Leadership MemphisNon-Profit

Lack of Documented Review and Approval of Costs Charged Corrective Action: Although current management was not involved during the audit period, the Organization recognizes the importance of documented expenditure review under Uniform Guidance. A formal procedure is being developed that will require all grant-related expenditures to be reviewed and initialed or electronically approved by authorized personnel. The policy will require documentation that clearly demonstrates both the allowability of the cost and its alignment with approved program activities. These procedures will be implemented and tested beginning with FY26 expenditures.

Lack of Documentation of Payroll Allocations and Pay Rate Approvals Corrective Action: The Organization lacked adequate timekeeping and pay rate documentation controls during FY23, and no current management or staff were present at the time. As of FY26, the Organization has begun implementing new payroll oversight processes. Going forward, timecards will be required for any employee whose time is allocated to multiple functions or funding sources. Management will also require documentation of payroll approvals (e.g., signed letters or memos) for all employees and will store these documents in both hard copy and electronic format. Payroll allocation methodologies will be reassessed at least every three years using a representative time study.

2023-009 – Lack of Documented Allocation Methodologies for Costs Charged to Federal Awards Corrective Action: This finding is a continuation of a prior year deficiency related to the lack of formal allocation methodologies. Management is currently drafting a cost allocation policy that includes specific guidance on how to allocate shared costs (e.g., rent, insurance, software) across programs, management & general, and fundraising functions. The new policy will include acceptable bases such as square footage, staff headcount, or usage logs and will be reviewed annually. All allocations will be supported by schedules retained with the audit documentation.

Inadequate Controls Over Expenditure Allocations Condition: Expenditures allocated to federal awards were not based on rational and consistent allocation methodologies. Criteria: Expenditures charged to federal award programs should be reasonable and necessary. Those costs that are allocated should include documentation of the specific allocation methodologies used.Cause: The Organization obtained their first federal funding as a result of the COVID-19 pandemic. The Organization did not have an internal control system in place to meet the criteria required under the more robust internal control framework provided by the Uniform Guidance. As a result, even though audited allocated expenses appeared reasonable, a documented methodology was not in writing. Effect: Of the expenditures tested, most were initially allocated within the general ledger under a different methodology than was eventually expensed under the federal grant awards. Additionally, audit time and bookkeeping time was incurred to reconcile between the two allocation methodologies, and, in most cases, there was no documentation of the eventual allocation methodology. Many of the allocations reviewed relied on oral assertions of expenditures applicable to different Organization functions and federal award programs. In addition, although the allocations charged to the grants appeared to be consistent within a range, the initial assessment appeared to be based on budgetary concerns rather the use. Recommendation: Indirect costs, such as overhead and other split expenses, should be based on a written allocation methodology. For example, overhead expenses such as rent and utilities could be based on the square footage occupied by employees that provide services to specific Organization functions. Other expenses such as the purchase of supplies should be charged directly to the function or program utilizing the supplies or over rational basis of use if utilized under many functions or programs. Employee time should be allocated specifically based on the hours in the date spent towards achieving the goals of the Organization’s functions or programs. As a further recommendation, the Organization should obtain training to gain a full understanding of the internal control requirements under the Uniform Guidance internal control framework. Management’s Response: See management’s corrective action plan.

Inadequate Controls Over Expenditure Allocations Condition: Expenditures allocated to federal awards were not based on rational and consistent allocation methodologies. Criteria: Expenditures charged to federal award programs should be reasonable and necessary. Those costs that are allocated should include documentation of the specific allocation methodologies used.Cause: The Organization obtained their first federal funding as a result of the COVID-19 pandemic. The Organization did not have an internal control system in place to meet the criteria required under the more robust internal control framework provided by the Uniform Guidance. As a result, even though audited allocated expenses appeared reasonable, a documented methodology was not in writing. Effect: Of the expenditures tested, most were initially allocated within the general ledger under a different methodology than was eventually expensed under the federal grant awards. Additionally, audit time and bookkeeping time was incurred to reconcile between the two allocation methodologies, and, in most cases, there was no documentation of the eventual allocation methodology. Many of the allocations reviewed relied on oral assertions of expenditures applicable to different Organization functions and federal award programs. In addition, although the allocations charged to the grants appeared to be consistent within a range, the initial assessment appeared to be based on budgetary concerns rather the use. Recommendation: Indirect costs, such as overhead and other split expenses, should be based on a written allocation methodology. For example, overhead expenses such as rent and utilities could be based on the square footage occupied by employees that provide services to specific Organization functions. Other expenses such as the purchase of supplies should be charged directly to the function or program utilizing the supplies or over rational basis of use if utilized under many functions or programs. Employee time should be allocated specifically based on the hours in the date spent towards achieving the goals of the Organization’s functions or programs. As a further recommendation, the Organization should obtain training to gain a full understanding of the internal control requirements under the Uniform Guidance internal control framework. Management’s Response: See management’s corrective action plan.