Finding Text
Significant Deficiency – Item 2023-002 – Insufficient Required Substantiating Documentation for Major Programs
Condition: Several expenditures and reports were selected for substantive, controls, and compliance testing from the financial records for the major programs. In several cases, the source documents supporting the federal expenditures reported were not accurate, missing and/or properly described. For expenditures allocated between award programs benefitted there was no written allocation methodology used including how costs were calculated and charged to each program. Federal regulations required that all federal expenditures must be supported by adequate source documents and accounting and cost records. Documentation must stipulate the nature of the expenditure (exactly what the funds were spent on), the purpose of the cost, the applicable federal program name, the cost for each product and service that agrees with the financial records and report to the federal funding source. In addition, PCCD provides to all related providers their “Financial and Administrative Guide for Grants” that clearly stipulates the nature of all substantiating documentation and reporting for all federal expenditures.
Several expenditures tested included evidence of accounting system-generated approvals. In several cases, the person purchasing products and services also approved the expenditure. Along with that approval, there was another approval by the CFO, but the sign off showed that name as “Inactive”.
For one of the PCCD contracts with subrecipients, periodically the Organization provides advances. However there is no accounting for use of the advances, and unused balances at period end are not reported on the financial statements.
There are very explicit federal guidelines for time and effort accounting and reporting. Testing revealed discrepancies between individual’s time records, the payroll and check registers, posting to the general ledger, and the periodic reports to funders. In certain cases, the HR Supervisor approved hours included in timesheets that were not accurate. The time sheet hours exceeded the amount subsequently paid to the individual. Reconciliation of differences was a difficult process and the end result was a remaining difference not explained. Some timesheets for the program manager showed every posting was labelled with the wrong federal program name.
Criteria: All expenditures charged to federal programs must be clearly and completely supported by required documentation that agrees with amounts in the Organization’s general ledger and periodic reports to the federal grantor.
Cause: The Organization does not maintain written policies and procedures for procurement and reporting related to all financial transactions under federally-funded programs, including allowable costs and other federal compliance requirements. Procurement policies must adhere to the “Uniform Administrative Requirements, Cost Principles and Audit Requirements” for federal awards in 2CFR200.318 through 200.326. There is no formal Accounting Manual that is periodically revised when new grants are awarded or when the personnel pool changes. The written document must include a code of conduct for the Organization. When a new federal award is granted to the Organization with specific financial and administrative requirements, the manual should be revised to incorporate those requirements.
The Organization has also experienced turnover of key personnel in the Finance Department.
Effect: Several expenditures selected for testing were not properly documented in accordance with federal regulations. In several cases, the only supporting documentation was adjusting journal entries posted to the general ledger. In one case, an amount of $5,200 was posted to the general ledger under “Other Supportive Services”, but the Organization could not provide a copy of the adjusting entry nor any related documentation or explanation. In July 2022, costs totaling $5,500 were recorded that were related to expenses incurred in June 2022. The result of these deficiencies may be misstatement of costs that are periodically reported for reimbursement by the funder.
Questioned Costs: The total estimated questioned costs for both major programs was $19,451.
Certain tested expenditures included significant purchases of gas and gift cards and rail passes. For example, various amounts spent on individual purchases included $11,587, $16,773, and $47,801. These amounts are in addition to the questioned costs above. There were invoices for cards and passes that indicated they were sent to the Program Manager’s home address under his name and a related business name. There are no written control procedures for these purchases and no inventory is maintained of the supply on hand at any given time. Also, there no records supporting how the cards were distributed. On the related invoices for these purchases, there is insufficient documentation including no program names or purpose.
Recommendation: All employees in the Finance Department and associated with any federal program must be adequately trained in overall federal regulations and guidance as well as other requirements associated with each federal award. All such employees must read the grant-related policies and procedures manual (to be developed) and accounting manual with the code of conduct. In addition, each month, finance should compare grant expenditures posted to the general ledger to the monthly grant reports and budgets.
Management’s Response:
Impact has experienced staff turnover which resulted in process challenges. Nevertheless, Impact will take this recommendation and implement revised procedures to ensure that the Finance Department and other pertinent Impact resources receive federal regulations and guidance training, incorporate available systems and technology capabilities available from the technology service providers, and adopt best practices. Finance will schedule regular grant reviews, inclusive of program expenditures. These improvements will be in place by March 31, 2025.