Kent Youth & Family ServicesNon-Profit

Significant Deficiency in Internal Controls ? Allowable Costs Funding Agency: Department of Health and Human Services Program: Head Start Assistance Listing Number: 93.600 Criteria or Specific Requirement: Internal control should be sufficient to ensure all payroll transactions are based on time and effort reports and the payroll that is recorded in the financial statements and charged to the grant are based on these reports. Condition: Internal controls did not detect an error in one of the payroll transactions that was tested during the audit. Although the employee whose payroll had the error was paid in full by December 31, 2021, the financial statements and billing to Head Start were under-stated as the balance of the error was reflected on the statement of financial position. Context:. The payroll tested for one employee indicated that the employee was under-paid by $2,057 and the grant under-charged by the same amount. Questioned Costs: None Effect:. Although there was no material impact on the major program as the grant was not overcharged during 2021, the accounting for the payroll tested was not accurate in the initial financial statements provided to the audit firm. The Organization fixed the error in 2022. Cause: Established internal control procedures corrected the amount paid to the employee but did not correct the error that was detected within the preliminary financial statements and the amount billed to Head Start. Recommendation: CLA recommends the Organization improve its processes to ensure that all payroll transactions are reviewed sufficient to prevent errors. View of Responsible Official: See Management?s Corrective Action Plan.

2020-001 (2019-001) ? Reporting and Policies and Procedures in Accordance with Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards Federal Agencies: Department of Health and Human Services CFDA Number: 93.600 Program: Head Start Criteria: The Uniform Guidance in 2 CFR Section 200.303 requires that non-Federal entities receiving Federal awards (i.e., auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. According to 2 CFR Section 200.302 and 2 CFR Section 200.305, KYFS is required to have written procedures over its financial management and payment process, including the financial reporting process. Additionally, according to 2 CFR Section 200.317 ? 200.326, KYFS is required to have a written procurement policy. Condition: KYFS has not implemented written policies related to cash management, reporting, eligibility nor procurement (including making purchases from potentially suspended or debarred organizations). In reviewing the current internal control process over reporting, we noted that the Head Start program director is the only individual involved in the reporting process, including the preparation and review of the reports prior to submission. Cause: KYFS does not have adequate policies and procedures in place, and other members of management are not formally involved in the internal control process over the Head Start program. Effect: KYFS may not be in compliance with all of the terms and conditions of its federal grants. Context: KYFS does not have adequate policies and procedures in place to meet the requirements outlined in the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Questioned Costs: Indeterminable. Recommendation: We recommend that KYFS complete the development of written policies and procedures that meet the requirements as outlined in the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Views of Responsible Officials: KYFS agrees with the finding. See the attached unaudited corrective action plan.

2020-002 ? Allowable Costs/Cost Principles Federal Agencies: Department of Health and Human Services CFDA Number: 93.600 Program: Head Start Cluster Criteria: The Uniform Guidance in 2 CFR Section 200.303 requires that non-Federal entities receiving Federal awards (i.e., auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. Per 2 CFR Section 200.430 Compensation ? Personal Services: ?Costs of compensation are allowable to the extent that they satisfy the specific requirements of this part, and that the total compensation for individual employees: (1) Is reasonable for the services rendered and conforms to the establish written policy of the non-Federal entity consistently applied to both Federal and non-Federal activities; (2) Follows an appointment made in accordance with a non-Federal entity?s laws and/or rules or written policies and meets the requirements of Federal statute, where applicable; and (3) Is determined and supported as provided in paragraph (i) of this section, Standards for Documentation of Personnel Expenses, when applicable.? 2 CFR Section 200.430(i): ?Standards for Documentation of Personnel Expenses (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity; (iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities; (iv) Encompass both federally assisted and all other activities compensated by the non-Federal entity on an integrated basis, but may include the use of subsidiary records as defined in the non-Federal entity?s written policy; (v) Comply with the established accounting policies and practices of the non-Federal entity; (vi) [Reserved] (vii) Support the distribution of the employee?s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. (viii) Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards.? In addition, per 2 CFR Section 200.403, ?Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity. (d) Be accorded consistent treatment. A cost may not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for state and local governments and Indian tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or a prior period. (g) Be adequately documented.? Condition: We noted that KYFS allocated payroll expenditures to the Head Start program during 2020 based on budgeted cost centers. Employees were entered into certain cost centers within the payroll system based on management?s estimate of the respective employee?s level of effort for each program. Management re-allocated employees after each payroll was processed prior to billing the Head Start program. This re-allocation was done manually, and no support was maintained for the employees? actual time spent in each cost center, which was used to perform the necessary adjustments as required by 2 CFR Section 200.430. Specifically, 31 out of 100 timesheets were recorded to budgeted cost centers and modified by management without sufficient support. We also noted that there were 10 of out 100 timesheets that did not have signatures of either the employee or the supervisor. We also noted 9 out of 100 timesheets that have signatures prior to the end of the payroll period, which further illustrated that there was insufficient reconciliation and documentation of budget to actual costs. We also noted one employee had a pay rate form that was signed by their direct supervisor, not the Executive Director, which is required for all pay rate changes. Finally, we noted two employees that were paid for more time worked than the hours per their timesheet, and for which there was not additional support or documentation to show that this additional time represented an allowable cost. Additionally, during out test work of 25 samples selected to test the Activities Allowed or Unallowed and Allowable Costs/Cost Principles, we noted that 3 of the items selected were allocated to the Head Start program based on an allocation methodology that was not updated throughout 2020 to reflect changes in actual activities. The amount overcharged was $5.94. Questioned Costs: For the two employees that were paid for more time worked than the hours per their timesheet, this represented known questioned costs of $3,762 and likely questioned costs of $25,583. The other payroll issues identified were unable to be quantified for questioned costs. Context: This is a condition identified per review of KYFS?s compliance with specified requirements using a statistically valid sample. Payroll costs including fringe benefits, for the Head Start program in 2020 were $804,054. Nonpayroll costs for the Head Start program in 2020 were $238,260. Effect: Without adequate controls in place to ensure costs are allowable and reimbursable, including controls over review of allocation methodologies, KYFS could incorrectly charge expenditures to the federal program. KYFS was unable to demonstrate that the payroll expenditures charged to the Head Start program accurately reflected the time incurred on the program and were properly supported in accordance with 2 CFR Part 200.430 time and effort reporting requirements. Cause: KYFS did not have policies and procedures in place to review and reconcile the estimated amounts of payroll expenditures charged to the Head Start program to the actual expenditures incurred. Additionally, KYFS does not have individuals involved outside of the Head Start program director to ensure proper compliance with the Federal guidance. Recommendation: We recommend that KYFS implement policies and procedures to gather and maintain sufficient documentation of all aspects of the payroll process including obtaining proper pay rates, documenting additional hours paid and not worked, and that all timesheets are appropriately completed and reviewed by employees and reviewed and approved by an appropriate supervisor, and that all reviews be documented. For any budget to actual adjustments, we recommend that sufficient documentation be maintained to support any adjustments made as required by 2 CFR 200.430. We also recommend that KYFS strengthen its policies and procedures over the recording of expenditures and involve others in management outside of the Head Start program director to ensure compliance with activities allowed or unallowed and allowable costs/cost principles requirements. Views of Responsible Officials: KYFS agrees with the finding. See the attached unaudited corrective action plan.

2019-001 ? Policies and Procedures in Accordance with Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards Federal Agencies: Department of Health and Human Services CFDA Number: 93.600 Program: Head Start Criteria: According to 2 CFR ?200.302 and 2 CFR ?200.305, KYFS is required to have written procedures over their financial management and payment process, including the financial reporting process. Additionally, according to 2 CFR ?200.317 ? 200.326, KYFS is required to have a written procurement policy. Condition: KYFS does not have written policies related to cash management, reporting, eligibility nor procurement (including making purchases from potentially suspended or debarred organizations). Cause: KYFS does not have adequate policies and procedures in place. Effect: KYFS may not be in compliance with all of the terms and conditions of its federal grants. Context: KYFS does not have adequate policies and procedures in place to meet the requirements outlined in the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Per our detailed testing over the compliance requirements subject to audit, we noted that KYFS did not have adequate support for three of the ten tested required reports. Per review of our other testing over other compliance requirements, we noted that there were no indications that there were unallowable costs or activities, with the exception of the items identified in 2019-002. Questioned Costs: N/A Recommendation: We recommend that KYFS document in writing and implement policies and procedures that meet the requirements as outlined in the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Views of Responsible Officials: KYFS agrees with the finding. See the attached unaudited corrective action plan.

2019-002 ? Allowable Costs/Cost Principles Federal Agencies: Department of Health and Human Services CFDA Number: 93.600 Program: Head Start Criteria: According to 2 CFR ?200.53, a payment can be determined to be improper if there is insufficient documentation that prevents a reviewer from discerning whether a payment was proper. Condition: KYFS does not have written policies regarding the retention and maintenance of employee files, including employment history and payroll. Cause: KYFS does not have adequate policies and procedures in place. Effect: The costs charged to the federal program were not adequately supported. Context: Based on the testing of 25 payroll transactions, we noted that six did not contain the appropriate supporting documentation regarding the employee?s employment with KYFS, or their pay rate at the time the expense was incurred. Questioned Costs: N/A Recommendation: We recommend that KYFS document in writing and implement policies and procedures over the retention and maintenance of employment history and payroll. We also recommend that any changes to employees? pay rates be documented and signed by both the employee and an appropriate representative of KYFS, and that this be maintained as part of KYFS? records. Views of Responsible Officials: KYFS agrees with the finding. See the attached unaudited corrective action plan.