2024-010 Federal Agencies: U.S. Department of Agriculture Federal Program Names: The Child Nutrition Cluster: National School Lunch Program Summer Food Service Program Child and Adult Care Food Program Assistance Listing Numbers: 10.555 10.559 10.558 Pass-Through Agency: Commonwealth of Pennsylvania, Department of Education Pass-Through Number: 359-46-477-8 Award Period: July 1, 2023 through June 30, 2024 Type of Finding: • Material Weakness in Internal Control over Compliance Criteria: The United States Government Accountability Office's Standards for Internal Control in the Federal Government, commonly known as the "Green Book" sets standards for an effective internal control system and concepts of the Green Book can be applied to non-profit entities. The Green Book includes the following: Green Book overview section 4 - Additional Considerations includes the following related to Large versus Small Entities: A smaller entity faces greater challenges in segregating duties because of its concentration of responsibilities and authorities in the organizational structure. Management, however, can respond to this increased risk through the design of the internal control system, such as by adding additional levels of review for key operational processes, reviewing randomly selected transactions and supporting documentation, taking periodic asset counts, or checking supervisor reconciliations. (OV 4.05) Green Book Principle 10 - Design Control Activities states, in part: Segregation of duties Management divides or segregates key duties and responsibilities among different people to reduce the risk of error, misuse, or fraud. This includes separating the responsibilities for authorizing transactions, processing and recording them, reviewing the transactions, and handling any related assets so that no one individual controls all key aspects of a transaction or event. (Paragraph 10.03) Green Book Principle 12 - Implement Control Activities, section 12.01 states, in part: Management should implement control activities through policies. The following attributes contribute to the design, implementation, and operating effectiveness of this principle: • Documentation of Responsibilities through Policies • Periodic Review of Control Activities Green Book Principle 4 - Demonstrate Commitment to Competence states, in part: Management defines succession and contingency plans for key roles to help the entity continue achieving its objectives. Contingency plans address the entity's need to respond to sudden personnel changes that could compromise the internal control system. (Paragraph 4.06) Condition: Based on interviews by the Commonwealth of Pennsylvania, Office of the Budget, Bureau of Audits (“Commonwealth”) with CBS Food program management, inspection of records, and on-site observations, we identified internal control deficiencies in the following areas: • For a portion of the audit period, there was a lack of segregation of duties between the cash receipt, bookkeeping, and bank reconciliation processes. The Director of Finance was responsible for all these tasks. The Director of Finance was also responsible for both processing and approving payroll and had authorization to make purchases, make vendor payments, record accounting transactions and complete bank reconciliations. • CBS Food Program performs bank reconciliations; however, they are not signed or dated by the individual performing the reconciliation and a second individual does not review or sign off on the reconciliations. Of nine reviewed account reconciliations, three were completed more than 30 days after the statement period end date. • According to CBS Food Program's former Purchasing Distribution Manager, as of June 2024, they were the only CBS Food Program's employees with detailed knowledge of developing monthly menus and creating purchase orders based on current inventory levels to meet menu requirements. Additionally, the former Purchasing Distribution Manager stated that as of June 2024 formal training on internal purchasing policies and procedures is not provided or required. • For a portion of the engagement period, CBS Food Program lacked written policies or procedures for several key business functions including: • No written Accounting Manual or Standard Operating Manual for accounting functions. • No written policy or procedure for the use of credit cards or the handling of lost or stolen credit cards. • No written policy or procedure to analyze account balances to ensure transactions have been properly recorded. • No written records retention policy. • No written procedures for handling payroll for separating employees. • No written or implemented review process for changes to the payroll system including changes to employee payrates. • For a portion of the engagement period, the Food Program did not have procedures to • Prior to July 1, 2024, CBS Food Program did not have documented procurement procedures. On July 1, 2024, CBS Food Program implemented a procurement plan. Questioned Costs: None Cause: The CBS Food Program did not develop and implement written procedures for several key financial and accounting functions. Due to the size of the organization, effective segregation of duties and contingency planning may be challenging; however, mitigating controls should be implemented to reduce risks. The sudden departure of CBS Food Program's former CEO impacted CBS's segregation of duties for a period of time as certain financial and accounting functions the former CEO was involved with fell entirely to the Director of Finance. Effect: Insufficient internal controls increase the risk of fraud, waste, and abuse in the internal control system, as well as increasing the risk for inaccurate financial reporting and non-compliance with program requirements. Recommendation: If not already addressed, CBS Food Program should develop and implement improved internal controls including: • Develop written policies, procedures and/or manuals for accounting functions. • Develop a formal internal control policy and framework that focuses on key business and operations areas including segregation of duties, transaction review and approval processes, and monitoring procedures over critical operational functions. • Improve cross training of employees including training on purchasing and accounting tasks. • CBS Food Program should develop and implement a record retention policy that complies with food program requirements for maintaining documentation of operations. The policy should ensure key records are maintained in a shared location accessible to all appropriate personnel. This ensures the CBS Food Program does not lose access to key records in the event an employee leaves the food program. Views of Responsible Officers and Corrective Action Plan: Please refer to Community Benefit Solutions dba CBS Food Program’s Corrective Action Plan.