Audit 405632

2025-003 – Internal Controls over Compliance and Compliance with Allowable Costs/Cost Principles and Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Title: Head Start/Early Head Start Assistance Listing Number: 93.600 Type of Finding: Material Weakness over Internal Control over Compliance and Compliance Criteria: Allowable costs must meet general allowability criteria and be adequately supported. The Compliance Supplement explains that costs must be allowable, reasonable/necessary, allocable, consistent, and adequately documented. Further, for period of performance, an entity may charge only allowable costs incurred during the approved budget period (unless authorized as pre-award costs). Condition and Context: We noted the Center recorded $741,113 of costs to the Head Start grant in the current year that related to prior-period activity and was not recorded as Head Start grant revenue/receivable until the current year. This amount included: 1. Costs that had been charged in the prior year to another federal program (CACFP) but were subsequently determined not to be chargeable to that program and were transferred/recorded to Head Start in the current year; and 2. Allocated personnel expenses resulting from a change in the allocation methodology in the current year, which was recalculated retrospectively to the beginning of the Head Start grant period, resulting in additional salary costs recorded in the current year that related to the prior year. As part of these adjustments, we identified $357,774 of costs charged to Head Start in the current year that were incurred prior to the Head Start grant’s charged budget period and therefore did not meet the period of performance requirement absent specific authorization. These costs are questioned costs. Questioned Costs: Known Questioned Costs: $357,774 Effect: The Center incurred noncompliance with the Head Start award requirements related to Allowable Costs/Cost Principles and Period of Performance, resulting in questioned costs of $357,774 and increasing the risk that additional unallowable costs could be charged and not detected timely. Cause: The Center did not have controls designed and/or operating effectively to ensure that: 1. Costs charged to the Head Start program were incurred within the approved budget period (or otherwise authorized), 2. Program cost transfers were supported and reviewed for allowability and period of performance prior to posting, and 3. Retrospective allocation changes were appropriately reviewed, approved, and evaluated for compliance with award terms prior to charging the program. Recommendation: We recommend the Center strengthen its grant accounting and financial reporting controls by: 1. Implementing a period of performance validation control (systematic or checklist-based) requiring verification that all costs charged to Head Start were incurred within the approved budget period (or are authorized pre-award/closeout costs) before claims are submitted or costs are recorded to the grant. 2. Requiring formal approval and documentation for cost transfers into Head Start, including: explanation of the transfer, supporting invoices/payroll reports, allowability review, and confirmation of timing within the period of performance. 3. Establishing controls over allocation methodology changes, including documented approval, support for the revised methodology, and a compliance review to confirm costs charged to Head Start are allowable, allocable, and within the period of performance. Grantee Comment: Management agrees with the finding and has prepared a corrective action plan.

2025-004 – Internal Controls over Compliance and Compliance with Allowable Costs/Cost Principles Federal Agency: U.S. Department of Health and Human Services Federal Program Title: Head Start/Early Head Start Assistance Listing Number: 93.600 Type of Finding: Material Weakness over Internal Control over Compliance and Compliance Criteria: Allowable costs must be supported by documentation and meet general allowability standards, including being adequately documented and consistent with the award terms and cost principles. Condition and Context: Out of 42 charges to the Head Start program, we noted 8 instances where evidence of appropriate approvals was not consistently maintained for costs charged to the Head Start program. We noted 3 out of 42 charges did not have proper supporting documentation maintained by the Center to validate the allowability of the charges. Questioned Costs: Known Questioned Costs: $2,510 Effect: The deficiency increases the risk that costs charged to Head Start may not be adequately supported and could be determined unallowable upon review, and that noncompliance may not be prevented or detected and corrected on a timely basis. Cause: The Center’s policies and procedures did not consistently require, or management did not consistently evidence, documented supervisory review/approval and retention of support for allowability and allocation decisions for Head Start charges. Recommendation: We recommend the Center: 1. Implement standardized documentation and approval requirements for Head Start charges (e.g., checklists or electronic approval workflows) to evidence allowability, allocation basis, and supervisory review. 2. Conduct periodic internal monitoring of Head Start expenditures focusing on documentation sufficiency and compliance with allowability criteria. Grantee Comment: Management agrees with the finding and has prepared a corrective action plan.