Finding 519481 (2023-001)

Material Weakness
Requirement
BCN
Questioned Costs
$1
Year
2023
Accepted
2025-01-16

AI Summary

  • Core Issue: Significant internal control deficiencies were identified, leading to potential unallowable costs charged to federal grants.
  • Impacted Requirements: Noncompliance with federal regulations (45 CFR 75.303, 75.430, 75.302, 75.305, 75.320) regarding payroll reporting, drawdown approvals, and documentation for expenditures.
  • Recommended Follow-Up: Implement formal procedures for payroll and HR documentation, ensure timely drawdown approvals, maintain accessible supporting documents, and segregate accounting duties to enhance oversight.

Finding Text

Finding 2023-001 – Internal Control Deficiencies (Material Weakness) Information on the Federal Program – Mental and Behavioral Health Education and Training Grants, FAL No. 93.732, December 31, 2023. Criteria – 45 CFR 75.303, 75.430, 75.302, 75,305, 75.320. Condition – Noncompliance were noted, as more fully described in the context below. Questioned Cost – See condition above. Context – We noted the following instances on non-compliance during the audit: a) We noted a lack of review over the payroll process during our testing of time and effort. The Organization does not require time and effort reporting by employees per payroll. A budgeted time and effort schedule is maintained instead. We noted the contract on file for one employee had not been updated since the date of hire and did not contain the current payrate. We discovered that the organization does not have formal human resource forms to document and support pay changes and salary allocations per grant agreements. Exceptions were also noted in salaries charged to the grant. b) We noted expenses reported on the drawdown request that could not be located in the general ledger totaling $10,908.23. We also noted a variance in fringe and salary expenses in the general ledger vs drawdown request in the amount of $1,234. A total of $94,650 were recorded by journal entry at year end to record activity which had been drawdown months prior. Drawdowns did not contain physical evidence of prior approval. c) During our testing we discovered instances of credit card purchases missing receipts/invoices, prior purchase approvals, and an invoice charged to grant expenditures was paid untimely. Purchases for equipment were noted, however the client does not maintain a PP&E schedule, and does not have a log of equipment purchased with federal funds. Approval for purchases is obtained via email chain rather than a formal check/purchase request for approval. Supporting documents/receipts, invoices, etc. requested by the auditors were not readily available or provided in phases. We also noted most purchases are made via electronic funds transfer/ach transaction or credit cards and rarely a payment is made via check. d) We were informed that the Organization may have bank accounts that none of the officials have been granted access. The bank has not confirmed that such accounts exist. There have also been reported unusual fees drafted from the operating bank account but vendor statements or detail transactions are not assessable by the Organization. e) We noted a lack of segregation of duties and responsibilities in the accounting position. The accountant processes payments, processes federal drawdowns, post journal entries, and reconciles the bank accounts, and creates reports. Cause – Oversight by responsible employees. Effect – Unallowable cost could have been charged to the grant. Repeat Finding – No Recommendation – a) We recommend that /me and effort repor/ng be completed, reviewed and approved prior to seeking reimbursement for payroll expenses from the grantor. We also recommend establishing formal procedures over human resources to include maintaining standard employee records such as contracts, personnel ac/on forms that are updated rou/nely to ensure accuracy over the payroll process and mi/gate the chance of overcharging the grant. Federal regula/ons (45 CFR 75.303 and 75.430) , require that grant recipients provide reasonable assurance that charges are accurate, allowable, and properly allocated and that salary and wages charged to federal awards are based on actual rather than budget es/mates. b) We recommend all drawdowns are approved by management prior to the request being made and that drawdowns and supporting expenditures are accurately and timely recorded. Federal regulations (45 CFR 75.302 and 75.305) require that funds drawn down are limited to the minimum amounts needed to cover immediate project cost and not made to cover future or budgeted expenditures. c) We recommend the Organization require prior approval for all credit card, check, and electronic funds transfer, and maintain source documents in a manner that’s easily accessible when needed. Proper supporting source documents include invoices, approved expense/check request, payment advice copy, etc. Lastly, we recommend that the Organization develop and maintain a roll forward schedule of property, plant, and equipment to tract all equipment purchased. Federal regulations, (45 CFR 75.320) property records be maintained that include a description, cost, purchase date, source of funding, location, and condition of each property item. d) We recommend the Organization continue to seek and resolve and develop and implement safeguards to protect ownership of bank accounts. e) We recommend that bank reconciliations be prepared timely, within 14 days and approved timely by an official outside the payment process but familiar with the financial activities to safeguard assets and prevent misappropriation. We also recommend that the second person assumes the responsibilities of re-porting. Views of Responsible Officials – Management agrees with the auditor’s findings and will expand steps to strengthen its internal controls. Specific actions include updating our Finance manual to include written approval procedures for the payroll, drawdowns, credit card, and equipment purchases. We will also appoint a qualified employee to help segregate duties in the Finance office. We will address other specific recommendations in the 2023 Via Hope Corrective Action Plan.

Corrective Action Plan

I. VIA HOPE 2023 MANAGEMENT CORRECTIVE ACTION PLAN: ► BACKGROUND: CONTINUATION, ADDRESS MULTI-YEAR FRAUD: STRENGTHEN INTERNAL CONTROLS: Management and staff continue to work with the insurance carrier and local law enforcement agencies to restore funds and strengthen its internal controls. ► Update: History and Board Actions: In FY 2021, Via Hope experienced a significant loss of revenue due to the ending of contracts from its two primary funding streams – the Health and Human Services Commission and the Hogg Foundation for Mental Health. This loss of revenue resulted in the Board recommending and approving the reduction of staff and the departure of the CEO. In FY 2022, the Board recommended and approved the termination of its Accounts Manager and the former Board Chairman stepped in to voluntarily manage the finances until the organization could make other arrangements. The former chairman stepped down from his role and an election of officers was held to install a new Chair. By January 2022, with new revenue coming into the organization, the Board selected a new CEO and in December 2022, a new accounts manager was hired. Once the new accounts manager began reconciling the accounts, a pattern of questionable expenditures became evident with PayPal and other accounts. The CEO and staff informed the Board of what appeared to have happened and recognizing its fiduciary responsibility, the Board approved the engagement of a forensic audit by an external audit firm, The Wesley Peachtree Group (WPG) of Atlanta, Georgia. The forensic audit resulted in findings that fraudulent activity in the amount of $233,000 was likely to have occurred. As a result, the CEO was instructed to file an insurance claim with Frost Insurance. To process the claim, Frost required the involvement of law enforcement which was approved by the Board. Formal investigations were launched and remain ongoing with the Austin Police Department and the Travis County District Attorney's office. Recently, law enforcement met with the Board and provided an update on the investigation. Subsequently, the CEO was requested to follow up with the insurance carrier and state regulatory agencies to ensure the prompt receipt of its insurance claim from PayPal and other potential sources. II. FINDINGS AND RECOMMENDATIONS: Finding 2023-001 - Internal Control Deficiencies (Material Weakness) a) Time and Effort, Payroll and Human Resource Forms and Contracts - In response to the finding, Management will require monthly Time and Effort reports for each employee, develop new human resource forms, and update staff contracts at the beginning of the fiscal year. b) Drawdowns and Written Approvals - With the addition of the new Finance staff member in January 2025, management will initiate a written approval process. All payroll adjustments, drawdowns, credit card purchases, and payments will require invoices, receipts, and written approvals before payment is made. The Accounting Manager will also work with the CEO to ensure that staff provide receipts promptly and that journal entries are recorded on a monthly basis. c) Receipts, Written Approvals, PP&E Schedule - Receipts and written approvals were addressed in Response (C). While the organization maintains an equipment log, we will establish a formal Property, Plant, and Equipment Schedule (PP&E), particularly noting equipment purchased with federal funds. d) Paypal, Frost, Forte - Management continues to work with law enforcement to obtain misappropriated funds from PayPal, and other potential accounts. As indicated, investigators met with the CEO, staff, Frost Bank, and the Board to obtain information regarding these accounts. It is our understanding that they may meet with prior Via Hope executives as well. We will update the auditors when more information is provided. e) Segregation of Duties - Management has begun the process of interviewing qualified staff to segregate duties in the Finance office. This will ensure that one individual will no longer be responsible for handling funds, payments, reconciliations, and General Ledger (GL) postings. The individual will be in place by January 2025.

Categories

Questioned Costs Internal Control / Segregation of Duties Allowable Costs / Cost Principles Cash Management Reporting Equipment & Real Property Management

Other Findings in this Audit

  • 519482 2023-001
    Material Weakness
  • 1095923 2023-001
    Material Weakness
  • 1095924 2023-001
    Material Weakness

Programs in Audit

ALN Program Name Expenditures
93.958 Block Grants for Community Mental Health Services $299,768
93.732 Mental and Behavioral Health Education and Training Grants $193,402