Finding 513391 (2023-002)

Finding 2023-002 – Internal Control Deficiency and Noncompliance over Activities Allowed/Allowable Costs Principles, Period of Performance Identification of the federal program: Federal grantor: United States Department of Health and Human Services Assistance Listing No.: 93.048 Program name: Special Programs for the Aging, Title IV, and Title II, Discretionary Projects Criteria or specific requirement (including statutory, regulatory, or other citation): Section 200.303 of the Uniform Guidance states the following regarding internal control: “The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in ‘Standards for Internal Control in the Federal Government’ issued by the Comptroller General of the United States or the ‘Internal Control Integrated Framework,’ issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).” In order for expenditures to be allowable under federal awards, 2 CFR 200.403(a) provides that costs must be necessary and reasonable for the performance of the federal award and be allocable thereto under the cost principles. 2 CFR 200.403(g) further provides that costs must be adequately documented. Condition: Management did not have adequately designed internal controls throughout the year over expenses charged to the federal program. Management also did not consistently retain evidence to support the existence of certain expenditures and thus the expenses were not adequately documented. Section III – Federal Award Findings and Questioned Costs (continued) Cause: Due to the timing of identifying the internal control finding during the 2022 audit, management was not able to timely implement effective internal controls for the entire period under audit for 2023. For certain expenditures, management did not adequately retain invoice or receipt support for non-payroll direct expenditures. Effect or potential effect: Ineffective internal controls could result in expenses being charged to the federal program that are not allowed or are outside the period of performance. Questioned costs: $610. Questioned costs were calculated as the costs without support for the expenditure. Context: Prior to October 15, 2023, payroll controls were designed where the Executive Director reviewed time sheets of the employees working on the program; however, no one reviewed the time submitted by the Executive Director, and if the Executive Director was not available to review the employees’ time sheets, a third-party payroll servicer approved the time. The third-party servicer did not have firsthand knowledge of the activities of each employee. Because the internal controls prior to October 15, 2023, were not designed effectively, we did not test controls over payroll expenditures as they were not in place throughout the audit period. For direct expenses, internal requisitions are to be approved by either the Executive Director or the Assistant Program Director if under $5,000 and by the Executive Director if over $5,000 prior to AdviseWell, Inc. entering into a transaction. Because the internal controls were not implemented timely, we did not test controls surrounding direct expenses. We selected 40 nonpayroll expenditures totaling $13,590 from total nonpayroll expenditures of $590,516 to test allowability, noting that for three selections totaling $610, documentation was not retained to evidence the existence and allowability of the expenditure. For indirect expenses and fringe benefits, the Executive Director calculates the amount and requests reimbursement from the federal program. There was no independent review of the Executive Director’s calculations prior to submitting the request for reimbursement throughout the period under audit. Management asserts that it has internal controls in place to ensure that allowable expenditures are charged to the federal programs within the period of performance. Management did not retain documentation to evidence the internal controls over its review of expenditures to ensure they were within the period of performance. Because evidence of the controls was not retained for the period of performance throughout the entire audit period, we did not test internal controls. Identification as a repeat finding, if applicable: This is a repeat finding – Finding 2022-001. Recommendation: AdviseWell, Inc. should develop and implement effective internal controls to ensure expenses charged to the federal program are appropriately reviewed and approved by an individual knowledgeable of the program requirements, reviewed prior to entering into the expenditure, and charged within the period of performance. Management should maintain effective segregation of duties. Management should retain invoice or receipt support for all expenditures. View of responsible officials: Management agrees with the finding. Internal controls were enhanced in October 2023 to begin retaining documentation to evidence the controls. Additionally, management will implement internal controls surrounding retaining evidence of expenditures.