Type of deficiency: Significant deficiency in internal control over compliance AL number: 10.561 AL title: Supplemental Nutrition Assistance Program Name of federal agency: U.S. Department of Agriculture Federal award/contract: FFY 2026 SNAP Employment and Training Contract No. 26 IHGA 206885 Repeat finding: No Criteria: In accordance with 2 CFR §§ 200.403, 200.404, and 200.405, costs charged to a federal award must be adequately documented, necessary and reasonable for the performance of the federal award, and allocable to the federal award. In addition, the Statement of Work requires the Program Operator to provide supporting documentation upon request, comply with the Department-approved Employment First Program Operator Plan, and obtain Department approval for changes or adjustments to the approved Program Operator Plan. Recipients are required to maintain documentation sufficient to support the nature, allowability, allocation, and period of performance of expenditures charged to federal programs. Condition: During our audit procedures, we noted that the Organization charged $155,141 of contractual expenditures to the FFY 2026 SNAP Employment and Training Program. The contractual expenditures consisted primarily of technology, operational, consulting, and program-support services provided through various third-party service providers and contractors. During our testing, we noted that while the Organization maintained invoices and supporting records for these expenditures, documentation was not maintained in sufficient detail to fully demonstrate the basis used to allocate certain contractual costs to the federal program, the methodology used to determine the benefit received by the program, and whether certain charges were supported by timeand- effort records, utilization metrics, or other documentation demonstrating the relationship of the expenditures to services provided under the federal award. Certain contractual expenditures identified during the State's review related to contractors or service arrangements that were not reflected in the approved Employment First Program Operator Plan. Management submitted a plan at the beginning of the contract with the Department, however they did not maintain documentation demonstrating whether selected contractors were communicated to or approved by the Department as modifications to the approved Program Operator Plan.Condition (continued): The Colorado Department of Human Services identified similar concerns during its fiscal management evaluation. The Department approved invoices and reimbursed for these costs, and did not communicate issues until the fiscal management evaluation was conducted. As a result of the State's determination and the uncertainty surrounding the ultimate resolution of the matter, management has recorded a liability associated with the expenditures identified by the State pending final resolution. Cause: The Organization maintained documentation supporting contractual expenditures charged to the program; however, controls were not operating effectively to ensure sufficient documentation was retained to support allocation methodologies for charging certain contractual expenditures to the federal award, utilization measures, and any required approvals associated with modifications to the approved Program Operator Plan. Possible effect: Without sufficient supporting documentation, the Organization may be unable to fully demonstrate that contractual expenditures charged to the federal award were necessary, reasonable, allocable, and supported by appropriate methodologies. In addition, the Organization may be unable to demonstrate compliance with requirements relating to approval of modifications to the Program Operator Plan. As a result, expenditures charged to the federal program may be challenged by oversight agencies and may be subject to disallowance or repayment. Management has recorded a liability associated with the amounts identified by the Colorado Department of Human Services pending final resolution of the matter. Questioned cost: 155,141 Recommendation: We recommend the Organization enhance documentation supporting contractual expenditures charged to federally funded programs. Documentation should clearly identify the services provided, the relationship of those services to the federal program, the methodology used to allocate costs to the program, and the basis used to demonstrate that expenditures are necessary, reasonable, and allocable to the federal award. Management should also retain documentation supporting any required Department approvals associated with modifications to the approved Program Operator Plan. Supporting documentation should be retained and periodically reviewed to ensure it is available for future monitoring, compliance, and audit activities.SECTION III - SUMMARY OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS (continued) Views of responsible officials: The Organization has implemented a revised cost allocation plan in accordance with federal cost principles to determine the allocable amount of costs. The Organization aims to serve all “neighbors” regarding the mission of serving Denver neighborhoods, regardless of eligibility for government benefits. This results in challenges to directly tie certain costs to eligible participants served. As a result, the Organization has determined a cost pool that will apply a rate based on eligible participants out of total participants served as this data is tracked and readily available to help serve as a reasonable basis to allocate costs. In addition to this revised cost allocation plan, the Organization has implemented a process to review contractors being charged to its grants and ensure that these have gone through the appropriate approval processes prior to submitting for reimbursement.