Audit 337223

Condition: The organization does not have documented policies and procedures for several critical federal grant requirements, including:  Allowable, reasonable, and allocable costs  Tracking the period of performance  Financial and performance reporting  Key financial processes, such as disbursements, payroll, and grants management Criteria: 2 CFR 200.302 requires organizations to maintain written policies and procedures for financial management and compliance with federal regulations. Cause: The organization, being relatively new, has not prioritized developing these policies and procedures. Effect: The absence of formal guidance increases the risk of noncompliance and unallowable costs being charged to the federal grant. Recommendation: The organization should prioritize developing and implementing formal written policies and procedures for compliance with federal grant requirements. Questioned Costs: None Management’s Response: The organization has established financial policies and procedures. However, we recognize that these policies did not fully address all areas specific to federal grant requirements. As a relatively new organization, we understand the importance of enhancing these frameworks to ensure full compliance with federal guidelines and to properly manage federal funds. We are committed to addressing this gap and will take immediate action to develop and implement comprehensive policies and procedures that fully comply with all applicable federal grant requirements. We anticipate that this process will be completed within three months, with oversight from senior management to ensure its thoroughness and effectiveness. In addition, key financial processes, including disbursements, payroll, and grants management, will be updated and aligned with these new policies to ensure sound fiscal management and maintain ongoing compliance with federal standards.

Condition: The organization has not implemented a formal risk management process, including:  Assessing risks related to compliance with federal regulations.  Addressing risks associated with regulatory changes.  Evaluating and mitigating fraud risks. Criteria: 2 CFR 200.303 requires entities to establish and maintain effective internal controls, including risk assessments and fraud prevention measures, to ensure compliance with federal regulations. Cause: The organization, being relatively new, has not prioritized developing a structured risk management framework, including fraud risk assessment and mitigation policies. Effect: The lack of a risk management framework and fraud mitigation strategies increases the likelihood of mismanagement, noncompliance, and potential misuse of federal funds. Recommendation: 1. Establish a formal risk management process to identify, assess, and address risks associated with the Federal grant programs (e.g., ERA, TANF, etc.). 2. Develop and implement fraud risk assessment procedures and corresponding mitigation policies. 3. Train staff and management on risk management principles and fraud prevention strategies. Questioned Costs: None Management’s Response: The organization has already taken steps and will continue to take immediate action to establish a formal risk management framework. This will include conducting a comprehensive fraud risk assessment and integrating fraud detection and prevention processes into the organization’s internal controls. A formal risk management policy will be developed and adopted within three months, with regular reviews scheduled thereafter to ensure its continued effectiveness and alignment with the industry’s best practices.

Condition: The organization could not provide copies of periodic financial and performance reports submitted to the federal awarding agency or pass‐through entity for the ERA program. Criteria: 2 CFR 200.328 requires non‐federal entities to submit accurate and timely financial and performance reports to the awarding agency. Cause: The absence of policies and procedures for maintaining these records resulted in their unavailability during the audit. Effect: Failure to maintain these reports limits the ability to substantiate compliance with the reporting requirements. Recommendation: Develop and implement procedures to ensure financial and performance reports are prepared, reviewed, and retained. Questioned Costs: None Management’s Response: Management acknowledges the need to address and enhance this area finding. We are committed to implementing new procedures for recording and tracking program income, including documenting its source, amount, and application. These procedures will be put in place within three months, with oversight provided by senior management to ensure proper compliance and effective implementation.

Condition: For the year ended December 31, 2022, the auditee received $2,300,000 in ERA program funds but only spent $2,112,889, consisting of:  $1,675,129 in direct expenses,  $240,685 in furniture, fixtures, equipment, and leasehold improvements utilized for administering the program, and  $197,075 in indirect cost allocations. This resulted in $187,111 unobligated funds for the ERA program that were not refunded to the grantor. Additionally, the organization spent $327,316 out of $337,290 in TANF grant funds received during the same year, which resulted in $9,974 in unobligated funds that were also not returned to the grantor. The failure to have a process to monitor and return unspent or unobligated funds highlights weaknesses in the organization’s cash and financial management processes and an apparent lack of awareness of the obligation to monitor and return unobligated funds to the grantor agency. Criteria:  2 CFR 200.308(e): Requires non‐federal entities to maintain a comparison of actual expenditures with the approved budget and explain any significant variances.  2 CFR 200.344(d): Requires unobligated balances of federal funds to be returned to the awarding agency unless specifically authorized to retain them.  2 CFR 200.303: Requires entities to establish internal controls over cash management to ensure proper use and reporting of federal funds. Cause: The organization’s failure to perform regular budget‐to‐actual comparisons and establish adequate cash management controls contributed to unspent funds remaining unreturned. Additionally, the Organization did not have an internal control process to monitor the performance period of grants which resulted in management being under the impression it could spend funds beyond the performance period in the grant contract. Effect: The lack of budget monitoring and cash management controls: 1. Increased the risk of noncompliance with federal requirements for unobligated funds. 2. Resulted in the failure to detect and return unobligated balances of $197,085 ($187,111 for the ERA program, $9,974 for the TANF program). 3. Raised concerns about the organization’s oversight and financial management capabilities. Recommendation: 1. Establish and implement procedures for preparing budget‐to‐actual comparisons for all grant programs to monitor variances regularly. 2. Develop cash management controls to ensure timely identification and return of unobligated funds, unless otherwise authorized by the grantor. 3. Strengthen financial oversight to avoid recurrence of these issues and ensure compliance with federal grant requirements. Questioned Costs: $187,111 (ERA Program). Management’s Response: Management agrees with the findings and has already initiated corrective actions. Moving forward, budget‐to‐actual comparisons will be prepared monthly, and any discrepancies will be addressed promptly. The organization will work closely with the cognizant agency to arrange for the return of any unobligated funds or, if applicable, seek authorization to retain the funds for use in other similar programs. This process will ensure proper financial management and compliance.

Condition: The organization lacked documentation of processes for reconciling ERA program reports with the general ledger and trial balance, as well as management’s review and approval of these reconciliations. Criteria: 2 CFR 200.302(b)(5) requires entities to establish controls for ensuring accurate and complete financial reporting. Cause: The organization did not have processes in place for reconciling financial reports during the audit period. Effect: Without reconciliation, there is an increased risk of errors or discrepancies in financial reporting. Recommendation: Develop reconciliation procedures for program reports and ensure they are reviewed and approved by management. Questioned Costs: None Management’s Response: Management acknowledges the issue and will establish and document reconciliation procedures to ensure reports are consistent with the general ledger and trial balance for all future Federal programs. This includes periodic review and approval by management.

Condition: The organization did not prepare corrective action plans to address prior audit findings, monitoring reviews, or internal control deficiencies identified from subrecipient monitoring inspections or reviews performed by the cognizant or pass‐through agency for the ERA program. Criteria: 2 CFR 200.511(c) requires auditees to develop and implement corrective action plans for all findings. Cause: The organization lacked processes for documenting and addressing deficiencies during the audit period. Effect: Without corrective action plans, deficiencies may persist, increasing the risk of noncompliance. Recommendation: Establish a formal corrective action plan process to address audit findings and deficiencies. Questioned Costs: None Management’s Response: Management concurs with the finding and will develop a formal corrective action plan process for addressing findings and deficiencies from audits or inspections. The process will include documentation of actions taken and periodic progress reviews.

Condition: The organization does not have documented policies and procedures for several critical federal grant requirements, including:  Allowable, reasonable, and allocable costs  Tracking the period of performance  Financial and performance reporting  Key financial processes, such as disbursements, payroll, and grants management Criteria: 2 CFR 200.302 requires organizations to maintain written policies and procedures for financial management and compliance with federal regulations. Cause: The organization, being relatively new, has not prioritized developing these policies and procedures. Effect: The absence of formal guidance increases the risk of noncompliance and unallowable costs being charged to the federal grant. Recommendation: The organization should prioritize developing and implementing formal written policies and procedures for compliance with federal grant requirements. Questioned Costs: None Management’s Response: The organization has established financial policies and procedures. However, we recognize that these policies did not fully address all areas specific to federal grant requirements. As a relatively new organization, we understand the importance of enhancing these frameworks to ensure full compliance with federal guidelines and to properly manage federal funds. We are committed to addressing this gap and will take immediate action to develop and implement comprehensive policies and procedures that fully comply with all applicable federal grant requirements. We anticipate that this process will be completed within three months, with oversight from senior management to ensure its thoroughness and effectiveness. In addition, key financial processes, including disbursements, payroll, and grants management, will be updated and aligned with these new policies to ensure sound fiscal management and maintain ongoing compliance with federal standards.

Condition: The organization has not implemented a formal risk management process, including:  Assessing risks related to compliance with federal regulations.  Addressing risks associated with regulatory changes.  Evaluating and mitigating fraud risks. Criteria: 2 CFR 200.303 requires entities to establish and maintain effective internal controls, including risk assessments and fraud prevention measures, to ensure compliance with federal regulations. Cause: The organization, being relatively new, has not prioritized developing a structured risk management framework, including fraud risk assessment and mitigation policies. Effect: The lack of a risk management framework and fraud mitigation strategies increases the likelihood of mismanagement, noncompliance, and potential misuse of federal funds. Recommendation: 1. Establish a formal risk management process to identify, assess, and address risks associated with the Federal grant programs (e.g., ERA, TANF, etc.). 2. Develop and implement fraud risk assessment procedures and corresponding mitigation policies. 3. Train staff and management on risk management principles and fraud prevention strategies. Questioned Costs: None Management’s Response: The organization has already taken steps and will continue to take immediate action to establish a formal risk management framework. This will include conducting a comprehensive fraud risk assessment and integrating fraud detection and prevention processes into the organization’s internal controls. A formal risk management policy will be developed and adopted within three months, with regular reviews scheduled thereafter to ensure its continued effectiveness and alignment with the industry’s best practices.

Condition: The organization could not provide copies of periodic financial and performance reports submitted to the federal awarding agency or pass‐through entity for the ERA program. Criteria: 2 CFR 200.328 requires non‐federal entities to submit accurate and timely financial and performance reports to the awarding agency. Cause: The absence of policies and procedures for maintaining these records resulted in their unavailability during the audit. Effect: Failure to maintain these reports limits the ability to substantiate compliance with the reporting requirements. Recommendation: Develop and implement procedures to ensure financial and performance reports are prepared, reviewed, and retained. Questioned Costs: None Management’s Response: Management acknowledges the need to address and enhance this area finding. We are committed to implementing new procedures for recording and tracking program income, including documenting its source, amount, and application. These procedures will be put in place within three months, with oversight provided by senior management to ensure proper compliance and effective implementation.

Condition: For the year ended December 31, 2022, the auditee received $2,300,000 in ERA program funds but only spent $2,112,889, consisting of:  $1,675,129 in direct expenses,  $240,685 in furniture, fixtures, equipment, and leasehold improvements utilized for administering the program, and  $197,075 in indirect cost allocations. This resulted in $187,111 unobligated funds for the ERA program that were not refunded to the grantor. Additionally, the organization spent $327,316 out of $337,290 in TANF grant funds received during the same year, which resulted in $9,974 in unobligated funds that were also not returned to the grantor. The failure to have a process to monitor and return unspent or unobligated funds highlights weaknesses in the organization’s cash and financial management processes and an apparent lack of awareness of the obligation to monitor and return unobligated funds to the grantor agency. Criteria:  2 CFR 200.308(e): Requires non‐federal entities to maintain a comparison of actual expenditures with the approved budget and explain any significant variances.  2 CFR 200.344(d): Requires unobligated balances of federal funds to be returned to the awarding agency unless specifically authorized to retain them.  2 CFR 200.303: Requires entities to establish internal controls over cash management to ensure proper use and reporting of federal funds. Cause: The organization’s failure to perform regular budget‐to‐actual comparisons and establish adequate cash management controls contributed to unspent funds remaining unreturned. Additionally, the Organization did not have an internal control process to monitor the performance period of grants which resulted in management being under the impression it could spend funds beyond the performance period in the grant contract. Effect: The lack of budget monitoring and cash management controls: 1. Increased the risk of noncompliance with federal requirements for unobligated funds. 2. Resulted in the failure to detect and return unobligated balances of $197,085 ($187,111 for the ERA program, $9,974 for the TANF program). 3. Raised concerns about the organization’s oversight and financial management capabilities. Recommendation: 1. Establish and implement procedures for preparing budget‐to‐actual comparisons for all grant programs to monitor variances regularly. 2. Develop cash management controls to ensure timely identification and return of unobligated funds, unless otherwise authorized by the grantor. 3. Strengthen financial oversight to avoid recurrence of these issues and ensure compliance with federal grant requirements. Questioned Costs: $187,111 (ERA Program). Management’s Response: Management agrees with the findings and has already initiated corrective actions. Moving forward, budget‐to‐actual comparisons will be prepared monthly, and any discrepancies will be addressed promptly. The organization will work closely with the cognizant agency to arrange for the return of any unobligated funds or, if applicable, seek authorization to retain the funds for use in other similar programs. This process will ensure proper financial management and compliance.

Condition: The organization lacked documentation of processes for reconciling ERA program reports with the general ledger and trial balance, as well as management’s review and approval of these reconciliations. Criteria: 2 CFR 200.302(b)(5) requires entities to establish controls for ensuring accurate and complete financial reporting. Cause: The organization did not have processes in place for reconciling financial reports during the audit period. Effect: Without reconciliation, there is an increased risk of errors or discrepancies in financial reporting. Recommendation: Develop reconciliation procedures for program reports and ensure they are reviewed and approved by management. Questioned Costs: None Management’s Response: Management acknowledges the issue and will establish and document reconciliation procedures to ensure reports are consistent with the general ledger and trial balance for all future Federal programs. This includes periodic review and approval by management.

Condition: The organization did not prepare corrective action plans to address prior audit findings, monitoring reviews, or internal control deficiencies identified from subrecipient monitoring inspections or reviews performed by the cognizant or pass‐through agency for the ERA program. Criteria: 2 CFR 200.511(c) requires auditees to develop and implement corrective action plans for all findings. Cause: The organization lacked processes for documenting and addressing deficiencies during the audit period. Effect: Without corrective action plans, deficiencies may persist, increasing the risk of noncompliance. Recommendation: Establish a formal corrective action plan process to address audit findings and deficiencies. Questioned Costs: None Management’s Response: Management concurs with the finding and will develop a formal corrective action plan process for addressing findings and deficiencies from audits or inspections. The process will include documentation of actions taken and periodic progress reviews.