CUMAC/ECHO, Inc.Non-Profit

Finding --- Inadequate controls regarding preparation of the Schedule of Expenditures of Federal Awards and State Financial Assistance. Criteria --- There was no direct mapping of expenditures from the Organization’s accounting system to the Schedule of Expenditures of Federal Awards and State Financial Assistance by program. Condition --- The Organization did not understand the source of some of its grants and did not have a method to distinguish its programs other than through excel, where individual transactions were not detailed. Context --- During the audit, it was noted that individual expenses were not traceable to the Schedule of Expenditures of Federal Awards and State Financial Assistance and additional analysis needed to be performed to obtain comfort over the expenditure amounts presented. Effect --- Allocation errors may exist that may not be remediated timely enough for a budget modification if one is needed. There is a risk that non-allowable or other program expenditures could be charged to the contract. Cause --- Financial procedures and knowledge of the source and nature of government funding were not robust enough to address the rapid increase in federal awards and state financial assistance received by the organization. Recommendation --- The Organization should implement sub-classes within their current software or purchase an accounting software specific for non-profit use, which utilizes sub-classes and program allocations. Management response --- Management will continue to enhance the internal structure of the chart of accounts to maintain full transparency. Management will contact governmental agencies upon receipt of contracts to determine the source and requirements of each award.

Finding --- Internal controls over financial statement reporting lack segregation of duties. Criteria --- In order to detect, prevent and correct errors in financial reporting, a system of internal controls should be designed in order to overcome any lack of segregation of duties. Condition --- The controller reconciled bank accounts, created adjusting journal entries, prepared the Annex B and the Schedules of expenditures of federal awards and state financial assistance, maintained the general ledger and controlled the financial reporting process. Context --- The audit team assessed the design of internal controls surrounding this area and there was no evidence of review at a level higher than the controller, the person preparing the books and records. Effect --- When critical duties are not segregated, there is an increased risk of financial misstatement, whether by error or intentional, due to fraud. Cause --- Due to the size and nature of the Organization, accounting personnel are limited. Many critical duties are combined and assigned to employees with little management oversight. Recommendation --- The Organization should continue to seek out qualified personnel, board members or an external certified public accountant to perform reviews of accounting functions. The Organization should also develop written procedures for the annual financial closing process. A review should be performed by someone other than the preparer to ensure all adjustments are posted for a complete and accurate set of books. Management and the board should continue to try and reassign tasks that could improve segregation of duties. Management response --- Due to the state of the overall economy, management faced challenges in recruiting and retaining personnel for the executive director position. The Organization hired an executive director whose role in the business office will be to assist in providing segregation of duties.

Finding --- The Organization does not consistently reconcile its quarterly financial reports submitted to governmental agencies to the general ledger by grant program. Criteria --- Strong internal control over financial reporting and compliance with the federal grant requirements requires that financial statements submitted in interim reports be reconciled to the detailed accounting records. Title 2: Grants and Agreements, Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) requires recipient of federal and state funds to maintain accurate, current and complete disclosure of the financial results of each federally-sponsored project. Condition --- The Organization does not have internal controls in place to ensure reconciliation of its quarterly financial reports submitted to governmental agencies to the general ledger by grant program. Context --- The Schedule of Expenditures of Federal Awards and State Financial Assistance was incorrect and required restatement. Effect --- Failure to reconcile interim reports submitted to governmental agencies to the general ledger by grant program increases the risk of errors, misstatements, or omissions in reporting federal and state expenditures. This could result in inaccurate financial reporting, noncompliance with the federal and state grant requirements and potential questioned costs or audit findings. Cause --- Management has not established a formal process or assigned responsibility to reconcile quarterly financial reports submitted to governmental agencies to the general ledger by grant program. Recommendation --- The Organization will implement a formal reconciliation process to ensure that quarterly financial reports are reconciled to the general ledger by grant program. This process should include documented procedures, assignment of responsibility, and review by appropriate personnel. Management response --- Management will develop and implement written procedures to improve their reporting process in accordance with Uniform Guidance and New Jersey 15-08-OMB.

Finding --- The Organization did not submit its Single Audit reporting package, including the data collection form (Form SF-SAC), to the Federal Audit Clearinghouse within the required timeframe following the end of the fiscal year. The report was not filed and therefore not made available to users timely. Criteria --- According to Uniform Guidance, entities that expend $750,000 or more in federal awards during the fiscal year must submit a complete reporting package and data collection form to the Federal Audit Clearinghouse (“FAC”). FAC requires a reporting package to be submitted within the earlier of 30 days after receipt of the audit report(s), or nine months after the end of the audit period. Condition --- The delay appears to be due to lack of internal controls to ensure timely tracking, preparation and submission of the Single Audit reporting package and data collection form. Consequently, the Organization did not submit the reporting package to the Federal Audit Clearinghouse. Context --- In its financial state, a limited number of resources were available to perform a timely and accurate close and audit submission. Effect --- Failure to submit the required information to the FAC within the specified deadline constitutes noncompliance with the Uniform Guidance requirements and increases the risk of delayed federal oversight, potential funding implications, and reputational risk to the organization. The Organization cannot be considered low risk in the future year. Cause --- A late Federal Audit Clearinghouse Submission precludes the Organization from being considered low risk per the Uniform Guidance. Recommendation --- The Organization should develop procedures to ensure that future annual financial statement closing procedures are performed timely and that Single Audit reporting and data collection form packages are submitted to the Federal Audit Clearinghouse within the earlier of 30 days after receipt of the auditors’ reports or 9 months after the end of the audit period. This should include assigning responsibility, setting calendar reminders, and establishing review procedures to prevent future noncompliance. Management response --- The Organization will seek to achieve a timelier closing process and audit submission.

2022-001: Finding --- Inadequate controls regarding preparation of the Schedule of Expenditures of Federal Awards and State Financial Assistance. Criteria --- There was no direct mapping of expenditures from the Organization’s accounting system to the Schedule of Expenditures of Federal Awards and State Financial Assistance by program. Condition --- The Organization did not understand the source of some of its grants and did not have a method to distinguish its programs other than through excel, where individual transactions were not detailed. Context --- During the audit, it was noted that individual expenses were not traceable to the Schedule of Expenditures of Federal Awards and State Financial Assistance and additional analysis needed to be performed to obtain comfort over the expenditure amounts presented. Effect --- Allocation errors may exist that may not be remediated timely enough for a budget modification if one is needed. There is a risk that non-allowable or other program expenditures could be charged to the contract. Cause --- Financial procedures and knowledge of the source and nature of government funding were not robust enough to address the rapid increase in federal awards and state financial assistance received by the organization. Recommendation --- The Organization should implement sub-classes within their current software or purchase an accounting software specific for non-profit use, which utilizes sub-classes and program allocations. Management response --- Management will continue to enhance the internal structure of the chart of accounts to maintain full transparency. Management will contact governmental agencies upon receipt of contracts to determine the source and requirements of each award.

Finding --- Internal controls over financial statement reporting lack segregation of duties. Criteria --- In order to detect, prevent and correct errors in financial reporting, a system of internal controls should be designed in order to overcome any lack of segregation of duties. Condition --- The controller reconciled bank accounts, created adjusting journal entries, prepared the Annex B and the Schedules of expenditures of federal awards and state financial assistance, maintained the general ledger and controlled the financial reporting process. Context --- The audit team assessed the design of internal controls surrounding this area and there was no evidence of review at a level higher than the controller, the person preparing the books and records. Effect --- When critical duties are not segregated, there is an increased risk of financial misstatement, whether by error or intentional, due to fraud. Cause --- Due to the size and nature of the Organization, accounting personnel are limited. Many critical duties are combined and assigned to employees with little management oversight. Recommendation --- The Organization should continue to seek out qualified personnel, board members or an external certified public accountant to perform reviews of accounting functions. The Organization should also develop written procedures for the annual financial closing process. A review should be performed by someone other than the preparer to ensure all adjustments are posted for a complete and accurate set of books. Management and the board should continue to try and reassign tasks that could improve segregation of duties. Management response --- Due to the state of the overall economy, management faced challenges in recruiting and retaining personnel for the executive director position. The Organization hired an executive director whose role in the business office will be to assist in providing segregation of duties.

2022-003: Finding --- The Organization does not consistently reconcile its quarterly financial reports submitted to governmental agencies to the general ledger by grant program. Criteria --- Strong internal control over financial reporting and compliance with the federal grant requirements requires that financial statements submitted in interim reports be reconciled to the detailed accounting records. Title 2: Grants and Agreements, Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) requires recipient of federal and state funds to maintain accurate, current and complete disclosure of the financial results of each federally-sponsored project. Condition --- The Organization does not have internal controls in place to ensure reconciliation of its quarterly financial reports submitted to governmental agencies to the general ledger by grant program. Context --- The Schedule of Expenditures of Federal Awards and State Financial Assistance was incorrect and required restatement. Effect --- Failure to reconcile interim reports submitted to governmental agencies to the general ledger by grant program increases the risk of errors, misstatements, or omissions in reporting federal and state expenditures. This could result in inaccurate financial reporting, noncompliance with the federal and state grant requirements and potential questioned costs or audit findings. Cause --- Management has not established a formal process or assigned responsibility to reconcile quarterly financial reports submitted to governmental agencies to the general ledger by grant program. Recommendation --- The Organization will implement a formal reconciliation process to ensure that quarterly financial reports are reconciled to the general ledger by grant program. This process should include documented procedures, assignment of responsibility, and review by appropriate personnel. Management response --- Management will develop and implement written procedures to improve their reporting process in accordance with Uniform Guidance and New Jersey 15-08-OMB.

2022-004: Finding --- The Organization did not submit its Single Audit reporting package, including the data collection form (Form SF-SAC), to the Federal Audit Clearinghouse within the required timeframe following the end of the fiscal year. The report was not filed and therefore not made available to users timely. Criteria --- According to Uniform Guidance, entities that expend $750,000 or more in federal awards during the fiscal year must submit a complete reporting package and data collection form to the Federal Audit Clearinghouse (“FAC”). FAC requires a reporting package to be submitted within the earlier of 30 days after receipt of the audit report(s), or nine months after the end of the audit period. Condition --- The delay appears to be due to lack of internal controls to ensure timely tracking, preparation and submission of the Single Audit reporting package and data collection form. Consequently, the Organization did not submit the reporting package to the Federal Audit Clearinghouse. Context --- In its financial state, a limited number of resources were available to perform a timely and accurate close and audit submission. Effect --- Failure to submit the required information to the FAC within the specified deadline constitutes noncompliance with the Uniform Guidance requirements and increases the risk of delayed federal oversight, potential funding implications, and reputational risk to the organization. The Organization cannot be considered low risk in the future year. Cause --- A late Federal Audit Clearinghouse Submission precludes the Organization from being considered low risk per the Uniform Guidance. Recommendation --- The Organization should develop procedures to ensure that future annual financial statement closing procedures are performed timely and that Single Audit reporting and data collection form packages are submitted to the Federal Audit Clearinghouse within the earlier of 30 days after receipt of the auditors’ reports or 9 months after the end of the audit period. This should include assigning responsibility, setting calendar reminders, and establishing review procedures to prevent future noncompliance Management response --- The Organization will seek to achieve a timelier closing process and audit submission.