-001. Recommendation: The Association continue to work internally and with the software vendor and outside consultants as needed to implement a chart of accounts and custom reporting tools that will assist them in complying with federal regulations regarding its financial system. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association’s procedures for processing expenditures, and primarily allocating expenditures to programs, should include controls that ensure expenditures are properly charged to program and allocated in accordance with the federal grant requirements. The objective of the Assistance Listing 93.600 Head Start program (including Early Head Start and Early Head Start Partnerships) is to promote school readiness of low-income children (including American Indians, Alaska Natives and migrant and seasonal farm workers) by enhancing children’s cognitive, social and emotional development. During the fiscal year ending December 31, 2022, the Association expended $4,546,478 in major program funding. Federal regulations require award recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Federal regulations require the Association to have adequate time-and-effort documentation to support all payroll costs charged to the Head Start awards. 2 CFR 200.430, Compensation – personal services, states, in part: “(i) Standards for Documentation of Personnel Expenses (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (ii) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated…”. Depending on the number and types of activities employees perform, time and effort documentation can be in the form of semi-annual certification or monthly personnel activity reports, such as a timesheet. Condition: The Association’s controls were not effective to ensure it maintained adequate time and effort documentation, as required by federal regulations and the grantor. During review of payroll costs for the year ended December 31, 2022, it was noted payroll costs were charged according to budgeted time rather than reconciling to actual hours worked. This internal control deficiency is considered to be a significant deficiency. Questioned Costs: None. Context: Procedures included examining payroll charges for 40 randomly selected employees for January through December 2022. Cause: The Association changed the software used for payroll processing from QuickBooks to MIP in July 2020. They then changed their fiscal accounting software from QuickBooks to MIP in January 2021. The new software implementation was fraught with many challenges, one of which being implementing electronic processes that met the time and effort requirements outlined in the Association’s policy manual. Effect: By not keeping proper time-and-effort records, the Association cannot demonstrate compliance with grantor’s requirements that require support for payroll costs charged to the federal program. The Association provided alternate documentation that demonstrated the payroll costs charged to the program were allowable. Therefore, we are not questioning costs. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number 2021-004. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: The Association follow its own documented controls to ensure it prepares adequate time-and-effort documentation to support payroll costs charged to the federal grant. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association’s procedures for processing expenditures, and primarily allocating expenditures to programs, should include controls to ensure that expenditures are charged to proper programs and allocated in accordance with the cost allocation plan. Condition: Expenditures were not properly charged to programs or allocated in accordance with the cost allocation plan. Five of the forty general disbursements tested did not agree to the cost allocation plan. Questioned Costs: None. Context: Our procedures included examining 40 general disbursements from the year under audit. We examined allocation percentages and vendor invoices. We found there were five transactions with allocations that did not agree to the Association’s 2022 cost allocation plan. The transactions tested resulted in an immaterial over-charging to the Head Start program. The effect was not material to the financial statements or to the major program.   Cause: The Association experienced challenges in implementing a new financial reporting system in 2021 that continued throughout the 2022 fiscal year. As part of this, the cost allocation plan was not always correctly applied to payments, ensuring that the appropriate program was charged its correct applicable share. In addition, there was no subsequent review to ensure that the cost allocation plan was applied correctly or that subsequent federal reports were revised. Effect: Expenditures were not charged to programs or allocated correctly. Recommendation: We recommend the Association ensure that expenditures are properly charged to the programs or allocated in accordance with the cost allocation plan. We also recommend the Association re-evaluate and consider simplifying their cost allocation methodology. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: Federal regulations award recipients to submit semi-annual and annual reports in accordance with timelines defined in the award. Amounts reported are required to be complete, accurate and prepared in accordance with the entity’s basis of accounting and be supported by financial statements and schedule of expenditures of federal awards. Condition: The Associations controls were not effective to ensure that reports were submitted timely and that amounts reported were supported by adequate documentation. • The December 31, 2022 annual SF-425 was due April 30, 2023. The report was submitted May 17, 2023. • The December 31, 2022 annual SF-425 overstated total expenditures by $8,634 for award number 10CH01204402. Questioned Costs: None. Context: Our procedures included testing four SF-429 (Real Property Status Reports) and four SF-425 (Federal Financial Report) reports that were required as part of the grant contract provisions and federal reporting requirements. Cause: The Association experienced challenges in implementing a new financial reporting system in 2021 that continued throughout the 2022 fiscal year. As a result, there was no reconciliation or support for amounts reported. Effect: Incorrect financial and non-financial data submitted via these reports may result in potential errors in analysis or other determinations by the federal grantor. This finding did not result in questioned costs since the reports were not used to request reimbursement. Recommendation: We recommend that the Association establishes controls that require timely reporting and support amounts reported. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: As stated in the U.S. Department of Health and Human Services (HHS) Grants Policy Statement, grant recipients are required to implement financial systems that enable grant recipients to maintain effective control over and accountability for all cash under the award. Condition: The Association’s controls were not effective to ensure it performed the bank reconciliation process on an accurate or timely basis. This internal control deficiency is considered to be a significant deficiency. Context: Procedures included examining bank reconciliation reports for the December 2022 period. Bank reconciliations were reviewed for unusual transactions, large reconciling items, and a sample of transactions was traced to supporting documentation such as copies of cleared checks, bank statements, or other items. Cause: The Association changed the software used for processing its bank reconciliations from Intuit QuickBooks Enterprise to MIP Fund Accounting in January 2021. The system migration did not include entering detailed outstanding reconciling items for cash accounts as of December 31, 2020, resulting in the Association having difficulties reconciling their cash accounts on a timely basis. The initial reconciliations included large journal entries to cash accounts that did not have sufficient documentation as support and resulted in the bank reconciliations being redone to properly account for outstanding uncleared items that carried over from the prior fiscal year. This continued throughout the 2022 fiscal year. Additionally, the reconciliation for the general checking account was changed/updated after receipt of the initial trial balance for the 2022 audit, indicating the bank reconciliations are still not being accurately or timely completed. Effect: By not reconciling the bank accounts on a timely basis, the financial reports initially provided for the audit were not accurate. This resulted in the delay of the audit until the bank reconciliations could be properly completed to account for outstanding uncleared items that carried over from prior fiscal years. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number was 2021-002. Recommendation: The Association follow its own documented controls to ensure it prepares bank reconciliations on a timely and accurate basis. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: Accounting principles generally accepted in the United States of America require that amounts be recognized as revenues, with corresponding receivables if applicable, when the product or service has been delivered to a customer and when the dollar amount is readily determinable. Additionally, standards require that advanced payments of funds received, but which are unearned, be recognized as deferred revenue on the statements of financial position. Condition: The Association’s controls were not effective to ensure it was recognizing revenues, receivables, and deferred revenue for reimbursement-based programming in the same period the expenditure occurred. This internal control deficiency is considered to be a significant deficiency. Context: Procedures included examining subsequent cash receipts and vouching to expenditures made during the fiscal year, identifying several such receipts that should have been posted as receivables as of December 31, 2022 but were not. Additionally, we examined general ledger detail and grant agreements related to advanced funding received, but not yet expended, in determining whether or not a liability for unearned revenue existed. Cause: The Association typically records cash receipts on a cash basis instead of accrual basis as stipulated in U.S. GAAP. Effect: By not recording receivables in the correct period, revenues from reimbursement-based awards could be materially misstated. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number was 2021-003. Recommendation: The Association establish controls that allow for the timely and accurate recording of grants and contracts receivable from reimbursement-based awards in the same period as their corresponding expenditures. Additionally, we recommend the Association establish controls to ensure that funds received from advance awards are recognized as revenue when earned. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association is required by a US Department of Agriculture (USDA) loan agreement to fund a reserve account at the sum of $204 each month until a balance of $24,480 is achieved (see Note 4 to the financial statements). Condition: The Association’s controls were not effective to ensure that the required reserve funding deposits were made during the year, per the terms of the loan agreement. This internal control deficiency is considered to be a significant deficiency. Context: Our procedures included examining the reserve account bank statements and bank reconciliation reports. Cause: The Association had turnover in their finance director position and those remaining with the entity did not have familiarity with the terms of the loan agreement. Effect: By not transferring the required amount of funds to the reserve account, they are not in compliance with the terms of their loan agreement. Recommendation: We recommend that Association staff familiarize themselves with the terms of the loan agreement and put controls in place to ensure funds are properly transferred to the reserve account at least annually. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association’s payroll liability accounts did not agree with the actual liabilities owed at year end and required material adjustments were made as part of the audit process. Condition: The Association’s controls were not effective to ensure transactions recorded to payroll liability accounts were appropriate and balances were accurately stated at year end on the trial balance. This internal control deficiency is considered to be a significant deficiency. Context: Our procedures included examining payroll tax filings, payroll registers, and general ledger detail reports and comparing supporting documentation to account balances as of December 31, 2022. Cause: The payroll software is not configured in a way that allows for proper mapping of payroll liability accruals to correct accounts. Additionally, no reconciliation is being performed on a regular basis to ensure liabilities are properly stated. Effect: By not reconciling payroll liabilities on a regular basis, the Association is not able to identify material misstatements in liability balances in a timely manner. Recommendation: We recommend the Association adopt controls to reconcile payroll liability balances at least quarterly. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: As stated above in Finding 2022-001, grant recipients are required to implement financial systems capable of maintaining records that adequately identify the sources of funds for federally assisted activities and the purposes for which the award was used. Condition: A cash disbursement for the purchase of a vehicle did not include documentation supporting the solicitation of at least three bids or a purchase requisition form as required by the client’s internal controls surrounding their procurement procedures. This internal control deficiency is considered to be a significant deficiency. Context: Our procedures included examining general cash disbursements related to the acquisition of property and equipment. Cause: Due to the abrupt departure of their long-tenured finance director, there was no transfer of knowledge on processing of invoices in compliance with the Association’s policy and procedure manual. Effect: By not following their own documented internal controls procedures, the Association puts themselves at risk for material misstatement of financial statements or possible misappropriation of Association assets. Recommendation: We recommend the Association follow its own documented internal controls procedures and ensure that all cash disbursements have proper supporting documentation and proper management approval. View of Responsible Officials: There is no disagreement with this audit finding.

Finding 2022-001 Criteria: As stated in the U.S. Department of Health and Human Services (HHS) Grants Policy Statement, grant recipients are required to meet the standards and requirements for financial management systems set forth or referenced in 45 CFR 74.21 or 92.20, as applicable. Further, financial systems must enable grant recipients to do the following: • Provide accurate, current, and complete financial information about Federal awards. • Maintain records that adequately identify the sources of funds for federally assisted activities and the purposes for which the award was used. • Maintain effective control over and accountability for all cash, real and personal property, and other assets under the award. • Compare actual expenditures or outlays with the approved budget for the award. • Determine the allowability of costs in accordance with the applicable federal cost principles, program regulations, and other regulations cited in the Notice of Award. • Minimize the time elapsing between any advance payment under the award(s) and disbursement of the funds for direct program costs and the proportionate share of any allowable indirect or facilities and administrative costs. Condition: The Association’s controls were not effective to ensure the financial systems migration from Intuit QuickBooks Enterprise to MIP Fund Accounting satisfied the requirements for financial reporting as stipulated by federal regulations and HHS. The initial financial reports provided by the Association did not provide accurate or complete information about the federal awards under its management. Further, initial bank reconciliation reports did not provide proof of effective control over and accountability for cash assets held under the award. This internal control deficiency is considered to be a material weakness. Context: Procedures included examining bank reconciliation reports, general ledger detail reports, and budget vs. actual reports by program and tracing to supporting documentation for a sample of transactions in each operations cycle (cash receipts, cash disbursements, payroll disbursements, journal entries). Cause: The Association changed the software used for maintaining its financial systems from Intuit QuickBooks Enterprise to MIP Fund Accounting in July 2020, beginning with their payroll processing. Full implementation of all other operating cycles occurred effective in January 2021. The system migration did not include adequate vendor support for building a chart of accounts or custom reporting tools to allow for a level of reporting required to produce timely and accurate financial statements for federal reporting needs. Further, the beginning subledgers for accounts receivable and accounts payable, and beginning outstanding reconciling items for cash accounts, were not properly built into the MIP Fund Accounting system during the early implementation process, resulting in the Association having difficulties reconciling their cash accounts. Effect: By not successfully implementing a financial system as required under federal and HHS agency regulations, the Association cannot demonstrate compliance with grantor’s requirements that require accurate, current, and complete financial information regarding the federal awards under its management. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number was 2021-001. Recommendation: The Association continue to work internally and with the software vendor and outside consultants as needed to implement a chart of accounts and custom reporting tools that will assist them in complying with federal regulations regarding its financial system. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association’s procedures for processing expenditures, and primarily allocating expenditures to programs, should include controls that ensure expenditures are properly charged to program and allocated in accordance with the federal grant requirements. The objective of the Assistance Listing 93.600 Head Start program (including Early Head Start and Early Head Start Partnerships) is to promote school readiness of low-income children (including American Indians, Alaska Natives and migrant and seasonal farm workers) by enhancing children’s cognitive, social and emotional development. During the fiscal year ending December 31, 2022, the Association expended $4,546,478 in major program funding. Federal regulations require award recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Federal regulations require the Association to have adequate time-and-effort documentation to support all payroll costs charged to the Head Start awards. 2 CFR 200.430, Compensation – personal services, states, in part: “(i) Standards for Documentation of Personnel Expenses (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (ii) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated…”. Depending on the number and types of activities employees perform, time and effort documentation can be in the form of semi-annual certification or monthly personnel activity reports, such as a timesheet. Condition: The Association’s controls were not effective to ensure it maintained adequate time and effort documentation, as required by federal regulations and the grantor. During review of payroll costs for the year ended December 31, 2022, it was noted payroll costs were charged according to budgeted time rather than reconciling to actual hours worked. This internal control deficiency is considered to be a significant deficiency. Questioned Costs: None. Context: Procedures included examining payroll charges for 40 randomly selected employees for January through December 2022. Cause: The Association changed the software used for payroll processing from QuickBooks to MIP in July 2020. They then changed their fiscal accounting software from QuickBooks to MIP in January 2021. The new software implementation was fraught with many challenges, one of which being implementing electronic processes that met the time and effort requirements outlined in the Association’s policy manual. Effect: By not keeping proper time-and-effort records, the Association cannot demonstrate compliance with grantor’s requirements that require support for payroll costs charged to the federal program. The Association provided alternate documentation that demonstrated the payroll costs charged to the program were allowable. Therefore, we are not questioning costs. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number 2021-004. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: The Association follow its own documented controls to ensure it prepares adequate time-and-effort documentation to support payroll costs charged to the federal grant. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association’s procedures for processing expenditures, and primarily allocating expenditures to programs, should include controls to ensure that expenditures are charged to proper programs and allocated in accordance with the cost allocation plan. Condition: Expenditures were not properly charged to programs or allocated in accordance with the cost allocation plan. Five of the forty general disbursements tested did not agree to the cost allocation plan. Questioned Costs: None. Context: Our procedures included examining 40 general disbursements from the year under audit. We examined allocation percentages and vendor invoices. We found there were five transactions with allocations that did not agree to the Association’s 2022 cost allocation plan. The transactions tested resulted in an immaterial over-charging to the Head Start program. The effect was not material to the financial statements or to the major program.   Cause: The Association experienced challenges in implementing a new financial reporting system in 2021 that continued throughout the 2022 fiscal year. As part of this, the cost allocation plan was not always correctly applied to payments, ensuring that the appropriate program was charged its correct applicable share. In addition, there was no subsequent review to ensure that the cost allocation plan was applied correctly or that subsequent federal reports were revised. Effect: Expenditures were not charged to programs or allocated correctly. Recommendation: We recommend the Association ensure that expenditures are properly charged to the programs or allocated in accordance with the cost allocation plan. We also recommend the Association re-evaluate and consider simplifying their cost allocation methodology. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: Federal regulations award recipients to submit semi-annual and annual reports in accordance with timelines defined in the award. Amounts reported are required to be complete, accurate and prepared in accordance with the entity’s basis of accounting and be supported by financial statements and schedule of expenditures of federal awards. Condition: The Associations controls were not effective to ensure that reports were submitted timely and that amounts reported were supported by adequate documentation. • The December 31, 2022 annual SF-425 was due April 30, 2023. The report was submitted May 17, 2023. • The December 31, 2022 annual SF-425 overstated total expenditures by $8,634 for award number 10CH01204402. Questioned Costs: None. Context: Our procedures included testing four SF-429 (Real Property Status Reports) and four SF-425 (Federal Financial Report) reports that were required as part of the grant contract provisions and federal reporting requirements. Cause: The Association experienced challenges in implementing a new financial reporting system in 2021 that continued throughout the 2022 fiscal year. As a result, there was no reconciliation or support for amounts reported. Effect: Incorrect financial and non-financial data submitted via these reports may result in potential errors in analysis or other determinations by the federal grantor. This finding did not result in questioned costs since the reports were not used to request reimbursement. Recommendation: We recommend that the Association establishes controls that require timely reporting and support amounts reported. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: As stated in the U.S. Department of Health and Human Services (HHS) Grants Policy Statement, grant recipients are required to implement financial systems that enable grant recipients to maintain effective control over and accountability for all cash under the award. Condition: The Association’s controls were not effective to ensure it performed the bank reconciliation process on an accurate or timely basis. This internal control deficiency is considered to be a significant deficiency. Context: Procedures included examining bank reconciliation reports for the December 2022 period. Bank reconciliations were reviewed for unusual transactions, large reconciling items, and a sample of transactions was traced to supporting documentation such as copies of cleared checks, bank statements, or other items. Cause: The Association changed the software used for processing its bank reconciliations from Intuit QuickBooks Enterprise to MIP Fund Accounting in January 2021. The system migration did not include entering detailed outstanding reconciling items for cash accounts as of December 31, 2020, resulting in the Association having difficulties reconciling their cash accounts on a timely basis. The initial reconciliations included large journal entries to cash accounts that did not have sufficient documentation as support and resulted in the bank reconciliations being redone to properly account for outstanding uncleared items that carried over from the prior fiscal year. This continued throughout the 2022 fiscal year. Additionally, the reconciliation for the general checking account was changed/updated after receipt of the initial trial balance for the 2022 audit, indicating the bank reconciliations are still not being accurately or timely completed. Effect: By not reconciling the bank accounts on a timely basis, the financial reports initially provided for the audit were not accurate. This resulted in the delay of the audit until the bank reconciliations could be properly completed to account for outstanding uncleared items that carried over from prior fiscal years. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number was 2021-002. Recommendation: The Association follow its own documented controls to ensure it prepares bank reconciliations on a timely and accurate basis. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: Accounting principles generally accepted in the United States of America require that amounts be recognized as revenues, with corresponding receivables if applicable, when the product or service has been delivered to a customer and when the dollar amount is readily determinable. Additionally, standards require that advanced payments of funds received, but which are unearned, be recognized as deferred revenue on the statements of financial position. Condition: The Association’s controls were not effective to ensure it was recognizing revenues, receivables, and deferred revenue for reimbursement-based programming in the same period the expenditure occurred. This internal control deficiency is considered to be a significant deficiency. Context: Procedures included examining subsequent cash receipts and vouching to expenditures made during the fiscal year, identifying several such receipts that should have been posted as receivables as of December 31, 2022 but were not. Additionally, we examined general ledger detail and grant agreements related to advanced funding received, but not yet expended, in determining whether or not a liability for unearned revenue existed. Cause: The Association typically records cash receipts on a cash basis instead of accrual basis as stipulated in U.S. GAAP. Effect: By not recording receivables in the correct period, revenues from reimbursement-based awards could be materially misstated. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number was 2021-003. Recommendation: The Association establish controls that allow for the timely and accurate recording of grants and contracts receivable from reimbursement-based awards in the same period as their corresponding expenditures. Additionally, we recommend the Association establish controls to ensure that funds received from advance awards are recognized as revenue when earned. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association is required by a US Department of Agriculture (USDA) loan agreement to fund a reserve account at the sum of $204 each month until a balance of $24,480 is achieved (see Note 4 to the financial statements). Condition: The Association’s controls were not effective to ensure that the required reserve funding deposits were made during the year, per the terms of the loan agreement. This internal control deficiency is considered to be a significant deficiency. Context: Our procedures included examining the reserve account bank statements and bank reconciliation reports. Cause: The Association had turnover in their finance director position and those remaining with the entity did not have familiarity with the terms of the loan agreement. Effect: By not transferring the required amount of funds to the reserve account, they are not in compliance with the terms of their loan agreement. Recommendation: We recommend that Association staff familiarize themselves with the terms of the loan agreement and put controls in place to ensure funds are properly transferred to the reserve account at least annually. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association’s payroll liability accounts did not agree with the actual liabilities owed at year end and required material adjustments were made as part of the audit process. Condition: The Association’s controls were not effective to ensure transactions recorded to payroll liability accounts were appropriate and balances were accurately stated at year end on the trial balance. This internal control deficiency is considered to be a significant deficiency. Context: Our procedures included examining payroll tax filings, payroll registers, and general ledger detail reports and comparing supporting documentation to account balances as of December 31, 2022. Cause: The payroll software is not configured in a way that allows for proper mapping of payroll liability accruals to correct accounts. Additionally, no reconciliation is being performed on a regular basis to ensure liabilities are properly stated. Effect: By not reconciling payroll liabilities on a regular basis, the Association is not able to identify material misstatements in liability balances in a timely manner. Recommendation: We recommend the Association adopt controls to reconcile payroll liability balances at least quarterly. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: As stated above in Finding 2022-001, grant recipients are required to implement financial systems capable of maintaining records that adequately identify the sources of funds for federally assisted activities and the purposes for which the award was used. Condition: A cash disbursement for the purchase of a vehicle did not include documentation supporting the solicitation of at least three bids or a purchase requisition form as required by the client’s internal controls surrounding their procurement procedures. This internal control deficiency is considered to be a significant deficiency. Context: Our procedures included examining general cash disbursements related to the acquisition of property and equipment. Cause: Due to the abrupt departure of their long-tenured finance director, there was no transfer of knowledge on processing of invoices in compliance with the Association’s policy and procedure manual. Effect: By not following their own documented internal controls procedures, the Association puts themselves at risk for material misstatement of financial statements or possible misappropriation of Association assets. Recommendation: We recommend the Association follow its own documented internal controls procedures and ensure that all cash disbursements have proper supporting documentation and proper management approval. View of Responsible Officials: There is no disagreement with this audit finding.

Finding 2022-001 Criteria: As stated in the U.S. Department of Health and Human Services (HHS) Grants Policy Statement, grant recipients are required to meet the standards and requirements for financial management systems set forth or referenced in 45 CFR 74.21 or 92.20, as applicable. Further, financial systems must enable grant recipients to do the following: • Provide accurate, current, and complete financial information about Federal awards. • Maintain records that adequately identify the sources of funds for federally assisted activities and the purposes for which the award was used. • Maintain effective control over and accountability for all cash, real and personal property, and other assets under the award. • Compare actual expenditures or outlays with the approved budget for the award. • Determine the allowability of costs in accordance with the applicable federal cost principles, program regulations, and other regulations cited in the Notice of Award. • Minimize the time elapsing between any advance payment under the award(s) and disbursement of the funds for direct program costs and the proportionate share of any allowable indirect or facilities and administrative costs. Condition: The Association’s controls were not effective to ensure the financial systems migration from Intuit QuickBooks Enterprise to MIP Fund Accounting satisfied the requirements for financial reporting as stipulated by federal regulations and HHS. The initial financial reports provided by the Association did not provide accurate or complete information about the federal awards under its management. Further, initial bank reconciliation reports did not provide proof of effective control over and accountability for cash assets held under the award. This internal control deficiency is considered to be a material weakness. Context: Procedures included examining bank reconciliation reports, general ledger detail reports, and budget vs. actual reports by program and tracing to supporting documentation for a sample of transactions in each operations cycle (cash receipts, cash disbursements, payroll disbursements, journal entries). Cause: The Association changed the software used for maintaining its financial systems from Intuit QuickBooks Enterprise to MIP Fund Accounting in July 2020, beginning with their payroll processing. Full implementation of all other operating cycles occurred effective in January 2021. The system migration did not include adequate vendor support for building a chart of accounts or custom reporting tools to allow for a level of reporting required to produce timely and accurate financial statements for federal reporting needs. Further, the beginning subledgers for accounts receivable and accounts payable, and beginning outstanding reconciling items for cash accounts, were not properly built into the MIP Fund Accounting system during the early implementation process, resulting in the Association having difficulties reconciling their cash accounts. Effect: By not successfully implementing a financial system as required under federal and HHS agency regulations, the Association cannot demonstrate compliance with grantor’s requirements that require accurate, current, and complete financial information regarding the federal awards under its management. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number was 2021-001. Recommendation: The Association continue to work internally and with the software vendor and outside consultants as needed to implement a chart of accounts and custom reporting tools that will assist them in complying with federal regulations regarding its financial system. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association’s procedures for processing expenditures, and primarily allocating expenditures to programs, should include controls that ensure expenditures are properly charged to program and allocated in accordance with the federal grant requirements. The objective of the Assistance Listing 93.600 Head Start program (including Early Head Start and Early Head Start Partnerships) is to promote school readiness of low-income children (including American Indians, Alaska Natives and migrant and seasonal farm workers) by enhancing children’s cognitive, social and emotional development. During the fiscal year ending December 31, 2022, the Association expended $4,546,478 in major program funding. Federal regulations require award recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Federal regulations require the Association to have adequate time-and-effort documentation to support all payroll costs charged to the Head Start awards. 2 CFR 200.430, Compensation – personal services, states, in part: “(i) Standards for Documentation of Personnel Expenses (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (ii) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated…”. Depending on the number and types of activities employees perform, time and effort documentation can be in the form of semi-annual certification or monthly personnel activity reports, such as a timesheet. Condition: The Association’s controls were not effective to ensure it maintained adequate time and effort documentation, as required by federal regulations and the grantor. During review of payroll costs for the year ended December 31, 2022, it was noted payroll costs were charged according to budgeted time rather than reconciling to actual hours worked. This internal control deficiency is considered to be a significant deficiency. Questioned Costs: None. Context: Procedures included examining payroll charges for 40 randomly selected employees for January through December 2022. Cause: The Association changed the software used for payroll processing from QuickBooks to MIP in July 2020. They then changed their fiscal accounting software from QuickBooks to MIP in January 2021. The new software implementation was fraught with many challenges, one of which being implementing electronic processes that met the time and effort requirements outlined in the Association’s policy manual. Effect: By not keeping proper time-and-effort records, the Association cannot demonstrate compliance with grantor’s requirements that require support for payroll costs charged to the federal program. The Association provided alternate documentation that demonstrated the payroll costs charged to the program were allowable. Therefore, we are not questioning costs. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number 2021-004. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: The Association follow its own documented controls to ensure it prepares adequate time-and-effort documentation to support payroll costs charged to the federal grant. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association’s procedures for processing expenditures, and primarily allocating expenditures to programs, should include controls to ensure that expenditures are charged to proper programs and allocated in accordance with the cost allocation plan. Condition: Expenditures were not properly charged to programs or allocated in accordance with the cost allocation plan. Five of the forty general disbursements tested did not agree to the cost allocation plan. Questioned Costs: None. Context: Our procedures included examining 40 general disbursements from the year under audit. We examined allocation percentages and vendor invoices. We found there were five transactions with allocations that did not agree to the Association’s 2022 cost allocation plan. The transactions tested resulted in an immaterial over-charging to the Head Start program. The effect was not material to the financial statements or to the major program.   Cause: The Association experienced challenges in implementing a new financial reporting system in 2021 that continued throughout the 2022 fiscal year. As part of this, the cost allocation plan was not always correctly applied to payments, ensuring that the appropriate program was charged its correct applicable share. In addition, there was no subsequent review to ensure that the cost allocation plan was applied correctly or that subsequent federal reports were revised. Effect: Expenditures were not charged to programs or allocated correctly. Recommendation: We recommend the Association ensure that expenditures are properly charged to the programs or allocated in accordance with the cost allocation plan. We also recommend the Association re-evaluate and consider simplifying their cost allocation methodology. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: Federal regulations award recipients to submit semi-annual and annual reports in accordance with timelines defined in the award. Amounts reported are required to be complete, accurate and prepared in accordance with the entity’s basis of accounting and be supported by financial statements and schedule of expenditures of federal awards. Condition: The Associations controls were not effective to ensure that reports were submitted timely and that amounts reported were supported by adequate documentation. • The December 31, 2022 annual SF-425 was due April 30, 2023. The report was submitted May 17, 2023. • The December 31, 2022 annual SF-425 overstated total expenditures by $8,634 for award number 10CH01204402. Questioned Costs: None. Context: Our procedures included testing four SF-429 (Real Property Status Reports) and four SF-425 (Federal Financial Report) reports that were required as part of the grant contract provisions and federal reporting requirements. Cause: The Association experienced challenges in implementing a new financial reporting system in 2021 that continued throughout the 2022 fiscal year. As a result, there was no reconciliation or support for amounts reported. Effect: Incorrect financial and non-financial data submitted via these reports may result in potential errors in analysis or other determinations by the federal grantor. This finding did not result in questioned costs since the reports were not used to request reimbursement. Recommendation: We recommend that the Association establishes controls that require timely reporting and support amounts reported. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: As stated in the U.S. Department of Health and Human Services (HHS) Grants Policy Statement, grant recipients are required to implement financial systems that enable grant recipients to maintain effective control over and accountability for all cash under the award. Condition: The Association’s controls were not effective to ensure it performed the bank reconciliation process on an accurate or timely basis. This internal control deficiency is considered to be a significant deficiency. Context: Procedures included examining bank reconciliation reports for the December 2022 period. Bank reconciliations were reviewed for unusual transactions, large reconciling items, and a sample of transactions was traced to supporting documentation such as copies of cleared checks, bank statements, or other items. Cause: The Association changed the software used for processing its bank reconciliations from Intuit QuickBooks Enterprise to MIP Fund Accounting in January 2021. The system migration did not include entering detailed outstanding reconciling items for cash accounts as of December 31, 2020, resulting in the Association having difficulties reconciling their cash accounts on a timely basis. The initial reconciliations included large journal entries to cash accounts that did not have sufficient documentation as support and resulted in the bank reconciliations being redone to properly account for outstanding uncleared items that carried over from the prior fiscal year. This continued throughout the 2022 fiscal year. Additionally, the reconciliation for the general checking account was changed/updated after receipt of the initial trial balance for the 2022 audit, indicating the bank reconciliations are still not being accurately or timely completed. Effect: By not reconciling the bank accounts on a timely basis, the financial reports initially provided for the audit were not accurate. This resulted in the delay of the audit until the bank reconciliations could be properly completed to account for outstanding uncleared items that carried over from prior fiscal years. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number was 2021-002. Recommendation: The Association follow its own documented controls to ensure it prepares bank reconciliations on a timely and accurate basis. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: Accounting principles generally accepted in the United States of America require that amounts be recognized as revenues, with corresponding receivables if applicable, when the product or service has been delivered to a customer and when the dollar amount is readily determinable. Additionally, standards require that advanced payments of funds received, but which are unearned, be recognized as deferred revenue on the statements of financial position. Condition: The Association’s controls were not effective to ensure it was recognizing revenues, receivables, and deferred revenue for reimbursement-based programming in the same period the expenditure occurred. This internal control deficiency is considered to be a significant deficiency. Context: Procedures included examining subsequent cash receipts and vouching to expenditures made during the fiscal year, identifying several such receipts that should have been posted as receivables as of December 31, 2022 but were not. Additionally, we examined general ledger detail and grant agreements related to advanced funding received, but not yet expended, in determining whether or not a liability for unearned revenue existed. Cause: The Association typically records cash receipts on a cash basis instead of accrual basis as stipulated in U.S. GAAP. Effect: By not recording receivables in the correct period, revenues from reimbursement-based awards could be materially misstated. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number was 2021-003. Recommendation: The Association establish controls that allow for the timely and accurate recording of grants and contracts receivable from reimbursement-based awards in the same period as their corresponding expenditures. Additionally, we recommend the Association establish controls to ensure that funds received from advance awards are recognized as revenue when earned. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association is required by a US Department of Agriculture (USDA) loan agreement to fund a reserve account at the sum of $204 each month until a balance of $24,480 is achieved (see Note 4 to the financial statements). Condition: The Association’s controls were not effective to ensure that the required reserve funding deposits were made during the year, per the terms of the loan agreement. This internal control deficiency is considered to be a significant deficiency. Context: Our procedures included examining the reserve account bank statements and bank reconciliation reports. Cause: The Association had turnover in their finance director position and those remaining with the entity did not have familiarity with the terms of the loan agreement. Effect: By not transferring the required amount of funds to the reserve account, they are not in compliance with the terms of their loan agreement. Recommendation: We recommend that Association staff familiarize themselves with the terms of the loan agreement and put controls in place to ensure funds are properly transferred to the reserve account at least annually. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association’s payroll liability accounts did not agree with the actual liabilities owed at year end and required material adjustments were made as part of the audit process. Condition: The Association’s controls were not effective to ensure transactions recorded to payroll liability accounts were appropriate and balances were accurately stated at year end on the trial balance. This internal control deficiency is considered to be a significant deficiency. Context: Our procedures included examining payroll tax filings, payroll registers, and general ledger detail reports and comparing supporting documentation to account balances as of December 31, 2022. Cause: The payroll software is not configured in a way that allows for proper mapping of payroll liability accruals to correct accounts. Additionally, no reconciliation is being performed on a regular basis to ensure liabilities are properly stated. Effect: By not reconciling payroll liabilities on a regular basis, the Association is not able to identify material misstatements in liability balances in a timely manner. Recommendation: We recommend the Association adopt controls to reconcile payroll liability balances at least quarterly. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: As stated above in Finding 2022-001, grant recipients are required to implement financial systems capable of maintaining records that adequately identify the sources of funds for federally assisted activities and the purposes for which the award was used. Condition: A cash disbursement for the purchase of a vehicle did not include documentation supporting the solicitation of at least three bids or a purchase requisition form as required by the client’s internal controls surrounding their procurement procedures. This internal control deficiency is considered to be a significant deficiency. Context: Our procedures included examining general cash disbursements related to the acquisition of property and equipment. Cause: Due to the abrupt departure of their long-tenured finance director, there was no transfer of knowledge on processing of invoices in compliance with the Association’s policy and procedure manual. Effect: By not following their own documented internal controls procedures, the Association puts themselves at risk for material misstatement of financial statements or possible misappropriation of Association assets. Recommendation: We recommend the Association follow its own documented internal controls procedures and ensure that all cash disbursements have proper supporting documentation and proper management approval. View of Responsible Officials: There is no disagreement with this audit finding.

Finding 2022-001 Criteria: As stated in the U.S. Department of Health and Human Services (HHS) Grants Policy Statement, grant recipients are required to meet the standards and requirements for financial management systems set forth or referenced in 45 CFR 74.21 or 92.20, as applicable. Further, financial systems must enable grant recipients to do the following: • Provide accurate, current, and complete financial information about Federal awards. • Maintain records that adequately identify the sources of funds for federally assisted activities and the purposes for which the award was used. • Maintain effective control over and accountability for all cash, real and personal property, and other assets under the award. • Compare actual expenditures or outlays with the approved budget for the award. • Determine the allowability of costs in accordance with the applicable federal cost principles, program regulations, and other regulations cited in the Notice of Award. • Minimize the time elapsing between any advance payment under the award(s) and disbursement of the funds for direct program costs and the proportionate share of any allowable indirect or facilities and administrative costs. Condition: The Association’s controls were not effective to ensure the financial systems migration from Intuit QuickBooks Enterprise to MIP Fund Accounting satisfied the requirements for financial reporting as stipulated by federal regulations and HHS. The initial financial reports provided by the Association did not provide accurate or complete information about the federal awards under its management. Further, initial bank reconciliation reports did not provide proof of effective control over and accountability for cash assets held under the award. This internal control deficiency is considered to be a material weakness. Context: Procedures included examining bank reconciliation reports, general ledger detail reports, and budget vs. actual reports by program and tracing to supporting documentation for a sample of transactions in each operations cycle (cash receipts, cash disbursements, payroll disbursements, journal entries). Cause: The Association changed the software used for maintaining its financial systems from Intuit QuickBooks Enterprise to MIP Fund Accounting in July 2020, beginning with their payroll processing. Full implementation of all other operating cycles occurred effective in January 2021. The system migration did not include adequate vendor support for building a chart of accounts or custom reporting tools to allow for a level of reporting required to produce timely and accurate financial statements for federal reporting needs. Further, the beginning subledgers for accounts receivable and accounts payable, and beginning outstanding reconciling items for cash accounts, were not properly built into the MIP Fund Accounting system during the early implementation process, resulting in the Association having difficulties reconciling their cash accounts. Effect: By not successfully implementing a financial system as required under federal and HHS agency regulations, the Association cannot demonstrate compliance with grantor’s requirements that require accurate, current, and complete financial information regarding the federal awards under its management. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number was 2021-001. Recommendation: The Association continue to work internally and with the software vendor and outside consultants as needed to implement a chart of accounts and custom reporting tools that will assist them in complying with federal regulations regarding its financial system. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association’s procedures for processing expenditures, and primarily allocating expenditures to programs, should include controls that ensure expenditures are properly charged to program and allocated in accordance with the federal grant requirements. The objective of the Assistance Listing 93.600 Head Start program (including Early Head Start and Early Head Start Partnerships) is to promote school readiness of low-income children (including American Indians, Alaska Natives and migrant and seasonal farm workers) by enhancing children’s cognitive, social and emotional development. During the fiscal year ending December 31, 2022, the Association expended $4,546,478 in major program funding. Federal regulations require award recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Federal regulations require the Association to have adequate time-and-effort documentation to support all payroll costs charged to the Head Start awards. 2 CFR 200.430, Compensation – personal services, states, in part: “(i) Standards for Documentation of Personnel Expenses (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (ii) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated…”. Depending on the number and types of activities employees perform, time and effort documentation can be in the form of semi-annual certification or monthly personnel activity reports, such as a timesheet. Condition: The Association’s controls were not effective to ensure it maintained adequate time and effort documentation, as required by federal regulations and the grantor. During review of payroll costs for the year ended December 31, 2022, it was noted payroll costs were charged according to budgeted time rather than reconciling to actual hours worked. This internal control deficiency is considered to be a significant deficiency. Questioned Costs: None. Context: Procedures included examining payroll charges for 40 randomly selected employees for January through December 2022. Cause: The Association changed the software used for payroll processing from QuickBooks to MIP in July 2020. They then changed their fiscal accounting software from QuickBooks to MIP in January 2021. The new software implementation was fraught with many challenges, one of which being implementing electronic processes that met the time and effort requirements outlined in the Association’s policy manual. Effect: By not keeping proper time-and-effort records, the Association cannot demonstrate compliance with grantor’s requirements that require support for payroll costs charged to the federal program. The Association provided alternate documentation that demonstrated the payroll costs charged to the program were allowable. Therefore, we are not questioning costs. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number 2021-004. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: The Association follow its own documented controls to ensure it prepares adequate time-and-effort documentation to support payroll costs charged to the federal grant. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association’s procedures for processing expenditures, and primarily allocating expenditures to programs, should include controls to ensure that expenditures are charged to proper programs and allocated in accordance with the cost allocation plan. Condition: Expenditures were not properly charged to programs or allocated in accordance with the cost allocation plan. Five of the forty general disbursements tested did not agree to the cost allocation plan. Questioned Costs: None. Context: Our procedures included examining 40 general disbursements from the year under audit. We examined allocation percentages and vendor invoices. We found there were five transactions with allocations that did not agree to the Association’s 2022 cost allocation plan. The transactions tested resulted in an immaterial over-charging to the Head Start program. The effect was not material to the financial statements or to the major program.   Cause: The Association experienced challenges in implementing a new financial reporting system in 2021 that continued throughout the 2022 fiscal year. As part of this, the cost allocation plan was not always correctly applied to payments, ensuring that the appropriate program was charged its correct applicable share. In addition, there was no subsequent review to ensure that the cost allocation plan was applied correctly or that subsequent federal reports were revised. Effect: Expenditures were not charged to programs or allocated correctly. Recommendation: We recommend the Association ensure that expenditures are properly charged to the programs or allocated in accordance with the cost allocation plan. We also recommend the Association re-evaluate and consider simplifying their cost allocation methodology. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: Federal regulations award recipients to submit semi-annual and annual reports in accordance with timelines defined in the award. Amounts reported are required to be complete, accurate and prepared in accordance with the entity’s basis of accounting and be supported by financial statements and schedule of expenditures of federal awards. Condition: The Associations controls were not effective to ensure that reports were submitted timely and that amounts reported were supported by adequate documentation. • The December 31, 2022 annual SF-425 was due April 30, 2023. The report was submitted May 17, 2023. • The December 31, 2022 annual SF-425 overstated total expenditures by $8,634 for award number 10CH01204402. Questioned Costs: None. Context: Our procedures included testing four SF-429 (Real Property Status Reports) and four SF-425 (Federal Financial Report) reports that were required as part of the grant contract provisions and federal reporting requirements. Cause: The Association experienced challenges in implementing a new financial reporting system in 2021 that continued throughout the 2022 fiscal year. As a result, there was no reconciliation or support for amounts reported. Effect: Incorrect financial and non-financial data submitted via these reports may result in potential errors in analysis or other determinations by the federal grantor. This finding did not result in questioned costs since the reports were not used to request reimbursement. Recommendation: We recommend that the Association establishes controls that require timely reporting and support amounts reported. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: As stated in the U.S. Department of Health and Human Services (HHS) Grants Policy Statement, grant recipients are required to implement financial systems that enable grant recipients to maintain effective control over and accountability for all cash under the award. Condition: The Association’s controls were not effective to ensure it performed the bank reconciliation process on an accurate or timely basis. This internal control deficiency is considered to be a significant deficiency. Context: Procedures included examining bank reconciliation reports for the December 2022 period. Bank reconciliations were reviewed for unusual transactions, large reconciling items, and a sample of transactions was traced to supporting documentation such as copies of cleared checks, bank statements, or other items. Cause: The Association changed the software used for processing its bank reconciliations from Intuit QuickBooks Enterprise to MIP Fund Accounting in January 2021. The system migration did not include entering detailed outstanding reconciling items for cash accounts as of December 31, 2020, resulting in the Association having difficulties reconciling their cash accounts on a timely basis. The initial reconciliations included large journal entries to cash accounts that did not have sufficient documentation as support and resulted in the bank reconciliations being redone to properly account for outstanding uncleared items that carried over from the prior fiscal year. This continued throughout the 2022 fiscal year. Additionally, the reconciliation for the general checking account was changed/updated after receipt of the initial trial balance for the 2022 audit, indicating the bank reconciliations are still not being accurately or timely completed. Effect: By not reconciling the bank accounts on a timely basis, the financial reports initially provided for the audit were not accurate. This resulted in the delay of the audit until the bank reconciliations could be properly completed to account for outstanding uncleared items that carried over from prior fiscal years. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number was 2021-002. Recommendation: The Association follow its own documented controls to ensure it prepares bank reconciliations on a timely and accurate basis. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: Accounting principles generally accepted in the United States of America require that amounts be recognized as revenues, with corresponding receivables if applicable, when the product or service has been delivered to a customer and when the dollar amount is readily determinable. Additionally, standards require that advanced payments of funds received, but which are unearned, be recognized as deferred revenue on the statements of financial position. Condition: The Association’s controls were not effective to ensure it was recognizing revenues, receivables, and deferred revenue for reimbursement-based programming in the same period the expenditure occurred. This internal control deficiency is considered to be a significant deficiency. Context: Procedures included examining subsequent cash receipts and vouching to expenditures made during the fiscal year, identifying several such receipts that should have been posted as receivables as of December 31, 2022 but were not. Additionally, we examined general ledger detail and grant agreements related to advanced funding received, but not yet expended, in determining whether or not a liability for unearned revenue existed. Cause: The Association typically records cash receipts on a cash basis instead of accrual basis as stipulated in U.S. GAAP. Effect: By not recording receivables in the correct period, revenues from reimbursement-based awards could be materially misstated. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number was 2021-003. Recommendation: The Association establish controls that allow for the timely and accurate recording of grants and contracts receivable from reimbursement-based awards in the same period as their corresponding expenditures. Additionally, we recommend the Association establish controls to ensure that funds received from advance awards are recognized as revenue when earned. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association is required by a US Department of Agriculture (USDA) loan agreement to fund a reserve account at the sum of $204 each month until a balance of $24,480 is achieved (see Note 4 to the financial statements). Condition: The Association’s controls were not effective to ensure that the required reserve funding deposits were made during the year, per the terms of the loan agreement. This internal control deficiency is considered to be a significant deficiency. Context: Our procedures included examining the reserve account bank statements and bank reconciliation reports. Cause: The Association had turnover in their finance director position and those remaining with the entity did not have familiarity with the terms of the loan agreement. Effect: By not transferring the required amount of funds to the reserve account, they are not in compliance with the terms of their loan agreement. Recommendation: We recommend that Association staff familiarize themselves with the terms of the loan agreement and put controls in place to ensure funds are properly transferred to the reserve account at least annually. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: The Association’s payroll liability accounts did not agree with the actual liabilities owed at year end and required material adjustments were made as part of the audit process. Condition: The Association’s controls were not effective to ensure transactions recorded to payroll liability accounts were appropriate and balances were accurately stated at year end on the trial balance. This internal control deficiency is considered to be a significant deficiency. Context: Our procedures included examining payroll tax filings, payroll registers, and general ledger detail reports and comparing supporting documentation to account balances as of December 31, 2022. Cause: The payroll software is not configured in a way that allows for proper mapping of payroll liability accruals to correct accounts. Additionally, no reconciliation is being performed on a regular basis to ensure liabilities are properly stated. Effect: By not reconciling payroll liabilities on a regular basis, the Association is not able to identify material misstatements in liability balances in a timely manner. Recommendation: We recommend the Association adopt controls to reconcile payroll liability balances at least quarterly. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: As stated above in Finding 2022-001, grant recipients are required to implement financial systems capable of maintaining records that adequately identify the sources of funds for federally assisted activities and the purposes for which the award was used. Condition: A cash disbursement for the purchase of a vehicle did not include documentation supporting the solicitation of at least three bids or a purchase requisition form as required by the client’s internal controls surrounding their procurement procedures. This internal control deficiency is considered to be a significant deficiency. Context: Our procedures included examining general cash disbursements related to the acquisition of property and equipment. Cause: Due to the abrupt departure of their long-tenured finance director, there was no transfer of knowledge on processing of invoices in compliance with the Association’s policy and procedure manual. Effect: By not following their own documented internal controls procedures, the Association puts themselves at risk for material misstatement of financial statements or possible misappropriation of Association assets. Recommendation: We recommend the Association follow its own documented internal controls procedures and ensure that all cash disbursements have proper supporting documentation and proper management approval. View of Responsible Officials: There is no disagreement with this audit finding.