Audit 366733

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 $64,500 is achieved (see Note 4 to the financial statements). Additionally, funds withdrawn from the reserve fund must be approved in advance by USDA. 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. Additionally, $25,000 was withdrawn from the reserve account to cover operating expenses without permission from USDA. 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 and using reserve funds for nonpermissible purposes, they are not in compliance with the terms of their loan agreement. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number was 2023- 001. 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 and that funds used from the reserve account are used for authorized purposes. View of Responsible Officials: There is no disagreement with this audit finding.

Criteria: Accounting principles generally accepted in the United States of America and applicable to not-for-profit entities require that amounts be recognized as revenues once barriers have been overcome that grantors or donors have applied to the conditional receipt of funds. Additionally, standards require that advanced payments of funds received, but which have barriers to unconditional receipt or a right of return to the grantor or donor if restrictions to their use aren’t met, be recognized as deferred revenue on the statements of financial position. Condition: The Association’s controls were not effective to ensure it was recognizing revenue and unearned 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 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 2023- 003. Recommendation: 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: Federal and state grant agreements typically require recipients to maintain effective internal controls over financial reporting. These include accurate and timely submission of required reports; proper documentation and retention of supporting records and review and approval processes to ensure compliance and accuracy. These requirements are also consistent with principles outline in Uniform Guidance (2 CFR Part 200), particularly sections 200.303 (Internal Controls) and 200.328 (Monitoring and Reporting Program Performance). Condition: The Association’s controls were not effective to ensure it was reporting expenditures related to excess meal costs. This internal control deficiency is considered to be a significant deficiency. Context: Our procedures included examining cash disbursements and related invoices for allowable costs. Cause: The Association included 100% of costs related to the nutrition program. In prior years, the Association recorded nutrition reimbursement revenue received from the State as a reduction in expense. When creating reimbursement requests from the Head Start program, only the excess meal costs were included. The Association changed its accounting practice in 2024 and recorded State meal reimbursement as revenue. However, they did not change how they prepared reimbursement requests from Head Start. As a result, 100% of meal costs were included in reimbursement requests. The Association reconciled this program with the final claim for 2024, which was prepared in 2025. Therefore, there are no questioned costs, as only the excess cost of meals was charged to the program. Effect: Weak internal controls over grant drawdowns and reporting increase the risk of reimbursement for unallowable costs; inaccurate performance reporting and potential loss of funding or reputational damage. Recommendation: The Association establish controls that allow for accurate reporting of expenditures when requesting reimbursement from grantors. View of responsible officials: There is no disagreement with this audit finding.

Type of Finding: Significant Deficiency in Internal Control over Compliance - Reporting 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 Association’s controls were not effective to ensure that reports were submitted timely and that amounts reported were supported by adequate documentation. • The December 31, 2024 final SF-425 for Contract #10CH01204404 was due April 30, 2024. Although the report was submitted prior to the due date, it was not accepted by the granting agency. The Association did not receive any extension from the granting agency and a final report was not available as of the date of the audit. • During the federal agency monitoring review conducted subsequent to the audit period, the Association was found to have omitted required administrative cost information on the SF-425. This omission resulted in an incomplete financial report submission. Context: Our procedures included testing four SF-429 (Real Property Status Reports) and two 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 2024 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. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number was 2023- 004. 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.