Finding Text
Finding 2024-02 – Material Weakness in Internal Control over Compliance with Allowable Costs
and Reporting - Child Care and Development Block Grant- Assistance Listing #93.575, Child
Care Mandatory and Matching Funds of the Child Care Development Fund - Assistance Listing
#93.596
Criteria or Specified Requirement
Accounting staff submit periodic reimbursement requests to the California Department of Social
Services for expenses reimbursable under the Council’s federal Child Care Development Fund
contract. Costs are recognized as the liability is incurred consistent with Generally Accepted
Accounting Principles. Management uses two pool funds to allocate central office costs to its
various funds, activities and projects. Payroll and related expenses are allocated based on
direct hours, and facilities expenses are allocated based on square footage.
Condition Found
In review of the allocation from the two pool funds, it was noted that allocation ratios had not
been updated from the prior year amounts despite the program mix changing. As such, the
other funds, activities and projects are charged more than their share of those costs. A review of
the year end accounts for accrued payroll and payroll taxes showed stale balances that had not
been reconciled to actual accrued costs.
Cause
Management indicated that turnover in management during the year placed too much pressure
on the finance department to give them the time to undertake a new indirect calculation and to
adequately review and tie out balance sheet accounts.
Effect
Some grant funds or projects receive excess pool allocations and costs that cannot be traced to
actual expenses.
Questioned Costs
Monthly allocations are made within the accounting software but the hour and square footage
totals and year end balance sheet accruals are not documented; consequently, there is no way
to recompute the allocation to include all funds, activities and projects used by the Organization.
Since audit procedures were performed to vouch cutoff, accruals, reclassifications, and
allowable costs eligible for reimbursement as of June 30, 2024, there are no questioned costs.
Recommendation
We recommend that the indirect cost allocation be updated at least annually to include all funds,
activities and projects so that each shares in the pool cost. After consultation regarding possible
remedies to the condition, the Council engaged an outside accounting firm to provide financial
oversight. We recommend that the Council continue that relationship, or a similar relationship
until such time as they can develop sufficient capability among staff to meet the requirements
for oversight.