Midcoast Maine Community ActionNon-Profit

2024-002 Noncompliance with Allowable Costs/Cost Principles and Weakness in Internal Controls over Indirect Cost Calculation (Significant Deficiency) Federal Award Program – 93.600 Head Start Cluster Criteria – Per the Organization’s nonprofit indirect cost rate agreement with U.S. Department of Health and Human Services, the base for calculating indirect costs is total direct costs excluding capital expenditures. Condition and Context – Audit procedures noted MMCA included capital expenditures in the direct cost base used for indirect cost calculations. Cause – The non-compliance resulted from management’s oversight of the indirect cost rate agreement requirements for calculating the base. Effect – MMCA was not in compliance with indirect cost calculation requirements. The total direct costs base used for the indirect expense calculation was overstated, which lead to an overstatement of indirect costs charged to the federal Head Start award 01CH107081-06. Questioned Costs – The overstatement of indirect cost totaled $109,521. Recommendations – We recommend the Organization ensure its indirect cost calculation methodology excludes capital expenditures from the direct cost base. All amounts included in the base should be reviewed for unallowable costs as part of the Organization’s internal review process prior to charging expenses. The Organization should ensure that all key personnel involved in calculating and reviewing indirect costs have a clear understanding of both the indirect cost rate agreement and the applicable Uniform Guidance standards. It is our understanding that management has reported this error to the funding administrators for Agreement No. 01CH107081-06 in order to address the questioned costs noted above. Views of Responsible Officials and Planned Corrective Actions – All costs related to indirect cost calculations will be thoroughly reviewed and analyzed prior to being posted in the accounting system. The formulas within the current indirect cost allocation spreadsheet will be examined to ensure accuracy and compliance with all applicable restrictions. The approved indirect cost rate agreement and its associated restrictions will be reviewed with all members of the fiscal team, Program Directors, the President/CEO, and the Board of Directors. It is essential that all relevant staff maintain a thorough understanding of the terms outlined in the letter issued by the U.S. Department of Health and Human Services (HHS). This review will be conducted annually to ensure ongoing compliance and awareness.

2024-003 Internal Control over Preparation of the Schedule of Expenditures of Federal Awards (Significant Deficiency – All Awards), Repeated Criteria – 2 CFR 200, Uniform Administrative Requirements, Cost Principals, and Audit Requirements for Federal Awards, £200.508(b) The auditee must prepare appropriate statements including an accurate Schedule of Expenditures of Federal Awards (SEFA) in accordance with £200.510, Financial Statements. Condition and Context – Low-Income Home Energy Assistance expenditures were understated by $54,831 as federal LIAP and Assurance 16 funds were not included on the prepared SEFA. Cause – Insufficient internal controls over the preparation and review process for the SEFA. Effect – Errors on reporting can lead to issues in reconciling and tracking of awards earned and recognized in the financial statements. They could also lead to findings and corrective action with funders. Questioned Costs – None Recommendations – The Organization should strengthen its review process to ensure that federal award program revenue reported in the statement of activities reconciles to the amounts reported on the SEFA. As part of this review, all required minimum elements should be traced to original source documentation, including award letters, grant reports, and trial balance profit and loss reports. Views of Responsible Officials and Planned Corrective Actions – The Finance Director has initiated a training process to ensure that all fiscal team members are equipped to review contracts, grants, and Memorandum of Understanding (MOUs). This includes verifying that all applicable Assistance Listing Numbers (ALNs) are properly identified and that related revenue is accurately tracked within the accounting system. Additionally, a new revenue code has been established to separately track Low-Income Home Energy Assistance Program (LIHEAP) funds from other federal revenues. This ensures accurate reporting and proper classification of federal awards on the Schedule of Expenditures of Federal Awards (SEFA).

2024-004 Internal Control Over Reporting Review (Significant Deficiency – All Awards) Criteria – Management is responsible for the design and implementation of internal controls to ensure reporting is accurate, complete, and compliant with relevant regulations. Condition and Context – Audit procedures noted that several reports tested for federal and state agreements were not reviewed and approved before submission or lacked documentation that a review or approval occurred. Cause – Staff turnover and change of responsibilities has led to insufficient controls to ensure reporting review and approval documentation prior to submission. Effect – Without proper review and approval, there is a heightened risk that reports may be inaccurate, incomplete, or non-compliant with regulatory requirements. Questioned Costs – None Recommendations – We recommend that the Organization prioritize training for staff involved in the preparation and review of reports. Clear guidelines, defined responsibilities, and established deadlines should be implemented to support accuracy and accountability. Additionally, efforts should be made to ensure continuity of internal controls in the event of staffing or responsibility changes. Management should periodically test these controls to ensure they operate effectively, particularly following changes in key personnel involved in the process. Views of Responsible Officials and Planned Corrective Actions – The Fiscal Department has implemented a new agency-wide approval system to strengthen internal controls and streamline workflow processes. All relevant staff have received comprehensive training to ensure a smooth transition to the new software. The system enables submission of reports, journal entries, purchase orders, and supporting documentation for review and approval by Supervisors, Program Directors, and the President/CEO. The software maintains a complete audit trail, documenting the originator and each level of the approval. To ensure compliance and effectiveness, the Finance Director will conduct an internal audit six months into the fiscal year. This audit will evaluate adherence to established processes and procedures, confirm the effectiveness of internal controls, and identify any areas for improvement.

2024-005 Internal Control Over Timesheets (Significant Deficiency – All Awards) Criteria – The Organization’s internal control policies require that Supervisors approve all timesheets prior to submission to the Administrative & Fiscal Services Department. Condition and Context – During audit procedures, one timesheet selected for testing did not have the required approval from the employee’s supervisor. The timesheet was processed for payment without documented supervisory approval. Cause – The failure to obtain approval on the timesheet was due to a new supervisor inadvertently missing the employee’s timecard for approval. Controls in place did not prevent the timesheet from being processed without the necessary supervisory review. Effect – The absence of proper supervisory approval on the timesheet creates a risk that inaccurate or inappropriate payroll information could be processed. Questioned Costs – None Recommendations – We recommend that the Organization provide additional training to new supervisors on the importance of reviewing and approving timesheets promptly. Additionally, efforts should be made to ensure continuity of internal controls in the event of staffing or responsibility changes. Management should strengthen controls to prevent processing of timesheets without required approvals. Management should periodically test these controls to ensure they operate effectively, particularly following changes in key personnel involved in the process. Views of Responsible Officials and Planned Corrective Actions – The Finance Director, in collaboration with the HR Assistant, conducts biweekly reviews of employee timesheets to ensure that both employees and their supervisors have completed and approved submissions prior to payroll processing. MMCA has held meetings with both new and tenured managers to emphasize the critical importance of timely, accurate, and fully approved timesheets. MMCA’s contracted payroll processing company enforces a strict submission deadline to ensure employees are paid on time. In accordance with federal labor regulations, all hours worked must be paid within a reasonable timeframe. Once payroll is submitted to the processor, time sheets can no longer be edited – making the window for corrections very limited. To strengthen accountability, the HR Assistant has implemented a system rule requiring that supervisors cannot approve a timesheet before it has been reviewed and submitted by the employee. This ensures that both parties are actively verifying time entries. Ongoing management training is provided to reinforce best practices in timekeeping and payroll compliance. Additionally, the Finance Director will collaborate with the Director of Human Resources and the President/CEO to revise and formalize the timecard approval process, ensuring consistency, transparency, and compliance across the organization.

2023-002 Internal Controls over Preparation of the Schedule of Expenditures of Federal Awards (Material Weakness – All Awards) (Repeated) Criteria – 2 CFR 200, Uniform Administrative Requirements, Cost Principals, and Audit Requirements for Federal Awards, £200.508 (b) The auditee must prepare appropriate statements including an accurate Schedule of Expenditures of Federal Awards (SEFA) in accordance with £200.510, Financial Statements. Condition and Context – The following errors were noted and corrected as a result of auditing procedures on the SEFA: • WIC food expenditures were overstated by $1,050,183 due to transposition errors in recording the August 2023 benefit entries, June 2023 benefit entries that were booked twice in error, as well as adjustments to the final profit and loss after the SEFA was prepared. • TANF expenditures over stated by $42,709 due to errors in reporting and including ME DHHS funds spent as opposed to federal funds. • Head Start expenditures were overstated by $70,718 as they included in-kind. Cause – Insufficient internal controls over the preparation, review, and documentation process for the SEFA and supporting documents. Effect – Errors on reporting can lead to issues in reconciling and tracking of awards earned and recognized in the financial statements. The above corrections, if not made, would have led to the SEFA being materially misstated. They could also lead to findings and corrective action with funders. Questioned Costs – None Recommendations – Management should continue to seek additional training for the fiscal department on preparation of the SEFA and reporting standards. In addition, review processes over the SEFA and supporting reports should be strengthened. Both the preparer and reviewer should have a clear understanding of the required minimum elements and instructions. As part of the review, all required minimum elements should be vouched to original source documents including copies of awards, grant reporting, and the trial balance profit and loss reports. Steps should be taken to prevent further adjustment of supporting profit and loss reports once reconciled without the express review and approval of the Fiscal Director. Review of the standards for supporting grant reports should be strengthened to prevent errors in reporting leading to errors on the SEFA. Any inconsistencies should be resolved before beginning the audit. Management has taken steps to identify and seek training in areas they have identified as needing improvement. Views of Responsible Officials and Planned Corrective Actions – The Director of Fiscal will seek additional training on the preparation of the SEFA schedule provided to auditors for new staff to participate in. Before submission to auditors there will be a check and review process in which the Fiscal Director or delegate will review the schedule and initial for a backup copy. All back up documentation will be provided during the submission so review by auditors will be clearer. For this review to take place there will be an internal review and check list provided. In fiscal year 2024 MMCA has engaged in a contract with a fiscal consultant. The plan to restructure the fiscal department will streamline processes and strengthen policies and procedures by giving different permissions in the software to post after approvals, review reports before submission and create a tier for audit procedures and tasks. MMCA will have the fiscal team engage in more professional development around auditing procedures in GAAP and MAAP to ensure all reports are correct before submission.

Section III ? Findings and Questioned Costs for Major Federal Awards 2022-002 Internal Controls over Preparation of the Schedule of Expenditures of Federal Awards (Material Weakness ? All Awards) Criteria ? 2 CFR 200, Uniform Administrative Requirements, Cost Principals, and Audit Requirements for Federal Awards, #200.508 (b) The auditee must prepare appropriate statements including an accurate Schedule of Expenditures of Federal Awards (SEFA) in accordance with #200.510, Financial Statements. Condition and Context ? The following errors were noted and corrected as a result of auditing procedures on the SEFA: * All funds for WIC were listed under agreement CD4-21-4655B. A significant amount of these funds was provided under agreement CD4-22-4655. * TANF expenditures were understated by $12,215. * TANF was incorrectly identified as part of a cluster. * ERA funds were reported as being funded through US DHHS. * Head Start was not identified as being part of a cluster. * CACFP expenditures were understated by $35,656. * CACFP expenditures were listed as being passed though ME DHHS. This agreement is through ME DOE (education). * WIC expenditures were understated by $179,782. * Several COVID-19 programs did not include the appropriate prefix. Cause ? Insufficient internal controls over the preparation, review, and documentation process for the SEFA. Effect ? Errors on reporting can lead to issues in reconciling and tracking of awards earned and recognized in the financial statements. The above corrections would have led to the SEFA being materially misstated. They would also lead to findings and corrective action with funders. Questioned Costs ? None Recommendations ? Management should seek additional training for the fiscal department on preparation of the SEFA standards. In addition, review processes over the SEFA should be strengthened. Both the preparer and reviewer should have a clear understanding of the required minimum elements. As part of the review, all required minimum elements should be vouched to original source documents including copies of awards, reporting, and the trial balance. Any inconsistencies should be resolved before beginning the audit. Management?s records should require the identification of the preparer and reviewer as well as the dates each of those tasks were performed. Management could consider requiring a preparation and review process checklist as required documentation for the Organization?s reporting records to help ensure key processes are performed and reviewed. Views of Responsible Officials and Planned Corrective Actions ? The Director of Fiscal will seek additional training on the preparation of the SEFA schedule provided to auditors for new staff to participate in. Before submission to auditors there will be a check and review process in which the Fiscal Director or delegate will review the schedule and initial for a backup copy. All back up documentation will be provided during the submission so review by auditors will be clearer. For this review to take place there will be an internal review and check list provided.

2020-003 Compliance with Reporting Standards (Significant Deficiency) Federal Award Program ? 93.600 Head Start Cluster; 01CH010781-01-01 Criteria ? DHHS Head Start reporting standards require the filing of the final SF-425 cumulative though December 31 by April 30. Condition and Context ? Audit procedures noted that the report was filed late. Cause ? The employee responsible for filing had left the organization. Per management that employee had tried to submit the form prior to the deadline, but a cell was locked out and that employee did not get it resolved prior to leaving. That employee also did not inform others, which prevented management from taking timely action on getting it filed. Effect ? The report was filed three business days late on May 5, 2020. Questioned Costs ? None Recommendations ? Management should strengthen their controls for the tracking of required report filings and their due dates. It should implement additional controls to ensure all are filed on time. The controls should account for the possible loss of key personnel responsible for filing and have a process to mitigate this risk. Views of Responsible Officials and Planned Corrective Actions ? Director of Fiscal and Facilities is cross training other team members to recognize where to find the reporting schedule. There is also a calendar in the common area calendar located in the Administrative hallway that all Fiscal team members have access to. This is to help with daily, weekly, planning. It is also tracked in the Agency?s Outlook calendar.

2020-004 Compliance with Special Tests and Provision Standards (Significant Deficiency) Federal Award Program ? 93.600 Head Start Cluster; 01CH010781-01-01; 01CH107081-02; and 01CH107081-03 Criteria ? 42 U.S. Code ? 9837 (d)(2)(A) requires that the Organization regularly share and review the credit card expenditures with the Board of Directors and the policy council. Condition and Context ? Audit procedures noted that credit card expenditures were not reviewed at board meetings from April through August 2020. Cause ? A breakdown of processes and controls due to the Covid-19 Pandemic. Effect ? The Organization was not in compliance with credit card review standards for five months during the audit period. Questioned Costs ? None Recommendations ? Governance should strengthen their controls over the review of credit card statements at board meetings. Views of Responsible Officials and Planned Corrective Actions ? The Board of Directors and CEO have identified a Finance Committee member to review credit card reports before each Board meeting. This member presents their review to the Board as part of the monthly Finance Committee Report.

Finding 2019-001 ? Internal Controls over Preparation of Schedule of Expenditures of Federal Awards (Significant Deficiency) Federal Award Program: 93.600 Head Start; Grant No. 01CH2286-05 and 01CH0107081-01 Statement of Condition - When preparing the Schedule of Expenditures of Federal Awards, the Organization misclassified Federal funds under Temporary Assistance for Needy Families (TANF) passed through to the Organization from the State of Maine as Federal Head Start Funds that were directly funded through the U.S. Department of Health and Human Services. Criteria - 2 CFR 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, #200.508 (b) The auditee much prepare appropriate statements, including an accurate schedule of expenditures of federal awards in accordance with #200.510, Financial Statements. Questioned Costs - None. Cause - The State of Maine uses TANF funds as part of the State Head Start program. These funds were thought to be direct Federal Head Start funds when the schedule was prepared. Effect - Federal direct Head Start dollars were overstated and indirect TANF dollars were understated on the Schedule of Expenditures of Federal Awards as initially prepared by the Organization. When the error was identified, management corrected the schedule of expenditures of federal awards to properly reflect federal direct and indirect funding by program. Recommendation - We recommend that in the future, the Organization complete a review of the draft schedule of expenditures of federal awards in relation to its direct and indirect federal awards and expenditures it prepares in advance of its annual audit to assure the accuracy of the information it is reporting. Views of Responsible Officials and Planned Corrective Actions - New procedures have been established for reviewing the draft of all reports and schedules submitted to auditors and all funding sources prior to submission. The Director of Fiscal Services will review all reports and schedules before they are submitted and will make any necessary changes that are required.

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