International Leadership of Texas, Inc.Non-Profit

Finding: During the audit, it was identified that severance pay for a former employee was charged to the Title I, Part A program. This expenditure is unallowable under 2 CFR §200.431(i), which permits severance payments only when reasonable, necessary, and consistent with written policy and prior approval requirements. Root Cause: The unallowable cost occurred due to a breakdown in internal controls among Payroll, HR, Finance, and Federal Programs. The Payroll Department processed the severance payment without verifying the funding source’s allowability, and there was no secondary review by Finance, HR, or Federal Programs to identify and reclassify the cost prior to posting. This lack of coordinated oversight led to the unallowable charge to Title I, Part A. Corrective Action Steps 1. Reimbursement of Unallowable Costs o The organization will reimburse the Title I, Part A program from local funds for the total amount of severance pay charged in error. o Documentation of the reimbursement (journal entry and general ledger report) will be retained in the audit file. 2. Policy and Procedure Revision o The organization will revise its federal programs expenditure review, payroll, finance, and HR procedures to ensure all personnel-related transactions - including severance, stipends, and separation payments - are reviewed for federal allowability before processing. o Payroll must verify the allowability of the funding source with the Federal Programs Office prior to processing any non-routine payments. o HR will confirm appropriate coding and funding source alignment during separation processing. o A pre-approval checklist will be implemented for all employee separation and severance actions. 3. Staff Training o Payroll, HR, Finance, and Federal Programs staff will receive targeted training on EDGAR Subpart E (Cost Principles) and allowability standards under Title I, Part A. o Training will emphasize cross-departmental accountability and the importance of accurate funding verification. o Attendance and training documentation will be retained for audit records. 4. Ongoing Monitoring and Quality Control o The Federal Programs Director, Payroll Director, Finance Director, and HR Director will jointly conduct quarterly monitoring reviews of payroll and personnel transactions charged to federal grants to verify allowability and compliance. o The reviews will include reconciliation of HR separation records, Payroll disbursements, and Federal Programs expenditure reports. o The first joint monitoring review will occur within 60 days of CAP approval. Responsible Parties: • Chief Financial Officer (CFO): Oversees reimbursement, approves policy updates, and ensures CAP implementation. • Finance Director: Verifies accurate cost classification, supports monitoring reviews, and ensures compliance with fiscal controls. • Federal Programs Director: Ensures compliance with federal allowability requirements and leads monitoring activities. • Payroll Supervisor: Confirms allowability of all payroll transactions before disbursement. • HR Director: Ensures accurate coding, separation documentation, and funding alignment for personnel actions. Completion Timeline: • Reimbursement: Within 30 days of CAP submission. • Policy and Procedure Revision: Within 45 days. • Training and Monitoring Implementation: Within 60 days. Verification of Implementation: Evidence of completion - including reimbursement documentation, revised policies and procedures, training records, and the first monitoring report - will be submitted to the auditor and TEA as required.

Finding No. 2021-01: Allowable Costs and Allowable Activities: Internal Controls and Compliance over Food Program Manual Meal Count Process Finding: Internal controls over the food program manual meal count process should be designed and implemented to ensure that the meal count is properly documented to reflect meals served to students and new campuses and service centers are approved as site locations by the Texas Department of Agriculture (TDA). During the fiscal year, ILTexas operated a child nutrition program which delivered meals to campuses, homes, and other service centers throughout Texas. The food was for eligible children, funded by the U.S. Department of Agriculture, and administered by the TDA. Due to the pandemic, ILTexas served meals to students in a drive up grab and go manner and added additional sites for meal delivery. During an internal audit, ILTexas discovered a former employee had authorized food deliveries to sites not approved by the TDA. When funding claims were submitted, unauthorized sites were included with authorized sites. The sites utilized manual meal count sheets to record meals served to eligible students and families. ILTexas also discovered, the written meal count sheets were not properly documented in accordance with the TDA operating guidance. ILTexas returned funding totaling $351,611 to TDA and questioned costs of approximately $650,000 is under review. Views of responsible officials and corrective actions taken or planned: In an effort to strengthen the internal knowledge base and expertise within ILTexas, a new Child Nutrition Director with extensive background and experience with child nutrition programs was hired and begins in October 2021. Additional internal controls have been put in place for meal counts that now require validation by the site supervisor, Child Nutrition Director and Business Manager. Additionally, the Child Nutrition department will discuss and implement best practices to establish the highest level of controls for manual meal counts and adding new sites. All Child Nutrition staff will attend additional training to ensure the accuracy and completeness of all documentation. Implementation of all corrective actions will be completed before November 30, 2021 Individuals responsible for corrective action: James Dworkin, Chief Financial Officer (972) 479-9078 jdworkin@ILTexas.org

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