2024-006 Significant Deficiency in Internal Control and Compliance over Major Programs Funding Agency: Department of Health and Human Services ALN: 93.600 Criteria Per 2 CFR 200.303(a), recipients 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.” Condition During our testing of cash disbursements, we identified three outstanding check payments for program expenses that had not been cleared by the bank. We identified the checks as outstanding on the bank reconciliation. Vendors were contacted during fieldwork and confirmed that KCR did not have an open balance, and that the vendors did not have custody of the checks. Questioned Costs $7,856 Cause KCR’s internal controls over cash disbursement were not adequately designed to identify and respond to outstanding checks, especially for payments related to federal program expenses. Effect KCR’s failure to identify and respond to outstanding checks resulted in noncompliance with 2 CFR 200.403(a). Unnecessary and unreasonable costs were charged to the Federal award. Repeat Finding No. Recommendation We recommend KCR strengthen its internal controls over cash disbursements to better identify and respond to outstanding checks. Bank reconciliations, with an outstanding check register, should be regularly reviewed by those charged with governance. Views of Responsible Officials Management concurs with the finding and recommendation. Please see the attached corrective action plan.
2024-007 Significant Deficiency in Internal Control and Compliance over Major Programs Funding Agency: Department of Health and Human Services ALN: 93.600 Criteria Per 2 CFR 200.430(g)(1) and 2 CFR 200.430(g)(1)(i), “Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: Be supported by a system of internal control that provides reasonable assurance that the charges are accurate, allowable, and properly allocated.” Condition KCR’s internal controls require both the employee and supervisor to sign the timesheet prior to payroll being processed. During our testing of payroll expenses, we noted that six of the 60 timesheets tested lacked the employee and/or supervisor signature. Questioned Costs $9,955 Cause KCR’s internal controls over payroll were not adequately functioning to identify and respond to unapproved timesheets prior to processing payroll. Effect KCR’s failure to properly document approval for employee wages billed to the federal program resulted in noncompliance with 2 CFR 200.430(g)(1). Wages were billed to the federal program without reasonable assurance that the hours worked were accurate. Repeat Finding No. Recommendation We recommend KCR strengthen its internal controls over payroll to ensure timesheets are properly reviewed and approved prior to processing payroll. Views of Responsible Officials Management concurs with the finding and recommendation. Please see the attached corrective action plan.
2024-008 Significant Deficiency in Internal Control and Compliance over Major Programs Funding Agency: Department of Health and Human Services ALN: 93.600 Criteria Per 2 CFR 200.430(g)(1) and 2 CFR 200.430(g)(1)(i), “Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: Be supported by a system of internal control that provides reasonable assurance that the charges are accurate, allowable, and properly allocated.” 2 CFR 200.430(g)(1)(v) also specifies that employee compensation charged to the Federal award must “comply with the established accounting policies and procedures of the recipient or subrecipient.” Condition All changes to employee compensation must be documented by a personnel action form ("PAF"), and signed by the executive director. During our payroll testing, we were unable to recalculate an employee’s gross wages (payable to the employee and chargeable to the award) based on the employee’s hours worked and approved rate of pay on their PAF. Based on our calculations, the employee was being compensated as a full-time employee while only working 60-70 hours each pay period. After a thorough discussion with management, a review of the employee’s personnel action forms and changes in MIP, it was determined the employee was transitioned to a part-time position in February 2024, however no PAF was completed, and no updates were made in the MIP payroll module. The employee was being compensated as a full-time employee despite the decrease in hours. Questioned Costs $37,718 Cause KCR’s internal controls over payroll were not adequately functioning to appropriately document employee compensation changes, and make updates in MIP prior to processing payroll. Effect KCR’s failure to properly document approval for employee wages billed to the federal program resulted in noncompliance with 2 CFR 200.430(g). An employee’s overcompensation was billed to the Federal award. Repeat Finding No. Recommendation We recommend KCR strengthen its internal controls over payroll to ensure PAFs are properly recorded, and updates are made in MIP after the employee’s wage change has been approved. Views of Responsible Officials Management concurs with the finding and recommendation. Please see the attached corrective action plan.
2024-009 Significant Deficiency in Internal Control and Compliance over Major Programs Funding Agency: Department of Health and Human Services ALN: 93.600 Criteria Head Start recipients are required to submit a mid-year and year-end SF-425 report. Recipients must submit financial information, per 2 CFR 200.328. Federal regulations require recipients of federal awards to maintain records that adequately support financial reports, demonstrate accountability for federal funds, and provide an audit trail sufficient to substantiate reported expenditures and other financial information submitted to federal agencies. Condition KCR submitted two SF-425 reports, for periods ending 6/30/2024 and 12/31/2024. When requested to provide the financial reports used to submit the financial information in both SF-425s, KCR was unable to locate the original reports. KCR attempted to recreate the reports in MIP but due to the many entries entered during fieldwork (reference 2024-001), the MIP generated reports were no longer tied to the SF-425 reports. KCR was unable to reconcile the differences between the MIP reports and SF-425. As a result, there was insufficient audit evidence to verify the accuracy and completeness of the financial information reported to the federal awarding agency. Questioned Costs None. Cause The organization did not maintain adequate records supporting the preparation of the SF-425 and lacked effective controls over the retention, organization, and preservation of financial reporting documentation. Effect Without adequate support for the SF-425 financial information submitted, there is significant risk that the SF-425s contained inaccurate or incomplete information. Repeat Finding No. Recommendation Management should establish and implement formal procedures to ensure that all financial reports submitted to federal agencies are supported by documented reconciliations and properly retained for future reference. Supporting records should be maintained in accordance with federal record retention requirements and should be sufficient to allow reported amounts to be independently traced to the accounting records and reproduced if needed. Views of Responsible Officials Management concurs with the finding and recommendation. Please see the attached corrective action plan.
2024-010 Material Weakness in Internal Control and Compliance over Major Programs Funding Agency: Department of Health and Human Services ALN: 93.600 Criteria Per 42 USC 9837, Head Start governing bodies are responsible for reviewing monthly financial statements, and approve the annual operating budget. Condition During our audit, we noted that the finance department was several months behind on financial reporting. While the board minutes noted that financial statements were presented monthly, the financial information often being presented was from several months prior, making it impossible for the governing body to have an accurate outlook of KCR’s financial position. We also noted that several statement of financial position accounts were not properly reconciled until the audit, meaning that any financial information presented to the governing body in 2024 would have been materially misrepresented. The 2024 operating budget was not approved until September 2024, more than halfway through the fiscal year. Questioned Costs None. Cause The governing body did not provide adequate oversight of KCR's financial management and internal control process. Effect Ineffective governance and monitoring over the Federal awards increased the risk that deficiencies in internal control over compliance may occur, and that there may be material weaknesses in internal controls over compliance that were not identified and corrected in a timely manner. Repeat Finding No. Recommendation We recommend KCR strengthen governance and oversight activities through the establishment of a finance committee with appropriate financial knowledge and experience to assist the governing body. Monthly meetings should be held to review annual operating budget, significant budget-to-actual variances, and report activities and recommendations to the entire Board. Views of Responsible Officials Management concurs with the finding and recommendation. Please see the attached corrective action plan.