Type of deficiency: Material weakness 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 202955 Repeat finding: No Criteria: In accordance with 2 CFR §§ 200.403, 200.404, 200.405, and 200.413, costs charged to a federal award must be necessary and reasonable for the performance of the federal award, adequately documented, and allocable to the federal award. Costs benefiting multiple activities must be allocated based on the relative benefits received using a reasonable and documented methodology. Recipients and subrecipients must also maintain documentation sufficient to demonstrate that costs charged to a federal award were incurred for allowable program purposes. The Employment First Program operates on a reimbursement basis. Accordingly, reimbursement requests must be supported by actual costs incurred for program administration or participant services and by documentation demonstrating the allowability and allocability of the amounts charged to the program. Condition: During our audit procedures, we noted that Torch Technology Solutions ("Torch Tech") charged expenditures to the FFY 2026 SNAP Employment and Training Program for compliance and reporting, finance and cost allocation, program delivery, technology infrastructure, and participant-support functions. Torch Tech did not maintain sufficient documentation to demonstrate that the amounts billed represented actual costs incurred during the applicable billing periods, were necessary and reasonable for carrying out the federal award, were directly attributable to Employment First program administration or participant services, or were allocated to the federal program using a reasonable and documented methodology. Torch Tech also did not maintain sufficient documentation supporting certain subcontractor and service-provider expenditures charged to the federal award. Available documentation was not sufficient to demonstrate the nature of the services provided, when the services were performed, the benefit received by the federal program, or the methodology used to allocate the related costs to the program. In addition, during testing of supportive-service expenditures, we noted that Torch Tech charged certain payments made through gift cards to the federal program. Torch Tech did not maintain sufficient documentation demonstrating that the supportive payments were reasonable and necessary for participant engagement in the Employment First Program or that the funds were used for allowable program purposes. Similar concerns were identified during the fiscal management evaluation performed by the Colorado Department of Human Services. Management recorded a liability for the amount required to be repaid and reversed the related program revenue. Management determined that these costs were unallowable and also excluded the associated amounts from the Schedule of Expenditures of Federal Awards. Subsequent to the State’s fiscal management evaluation, Torch Technology Solutions terminated its Employment First Program contract and ceased operating activities. The Organization returned requested funds related to the findings totaling $283,425.Cause: Torch Tech’s internal controls were not designed or operating effectively to ensure that expenditures charged to the federal program were supported by actual costs incurred, adequately documented, evaluated for allowability, demonstrated to be necessary and reasonable for the performance of the federal award, allocated to the program using reasonable and documented methodologies, and reviewed and approved before reimbursement requests were submitted. Possible effect: Torch Tech was unable to demonstrate that expenditures charged to the federal award were necessary, reasonable, allocable, adequately documented, and incurred for allowable program purposes. As a result, the Colorado Department of Human Services determined that the identified expenditures were subject to repayment. Management accepted the State's determination, recorded a liability for the repayment obligation, reversed the related federal revenue, and excluded the associated expenditures from the Schedule of Expenditures of Federal Awards. The control deficiencies created a reasonable possibility that material noncompliance with federal cost principles and program requirements would not be prevented, or detected and corrected, on a timely basis. Questioned cost: None Recommendation: Because Torch Tech has terminated its Employment First Program contract and ceased operating activities, corrective action within Torch Tech is no longer applicable to future program billings. However, we recommend that CrossPurpose incorporate the lessons arising from this finding into its organization-wide policies and controls applicable to any current or future federal awards, as it relates to contracts held by subsidiaries. For future federal reimbursement programs, management should implement procedures requiring review of reimbursement requests by subsidiaries to ensure they are supported by actual costs incurred when required by the award; retention of subcontractor agreements, invoices, payroll records, time-and-effort support, utilization records, and allocation schedules; documentation demonstrating that expenditures are necessary, reasonable, allocable, and directly related to the federal program; supportive-service payments to be supported by documented participant need, evidence of receipt and redemption, and evidence of allowable program-related use; review of gift cards and obtaining supporting documentation to ensure they were used to benefit eligible participants for allowable program purposes; and supervisory review and approval of reimbursement requests made by subsidiaries before submission to the passthrough entity.Views of responsible officials: Management agrees with the finding. Management has developed a process to review any potential future requests for reimbursements by subsidiaries to ensure that there is appropriate supporting documentation to ensure that it is allocable, reasonable, and necessary, and that it documents the benefit to eligible participants. In response to the findings specifically related to Torch Technology Solutions, all employees of the subsidiary were terminated with an effective date of May 15, 2026, and the Organization terminated its contract with the Department. It also followed the appropriate process of fulfilling requests related to the Department’s fiscal management evaluation, and it promptly returned funds in the amount of $283,425 based on the findings of this process. The Organization has ceased all operations for this subsidiary as disclosed as a subsequent event in the notes to the financial statements.