Finding 370519 (2022-001)

Material Weakness

Requirement

Questioned Costs

Year

2022

Accepted

2024-02-26

Audit: 292188

Organization: Leadership Memphis (TN)

Auditor: Watkins Uiberall

AI Summary

Core Issue: Expenditures for federal awards lacked a consistent and documented allocation methodology.
Impacted Requirements: Costs charged to federal programs must be reasonable, necessary, and supported by clear documentation.
Recommended Follow-Up: Establish a written allocation methodology for indirect costs and provide training on internal control requirements under Uniform Guidance.

Finding Text

Inadequate Controls Over Expenditure Allocations Condition: Expenditures allocated to federal awards were not based on rational and consistent allocation methodologies. Criteria: Expenditures charged to federal award programs should be reasonable and necessary. Those costs that are allocated should include documentation of the specific allocation methodologies used.Cause: The Organization obtained their first federal funding as a result of the COVID-19 pandemic. The Organization did not have an internal control system in place to meet the criteria required under the more robust internal control framework provided by the Uniform Guidance. As a result, even though audited allocated expenses appeared reasonable, a documented methodology was not in writing. Effect: Of the expenditures tested, most were initially allocated within the general ledger under a different methodology than was eventually expensed under the federal grant awards. Additionally, audit time and bookkeeping time was incurred to reconcile between the two allocation methodologies, and, in most cases, there was no documentation of the eventual allocation methodology. Many of the allocations reviewed relied on oral assertions of expenditures applicable to different Organization functions and federal award programs. In addition, although the allocations charged to the grants appeared to be consistent within a range, the initial assessment appeared to be based on budgetary concerns rather the use. Recommendation: Indirect costs, such as overhead and other split expenses, should be based on a written allocation methodology. For example, overhead expenses such as rent and utilities could be based on the square footage occupied by employees that provide services to specific Organization functions. Other expenses such as the purchase of supplies should be charged directly to the function or program utilizing the supplies or over rational basis of use if utilized under many functions or programs. Employee time should be allocated specifically based on the hours in the date spent towards achieving the goals of the Organization’s functions or programs. As a further recommendation, the Organization should obtain training to gain a full understanding of the internal control requirements under the Uniform Guidance internal control framework. Management’s Response: See management’s corrective action plan.

Corrective Action Plan

Corrective Action: Although we had a control process in place at that time, it was not sufficient to meet the standard of the single audit. We have improved our Internal Controls since the start of the audit. In addition to the annual budget process, non-recurring expenses must be pre-approved by the CEO or Director Finance and Administration prior to purchasing. Monthly transactions that are auto debited from the credit card or bank account, for example health insurance, telephone, internet, etc. are processed in accordance with our budget and pre-approved by the CEO and Director of Finance and Administration. Those transactions are still reviewed monthly. Below is a section from our current Internal Control document. Disbursements For non-routine purchases, expenses must be pre-approved by the CEO or DOFA. The CEO, Directors or Executive Assistant (EA) will initiate the purchase. Due to very few non-routine purchases, LM currently does not use a purchase order system. The EA opens the mail and will give all the invoices to the Director of Finance and Administration (DOFA) to be coded and reviewed against the grant and/or budget. After coding the invoices, the DOFA gives the payable invoices to the Staff Accountant (SA). The Directors are responsible for stamping and coding all their payable invoices, comparing them against their budgets to ensure coding is correct and placing the stamped and coded payables in the appropriate area for the SA. Weekly the SA will review all the stamped and coded payables from all the Directors with the DOFA for review and approval of the various budgets. Then the DOFA will review the AP invoices with the CEO for his final approval and signature. Once payables are approved by the CEO, the SA will update the AP log in SharePoint and scan the signed/approved AP invoices to CBIZ for posting to QuickBooks. Credit Cards: Currently, the CEO, DOPO, DVM, and EA have credit cards. All expenses must be pre-approved by the CEO or DOFA. Recurring payments such as utilities, software, and telephone are done via credit card. Many office supplies and program supplies are paid via credit card. Also, many times last minute expenses are paid via credit cards. The credit card has an aggregate $10,000 limit. The CEO has an aggregate $15,000 limit. The Directors, EA and CEO should print credit card receipts, stamp and code expenses on the receipt and these receipts are to be placed daily in the Finance CC folder in the copy room. The SA will review the receipts and coding, then weekly review the CC receipts with the DOFA against the various budgets. Once reviewed and approved by the DOFA, the SA will add to the CC log on SharePoint. CBIZ will update QB monthly directly from the CC Log which includes allocation coding.

Other Findings in this Audit

370520 2022-002

Material Weakness
370521 2022-001

Material Weakness
370522 2022-002

Material Weakness
946961 2022-001

Material Weakness
946962 2022-002

Material Weakness
946963 2022-001

Material Weakness
946964 2022-002

Material Weakness

Programs in Audit

ALN	Program Name	Expenditures
14.269	Hurricane Sandy Community Development Block Grant Disaster Recovery Grants (cdbg-Dr)	$134,468
93.391	Activities to Support State, Tribal, Local and Territorial (stlt) Health Department Response to Public Health Or Healthcare Crises	$98,125