Finding Text
#2025-003 – Major Federal Award Finding – Period of Performance Nature of Finding: Period of Performance – Compliance Finding and Material Weakness in Internal Control over Compliance This is a repeat of prior year #2024-004. Criteria/Condition: The Organization recorded certain expenses upon payment of invoices rather than when the service was provided. The guidelines provided at 2 CFR 200.403(e) require that costs be determined in accordance with GAAP to be allowable. In accordance with GAAP and the accrual basis of accounting, such expenses are to be recorded when services are performed, rather than upon payment of invoice. Cause/Context: The Organization had limited accounting resources which impacted timing and frequency of processing certain transactions. In addition, the Organization has contracts with providers that include pre-determined payment terms that may not precisely correlate to the actual work performed in terms of timing. The Organization recorded certain contract costs as the invoices were processed, and not necessarily as the providers’ actual work was completed. Effect: Adjusting journal entries were proposed during the audit to record expenses in the proper period for the financial statements. Federal grant expenses of approximately $154,000 were originally recorded in 2025 that related to 2026 services. Additionally, approximately $25,000 of federal grant expenses were originally recorded in 2026 that related to 2025 services. This net adjustment decreased federal grant revenue and expenditures by approximately $129,000 for the year ended December 31, 2025. Recommendation: We recommend that care be exercised to evaluate financial activity considering the cost factors contained in 2 CFR 200.403, the accrual basis of accounting and period of performance. Controls should be enhanced to ensure that expenses are recorded to the proper period based on when the service or work is provided. Views of Responsible Officials and Planned Corrective Actions: Certain grants — particularly at the Center for Adult College Success — were prepaid by the funder and provided funding for a period of time that covered multiple fiscal years. TalentFirst applied certain contract costs related to work that also covered multiple fiscal years to these grants in the accounting records before the full period of performance had concluded, resulting in expenses recorded in the wrong period. Management has implemented a contract timeline document that tracks each grant and contract's actual period of performance and governs when a grant is closed out in the accounting records. Grants are no longer closed out until the full period of performance has concluded, and contract costs are more closely monitored for period of performance considerations. Management is also moving away from structuring large prepaid contracts, in part to ease the cash flow pressure that structure creates.