Finding Text
Criteria and Condition: The Single Audit Act mandates recipient organizations to develop and design appropriate internal controls over compliance requirements related to their federal awards. As will be discussed further below, the result of our audit procedures indicated there is a lack of appropriate controls as they relate to federal programs, specifically as they related to allowable costs and allowable activities.
Context: The federal funding received was a one-time grant under a COVID recovery plan. The funds were to be used in ways to allow day care centers to remain open during the pandemic, including costs for health and sanitation supplies, continuing payroll costs, equipment and/or building modifications to assist with providing social distancing space, and other supplies and operating costs as needed to continue providing needed care. With this increased federal funding, though, came additional responsibilities for monitoring and reporting the uses of funds, which were received in advance each month for six months at a set amount. To assist with the grant administration and reporting requirements, Good Shepherd Community Center, Inc. engaged an outside third-party contractor to assume this role. The monthly reports submitted were the basis for the audit testing over compliance. What was discovered during the testing was that the reports did not have sufficient supporting documentation that agreed to the reports submitted and what supporting documentation that was available showed no evidence of approvals by the Center and, in some cases, how the costs reported applied to the grant itself. We noted two monthly reports submitted that reported exactly the same costs in multiple line-item categories, and neither month could be tied to any accounting records accurately.
Cause: Good Shepherd Community Center, Inc. is a very small organization with minimal opportunities for extensive internal controls. However, that does not mean that certain controls should not have been implemented with the receipt of the COVID funding. Recognizing their own limitations, Good Shepherd Community Center, Inc. chose to use a third-party administrator for the grant reporting, but that does not absolve them under the Uniform Guidance of their ultimate responsibility for the reports themselves. All disbursements need to be properly reviewed and approvals evidenced on the supporting invoices. When considering federal programs, it is often necessary to take the additional steps of notating to which program an expenditure applies, be it on the invoices or in board minutes that would show how the funds were to be spent and then those board actions could be borne out in the final transactions. Additionally, Good Shepherd Community Center, Inc. needed to consider a review process for the monthly reports prior to their submission to indicate management’s agreement with the reports themselves, and in order to do that would have needed the contractor to supply their own work showing how the amounts were derived. That would have ensured a complete monthly package was assembled and retained and would have allowed the auditors to test the information as required by the Standards. It appeared from the testing itself that the contractor pulled all the amounts reported from bank statements and not from actual supporting invoices and, in fact, reported more costs than actual funds received, indicating no attempt made to reconcile the ins and outs of the cash flows. There was no way to determine that the amounts reported were, in fact, accurate and proper under the Uniform Guidance requirements.
Effect: In this case, the effect of the lack of controls over compliance is that the required testing under the Uniform Guidance could not be completed without exception and the entire amount expended under the grant must be viewed as a questioned cost.
Questioned Costs: $560,327
Recommendation: We have enumerated above and within the financial statement finding several opportunities to implement internal controls which would add no costs at all to the Center and would strengthen the basis upon which the governing board governs.
Views of Responsible Officials and Planned Corrective Actions: See Corrective Action Plan.