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Finding Number: 2024-001 Cost Allocations – (Material Weakness) Information on Federal Program: U.S. Department of Health and Human Services Federal Assistance Listing Number (ALN) Number: 93.676 ALN Name: Unaccompanied Children Program Contract Period: July 1, 2023 through June 30, 2024 Criteria: In accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), if costs benefit multiple programs, the costs should be allocated to the programs based on the proportional benefit. Additionally, direct costs are those costs that can be identified specifically or directly assigned to such activities relatively easily with a high degree of accuracy. Condition: During our audit, we noted that payroll and the related personnel costs are not being charged directly or allocated to the correct cost center in the Serenic Navigator accounting system monthly. The finance team performs manual calculations of all allocations in Excel at the end of the fiscal year to update the allocations. Questioned Costs: None noted. Context: This is a condition identified during the audit of Lincoln Hall’s June 30, 2024, financial statements. Effect or Potential Effect: We observed that Lincoln Hall did not have formal cost allocation processes in place to properly allocate certain expenses throughout the year. As a result, these expenses were manually adjusted by the Finance team at year-end. Repeat Finding: This is a repeated finding from prior year. See Finding No. 2023-001 on the Summary Schedule of Prior Audit Findings. Cause: Certain non-personnel costs rely on the accurate allocation of personnel costs, which in turn depends on how employees are set up or assigned in ADP. However, there is no effectively established periodic review or assessment process to ensure the accuracy of these assignments throughout the year. Recommendation: The inability to generate financial statements that incorporate the federal and state agency cost allocations prevents Lincoln Hall from presenting functionally accurate interim financial statements. We recommend that these costs be properly allocated on a monthly basis within Lincoln Hall’s general ledger system. Regularly allocating these costs will enable Lincoln Hall to submit accurate and substantiated interim financial data to its funding sources. Additionally, properly tracking and allocating costs monthly will help prevent significant year-end cost reallocations by function. Views of Responsible Officials: Lincoln Hall agrees with the finding. Lincoln Hall continues to take steps to improve this process. See Lincoln Hall's further response to this finding as described in the accompanying management’s planned corrective actions, Appendix A.