African Development CenterNon-Profit

Federal Agency: U.S. Small Business Administration Federal Program: Microloan Program Assistance Listing Numbers: 59.046 Federal Award Identification Number and Year: 􀁸 SBAOCAML220344– 2022 􀁸 SBACAML230551 – 2023 Award Period: January 1, 2023 – December 31, 2023 Type of Finding: 􀁸 Significant Deficiency in Internal Control over Compliance 􀁸 Compliance - Other Matter Criteria or Specific Requirement: Federal regulations require submission of performance reports at an interval required by the federal awarding agency. Those reports submitted quarterly must be due no later than 30 calendar days after the reporting period. These requirements are outlined in 2 CFR 200.329(c) Monitoring and reporting program performance. Condition: During our testing, we tested two quarterly performance reports and it was noted both were submitted after the required due date outlined in the grant agreement. Questioned Costs: None Context: During our testing, it was noted the Organization did not have proper procedures in place for ensuring timely submission of the quarterly performance reports as required in the federal fund notice of awards. Cause: Management did not have a system in place to ensure the completion and submission of the required performance reporting by the specified due date. Effect: By submitting untimely performance reports, the Organization is not in compliance with the terms and conditions of the award. This did not result in any disallowed costs. Repeat Finding: Yes Recommendation: We recommend management develop procedures to ensure the required reporting is completed within the timeline allowed by the granting agency. Views of Responsible Officials: Management agrees with finding.

2022-003 ? Performance Reporting Federal Agency: U.S. Small Business Administration Federal Program: Microloan Program Assistance Listing Numbers: 59.046 Federal Award Identification Number and Year: ? SBAOCAML210221 ? 2021 ? SBAOCAML220344 ? 2022 Award Period: January 1, 2022 ? December 31, 2022 Type of Finding: ? Significant Deficiency in Internal Control over Compliance ? Compliance - Other Matter Criteria or Specific Requirement: Federal regulations require submission of performance reports at an interval required by the federal awarding agency. Those reports submitted quarterly must be due no later than 30 calendar days after the reporting period. These requirements are outlined in 2 CFR 200.329(c) Monitoring and reporting program performance. Condition: During our testing, we tested two quarterly performance reports and it was noted both were submitted after the required due date outlined in the grant agreement. Questioned Costs: None Context: During our testing, it was noted the Organization did not have proper procedures in place for ensuring timely submission of the quarterly performance reports as required in the federal fund notice of awards. Cause: Management did not have a system in place to ensure the completion and submission of the required performance reporting by the specified due date. Effect: By submitting untimely performance reports, the Organization is not in compliance with the terms and conditions of the award. This did not result in any disallowed costs. Repeat Finding: No Recommendation: We recommend management develop procedures to ensure the required reporting is completed within the timeline allowed by the granting agency. Views of Responsible Officials: Management agrees with finding.

2021-004 Time and Effort Reporting Federal Agency: Department of Treasury Federal Program: Rapid Response Program Assistance Listing Numbers: 24.024 ? Rapid Response Program Award Period: January 1, 2021 ? December 31, 2021 Type of Finding: ? Material Weakness in Internal Control over Compliance ? Compliance - Other Matter Criteria or Specific Requirement: Standards for documentation of personnel expenses are defined in the federal regulations under 2 CFR section 200.430(i) which state ?charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed?. This requires federal grant recipients to have ?a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated?. Condition: Lack of documented time and effort reporting for the employees time/ wages charged to the federal grant. Questioned Costs: None Context: Of the eight payroll transactions tested, all lacked after-the-fact time and effort documentation to adequately support management?s allocation of wages to the federal grant. We noted all employees tested were full-time salaried employees whose wages were 100% charged to the RRP grant for a period of the year. Additionally, loan records indicated these employees were the relationship manager for the RRP funded loans as well as other RRP qualifying loans. Cause: Management did not have a system in place to track time and effort in order to demonstrate the allocation of wages and benefits by grant. Management believed their payroll register alone adequately supported the wages charged given the employees position and role within the organization. Effect: Without after-the-fact documentation ADC is not meeting the federal regulations around time and effort. Therefore it?s possible the allocation of the employees time is not accurate. Repeat Finding: No Recommendation: We recommend management develop procedures requiring employees to track their time and effort by grant. Another individual should periodically review and approve these time and effort records before the reimbursement request is sent to the funding agency. Views of Responsible Officials: Management agrees with finding.

2020-001 Lack of Segregation of Duties Condition ? The small size of ADC?s office staff limits the extent of separation of duties. Criteria ? Good internal control requires a segregation of duties and responsibilities such that no one employee has access to both physical assets and the related accounting records, or to all phases of a transaction. Effect ? Intentional or unintentional errors could occur and not be detected by ADC. Cause ? The size of ADC's accounting and administrative staff precludes certain internal controls that would be preferred if the office staff were large enough to provide optimum segregation of duties. Repeat Finding ? Yes. Recommendation ? Management and the Board of ADC should remain involved in the financial affairs of ADC on a regular ongoing basis to provide oversight and independent review functions and mitigate the weakness created by the lack of segregation. The contract accountant should review the financial statements and reconcile the amounts to the accounting records. Auditee's comments ? Management and the Board of ADC will continue to scrutinize financial reports and will follow up on any unusual items noted. ADC will add a senior CFO/COO position in 2021 which will help address this issue.

2020-002 Execution of Controls Over Loans Condition ? For one of the tested loans made by ADC in 2020, the loan committee approved a certain amount for the applicant and then additional amount if they met certain conditions. During our testing, evidence was not available for one of the conditions being met however the loan was made. Criteria ? ADC should have additional controls in place over its lending process. Included in formal review and approval by a loan committee, ADC should document that approval contingencies have been met before the loan is approved. Effect ? Loans were made that were not in compliance with internal policies. Cause ? ADC did not have a process in place to ensure the contingencies required by the loan committee were completed before the loan was made. Repeat Finding ? No. Recommendation ? ADC should develop a process to track situations when the loans with contingencies are approved by the committee that the contingencies have been met before the loan is made. Evidence should be maintained in the loan files and reviewed to make sure they are complete. Auditee's comments and response ? The challenges presented by the pandemic and remote working disrupted the working environment and contributed to this failure to maintain fully complete in-file records on all loans. In addition, between the pandemic and the substantial damage resulting from Community Unrest following the killing of George Floyd, the very large volume of small businesses that needed our immediate assistance over the course of 2020 was overwhelming. The situation greatly tested ADC?s small staff, creating an unusual set of circumstances which contributed to this deficiency. Overall, the loan approval in question went through the proper process and all of the committee requirements were met, although they were not all met in a timely manner / in a time of disbursement, as required. A process to better track these types of contingencies will be created and implemented in 2021.

2020-003 Audit Adjustments and Oversight of the Financial Reporting Process Criteria ? Not-for-profit organizations are required to prepare financial statements in accordance with generally accepted accounting principles (GAAP). This is the responsibility of the Organization?s management. The preparation of financial statements in accordance with GAAP requires internal control over both (1) recording, processing, and summarizing accounting date (i.e. maintaining internal books and records), and (2) preparing financial statements, including related footnotes (i.e. external financial reporting). Condition ? For the audit, two adjustments were made that, in the aggregate, were material. The entries were to record a government grant as revenue that was incorrectly recorded as a liability ($120,000) and to recognize revenue for expense reimbursements incurred during the second half of the year ($59,000). Context ? Management is responsible for reviewing, approving and accepting responsibility for financial statements before the financial statements are issued; however, management did not perform a detailed review of the financial statements which may have identified misstatements. The absence of these control procedures is considered a material weakness because material misstatements of the consolidated financial statements occurred and were not prevented or detected until the year end audit. Cause ? ADC has a limited budget, small staff, and was overwhelmed with the volume of assistance it needed to provide its clients as a result of the pandemic. Effect ? ADC does not have a system of internal controls that would enable management to conclude the consolidated financial statements and related disclosures are complete and presented in accordance with accounting principles generally accepted in the United States of America. A misstatement of the consolidated financial statements could occur and not be prevented or detected. Recommendation ? We recommend ADC establish procedures over financial reporting to assure all necessary adjustments are made to the consolidated financial statements, and disclosures are complete. Auditee's comments and response ? The recommended procedures have been established.

Condition and Criteria ? It was noted during the first six months of 2020 that ADC was reimbursed more for payroll costs than it had incurred. Cause ? ADC does not have a formal process in place to track employee time to grants worked on or a formal process to review payroll costs charged to government grants. Effect ? An adjustment was made to record the excess reimbursed costs as a refundable advance. Context ? Management is responsible for ensuring the proper costs are charged to grants in accordance with the relevant agreement terms. Recommendation ? Procedures should be established requiring employees to track their time by grants worked on. Another person should review and approve time recorded to each grant before the reimbursement request is sent to the funding agency. Auditee's comments and response ? The recommended procedures have been established.

Criteria - In accordance with the requirements of GAAP (Generally Accepting Accounting Principles), Not-for-Profit organizations are required keep track of donor restrictions including the receipt, release, and remaining balances at the end of the reported year. Condition ? ADC did not have a schedule which tracked contributions received with donor restrictions and related releases from restrictions for the audit. Cause ? Historically the volume of ADC?s contributions with donor restrictions has been relatively small and easily identifiable. The demand of services requested by its clients, the increased volume of contributions received as a response to the pandemic, and no formal process established in the past compounded the issue in 2020. Effect ? Expenditures of restricted funds for other than the restricted purpose could occur. Recommendation ? We recommend ADC develop, document, and implement policies and procedures to ensure accurate preparation of a schedule showing the activities of net assets with donor restrictions. This should include details of new restrictions and releases activity during the year. This schedule should be reviewed by a person other than the preparer for accuracy. Management?s Response and Corrective Action ? ADC will develop a process to monitor restricted net assets going forward. Our new CFO/COO will be charged with the responsibility of implementing this process and ensuring its accuracy.

2019-001 In-house Accounting Expertise Criteria ? Organizations should have their own accounting expert to ensure transactions are properly recorded in the general ledger thus reducing the chance of a material misstatement of the financial statements and notes to the financial statements in accordance with generally accepted accounting princples. Condition ? ADC does not have an in-house accountant able to produce financial statements in accordance with generally accepted accounting principles, including notes to the financial statements. Effect ? A misstatement of the financial statements could occur and not be prevented or detected. Cause ? ADC has a limited budget. Repeat Finding ? Yes. Recommendation ? Management and the Board of ADC should continue to be active in monitoring financial reports and activities of ADC to ensure oversight. The contract accountant should review the financial statements and reconcile the amounts to the accounting records. Auditee's comments and response ? ADC is a small organization and the resources are not adequate to afford an in-house accountant experienced with generally accepted accounting principles. Management and the Board of ADC review monthly financial reports and utilize the assistance of an outside contract accountant to help prepare.

2019-002 Lack of Segregation of Duties Condition ? The small size of ADC?s office staff limits the extent of separation of duties. Criteria ? Good internal control requires a segregation of duties and responsibilities such that no one employee has access to both physical assets and the related accounting records, or to all phases of a transaction. Effect ? Intentional or unintentional errors could occur and not be detected by ADC. Cause ? The size of ADC's accounting and administrative staff precludes certain internal controls that would be preferred if the office staff were large enough to provide optimum segregation of duties. Repeat Finding ? Yes. Recommendation ? Management and the Board of ADC should remain involved in the financial affairs of ADC on a regular ongoing basis to provide oversight and independent review functions and mitigate the weakness created by the lack of segregation. The contract accountant should review the financial statements and reconcile the amounts to the accounting records. Auditee's comments ? Management and the Board of ADC will continue to scrutinize financial reports and will follow up on any unusual items noted.

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