LOAVES & FISHES, INC.Non-Profit

Statement of Condition - The requirment for submitting the single audit reporting package for the year ended December 31, 2021, was

Material Weakness - Controls over Inventories

Item FA 2019-001 ? Material Weakness ? Submission of the Reporting Package to the Federal Government Federal Program Information: Federal agency: U.S. Department of Agriculture Title: Food Distribution Cluster: Commodity Supplementary Food Program & Emergency Food Assistance Program CFDA Number: 10.565 and 10.569 Questioned Costs: Unknown Statement of Condition ? The requirement for submitting the single audit reporting package for the year ended December 31, 2019, was no later than September 30, 2020. The audit report was completed after September 30, 2020. As a result, the reporting package was not submitted to the federal government on a timely basis. Criteria ? The federal Office of Management and Budget (OMB) Uniform Guidance 2 CFR 200.512(a) requires the audit package and the data collection form shall be submitted thirty (30) days after receipt of the auditor?s report, or nine months after the end of the fiscal year. Questioned Costs ? Unknown. Effect ? Non-compliance with federal requirements, such as the submission of the single audit report and the data collection form, could jeopardize future Organization funding from the federal government. Cause ? Management lacks a clear understanding in respect to the Single Audit requirements. The COVID-19 pandemic delayed the gathering of records and subsequent transfer to the auditors. Recommendation ? We recommend the Organization devise a corrective action plan to meet their requirements of submitting their audit report within, no later than, nine months to the Federal Audit Clearinghouse as per the requirements of the Uniform Guidance.

Item FA 2019-002 - Material Weakness - Controls over Inventories Federal Program Information: Federal agency: U.S. Department of Agriculture Title: Food Distribution Cluster: Commodity Supplementary Food Program & Emergency Food Assistance Program CFDA Number: 10.565 and 10.569 Questioned Costs: $455,454 Statement of Condition ? The Organization is relatively new to the Single Audit requirements, they have not engaged auditors on a timely basis. As such, the auditors have not been in place to observe the year-end physical inventory count for December 31, 2019 and 2018. The Organization does not purchase or directly pay for the food commodities. The food commodities are purchased by the United States Department of Agriculture (USDA) and distributed to the Organization by the New Mexico Human Services Department (HSD). The Organization has entered into an agreement/contract to receive, store and distribute the food commodities to eligible elderly participants. Further, the Organization is required to use the state mandated Integrated CSFP Operating System (ICOS) to control inventory. Since its inception, the system has several issues that required monthly and year-end adjustments and year-end adjustments. Since the Organization does not do any direct or indirect purchasing of the food commodities, they rely on HSD to provide the dollar value inventory in the form of providing unit costs at the end of the year for financial statement preparation. While the Organization is maintaining inventory receipts and distribution records, they are not reporting the changes in the inventory balance on a monthly basis within its accounting records. Criteria ? CSFP is a federally funded program where the food distributed must be considered when determining whether the Organization expended more than $750,000 in federal expenditures that would qualify to have a Single Audit performed. Sound accounting practices demand inventory control. Understanding what you have, where it is in the warehouse, when (food) stock is coming in and going out, can assist in lower costs, speedup fulfillment, and prevent fraud. This is a labor-intensive process that requires continuous manual monitoring to ensure every transaction is accounted for. Since HSD controls the reporting of inventory control (receipts and disbursements), the ICOS must function accurately to reduce the amount of adjustments that are required on a monthly basis. Questioned Costs - $455,454. Cause ? The audit firm was not engaged until after year end, and were not available to observe the food inventory counts. There was a lack of understanding on management?s part of the Single Audit requirements. Effect - Without adequate support from automated inventory control systems, the Organization and HSD increase the risk of having inaccurate accountability of food on hand and food distributions. Recommendation - We recommend the Organization continue its efforts to work with HSD and the ICOS systems. It is important that adequate reconciliations are made each month to support adjustments in inventory balances. The adjustments should be agreed to by both the Organization and HSD.

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