Finding 2020-006 Internal Control over Reporting Information on Federal Programs: Criteria: In accordance with 2 CFR §200.512(a), the auditee must submit the reporting package for the Single Audit to the Federal Audit Clearinghouse (FAC) within the earlier of 30 calendar days after receipt of the auditor’s reports or nine months after the end of the audit period. Condition: The Center experienced delays in the preparation and issuance of its financial statements for the year ended December 31, 2020. As a result, the related Single Audit required under Uniform Guidance was not completed and submitted to the Federal Audit Clearinghouse within the required timeframe, resulting in a late submission. Section III – Federal Awards Findings and Questioned Costs (Continued) A. Current Year Findings and Questioned Costs – Major Federal Award Program Audit (Continued) Finding 2020-006 Internal Control over Reporting (Continued) Cause: The delays were primarily attributable to operational and administrative disruptions related to the COVID-19 pandemic, including staffing constraints, increased workload associated with pandemic response activities, and delays in the availability of financial information necessary to complete the audit in a timely manner. The delay was also due to untimely preparation of financial statements and challenges in assembling complete and accurate information necessary to finalize the audit in a timely manner. Effect or Potential Effect: Failure to submit the Single Audit reporting package within the required timeframe may result in noncompliance with Uniform Guidance and could subject the Center to potential sanctions from federal awarding agencies, including increased oversight or restrictions on future federal funding. Questioned Costs: None. Recommendations: We recommend that the Center strengthen its processes to ensure timely completion and submission of its annual financial statements and Single Audit by: • Establishing and monitoring formal internal timelines for financial statement preparation, audit completion, and submission of the Single Audit reporting package in accordance with Uniform Guidance. • Assigning clear responsibility for overseeing audit readiness and compliance with reporting deadlines, including ongoing coordination with external auditors. • Enhancing audit preparedness and contingency planning, including timely reconciliation of significant accounts and identifying backup resources to address unexpected operational disruptions. View of Responsible Officials: Management understands and agrees with the finding and the delay in submission of the Single Audit reporting package. Corrective actions include: • Establishing formal internal timelines and milestones for financial statement preparation, audit completion, and submission to the Federal Audit Clearinghouse. • Assigning clear responsibility for audit readiness and coordination with external auditors. • Enhancing audit preparation processes, including timely reconciliation of key accounts and early compilation of required schedules. • Developing contingency plans and cross-training staff to mitigate delays due to unexpected disruptions.
Finding 2020-007 Material Weakness in Internal Control over Compliance and Schedule of Expenditures of Federal Awards (SEFA) Preparation and Completeness Information on Federal Programs: Criteria: In accordance with 2 CFR §200.510(b) and §200.518(b), non-federal entities are required to prepare a complete and accurate Schedule of Expenditures of Federal Awards (SEFA) that properly reflects all federal awards expended during the fiscal year, including pass-through awards, and that reconciles to the underlying accounting records. Additionally, recipients are required to maintain adequate documentation to demonstrate compliance with federal program requirements. Conditions: During audit testing of the (SEFA) for the year ended December 31, 2020, the following errors related to the preparation of the SEFA were noted: 1) A direct program federal award under CFDA Number 93.498, COVID-19 Provider Relief Fund and American Rescue Plan (ARP) Rural Distributions, administered by the U.S. Department of Health and Human Services was omitted from the SEFA. As a result, federal expenditures of $54,674 related to this grant were not initially reported and were subsequently added to the SEFA. Aside from this omission, the Center was unable to provide supporting documentation for acceptance of the grants terms and conditions and use of the funds for allowable COVID-related expenses or lost revenues. Section III – Federal Awards Findings and Questioned Costs (Continued) A. Current Year Findings and Questioned Costs – Major Federal Award Program Audit (Continued) Finding 2020-007 Material Weakness in Internal Control over Compliance and Schedule of Expenditures of Federal Awards (SEFA) Preparation and Completeness (Continued) Conditions (Continued): 2) A pass through federal award under CFDA Number 93.426 (Health Centers Program), administered by the Hawaii Primary Care Association (HPCA), was omitted from the SEFA. As a result, federal expenditures of $31,000 related to this grant were not initially reported and were subsequently added to the SEFA. 3) For the Coronavirus Relief Fund award (CFDA 21.019) under the U.S. Department of the Treasury, the SEFA initially reported total expenditures of $417,676. However, when auditors requested supporting detail, the detailed listing of expenditures totaled $442,216, resulting in an understatement of $24,540. The SEFA was revised to reflect the corrected expenditure amount. 4) For the same Coronavirus Relief Fund award (CFDA 21.019), approximately $251,483 of revenue received and recorded by the Center was not included in the total federal expenditures reported on the SEFA. An additional $251,483 was required to be added to the SEFA to properly present total expenditures for this program. Cause: The Center did not have adequate internal controls over the identification, tracing, and reporting of federal awards. Specifically, there was: • No formal process to ensure all federal awards, including pass-through funding, were captured in the SEFA. • Lack of reconciliation between the general ledger and SEFA. • Insufficient review procedures over the completeness and accuracy of the SEFA. • Inadequate documentation retention practices for federal compliance. Effect or Potential Effect: As a result of these deficiencies, the SEFA initially omitted two federal awards and understated federal expenditures, resulting in an inaccurate presentation of federal expenditures. These errors could affect the identification of major programs and compliance with Uniform Guidance reporting requirements if not detected and corrected. Questioned Costs: $54,974. Section III – Federal Awards Findings and Questioned Costs (Continued) A. Current Year Findings and Questioned Costs – Major Federal Award Program Audit (Continued) Finding 2020-007 Material Weakness in Internal Control over Compliance and Schedule of Expenditures of Federal Awards (SEFA) Preparation and Completeness (Continued) Recommendations: We recommend that management strengthen internal controls over the preparation and review of the SEFA by implementing the following procedures: • Develop and use a standardized SEFA preparation checklist that includes identification of all federal awards received during the year, including pass-through awards, verification of the correct CFDA Numbers, and confirmation of the appropriate federal awarding agencies. • Perform and document a reconciliation of the SEFA to the general ledger, grant revenue schedules, and detailed expenditure reports for each federal program to ensure completeness and accuracy of reported expenditures. • Establish procedures to compare federal revenue received to expenditures reported on the SEFA and investigate and resolve any significant variances to ensure that all eligible expenditures are properly included. View of Responsible Officials: Management understands and agrees with the finding and acknowledges deficiencies in SEFA preparation and reconciliation processes. Corrective actions include: • Implementing a standardized SEFA preparation checklist to identify all federal awards, including pass-through funding. • Requiring a documented reconciliation of the SEFA to the general ledger, grant schedules and supporting reports. • Establishing procedures to compare federal revenue to expenditures and investigate variances. • Strengthening documentation retention practices to support all reported federal expenditures. • Providing training to finance personnel on Uniform Guidance and SEFA requirements.
Finding 2020-008 Noncompliance with Allowable Costs/Cost Principles – Non-Payroll Expenditures Information on Federal Program: Criteria: In accordance with 2 CFR Part 200 (Uniform Guidance), federal grant expenditures must be accurately recorded and supported, and accounting records must clearly reflect gross revenues and allowable expenditures. Grant expenditures should be recorded as expenses and not netted against grant revenue. In addition, recorded expenditures must agree to supporting documentation, including vendor invoices and amounts paid. Conditions: During testing of non-payroll expenditures, the following exceptions were noted: 1) For 4 out of 6 samples tested, grant expenditures were recorded as a debit to the related grant revenue account, resulting in grant revenue being presented net of related expenses. Grant expenditures should be recorded as expenses and not offset against grant revenue. 2) For 1 out of 6 samples tested, the invoice amount and amount paid did not agree to the amount recorded in the detailed listing of expenditures resulting in a difference related to sales taxes that were not included in the recorded expenditures. 3) For 1 out of 6 samples tested, the expense was recorded to an incorrect expense account instead of to the related grant expenditure account, resulting in a reclassifying journal entry. Cause: Management did not have adequate internal controls in place to ensure that grant expenditures were consistently recorded in the proper general ledger accounts and recorded expenditures were reconciled to supporting documentation, including vendor invoices and amounts paid, prior to recording. Section III – Federal Awards Findings and Questioned Costs (Continued) A. Current Year Findings and Questioned Costs – Major Federal Award Program Audit (Continued) Finding 2020-008 Noncompliance with Allowable Costs/Cost Principles – Non-Payroll Expenditures (Continued) Effect or Potential Effect: There is an increased risk that expenditures reported for federal programs may be inaccurate or incomplete, which could impact compliance with federal reporting and allowable cost requirements. Questioned Costs: None. Recommendations: We recommend that management strengthen internal controls by: • Implementing and documenting procedures to ensure grant expenditures are recorded as expenses and not netted against grant revenue. • Strengthening review controls over non-payroll expenditures to ensure amounts recorded agree to supporting documentation, including invoices, sales tax and amounts paid. View of Responsible Officials: Management understands and agrees with the finding and acknowledges the need for improved controls over grant expenditure recording. Corrective actions include: • Implementing procedures to ensure grant expenditures are recorded as expense and not netted against revenue. • Enhancing review controls to verify recorded expenditures agree to invoices, including applicable taxes and payment amounts. • Establishing clear general ledger account mapping for grant related expenditures. • Providing additional staff training on Uniform Guidance cost principles (2 CFR Part 200).
Finding 2020-009 Inadequate Payroll Authorization and Approval Controls Information on Federal Program: Criteria: Uniform Guidance (2 CFR §200.303) requires non-federal entities to establish and maintain effective internal control over federal awards that provides reasonable assurance that the entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. Additionally, adequate documentation must be maintained to support payroll costs charged to federal programs. Conditions: During testing of payroll transactions, the following exceptions were noted: 1) For 4 of 8 employees selected for testing, the Center was unable to provide supporting documentation verifying the employee’s salary or hourly rate of pay, or evidence of approval of the employee’s salary or hourly rate of pay. 2) For all 5 payroll dates selected for testing, management indicated that payroll processing approvals are performed verbally. No written or electronic documentation evidencing review and approval of payroll processing was maintained. Cause: The Center does not have formalized procedures requiring documented approval of employee pay rates or documented approval of payroll processing. Management relies on verbal approvals rather than maintaining written or electronic evidence of authorization and review. Effect or Potential Effect: Without documented approval of employee pay rates and payroll processing, there is an increased risk that payroll costs charged to federal programs may be inaccurate, unauthorized, or not properly supported in accordance with federal requirements. Questioned Costs: None. Section III – Federal Awards Findings and Questioned Costs (Continued) A. Current Year Findings and Questioned Costs – Major Federal Award Program Audit (Continued) Finding 2020-009 Inadequate Payroll Authorization and Approval Controls (Continued) Recommendations: We recommend that the Center implement formal payroll controls that require: • Written or electronic documentation evidencing approval of employee salary or hourly rates prior to payroll processing; and • Documented review and approval of each payroll cycle, such as signed payroll registers or electronic approval logs. View of Responsible Officials: Management understands and agrees with the finding regarding inadequate documentation of payroll authorization and approval controls. Management acknowledges that while payroll processes were performed and reviewed, certain control activities—specifically the documentation of employee pay rate approvals and payroll processing approvals—were not formally documented, resulting in the exceptions identified. The Center believes that the conditions noted are primarily related to the lack of formalized documentation procedures rather than a breakdown in the underlying payroll processes. Payroll activities, including the establishment of employee compensation and review of payroll outputs, were performed; however, documentation evidencing these activities was not consistently retained in accordance with Uniform Guidance requirements. Management is committed to strengthening internal controls to ensure full compliance with 2 CFR §200.303 and related federal requirements. As part of these efforts, the Center has begun: 1. Implementing enhanced controls, including the formalization of procedures requiring documented approval of employee salary and hourly rates. 2. Establish documented review and approval of each payroll cycle. 3. Management will continue to monitor the effectiveness of these controls and ensure that appropriate supporting documentation is consistently maintained going forward.