Finding 501680 (2024-001)

#2024‐001 – Material Weakness – Operating Deficiency – Classification of Expenses Coronavirus State and Local Fiscal Recovery Funds, ALN #21.027 Criteria Expenses incurred during normal operations are required to be recorded in accordance with their natural classification. Condition During the course of the audit, it was determined that expenses related to administrative fees charged to certain grants were reclassified out of their natural classification and into a program specific line item. Cause Accounting staff and outsourced consultants were unclear about the recognition of administrative fees within the Foundation’s accounting system. Effect The potential effects of misclassifying the administrative expenses resulted in an adjustment of $73,053 to record expenses in accordance with natural classifications. Questioned Costs None Perspective Information The finding noted related to each of the four (4) quarterly administrative billings charged to the grant. Identification as a repeat finding There was no similar finding in the prior year. Recommendation We recommend that administrative expenses be recorded in accordance to the natural classification of the underlying expense, but be allocated to the grant award by reclassifying the expense to the correct class within the accounting system. View of Responsible Official Management acknowledges deficiencies in the process of recording administrative expenses. The Foundation records expenses in their natural classification at the time of initial recognition. In the current period, management later reclassified certain expenses (e.g. Payroll) from natural class to functional class (e.g. program expenses) to address an accounting recommendation made by the auditor during the prior audit. Upon identifying the error, management restored the impacted expenses to their natural classifications. The adjustment had no effect on net assets or total expenses and did not impact any disbursement of federal grant funds. The Foundation will continue to record expenses by natural classification at point of entry and will not make any subsequent reclassifications to the underlying expense.