Finding Text
System of Internal Controls Over Compliance: Activities Allowed and Unallowed, Allowable
Costs/Cost Principles, and Period of Performance; U.S. Department of Treasury, Assistance Listing #21.027, Coronavirus State and Local Fiscal Recovery Funds, Passed Through St. Jude’s Ranch for Children, Boulder City Campus.
Criteria: In accordance with 2 CFR 200.62(a)(3), the auditee must maintain a system of internal control over compliance to provide reasonable assurance that expenditures submitted for reimbursement are related to allowed activities, considered allowable costs and adhere to relevant cost principles, and are incurred within the period of performance.
Condition: Through our initial scanning procedures, as related to the federal award request for reimbursement requests (RFRs) submitted to the grantor, it was noted that RFR submissions through June 30, 2024 were not submitted in accordance with accounting principles generally accepted in the United States of America. This indicated that the internal control over allowed activities, allowable costs/cost principles, and period of performance was not operating effectively.
Context: As a result of the condition noted above, as well as the grantor not yet reimbursing the organization for the improper RFR submissions when discovered, the organization elected to revise and resubmit all RFRs in order to be in accordance with accounting principles generally accepted in the United States of America.
Effect: Submission of RFRs on an inconsistent basis of accounting could result in duplication and/or omission of expenditures the organization may be entitled to be reimbursed for.
Cause: The design and implementation of the system of internal control over activities allowed and unallowed, allowable costs/cost principles, and period of performance was not operating effectively.
Recommendation: We recommend management design and implement a system of internal controls over compliance whereby expenditures submitted for reimbursement are related to allowed activities, considered allowable costs and adhere to relevant cost principles, are incurred within the period of performance, and are in accordance with accounting principles generally accepted in the United States of America.
Views of Responsible Officials and Planned Corrective Actions: St. Jude’s Ranch for Children (the parent entity of HSB Holding Company) acknowledges that weaknesses in the financial oversight process contributed to this finding. Specifically, limited knowledge of Generally Accepted Accounting Principles (GAAP) and federal cost principles by key financial personnel led to misclassification of costs and errors in reimbursement requests in a new type of grant unfamiliar to the accounting team. In response, the organization is restructuring its finance department to ensure that individuals with appropriate qualifications and experience in nonprofit GAAP and federal grant compliance are responsible for reviewing accounting records and reimbursement requests. This includes a new Chief Financial Officer with demonstrated experience in federal grant accounting and compliance and a dedicated grants manager to prepare all reimbursement submissions under the oversight of the CFO.