North Homes, Inc.

Department of Health and Human Services Federal Financial Assistance Listing #93.829 Section 223 Demonstration Programs to Improve Community Mental Health Services Cash Management Significant Deficiency in Internal Control over Compliance Criteria – 2 CFR 200.303(a) establishes that the auditee must establish and maintain effective internal control over the federal award that provides assurance that the entity is managing the federal award in compliance with federal statutes, regulations, and conditions of the federal award. Condition – There was no evidence retained that the Organization’s cash management requests were reviewed and approved prior to submission. Cause – The Organization did not have an internal control policy in place to ensure documented review and approval of the cash management requests were documented. Effect – The lack of adequate policies governing review and approval increases the risk that employees participating in the federal awards administration may not be able to detect and correct noncompliance in a timely manner. Questioned Costs – None reported. Context/Sampling – A nonstatistical sample of 3 out of 8 cash management requests were selected for detail testing and 3 did not include evidence of a documented review by someone other than the preparer. Repeat Finding from Prior Year(s) – No Recommendation – We recommend the Organization implement an internal control policy to ensure that formal documentation of review and approval is obtained and retained. Views of Responsible Officials – Management agrees with the finding.

Department of Health and Human Services Federal Financial Assistance Listing #93.829 Section 223 Demonstration Programs to Improve Community Mental Health Services Procurement, Suspension, and Debarment Material Weakness in Internal Control over Compliance Criteria – Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) requires that a non-Federal entity must use its own documented procurement procedures which reflect applicable state and local laws and regulations, provided that the procurements conform to applicable federal law and standards. Condition – Written procurement policies were not updated to conform to applicable standards under Uniform Guidance. Cause – The Organization did not have proper procedures to ensure its written procurement policies were updated to conform to the requirements identified in Uniform Guidance. Effect – The Organization did not have proper procedures to ensure its written procurement policies were updated to conform to the requirements identified in Uniform Guidance. Questioned Costs – None reported. Context/Sampling – No sampling was performed as the procurement policy was examined in its entirety. Repeat Finding from Prior Year(s) – No Recommendation – We recommend the Organization ensure its written procurement policies are updated to conform to the requirements identified in Uniform Guidance. Views of Responsible Officials – Management agrees with the finding.

Department of Health and Human Services Federal Financial Assistance Listing #93.829 Section 223 Demonstration Programs to Improve Community Mental Health Services Procurement, Suspension, and Debarment Significant Deficiency in Internal Control over Compliance Criteria – Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) requires that a non-Federal entity to maintain records sufficient to detail the history of procurement. These records should include the rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the basis for the contract price. Condition – This history of procurement was not always maintained. Cause – The Organization did not have adequate internal controls to ensure the history of procurement was maintained. Effect – Procurements may occur that are not in accordance with the procurement methods required by Federal regulations. Questioned Costs – None Context/Sampling – A nonstatistical sample of three from a population of three was selected for testing. Documentation for the method of procurement was not maintained for one item. Repeat Finding from Prior Year(s) – No Recommendation – We recommend the Organization enhance internal controls to ensure this history of procurement is maintained which includes the method of procurement, vendor/contractor selection reasoning, etc. Views of Responsible Officials – Management agrees with the finding.

Department of Health and Human Services Federal Financial Assistance Listing #93.829 Section 223 Demonstration Programs to Improve Community Mental Health Services Procurement, Suspension, and Debarment Material Weakness in Internal Control over Compliance Criteria – Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) requires that a non-Federal entity must use its own documented procurement procedures which reflect applicable state and local laws and regulations, provided that the procurements conform to applicable federal law and standards. The OMB Compliance Supplement states that non-Federal entities are prohibited from contracting with or making subawards under covered transactions to parties that are suspended or debarred. Non-Federal entities may verify that a party is not suspended or debarred by checking the Excluded Parties List System, collecting a certification from the entity, or adding a clause or condition to the covered transaction. Condition – The Organization did not maintain documentation as required over suspension and debarment prior to entering into the contract. Cause – The Organization did not have adequate internal controls to ensure contracts under Federal awards contained all of the applicable provisions and to ensure suspension and debarment verification procedures were performed prior to entering into all covered transactions. Effect – Procurements could be made to contractors and/or vendors who were suspended or debarred. Questioned Costs – None Context/Sampling – A nonstatistical sample of three from a population of three was selected for testing. The documentation over suspension and debarment was not maintained for two of the transactions tested. Repeat Finding from Prior Year(s) – No Recommendation – We recommend the Organization implement controls, to ensure suspension and debarment procedures and contracts are updated to conform with federal requirements. Views of Responsible Officials – Management agrees with the finding.

2021-007 Department of Health and Human Services Federal Financial Assistance Listing #93.829 Section 223 Demonstration Programs to Improve Community Mental Health Services Preparation of the Schedule of Expenditures of Federal Awards Material Weakness in Internal Control over Compliance - Other Criteria ? A good system of internal control contemplates an adequate system for preparing the Organization?s schedule of expenditures of federal awards (Schedule) and accompanying notes to the Schedule. Condition ? The Organization does not have an internal control system designed to provide for the preparation of the Schedule being audited. As auditors, we are requested to draft the Schedule and accompanying notes to the Schedule. Cause ? Auditor assistance with preparation of the Schedule is not unusual as the Schedule has unique and specialized requirements and preparation is only required when the Organization meets a specified threshold of federal expenditures. Effect ? There is a reasonable possibility that the Organization would not be able to draft a Schedule that is correct without the assistance of the auditors. Questioned Costs ? None reported. Context ? Sampling was not used. Repeat Finding from Prior Year ? No. Recommendation ? While we recognize that this condition is not unusual for an organization with limited staffing, we recommend management be aware of the financial reporting requirements relating to the Organization?s Schedule and internal controls that impact financial reporting. Management?s Response ? Management agrees with the finding.

2021-008 Department of Health and Human Services Federal Financial Assistance Listing #93.829 Section 223 Demonstration Programs to Improve Community Mental Health Services Period of Performance Material Weakness in Internal Control over Compliance and Material Noncompliance Criteria ? 2 CFR 200.303(a) establishes that the auditee must establish and maintain effective internal control over the federal award that provides assurance that the entity is managing the federal award in compliance with federal statutes, regulations, and conditions of the award. Condition ? The Organization claimed expenses that were incurred prior to the start date of the grant, August 31, 2021. These expenses were improperly included in reimbursement requests from the granting agency. Cause ? The Organization submitted payroll expenses that were incurred prior to the start of the grant. The Organization did not have an adequate internal control policy in place to ensure review and approval of cash disbursements claimed under the federal program were incurred during the period of time covered by the grant. Effect ? The lack of adequate policies governing cash disbursements increases the risk that employees participating in the federal award administration may not be able to detect and correct noncompliance in a timely manner. The Organization submitted and was reimbursed for expenses that were incurred prior to the start date of the grant. Questioned Costs ? There are questioned costs of $92,206 related to payroll and related employee benefits and taxes that were reimbursed that were incurred outside of the grant period. Context ? A nonstatistical sample of 62 expenditures was selected for testing, which accounted for $84,260 of $563,935 of direct program expenditures. Within the sample, of 62 expenditures, 11 were noted to be for payroll expenses that related to the pay periods ended September 3, 2021, and September 17, 2021. No amounts from the September 3, 2021, payroll should have been included as the period covered for this payroll related to August 9 through August 22, 2021, and only 6 of 14 days from the September 17, 2021, payroll should have been included as the period covered for this payroll related to August 23 through September 5, 2021. As we were able to isolate the errors to the specific payroll periods, we were able to determine that $78,082 of salaries should not have been included and $14,124 of benefits and taxes (the benefits and taxes were allocated based on the salaries) should not have been included, which totaled $92,206. Repeat Finding from Prior Year ? No. Recommendation ? We recommend the Organization develop a policy addressing the period of performance and the management?s review of federal expenditures be expanded to ensure all costs are incurred with the approved period of performance for each grant. Management?s Response ? Management agrees with the finding.