603 LEGAL AID INC

Finding 2024-001: Compliance finding – LSC Financial Guide Prior year Finding 2023-002 Legal Services Corporation Basic Field Grant (ALN# 09.130010) Condition: Several policies and/or procedures in the Draft Accounting Manual have not been updated to take the new LSC Financial Guide into consideration. Changes are actively being made by management but are not yet codified in an updated manual. The new policies are a work in progress that would benefit from more dedicated, concentrated effort to substantively update the manual. Criteria or specific requirement: The LSC Financial Guide (Guide) is designed to assist recipients and subrecipients with fiscal responsibilities in the stewardship of grant funds provided by LSC. The effective date of the Guide is January 1, 2023. The Guide contains several new requirements that recipients must adopt, and best practice recommendations for financial management, including example reports and methods of compliance with specific requirements. Cause: Employee attrition and transitioning to new service providers in multiple areas of operations during the year. Effect: Required and recommended internal controls and accounting policies and procedures not contained in existing system. Context: The Accounting Manual was reviewed by the auditors, and it was noted that not all policies and procedures were updated to comply with the requirements of the new LSC Financial Guide. This noncompliance results in no questioned costs. Recommendation: Completion of an updated Accounting Manual, approved by the Board of Directors, taking into consideration the new requirements of the Guide. Completion of the Self-Assessment Questionnaire (Appendix 9) of the Guide on an annual or periodic basis. The referenced questionnaire is a tool for recipient's management to direct attention to practicable revisions of accounting procedures or internal controls to strengthen, improve, or simplify the existing system. Review the questionnaire at least annually, complete, and file for future reference.

Finding 2023-001: Compliance finding – Governing Bodies Legal Services Corporation Basic Field Grant (ALN# 09.130010) Condition: As of December 31, 2023, the Board of Directors was composed of other members representing 7.14%, client members representing 35.72%, and attorney members representing 57.14%. Attorney members were less than the required 60% of the board of directors. Criteria or specific requirement: At least sixty percent (60%) of a governing body shall be attorney members. Cause: Lack of oversight by management. Effect: Governing body may not reasonably reflect the interests of the eligible clients in the area served or consist of members who are supportive of the purposes of the Legal Services Corporation Act and have an interest in, and knowledge of, the delivery of quality legal services to the poor. Questioned costs: No questioned costs were identified. Recommendation: A procedure be implemented to ensure that the Organization remains in compliance and does an internal review to ensure that board composition is maintained. Each set of board meeting minutes could contain a snapshot showing calculation of board composition in response to the requirements of 45 CFR 1607.3.

Finding 2023-002: Compliance finding – LSC Financial Guide Legal Services Corporation Basic Field Grant (ALN# 09.130010) Condition: Several policies and/or procedures in the Draft Accounting Manual have not been updated to take the new LSC Financial Guide into consideration. Changes are actively being made by management but are not yet codified in an updated manual. The new policies are a work in progress that would benefit from more dedicated, concentrated effort to substantively update the manual. Criteria or specific requirement: The LSC Financial Guide (Guide) is designed to assist recipients and subrecipients with fiscal responsibilities in the stewardship of grant funds provided by LSC. The effective date of the Guide is January 1, 2023. The Guide contains several new requirements that recipients must adopt, and best practice recommendations for financial management, including example reports and methods of compliance with specific requirements. Cause: Employee attrition and lack of resources. Effect: Required and recommended internal controls and accounting policies and procedures not contained in existing system. Questioned costs: No questioned costs were identified. Recommendation: Completion of an updated Accounting Manual, approved by the Board of Directors, taking into consideration the new requirements of the Guide. Completion of the Self-Assessment Questionnaire (Appendix 9) of the Guide on an annual or periodic basis. The referenced questionnaire is a tool for recipient's management to direct attention to practicable revisions of accounting procedures or internal controls to strengthen, improve, or simplify the existing system. Review the questionnaire at least annually, complete, and file for future reference.

2022-001 Significant Deficiency Condition: The Executive Director (ED) receives an email from Checkmate when the payroll is completed (or finalized) that includes a link to the final payroll register and other reports. It is at this point that the ED would log in to Checkmate and review the final report against what was approved. There was no indication that this was ever done. It was not part of the documented procedures that were communicated by Squaretail to in-house accounting during training, nor did the ED ever give any indication that they performed this step. Criteria or specific requirement: It is crucial for the Executive Director to review the final payroll register and document this review to ensure not only that it is taking place, but it is being done timely. Cause: The payroll processes changed several times during the year under audit. Effect: Failure to review the final payroll report each pay period against the initially approved submission documents increases the risk that the information submitted does not align with the source documents, such as timesheets. Questioned costs: No questioned costs were identified. Recommendation: In order to provide greater control over payroll, we suggest that management review the final Checkmate payroll report for each payroll period prior to the pay date. We also suggest that documentation of the review of these reports be made on the reports and be maintained.

2022-002: Compliance finding - Eligibility Legal Services Corporation Basic Field Grant (ALN# 09.130010) Technology Improvement Grant (19043) (ALN# 09.130010) Technology Improvement Grant (GT-TG21T-00007) (ALN# 09.130010) Condition: Cases were accepted with over income and/or over assets with no waivers or offsetting expenses present; Client Agreement and Referral Form (CARF) was sent to client and never returned, yet case was placed with Pro Bono attorney; Client was over income but had unreimbursed medical expenses and due to the listed expenses not being captured in the adjustments, the case was considered not income eligible, but should have been eligible; Applicant withdrew from process before records were provided, leading to no services being provided regardless . Criteria or specific requirement: Client reported income levels must be within the maximum income levels or offset appropriately with listed expenses. Assets must not exceed applicable ceilings. Retainer agreements must be obtained, if necessary, based on level and type of services provided. Cause: Lack of oversight by management. Effect: Copy of needed waivers, expense listing , and/ or CARF was not present in the client files . Questioned costs: No questioned costs were identified. Recommendation: A procedure be implemented to ensure that the Organization remains in compliance and does an internal review to ensure all required documentation is in the client files.

2022-003: Compliance finding - Reporting Legal Services Corporation Basic Field Grant (ALN# 09.130010) Technology Improvement Grant (19043) (ALN# 09.130010) Technology Improvement Grant (GT-TG21T-00007) (ALN# 09.130010) Condition: The Report on Emergency Non-Priority Cases submitted late by 9 days, the Annual Report on Review of Priorities was drafted and approved by Board, but not submitted to LSC, and the Special Grant Conditions #3 progress report was due on or before 8/1/2022 and was submitted nearly 2 months late on 9/26/2023. Criteria or specific requirement: Legal Services Corporation requires multiple reports be submitted both annually and semiannually by the Organization. Cause: Lack of oversight by management. Effect: Several reports due during the year under audit were submitted late, while another report was drafted and never submitted to Legal Services Corporation. Questioned costs: No questioned costs were identified. Recommendation: A procedure be implemented to ensure that the Organization remains in compliance and does an internal review to ensure all required reports are completed in a timely manner.

Criteria or specific requirement: Legal Services Corporation Accounting Guide section 2-2.4 states physical inventories should be reconciled with property records and accounting records. Differences should be identified and investigated to determine cause. Additionally, the Legal Services Corporation property management manual states that capital and non-capital inventory should be documented to include certain required information fields, including check number, cost, funding source, vendor, and item identification number. Condition: A reconciliation between the physical inventory and the accounting records is not performed. Additionally, through examination of the inventory records it was noted that certain required information fields were not completed for each item listed. Questioned Costs: No questioned costs were identified. Context: The nature of this deficiency is isolated to the design of controls over inventory. The deficiency was detected through examination of the inventory records and discussions with management. Effect: Failure to accurately capture all required information while performing the physical inventory and failure to reconcile that information back to the accounting system increases the risk of non-compliance with the LSC requirements for asset management and disposal. Furthermore, failure to reconcile the physical inventory back to the accounting system increases the risk that the information may be incomplete. Cause: Items identified in the physical inventory were often acquired many years ago, which reduces the ability to gather certain elements of the required information or significantly increases the amount of time and effort necessary to do so. Additionally, the current process over the physical inventory does not incorporate a reconciliation to the accounting system, which would allow for missing information to be identified. Recommendation: It is recommended that the inventory system be evaluated to incorporate a reconciliation process between the results of the physical inventory and the information contained within the accounting system. Additionally, we recommend that management review the Legal Services Corporation property management manual to ensure that all required data fields are completed during the inventory process. Management Response: In November 2021, a physical inventory of furniture & equipment currently on-site was conducted and recorded into a tracking spreadsheet which is formatted to capture all the elements required by the LSC Fundamental Criteria. Unfortunately, the staff doing and maintaining the spreadsheet were not provided with the necessary financial components required such as purchase date, vendor, original cost, etc. The organization was able to identify and record in the depreciation spreadsheet that information for items being capitalized. Now that the accounting is no longer outsourced and being done in house the accounting staff will be maintaining this spreadsheet. Periodic review during the fiscal year will be done to evaluate transactions in the general ledger, for addition to the report, particularly in the office expense and equipment purchases accounts.

Criteria or specific requirement: Legal Services Corporation Regulations 45 CFR 1630 Cost Standards and Procedures requires that income derived from an activity supported in whole or in part with LSC funds must be allocated to the same project used to track the LSC grant in the same proportion that the LSC funds were expended in support of the activity. Condition: 603 Legal Aid receives support from an outside organization towards their call center activities. The call center activities are also supported by LSC funds. While total expenses incurred exceeded the amount of additional support and LSC funding received, indicating that 100% of funding was expended, a proportionate share of the income was not allocated and reported as part of the LSC program. Questioned Costs: No questioned costs were identified. Context: This deficiency was identified through general discussions with management and is considered to be isolated to the single source of program income received. Effect: Failure to identify and allocate a proportionate share of income to the LSC program increases the risk that an excess amount of unspent LSC funds at year end may be accumulated, which may exceed allowable carryover limits. Cause: Program income was generated through a new form of revenue source in the current year. No similar support had been received in prior periods, and the specific requirement to allocate a portion of the proceeds and additional eligible costs to the LSC program were not considered. Recommendation: It is recommended that income received be evaluated to determine if it is generated as a result of activities supported in whole or in part by LSC funds (program income) to determine if the income is derived from activities already supported through LSC resources. In the event that income is determined to be program income, it is recommended that a share of the income be allocated to the LSC program in proportion to the support provided through the use of LSC funds in generating the income. Management Response: An assessment of alternate funding sources that support activities that have been charged to LSC was evaluated for 2021 by the current staff accountant. Program Income of $63,468 to support Call Center activity was recorded as unrestricted funds. At year end, salary expense of approximately $95K charged to LSC throughout the year was reclassified to unrestricted. The reclassification entry did not specifically select Call Center staff wages but rather a non-specific pool of salary expense was reclassified. In order to better track use of the support for call center activities, management proposes identifying the Call Center income as a unique funding source within the accounting system. A monthly reclassification entry of call center personnel and associated expense equal to the monthly contract income will be reallocated from LSC to the contract income funding.