Finding 2023-004: 21.027 - Coronavirus State and Local Fiscal Recovery Funds:COVID 10.561 - State Administrative Matching Grants for the Supplemental Nutrition Assistance Program 11.307 - Economic Adjustment Assistance 17.268 - H-1B Job Training Grants Material Weakness Compliance Requirement: Program Income and Allowable Costs/Cost Principles Criteria: Under 2 CFR Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, specifically: • 2 CFR §200. (Program Income), requires non-Federal entities to account for program income generated as a result of Federal awards. Program income must be properly identified, tracked, and expended in accordance with the terms and conditions of the Federal award. Unless otherwise specified, program income must be used prior to requesting additional Federal funds and must be accurately reported and applied to allowable program costs. • 2 CFR §200.403 requires costs charged to Federal awards to be allowable, reasonable, adequately documented, and allocable to the Federal award. • 2 CFR §200.303 requires non-Federal entities to establish and maintain internal controls over Federal awards. Condition: The Organization did not establish and maintain effective internal controls over program income as required by 2 CFR §200.307. Specifically, the Organization did not identify, track, and monitor program income throughout the grant period or ensure the program income was expended prior to requesting reimbursement of Federal funds. Management acknowledged during the audit that it did not understand the Federal program income requirements during the audit period and therefore did not perform contemporaneous analyses necessary to demonstrate compliance with those requirements. Effect: As a result, the Organization could not demonstrate the program income was properly identified, tracked, and applied in accordance with Federal requirements. The absence of contemporaneous records and effective internal controls prevented the Organization from demonstrating that program income was expended prior to requesting reimbursement of Federal funds, as required by the grant and 2 CFR §200.307. This increased the risk that Federal reimbursements were requested in excess of amounts allowable at the time of reimbursement and resulted in noncompliance with Federal program requirements. Questioned Cost: Undeterminable. The Organization did not maintain contemporaneous records or effective internal controls to identify, track, calculate, and apply program income in accordance with 2 CFR § 200.307. As a result, the Organization could not demonstrate compliance with the program income requirements, and the amount of Federal reimbursements, if any, that may have exceeded allowable amounts due to the noncompliance could not be determined. Cause: Management did not have an understanding of the Federal program income requirements and had not established policies, procedures, or monitoring controls to identify, track, calculate, and apply program income in accordance with 2 CFR § 200.307. As a result, the Organization did not perform contemporaneous analyses necessary to monitor compliance with the Federal program income requirements during the audit. Pass-Through Entity Monitoring Results: The Colorado Department of Labor and Employment (CDLE), the pass-through entity, issued a Financial Desk Review in April 2023 covering the period from December 1, 2021 through July 31, 2022. The desk review identified deficiencies relating to the Organization’s program income processes, including the identification, tracking, and application of program income. Based upon our audit procedures, we determined the Organization did not maintain contemporaneous processes or documentation to identify, track and apply program income in accordance with 2 CFR §200.307. This information is provided as relevant background regarding the significance of the deficiencies and is not intended to indicate the existence of a prior-year audit finding. Recommendation: We recommend the Organization implement formal policies and procedures to ensure compliance with 2 CFR §200.307. This should include: • Establishing processes to identify, track, and monitor program income generated from Federal awards on a timely basis. • Recording program income in the accounting system with separate identification and tracking by Federal award/program, ensuring amounts can be readily supported. • Ensuring program income is consistently applied to allowable program costs prior to requesting additional Federal reimbursement, unless the award terms specify an alternative method. • Maintaining contemporaneous documentation to support the identification, calculation, allowability, and application of program income to specific program expenditures. • Providing training to program and finance staff on Uniform Guidance requirements related to program income, allowable deductions, and the allowability and allocability of costs. • Implementing periodic monitoring and reconciliation procedures to verify that program income is properly recorded, applied, and reported in accordance with Federal requirements. Response: There is no disagreement with the audit finding regarding the need to establish appropriate processes and procedures.