Isles, Inc.

Program: All programs Criteria or specific requirement: The Organization is required to have sufficient internal controls in place over the preparation of the Schedules, including accurately reflecting all state and federal funding received and ensuring that all necessary expenditures are reported. Condition: The Organization erroneously identified certain federal grants as state funded grants on the Schedules. Additionally, certain grant expenditures were originally omitted from the Schedules despite being recognized during the year. Cause: The Organization receives many grants annually, including grants which are made up of both state and federal funding sources. The Organization relied on the grantor provided contracts to determine the split between federal and state funding. This split appears to have changed during the reimbursement process, which was not communicated by the grantor to the Organization, and which the Organization could have confirmed before year end. Regarding the omitted expenditures, this is due to timing delays between when expenditures are recorded and when they are reported to funders. Effect: The Schedules did not accurately reflect the total state and federal funding for the year under audit, which led to adjustments being required to properly report the total state and federal funding for the year. Recommendation: We recommend that the Organization perform a thorough review of all funding received each year with a focus on any new funds received, to determine whether it is federal or state funded. This should occur prior to the finalization of the Schedules for the year. We also recommend that the Organization reconcile total expenditures to amounts reported on the Schedules each year to identify any discrepancies. Views of Responsible Officials and Planned Corrective Action: Management is in agreement with the Condition and the Recommendation. See Corrective Action Plan.

Program: all programs, the Organization is required to have sufficient internal controls in place over the preparation of Schedules, including accurately reflecting all state and federal funding received. The Organization erroneously identified certain federal grants as state funded grants on the Schedules. Cause: the Organization receives many grants that get renewed annually, including the two grants selected as part of single audit procedures. Since 2016 and 2019, respectively, these grants have been renewed on an annual basis and through all those years have been a state funded grant. In 2023, the funding sources switched to federal dollars and staff failed to recognize that change. Effect: the schedules did not accurately reflect the total state and federal funding for the year, which lead to additional programs that were required to be tested. Recommendation: We recommend that the Organization perform a thorough review of all funding received each year with a focus on any new funds received, to determine whether it is federal or state funded.This should occur prior to the finalization of the schedules for the year.

See Schedule of Findings and Questioned Costs for chart/table.

Item 2019-001 Material Weakness in Internal Control at the Financial Statement Level ? Inability to properly record complex transaction Condition: During 2020, the Organization entered into a New Markets Tax Credits transaction. There were several proposed adjustments made during the audit to properly record the transaction. Criteria: Internal controls should be in place such that either management in house or hired outside help have the appropriate level of expertise to record complex transactions. Cause: Unexpected loss of two key staff resulted in a finance department with significant work load and a lack of experience on how to properly record complex transactions or identify outside help to mitigate issues. Effect: Several journal entries needed to be recorded to get the transaction properly on the Organization?s books. Recommendation: When recording a transaction of this magnitude, that has unique challenges not typically face by nonprofits, management should ensure they have the expertise either in house or hired from outside to properly record the transactions. Management?s Response: Management and finance have agreed to hire a CPA subject matter expert that will guide the continued recording of the complex transaction and related transactions.

Item 2019-002 Significant Deficiency in Internal Control at the Compliance Level ? Difficulty in Preparing a Complete and Accurate Schedule of Expenditures of Federal and State Awards Condition: When reconciling the schedules of expenditures of federal and state awards, it was noted that there was difficulty in understanding where funds were derived from, the type of funding, and whether it should be recorded on the schedules. Criteria: Internal controls should be in place such that the origination of funds and the proper way to reflect on the schedule, should be reflected in the presentation of a complete and accurate schedules of expenditures of federal and state funds. Cause: Unexpected loss of two key staff resulted in new finance staff and leadership with a lack of expertise in drafting a complete and accurate schedules of expenditures of federal and state awards Effect: Several grants were presented either with an incorrect amount or funding sources on original schedules. Recommendation: Designate one finance person to oversee all grant reporting. Management?s Response: The Organization has promoted an experienced staff person to manage grant schedules and reporting. New leadership has developed improved communication protocols to ensure accurate understanding of local, state and federal grant requirements.