Easter Seals Metropolitan Chicago Inc.Non-Profit

Auditors noted that two charges for parking lot rentals included a calculation of indirect costs. As these are rental costs, they should have been excluded from MTDC and the calculation of indirect costs. They recalculated indirect costs on the population of direct costs totaling $28,894,842 and found two exceptions as noted in the condition, resulting in known questioned costs of $338.

Criteria: 2 CFR 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards §202.303, Internal Controls, requires the recipients of federal funds maintain financial management systems that provide effective controls over accountability for all funds, property, and other assets. These controls should be in compliance with the internal control integrated framework. In addition, as noted above, the preparation of the consolidated financial statements is the responsibility of management, including management’s assertions that the consolidated financial statements are complete and accurate; that the rights and obligations recorded in the consolidated financial statements exist, belong to the entity, and are properly valued; and that the information presented in the consolidated financial statements is presented in accordance with generally accepted accounting principles. Furthermore, these standards require the entity to take prompt action to address findings identified and to protect personal identifiable information and other deemed sensitive information. Condition: During testing of journal entries, BDO identified instances where journal entries were created and reviewed/approved by the same individual, which did not comply with the Agency’s documented policies and procedures and identified control requiring a separate reviewer/approver from the creator of the journal entry. BDO noted that the information technology system allows an individual to post an entry without a separate level of review. Individuals that are able to post journal entries without a separate review included: Chief Financial Officer, Controller, and Accounting Manager. Cause: The Agency’s internal controls, as documented above, were not operating as designed causing some journal entries to be posted that were created and approved by the same individual. It was also noted that the information technology system does not require the reviewer/approver of a journal entry to be separate from the creator. Effect or Potential Effect: Potential misstatement due to lack of segregation of duties within the financial statement close process. Recommendation: The Agency should enhance manual controls in place to eliminate or reduce the instances where the creator and reviewer/approver of journal entries are performed by the same individual. Views of Responsible Officials: While it is the Agency’s policy that no individual who created a journal entry should review and/or post their own entry in the accounting system, the accounting system lacks a technology control to prevent such an occurrence from happening. As a result, a small percentage of entries were inadvertently approved by the same staff member who created the entries during the fiscal year ended June 30, 2023. Those entries were subsequently reviewed by management and the auditors and found to be appropriate. Also, in management’s view, the Agency has very strong mitigating controls in place in its financial review process that would have detected any material misstatements that could have resulted from these occurrences. That said, management agrees that additional measures are needed to ensure no further occurrences.

Criteria: The Code of Federal Regulations Section 200.414(f) states that non-federal entities may elect to charge a de minimis rate of 10% of modified total direct costs (MTDC), which may be used indefinitely. If chosen, this methodology once elected must be used consistently for all federal awards. Additionally, the Code of Federal Regulations Section 200.303, Internal Controls, states that a non-federal entity must (a) establish and maintain effective internal control over the federal award that provides reasonable assurance that the non-federal entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. Condition: During our testing of indirect costs, we noted that three of the 25 drawdown requests sampled calculated indirect costs as 10% of total costs instead of calculating indirect costs as 10% of modified total direct costs, as elected by the Agency, totaling $29. The sample of 25 drawdown requests relates to multiple awards; however, the three drawdown requests using the incorrect indirect cost rate calculation relate to two contracts passed through the City of Chicago Department of Family and Support Services, Global PO 180897 and Global PO 181205. Cause: When the Agency elected the de minimis rate, the Manager of Grants and Contracts did not update the indirect cost rate calculation for two contracts to apply the de minimis rate. Effect: Management’s controls did not detect and timely correct the error identified in the condition above allowing the Agency to over-claim indirect costs related to federal awards. This resulted in noncompliance with federal requirements. Known Questioned Costs: $537 Context: We tested a sample of 25 items from a population of 492 items, totaling $30,955,994 and found three exceptions as noted in the condition, resulting in likely questioned costs of $29 and known questioned costs of $537. This is a condition identified per review of the Agency’s compliance with specified requirements using a statistically valid sample. Repeat Finding: This is not a repeated finding. Recommendation: We recommend the Agency implements policies and procedures in place to address rate changes applicable to federal grants and have controls in place to ensure those policies and procedures are followed on a consistent basis. Views of Responsible Officials: Historically, one small City of Chicago Department of Family and Support Services award had a lower cap on administrative costs than the Agency’s negotiated indirect cost rate. As a result, the Agency applied the lower rate of 10% of total costs to that grant. However, when the Agency’s request to elect the de minimis rate for indirect costs was approved for FY23, the grant’s administrative cost cap was no longer lower than the indirect costs calculated using the de minimis rate. At that time, we should have changed our indirect cost calculation methodology, but that change was not effectively implemented, and this error was not detected due to the very small impact of the error on revenue. The performance period of the grant affected by this error concluded on November 30, 2022, and all active awards are using the correct indirect cost calculation. As soon as this error was detected, the Agency issued a refund to the funder for the total over-claimed indirect cost amount.

Finding No. 2021-001 Internal Control over Compliance with Reporting Requirements Criteria: In accordance with 2 CFR section 200.512(a) the data collection form and reporting package must be submitted within the earlier of 30 calendar days after receipt of the auditor's report, or nine months after the end of the audit period. If the due date falls on a Saturday, Sunday, or a Federal holiday, the reporting package is due the next business day. Condition: The Organization?s internal control procedures require reports prepared by the grant accountant/specialist are reviewed and approved by the applicable program manager and the COO or CFO to ensure reporting requirements are met. During our review of the submission of Data Collection Form (SF-SAC) with the Federal Audit Clearinghouse, we noted that the report for the fiscal year ended 06/30/2020 was submitted late. Easter Seals has a June 30 year-end, and the audit report for the year ended 06/30/2020 was issued on 12/21/2020; therefore, the Data Collection Form was required to be filed by 1/20/2021. The SF-SAC was submitted by the Organization on 02/02/2021; 14 days after due date. Cause: The Organization?s Director of Grants Management delayed beginning work on this filing as the due date approached and failed to accurately communicate the status of this filing requirement, causing this due date to be missed. Effect: Federal oversight agencies use the data collection form and related reporting package as a key tool in monitoring the accountability of federal awards. Failure to submit timely the required federal reports impairs the ability of federal oversight agencies to perform such monitoring on a timely basis. Additionally, this resulted in noncompliance with federal requirements and could also result in the withholding of funding for other eligible projects or activities involving the Organization. Questioned Costs: There are no questioned costs as the items outlined above are internal control related matters and not matters related to the accuracy of the information reported to the awarding agency in the financial reports. Context ? This is a condition identified during BDO?s testing of the financial reporting requirements as outlined in the terms and conditions of the award documents. The prevalence of these findings is detailed in the condition section above. Recommendation: We recommend management adhere to its documented policies and procedures and the documented instructions for reporting requirements contained within grant agreements to ensure that the financial reports are properly submitted to the federal government. Further, we recommend management implement a policy of formally tracking all required financial reports and submission deadlines to address the delayed submissions identified above. Views of Responsible Officials: Management agrees with the finding and takes responsibility to file the required reports timely and accurately. Management gave significant consideration to additional controls that would be effective in ensuring a human failure, should it occur again in the future, does not cause the agency to file a report late. Effective January 1, 2022, the agency will (a) maintain and visibly post a log of required financial reports that includes the due date and the date of submission; (b) require all required reports to be submitted to the Chief Financial Officer (or Director of Finance in CFO?s absence) for review at least two business days prior to the required due date; and (c) require evidence of submission of all required reports to be provided to the Chief Financial Officer (or Director of Finance in CFO?s absence) on the report?s due date.

Finding No. 2020-001: Internal Control over Compliance and Compliance Procurement Program: U.S. Department of Health and Human Services CFDA#93.600 CFDA Name: Head Start Criteria ? In accordance with ?200.303(a) Internal Controls, a non-federal entity must establish and maintain effective internal control over federal awards that provides reasonable assurance that the non-federal entity is managing the federal awards in compliance with federal statutes, regulations and terms and conditions of the federal award. Management is responsible for establishing and maintaining a system of internal control that should include controls over its reporting process. A federal awarding agency may solicit only the standard, Office of Management and Budget (OMB) approved government-wide data elements for collection of financial information, unless otherwise approved by the OMB in accordance with ?200.327, Financial Reporting. The information collected under this requirement must be collected with the frequency required by the terms and conditions of the federal award, but no less frequently than annually nor more frequently then quarterly except in unusual circumstances ,for example where more frequent reporting if necessary for the effective monitoring of the federal award or could significantly affect program outcomes, and preferably in coordination with performance reporting. The reports submitted to the federal awarding agency should be accurate. Condition ? The Organization?s internal control procedures require reports prepared by the grant accountant/specialist are reviewed and approved by the applicable program manager and the COO or CFO to ensure reporting requirements are met. During our testing of 2 financial reports required to be submitted we noted the following: 1. The SF425 Annual Report for the report period end date of June 30, 2020 was required to be submitted to the Office of Head Start by July 30, 2020 but was not submitted until August 6, 2020. 2. The Federal Cash Transaction Report for the period end date of September 30, 2019 was required to be submitted to the Office of Head Start by October 31, 2019 but was not submitted until November 5, 2019. Cause During the year ended June 30, 2020, the Organization lacked consistent leadership of the grant function throughout the year and experienced several transitions between various contracted grant accountants. As a result, these reports were missed. Effect - Failure to properly track all financial reporting submission deadlines could lead to delayed funding. Questioned Costs ? There are no questioned costs as the items outlined above are internal control related matters and not matters related to the accuracy of the information reported to the awarding agency in the financial reports. Context ? This is a condition identified during BDO?s testing of the financial reporting requirements as outlined in the terms and conditions of the award documents. The prevalence of these findings is detailed in the condition section above. The sample was selected using a non-statistical method. Recommendation - We recommend management adhere to its documented policies and procedures and the documented instructions for reporting requirements contained within grant agreements to ensure that the financial reports are properly submitted to the federal government. Further, we recommend management implement a policy of formally tracking all required financial reports and submission deadlines to address the delayed submissions identified above. Views of Responsible Officials - The agency takes its responsibility for establishing and maintaining a strong system of internal controls seriously and acknowledges that a lack of consistent leadership and staffing in the grant function during the year ended June 30, 2020 resulted in untimely filing of certain reports. To address this issue, in July 2020, the Agency hired an experienced Senior Manager of Grants and Contracts and assessed its infrastructure, processes and controls. A timeline of all due dates was prepared and implemented, along with a weekly huddle with the grants team to ensure all upcoming reporting requirements are met. The Senior Manager of Grants and Contracts, under the direct oversight of the CFO, now formally tracks all required financial reports and submission deadlines.

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