Finding 2023-001: 10.561 - State Administrative Matching Grants for the Supplemental Nutrition Assistance Program - Material Weakness Compliance Requirement: Allowable Costs/Cost Principles Criteria: Uniform Guidance requires non-Federal entities to maintain records that adequately identify the source and application of funds for federally funded activities. Specifically, 2 CFR §200.302(b)(3) requires accounting records to be supported by source documentation. In addition, 2 CFR §200.403(a) and §200.403(g) require that costs charged to a Federal award be allowable, adequately documented, and in accordance with generally accepted accounting principles. Condition: The Organization did not record or track actual direct costs to the grant. Instead, estimated costs were used to allocate expenses to the program. The Organization could not provide support of the underlying source documentation demonstrating that the costs were incurred, allowable, and directly attributable to the grant. Effect: Because costs charged to the program were based on estimates rather than actual expenditures supported by source documentation, the Organization was unable to demonstrate compliance with Uniform Guidance requirements. As a result, the entire program cost of $124,895 was determined to be a questioned cost. Questioned Cost: $124,895 Cause: The Organization adequate procedures and internal controls to ensure that actual, supportable direct costs were charged to the grant. Recommendation: We recommend that the Organization implement policies and procedures to ensure that actual, allowable, and properly documented direct costs are charged to Federal awards. This should include strengthening internal controls over grant accounting, ensuring costs are supported by source documentation, and providing training to personnel responsible for grant financial reporting. The Organization should also work with the grantor to determine the allowability of the questioned costs and take corrective action as required. Response: There is no disagreement with the audit finding.
Finding 2023-002: 10.561 - State Administrative Matching Grants for the Supplemental Nutrition Assistance Program - Material Weakness Compliance Requirement: Matching, Level of Effort, Earmarking Criteria: Uniform Guidance at 2 CFR §200.306(b) requires that cost sharing or matching contributions be verifiable from the non-Federal entity’s records, supported by documentation, and allowable, reasonable, and allocable under Federal cost principles. Additionally, 2 CFR §200.403(a) and §200.405(a) require that costs charged to Federal awards be based on actual incurred costs and properly allocated to the benefitting program. Condition: The grant required a 50/50 matching contribution. The auditee reported $128,228 in matching expenditures; however, the matched amount was not supported by actual direct costs. The auditee used estimated costs to allocate expenses to the program rather than actual, documented expenditures incurred for the matching share. Effect: The $128,228 reported as matching contributions may not be allowable or supported in accordance with Uniform Guidance and grant requirements, resulting in questioned matching costs and potential noncompliance with award terms. Questioned Cost: None as entire federal amount is treated as a questioned cost in Finding 2023-002. Cause: Management did not have adequate procedures to identify, track, and document actual direct costs attributable to the program for purposes of meeting the matching requirement and instead relied on estimates to allocate costs. Recommendation: We recommend that management establish and implement controls to ensure matching contributions are supported by actual, documented costs, are verifiable from accounting records, and comply with 2 CFR §200.306. Estimated or budgeted amounts should not be used to support matching requirements. Response: There is no disagreement with the audit finding.
Finding 2023-006: 21.027 - Coronavirus State and Local Fiscal Recovery Funds:COVID-19 - Material Weakness Compliance Requirement: Procurement and Suspension and Debarment Criteria: Under 2 CFR Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, specifically 2 CFR §§200.317–200.327 (Procurement Standards), non-Federal entities must follow established procurement procedures when purchasing goods and services under a Federal award. These standards require organizations to maintain written procurement procedures, conduct procurement transactions in a manner providing full and open competition, and maintain documentation supporting the procurement method, contractor selection, and basis for price determination. Condition: During testing, we noted that the Organization entered into a contractor agreement to provide services under the Federal pass-through program; however, the Organization did not follow the procurement standards required under Uniform Guidance. Specifically: • The Organization did not document that competitive procurement procedures were performed prior to selecting the contractor. • There was no evidence that multiple bids or proposals were solicited or evaluated, or that a justification for noncompetitive procurement was prepared and approved. • Documentation supporting the basis for vendor selection and price reasonableness was not maintained. Effect: Failure to follow required procurement standards limits assurance that the Organization obtained goods and services through full and open competition and at a reasonable cost. This increases the risk that Federal funds may not be used in the most efficient and cost-effective manner and may result in noncompliance with Federal award requirements. Questioned Cost: None. Cause: The Organization does not have sufficient policies, procedures, or internal controls in place to ensure that procurement transactions funded with Federal awards comply with Uniform Guidance procurement standards. Additionally, staff responsible for contracting decisions were not fully aware of Federal procurement requirements. Pass-Through Entity Monitoring Results: The Colorado Department of Labor and Employment (CDLE), the pass-through entity, issued a Financial Desk Review in April 2023 covering the period from December 1, 2021 through July 31, 2022. The desk review identified deficiencies related to the Organization's procurement practices and required corrective action to strengthen compliance with the Uniform Guidance procurement standards. Based on our audit procedures, we identified procurement compliance deficiencies similar to those identified during the CDLE desk review. This information is provided as relevant background regarding the significance of the compliance deficiencies identified during our audit and is not intended to indicate the existence of a prior-year audit finding. Recommendation: We recommend the Organization strengthen internal controls over procurement related to Federal awards by: • Developing and implementing written procurement policies and procedures that align with 2 CFR §§200.317–200.327. • Ensuring that procurement transactions include documentation of the procurement method used, vendor selection process, and price or cost analysis when required. • Maintaining documentation to demonstrate full and open competition, or a properly approved sole-source justification when noncompetitive procurement is used. • Providing training to staff responsible for procurement and contracting on Federal procurement requirements. • Implementing a review process prior to executing vendor agreements funded with Federal awards. Response: There is no disagreement with the audit finding. In fact, ActivateWork worked towards developing and implementing enhancements to its procurement process as suggested by the CDLE Financial Desk Review, from the date ActivateWork received it and throughout the remainder of the year, including revisions to policies, procedures, and oversight activities.
Finding 2023-003: 21.027 - Coronavirus State and Local Fiscal Recovery Funds:COVID-19 - Material Weakness Compliance Requirement: Reporting and Subrecipient Monitoring Criteria: In accordance with the Federal Funding Accountability and Transparency Act (FFATA), as implemented by 2 CFR Part 170, recipients of Federal awards are required to report first-tier subawards of $30,000 or more to the Federal Funding Accountability and Transparency Act Subaward Reporting System (FSRS) in a timely and complete manner. Additionally, pursuant to 2 CFR Part 200, including §200.332 (Requirements for Pass-Through Entities) and §200.214 (Suspension and Debarment), pass-through entities are required to establish and maintain procedures to monitor subrecipients to ensure Federal awards are used for authorized purposes and in compliance with laws, regulations, and award provisions. These responsibilities include: • Verifying subrecipients are not suspended or debarred. • Performing and documenting subrecipient risk assessments. • Monitoring subrecipient activities, including review of required audit reports under Subpart F. • Ensuring proper reporting of Federal awards, including Schedule of Federal Awards (“SEFA”) reporting by subrecipients. • Reporting first-tier subawards in FSRS, as required by FFATA. Condition: The Organization did not establish formal policies or procedures to ensure compliance with subrecipient monitoring and reporting requirements. During testing, we noted the following: • Required first-tier subaward information was not reported to FSRS for applicable subawards of $30,000 or more. • The Organization did not document verification of suspension and debarment status prior to issuing subawards. • The Organization did not perform or document subrecipient risk assessments. • Procedures were not in place to obtain and review subrecipient Single Audit reports. • The Federal award passed through by the Organization was not identified on the subrecipient’s Schedule of Expenditures of Federal Awards (SEFA). • The Organization did not have procedures to monitor or verify supporting documentation for personnel costs charged by subrecipients and subcontractors. Effect: Due to not having adequate subrecipient monitoring and reporting controls, the Organization was not in compliance with FFATA and Uniform Guidance requirements. The Organization cannot ensure that subrecipients were eligible to receive Federal funds, that subrecipient activities were properly monitored, or that Federal awards were accurately reported at both the prime and subrecipient levels. This also increases the risk that Federal expenditures may be misstated or not properly reported for Single Audit purposes. Questioned Cost: None Cause: The Organization did not establish formal written policies, procedures, or internal controls to address subrecipient monitoring and FFATA reporting requirements. Additionally, there was insufficient training and oversight to ensure compliance with Federal regulations related to subrecipient management and reporting. Pass-Through Entity Monitoring Results: The Colorado Department of Labor and Employment (CDLE), the pass-through entity, issued a Financial Desk Review in April 2023 covering the period from December 1, 2021 through July 31, 2022. The desk review identified deficiencies substantially similar to those described in this finding and required corrective actions, with supporting documentation requested by April 10, 2023. Based on our audit procedures, we determined that the related internal controls were not operating effectively during the 2023 audit period, as evidenced by the substantially similar compliance deficiencies identified during our testing. This information is provided as relevant background regarding the significance of the deficiencies and is not intended to indicate the existence of a prior-year audit finding. Recommendation: We recommend the Organization implement comprehensive subrecipient monitoring and reporting policies and procedures in accordance with 2 CFR §200.332 and 2 CFR Part 170, including: • Reporting all applicable first-tier subawards to FSRS in a timely and complete manner. • Documenting suspension and debarment verification for all subrecipients (e.g., SAM.gov). • Performing and documenting subrecipient risk assessments prior to issuing subawards. • Establishing procedures to monitor subrecipient activities, including financial and programmatic reviews. • Obtaining and reviewing subrecipient Single Audit reports and following up on any related findings. • Ensuring subaward agreements include all required Federal award information and reporting requirements, including SEFA reporting. • Implementing procedures to ensure subrecipients and subcontractors maintain adequate supporting documentation for personnel costs. Response: There is no disagreement with the audit finding. In fact, the Organization worked towards developing and implementing enhancements to its subrecipient monitoring framework as suggested by the CDLE Financial Desk Review, from the date the Organization received it and throughout the remainder of the year, including revisions to policies, procedures, and oversight activities.
Finding 2023-004: 21.027 - Coronavirus State and Local Fiscal Recovery Funds:COVID 10.561 - State Administrative Matching Grants for the Supplemental Nutrition Assistance Program 11.307 - Economic Adjustment Assistance 17.268 - H-1B Job Training Grants Material Weakness Compliance Requirement: Program Income and Allowable Costs/Cost Principles Criteria: Under 2 CFR Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, specifically: • 2 CFR §200. (Program Income), requires non-Federal entities to account for program income generated as a result of Federal awards. Program income must be properly identified, tracked, and expended in accordance with the terms and conditions of the Federal award. Unless otherwise specified, program income must be used prior to requesting additional Federal funds and must be accurately reported and applied to allowable program costs. • 2 CFR §200.403 requires costs charged to Federal awards to be allowable, reasonable, adequately documented, and allocable to the Federal award. • 2 CFR §200.303 requires non-Federal entities to establish and maintain internal controls over Federal awards. Condition: The Organization did not establish and maintain effective internal controls over program income as required by 2 CFR §200.307. Specifically, the Organization did not identify, track, and monitor program income throughout the grant period or ensure the program income was expended prior to requesting reimbursement of Federal funds. Management acknowledged during the audit that it did not understand the Federal program income requirements during the audit period and therefore did not perform contemporaneous analyses necessary to demonstrate compliance with those requirements. Effect: As a result, the Organization could not demonstrate the program income was properly identified, tracked, and applied in accordance with Federal requirements. The absence of contemporaneous records and effective internal controls prevented the Organization from demonstrating that program income was expended prior to requesting reimbursement of Federal funds, as required by the grant and 2 CFR §200.307. This increased the risk that Federal reimbursements were requested in excess of amounts allowable at the time of reimbursement and resulted in noncompliance with Federal program requirements. Questioned Cost: Undeterminable. The Organization did not maintain contemporaneous records or effective internal controls to identify, track, calculate, and apply program income in accordance with 2 CFR § 200.307. As a result, the Organization could not demonstrate compliance with the program income requirements, and the amount of Federal reimbursements, if any, that may have exceeded allowable amounts due to the noncompliance could not be determined. Cause: Management did not have an understanding of the Federal program income requirements and had not established policies, procedures, or monitoring controls to identify, track, calculate, and apply program income in accordance with 2 CFR § 200.307. As a result, the Organization did not perform contemporaneous analyses necessary to monitor compliance with the Federal program income requirements during the audit. Pass-Through Entity Monitoring Results: The Colorado Department of Labor and Employment (CDLE), the pass-through entity, issued a Financial Desk Review in April 2023 covering the period from December 1, 2021 through July 31, 2022. The desk review identified deficiencies relating to the Organization’s program income processes, including the identification, tracking, and application of program income. Based upon our audit procedures, we determined the Organization did not maintain contemporaneous processes or documentation to identify, track and apply program income in accordance with 2 CFR §200.307. This information is provided as relevant background regarding the significance of the deficiencies and is not intended to indicate the existence of a prior-year audit finding. Recommendation: We recommend the Organization implement formal policies and procedures to ensure compliance with 2 CFR §200.307. This should include: • Establishing processes to identify, track, and monitor program income generated from Federal awards on a timely basis. • Recording program income in the accounting system with separate identification and tracking by Federal award/program, ensuring amounts can be readily supported. • Ensuring program income is consistently applied to allowable program costs prior to requesting additional Federal reimbursement, unless the award terms specify an alternative method. • Maintaining contemporaneous documentation to support the identification, calculation, allowability, and application of program income to specific program expenditures. • Providing training to program and finance staff on Uniform Guidance requirements related to program income, allowable deductions, and the allowability and allocability of costs. • Implementing periodic monitoring and reconciliation procedures to verify that program income is properly recorded, applied, and reported in accordance with Federal requirements. Response: There is no disagreement with the audit finding regarding the need to establish appropriate processes and procedures.
Finding 2023-005: 21.027 - Coronavirus State and Local Fiscal Recovery Funds:COVID-19 - Material Weakness Compliance Requirement: Allowable Costs/Cost Principles Criteria: Under 2 CFR Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, specifically 2 CFR §200.308 (Revision of Budget and Program Plans), non-Federal entities are required to expend Federal award funds in accordance with the approved budget and program plan included in the Federal award. Significant deviations from the approved budget or program plan may require prior written approval from the Federal awarding agency or pass-through entity. Condition: During testing, it was noted that the Organization incurred and charged expenditures to the Federal pass-through award that were not consistent with the approved budget categories and allocations. In certain instances, expenditures exceeded the approved budget amounts within specific cost categories without evidence of formal budget modification approval from the pass-through entity which was required under the grant agreement. Effect: Failure to expend funds in accordance with the approved budget may result in noncompliance with Federal award requirements and could lead to questioned costs or required repayment if expenditures are determined to be unallowable or not properly authorized. Questioned Cost: None. Cause: The Organization does not have adequate internal controls or monitoring procedures in place to ensure expenditures are regularly compared against the approved grant budget. In addition, program and finance staff were not consistently aware of the requirement to obtain prior approval for budget revisions when reallocating funds across cost categories. Recommendation: We recommend the Organization strengthen internal controls over Federal grant financial management by: • Implementing procedures to monitor actual expenditures against the approved grant budget on a regular basis. • Establishing a process to request and obtain prior approval from the pass-through entity for budget modifications, when required. • Ensuring finance and program staff review grant budgets before charging expenditures to the award. • Providing training to relevant staff on Uniform Guidance requirements related to budget compliance. • Maintaining documentation of approved budget revisions and related correspondence with the pass-through entity. Response: There is no disagreement with the audit finding.