Audit 409989

#2025-003 – Major Federal Award Finding – Period of Performance Nature of Finding: Period of Performance – Compliance Finding and Material Weakness in Internal Control over Compliance This is a repeat of prior year #2024-004. Criteria/Condition: The Organization recorded certain expenses upon payment of invoices rather than when the service was provided. The guidelines provided at 2 CFR 200.403(e) require that costs be determined in accordance with GAAP to be allowable. In accordance with GAAP and the accrual basis of accounting, such expenses are to be recorded when services are performed, rather than upon payment of invoice. Cause/Context: The Organization had limited accounting resources which impacted timing and frequency of processing certain transactions. In addition, the Organization has contracts with providers that include pre-determined payment terms that may not precisely correlate to the actual work performed in terms of timing. The Organization recorded certain contract costs as the invoices were processed, and not necessarily as the providers’ actual work was completed. Effect: Adjusting journal entries were proposed during the audit to record expenses in the proper period for the financial statements. Federal grant expenses of approximately $154,000 were originally recorded in 2025 that related to 2026 services. Additionally, approximately $25,000 of federal grant expenses were originally recorded in 2026 that related to 2025 services. This net adjustment decreased federal grant revenue and expenditures by approximately $129,000 for the year ended December 31, 2025. Recommendation: We recommend that care be exercised to evaluate financial activity considering the cost factors contained in 2 CFR 200.403, the accrual basis of accounting and period of performance. Controls should be enhanced to ensure that expenses are recorded to the proper period based on when the service or work is provided. Views of Responsible Officials and Planned Corrective Actions: Certain grants — particularly at the Center for Adult College Success — were prepaid by the funder and provided funding for a period of time that covered multiple fiscal years. TalentFirst applied certain contract costs related to work that also covered multiple fiscal years to these grants in the accounting records before the full period of performance had concluded, resulting in expenses recorded in the wrong period. Management has implemented a contract timeline document that tracks each grant and contract's actual period of performance and governs when a grant is closed out in the accounting records. Grants are no longer closed out until the full period of performance has concluded, and contract costs are more closely monitored for period of performance considerations. Management is also moving away from structuring large prepaid contracts, in part to ease the cash flow pressure that structure creates.

#2025-004 – Major Federal Award Finding – Reporting; Procurement and Suspension and Debarment; Subrecipient Monitoring; Allowable Costs/Cost Principles Nature of Finding: Maintenance of Documentation/Records – Compliance Finding and Significant Deficiency in Internal Control over Compliance This is a repeat of prior year #2024-005. Criteria/Condition: Documentation was not maintained to support financial data provided in reports submitted to the funding source. Documentation was also not maintained to support certain procurement procedures. Per 2 CFR 200.334, financial records and supporting documentation must be maintained for three years from the date of the final financial report. Per 2 CFR 200.318(i), recipients must maintain records sufficient to detail the history of each procurement transaction, including (among other items) rationale for contractor selection or rejection. Cause/Context: The following activities did not consistently have supporting documentation: Expenditure balances reported to the State of Michigan in quarterly reports were not amended or reconciled to the final accounting records for each reporting period. The accounting periods were impacted by various transactions between the dates of the grant expenditure reports and the close of the respective period financial statement. Performance of subrecipient and contractor/vendor suspension and debarment search on SAM.gov prior to September 2025. No documentation was maintained to support review for the review of processed payroll registers for two of the three pay periods tested. For 1 of the 7 employee wage allocations tested, no documentation was retained to support independent review of the allocation. Effect: Evidence to support a reconciliation between reports submitted to a funding source and the general ledger is not readily available. Evidence to support that the appropriate contractor/vendor vetting process was conducted is not available. Recommendation: The Organization should produce and maintain supporting documentation for all reports submitted to funding sources, including information to reconcile reports to the final financial statements for the respective period and resolution of any reporting differences with the funding agency. We also recommend that the Organization maintain all documentation to support the decision process associated with procurement. Views of Responsible Officials and Planned Corrective Actions: Since the Finance Manager's arrival, a process has been implemented to reconcile quarterly expenditure reports submitted to the State of Michigan against the general ledger; this reconciliation has become clearer and more consistent with each subsequent period. Beginning in September 2025, suspension and debarment checks on SAM.gov are performed for every new vendor and subrecipient — owned by the Executive Director of the Center for Adult College Success for Center vendors and the Finance Manager for TalentFirst vendors, with all checks reviewed by the Finance Manager. Employee wage allocations are now supported by timesheets and documented on the monthly journal accrual e-signature form, which retains the allocation and its approval electronically.

#2025-005 – Major Federal Award Finding – Allowable Costs/Cost Principles – Non-Payroll Nature of Finding: Allowable Costs Compliance Finding and Significant Deficiency in Internal Controls over Compliance Criteria/Condition: Federal regulations 2 CFR 200.405 provide that costs benefiting two or more projects in proportions that can be easily determined must be allocated to the projects based on the proportional benefit. If proportions cannot be easily determined, the costs may be allocated to the benefited projects on a reasonable and documented basis. Questioned Costs: $25,268 Identification of How Questioned Costs Were Computed: A sample of 53 non-payroll expenditures totaling $2,239,801 was selected from a population of approximately $2,539,000 non-payroll expenditures charged to the major program during the year ended December 31, 2025. Of these invoices selected for testing, the following are identified questioned costs: One employee benefit expenditure from April 2025 was selected for which no documentation was maintained to support the allocation method. During an independent examination, management identified that employee benefit costs may have been allocated inappropriately from March 2025 through June 2025. Management reviewed and reallocated employee benefit costs incurred during this time, resulting in a net reduction in federal expenditures totaling $3,370. Management indicated this correction was reported on the reimbursement request submitted in April 2026. One expenditure selected for testing was for professional audit service fees relating to the prior fiscal year’s financial statement audit. Federal regulations 2 CFR 200.425 provide a reasonably proportionate share of the costs of audits required by and performed in accordance to the Single Audit Act Amendments of 1996 are allowable. Based on guidance included in the federal regulations, approximately $34,000 of the fee could be considered the reasonably proportionate share of the costs. Approximately $21,898 in costs were charged to the grant in excess of this reasonable share. Cause/Context: Controls were not in place to evaluate the allocation of costs to grants based on proportional benefit provided to each grant. For 1 of the 25 expenditures selected for testing, costs were divided using an unknown method, and 1 was charged to the grant in an amount higher than is reasonably allowed by federal regulations. Effect: Expenditures that involve an allocation of costs between grants are not correct or not supported. The lack of controls results in questioned costs as a disproportionate amount of expenditures may be charged to the federal program. Recommendation: Management has indicated the employee benefit cost allocations have been corrected with the grantor subsequent to year end. We recommend management establish procedures and controls to allocate costs between grants based upon actual costs attributed to the grant and the particular expenditure allowed by the grant. Any such allocations should be supported by activity-level substantiation and be reviewed. Documentation of the allocation methodology, review and approval should be maintained. Views of Responsible Officials and Planned Corrective Actions: Management identified an inappropriate benefit cost allocation from March through June 2025 during an independent internal review, corrected the allocation, and reported the reduction in federal expenditures on the reimbursement request submitted in April 2026. Beginning this fiscal year, the annual financial statement audit fee is being charged entirely to the grant supporting general operations rather than allocated across federal awards, removing the proportionality question for this cost going forward.

#2025-006 – Major Federal Award Finding – Federal Grants Management Nature of Finding: Federal Grants Management – Preparation and Maintenance of Schedule of Expenditures of Federal Awards Compliance Finding and Significant Deficiency in Internal Controls over Compliance This is a repeat of prior year #2024-007. Criteria/Condition: Per 2 CFR 200.510(b), the auditee must prepare a schedule of expenditures of federal awards (SEFA) for the period covered by the auditee’s financial statements, which must include the total federal awards expended, as determined in accordance with §200.502. For SEFA reporting, the components of the SEFA were not accurately maintained. Cause/Context: While the Organization has a policy related to grant administration and tracking of expenditures, the procedures and controls relating to the policy were not properly implemented during 2025 to ensure a complete and accurate auditee-prepared SEFA. Effect: Expenditures for the Coronavirus State and Local Fiscal Recovery Funds grants were not accurately reported on the auditee-prepared SEFA. The SEFA presented has been adjusted for these errors. Controls in place did not sufficiently ensure the completeness and accuracy of the SEFA. Recommendation: We recommend the Organization enhance its procedures and controls to ensure data accumulated to prepare the SEFA is complete and accurate. Views of Responsible Officials and Planned Corrective Actions: Management will tie the preparation of the Schedule of Expenditures of Federal Awards back to the contract tracker used to monitor each grant's period of performance and expenditure activity, ensuring the SEFA is built directly from, and reconciled to, that tracker before submission to the auditor.