Finding: Management override of internal controls. Criteria: Management is responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Condition and Context: As discussed in Section IIA, management override resulted in the improper allocation of expenses, to federal grants. See above for detail.
Finding: Failure to adequately document adherence to procurement compliance requirements Criteria: Per the Office of Management and Budget Compliance Supplement (2 CFR Part 200, Appendix XI), procurement is a relevant compliance requirement for recipients of federal funding under the Unaccompanied Children Program. The recipient must maintain written standards of conduct covering conflicts of interest and governing the actions of its employees engaged in the selection, award, and administration of contracts. Further, they must follow proper procurement procedures. • Procurement records. The recipient or subrecipient must maintain records sufficient to detail the history of each procurement transaction. These records must include the rationale for the procurement method, contract type selection, contractor selection or rejection, and the basis for the contract price. • Formal procurement methods. Formal procurement methods are required when the value of the procurement transaction under a Federal award exceeds the simplified acquisition threshold of the recipient or subrecipient. Formal procurement methods are competitive and require public notice. • Informal procurement methods. When the value of the procurement for property or services under a Federal award does not exceed the simplified acquisition threshold (SAT) ($250,000), as defined in § 200.1, or a lower threshold established by a non-Federal entity, formal procurement methods are not required. The non-Federal entity may use informal procurement methods to expedite the completion of its transactions and minimize the associated administrative burden and cost. The informal methods used for procurement of property or services at or below the SAT include micro-purchases (generally, the acquisition of supplies or services whose aggregate amount does not exceed $10,000) and small purchases (the acquisition of property or services where the aggregate dollar amount is higher than the micro-purchase threshold but does not exceed the simplified acquisition threshold). If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources as determined appropriate by the non-Federal entity.Condition and Context: During our audit, we identified significant expenditures categorized as Cleaning Expense and Repairs and Maintenance charged to the Unaccompanied Minor Programs paid to one vendor (“the Contractor”). Review of the Cayuga Centers website shows that a member of the Board of Directors during the period under audit was also the owner of the Contractor. We inquired with management if the Organization went out to bid on the renovations charged to repairs and maintenance in the current year. Management noted that at the start of the UC Transitional Contract, the President at that time met with several vendors regarding work to be done on the building. As the Contractor was already doing other work for the building, the President made the decision to continue using the Contractor. The President has since separated from the Organization and management was unable to provide any official documentation regarding bid/price comparisons made. The Organization provided emails dated throughout 2014 which included fragmented information regarding management contacting contractors at that time. The information provided was not sufficient to support the assertion that management followed proper procedures with respect to obtaining bids for significant procurement activities in fiscal year ended June 30, 2024. In addition to the renovations, the total amounts paid for repairs, security, and maintenance exceeded the micro-purchase threshold and therefore should have documentation regarding the procurement decisions. Amounts charged to the grant are listed below. Cause: The Organization was unable to provide proof of proper procurement procedures being followed for expenditures paid to the Contractor due to the former President separating from the Organization and not maintaining relevant documentation. Result: Amounts paid to the Contactor for renovations are included in the Summary of Unallowable Costs. See finding 2024-011. Amounts paid to the contractor for repairs, security, and maintenance are included in the Summary of Questioned Costs for failure to adequately document the use of proper procurement procedures. In several instances, these expenses also resulted in the Organization going over the total approved budget by cost category. See the Summary of Questioned Costs for detail. Recommendation: We recommend the Organization establish procedures to review significant recurring expenditures to ensure they are following the procurement procedures as required under the Code of Federal Regulations and Compliance Supplement.
Finding: Use of funds for unallowed (non-program) activities. Criteria: Activities Allowed or Unallowed Per the Office of Management and Budget Compliance Supplement (2 CFR Part 200, Appendix XI), activities allowed or unallowed is a relevant compliance requirement for the Unaccompanied Children Program cluster. Per the Compliance Supplement, funds may only be used for activities and categories listed in the approved budget to provide temporary shelter and other child-welfare related services for the care of an unaccompanied child paced with the nonfederal (recipient) entity by ORR. Condition and Context: During our audit, we noted the unaudited profit and loss by class was showing significant income in excess of expenses for the Unaccompanied Children Programs. Based on discussions with the former President of the Organization, it was his belief that the indirect cost line of the budget was analogous to an “administrative allowance”, and that this could be used to offset the losses of direct costs from other programs. This is an inaccurate definition of the indirect cost budget item. Per the grant contracts, indirect costs should be calculated based a pre-approved rate times direct salary expense. Cause: An incomplete/ inaccurate understanding of grant requirements resulted in the former President instructing employees to improperly allocate expenditures to the Unaccompanied Minors programs for activities that were not related to providing temporary shelter and other child welfare related services for unaccompanied children. Result: Amounts identified as unallowable costs per the compliance guidance have been included in the contract liability as disclosed in Note 12. See the Summary of Unallowable Costs and Questioned Costs tables for detail on page 56. Recommendation: The auditors recommend the Organization ensure that individuals responsible for the oversight of expenditures and grant management have an in-depth understanding of grant requirements. A dedicated individual should be responsible for reviewing and understanding grant contracts and related regulatory requirements including but not limited to the applicable Health and Human Services grant policies, and Titles 2 (Federal Financial Assistance) and 45 (Public Welfare) of the Code of Federal Regulations. That individual should have the requisite skills, knowledge, and experience to interpret and apply compliance guidance and generally accepted accounting standards in the U.S.
Finding: Failure to apply proper cost principles including tracking expenses against approved budget. Criteria: Allowable Costs/ Cost Principles (Non-profit Organization) Per the Office of Management and Budget Compliance Supplement (2 CFR Part 200, Appendix XI), allowable costs/cost principles is a relevant compliance requirement for the Unaccompanied Children Program cluster. Per the Compliance Supplement, nonprofit recipients of the Unaccompanied Children grant must follow the cost principles in 2 CFR Part 200 Subpart E (Cost Principles). Basic guidelines under this guidance states that costs must meet criteria including but not limited to: A. Be necessary and reasonable for the performance of the federal award and be allocable thereto under the principles in 2 CFR Part 200, Subpart E. B. Conform to any limitations or exclusions set forth in 2 CFR Part 200, Subpart E or in the federal award as to types or amount of cost items. C. Be adequately documented. Condition and Context, and Cause: As discussed above, the long-time CFO separated from the Organization and the former President directed employees to allocate expenses which did not relate the Unaccompanied Children’s Programs based on an inaccurate understanding of allowable cost principles. Prior to separation, the CFO had procedures in place to ensure that only allowable expenses related to the Unaccompanied Children Programs were allocated to the grants. This included but was not limited to the use of an “804- Non-reimbursable” classification in the general ledger, and a “UC Draw” spreadsheet which tracked and reconciled cash draws from the UC program with expenses incurred and remaining available budget amounts. After her departure, both procedures were discontinued. The Draw Sheet continued to be filled out, however it only provided actual cash drawn with no reconciliation to expenditures. The Organization is not required to submit detailed vouchers under the grants. However, under the 2 CFR Subpart 200 guidance, expenditures must be adequately documented. During our audit, the Organization was initially unable to provide a detailed breakdown of invoices/qualifying expenditures correlating with cash draw requests. It was determined that the Organization was not tracking the cash draw requests based on qualifying expenditures, but rather the cash needs of the Organization as a whole with little to no consideration of allowable costs under the budget. Per the Compliance Supplement: Amounts approved under budget line items in awards are not automatically approved for drawdown. Drawdowns and the related reporting of expenditures to ACF via the Standard Form (SF)-425, "Federal Financial Report," must be based on actual expenditures incurred. Additionally, SF-425 reporting must be based on the entity's basis for accounting (e.g., cash or accrual) as designated by the recipient in their financial records and audited financial statements The Organization was using the class system in the general ledger to allocate direct expenses to the programs; however, the general ledger did not correlate with actual cash drawn from the program. See finding below regarding cash management and finding detail of questioned costs relating to budget overages and allowable activities. Result: Amounts related to failure to comply with compliance procedures are summarized in the accompanying Summary of Questioned costs schedule. Amounts are not included in the contract liability discussed in Note 12, as the Granting Agency has the authority to determine if noncompliance with procedures will result in disallowed expenditures. Recommendation: The auditors recommend the Organization re-implement internal controls to track allowable expenditures and reconcile qualifying costs with cash draws.
Finding: Improper cash draws- expenses drawn without regard to expenses incurred. Criteria: Cash Management Per the Office of Management and Budget Compliance Supplement (2 CFR Part 200, Appendix XI), cash management is a relevant compliance requirement for the Unaccompanied Children Program cluster. Per the Notice of Award for all three Unaccompanied Children Funds may be drawn either as a reimbursement, or to accommodate your immediate cash needs. Funds drawn from PMS must not be held in excess of three (3) working days. Drawdown payment requests from PMS must be made consistent with 45 CFR 75.305 – Payment: “(b) …For non-Federal entities other than states, payments methods must minimize the time elapsing between the transfer of funds from the United States Treasury or the pass- through entity and the disbursement by the non-Federal entity whether the payment is made by electronic funds transfer, or issuance or redemption of checks, warrants, or payment by other means”. Condition, Context, and Cause: As discussed above, the Organization was making cash draws from the PMS system without regard to timing of actual allowable expenditures. During our audit, we noted several instances of cash draws in excess of identified expenditures for the period. Result: Amounts identified as unallowable costs per the compliance guidance have been included in the contract liability as disclosed in Note 12. See the Summary of Unallowable Costs and Questioned Costs tables for detail on page 56. Recommendation: The auditors recommend the Organization re-implement internal controls to track allowable expenditures and reconcile qualifying costs with cash draws.
Finding: Improper cash draws- expenses including non-cash accruals Criteria: Cash Management As discussed above, amounts drawn should be related to actual expenditures. During our testing, we noted changes in the accrued vacation amounts being allocated to the UC Programs. Vacation when paid out is reflected in salary expense, therefore the vacation expense account does not reflect actual Cash expended. Condition, Context, and Cause: During our testing, we noted changes in the accrued vacation amounts being allocated to the UC Programs. Vacation when paid out is reflected in salary expense, therefore the vacation expense account does not reflect actual Cash expended. As such, vacation accruals charged to the grant have been included in the Summary of Unallowable Costs. See discussion above at 2024-006. For additional context. Result: Amounts identified as unallowable costs per the compliance guidance have been included in the contract liability as disclosed in Note 12. See the Summary of Unallowable Costs and Questioned Costs tables for detail on page 56. Recommendation: The auditors recommend the Organization re-implement internal controls to track allowable expenditures and reconcile qualifying costs with cash draws.
Finding: Unallowable administrative costs charged as direct expenses. Criteria: Allowable Costs/ Cost Principles (Non-profit Organization) Per the Code of Federal Regulations § 75.467 Selling and marketing costs., costs of selling and marketing any products or services of the non-Federal entity (unless allowed under § 75.421) are unallowable, except as direct costs, with prior approval by the HHS awarding agency when necessary for the performance of the Federal award. Per the Code of Federal Regulations § 200.449 Interest, costs incurred for interest on borrowed capital, temporary use of endowment funds, or the use of the recipient's or subrecipient's own funds are unallowable. Condition and Context, and Cause: During our audit, we identified unallowable marketing and financing expenditures allocated to the UC grants. See discussion above at 2024-006 for background on failure to track allowable costs. Result: Amounts identified as unallowable costs per the compliance guidance have been included in the contract liability as disclosed in Note 12. See the Summary of Unallowable Costs and Questioned Costs tables for detail on page 56. Recommendation: The auditors recommend the Organization re-implement internal controls to track allowable expenditures and reconcile qualifying costs with cash draws.
Finding: Incorrect calculation of indirect cost rate. Criteria: Allowable Costs/ Cost Principles (Non-profit Organization) Per the Health and Human Services Grant Policy Document: "For all recipients […] the negotiated rate in effect at the beginning of each budget period will be used as the basis for determining indirect costs for that budget period. Per the contracts and final rate notifications referenced below, direct salaries and wages excluding fringe benefits are the base for indirect expense allocations. Condition and Context, and Cause: During our audit, we recalculated the indirect cost allocations and noted the Organization was not utilizing the approved rates or cost base in the administrative expense allocation. Amounts were considered unallowable if expenditures exceeded allowable salary expense multiplied by the approved cost rates in the applicable budget periods. See discussion above at 2024-006 additional context/cause. Result: Amounts identified as unallowable costs per the compliance guidance have been included in the contract liability as disclosed in Note 12. See the Summary of Unallowable Costs and Questioned Costs tables for detail on page 56. Recommendation: The auditors recommend the Organization re-implement internal controls to track allowable expenditures and reconcile qualifying costs with cash draws.
Finding: Direct charges for major improvements of real property. Criteria: Allowable Costs/ Cost Principles (Non-profit Organization) Per the Compliance Supplement for UC programs, improper direct charging of costs related to the acquisition, construction, or major capital improvements of real property is unallowable. Funding under this program cannot be directly used for any of these purposes as the program does not have statutory authority to do so. Expenses such as direct charges of acquisition costs, mortgage principal and interest payments, and direct charges for alterations to real property which are considered major capital improvements* and required to be capitalized and depreciated under GAAP, are unallowable as direct charges to the UC Program awards. Only depreciation properly calculated (see 45 CFR 75.436), recorded, and supported by the recipient organization in accordance with GAAP may be charged to UC Program awards. Condition and Context, and Cause: During our audit, noted to charges to the UC programs which were unallowable per the above criteria. See discussion above at 2024-006 additional context/cause. Result: Amounts identified as unallowable costs per the compliance guidance have been included in the contract liability as disclosed in Note 12. See the Summary of Unallowable Costs and Questioned Costs tables for detail on page 56. Recommendation: The auditors recommend the Organization re-implement internal controls to track allowable expenditures and reconcile qualifying costs with cash draws.
Finding: Direct charges for property taxes. Criteria: Allowable Costs/ Cost Principles (Non-profit Organization) Per the Compliance Supplement for UC programs, excessive charges for facility expenditures related to leasing agreements are not allowable. Recipients that lease facilities under an arm's length transaction are unable to incur and charge ownership-type costs to the award. This includes normal costs of ownership such as depreciation, maintenance costs, taxes, and insurance. Per the supplement, the portion of arm's length leases in which the recipient is required to pay any combination of property taxes, property insurance, and maintenance/repair costs separate from the base rental amount, are unallowable for reimbursement eligibility under the federal award. Condition and Context, and Cause: During our audit, we tested a selection of rent expense charged to the general ledger and noted that the charges included property taxes in addition to base rent. See discussion above at 2024-006 additional context/cause. Result: Amounts identified as unallowable costs per the compliance guidance have been included in the contract liability as disclosed in Note 12. See the Summary of Unallowable Costs and Questioned Costs tables for detail on page 56. Recommendation: The auditors recommend the Organization re-implement internal controls to track allowable expenditures and reconcile qualifying costs with cash draws.
Finding: Late and inaccurate reporting. Criteria: Reporting Per the Office of Management and Budget Compliance Supplement (2 CFR Part 200, Appendix XI), reporting is a relevant compliance requirement for the Unaccompanied Children Program cluster. Per the Supplement, the recipient is required to submit FFR SF 425 (Standard Form Federal Financial Reports) quarterly. Per the FFR report instructions, quarterly and semi-annual reports are due no later than 30 days after each reporting period. An annual FFR SF 425 is due 90 days after each budget period. Condition, Context, and Cause : During our audit, we tested seven of ten SFR 425 filings. We obtained copies of the reports submitted from the Organization to determine if the reports were prepared in accordance with the required accounting basis and if all applicable amounts were reported. We noted five of seven reports tested were not filed by the applicable deadlines. We attempted to trace amounts reported per the SF 425s to the accounting records to support the audited financial statements and Schedule of Federal Awards but identified several discrepancies detailed below. Line 10a Cash Receipts should represent all drawdown requests on a cumulative basis from the start of the project period through the quarter being reported on. Four of seven reports tested agreed to underlying support without exception or with trivial differences. One of seven reports tested (Home Study and Post Release for the period ended 12/31/23) improperly excluded one cash draw of $596,136 which was deposited to the Organization’s bank statement on 12/28/23. One of seven reports tested (Home Study and Post Release for the period ended 6/30/24) reported cash draws of approximately $9.7M representing amounts drawn only in 2024 Q2 (4/1/24-6/30/24). Actual cumulative draws spanning from the beginning of the project period January 1, 2024 through June 30, 2024, were approximately $18.9M. One of seven reports tested (Residential Shelter Services for the Period ended 12/31/23) reported cash draws of approximately $44.4M. This report improperly excluded one cash draw of $3,789,827 which was deposited to the Organization’s bank statement on 12/28/23. An additional immaterial understatement of cash draws per the SFR 425 of $25,000 was identified. Line 10b Cash Disbursements per the SFR should represent the cumulative amount of Federal Fund Disbursements as of the reporting period end date. Disbursements are the sum of actual cash disbursements for direct charged for good and services, and amount of indirect expense charged to the award, and any amount of cash advances and payments made to subrecipients and contractors. Line 10e Federal Share of Expenditures per the SFR for reports prepared on an accrual basis expenditures are the sum of cash disbursements for direct charges for property and services; the amount of indirect expense incurred; and the net increase or decrease in the amounts owed by the recipient for (1) goods and other property received; (2) services performed by employees, contractors, subrecipients, and other payees; and (3) programs for which no current services or performance are required. For seven of seven reports selected, we were unable to agree amounts reported per SFR 425 Lines 10b and 10e to general ledger reports. In all cases, the cash disbursements and deferral share of expenditures were reported as being equal to federal draws. As previously discussed throughout the report, the Organization was not properly tracking these amounts throughout the period to ensure proper reporting.