SHIFT NCNon-Profit

2021-003 Allowable Costs: Segregation of Duties over Financial Reporting Process Audit Finding: Lack of segregation of duties as it relates to cash receipts, cash disbursements, and cash reconciliation. There should be segregation of duties over the physical access to assets and the ability to record and track those assets in the accounting system. Recommendation: It is recommend that the Organization review all financial internal control policies and procedures to ensure proper segregation of duties and minimize the Organization?s risk to misappropriation of assets. Some specific policies and procedures that should be modified are as follows: ? The blank check stock should be maintained under lock and key by a member of management that does not have check signing authority and access to the accounting system. ? Monthly bank reconciliations prepared by the Administrative Assistant should be reviewed by the CEO or another member of management for accuracy, completeness, and reasonableness in a timely manner. The addition and modification of these steps will help mitigate the risk of misappropriation of assets and fraudulent reporting as it relates to lack of segregation of duties. Corrective Action Taken: SHIFT NC Management understands the importance of segregating financial and accounting duties in order to reduce the risk of fraud and error. Accordingly, as of FY21, management reviewed all policies and procedures and instituted processes that significantly strengthened the internal controls.In FY21 blank check stock was maintained under lock and key, however the person with access to the stock was also a secondary check signer during a portion of FY21 due to staffing changes. In FY22, an online bill pay system has been instituted and controls are set so that distinct and separate people have access to enter bills, pay bills, enter information into the accounting system and reconcile accounts. In FY21 all bank statements and reconciliations were reviewed by the CEO and contract CFO for accuracy, completeness, and reasonableness; however, the CEO signed off on some of these reviews a few months after they were completed, rather than at the time that they were originally provided for review. The CEO now signs off on the bank reconciliations within 45 days of the end of the month. Expected Completion Date: January 31, 2022

2021-004 Cash Management: Improve Process Over Cash Management. Federal Program Information: Teenage Pregnancy Prevention Program (CFDA ? 93.297) Condition and Criteria: The time between drawing down and disbursing federal funds should be minimized. When entities are funded under the reimbursement method, the entity should pay for the costs for which reimbursement will be requested prior to the date of the reimbursement request. Federal cash drawdowns did not tie to the actual expenditures. This resulted in refundable grant advances at June 30, 2021. Prior year audit finding: 2020-004 Cause and Effect: The Organization requested a drawdown in excess of funds expended on the North Carolina Youth Connected program in July 2020. Noncompliance with federal cash management guidelines could result in the loss of federal funding. 2021-004 Cash Management: Improve Process Over Cash Management (Continued). Context: The Organization drew down funds in excess of expenditures incurred for the major federal program in July 2020. This resulted in refundable grant advances totaling $178,765 at June 30, 2021. This includes $18,765 of refundable grant advances from fiscal year 2020 and additional refundable grant advances of $160,000 for fiscal year 2021 for the Teenage Pregnancy Prevention Program. Refundable grant advances for all federal programs total $542,205 at June 30, 2021. Questioned Costs: $160,000. Recommendation: Monthly cash drawdowns should be calculated utilizing the information directly from the accounting system. Drawdowns should equal total actual expenditures incurred for the respective month. This method would ensure the Organization?s compliance with cash management federal guidelines, and minimize the amount of time passing between the drawdown and the ultimate expenditure of funds for program purposes. Management?s Response: Management understands the importance of strong cash management processes in order to ensure proper drawdown of federal award funds. In fiscal year 2021, this finding is based on one drawdown from July 2020 (the very beginning of the fiscal year), for a grant that ended June 30, 2020. There were no other instances of unsupported or untimely drawdowns in fiscal year 2021. In fiscal year 2021, the CPA consultants reviewed all drawdowns related to fiscal years 2019 through 2021 and adjusted the financial records for appropriate recognition. This process highlighted the prior drawdowns that were not supported by related expense in the same timeframe. In fiscal year 2021, all federal drawdowns are based on costs incurred plus known costs that were paid within 3 days (as per the allowable window). Program staff familiar with the grants and the CEO both review drawdowns and supporting documentation before the draws are made. Copies of expenses related to each drawdown are kept on file.

2020-004 Cash Management: Improve Processes over Cash Management. Federal Program Information: Teenage Pregnancy Prevention Program (CFDA ? 93.297) Condition and Criteria: The time between drawing down and disbursing federal funds should be minimized. When entities are funded under the reimbursement method, the entity should pay for the costs for which reimbursement will be requested prior to the date of the reimbursement request. Federal cash drawdowns did not tie to the actual expenditures, nor were they reconciled to financial information. This resulted in refundable grant advances at June 30, 2020. Prior Year Audit Finding: 2019-005 Cause and Effect: The Organization requested drawdowns based on budgeted payroll and indirect costs and advanced payments to subrecipients. Noncompliance with federal cash management guidelines could result in the loss of federal funding. Context: The Organization drew down funds in excess of expenditures incurred for the major federal program. This resulted in refundable grant advances totaling $475,158 at June 30, 2020. Questioned Costs: N/A Recommendation: Monthly cash drawdowns should be calculated utilizing the information directly from the accounting system. Drawdowns should equal total actual expenditures incurred for the respective month. This method would ensure the Organization?s compliance with cash management federal guidelines, and minimize the amount of time passing between the drawdown and the ultimate expenditure of funds for program purposes. Management?s Response: SHIFT NC Management understands the importance of strong cash management processes in order to ensure proper drawdown of federal award funds. In fiscal year 2021, the CPA consultants reviewed all drawdowns related to fiscal years 2019 through 2021 and adjusted the financial records for appropriate recognition. This process highlighted the prior drawdowns that were not supported by related expense in the same timeframe. In fiscal year 2021, all federal drawdowns are based on costs incurred by the Organization as shown in their financial records, plus known costs that will be paid within 3 days (as per the allowable window). The program staff familiar with the grant and the CEO both review these drawdowns and supporting documentation before the draws are made.

2020-005 Suspension and Debarment: Ensure Recipients of Federal Monies are not Suspended or Debarred. Federal Program Information: Teenage Pregnancy Prevention Program (CFDA ? 93.297) Condition and Criteria: Federal guidelines requires all entities to ensure they are not entering into a covered transaction with another entity or individual that has been debarred, suspended, or otherwise excluded from receiving federal funds. The Organization does not have policies and procedures in place to ensure compliance with this federal requirement. Prior Year Audit Finding: 2019-007 Cause and Effect: The Organization does not have suspension and debarment policies and procedures in place to ensure compliance with federal guidelines. This could lead to possible federal dollars being paid to a suspended or debarred entity or individual and result in the potential loss of funding. Context: The audit finding represents a systemic problem. No instances of noncompliance were noted. The sampling was a statistically valid sample. Questioned Costs: None. Recommendation: We recommend the Organization develop a policy to verify that an entity the organization plans to enter into a covered transaction with is not debarred, suspended, or otherwise excluded from receiving federal dollars by checking the database on SAM.gov. Management?s Response: In fiscal year 2021, SHIFT NC began regular checks on SAM.gov for debarment and suspension.

2020-006 Grant Reporting: Accurate Submission of Federal Reports. Federal Program Information: Teenage Pregnancy Prevention Program (CFDA ? 93.297) Condition and Criteria: Financial reports should be prepared using an appropriate accounting basis and traced to the accounting records that support the audited financial statements and the Schedule of Expenditures of Federal Awards. Additionally, the data collection form should be submitted 9 months after the year end or 30 days after the audit report is issued, whichever is earliest. Prior Year Audit Finding: 2019-008 Cause and Effect: Noncompliance with reporting requirements could result in delay or loss of funding. Context: None of the financial information reported in the quarterly financial reports agreed to the Organization?s accounting system. The fiscal year 2019 data collection form was not submitted timely. Due to Covid-19, there was an automatic 6-month extension to September 30, 2020. The Organization?s data collection form was submitted on June 24, 2021. Questioned Costs: Not able to be determined. Recommendation: We recommend the Organization implement policies and procedures to ensure compliance with all financial reporting requirements for federal grants. Additionally, we recommend the Organization utilize information obtained from the accounting system to prepare financial reports. B&S also recommends the Organization have its annual audit performed timely to allow submission of the data collection form and reporting package prior to the federal reporting deadline. Management?s Response: SHIFT NC understands the importance of submitting accurate financial reports. Beginning in fiscal year 2020, and strengthened in fiscal year 2021, financial reports are saved with supporting reports from the accounting system, so that clear documentation exists and supports the reports. SHIFT NC was not able to submit the fiscal year 2019 data collection form to the Federal Audit Clearinghouse within the 9 month deadline because the audit for fiscal year 2019 was not completed until later. In fiscal year, 2020 the submission will be made timely.

2020-007 Allowable Costs: Segregation of Duties over Financial Reporting Process. Federal Program Information: Teenage Pregnancy Prevention Program (CFDA ? 93.297) The significant deficiency at finding 2020-001 also applies to this program. 2020-001- Segregation of Duties over Financial Reporting Processes. Condition and Criteria: During the course of the audit, we noted lack of segregation of duties as it relates to cash receipts, cash disbursements, payroll, and journal entries. There should be segregation of duties over the physical access to assets and the ability to record and track those assets in the accounting system. Prior Year Audit Finding: 2019-001 Cause and Effect: Lack of segregation of duties has resulted due to the limited personnel and several employee transitions during the year. This increases the Organization?s risk to misappropriation of assets and could result in intentional fraud or unintentional errors that could occur and go undetected. Recommendation: We recommend the Organization review all financial internal control policies and procedures to ensure proper segregation of duties and minimize the Organization?s risk to misappropriation of assets. Some specific policies and procedures that should be modified are as follows: ? The mail should be opened by two individuals, the Administrative Assistant and another staff person. Any checks received should be recorded in a daily cash log sheet and immediately endorsed ?For Deposit Only?. The daily cash log should be agreed to the deposit totals during the monthly bank reconciliation review process. ? Monthly bank reconciliations prepared by the CFO should be reviewed by the CEO or another member of management for accuracy, completeness, and reasonableness in a timely manner. The preparer and reviewer should be indicated on the bank reconciliation to document segregation of duties was maintained. ? Recurring and nonrecurring journal entries prepared by the CFO should be reviewed and agreed to supporting documentation by the CEO or another member of management on a monthly or quarterly basis. ? Payroll reports processed by the CFO should be reviewed by the CEO and agreed to payroll change reports and the general ledger monthly. The addition and modification of these steps will help mitigate the risk of misappropriation of assets and fraudulent reporting as it relates to lack of segregation of duties. Management?s Response: SHIFT NC Management understands the importance of segregating financial and accounting duties in order to reduce the risk of fraud and error. Accordingly, as of fiscal year 2021, management has reviewed all policies and procedures and instituted processes that strengthen the internal controls. These processes include such protocols as: the check log is reviewed by the CFO and CEO and agreed to the bank deposit total by the CFO; disbursement and account coding is reviewed by the CFO, as well as relevant staff (knowledgeable of budgets, grant agreements, etc.) no less than quarterly; journal entries prepared by the Administrative Assistant are reviewed by the CFO and journal entries prepared by the CFO are reviewed by the CEO; and the CFO reviews all payroll processed by the Administrative Assistant, and the CEO reviews allocation journal entries made by the CFO. Prior year audit finding: 2019-011

2020-008 Allowable Costs: Lack of Review of Disbursements by Employee Knowledgeable of Federal Regulations. Federal Program Information: Teenage Pregnancy Prevention Program (CFDA ? 93.297) The material weakness at finding 2020-003 also applies to this program. 2020-003- Lack of Review of Disbursements by Employee Knowledgeable of Federal Regulations. Condition and Criteria: The Organization has entered into subaward agreements with several subrecipient organizations. The subawards should be paid in accordance with the agreement and within the project period. There were several subaward payments made in excess of the agreement. Prior Year Audit Finding: 2019-004 Cause and Effect: The Organization did not have an individual with sufficient knowledge of Federal grant requirements overseeing disbursements to subrecipients to ensure disbursements were appropriate. The disbursements process involves employees that are not as familiar with the subrecipient agreements and there was no comparison of requested disbursements to Federal grant requirements. This resulted in payments in excess of the agreements being paid to subrecipients totaling $80,066. As of June 30, 2020, $80,066 is due back to the Organization as a result of the overpayment. Recommendation: We recommend the Organization involve someone with the appropriate knowledge of subaward agreements in the disbursements process to ensure that payments are not made in excess of the grant agreements. This could be accomplished by only reimbursing subrecipients after review of reported expenditures has been done by an appropriate individual or by carefully monitoring spending of any funds advanced to subrecipients and require a return of any funds not used for approved expenditures. Management?s Response: SHIFT NC Management understands the importance of appropriate review of disbursements in order to reduce the risk of error or non-compliance. Accordingly, during fiscal year 2021, management hired CPA consultants who are familiar with federal awards to oversee the financial management of SHIFT NC. In addition to the CPA consultants, disbursements to subrecipients are also reviewed by program staff who are familiar with the grant awards that they manage. The external consultants review all grant awards received including special conditions and specific requirements; they review any disbursements made by SHIFT NC for reasonable and appropriate documentation; and they work with staff to adjust processes and practices to be sure that they are aligned with federal requirements. Additionally, the CPA consultants worked with staff to create subaward agreements that comply with federal grant regulations. During fiscal year 2021, SHIFT collected from the subrecipients funds that were distributed in excess of their agreements. Prior year audit finding: 2019-013 Context: SHIFT paid amounts in excess of the federal subaward agreements on 3 federal awards totaling $80,066. Questioned Costs: $80,066.

2019-005 Cash Management: Improve Processes over Cash Management. Federal Program Information: Cooperative Agreements to Support State-Based Safe Motherhood and Infant Health Initiative Program (CFDA 93.946) and Teenage Pregnancy Prevention Program (CFDA ? 93.297) Condition and Criteria: The time between drawing down and disbursing federal funds should be minimized. When entities are funded under the reimbursement method, the entity should pay for the costs for which reimbursement will be requested prior to the date of the reimbursement request. Federal cash drawdowns did not tie to the actual expenditures, nor were they reconciled to financial information. This resulted in refundable grant advances at June 30, 2019. Prior Year Audit Finding: 2018-007 Cause and Effect: The Organization requested drawdowns based on budgeted payroll and indirect costs and advanced payments to subrecipients. Noncompliance with federal cash management guidelines could result in the loss of federal funding. Context: The Organization drew down funds in excess of expenditures incurred for the major federal programs. This resulted in refundable grant advances totaling $497,414 at June 30, 2019. Questioned Costs: N/A Recommendation: Monthly cash drawdowns should be calculated utilizing the information directly from the accounting system. Drawdowns should equal total actual expenditures incurred for the respective month. This method would ensure the Organization's compliance with cash management federal guidelines, and minimize the amount of time passing between the drawdown and the ultimate expenditure of funds for program purposes. Management?s Response: SHIFT NC Management understands the importance of strong cash management processes in order to ensure proper drawdown of federal award funds. In fiscal year 2021, the CPA consultants reviewed all drawdowns related to fiscal years 2019, 2020 and 2021 and adjusted the financial records for appropriate recognition. This process highlighted the prior drawdowns that were not supported by related expense in the same timeframe. In fiscal year 2021, all federal drawdowns are based on costs incurred by the Organization as shown in their financial records, plus known costs that will be paid within 3 days (as per the allowable window). The program staff familiar with the grant and the CEO both review these drawdowns and supporting documentation before the draws are made.

2019-006 Allowable Costs: Paying Subrecipients Prior to Receipt of Support for Expenditures. Federal Program Information: Cooperative Agreements to Support State-Based Safe Motherhood and Infant Health Initiative Program (CFDA 93.946) and Teenage Pregnancy Prevention Program (CFDA ? 93.297) Condition and Criteria: The Organization paid subrecipients in advance of the agreed upon work being performed and support of expenditures being received. Cash that was paid to subrecipients in advance is being held by the subrecipients, which has resulted in unspent federal cash. Prior Year Audit Finding: 2018-007 Cause and Effect: Costs for which SHIFT NC requests reimbursement should be for actual costs incurred, not budgeted or projected amounts. Noncompliance with federal allowable costs guidelines could result in the loss of federal funding. Context: The Organization made payments to subrecipients in advance of receipt of support of expenditures. SHIFT NC has prepaid subaward payments totaling $130,560 at June 30, 2019, resulting in unspent federal cash being held by the subrecipients. Questioned Costs: $130,560 Recommendation: SHIFT NC should pay funding to subrecipient organizations on a reimbursement basis in order to minimize the amount of time passing between the drawdown of funds and the expenditure of the funds. Monthly cash drawdowns should be calculated utilizing the information reported by subrecipients which includes support to represent actual expenditures incurred for the respective month. Management?s Response: SHIFT NC management understands the importance of paying subrecipients in a manner such that costs are supported and in the appropriate timeframe in relation to federal drawdowns. In fiscal year 2021, procedures have been put in place so that funds are drawn down and disbursed without a unallowable lag between draw and disbursement of funds.

2019-007 Suspension and Debarment: Ensure Recipients of Federal Monies are not Suspended or Debarred. Federal Program Information: Cooperative Agreements to Support State-Based Safe Motherhood and Infant Health Initiative Program (CFDA 93.946) and Teenage Pregnancy Prevention Program (CFDA ? 93.297) Condition and Criteria: Federal guidelines requires all entities to ensure they are not entering into a covered transaction with another entity or individual that has been debarred, suspended, or otherwise excluded from receiving federal funds. The Organization does not have policies and procedures in place to ensure compliance with this federal requirement. Prior Year Audit Finding: 2018-008 Cause and Effect: The Organization does not have suspension and debarment policies and procedures in place to ensure compliance with federal guidelines. This could lead to possible federal dollars being paid to a suspended or debarred entity or individual and result in the potential loss of funding. Context: The audit finding represents a systemic problem. No instances of noncompliance were noted. The sampling was a statistically valid sample. Questioned Costs: None. Recommendation: We recommend the Organization develop a policy to verify that an entity the organization plans to enter into a covered transaction with is not debarred, suspended, or otherwise excluded from receiving federal dollars by checking the database on SAM.gov. Management?s Response: SHIFT NC began regular checks for debarment and suspension in fiscal year 2021.

2019-008 Grant Reporting: Timely and Accurate Submission of Financial Reports. Federal Program Information: Cooperative Agreements to Support State-Based Safe Motherhood and Infant Health Initiative Program (CFDA 93.946) and Teenage Pregnancy Prevention Program (CFDA ? 93.297) Condition and Criteria: Financial reports should be prepared using an appropriate accounting basis and traced to the accounting records that support the audited financial statements and the Schedule of Expenditures of Federal Awards. Financial reports should be submitted to the granting organization timely. Prior Year Audit Finding: 2018-009 Cause and Effect: Noncompliance with reporting requirements could result in delay or loss of funding. Context: One out of three grant financial reports tested were submitted one day after the deadline. None of the financial information reported in the quarterly financial reports agreed to the Organization?s accounting system. Questioned Costs: Not able to be determined. Recommendation: We recommend the Organization implement policies and procedures to ensure compliance with all financial reporting requirements for federal grants. Additionally, we recommend the Organization utilize information obtained from the accounting system to prepare financial reports. Management?s Response: SHIFT NC understands the importance of submitting accurate and timely financial reports. Beginning in fiscal year 2020, and strengthened in fiscal year 2021, financial reports are saved with supporting reports from the accounting system, so that clear documentation exists and supports the reports. In addition, the Organization strives to submit reports on time.

2019-009 Subrecipient Monitoring: Communicate Federal Requirements to Subrecipients. Federal Program Information: Cooperative Agreements to Support State-Based Safe Motherhood and Infant Health Initiative Program (CFDA 93.946) and Teenage Pregnancy Prevention Program (CFDA ? 93.297) Condition and Criteria: During our auditing procedures, we noted management did not consistently perform subrecipient monitoring procedures as required by federal regulations. Additionally, agreements with the subrecipients did not contain all information as required by federal regulations. Prior Year Audit Finding: 2018-010 Cause and Effect: The memorandum of agreement signed with each subrecipient organization did not include all of the federal regulations that are required to be communicated to ensure the subrecipient?s compliance. This could result in subrecipients? noncompliance with federal regulations and guidelines and subsequently SHIFT NC?s potential noncompliance. Context: None of the agreements with the subrecipients contained the Catalog of Federal Domestic Assistance (CFDA) numbers or the requirements necessary for the Organization to comply with Federal statutes, regulations, and the terms and conditions of the award. Questioned Costs: N/A Recommendation: Management should implement formalized internal guidelines and checklists for all subawards to ensure adherence to subrecipient federal regulations. This could include developing a template for subaward agreements that includes all required information. All future subaward agreements should begin with the template and then be tailored for the specific award. This would ensure compliance with the federal guidelines and allow for timely review and correction, if necessary. Further, the Organization should ensure that subrecipients that should receive an audit do and follow up on the corrective action taken by the subrecipients on any audit findings. Management?s Response: SHIFT NC included language in subawards notifying recipients that the agreement was part of a federal grant and the specific funder, and relied on subrecipients that in signing the agreement they would be in compliance with federal regulations. As of fiscal year 2021, subaward agreements are more specific and include information about federal award requirements as well as all of the elements required to be communicated to subrecipients by SHIFT NC as the Prime Awardee. SHIFT NC has developed Standard Operating Procedures related to subaward management and monitoring, which includes this requirement. SHIFT NC has an updated standard template for subaward agreements that are tailored to each award based on the specific work and the specific funder requirements.

2019-010 Subrecipient Monitoring: Ensure Subrecipients Use Subaward for Authorized Purposes. Federal Program Information: Cooperative Agreements to Support State-Based Safe Motherhood and Infant Health Initiative Program (CFDA 93.946) and Teenage Pregnancy Prevention Program (CFDA ? 93.297) Condition and Criteria: During our auditing procedures, we noted quarterly budget reports from subrecipients were not required. Prior Year Audit Finding: N/A Cause and Effect: Quarterly budget reports specified by the Federal grant agreement were not required to be submitted to SHIFT NC by the subrecipients. This could result in subrecipients? noncompliance with federal regulations and guidelines and subsequently SHIFT NC?s potential noncompliance. Context: SHIFT NC did not require quarterly budget reports until fiscal year 2020, and thus was not compliant with Federal statutes, regulations, and the terms and conditions of the award. Questioned Costs: None Recommendation: Management should implement formalized internal guidelines and checklists for all subawards to ensure adherence to subrecipient federal regulations. We recommend creating a checklist that details all required subrecipient monitoring guidelines that is reviewed quarterly for each subaward. This would ensure compliance with the federal guidelines and allow for timely review and correction, if necessary. Management?s Response: SHIFT NC understands the importance of monitoring Subrecipients including requiring financial reports that are regularly reviewed. Beginning in fiscal year 2020, SHIFT NC reviewed reports from subrecipients, and in fiscal year 2021 SHIFT NC is requiring and reviewing reports monthly or quarterly, which are reconciled to budget.

2019-011 Allowable Costs: Segregation of Duties over Financial Reporting Process. Federal Program Information: Cooperative Agreements to Support State-Based Safe Motherhood and Infant Health Initiative Program (CFDA 93.946) and Teenage Pregnancy Prevention Program (CFDA ? 93.297) The significant deficiency at finding 2019-001 also applies to these programs. 2019-001 Segregation of Duties over Financial Reporting Processes. Condition and Criteria: During the course of the audit, we noted lack of segregation of duties as it relates to cash receipts, cash disbursements, payroll, and journal entries. There should be segregation of duties over the physical access to assets and the ability to record and track those assets in the accounting system. Prior Year Audit Finding: 2018-001 Cause and Effect: Lack of segregation of duties has resulted due to the limited personnel and several employee transitions during the year. This increases the Organization?s risk to misappropriation of assets and could result in intentional fraud or unintentional errors that could occur and go undetected. Recommendation: We recommend the Organization review all financial internal control policies and procedures to ensure proper segregation of duties and minimize the Organization?s risk to misappropriation of assets. Some specific policies and procedures that should be modified are as follows: ? The mail should be opened by two individuals, the Administrative Assistant and another staff person. Any checks received should be recorded in a daily cash log sheet and immediately endorsed ?For Deposit Only?. The daily cash log should be agreed to the deposit totals during the monthly bank reconciliation review process. ? The blank check stock should be maintained under lock and key by a member of management that does not have check signing authority and access to the accounting system. ? All disbursements and account codings should be reviewed and approved by a member of management knowledgeable of the Organization?s budget, grant agreements, and federal procurement guidelines. ? Monthly bank reconciliations prepared by the CFO should be reviewed by the CEO or another member of management for accuracy, completeness, and reasonableness in a timely manner. The preparer and reviewer should be indicated on the bank reconciliation to document segregation of duties was maintained. ? Recurring and nonrecurring journal entries prepared by the CFO should be reviewed and agreed to supporting documentation by the CEO or another member of management on a monthly or quarterly basis. ? Payroll reports processed by the CFO should be reviewed by the CEO and agreed to payroll change reports and the general ledger monthly. The addition and modification of these steps will help mitigate the risk of misappropriation of assets and fraudulent reporting as it relates to lack of segregation of duties. Management?s Response: SHIFT NC management understands the importance of segregating financial and accounting duties in order to reduce the risk of fraud and error. Accordingly, as of fiscal year 2021, management has reviewed all policies and procedures and instituted processes that strengthen the internal controls. The check log is reviewed by the CFO and CEO and agreed to the bank deposit total by the CFO; blank check stock is maintained under lock and key by a staff member who does not have check signing authority; disbursement and accounting coding is reviewed by the CFO, as well as relevant staff (knowledgeable of budgets, grant agreements, etc.) no less than quarterly; journal entries prepared by the Administrative Assistant are reviewed by the CFO and journal entries prepared by the CFO are reviewed by the CEO; and the CFO reviews all payroll processed by the Administrative Assistant, and the CEO reviews allocation journal entries made by the CFO.

2019-012 Allowable Costs: Maintain Supporting Documentation for All Transactions. Federal Program Information: Cooperative Agreements to Support State-Based Safe Motherhood and Infant Health Initiative Program (CFDA 93.946) and Teenage Pregnancy Prevention Program (CFDA ? 93.297) The material weakness at finding 2019-002 also applies to these programs. 2019-002 Maintain Supporting Documentation for All Transactions. Condition and Criteria: There were 5 out of 91 (60 federal, 31 nonfederal) instances identified during the audit where inadequate or no support was maintained for expenses, including federal expenditures and allocations of expenses among projects. Costs should be supported by appropriate documentation, such as approved disbursement authorization, vendor invoices, and canceled checks. Costs should also be correctly charged as to account, amount, and period in the accounting system. Prior Year Audit Finding: 2018-003 Cause and Effect: Without the proper support for expenses, the Organization is unable to substantiate costs incurred by the Organization and could result in fraudulent or inaccurate transactions in the Organization?s financial statements. Additionally, reclassifying journal entries were used to allocate expenses among projects or departments with no supporting documentation for the allocation. This could result in programs being charged inaccurate amounts of indirect costs without the proper support for the allocations. Recommendation: We recommend the Organization maintain supporting documentation for expenses to ensure that all disbursements are for the business purpose of the Organization and to comply with the federal allowable costs requirements. For allocations of expense, we recommend the Organization develop a policy to use a worksheet to allocate expenses to projects. This spreadsheet can then be attached to the supporting invoice. The spreadsheet should include the departments/projects that share the expense, the allocation methodology, and contain formula calculations to reduce errors. Additionally, we recommend costs be allocated among projects when the expense is initially entered into the accounting system to reduce the risk of human error rather than allocating expenses with reclassifying entries. Management?s Response: SHIFT NC Management understands the importance of maintaining supporting documentation for all transactions and is committed to ongoing improvement in this area. We believe that the transition of CFOs in fiscal year 2019 may have been a factor in fiscal year 2019. As of the end of fiscal year 2019, a CFO with more experience was hired, and as of April 2020 an additional external CPA was brought in as a consultant for 10-15 hours per week to help SHIFT NC strengthen its accounting records. In December 2020 an outside accounting firm was hired to take over financial management of SHIFT NC, and in conjunction with the existing CPA consultant, has worked diligently to improve SHIFT NC?s financial processes and records. In addition to keeping the books current, and cleaning up prior year records for closure and audit, the external CPAs are ensuring that documentation is maintained for all transactions, including appropriate support for journal entries. The consultant CPAs also ensure that allocations are calculated correctly via worksheets that clearly support the allocated costs. Files are securely maintained electronically, and worksheets are protected once complete to avoid future changes.

2019-013 Allowable Costs: Lack of Review of Disbursements by Employee Knowledgeable of Federal Regulations. Federal Program Information: Cooperative Agreements to Support State-Based Safe Motherhood and Infant Health Initiative Program (CFDA 93.946) and Teenage Pregnancy Prevention Program (CFDA ? 93.297) The significant deficiency at finding 2018-003 also applies to this program. Prior year audit finding: N/A Context: SHIFT paid amounts in excess of the federal subaward agreements on 3 federal awards totaling $81,039. Questioned Costs: $81,039. The material weakness at finding 2019-004 also applies to these programs. 2019-004 Lack of Review of Disbursements by Employee Knowledgeable of Federal Regulations. Condition and Criteria: The Organization has entered into subaward agreements with several subrecipient organizations. The subawards should be paid in accordance with the agreement and within the project period. There were several subaward payments made in excess of the agreement. Prior Year Audit Finding: N/A Cause and Effect: The Organization did not have an individual with sufficient knowledge of Federal grant requirements overseeing disbursements to subrecipients to ensure disbursements were appropriate. The disbursements process involves employees that are not as familiar with the subrecipient agreements and there was no comparison of requested disbursements to Federal grant requirements. This resulted in payments in excess of the agreements being paid to subrecipients totaling $81,039. As of June 30, 2019, $73,539 is due back to Organization as a result of the overpayment. Recommendation: We recommend the Organization involve someone with the appropriate knowledge of subaward agreements in the disbursements process to ensure that payments are not made in excess of the grant agreements. This could be accomplished by only reimbursing subrecipients after review of reported expenditures has been done by an appropriate individual or by carefully monitoring spending of any funds advanced to subrecipients and require a return of any funds not used for approved expenditures. Management?s Response: SHIFT NC management understands the importance of appropriate review of disbursements in order to reduce the risk of error or non-compliance. Accordingly, as of fiscal year 2021, management has hired CPA consultants who are familiar with federal awards to oversee the financial management of SHIFT NC. In addition to the CPA consultants, disbursements to subrecipients are also reviewed by program staff who are familiar with the grant awards that they manage. The external consultants review all grant awards received including special conditions and specific requirements; they review any disbursements made by SHIFT NC for reasonable and appropriate documentation; and they have worked with staff to adjust processes and practices to be sure that they are aligned with federal requirements. In addition the CPA consultants have worked with staff to create subaward agreements that comply with federal grant regulations.

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