Finding Text
Finding 2022-003 Expenditure of Funds Outside Contract Period Type of Finding: Noncompliance and Material Weakness in Internal Control over Compliance. Condition and Context: In the course of testing direct disbursements for adherence to appropriate cutoffs concerning the contract's period of performance, it was discovered that the Organization incurred a substantial amount of expenditures on contracts prior to the official contract start date. These disbursements took place without acquiring proper authorization for making disbursements prior to the contract's commencement. Despite the unique nature of Naloxone inventory being treated as a prepaid asset due to its delayed usage, the majority, if not all, of the Naloxone units were fully expended before the contract officially commenced. Criteria: Federal regulations and GAAP mandate adherence to specific expenditure periods aligned with the contract's performance period. Proper internal controls require organizations to establish effective mechanisms to prevent disbursements outside of the contract's valid timeframe and to obtain necessary approvals when deviations occur. Cause: The Organization lacks a robust control environment that emphasizes the importance of adhering to contract periods and obtaining proper authorizations for expenditures outside of these periods. Additionally, the Organization lacks regular monitoring and review processes for disbursements that prevents the Organization to identify and address untimely expenditures. Effect: The combination of expending funds outside of the contract period could carry several repercussions. Incurring expenses prematurely might result in the improper utilization of funds, potentially leading to the organization's inability to meet programmatic objectives. Further, incurring expenses ahead of contract initiation can lead to misalignment between costs and program activities, skewing financial reporting and program evaluation. Questioned Costs: Known questioned costs of $297,944 were identified. Recommendation: Based on our findings, we recommend that the auditee implement robust internal controls to prevent expenditures outside of contract periods by developing mechanisms to ensure that disbursements align with contract start and end dates. If operational necessity dictates that funds be spent prior to a contract?s commencement, the Organization should establish a clear and documented approval process to obtain formal approval from the pass-through entity. Views of Responsible Officials: The Organization?s Board and Executive Team consisting of the CEO and COO acknowledge the finding of expending funds outside the contract period. This finding is connected to the purchase of the emergency medication naloxone. The Organization decided to purchase with no assurance of reimbursement in order to eliminate the lack of emergency medication in an overdose epidemic. The Organization had verbal approval but did not secure approval in writing. Numerous policies will be adopted in 2023 to ensure this does not occur again. Some of these policies include the transition to an experienced nonprofit bookkeeper, training for Finance and Grants Management and tracking mechanisms, monthly grants tracking meetings to ensure inventory and spending, and the adoption of a clear and documented approval process should spending, outside a contract period, be required.