Finding 1210875 (2025-002)

SCHEDULE OF FINDINGS AND QUESTIONED COSTS Federal Award Findings and Questioned Costs July 31, 2025 Comment #2025-002 INTERNAL CONTROLS OVER FINANCIAL STATEMENT PREPARATION, GRANT CLOSE-OUT, AND COMPLIANCE WITH RELATED PROVISIONS OF GRANTS AND CONTRACTS SHOULD BE IMPROVED GENERAL (Repeat) Condition: As part of our auditing procedures, we assisted in the preparation of the financial statements, related disclosures, and the schedule of expenditures of federal awards of the Agency. The preparation of these financial statements in accordance with generally accepted accounting principles (GAAP) and Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is the responsibility of the grantee. The authoritative and regulatory standards states in summary that management should authorize, process, reconcile and close-out each grant and contract in a timely manner to ensure proper accounting and reporting of such activity in accordance with the specific professional standards and regulatory requirements. The close-out process is designed to reduce the risk of errors, fraud, material misstatement of financial and compliance reporting and recognition of expenditures (or revenue) in the proper period. While there has been improvements, we noted that the current system of internal controls over financial statements and compliance is not designed to ensure that the objectives are achieved. Further, the capacity and experience of the current staff does not allow for adequate analysis of grants and contracts, proper allocations of shared costs and support services provided, grantor receivables, deferred revenue, and other close-out procedures accurately and in a timely manner. This resulted in adjustments necessary to present the financial statements and disclosures of the Agency as of July 31, 2025. We also noted significant weaknesses in internal controls over payroll and recording various journal entries related to payroll transactions and fringe benefits. Therefore, the risk exists that grant receivables and/or cash from the various programs are not recorded properly during the reporting period (interim and annually). This condition also makes it difficult to prepare accurate external reports required by the various funding sources in a timely manner (i.e. SF-425, DHS’s reports for LIHEAP, etc.). The systemic cause appears to be the change in the accounting staff and continuing education and training in grant accounting. Policies and procedures are not up-dated and followed consistently throughout the year. Context: Review of internal control structure of the organization in accordance with Government Auditing Standards. Criteria: Controls should be in place to ensure that financial statements are prepared in accordance with GAAP. The auditee shall prepare financial statements that reflect its financial position, results of operations or changes in net assets, and, where appropriate, cash flows for the fiscal year audited. The auditee shall also prepare a schedule of expenditures of Federal awards for the period covered by the auditee's financial statements. [2 CFR §200.510(a) and (b)] Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements set forth in §200.328 Financial reporting and §200.329. (Continued) Effect: Monitoring and reporting program performance [2 CFR §200.302(b)(2)]. Management may not be able to obtain complete and accurate financial statements on an interim or fiscal year basis to be used for internal or external reporting purposes. Cause: Turnover of key staff, change in the accounting system, limited personnel with knowledge and/or the ability to assist and provide needed information to aid in financial statement preparation. Recommendation: The degree to which the preparation of the financial statements and related disclosures are prepared by the independent auditor is a control deficiency as determined by the knowledge, skills and experience of those in the organization who are charged with the responsibility of its financial reporting. The Agency's chief financial officer (CFO) should require the grant accountant and a general ledger accountant to receive annual training by professionals in the field of grant accounting and reporting. The payroll clerk should receive proper training in processing journal entries for all areas of payroll. All accounting staff should have the adequate skills, knowledge and experience to oversee and/or perform the necessary accounting functions each month. Policies and procedures should be updated to adequately address the challenges and dynamics of the community action agency. We believe that the CFO with the supporting staff and general ledger accountant should have the overall responsibility of properly reconciling and closing out the accounting system and grant activity each month in an efficient and timely manner so as to eliminate the risk of significant errors occurring. Budget-to-actual schedules should be an integral part of the grant accountant’s basic responsibilities. Program directors should be involved in the closing process. We further recommend that training be provided to all staff engaged in the financial reporting, allocations and reconciliation functions to ensure that a complete and accurate financial statements close-out process is achieved each month and annually. Accounting policies and procedures must be updated and implemented. Views of Responsible Officials and Planned Corrective Actions: Management is in the process of assessing the organizational structure and capacity to provide adequate financial reporting. With Board review and approval of the Agency’s financial funding sources, the Agency will require additional specialize training for fiscal staff and improve in the segregation of duties to ensure adequate internal controls are fully implemented. The CFO will have the overall responsibility of properly reconciling and closing out the accounting system and grant activity each month in an efficient and timely manner to eliminate the risk of significant errors occurring. Budget-to-actual schedules will be an integral part of the grant accountant analyst’s basic responsibilities. The fiscal policies and procedures will be updated with the enhancements implemented within the fiscal department. Staff will be trained on revised policies and procedures and Uniform Guidance regulations. The CFO will take lead in financial reporting to ensure that all reporting meet GAAP and GAS requirements and to provide informative reports for Board and Management. All enhancements will be implemented by June 30, 2026.