Finding 2025-004: Reportable finding considered a material weakness – Review and approval of expenses Program name: WIOA Cluster Assistance Listing: 17.258 Federal awarding agency: U.S. Department of Labor Pass-through entity: Maryland State Department of Labor Award identification number: P56-MG-PY25-A Award Years: 2024/2025 Criteria: Under 2 CFR 200.303, the non-federal entity must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: During our review of the detailed expenses charged to the federal award, we noted certain expense reimbursements with the description “deduct from reimbursement.” These items were employees personal credit card transactions that should not have been included in the expense reimbursements, however, we noted two additional transactions with similar descriptions that were reimbursed to the employee and charged to the federal award. The three transactions totaled $46. Cause: The Organization does have a process and controls in place to identify and prevent such occurrences, however, there was a breakdown in internal controls and these transactions were not identified during the review and approval process. Effect: Unallowable expenses were charged to the award. An employee was reimbursed for personal credit card expenses and these transactions were charged to the federal awards. Without sufficient review of expense details additional unallowable costs could be charged to the award. Repeat finding: This is not a repeat finding. Questioned costs: Known questioned costs are $46. Perspective: These transactions were identified in the process of determining the amount of further noncompliance due to other noncompliance issues noted during the audit. The issue appears to be isolated to these transactions. No other instances of improper reimbursement were found during our testing. Overall expense reimbursements to the award are not significant so material noncompliance or likely questioned costs are unlikely. Recommendation: We suggest that the Organization review and update internal controls to ensure that similar expenses do not get charged to the federal awards in the future. As part of the updated internal controls, employees performing the reviews should understand the importance of the review process and trained on allowable costs principles addressed in 2 CFR Part 200.401. Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2025-002: Reportable finding considered a material weakness – Expenses incurred outside of the period of performance Program name: WIOA Cluster Assistance Listing: 17.278, 17.258 Federal awarding agency: U.S. Department of Labor Pass-through entity: Maryland State Department of Labor Award identification number: P56-MG-FY25-A, P56-MG-FY25-D Award Years: 2024/2025 Criteria: Section 2 CFR 200.458 addresses the allowability of pre-award costs under the Uniform Guidance. The regulation provides that pre-award costs are costs incurred before the start date of a Federal award or subaward that are incurred in anticipation of the award and are necessary for the efficient and timely performance of the scope of work. Under this section, pre-award costs are allowable only if all of the following conditions are met: •The costs would have been allowable if incurred after the start date of the Federal award. •The costs are incurred directly pursuant to the negotiation and in anticipation of the Federalaward. •The costs have written approval from the Federal awarding agency (or pass-through entity, asapplicable) Condition: The Organization charged and billed pre-award costs incurred prior to the start date (October 1, 2024) for multiple federal awards without obtaining written approval from the pass-through entity prior to incurring those costs. As a result, the Organization was reimbursed for expenses that were incurred outside of the period of performance and unallowable under federal regulations. Audit adjustments were required to remove these amounts from the Schedule of Federal Awards. Cause: The Organization did not have sufficiently designed or implemented policies and procedures to ensure that pre-award costs were identified and segregated from allowable expenditures, and written approval from the federal awarding agency was obtained prior to charging pre-award costs to the federal award. Effect: The Organization claimed and was reimbursed for unallowable costs under 2 CFR 200.458. Failure to maintain effective controls over cost allowability increases the risk of noncompliance, questioned costs, and potential repayment of federal funds. Repeat finding: This is not a repeat finding. Questioned costs: Known questioned costs of $403,805 were identified by reviewing each transaction prior to the award date and for the month after the award began to ensure there are no likely questioned costs. Perspective: The awards noted were the only ones where pre-award costs were identified. No additional charges or related awards were noted. Recommendation: We recommend that the Organization: •Formalize and implement written policies and procedures governing the identification,approval, and accounting for pre-award costs. •Require documented written approval from the federal awarding agency prior to charging anypre-award costs to federal awards. •Provide training to program and finance personnel on Uniform Guidance cost allowabilityrequirements, including 2 CFR 200.458 and 2 CFR 200.403. •Implement supervisory review controls to ensure costs charged to federal awards are incurredwithin the approved period of performance or have documented prior approval. Management’s response and corrective action plan (unaudited): See corrective action plan
Finding 2025-003: Reportable finding considered a material weakness – Allocation of expenses Program name: WIOA Cluster Assistance Listing: 17.278, 17.258, 17.259 Federal awarding agency: U.S. Department of Labor Pass-through entity: Maryland State Department of Labor Award identification number: P46-MG-PY23-Y, P56-MG-PY24-Y, P56-MG-PY24-A, P56-MG-FY25-A, P56-MG-PY24-D, P46-MG-FY24-D, P56-MG-FY25-D Award Years: 2024/2025 Criteria: Federal regulations require that costs charged to federal awards be allocable, properly distributed, and in compliance with program-specific statutory restrictions. •2 CFR 200.405(a) and (d) require that costs benefiting more than one federal program beallocated based on the relative benefits received, using reasonable and documented methods whenprecise proportions cannot be determined. Costs may not be charged to a particular award toavoid restrictions imposed by federal statutes or regulations. •2 CFR 200.405(c) prohibits charging costs allocable to one federal award to another federalaward to circumvent program restrictions or funding limitations. •20 CFR 683.130(b) explicitly states that Local Workforce Development Boards may not transferfunds to or from the WIOA Youth program, while transfers between Adult and DislocatedWorker programs are permitted only with the Governor’s written approval. Condition: During the audit, the Organization allocated certain shared expenditures within the WIOA Cluster entirely to the Youth program. These costs were not specifically identifiable to a single program and to be consistent with the Organization’s established methodology, should have been allocated evenly among the Adult, Dislocated Worker, and Youth programs. Cause: The allocation errors among the WIOA programs were caused by changes within the finance department, which resulted in a lapse in institutional knowledge related to: •WIOA-specific restrictions on fund transfers involving the Youth program, and •Proper application of the Organization’s cost allocation methodology for shared costs within theWIOA Cluster. Effect: The improper allocation of expenditures to the Youth program resulted in known questioned costs related to costs charged in violation of WIOA transfer restrictions and increased risk that expenditures could be charged to restricted programs in future periods without timely detection. Although the costs were subsequently corrected and no likely questioned costs were identified, the deficiency represents a material weakness in internal control over compliance because it relates to a fundamental compliance requirement applicable to the WIOA Cluster and resulted in questioned costs. Repeat finding: This is not a repeat finding. Questioned costs: Known questioned costs are $161,520 and there are no likely questioned costs. Perspective: All transactions initially allocated entirely to the Youth program were individually tested, and no additional misallocations were identified beyond the known questioned costs described above. Recommendation: We recommend that the Organization: •Enhance written policies and procedures related to cost allocation within the WIOA Cluster,explicitly addressing restrictions applicable to the Youth program. •Require supervisory review and approval of all allocation entries affecting WIOA programs toensure compliance with 2 CFR 200.405 and 20 CFR 683.130. •Provide targeted training to management and accounting personnel on WIOA-specificcompliance requirements, particularly restrictions on transfers involving the Youth program. •Implement periodic monitoring controls to verify that shared costs are allocated using theapproved methodology and are consistent with federal program requirements. Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2025-005: Reportable finding considered a significant deficiency – Accounting for expenses covered under the resource sharing agreement Program name: WIOA Cluster Assistance Listing: 17.278, 17.258, 17.259 Federal awarding agency: U.S. Department of Labor Pass-through entity: Maryland State Department of Labor Award identification number: P46-MG-PY23-Y, P56-MG-PY24-Y, P56-MG-PY24-A, P56-MG-FY25-A, P56-MG-PY24-D, P46-MG-FY24-D, P56-MG-FY25-D Award Years: 2024/2025 Criteria: 2 CFR 200.403(e) requires that costs charged to a Federal award be determined in accordance with generally accepted accounting principles. Condition: The Organization has a resource sharing agreement for the operation and management of the American Job Centers in Montgomery County. As part of the agreement, each partner is responsible for a portion of the expenses. These expenses are paid by the Organization and then charged quarterly to the individual partners and reimbursed. The Organization should recognize expenses net of the amounts reimbursed by the partners. The Organization records the expenses at the total amount in the general ledger. When these expenses are reimbursed by the partners, the offsetting expense is credited to rent expense. While revenues and expenses are properly recorded in total, several expense classifications are misstated among the individual accounts by $70,223. Cause: Procedures were established by the prior Outsourced Accountant and the practice continued throughout 2025. Effect: Individual expense categories are misstated by $70,223. Since the federal awards and resource sharing agreements have certain budgeted amounts, not properly recording expenses in the proper categories could cause budget overages and noncompliance. Repeat finding: This is not a repeat finding. Questioned costs: There are no questioned costs related to this finding. Perspective: The error was pervasive throughout the year and treated consistently across all expenses covered under the resource sharing agreement. Recommendation: We recommend that management review current policies and procedures to ensure compliance with GAAP and federal regulations. Management’s response and corrective action plan (unaudited): See corrective action plan.