Audit 400681

Finding 2024‐002–Allowability—MATERIAL WEAKNESS IN INTERNAL CONTROLS OVER COMPLIANCE AND NON-COMPLIANCE Federal Program: The Food Distribution Cluster Assistance Listing Number: 10.565, 10.568 and 10.569 Year(s): 2024 Federal Agency: US Department of Agriculture (USDA) Pass‐Through Agencies: State of CA Department of Social Services, Second Harvest of Silicon Valley, San Francisco Marin Food Bank, Food Link Food Bank, and CAPK Food Bank. Criteria—In accordance with 2 CFR 200.502(g), Federal non-cash assistance food commodities received as part of a Federal award to carry out a Federal program must be valued at fair market value at the time of receipt or the assessed value provided by the Federal agency and must be included in determining Federal awards expended under this part. Condition and Context—We selected 60 food commodity delivery receipts to sub-recipients (Sub-ERAs) for testing of the control related to food distributed to Sub-ERAs at the Division’s Modesto Corps; 45 selections did not have evidence of review, indicating a gap in the related internal controls. The delivery receipt includes the quantity of the food commodities distributed to Sub-ERAs. The monetary value of those food commodities is included in the Schedule. We also made 4 sign-in-sheet selections related to the monthly control over food distributed directly to individuals at the Modesto Corps. The sign-in sheets contained the quantity of food commodities that were distributed which were then used to populate the Schedule. The 4 sign-in-sheet selections did not have evidence of review and do not have evidence of review in accordance with the process flow of the warehouse. The quantity of food commodity is measured in the number of food boxes with each weighing 50 pounds and the monetary value of those food commodities is then included in the Schedule. Further, of the 60 selections tested for allowable costs, one of the selections related to food distributed to individuals at the Modesto Corps had a difference of 45 boxes distributed between what was recorded on the Schedule and what was reflected on the underlying support. This error is a result of lack of reviews being performed over the amount of food distributed directly to individuals at the Modesto Corps. Cause—Management was unaware that evidence pertaining to the review of the distribution of the food commodity items was required to be maintained, which further resulted in the differences in the boxes distributed. Effect—There could be discrepancies between the amount of actual food commodities distributed and the amount recorded on the Schedule, which could lead to incorrect information communicated to the grantor and the eventual cessation of grant funding. Questioned Costs—None. Repeat Finding from Prior Year—Yes. Recommendation— We recommend management take steps to ensure that proper review is performed and evidence of review including adequate documentation of the weight of food items distributed, is maintained. View of Responsible Officials—See Corrective Action Plan.

Finding 2024-003—Eligibility—MATERIAL WEAKNESS IN INTERNAL CONTROLS OVER COMPLIANCE AND MATERIAL NON-COMPLIANCE Federal Program: The Food Distribution Cluster Assistance Listing Number: 10.565, 10.568 and 10.569 Year(s): 2024 Federal Agency: US Department of Agriculture (USDA) Pass‐Through Agencies: State of CA Department of Social Services, Second Harvest of Silicon Valley, San Francisco Marin Food Bank, Food Link Food Bank, and CAPK Food Bank. Criteria—In accordance with the Code of Federal Regulations (7 CFR sections 247.4, 247.7(a), 251.3(d), and 251.5(a)), a sub recipient must be either a public agency or a private entity possessing tax-exempt status under the Internal Revenue Code and must enter into a written agreement with the state agency, or with another recipient agency where permitted, binding it to perform the duties of a recipient agency. Individual recipients must sign the Certificate of eligibility form (EFA-7), which is a self-declaration that they meet all the eligibility requirements to participate in in the program. Specifically, the participants are required to self-declare their household’s gross income is at or below the applicable TEFAP income guideline amount and they are prohibited from selling, bartering, or trading food received through this program. Condition and Context—To test the eligibility of individual recipients, we made a total of 60 selections of individuals who received food commodities from distribution sites that maintained self-declaration forms. Of the 60 selections, there was no evidence that 9 of the individuals signed the self-declaration form. Additionally, the Division managed distribution sites that collectively distributed $1,862,618 of food commodities and did not require or maintain self-declaration forms for the participants. Cause—Management at certain distributions sites was unaware of the grant requirements requiring individuals to self-certify their eligibility and maintain such evidence. Effect—Ineligible individual participants could receive grant funded food commodities instead of eligible participants. Questioned Costs—$1,862,618. Repeat Finding from Prior Year—Yes. Recommendation—We recommend management take steps to ensure the distribution sites require participants to self-certify that they meet the grant eligibility requirements and to maintain such evidence. View of Responsible Officials—See Corrective Action Plan.

Finding 2024‐004—Special Test—Accountability for USDA Foods—MATERIAL WEAKNESS IN INTERNAL CONTROLS OVER COMPLIANCE Federal Program: The Food Distribution Cluster Assistance Listing Number: 10.565, 10.568 and 10.569 Year(s): 2024 Federal Agency: US Department of Agriculture (USDA) Pass‐Through Agencies: State of CA Department of Social Services, Second Harvest of Silicon Valley, San Francisco Marin Food Bank, Food Link Food Bank, and CAPK Food Bank. Criteria—Accurate and complete records must be maintained with respect to the receipt, distribution/use, and inventory of USDA Foods, including end products processed from USDA Foods in TEFAP. Failure to maintain records required by 7 CFR section 250.19 is considered prima facie evidence of improper distribution or loss of USDA Foods and the agency processor or entity is liable for the value of the food or replacement of the food in kind (7 CFR sections 250.16 and 250.19(a)). Condition and Context—For the distribution site at the Division's Modesto Corps, supporting documentation of the inventory counts performed by the warehouse personnel and used by the management to prepare the inventory reports was not maintained. Further, there were no reviews of the inventory reports before they were submitted to the grantor. Cause—Management was unaware that they were required to review the inventory reports for accuracy and completeness and maintain the backup documentation of inventory counts. Effect—The inventory reports submitted to the grantor could contain discrepancies. This could lead to incorrect information being communicated to the grantor. Questioned Cost—None. Repeat Finding from Prior Year—Yes. Recommendation—We recommend management take steps to ensure the documentation related to inventory counts are maintained and the inventory reports are reviewed prior to being submitted to the grantor. View of Responsible Officials—See Corrective Action Plan.

Finding 2024‐005—Period of Performance—SIGNIFICANT DEFICIENCY IN INTERNAL CONTROLS OVER COMPLIANCE AND NONCOMPLIANCE Federal Program: COVID-19 Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) Assistance Listing Number: 21.027 Year(s): 2024 Federal Agency: US Department of Treasury Pass‐Through Agencies: City of Modesto, Sacred Heart Community Service, and Second Harvest of Silicon Valley Criteria—A non-federal entity may charge only allowable costs incurred during the approved budget period of a federal award’s period of performance and any costs incurred before the federal awarding agency or pass-through entity made the federal award that were authorized by the federal awarding agency or pass-through entity (2 CFR sections 200.308, 200.309, and 200.403(h)). A period of performance may contain one or more budget periods. Condition and Context—During testing of the Period of Performance (POP) requirement, 5 selected payroll expenditures totaling $7,983 of a total of 40 selections were incurred prior to the grant's start date as stated in the grant agreement with the pass-through entity, Sacred Heart Community Service. These 5 selections were related to payroll and benefits expenditures and were for the pay period May 19, 2024, to June 1, 2024, whereas the grant start date was June 1, 2024. Although the Division paid for those expenditures after the grant's start date, the underlying expenditure was incurred prior to such date, resulting in noncompliance with the POP compliance requirement and the associated control. There were a total of 42 payroll and benefits transactions totaling $43,861 that were incurred before the grant’s start date. Cause—Management focused on ensuring that the underlying costs were paid for within the grant's approved budget period rather than ensuring that the underlying costs were incurred within that period. Further, management did not obtain authorization from the grantor to charge costs that were incurred before the grant's approved budget period. Effect—The Division will be in noncompliance with its POP compliance requirement and there is risk the grantor will not reimburse the costs incurred. Questioned Cost—$43,861. Repeat Finding from Prior Year—No. Recommendation—We recommend that management take steps to ensure that only costs incurred during the approved budget period of a federal award’s period of performance are charged to the grant and any costs incurred before the federal award was made was authorized by the pass-through entity. View of Responsible Officials—See Corrective Action Plan.