Audit 373330

Finding 2023-006 – Timely Submission of the Single Audit Agency: U.S. Department of Health and Human Services – Administration for Children and Families Federal program: Child Care and Development Block Grant (CCDBG) ALN: 93.575 Compliance requirement: Reporting Category: Significant Deficiency in Internal Control over Compliance and Noncompliance Questioned costs: None Repeat finding: No Condition: As of the date of this report, Semillitas de Amor, Inc. has not submitted the Single Audit reporting package for the fiscal year ended December 31, 2023, to the Federal Audit Clearinghouse (FAC). The reporting deadline was September 30, 2024. Criteria: 2 CFR 200.512(a) requires auditees to submit the Single Audit reporting package, including the financial statements, schedule of expenditures of federal awards (SEFA), auditor’s reports, and corrective action plan, to the FAC no later than the earlier of 30 calendar days after receipt of the auditor’s report(s) or nine months after the end of the audit period. Cause: Management did not have sufficient procedures in place to ensure timely completion and submission of the Single Audit. The audit process was initiated after the regulatory deadline due to delays in closing the financial records and subsequent difficulties in engaging an auditor. Effect: Failure to submit the Single Audit reporting package within the required timeframe represents noncompliance with federal requirements and may impact the entity’s eligibility for current and future federal funding. Federal agencies and pass-through entities are not able to rely on timely audit results to monitor the use of federal funds. Recommendation: We recommend that management establish and implement procedures to ensure the timely completion of the financial statement close and audit process, including engaging auditors well in advance of the required deadline, to comply with the federal reporting requirements.

Finding 2023-007 – Payroll and Cash Management Deficiencies Agency: U.S. Department of Health and Human Services – Administration for Children and Families Federal program: Child Care and Development Block Grant (CCDBG) ALN: 93.575 Compliance requirement: Cash Management (2 CFR 200.305) Category: Material Weakness Questioned costs: None Repeat finding: No Condition: When federal cash balances were insufficient, payroll was temporarily paid from private funds. Upon receipt of federal reimbursements, Semillitas de Amor issued payroll checks from the federal account to the same employees, instructing them to return such funds to the private account. Some employees did not return the full amounts, resulting in receivables from employees in the private fund. No formal interfund entries or tracking logs were maintained. Criteria: 2 CFR 200.305 requires federal funds to be managed to minimize the time between drawdowns and disbursements, with adequate controls to ensure funds are used only for allowable costs and properly transferred. Cause: Management lacked adequate cash management controls and relied on informal repayments by employees. Effect: While no questioned costs were identified since payroll was allowable, the process distorted financial records and represents material weakness and noncompliance with cash management requirements. Importantly, the receivables that resulted from incomplete repayments were recorded entirely in the private (non-federal) fund. No amounts were misstated in the federal fund, and no federal expenditures, obligations, reimbursements, or SEFA amounts were affected. Because the underlying payroll costs were allowable, allocable, and properly chargeable to the federal program under 2 CFR 200 Subpart E, this condition did not result in questioned costs. The financial distortion and control impact were limited exclusively to the private fund. Recommendation: We recommend that management discontinue the practice of issuing duplicate payroll checks to employees. When federal cash is not available at the time payroll must be processed, management should transfer the exact amount of funds needed from the private account to the federal account prior to payroll. Payroll should then be processed directly from the federal account. Once the federal reimbursement is received, the private account should be reimbursed through a documented interfund transfer, supported by reconciliations and approved by management. This procedure ensures that employees are paid only once, that payroll is always disbursed from the correct account, and that interfund transactions are transparent and properly documented. Management should also establish written procedures for this process and maintain a detailed interfund log with dates, amounts, and approvals.