CACTUS HEALTH SERVICES, INC.

Finding 2019-004: Establishment of Chart of Accounts to Track Federal Program Expenditures Criteria: Organizations that receive and expend federal awards are required to develop and maintain an accounting system that allows for all transactions to be recorded for each specific federal award program. Cactus Health Services, Inc. has not satisfactorily implemented a classification system in the accounting software that allows for complete, accurate tracking of expenditures charged to federal awards. Condition: It was noted that management tracks federal program transactions on an external spreadsheet, rather than by using a chart of accounts that is fully integrated into its accounting system. This spreadsheet is manually updated and was not utilized for the first seven months of the fiscal year. Cause: While management has written policies and procedures in place that require all transactions be recorded into the accounting system, management has only recently implemented the use of accounting classes and subgroups in its chart of accounts. The new developments in the Organization?s chart of accounts were implemented after the end of the fiscal year, and a policy for ensuring reconciliation of expenses recorded in each class to federal draw downs has not been developed. Effect: The use of an external spreadsheet to track expenses allocated to different federal awards is insufficient in preventing federal funds from being overdrawn, and is insufficient in providing a reliable audit trail to management and other interested parties. In addition, while enhancements to the Organization?s chart of accounts have been implemented, a formal review and reconciliation policy is needed to ensure that expenses allocated to federal awards are documented in writing and correctly matched to federal draw downs. Recommendation: We recommend that management set up a class and subclass system for all federal and non-federal awards. The system should be integrated into the accounting system and require all expenses, including payroll disbursements, be allocated into the correct class and subclass on a transaction-by-transaction basis. We also recommend that allocations into each class be reviewed and approved in writing by the Chief Financial Officer on a monthly basis. As a best practice, we recommend that federal draw downs be reconciled to a monthly analysis of expenditures allocated to the corresponding class assigned to each federal award, and that such reconciliation be retained in writing each month. Management?s response: Management agrees with auditor recommendation. Refer to Corrective Action Plan for expected date of completion.

Finding 2019-004 Establishment of Chart of Accounts to Track Federal Program Expenditures. Management?s View: We are currently using a chart of accounts and an Excel spreadsheet system to track expenditures. We are currently expanding and implementing QuickBooks? Class structure with subgroups for all federal and nonfederal awards. This expansion will enable CHSI to categorize all the revenues and expenses related to grant revenues, including payroll, accounts payable and all other account transactions. As part of the drawdown process, reimbursable expenses will be totaled in advance of requesting federal funds. This will facilitate a reconciliation between the allowable expenses incurred and the funds received in accordance with federal expectations. Proposed Corrective Action: We will add to our Drawdown Policy 27, Grants Management language ensuring reconciliation of expenses and payroll recorded in each class and subclass to federal drawdown requests. CHSI will ensure alignment of the draws to expenses recorded within our chart of accounts. Anticipated Correction Date: CHSI has initiated developing the process during early July 2020 and anticipate completion by August 2020 Responsible Officials: CFO, CEO, Executive Finance Assistant