CORRECTIVE ACTION PLAN — Finding 2025-003 Grant Accounting Reconciliation and Compliance over Allowable Costs / Reporting — Compliance Finding (Allowable Costs / Cost Principles, Reporting) and Material Weakness in Internal Control over Compliance and Financial Reporting Programs: Weatherization Ass...
CORRECTIVE ACTION PLAN — Finding 2025-003 Grant Accounting Reconciliation and Compliance over Allowable Costs / Reporting — Compliance Finding (Allowable Costs / Cost Principles, Reporting) and Material Weakness in Internal Control over Compliance and Financial Reporting Programs: Weatherization Assistance for Low-Income Persons (ALN 81.042); Low-Income Home Energy Assistance Program – LIHEAP (ALN 93.568), and related state and federal funds administered through the Weatherization program | Cognizant / Pass-Through Agencies: U.S. Department of Energy; U.S. Department of Health and Human Services; State of Vermont Department for Children and Families | Entity: Southeastern Vermont Community Action, Inc. (SEVCA) | CAP Contact: Joshua Davis, Executive Director, JDavis@sevca.org 1. Summary of Finding Finding 2025-003 identified that Weatherization work-in-progress (WIP), grant revenue, and deferred revenue balances did not reconcile to the supporting documentation required under the related grants, resulting in significant audit adjustments; those balances were adjusted to agree with program reporting only at grant-year and fiscal-year close rather than on an ongoing basis. The finding also identified that expenditures recorded in the general ledger could not be reconciled to expenditures reported in the state reporting system (Hancock) for both the LIHEAP and Weatherization programs, and that subcontract labor and subcontract material costs were overstated and billed to both programs, requiring repayment of $133,144.05 to the State of Vermont. 2. Management’s Response Management concurs with the finding, and the $133,144.05 has been repaid. Both conditions share a common root cause: Weatherization and Finance operate on separate systems — Hancock for program job-costing, the general ledger for financial reporting — without a recurring, independently reviewed monthly reconciliation between the two. Program staff prepare both the Hancock job-closing data and the resulting Monthly Expenditure Reports (MERs), and Finance’s role has been limited to sign-off on the cash draw request and MER rather than independent verification of the underlying data. This allowed a set of jobs that were closed, reported, then inadvertently reopened, re-closed, and billed a second time to go undetected until identified by the independent audit. 3. Root Cause Gap A – Balance reconciliation (drives the WIP, revenue, and deferred revenue condition): No recurring monthly reconciliation exists between Hancock’s reported WIP activity by grant and the general ledger’s WIP asset, revenue, and deferred revenue balances. Alignment has relied on a semi-annual adjusting entry that forces the general ledger to agree with year-end or grant-end program reporting, without documenting the variance being corrected. Gap B – Source data review (drives the expenditure reporting and overbilling condition): Finance’s review of the MER and cash draw request has not included independent verification that the population of jobs and costs reported as newly closed for the month is accurate and non-duplicative, which allowed reopened-and-reclosed jobs to be billed twice without detection. Gap C – Subcontract cost validation: Subcontractor invoices and purchase orders are reviewed and approved at the point of payment. Weatherization’s existing job-closeout procedure for verifying subcontract labor and material costs on a closed job has not been reviewed for consistency with grant requirements, and is not currently integrated with Finance’s review of cash draw requests and MERs. 4. Corrective Actions The actions below establish monthly, documented, independently reviewed controls for closing Gaps A, B and C scoped to what can be reliably implemented and sustained in the near term. 1. Develop and implement a written Monthly Grant Reconciliation Procedure requiring Hancock’s month-end WIP, revenue, and deferred revenue activity by grant to be reconciled to the corresponding general ledger balances every month, rather than only at grant-year and fiscal-year close — Finance Director; within 60 days (by early October 2026). 2. Replace the semi-annual WIP adjusting entry with a monthly adjusting entry supported by a documented reconciliation identifying the variance between Hancock-reported and general-ledger balances. During the initial implementation period, Finance will develop and refine the reconciliation methodology; each variance identified will be documented, researched, and corrected once its cause is determined. A specific materiality threshold and escalation protocol for unresolved variances will be documented and adopted by January 2027, based on the pattern observed in the initial reconciliation cycles. The reconciliation and any correcting entries are subject to documented Finance Director review and sign-off, and independent review and sign-off by the Executive Director, retained for audit testing — Finance Director / Staff Accountant / Executive Director; first full month applied July 2026, ongoing thereafter; materiality threshold and escalation protocol adopted by January 2027. 3. Develop and implement a written MER Review Procedure requiring that, prior to submission, Finance compare the current month’s Hancock closed-job listing against the prior month’s listing for each grant to identify jobs appearing more than once, including jobs closed, reopened, and re-closed — Finance Director / Staff Accountant; within 60 days (by early October 2026). 4. Formalize the existing Finance review and sign-off of the MER and cash draw request to explicitly include and document this closed-job comparison, subject to independent review and sign-off by the Executive Director prior to submission, — Finance Director / Executive Director; effective with the September 2026 submission cycle. 5. Require Weatherization to flag, at the point of submission, any job reopened after an initial closing, so Finance’s review has a defined starting point — Weatherization Administration Staff; effective with the October 2026 submission cycle. 6. Train Weatherization and Finance staff on the updated procedures, including the integrated job-closeout review (Item 7), and on 2 CFR 200 Subpart E (allowable, allocable, and properly supported costs), and retain completed reconciliations and MER review documentation, including job-closeout review documentation, to support future audit testing — Finance Director / Accounting Staff; training by early November 2026, retention ongoing. 7. Review Weatherization’s current job-closeout procedure, in coordination with Weatherization Administration Staff, to confirm that subcontract labor and material costs attributed to a closed job are verified as complete, accurate, not previously billed, and correctly classified. Correct or strengthen the procedure as needed to bring it into compliance, document it, and integrate it with Finance’s review of the MER and cash draw request (Items 3–4) — Finance Director / Weatherization Administration Staff; review completed by mid-September 2026, procedure documented, corrected as needed, and integrated with Finance’s review by mid-November 2026. 8. After the monthly WIP/general ledger reconciliation (Item 2) and MER closed-job comparison (Items 3–4) have been operating for at least one full quarter, apply the same closed-job comparison methodology retrospectively to Hancock data for FY24 and FY25 to identify any additional jobs closed, reopened, and re-closed and billed more than once. Document the results, including any additional amounts potentially due to the State of Vermont or U.S. Department of Energy, and report findings to the Finance Committee and, if additional overbilling is identified, to the State of Vermont Department for Children and Families and the U.S. Department of Energy — Finance Director; lookback completed by April 2027, following at least one full quarter of the new procedures operating. 9. Establish a semiannual internal compliance review across all major federal award programs (Head Start, CSBG, LIHEAP, HWAP, and CDBG), phased in to match available capacity. The first cycle will verify that expenditures recorded in the general ledger reconcile to amounts reported to each funder; a sample-based test of cost allowability will be incorporated beginning with the second cycle. The review is performed by the Finance Director and independently reviewed by the Executive Director, with results reported to the Finance Committee — Finance Director / Executive Director; first review by June 2027, semiannual thereafter, cost-allowability testing added beginning with the review in December 2027. 5. Anticipated Completion Date Both procedures will be documented, approved, and in effect no later than October 2026, with the first full reconciliation and MER review cycle completed at October month-end close. The Weatherization job-closeout review (Item 7) will be completed, corrected as needed, and integrated with Finance’s review by mid-November 2026. Staff training will be completed by early November 2026. The materiality threshold and escalation protocol for reconciliation variances (Item 2) will be adopted by January 2027. The FY24–FY25 historical lookback (Item 8) will be completed by April 2027. The program-wide semiannual internal compliance review (Item 9) will begin no later than June 2027, with cost-allowability testing phased in by December 2027. 6. Broader Process Review – Weatherization / Finance Integration These near-term actions reduce but do not fully resolve a systemic issue: Weatherization and Finance rely on separate systems and staff, connected only by manual, summary-level data transfer. Fully closing that gap — including possible transaction-level reconciliation between Hancock and the general ledger — requires broader cross-departmental review, which management has begun, led by the Executive Director and Finance Director in consultation with Weatherization Administration Staff. The review will incorporate the results of the Weatherization job-closeout procedure review (Item 7) and will evaluate the feasibility of transaction-level reconciliation, staffing needs, and interim manual controls, and is targeted for completion by November 2026. A detailed scope, timeline, and set of deliverables is maintained as a supplementary document, available to the Finance Committee and auditors on request; a summary of findings and any resulting recommendations will be incorporated into next year’s corrective action reporting. 7. Monitoring The Finance Director will review completed monthly reconciliations and MER review documentation, and the integrated Weatherization job-closeout review (Item 7), as part of each monthly close and submission cycle; the Executive Director will independently review and sign off on this documentation on the same cycle. Unresolved reconciliation variances will be handled per the protocol adopted under Item 2. Reconciliation status and any unresolved variances will be reported to the Finance Committee monthly, together with progress on the broader Weatherization / Finance process review until that work concludes. The semiannual program-wide internal compliance review (Item 9) will be reported to the Finance Committee upon completion of each cycle. 8. Evidence of Completion Items 1–2 (Monthly WIP/GL reconciliation): Reconciliation workpapers, variance research notes, Finance Director and Executive Director sign-off, and escalation records where applicable. Items 3–4 (MER closed-job comparison): Closed-job comparison reports, and the MER and draw request with Finance Director and Executive Director sign-off. Item 5 (Weatherization reopened-job flag): Flagged job listing submitted with each MER cycle. Item 6 (Training): Training materials and sign-in sheets or completion certificates. Item 7 (Weatherization job-closeout review): Documentation of the procedure review, any corrections made, and sign-off integrating it into the MER/draw review. Item 8 (Historical lookback): Lookback workpapers, a summary of results, and related Finance Committee and funder correspondence. Item 9 (Semiannual compliance review): Review workpapers, sample testing documentation, and the Finance Committee report. All records will be retained in accordance with SEVCA’s record retention policy and 2 CFR 200.334.