Type of deficiency: Significant deficiency in internal control over compliance AL number: 10.561 AL title: Supplemental Nutrition Assistance Program Name of federal agency: U.S. Department of Agriculture Federal award/contract: FFY 2026 SNAP Employment and Training Contract No. 26 IHGA 206885 Repeat finding: No Criteria: In accordance with 2 CFR §§ 200.403, 200.404, and 200.405, costs charged to a federal award must be adequately documented, necessary and reasonable for the performance of the federal award, and allocable to the federal award. In addition, the Statement of Work requires the Program Operator to provide supporting documentation upon request, comply with the Department-approved Employment First Program Operator Plan, and obtain Department approval for changes or adjustments to the approved Program Operator Plan. Recipients are required to maintain documentation sufficient to support the nature, allowability, allocation, and period of performance of expenditures charged to federal programs. Condition: During our audit procedures, we noted that the Organization charged $155,141 of contractual expenditures to the FFY 2026 SNAP Employment and Training Program. The contractual expenditures consisted primarily of technology, operational, consulting, and program-support services provided through various third-party service providers and contractors. During our testing, we noted that while the Organization maintained invoices and supporting records for these expenditures, documentation was not maintained in sufficient detail to fully demonstrate the basis used to allocate certain contractual costs to the federal program, the methodology used to determine the benefit received by the program, and whether certain charges were supported by timeand- effort records, utilization metrics, or other documentation demonstrating the relationship of the expenditures to services provided under the federal award. Certain contractual expenditures identified during the State's review related to contractors or service arrangements that were not reflected in the approved Employment First Program Operator Plan. Management submitted a plan at the beginning of the contract with the Department, however they did not maintain documentation demonstrating whether selected contractors were communicated to or approved by the Department as modifications to the approved Program Operator Plan.Condition (continued): The Colorado Department of Human Services identified similar concerns during its fiscal management evaluation. The Department approved invoices and reimbursed for these costs, and did not communicate issues until the fiscal management evaluation was conducted. As a result of the State's determination and the uncertainty surrounding the ultimate resolution of the matter, management has recorded a liability associated with the expenditures identified by the State pending final resolution. Cause: The Organization maintained documentation supporting contractual expenditures charged to the program; however, controls were not operating effectively to ensure sufficient documentation was retained to support allocation methodologies for charging certain contractual expenditures to the federal award, utilization measures, and any required approvals associated with modifications to the approved Program Operator Plan. Possible effect: Without sufficient supporting documentation, the Organization may be unable to fully demonstrate that contractual expenditures charged to the federal award were necessary, reasonable, allocable, and supported by appropriate methodologies. In addition, the Organization may be unable to demonstrate compliance with requirements relating to approval of modifications to the Program Operator Plan. As a result, expenditures charged to the federal program may be challenged by oversight agencies and may be subject to disallowance or repayment. Management has recorded a liability associated with the amounts identified by the Colorado Department of Human Services pending final resolution of the matter. Questioned cost: 155,141 Recommendation: We recommend the Organization enhance documentation supporting contractual expenditures charged to federally funded programs. Documentation should clearly identify the services provided, the relationship of those services to the federal program, the methodology used to allocate costs to the program, and the basis used to demonstrate that expenditures are necessary, reasonable, and allocable to the federal award. Management should also retain documentation supporting any required Department approvals associated with modifications to the approved Program Operator Plan. Supporting documentation should be retained and periodically reviewed to ensure it is available for future monitoring, compliance, and audit activities.SECTION III - SUMMARY OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS (continued) Views of responsible officials: The Organization has implemented a revised cost allocation plan in accordance with federal cost principles to determine the allocable amount of costs. The Organization aims to serve all “neighbors” regarding the mission of serving Denver neighborhoods, regardless of eligibility for government benefits. This results in challenges to directly tie certain costs to eligible participants served. As a result, the Organization has determined a cost pool that will apply a rate based on eligible participants out of total participants served as this data is tracked and readily available to help serve as a reasonable basis to allocate costs. In addition to this revised cost allocation plan, the Organization has implemented a process to review contractors being charged to its grants and ensure that these have gone through the appropriate approval processes prior to submitting for reimbursement.
Type of deficiency: Significant deficiency in internal control over compliance AL number 10.561 AL title: Supplemental Nutrition Assistance Program Name of federal agency: U.S. Department of Agriculture Federal award/contract: FFY 2026 SNAP Employment and Training Contract No. 26 IHGA 206885 Repeat finding: No Criteria: In accordance with 2 CFR §§ 200.403, 200.404, and 200.405, costs charged to a federal award must be adequately documented, necessary and reasonable for the performance of the federal award, and allocable to the federal award. Recipients are required to maintain documentation sufficient to support the methodologies used to charge costs to federal programs and to demonstrate that federal awards receive benefits commensurate with the amounts charged. The FFY 2026 contract and Program Operator Plan also require the Organization to maintain documentation supporting costs charged to the program and make such documentation available for State and federal review. The approved budget further contemplated participant-based and component-based pricing methodologies for certain program services.Condition: The FFY 2026 Department-approved Employment First Program Operator Plan incorporated into Contract No. 26 IHGA 201182 included a materials cost for Launch licensing based on a participant fee of $2,600 per participant. The Program Operator Plan described the participant-based fee and related services to be provided through the Launch platform, and the methodology was incorporated into the executed contract. The related budget documents also contemplated billing at established component rates rather than reimbursement solely on the basis of actual costs incurred. During our audit procedures, we noted that the Organization billed $412,100 under the participant-based licensing methodology included in the approved Program Operator Plan. Based on the approved Program Operator Plan, supporting budget schedules, and executed contract, management operated under the belief that the participant-based pricing methodology was approved by the Department, was reasonable and necessary, and complied with program requirements. Subsequent to implementation of the program, the Organization obtained a transfer-pricing and fair value study intended to evaluate and support the participant-based pricing methodology. The Colorado Department of Human Services later performed a fiscal management evaluation and questioned whether sufficient documentation existed to support the participant-based pricing methodology and the basis used to allocate charges to the federal program. The Department approved invoices and reimbursed for these costs, and did not communicate issues until the fiscal management evaluation was conducted. During our audit, we noted that while the participant-based methodology was disclosed within and approved through the Program Operator Plan and management had obtained a supporting valuation analysis, documentation retained regarding the assumptions, analyses, and support underlying the participant-based methodology was not sufficient to fully address the concerns subsequently raised during the State's review as part of their fiscal management evaluation. As a result of the State's determination and the uncertainty surrounding the ultimate resolution of the matter, management has recorded a liability associated with the expenditures identified by the State pending final resolution. Cause: The Organization established a participant-based pricing methodology that was incorporated into the Department-approved Program Operator Plan and executed contract and subsequently obtained a valuation analysis supporting the methodology. However, controls were not operating effectively to ensure that supporting documentation, assumptions, analyses, and valuation support underlying the methodology were maintained in a manner sufficient to support future monitoring and compliance reviews.Possible effect: Without sufficient documentation supporting the participant-based pricing methodology, the Organization may be unable to fully demonstrate the reasonableness, allocability, and support for amounts charged under the methodology. As a result of the State's determination and the uncertainty surrounding the ultimate resolution of the matter, management has recorded a liability associated with the amounts identified by the Colorado Department of Human Services pending final resolution of the matter. Questioned cost: $412,100 Recommendation: We recommend the Organization enhance documentation supporting participantbased pricing methodologies utilized in federally funded programs. Documentation should identify the basis used to establish the participant fee, the assumptions and analyses supporting the pricing methodology, the relationship between the participant fee and benefits received by the federal program, and procedures demonstrating that costs are not recovered through other reimbursement categories. Supporting documentation should be retained and periodically reviewed to ensure it is available for future monitoring, compliance, and audit activities. Views of responsible officials: Management has established a separate entity to hold the technology related to these charges. Additionally, management engaged a reputable accounting firm on May 4, 2026 prior to the fiscal management evaluation to assist with fee benchmarking to independently validate the participant fee, and is currently working on valuing the developed technology to contribute into a separate legal entity. Although documentation was retained, management has developed a plan to enhance the documentation to follow federal cost principles to appropriately demonstrate the benefits received by the federal program.
Type of deficiency: Material weakness in internal control over compliance AL number 10.561 AL title: Supplemental Nutrition Assistance Program Name of federal agency: U.S. Department of Agriculture Federal award/contract FFY 2026 SNAP Employment and Training Contract No. 26 IHGA 202955 Repeat finding: No Criteria: In accordance with 2 CFR §§ 200.403, 200.404, 200.405, and 200.413, costs charged to a federal award must be necessary and reasonable for the performance of the federal award, adequately documented, and allocable to the federal award. Costs benefiting multiple activities must be allocated based on the relative benefits received using a reasonable and documented methodology. Recipients and subrecipients must also maintain documentation sufficient to demonstrate that costs charged to a federal award were incurred for allowable program purposes. The Employment First Program operates on a reimbursement basis. Accordingly, reimbursement requests must be supported by actual costs incurred for program administration or participant services and by documentation demonstrating the allowability and allocability of the amounts charged to the program. Condition: During our audit procedures, we noted that Torch Technology Solutions ("Torch Tech") charged expenditures to the FFY 2026 SNAP Employment and Training Program for compliance and reporting, finance and cost allocation, program delivery, technology infrastructure, and participant-support functions. Torch Tech did not maintain sufficient documentation to demonstrate that the amounts billed represented actual costs incurred during the applicable billing periods, were necessary and reasonable for carrying out the federal award, were directly attributable to Employment First program administration or participant services, or were allocated to the federal program using a reasonable and documented methodology. Torch Tech also did not maintain sufficient documentation supporting certain subcontractor and service-provider expenditures charged to the federal award. Available documentation was not sufficient to demonstrate the nature of the services provided, when the services were performed, the benefit received by the federal program, or the methodology used to allocate the related costs to the program. In addition, during testing of supportive-service expenditures, we noted that Torch Tech charged certain payments made through gift cards to the federal program. Torch Tech did not maintain sufficient documentation demonstrating that the supportive payments were reasonable and necessary for participant engagement in the Employment First Program or that the funds were used for allowable program purposes. Similar concerns were identified during the fiscal management evaluation performed by the Colorado Department of Human Services. Management recorded a liability for the amount required to be repaid and reversed the related program revenue. Management determined that these costs were unallowable and also excluded the associated amounts from the Schedule of Expenditures of Federal Awards. Subsequent to the State’s fiscal management evaluation, Torch Technology Solutions terminated its Employment First Program contract and ceased operating activities. The Organization returned requested funds related to the findings totaling $283,425.Cause: Torch Tech’s internal controls were not designed or operating effectively to ensure that expenditures charged to the federal program were supported by actual costs incurred, adequately documented, evaluated for allowability, demonstrated to be necessary and reasonable for the performance of the federal award, allocated to the program using reasonable and documented methodologies, and reviewed and approved before reimbursement requests were submitted. Possible effect: Torch Tech was unable to demonstrate that expenditures charged to the federal award were necessary, reasonable, allocable, adequately documented, and incurred for allowable program purposes. As a result, the Colorado Department of Human Services determined that the identified expenditures were subject to repayment. Management accepted the State's determination, recorded a liability for the repayment obligation, reversed the related federal revenue, and excluded the associated expenditures from the Schedule of Expenditures of Federal Awards. The control deficiencies created a reasonable possibility that material noncompliance with federal cost principles and program requirements would not be prevented, or detected and corrected, on a timely basis. Questioned cost: None Recommendation: Because Torch Tech has terminated its Employment First Program contract and ceased operating activities, corrective action within Torch Tech is no longer applicable to future program billings. However, we recommend that CrossPurpose incorporate the lessons arising from this finding into its organization-wide policies and controls applicable to any current or future federal awards, as it relates to contracts held by subsidiaries. For future federal reimbursement programs, management should implement procedures requiring review of reimbursement requests by subsidiaries to ensure they are supported by actual costs incurred when required by the award; retention of subcontractor agreements, invoices, payroll records, time-and-effort support, utilization records, and allocation schedules; documentation demonstrating that expenditures are necessary, reasonable, allocable, and directly related to the federal program; supportive-service payments to be supported by documented participant need, evidence of receipt and redemption, and evidence of allowable program-related use; review of gift cards and obtaining supporting documentation to ensure they were used to benefit eligible participants for allowable program purposes; and supervisory review and approval of reimbursement requests made by subsidiaries before submission to the passthrough entity.Views of responsible officials: Management agrees with the finding. Management has developed a process to review any potential future requests for reimbursements by subsidiaries to ensure that there is appropriate supporting documentation to ensure that it is allocable, reasonable, and necessary, and that it documents the benefit to eligible participants. In response to the findings specifically related to Torch Technology Solutions, all employees of the subsidiary were terminated with an effective date of May 15, 2026, and the Organization terminated its contract with the Department. It also followed the appropriate process of fulfilling requests related to the Department’s fiscal management evaluation, and it promptly returned funds in the amount of $283,425 based on the findings of this process. The Organization has ceased all operations for this subsidiary as disclosed as a subsequent event in the notes to the financial statements.