CADILLAC AREA OASIS/FAMILY RESOURCE CENTERNon-Profit

Program ALN 16.575 - Crime Victim Assistance Criteria Employers are required to make timely deposits of payroll tax liabilities with the appropriate federal, state and local tax authorities. Condition Beginning in approximately July 2023 the Organization began to fall behind in remitting payroll tax liabilities. This includes both the employer portion and the employee portion that was withheld from employee payroll. As of September 30, 2023 the Organization owed federal payroll taxes of approximately $32,800 and Michigan state payroll taxes of approximately $7,700. In addition, the Organization continues to remain behind in remitting payroll tax liabilities during the subsequent accounting periods. As of the audit report date, this liability has grown to exceed $125,000 owed. The quarterly Forms 941 were submitted reflecting that the applicable tax deposits had been made. Questioned costs None Context The finding is the result of audit procedures performed and observation and inquiry with Organization management. Effect Failure to pay payroll taxes timely has resulted in material noncompliance with payroll laws and regulations. This results in significant penalties and interest being accrued on the outstanding balance that the Organization owes. This can also result in the Organization incurring significant legal and other professional service fees when working to resolve the nonpayment consequences. Cause The root cause is an inadequate internal control environment and inadequate monitoring of financial processes. Recommendation We recommend that the Organization consult with a tax advocate specialist or attorney as soon as possible to begin working towards addressing this issue. Views of the Responsible Officials and Planned Corrective Action In July 2023, the previous executive director decided to postpone the payment of income taxes due while continuing to file Form 941 quarterly filings. In September 2024 when the new executive director joined the Organization, the Organization immediately began to pay and file the payroll withholding. The late tax payments were brought to the attention of the executive director by the auditing firm during the audit. The board of directors immediately contacted a tax attorney. The tax attorney has been communicating with the IRS and the State of Michigan on behalf of the Organization and has since joined the Organization's board of directors. The new internal controls in place and the new arrangement of contracting with an outside financial management firm will improve oversight in the future. The Organization has accepted a purchase agreement for the Organization's building at 118 S Mitchell Street. The balance of the payroll taxes owed will be paid from the proceeds of the sale.

Program ALN 16.575 - Crime Victim Assistance Criteria Establishment and maintenance of internal controls over the financial reporting process. Condition Our testing identified several instances of management override of controls over payroll processing. The employee responsible for processing payroll initiated an early payment of that employee's personal payroll 4 days prior to the actual pay date. This same individual frequently adjusted personal payroll tax withholdings throughout the year sometimes not withholding any payroll taxes, sometimes only withholding FICA taxes, sometimes withholding higher levels of taxes seemingly to make up for previous adjustments, and often adjusted the amount being withheld for federal and state withholdings on the employee's personal payroll. At year-end payroll withholdings were adjusted back to the appropriate levels for that year-end pay period, but then were subsequently once again reduced after year-end. The same employee who is entering payroll changes into Quickbooks is the employee who is also submitting payroll for processing. There does not seem to be a final approval by another party prior to payroll processing. Questioned costs None Context The finding is the result of audit procedures performed and observation and inquiry with Organization management. Effect Management override of controls is a material concern that is the result of a deficient control environment. Management override of controls can lead to inaccurate financial reporting and increased fraud risks, ultimately harming the Organization's financial health and reputation. Material misstatements could occur without being prevented or detected and corrected. Cause The root cause is an inadequate internal control environment and inadequate monitoring of financial processes. Recommendation We recommend the Organization revisit its internal control policies and procedures to incorporate an appropriate level of segregation of duties within the payroll process. Views of the Responsible Officials and Planned Corrective Action The employee responsible for processing payroll adjusted their own withholdings several times throughout the year without proper documentation or approval. Inadequate segregation of duties results in there being no final approval of payroll processing by another individual. The adjustments were corrected at the end of fiscal year 2023 to reflect normal withholdings. The Organization has adjusted its internal controls to include a final approval of payroll and withholdings by the executive director and board treasurer. The newly contracted outside financial agency will be responsible for the processing of all payroll withholdings. The executive director and the treasurer will have online access to the accounts for oversight.

Program ALN 16.575 - Crime Victim Assistance Criteria Establishment and maintenance of internal controls over the financial reporting process. Condition The Organization's internal control system was not functioning as designed to allow for an adequate level of segregation of duties to operate over the disbursement and payroll processes. During the year, one employee was responsible for entering transactions into the accounting system, processing transaction payments, and reconciling the Organization's bank accounts. Questioned costs None Context The finding is the result of audit procedures performed and observation and inquiry with Organization management. Effect Inadequate segregation of duties over key accounting processes creates a greater opportunity for management override of controls and increases the risk of errors or misstatements occurring without being detected and corrected by management. Cause The root cause is an inadequate internal control environment and inadequate monitoring of financial processes. Recommendation We recommend the Organization revisit its internal control policies and procedures to incorporate an appropriate level of segregation of duties within key accounting processes. Views of the Responsible Officials and Planned Corrective Action It was identified in September 2024 that internal controls over disbursements and the processing of payroll were not adequate. At times during the year, the same employee was approving timesheets, processing payroll and approving withdrawals from the account. This same employee was entering disbursements into Quickbooks, processing checks, distributing payments, and reconciling the bank statements. The Organization has updated its internal controls to reflect incorporate segregation of duties over the disbursement process and payroll processing. For payroll the updated process includes one person approving timesheets, another person processing payroll, the executive director and board treasurer approving payroll, and lastly include a final approval of payroll. For disbursements the director of operations will open the mail and code bills for expense accounts, the executive director will approve bills for payment, the director of operations will print checks, the executive director or board treasurer will sign checks, the community response coordinator will mail checks, and the board treasurer will review bank reconciliations completed by the director of operations. All reconciliations will be reviewed by the board treasurer. Payroll processing will be performed by an outside financial management firm moving forward.

Program ALN 16.575 - Crime Victim Assistance Criteria Establishment and maintenance of internal controls over the financial reporting process. Condition Transactions charged to Organization credit cards were not consistently and accurately recorded throughout the year. This resulted in audit adjustments of approximately $20,000. Included in this, accruing credit card interest and fees that had been incurred had not been reflected in the Organization's financial records. Credit card transactions were being recorded in the accounting system as credit card balances were being paid rather than as expenses were being accrued on the credit card balances. Questioned costs None Context The finding is the result of audit procedures performed and observation and inquiry with Organization management. Effect Inaccurate recording of credit card transactions can result in material misstatements of the financial statements, especially related to under-accrual of liability balances. Cause The root cause is an inadequate internal control environment and inadequate monitoring of financial processes. Recommendation We recommend that the Organization revisit it's procedures related to recording credit card transactions to ensure that all transactions are being accurately recorded in the Organization's accounting system. Views of the Responsible Officials and Planned Corrective Action The Organization's Board was made aware of the credit card balances including interest in September 2024. Previously, there was a lack of treasurer oversight, and no adjustments or entries were made to reflect year-end balances. Since becoming aware of the discrepancies between the credit card statements and transactions recorded in Quickbooks, the Organization has been entering all charges, interest and fees into the accounting software to reflect true balances on the credit cards. Going forward, all entries related to credit cards will be recorded by an outside financial management firm. The Organization has accepted a purchase agreement for the Organization's building at 118 S Mitchell Street. The outstanding balance of the credit cards owed will be paid from the proceeds of the sale. Since becoming aware of the credit card balances, the use of Organization credit cards has been significantly restricted by management. Going forward, all credit card charges, if there are any, are only approved by the discretion of the executive director and paid on the balance immediately.

Program ALN 16.575 - Crime Victim Assistance Criteria Establishment and maintenance of internal controls over the financial reporting process. Condition Supporting documentation, such as transaction receipts, was not available to support several transactions selected for audit testing. There were also several transactions selected for audit testing that did not have retained documentation related to management's approval of the transactions. Questioned costs None Context The finding is the result of audit procedures performed and observation and inquiry with Organization management. Effect Disbursements could be processed that would not have been approved, that are not organizational expenses, are inappropriate expenses, or similar without being detected and corrected by management. Cause The root cause is an inadequate internal control environment and inadequate monitoring of financial processes. Recommendation The Organization should implement a process to ensure that supporting documentation and transaction approvals are consistently retained by the Organization. Views of the Responsible Officials and Planned Corrective Action Internal controls have been adjusted to reflect double approval of all transactions by the direct supervisor and the executive director or treasurer. This will include coding of bills, approval of all transactions and the processing of transactions. All approved transactions will be handled by an offsite financial management service in the future. By eliminating the use of the credit card, this will significantly reduce the chance of not having proper supporting documentation in the future.

Program ALN 16.575 - Crime Victim Assistance Criteria Organizations that meet the Single Audit threshold requirements are required to submit their reporting package to the Federal Audit Clearinghouse within 9 months after the end of the audit period. Condition Scheduling of the September 30, 2023 audit was not pursued by the Organization until after the audit was overdue. Questioned costs None Context The finding is the result of audit procedures performed and observation and inquiry with Organization management. Effect Late filing of the Single Audit report can lead to significant consequences, including being considered "high risk" for future funding, potential suspension or termination of awards, as well as increased scrutiny from oversight agencies. Cause The root cause is an inadequate internal control environment and inadequate monitoring of financial processes. Recommendation We recommend the Organization ensure that future Single Audits are submitted in accordance with required due dates. Views of the Responsible Officials and Planned Corrective Action In September 2024, it came to the board of director's attention by the new executive director that the 2023 financial statement audit had not been performed. Staff notified the new executive director that the former executive director decided not to have the audit due to the expense of the audit. Immediately upon discovering the 2023 audit had not been completed, the Organization reached out to Weinlander Fitzhugh to schedule completion of the audit. As soon as the September 30, 2023 audit is complete, we have engaged with a new audit firm to begin the September 30, 2024 audit immediately. The Data Collection Forms will be submitted to the Federal Audit Clearinghouse within 30 days of the completion of each audit.

Program ALN 16.575 - Crime Victim Assistance Criteria Establishment and maintenance of internal controls over the financial reporting process. Condition Our testing identified an instance of an employee being paid an additional three hours of overtime during the pay period selected than was worked. This resulted in the employee being paid approximately an additional $59, which was charged to the federal program. Questioned costs The error resulted in $59 of questioned costs. Context The finding is the result of audit procedures performed and observation and inquiry with Organization management. Effect The error was not detected and corrected and resulted in the federal program being overcharged $59. Cause The root cause is an inadequate internal control environment and inadequate monitoring of financial processes. Recommendation We recommend the Organization revisit internal controls over payroll processing to ensure adequate monitoring is in place to detect and correct payroll processing errors. Views of the Responsible Officials and Planned Corrective Action Future internal approval of all timesheets will include first approval by the immediate supervisor, reviewing total hours worked per week, grants billed, and total hours worked. There will be a second approval by an outside financial management firm when they process the payroll to prevent errors in overpayments.