SCHEDULE OF FINDINGS AND QUESTIONED COSTS AND CORRECTIVE ACTION PLAN Federal Award Findings and Questioned Costs September 30, 2025 Comment #2025-001 COMPENSATION METHODOLOGY SHOULD BE REVIEWED FOR INCENTIVE PAYMENTS COMMUNITY SERVICES BLOCK GRANT AND LOW INCOME HOME ENERGY ASSISTANCE PROGRAM FAL #93.569 and 93.568 (Questioned Costs - Undetermined) Condition: During our testing of payroll, we reviewed controls over the calculation and recording of payroll per the general ledger. For two selected employees, we compared annual wages for the calendar years 2024 and 2025 to approved wages per the Personnel Action Forms (PAF). We noted that there were significant variances between the annual wages reported on their Forms W-2 and the annual salary amounts documented on their Personnel Action Forms (PAFs). The differences appear to relate to additional wage payments paid during the year. Per discussion with management these funds are based on availability of grant funds and staff performance, and generally provided to all employees. 2 CFR 200.430(f) requires that incentive compensation is allowable only when the overall compensation is reasonable, and payments are made according to an agreement entered into in good faith before services are rendered, or payments follow an established plan that is consistently applied. While incentive payments are allowable, we did not see any evidence of staff or performance evaluations, and the payments seem to be more related to the availability of funds this practice affects the accuracy and reliability of the Agency’s budgeting process. Because incentive payments are not documented, pre-authorized, or tied to a formal plan, management cannot reliably estimate personnel costs during grant budgeting. This increases the risk that budgets submitted to funders do not reflect actual compensation practices, may misstate projected personnel expenditures, and may not comply with the internal control requirements of 2 CFR 200.303, which require effective controls over budgeting, financial management, and compliance with federal award terms. Context: Review of the internal controls related to payroll charges made to LIHEAP, CSBG, and the administrative cost pool in accordance with Government Auditing Standards, COSO, Greenbook, and Uniform Guidance. Criteria: Incentive compensation to employees based on cost reduction, efficient performance, suggestion awards, or safety awards is allowable to the extent that the overall compensation is determined to be reasonable and such costs are paid or accrued according to an agreement entered into in good faith between the recipient or subrecipient and the employees before the services were rendered, or according to an established plan followed by the recipient or subrecipient so consistently as to imply, in effect, an agreement to make such payment. [2 CFR 200.430(f)] The recipient and subrecipient must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the 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). [2 CFR 200.303(a)] Effect: The agency provides incentive-type payments based on available grant funds and general staff performance; however, there is no written incentive policy, no documented performance evaluations, and no consistent method for authorizing or calculating these payments. Cause: Implemented and approved policies governing incentive compensation appear not to have been updated or maintained. Recommendation: We recommend that management establish and document a formal incentive compensation policy that complies with 2 CFR 200.430(a) and the internal control requirements of 2 CFR 200.303. Specifically, the policy should define the criteria for awarding incentive payments, establish a written incentive plan, and document performance evaluations, and reflect compensation arrangement in personnel records, such as the PAF. Alternatively, with increased workflow and activity, an addendum to the PAF based on the contract amendment can be documented and authorized for the contract period based on established policy in lieu of a performance based pay arrangement. The administrative pool should also be reviewed to determine if costs and the rate should increase based on actual trends. Implementing these steps will help ensure that compensation arrangements are allowable, properly authorized, consistently applied, and supported by adequate internal controls, in accordance with 2 CFR 200.430, 2 CFR 200.303, and the COSO/Green Book principles governing payroll authorization and compensation practices. Views of Responsible Officials and Planned Corrective Actions: Management concurs with the recommendation. FACAA updated its Incentive Compensation Policy, which was approved by the Board of Directors, in accordance with 2 CFR 200.430 and 2 CFR 200.303. The policy establishes the methodology for incentive payments, and all incentive payments have been documented and supported by appropriate records to ensure compliance with applicable federal requirements.