Finding 547554 (2024-001)

Material Weakness
Requirement
B
Questioned Costs
-
Year
2024
Accepted
2025-03-31

AI Summary

  • Core Issue: Internal controls over financial reporting are inadequate, leading to material misstatements in financial statements.
  • Impacted Requirements: Management failed to track grant-specific expenses separately and relied on budget estimates for payroll, violating federal regulations.
  • Recommended Follow-Up: Implement a comprehensive financial statement close process and ensure proper tracking of grant expenses to maintain compliance and accuracy.

Finding Text

MATERIAL WEAKNESS IN INTERNAL CONTROLS OVER FINANCIAL REPORTING Criteria: Management is responsible for maintaining a system of internal controls over the preparation of the financial statements and all required footnotes that are free of material errors and are in accordance with generally accepted accounting principles (GAAP). This includes preparing and/or thoroughly reviewing the GAAP based financial statements to ensure they are free of material misstatement, retaining documentation of entries made, and maintaining proper internal controls to ensure reconciliations are completed, maintained and accurate. As described in Section III – FEDERAL PROGRAM AUDIT FINDINGS (Section III), testing during the audit identified that management did not track grant specific expenses in separate ledgers within the accounting system as well as salary and benefits charged to certain federal programs were based solely on budget. There were no records able to be provided of actual time spent on each grant by employee, and therefore, management was unable to provide documentation of a review of actual time charged to each program to determine it was accurate, allowable and properly allocated. Further details regarding the criteria, condition, cause, and other finding elements may be found in Section III. Condition: The Organization’s year end close procedures did not adequately address the completeness, existence, and accuracy of the financial statements. Material audit adjustments Cause: The Organization’s internal control procedures were not designed to adequately detect material misstatements. Effect: A material audit adjusting journal entry related to revenues and receivables. Repeat Finding: This is not a repeat finding. Recommendation: We recommend that as part of its internal controls over the preparation of financial statements, the Organization should implement a more effective and comprehensive, and documented financial statement close and review process, to ensure that the financial statements are complete and accurate. Views of Responsible Officials and Corrective Action Plan: See corrective action plan attached to financial statements. Criteria: Management did not track grant specific expenses in separate ledgers within the accounting system. Tracking expenses within separate ledgers provides assurance that grant expenses are being allocated properly and duplicate submissions under multiple grants is avoided. Title 2, Subtitle A, Chapter 200, Subpart E, § 200.430 of the Code of Federal Regulations states that “Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control that provides reasonable assurance that the charges are accurate, allowable and properly allocated” and “(vii) Budget estimated (meaning, estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards, but may be used for interim accounting purposes, provided that: (A) The system for establishing the estimates produces reasonable approximations of the activity performed;” and “(C) The recipient’s or subrecipient’s system of internal controls includes processes to perform periodic after-the-fact reviews of interim charges made to a Federal award based on budget estimates. All necessary adjustments must be made so that the final amount charged to the Federal award is accurate, allowable and properly allocated.” Condition: Testing over Assistance Listing #21.027 - Coronavirus State and Local Fiscal Recovery Funds indicated grant expenses were not recorded within separate ledgers leading to difficulty in gaining assurance that grant expenses were billed properly to each respective grant and that expenses were only billed to their applicable grants. Testing over Assistance Listing #21.027 - Coronavirus State and Local Fiscal Recovery Funds indicated that salaries charged to that Federal award were based on budgeted amount. There was no documentation of the required periodic after-the-fact review of the budgeted amounts applied to ALN 21.027 that management was able to provide during the audit process. Cause: Management was unaware of grant reporting requirements leading to non-separately reported grant data and allocation of payroll based on estimates. Effect: Little assurance that grant allocations were being done correctly and that grant expenses were not being billed to multiple grants. Payroll expenses being allocated based on estimates instead of actual time spent leading to uncertainty of validity of payroll expenses being billed to grants. Repeat Finding: This is not a repeat finding. Recommendation: We recommend that management takes the steps necessary to understand and implement the controls needed in order to maintain compliance for new and unusual funding. Views of Responsible Officials and Corrective Action Plan: See corrective action plan attached to financial statements

Corrective Action Plan

2024-001 – MATERIAL WEAKNESS IN INTERNAL CONTROLS OVER FINANCIAL REPORTING In July 2024, scaleLIT switched accounting firms. This engagement has led to a more robust monthly close-out process to ensure accurate and complete class allocations. The Director of Operations meets with the firm weekly to review accounts receivable, expense and income coding and allocations, and other activities related to billing and invoicing. The Director of Operations and Executive Director meet monthly with another accounting team member to review monthly financial reports. PART III - FEDERAL PROGRAM AUDIT FINDINGS 2024-001 – MATERIAL WEAKNESS IN INTERNAL CONTROLS OVER FINANCIAL REPORTING As stated above, scaleLIT is now working with a new accounting firm, Jitasa. Jitasa tracks all grants on separate ledgers. scaleLIT meets with Jitasa weekly to ensure that all income and expenses are correctly allocated. scaleLIT is implementing time studies for staff beginning on April 1, 2025, to become more detailed with the staff time spent on federal contracts.

Categories

Subrecipient Monitoring Allowable Costs / Cost Principles Material Weakness Reporting Internal Control / Segregation of Duties

Other Findings in this Audit

  • 547555 2024-002
    Material Weakness
  • 1123996 2024-001
    Material Weakness
  • 1123997 2024-002
    Material Weakness

Programs in Audit

ALN Program Name Expenditures
21.027 Coronavirus State and Local Fiscal Recovery Funds $451,364
17.258 Wioa Adult Program $239,279
17.278 Wioa Dislocated Worker Formula Grants $239,279
14.267 Continuum of Care Program $22,516