EDUCARE OF WASHINGTON, DCNon-Profit

Finding 2024-002: Schedule of Expenditures of Federal Awards (Significant Deficiency) Information on the Federal Programs: U.S. Department of Health and Human Services (HHS) ALN 93.575 and U.S. Department of Agriculture (USDA) ALN 10.558 See Finding 2024-001. Finding 2024-002 is a significant deficiency in internal control over compliance in addition to non-compliance related to the Reporting compliance area. There were no questioned costs as a result of the corrections to the SEFA, which are described in Finding 2024-001.Information on the Federal Programs: U.S. Department of Health and Human Services (HHS) ALN 93.575 and U.S. Department of Agriculture (USDA) ALN 10.558 Criteria or Specific Requirement: Management is responsible for the complete and fair presentation of the financial statements, including any supplementary information that is presented in relation to the financial statements, such as the Schedule of Expenditures of Federal Awards (SEFA). Also, in accordance with 2 CFR Section 200.510 (b)(2), Educare is required to include all direct and passthrough Federal awards expended during the fiscal year in the SEFA. Condition: After the start of the audit, management noted that a pass-through Federal award had been excluded from the SEFA. As a result, the SEFA was understated by $253,457 for the year ended June 30, 2024. In addition, after the start of the audit, we noted that the SEFA included both Federal and non-Federal expenditures for one Federal award. Instead of reporting expenditures based on agreed upon units of service as the appropriate measure of expenditure for the award, the SEFA had been prepared using actual costs expended by Educare. As a result, the SEFA was overstated by $100,517 for the year ended June 30, 2024. Management provided a revised SEFA to correct these two items after the major program had been determined and audit testing had already begun. However, the corrections to the SEFA did not change the major program determination and no questioned costs were noted. Cause: The pass-through Federal award was a new source of funding for Educare, which is why the expenditures were not originally included on the SEFA. In the prior year, the expenditures related to the units of service award were included on the SEFA based on the amount of Federal funds received, which was equal to units of service provided. However, in the current year, the amount reported on the SEFA was based on total expenditures including both the Federal and non-Federal portions of the expenditures. Effect or Potential Effect: The SEFA provided at the start of the audit was understated by $152,940 in the aggregate and, as a result, it did not accurately report Educare’s Federal expenditures. When the SEFA is not accurately prepared, this could have an effect on the determination of the major programs. Recommendation: We recommend that Educare enhance its procedures related to the preparation of the SEFA to ensure that all required amounts are either included or excluded, depending upon the terms of the grant award. We also recommend that Educare document the basis for the expenditures related to each award, such as cost reimbursement or units of service. Identification as a Repeat Finding: Not applicable.

Finding 2023-001: Reporting Federal Programs: U.S. Department of Health and Human Services (HHS) ALN 93.600 Criteria: HHS requires that Educare submit certain programmatic and other reports in accordance with the schedules indicated in its grant agreements. The reports support the recipient's performance under the grant and document achievement of program goals and objectives (2 CFR §200.301(a)). Condition: During our audit, we noted that the Tangible Personal Property Report (SF-428) was not submitted within the deadlines outlined in the grant agreement. Cause: Educare has internal controls in place to identify reports and file them timely in accordance with the terms and conditions of its grant agreements. However, in relation to the SF-428 report, the internal controls were not operating effectively. Effect or Potential Effect: A required report was not identified and timely filed. Questioned Costs: None. Context: One report out of the sample of four reports tested was not identified and submitted on a timely basis. Identification as a Repeat Finding: Not applicable. Recommendation: We recommend Educare enhance internal controls to ensure the identification and timely submission of all required reports.

Finding 2023-002: Salaries and Wages (Allowable Costs) Federal Programs: U.S. Department of Health and Human Services (HHS) ALN 93.600 Criteria: According to 2 CFR Section 200.430(i), charges to federal grants for salaries and wages must be based on records that accurately reflect the work performed and the 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 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.” Condition: Educare allocates time to federal grants based on estimates made by management that are adjusted throughout the year. Cause: For several years, most of Educare's employees charged 100% of their time to one federal program. However, in recent years, the number of employees who charged 100% of their time to one federal program has decreased while the number of employees who charged time to multiple programs has increased. While Educare uses timesheets, salaries were not allocated to federal programs based on actual time spent per timesheets. Instead, Educare performed an after the fact reconciliation of time spent to the estimates used, but the reconciliation was not documented and incorporated into Educare's official records. Effect or Potential Effect: The possibility exists that salaries and wages charged to federal grants were not supported by documented evidence in accordance with the Uniform Guidance. Questioned Costs: None. Context: All of the salaries and wages selected for testing were determined by management based on estimates of time spent that were adjusted throughout the year. Documentary evidence of the reconciliation between the estimates and actual effort was not maintained in Educare's official records. Identification as a Repeat Finding: Not applicable. Recommendation: While the amount of time that was charged to each program may have been materially correct, documentary evidence of the reconciliation between the estimates and actual effort was not maintained by Educare. We recommend that Educare maintain documentation of its allocation process to support time charged to its federal programs. The allocation process can be supported by either timesheets or after the fact effort reports from employees which are reconciled to the estimates used to allocate salaries and wages to programs, including federal programs.

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