Paterson Task Force for Community Action, Inc.

Views of Responsible Officials and Planned Corrective Action: Management recognizes the importance of timely and accurate bank reconciliations. Management points out that during the fiscal year ended October 31, 2024, the Organization transitioned from one accounting software program to another more sophisticated accounting software program. During this transition, the general ledger of each accounting software program was maintained simultaneously, and bank reconciliations were prepared based on the former accounting software’s module. During this period of running both accounting software programs simultaneously, transactions were recorded in the new accounting software in error as part of the learning process. Management has already undertaken measures to correct the bank reconciliations as performed in the new accounting software. Policies regarding timely preparation of monthly bank reconciliations will be more rigorously adhered to.

Views of Responsible Officials and Planned Corrective Action: Management points out that the premium invoice for the November 2023 through October 2024 workers compensation insurance was received during the fiscal year ended October 31, 2023. The recording and recognition of this premium is pursuant to and in keeping with the Organization’s policies and procedures of recording such costs timely upon receipt of the invoice. Management further points out that its incurrence of costs which should properly be deferred is atypical. Management believes that its costs which should be deferred may be limited to only insurance coverage. However, management agrees that in adhering to the cost principles, policies and procedures will need to be established as to the proper timing of cost recognition.

Condition: The Organization has policies and procedures to document transactions and the means to authorize and record these transactions. Examples would include vouchers which accompany each vendor expense invoice and employee time sheets. Key documentation typically requires multiple sign-offs including the performance of critical procedures, thus enhancing the system of internal controls. Criteria: The Organization?s system of controls requires documentation of the performance of critical procedures in the recording and recognition of expenditures. The procedures are to be documented on a voucher which is required to accompany and be attached to each authorized vendor invoice. Cause: Audit procedures tested a sample of expense vouchers. Approximately 17.5% of the expense vouchers tested omitted being marked as to posting in the accounting system.Effect: The lack of procedure documentation on vouchers supporting expense transactions mitigates the system of internal controls. Failure to document critical procedures may be perceived that the procedure was not performed. In the event that the procedure was indeed performed but not documented, the procedure, in this case posting of vendor expense invoices, may be duplicated, thus resulting in errors by overstating program expenses. It is noted that no actual duplication of recording vendor expense vouchers was observed.

Condition: The Organization incurs various expenses which are not a direct cost of a particular program, but rather are joint costs of multiple programs. This finding is a repeat of preceding finding 2021-002.Criteria: The Federal Register provides that such joint costs need to be prorated using a base which accurately measures the benefits provided to each award or activity. Cause: Audit procedures tested a sample of expense vouchers, including both direct and joint costs. Certain more material expenses were also tested. The majority of costs appear to be reasonably allocated. However, based on these tests, it was observed that certain joint costs may have been allocated in a manner mis-measuring benefits provided to each award or activity. Examples include insurance expense allocated between the Community Services Block Grant (CSBG), Low Income Home Energy Assistance Program (LIHEAP) and CARES programs with no insurance expense allocated to the Shelter program, approximately half of the audit cost allocated to the CSBG program, with no audit cost allocated to the CARES program, and approximately two-thirds of the net rent expense allocated to the CSBG program with no rent expense allocated to the Shelter program. Effect: Misallocations of joint costs will misalign costs on a program-by-program basis. The effect will be more pronounced on individual financial status reports for payment requests. The effect on the financial statements may be mitigated by a.) overstatement of certain costs on one program offset by understatement of those costs in other programs, and b.) program costs which may appear under-allocated are offset by costs embedded in other programs.

Condition: The Organization has policies and procedures to document transactions and the basis of transactions. Examples would include vouchers which accompany each cost invoice and employee time sheets. Key documentation typically requires multiple sign-offs, thus enhancing the system of internal controls. This finding is a repeat of preceding finding 2020-001.

Criteria: The Organization?s system of controls requires sign-offs by responsible personnel as authorization and approval. Vouchers need to be signed off by the bookkeeper, comptroller and director. Employee time sheets need to be signed by the employee and the employee?s supervisor. Bank reconciliations need to be signed by the preparer and reviewer.

2020-001 ? Documented Authorizations and Approvals Condition: The Organization has policies and procedures to document transactions and the basis of transactions. Examples would include vouchers which accompany each cost invoice and employee time sheets. Key documentation typically requires multiple sign-offs, thus enhancing the system of internal controls. Criteria: The Organization?s system of controls requires sign-offs by responsible personnel as authorization and approval. Vouchers need to be signed off by the bookkeeper, comptroller and director. Employee time sheets need to be signed by the employee and the employee?s supervisor. Cause: Audit procedures tested a sample of employee time sheets and expense vouchers. None of the employee time sheets tested included a supervisor sign-off. Approximately 23% of expense vouchers were not signed-off by the director and/or comptroller. Effect: The lack of sign-offs on documentation supporting expense and payroll transactions mitigates the system of internal controls by processing unauthorized or not fully authorized transactions. This break-down in the controls diminishes the protection of duty segregation and allows the opportunity for improper costs to be recorded. Recommendation: All documentation should contain adequate authorizations so as to maintain the system of internal controls as designed, and enhance segregation controls. Views of Responsible Officials and Planned Corrective Action: Management points out that this finding has never previously occurred. Management explains that the reason for missing sign-offs is due solely to the Covid-19 pandemic causing office personnel to work remotely during this time frame. Working remotely added significant difficulty to passing documentation among the proper parties, and as a consequence sign-offs sometimes went foregone. This is especially true on the employee?s time sheets which needed to be promptly processed so as timely generate payroll.

2020-002 ? Donated Goods Condition: The Organization accepts certain donated goods as a regular practice on a frequent basis. A significant portion of these goods are utilized in the program services i.e. provided to those transitioning to self- sustainment, or victims of catastrophe. Letters of acknowledgement, which include estimated values of the donated goods are provided to the donors. Goods utilized in program services are reported to governmental agencies via a system known as ?Empower?. There is no formal accounting for or tracking of the goods from receipt to disposition. This finding is a repeat of preceding finding 2019-002. Criteria: Goods used in program services should be valued at amounts equaling or at least approximating the determined values of such goods upon receipt. A system should be developed to mitigate the tedious process and high level of estimations in determining values applied to goods used in program services. Cause: There is presently a procedure in place to track the major, more valuable goods donated to the Organization. The procedure needs to be expanded so as to include the disposition of these goods to ensure a clear trail of the goods and to mitigate the level of estimation in quantifying inventory. Effect: Until the process to track donated goods is completed, the effect is that assigning values to goods utilized in program services results in a tedious process based on a high level of estimations. Recommendation: The process which has been initiated needs to be expanded so as to clearly connect the receipt of goods with the goods disposition. Views of Responsible Officials and Planned Corrective Action: The Organization has initiated a process using excel spreadsheets to track donated goods. The process tracks goods received, identifies the donor, the estimated value of the goods donated and the goods venue within the organization i.e. warehouse, shelter or thrift store. This process is to be expanded to include dispositions i.e. given to clients, sold in thrift shop etc. Date of disposition is to be included.

2020-003- Misallocation of Reimbursable Costs Condition: Certain of the Organization?s programs are cost reimbursement funded. The Organization submits reports accompanied by supporting documentation to funding agencies for reimbursement of the direct and indirect costs incurred during the requested reimbursement period of the particular program. Criteria: Costs which are submitted for reimbursement need to meet the criteria of the Federal Register?s cost principles. Cause: Insurance premiums covering a period after the conclusion of a program?s contract were disproportionately allocated to a (non-major) program and submitted for reimbursement. Effect: This overstated the reimbursement cost submission. Recommendation: Costs submitted for reimbursement need to be carefully scrutinized as to proprietary and consistency of allocation as well as matching the cost to the program contract period. Views of Responsible Officials and Planned Corrective Action: As previously pointed out, the Organization?s administrative functions, including accounting, were adversely affected by the Covid-19 pandemic. Remote work, and inability to readily interact harmed certain procedures resulting in errors which have never previously occurred. Management contends that the costs are partially justifiable because they were within budgetary amounts and that the costs were approved by the funding agency. Management agrees that costs included for reimbursement need to be carefully scrutinized. In as much as the Organization?s office is now open, and personnel are now working from the office, management feels it will have the level of control over these situations that was in place prior to the Covid-19 pandemic. Questioned Costs: The aggregate amount of this finding approximates $41,000.

2019-001 ? Cash Exchange Accounts Condition: The Organization records cash transactions affecting multiple funds via cash exchange accounts. Typically, cash disbursements of this nature are charged to accounts payable. While this finding is a repeat of preceding finding 2018-001, the 2019 magnitude of this finding was significantly less than that of 2018. The 2019 issues giving rise to this finding were principally limited to one type of transaction. Criteria: The cash exchange accounts should offset and aggregate to a zero dollar amount. Balances in these exchange accounts should be checked periodically to verify that these are in balance. Situations of cash exchange accounts not in balance need to be detected and corrected. Cause: There is presently no procedure in place to verify that cash exchange accounts are in balance. Effect: The effect was that the cash exchange accounts were not in balance, resulting in inaccurate offsetting general ledger balances. Mitigating Controls: The non-verification of the cash exchange accounts? effect on the financial statements, the Schedule of Expenditures of Federal Awards and the Schedule of Expenditures of State Financial Assistance was mitigated by internal controls in expense recognition. The internal controls of recording expenses was unaffected by the non-verification of the cash exchange accounts. Accordingly, no material misstatements were detected in the general ledger which would affect the Statement of Activities, the Statement of Functional Expenses, the Schedule of Expenditures of Federal Awards and the Schedule of Expenditures of State Financial Assistance as a result of the non-verification of the cash exchange accounts. Recommendation: Procedures should be incorporated into the monthly reconciliation process to include a reconciliation of the cash exchange accounts with the objective of detecting any imbalances. Situations of imbalances in the cash exchange accounts need to be corrected timely. Views of Responsible Officials and Planned Corrective Action: Management agrees with the finding and recommended procedures.

2019-002 ? Donated Goods Condition: The Organization accepts certain donated goods as a regular practice on a frequent basis. A significant portion of these goods are utilized in the program services i.e. provided to those transitioning to self-sustainment, or victims of catastrophe. Letters of acknowledgement, which include estimated values of the donated goods are provided to the donors. Goods utilized in program services are reported to governmental agencies via a system known as ?Empower?. There is no formal accounting for or tracking of the goods from receipt to disposition. This finding is a repeat of preceding finding 2018-004. Criteria: Goods used in program services should be valued at amounts equaling or at least approximating the determined values of such goods upon receipt. A system should be developed to mitigate the tedious process and high level of estimations in determining values applied to goods used in program services. Cause: There is presently no procedure in place to track the major, more valuable goods donated to the Organization. Effect: The effect is that assigning values to goods utilized in program services results in a tedious process based on a high level of estimations. In as much as there exists no formal process to track donations of goods, there is no control in accounting for the value of donated goods. Recommendation: A more formal means of tracking major, more valuable goods donated to the Organization should be established. This process should track the major goods from receipt to disposition, and clearly document the estimated value of the goods. This will establish a clear connection of the goods? values. Views of Responsible Officials and Planned Corrective Action: While management agrees with the findings and recommended procedures, measures to institute corrective processes have been determined impractical from a cost and/or procedural perspective.

2019-003 ? Rent Allocation Condition: The Organization presently rents its office and thrift store facilities from one landlord. These facilities are presently rented on a month to month basis. Presently, these facilities are covered by one consistent monthly rent payment. Under an arrangement with a predecessor landlord, the Organization paid a consistent monthly rent for the office facilities and a separate rent based on a percentage of thrift store revenues for the thrift store. Upon acquiring the facilities occupied by the Organization, the new landlord discontinued the separate percentage of revenue rent charged on the thrift store, and included the thrift store rent with the monthly rental payment. Criteria: Rent should be allocated to the Organization?s programs and funds on a fair and ratable basis. Cause: In as much as the Organization previously paid a separate rent on the thrift store, it formerly never needed to allocate any of the office rent to the fundraising fund. Upon discontinuance of the separate thrift store rent, and the inclusion of the thrift store in the monthly rent, the allocation of the monthly rent was not re-addressed to include the fundraising fund for the thrift store. Effect: The effect is that rent expense allocated to fundraising may be understated, whereas rent expense charged to programs may be overstated. Revenues from cost reimbursement programs may likewise be misstated. In as much as the new arrangement to include the thrift store in the monthly rent commenced in the last two months of the fiscal year ended October 31, 2019, the effect on the financial statements is considered immaterial. Recommendation: The Organization should re-assess its allocation of rent expense to include the fundraising fund. Views of Responsible Officials and Planned Corrective Action: Management agrees with the finding and recommended procedures.

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