Lutheran Family Services of Virginia, Inc. and Subsidiaries DBA enCircleNon-Profit

Unaccompanied Alien Children – AL #93.676, Allowed Costs Condition In review of budget to actual expenditure amounts for the year under audit, the auditor noted three line items that exceeded the allowed budget amount for the year. While in some instances a budget amendment was complete, there were still overages. Criteria Annual budgets are approved by the grantor agency and amendments must be submitted for approval to alter the original budget if needed. Cause For all three line items, the original budget as approved was exceeded. In one line item, the budget amendment, while approved, was requested after June 30, 2025. On another, the budget amendment contained errors, showed an overage as of June 30, 2025. And in the third line item, the budget details salary information at the job description level and the actual exceeded the budget for this position. Management stated that a budget amendment was not required for this level of information; however, no support for this statement was provided in writing. It appears that monitoring is not sufficient to prevent budget overages from occurring, nor to detect them timely to rectify the grantor. Effect enCircle violated their grant terms by exceeding their approved budget. Questioned Cost Amount $12,906.20 Recommendation Management should implement procedures that allow for proper reviews of budget to actual information for grants to verify amounts expended and amounts remaining for expenditure monthly. Additionally, grant management personnel and financial personnel need to work on better communication regarding financial status of grants. View of Responsible Officials and Planned Corrective Action enCircle has developed a new budget tracking tool at the correct budget line items to ensure all categories do not go over budget before budget amendments are submitted and approved. Included in this tool is predictive analytics to determine where budget amendments might be needed proactively instead of reactively.

Unaccompanied Alien Children – AL #93.676, Activities Allowed/Unallowed, Allowable Costs Condition During our testing of 25 disbursements for the program, we noted one disbursement for which an invoice did not support the amount of reimbursement for insurance premiums. We noted one instance where the expenditure was not a direct expense of the major program. We also noted 3 instances where $200 gift cards were purchased for clothing. These gift cards were not well tracked to ensure they were properly given to foster families and subsequently used for clothing. In one of the gift card instances, items other than clothing were included on the support. On this same gift card, an unspent balance on the gift card was not accounted for. In another of the gift card instances, there was no support for the use of the gift card and the gift card was never assigned to a specific child for clothing. In the third instance, the support for the use of the gift card was for a different retail store and none of the support showed payment being made in the form of a gift card, and therefore the actual use of the gift card is unknown. Criteria All disbursements should be properly supported by adequate documentation, made within program established guidelines. Cause Documented allowance for clothing was not followed in 3 instances tested. Support was for less than actual expenditures for one disbursement tested. One expenditure was not directly related to the major program. Unallowed items were purchased in one disbursement tested. Effect Disbursements that weren’t allowable under the program were made in several instances because amounts were not adequately tracked or for an unallowed item. Additionally, unsupported items could not be verified for allowability due to lack of details as to what was purchased. Questioned Cost Amount $569.65 from the sample tested and projected to be approximately $75,000 of the total expenditures. Perspective Information 5 of 25 items selected for testing. Recommendation We recommend that stronger reviews and oversight is put in place to make sure that allowances for clothing are followed for all children in foster care. Additionally, if the program is going to continue use of gift cards as a means of providing funds for clothing purchases, then receipts for the use of those funds should be received to verify they were spent appropriately and controls over unspent gift cards must be put in place.View of Responsible Officials and Planned Corrective Action enCircle has officially adopted the policy that gift cards provided to foster parents will not be submitted for reimbursement until the receipts are returned by the parents. If they do not spend the entire amount, only the amount spent will be requested for reimbursement and enCircle will cover the difference from non-federal funds. enCircle is also considering other methods of helping parents purchase clothes for foster placements. Further, enCircle has evaluated the use of all allocation methods for expenses that impact federal grants and will be limiting allocations to only clearly explicit expenses to ensure only programmatic costs are billed. Further, enCircle has created a new service code within its Chart of Accounts to track programmatic administration costs separate from overall administration costs.

Unaccompanied Alien Children – AL #93.676, Controls over Compliance (Material Weakness) Condition In our testing of the Unaccompanied Children Program, we noted several compliance matters as noted in findings 2025-001 and 2025-002 that stem in part from either a failure of or a lack of controls to prevent, or detect and correct, matters for Federal awards. Many of the errors seem to stem from the entity’s use of manual spreadsheets to complete many allocations, communication issues between program managers and financial personnel, and errors that were not noted and corrected in a timely manner. As a result of a lack of strong controls, the budget was exceeded, unallowed items were reimbursed, and amendments were not requested promptly for budget overages. There were also identified errors with the current year and prior year Schedule of Expenditures of Federal Awards that were not timely identified. Criteria Strong controls over Federal programs are necessary to ensure that fund are used appropriately, managed appropriately internally and accurate reporting is maintained that can be made available to all interested parties within the entity and to the grantor as required. Grantee entities are to be responsible stewards of funds and should have strong monitoring and controls in place to ensure that is met. Cause Errors in understanding allowable amounts per child, errors in understanding allowable items, lack of controls and processes to monitor gift cards, over-reliance on many manual processes and spreadsheets, and lack of communication appears to be creating some disconnect and issues that is allowing this breakdown in monitoring and reporting to occur. Effect As a result of the control concerns, we do believe that a larger error or several smaller issues that total a larger error could occur and not be timely noted and/or corrected by the entity. Recommendation We recommend enCircle work on controls that put in place monitoring over program usage of funds by independent individuals to verify gift cards, and other similar items are being appropriately monitored. We also recommend that enCircle investigate whether their current accounting system can help with the allocation of personnel and invoices across programs so there is less reliance on manual processes and journal entries. Additionally, we recommend that stronger monitoring and review processes be put in place for all programs to ensure budgetary and reporting compliance.View of Responsible Officials and Planned Corrective Action enCircle believes the measures taken for 2025-001 and 2025-002 are sufficient to address this finding. Further the measures taken for 2025-003 alleviate control and reporting issues related to the Schedule of Expenditures of Federal Awards. Finally, enCircle on top of already occurring monthly program financial reviews is adding a monthly budget review for each federal grant with the programmatic staff.

Unaccompanied Alien Children – AL #93.676, Controls over SEFA (Material Weakness) Condition In our testing of the current year SEFA, we noted $64,589 in expenditures were erroneously excluded. We also noted that $72,562 of expenditures from the prior year were also not previously captured in the prior year SEFA. Criteria Strong controls over SEFA preparation are necessary to ensure that funds are accurately reported. Cause Errors in capturing all expenditures from the general ledger to properly complete the SEFA. Effect As a result of the control concerns, we do believe that a larger error or several smaller issues that total a larger error could occur and not be timely noted and/or corrected by the entity. Recommendation We recommend enCircle work on controls that put in place monitoring over reporting of expenditures and SEFA preparation. View of Responsible Officials and Planned Corrective Action enCircle noted during the audit that federal expenditures were being billed into multiple revenue accounts depending on the nature of the expenditure (internal expense, client reimbursable expense, foster parent payments). These accounts have all been consolidated into one account to ensure internal and external reporting does not exclude billed expenditures.

Condition: In review of budget to actual expenditure amounts for the year under audit, the auditor noted two line items that exceeded the allowed budget amount for the year. While a budget amendment was completed for these line items, one line still exceeded the allowable budget amount. Criteria: Annual budgets are approved by the grantor agency and amendments must be submitted for approval to alter the original budget if needed. Cause: For two line items, the original budget as approved was exceeded. Additionally, for one of those two line items, even though an amendment was submitted, the budget was still exceeded. It appears that monitoring is not sufficient to prevent budget overages from occurring, nor to detect them timely to rectify the grantor. Effect: enCircle violated their grant terms by exceeding their approved budget. Questioned Cost Amount: $886.24 Recommendation: Management should implement procedures that allow for proper reviews of budget to actual information for grants to verify amounts expended and amounts remaining for expenditure monthly. Additionally, grant management personnel and financial personnel need to work on better communication regarding financial status of grants. Views of Responsible Officials and Planned Corrective Action: During the monthly billing process, enCircle will now only bill up until the approved budget even if there are allowed costs, irrespective of budget, in excess of budget amounts. enCircle will then request a budget amendment to allow for these costs and once approved include the previously unbilled costs in the next monthly billing. Furthermore, enCircle will work to preemptively request budget amendments by forecasting allowed expenditures. enCircle will evaluate if the monthly meeting between grant management personnel and financial personnel remains sufficient to ensure communication and grant compliance are adequate. If not, enCircle will change the meeting cycle to create sufficient communication including other means (Teams chats, etc…)

Condition: During our testing of 25 disbursements for the program, we noted one disbursement for which an invoice or receipt from a third party vendor could not be provided. The only support provided was the excel allocation to various areas. We also noted 2 instances where children in foster care received more than the $150 clothing allowance, including the purchase of $200 gift cards in addition to other items in both instances. In the final issue in our sample of 25, we noted toys included with a clothing purchase. Toys should not be included in clothing allowances per grant guidelines. Our testing noted three instances where gift cards were not well tracked to ensure they were properly given to foster families and subsequently used for clothing. Criteria: All disbursements should be properly supported by adequate documentation, made within program established guidelines. Cause: Documented allowance for clothing was not followed in 2 instances tested. Support was not maintained for one disbursement tested. Unallowed items were purchased in one disbursement tested. Effect: Disbursements that weren’t allowable under the program were made in several instances because amounts exceeded allowed thresholds or for an unallowed item. Additionally, an unsupported item could not be verified for allowability due to lack of details as to what was purchased. Questioned Cost Amount: $2,777.78 from the sample tested and projected to be approximately $94,000 of the total expenditures. Perspective Information: 5 of 25 items selected for testing Recommendation: We recommend that stronger reviews and oversight is put in place to make sure that allowances for clothing are followed for all children in foster care. Additionally, if the program is going to continue use of gift cards as a means of providing funds for clothing purchases, then receipts for the use of those funds should be received to verify they were spent appropriately and controls over unspent gift cards must be put in place. Views of Responsible Officials and Planned Corrective Action: enCircle has communicated to grant management personnel the requirements regarding clothing allowances, especially when using gift cards. Going forward enCircle will also require that all gift cards can be uniquely identified with a specific child and that also foster parents will submit receipts to enCircle regarding gift card purchases until the card is fully spent (if the card is not fully spent the foster parent will be liable to return it or the cash value remaining). enCircle will develop and implement an internal auditing procedure and cycle to regularly evaluate a sample of transactions throughout the year to ensure documentation and use is appropriate for all federal funds.

Condition: In our testing of the Unaccompanied Children Program, we noted several compliance matters as noted in findings 2024-001 and 2024-002 that stem in part from either a failure of or a lack of controls to prevent, or detect and correct, matters for Federal awards. Many of the errors seem to stem from the entity’s use of manual spreadsheets to complete many allocations, communication issues between program managers and financial personnel, and errors that were not noted and corrected in a timely manner. As a result of a lack of strong controls, the budget was exceeded, disbursements were made in excess of per child allowable amounts, unallowed items were reimbursed, and amendments were not requested promptly for budget overages. Criteria: Strong controls over Federal programs are necessary to ensure that fund are used appropriately, managed appropriately internally and accurate reporting is maintained that can be made available to all interested parties within the entity and to the grantor as required. Grantee entities are to be responsible stewards of funds and should have strong monitoring and controls in place to ensure that is met. Cause: Errors in understanding allowable amounts per child, errors in understanding allowable items, lack of controls and processes to monitor gift cards, over-reliance on many manual processes and spreadsheets, and lack of communication appears to be creating some disconnect and issues that is allowing this breakdown in monitoring and reporting to occur. Effect: As a result of the control concerns, we do believe that a larger error or several smaller issues that total a larger error could occur and not be timely noted and/or corrected by the entity. Recommendation: We recommend enCircle work on controls that put in place monitoring over program usage of funds by independent individuals to verify per child amounts, gift cards, and other similar items are being appropriately monitored. We also recommend that enCircle investigate whether their current accounting system can help with the allocation of personnel and invoices across programs so there is less reliance on manual processes and journal entries. Additionally, we recommend that stronger monitoring and review processes be put in place for all programs to ensure budgetary and reporting compliance. Views of Responsible Officials and Planned Corrective Action: enCircle believes the responses to findings 2024-001 and 2024-002 will remediate the concerns of this finding. Furthermore, enCircle will continue to work to decrease the number of allocations it actively uses when direct coding is more appropriate. enCircle will also work to integrate payroll allocations into its payroll provider directly, so that these allocations are updated automatically by HR when position roles change.

Criteria and Condition: Under the requirements of the Uniform Guidance, the drawdown of federal funds must be based on actual expenditures incurred. Context: We sampled twenty-five reimbursed amounts from various awards. We noted two instances where the Organization obtained federal funds without incurring the actual expenditure. We also noted one instance where the expenditure occurred outside of the budget period. Cause: The Organization did not properly allocate expenditures within their general ledger and did not have an adequate review process in place. Effect: The lack of an adequate review process can cause federal funds to be obtained prior to the actual expenditure is incurred. Recommendation: We recommend that the Organization develop a review process to ensure the drawdown of federal funds does not occur before funds are expended and that the Organization submit expenditures incurred in the budget period. Views of Responsible Officials and Planned Corrective Actions: Management concurs that two instances noted by the auditors were instances of non-compliance. Management believes that the auditors' assessment on the third noted instance of noncompliance is incorrect and should not be reported as a finding. The findings noted by the auditors were billing errors and do not represent any attempt to defraud the Federal government. Nonetheless, management is taking appropriate steps to prevent recurrence of the errors noted. Management also believes that by supplying context regarding the errors detected, users of this report will better understand the nature and magnitude of the errors detected. For the instance where the expenditure occurred outside of the budget period, we inappropriately reported $167. 72 in wages that were paid on July 1, 2022 in the July 1, 2022 through June 30, 2023 grant year expenditures. The wages were paid during the grant year in question, but had been earned by the employee in the previous grant year and therefore should not have been included as a cost incurred under the grant. encircle will return $167.72 to the grantor. For one instance where we obtained Federal funds without incurring the actual expenditure, the error involved reporting occupancy expenses. When the grant year started on January 1, 2023, the grant budget included services to be provided from two separate offices, in Richmond and Newport News. Finance staff preparing the monthly invoices included occupancy costs for our Richmond and Newport News offices in the amounts invoiced each month. However, due to office size constraints and hiring difficulties, we were not able to begin providing services in Newport News until June 2023. Accordingly, excess occupancy costs were invoiced between January 1, 2023 and June 30, 2023. The period covered by this particular grant runs from January 1, 2023 through December 31, 2023. Management has already begun the process of adjusting amounts billed for occupancy costs on invoices submitted subsequent to June 30, 2023 in order to ensure that amounts paid under the grant do not exceed total incurred occupancy costs for the grant year. Also, management has implemented review and oversight procedures to ensure that all occupancy costs invoiced in future months are fully-substantiated by actual costs in For the other instance where the auditors determined that we obtained Federal funds without incurring the actual expenditure, we disagree with the auditors' contention that we obtained Federal funds without incurring actual expenditures. The issue was not that costs had not actually been incurred. Instead, the auditors determined that certain costs that were in fact incurred should not have been reimbursed by Federal funds. We disagree with this determination and contend that the costs incurred were an integral part of the total occupancy cost paid for the office in question. However, we will nonetheless refund any amounts invoiced in excess of amounts allowable per the auditors' determination. The amount refundable per the auditors is $139.25, but per our detailed analysis the amount deemed to be refundable was actually $1,159.13. Management will implement procedures to ensure that only occupancy costs deemed by the auditors to be appropriate will be billed to the grant.

Criteria and Condition: Under the requirements of the Uniform Guidance, the drawdown of federal funds must be based on actual expenditures incurred. Context: We sampled twenty-five reimbursed amounts from various awards. We noted two instances where the Organization obtained federal funds without incurring the actual expenditure. We also noted one instance where the expenditure occurred outside of the budget period. Cause: The Organization did not properly allocate expenditures within their general ledger and did not have an adequate review process in place. Effect: The lack of an adequate review process can cause federal funds to be obtained prior to the actual expenditure is incurred. Recommendation: We recommend that the Organization develop a review process to ensure the drawdown of federal funds does not occur before funds are expended and that the Organization submit expenditures incurred in the budget period. Views of Responsible Officials and Planned Corrective Actions: Management concurs that two instances noted by the auditors were instances of non-compliance. Management believes that the auditors' assessment on the third noted instance of noncompliance is incorrect and should not be reported as a finding. The findings noted by the auditors were billing errors and do not represent any attempt to defraud the Federal government. Nonetheless, management is taking appropriate steps to prevent recurrence of the errors noted. Management also believes that by supplying context regarding the errors detected, users of this report will better understand the nature and magnitude of the errors detected. For the instance where the expenditure occurred outside of the budget period, we inappropriately reported $167. 72 in wages that were paid on July 1, 2022 in the July 1, 2022 through June 30, 2023 grant year expenditures. The wages were paid during the grant year in question, but had been earned by the employee in the previous grant year and therefore should not have been included as a cost incurred under the grant. encircle will return $167.72 to the grantor. For one instance where we obtained Federal funds without incurring the actual expenditure, the error involved reporting occupancy expenses. When the grant year started on January 1, 2023, the grant budget included services to be provided from two separate offices, in Richmond and Newport News. Finance staff preparing the monthly invoices included occupancy costs for our Richmond and Newport News offices in the amounts invoiced each month. However, due to office size constraints and hiring difficulties, we were not able to begin providing services in Newport News until June 2023. Accordingly, excess occupancy costs were invoiced between January 1, 2023 and June 30, 2023. The period covered by this particular grant runs from January 1, 2023 through December 31, 2023. Management has already begun the process of adjusting amounts billed for occupancy costs on invoices submitted subsequent to June 30, 2023 in order to ensure that amounts paid under the grant do not exceed total incurred occupancy costs for the grant year. Also, management has implemented review and oversight procedures to ensure that all occupancy costs invoiced in future months are fully-substantiated by actual costs in For the other instance where the auditors determined that we obtained Federal funds without incurring the actual expenditure, we disagree with the auditors' contention that we obtained Federal funds without incurring actual expenditures. The issue was not that costs had not actually been incurred. Instead, the auditors determined that certain costs that were in fact incurred should not have been reimbursed by Federal funds. We disagree with this determination and contend that the costs incurred were an integral part of the total occupancy cost paid for the office in question. However, we will nonetheless refund any amounts invoiced in excess of amounts allowable per the auditors' determination. The amount refundable per the auditors is $139.25, but per our detailed analysis the amount deemed to be refundable was actually $1,159.13. Management will implement procedures to ensure that only occupancy costs deemed by the auditors to be appropriate will be billed to the grant.

Criteria and Condition: Under the requirements of the Uniform Guidance, the drawdown of federal funds must be based on actual expenditures incurred. Context: We sampled twenty-five reimbursed amounts from various awards. We noted two instances where the Organization obtained federal funds without incurring the actual expenditure. We also noted one instance where the expenditure occurred outside of the budget period. Cause: The Organization did not properly allocate expenditures within their general ledger and did not have an adequate review process in place. Effect: The lack of an adequate review process can cause federal funds to be obtained prior to the actual expenditure is incurred. Recommendation: We recommend that the Organization develop a review process to ensure the drawdown of federal funds does not occur before funds are expended and that the Organization submit expenditures incurred in the budget period. Views of Responsible Officials and Planned Corrective Actions: Management concurs that two instances noted by the auditors were instances of non-compliance. Management believes that the auditors' assessment on the third noted instance of noncompliance is incorrect and should not be reported as a finding. The findings noted by the auditors were billing errors and do not represent any attempt to defraud the Federal government. Nonetheless, management is taking appropriate steps to prevent recurrence of the errors noted. Management also believes that by supplying context regarding the errors detected, users of this report will better understand the nature and magnitude of the errors detected. For the instance where the expenditure occurred outside of the budget period, we inappropriately reported $167. 72 in wages that were paid on July 1, 2022 in the July 1, 2022 through June 30, 2023 grant year expenditures. The wages were paid during the grant year in question, but had been earned by the employee in the previous grant year and therefore should not have been included as a cost incurred under the grant. encircle will return $167.72 to the grantor. For one instance where we obtained Federal funds without incurring the actual expenditure, the error involved reporting occupancy expenses. When the grant year started on January 1, 2023, the grant budget included services to be provided from two separate offices, in Richmond and Newport News. Finance staff preparing the monthly invoices included occupancy costs for our Richmond and Newport News offices in the amounts invoiced each month. However, due to office size constraints and hiring difficulties, we were not able to begin providing services in Newport News until June 2023. Accordingly, excess occupancy costs were invoiced between January 1, 2023 and June 30, 2023. The period covered by this particular grant runs from January 1, 2023 through December 31, 2023. Management has already begun the process of adjusting amounts billed for occupancy costs on invoices submitted subsequent to June 30, 2023 in order to ensure that amounts paid under the grant do not exceed total incurred occupancy costs for the grant year. Also, management has implemented review and oversight procedures to ensure that all occupancy costs invoiced in future months are fully-substantiated by actual costs in For the other instance where the auditors determined that we obtained Federal funds without incurring the actual expenditure, we disagree with the auditors' contention that we obtained Federal funds without incurring actual expenditures. The issue was not that costs had not actually been incurred. Instead, the auditors determined that certain costs that were in fact incurred should not have been reimbursed by Federal funds. We disagree with this determination and contend that the costs incurred were an integral part of the total occupancy cost paid for the office in question. However, we will nonetheless refund any amounts invoiced in excess of amounts allowable per the auditors' determination. The amount refundable per the auditors is $139.25, but per our detailed analysis the amount deemed to be refundable was actually $1,159.13. Management will implement procedures to ensure that only occupancy costs deemed by the auditors to be appropriate will be billed to the grant.

Criteria and Condition: Under the requirements of the Uniform Guidance, the drawdown of federal funds must be based on actual expenditures incurred. Context: We sampled twenty-five reimbursed amounts from various awards. We noted two instances where the Organization obtained federal funds without incurring the actual expenditure. We also noted one instance where the expenditure occurred outside of the budget period. Cause: The Organization did not properly allocate expenditures within their general ledger and did not have an adequate review process in place. Effect: The lack of an adequate review process can cause federal funds to be obtained prior to the actual expenditure is incurred. Recommendation: We recommend that the Organization develop a review process to ensure the drawdown of federal funds does not occur before funds are expended and that the Organization submit expenditures incurred in the budget period. Views of Responsible Officials and Planned Corrective Actions: Management concurs that two instances noted by the auditors were instances of non-compliance. Management believes that the auditors' assessment on the third noted instance of noncompliance is incorrect and should not be reported as a finding. The findings noted by the auditors were billing errors and do not represent any attempt to defraud the Federal government. Nonetheless, management is taking appropriate steps to prevent recurrence of the errors noted. Management also believes that by supplying context regarding the errors detected, users of this report will better understand the nature and magnitude of the errors detected. For the instance where the expenditure occurred outside of the budget period, we inappropriately reported $167. 72 in wages that were paid on July 1, 2022 in the July 1, 2022 through June 30, 2023 grant year expenditures. The wages were paid during the grant year in question, but had been earned by the employee in the previous grant year and therefore should not have been included as a cost incurred under the grant. encircle will return $167.72 to the grantor. For one instance where we obtained Federal funds without incurring the actual expenditure, the error involved reporting occupancy expenses. When the grant year started on January 1, 2023, the grant budget included services to be provided from two separate offices, in Richmond and Newport News. Finance staff preparing the monthly invoices included occupancy costs for our Richmond and Newport News offices in the amounts invoiced each month. However, due to office size constraints and hiring difficulties, we were not able to begin providing services in Newport News until June 2023. Accordingly, excess occupancy costs were invoiced between January 1, 2023 and June 30, 2023. The period covered by this particular grant runs from January 1, 2023 through December 31, 2023. Management has already begun the process of adjusting amounts billed for occupancy costs on invoices submitted subsequent to June 30, 2023 in order to ensure that amounts paid under the grant do not exceed total incurred occupancy costs for the grant year. Also, management has implemented review and oversight procedures to ensure that all occupancy costs invoiced in future months are fully-substantiated by actual costs in For the other instance where the auditors determined that we obtained Federal funds without incurring the actual expenditure, we disagree with the auditors' contention that we obtained Federal funds without incurring actual expenditures. The issue was not that costs had not actually been incurred. Instead, the auditors determined that certain costs that were in fact incurred should not have been reimbursed by Federal funds. We disagree with this determination and contend that the costs incurred were an integral part of the total occupancy cost paid for the office in question. However, we will nonetheless refund any amounts invoiced in excess of amounts allowable per the auditors' determination. The amount refundable per the auditors is $139.25, but per our detailed analysis the amount deemed to be refundable was actually $1,159.13. Management will implement procedures to ensure that only occupancy costs deemed by the auditors to be appropriate will be billed to the grant.