MENDING HEARTS INCNon-Profit

Finding 2025-003: Matching Requirement Not Monitored - Material Weakness Federal Program: Substance Abuse and Mental Health Services Projects of Regional and National Significance Assistance Listing Number: 93.243 Federal Agency: U.S. Department of Health and Human Services Federal Award Identification Numbers: 5H79TI084739-02, 5H79TI084739-03 Award Year: 2024 and 2025 Criteria: The grant agreement requires the recipient to provide and document a specified nonfederal matching contribution as a condition of the award. In addition, 2 CFR § 200.306 establishes requirements applicable to cost sharing or matching contributions, including that such contributions be verifiable from the non-Federal entity's records. Accordingly, the grantee is required to maintain sufficient records to demonstrate compliance with the matching requirements of the federal award. Condition: The grantee did not maintain a process to identify, track, or document qualifying matching contributions during the grant period. As a result, management was unable to provide sufficient documentation to demonstrate whether the required matching contribution had been met, and we were unable to perform procedures to determine compliance with the matching requirement. Cause: Management has not established procedures or internal controls to identify, monitor, calculate, and document qualifying matching contributions throughout the grant period. Effect: Without adequate tracking and supporting documentation, the grantee is unable to demonstrate compliance with the matching requirement. As a result, there is an increased risk that required matching contributions may not be met or may not be adequately supported, which could result in noncompliance with the terms and conditions of the federal award and potential disallowance or repayment of federal funds. Questioned Costs: None noted. Context: The required matching contribution for the 2024 grant year was $58,400 and was not considered material for purposes of the audit. The required matching contribution for the 2025 grant year was $175,000 and was considered material. Because the grantee did not maintain records identifying and tracking qualifying matching contributions, a population of matching contributions was not available from which to select a sample. Accordingly, no sample was selected, and statistical sampling was not applicable. As a result, we were unable to perform testing to determine whether the required matching contribution for the 2025 grant year was met. Recommendation: We recommend that management implement procedures to identify, track and document qualifying matching contributions throughout the grant period. These procedures should include periodic monitoring of accumulated matching contributions, retention of sufficient supporting documentation and supervisory review to ensure compliance with the matching requirements of the grant agreement. Views of Responsible Officials: Management acknowledges this finding and will address remediation in management's corrective action plan.

Finding 2025-004: Inadequate Supporting Documentation and Review Controls Over Federal Expenditures and Payroll - Material Weakness Federal Program: Substance Abuse and Mental Health Services Projects of Regional and National Significance Assistance Listing Number: 93.243 Federal Agency: U.S. Department of Health and Human Services Federal Award Identification Numbers: 5H79TI084239-04, 5H79TI084739-02, 5H79TI084739-03 5H79TI082707-05 Award Year: 2024 and 2025 Criteria: In accordance with 2 CFR Part 200 (Uniform Guidance), costs charged to Federal awards must be adequately documented, allowable, allocable, reasonable, and consistently treated. Additionally, internal controls should provide for appropriate review and approval of expenditures and payroll transactions to help ensure only allowable costs are charged to Federal awards. Condition: During testing of 40 expenditure transactions for compliance with the Allowable Costs/Cost Principles compliance requirement, the auditee was unable to provide supporting documentation for three transactions selected for testing. As a result, the allowability of these costs could not be determined, and there was no documentation to demonstrate that the transactions were incurred and recorded within the correct period of performance. In addition, multiple expenditure transactions lacked evidence of supervisory review and approval in accordance with the entity's established internal control procedures. During testing of 40 payroll transactions across four pay periods, auditors noted that individual payroll transactions demonstrated evidence of review by employees' direct supervisors and the Chief Financial Officer. However, the auditee's policy also requires the Chief Executive Officer to review and approve the payroll summary prior to payroll processing. Evidence of the CEO's review and approval was observed for only one of the four payroll summaries tested. The remaining three payroll summaries, representing 29 of the 40 payroll transactions tested, lacked documented evidence that the required final review and approval control had been performed. Cause: The auditee did not maintain adequate documentation to support all expenditures charged to the Federal award and did not consistently perform or document supervisory review and approval of expenditures and payroll transactions. Effect: Without adequate supporting documentation and documented review and approval procedures, the auditee cannot demonstrate that costs charged to the Federal award were allowable, reasonable, allocable, and properly authorized. This increases the risk that unallowable or unauthorized costs may be charged to Federal programs. Questioned Costs: None noted.  Context: The auditors tested a nonstatistical sample of 40 expenditure transactions and 40 payroll transactions for compliance with the Allowable Costs/Cost Principles compliance requirement. Of the 40 expenditure transactions tested, the auditee was unable to provide supporting documentation for three transactions, and multiple expenditure transactions lacked documented supervisory review and approval. Payroll testing included 40 payroll transactions selected from four payroll periods. While all individual payroll transactions evidenced review by employees' direct supervisors and the Chief Financial Officer, only one of the four payroll summaries tested included documented evidence of the Chief Executive Officer's required review and approval. The remaining three payroll summaries, representing 29 of the 40 payroll transactions tested, lacked evidence that the required final-level review control had been performed. The transactions tested were selected using a nonstatistical sampling approach and were not intended to be statistically representative of the population. Recommendation: We recommend the auditee strengthen its internal controls over Federal expenditures by maintaining complete supporting documentation for all transactions charged to Federal awards and ensuring that all expenditure and payroll transactions receive documented supervisory review and approval prior to payment or inclusion in payroll processing. Management should periodically monitor compliance with these procedures to ensure they are consistently followed. Views of Responsible Officials: Management acknowledges this finding and will address remediation in management's corrective action plan.

Finding 2025-005: Inadequate Controls Over Federal Reimbursement Draw Requests - Significant Deficiency Federal Program: Substance Abuse and Mental Health Services Projects of Regional and National Significance Assistance Listing Number: 93.243 Federal Agency: U.S. Department of Health and Human Services Federal Award Identification Numbers: 5H79TI084239-03, 5H79TI084239-04, 5H79TI084739-02, 5H79TI084739-03, 5H79TI082707-05 Award Year: 2024 and 2025 Criteria: Per 2 CFR § 200.305(b), payment methods must minimize the time elapsing between the transfer of federal funds and the disbursement of those funds by the recipient. For reimbursement payment methods, draw requests should be based solely on allowable, allocable, and paid expenditures. Effective internal controls, as required by 2 CFR § 200.303, include supervisory review of supporting documentation to verify the accuracy, completeness, and allowability of expenditures prior to submitting reimbursement requests. Condition: For 10 of 10 reimbursement draw requests tested, Mending Hearts’ did not maintain controls to ensure draw requests were supported by a review of actual expenditures paid prior to submission. Specifically, reimbursement requests were not tied directly to actual expenditures incurred and paid by Mending Hearts. In addition, there was no documented review of supporting invoices, payment documentation, schedules, or other reports to verify that expenditures had been paid with Mending Hearts’ funds before reimbursement was requested. Cause: Management has not established or implemented formal procedures requiring reimbursement requests to be reconciled to paid expenditures and independently reviewed prior to submission. Effect: Without adequate review procedures, Mending Hearts is at increased risk of requesting reimbursement for expenditures that have not yet been paid, are unsupported, or are otherwise unallowable. This increases the risk of noncompliance with federal cash management requirements and may result in questioned costs, repayment of federal funds, or other administrative action. Questioned Costs: None noted. Context: This condition was identified through testing of 10 reimbursement draw requests selected from the population of federal reimbursement requests submitted during the audit period. Exceptions were noted in all 10 items tested. The transactions tested were selected using a nonstatistical sampling approach and were not intended to be statistically representative of the population. Recommendation: We recommend that management implement formal cash management procedures requiring all reimbursement draw requests to be supported by detailed expenditure schedules and documentation demonstrating that expenditures have been paid with Organization funds. Prior to submitting reimbursement requests, an independent review should be performed and documented to verify that all requested amounts are accurate, supported, allowable, and based on actual paid expenditures. Views of Responsible Officials: Management acknowledges this finding and will address remediation in management's corrective action plan.

Finding 2025-006: Reporting and Expenditure Cutoff - Material Weakness Federal Program: Substance Abuse and Mental Health Services Projects of Regional and National Significance Assistance Listing Number: 93.243 Federal Agency: U.S. Department of Health and Human Services Federal Award Identification Number: 5H79TI084739-02 Award Year: 2024 Criteria: Recipients of federal awards are required to submit financial reports in accordance with the reporting requirements and deadlines established by the applicable grant agreement and federal program requirements. Amounts reported should relate to the applicable grant period and should accurately reflect the financial activity of that period. Condition: During our testing of reporting requirements for two grants, we noted the financial report for one grant was not submitted within the required reporting timeframe. In addition, the report included expenditures and related receipts attributable to the subsequent grant period rather than limiting reported activity to the period covered by the report. Cause: Management did not have adequate procedures in place to ensure that required reports were submitted timely and that reported expenditures and receipts were limited to activity applicable to the appropriate grant period. Effect: Failure to submit required reports timely may result in noncompliance with federal award requirements. Additionally, including activity from a subsequent grant period may result in inaccurate reporting of grant activity and could affect the federal awarding agency's ability to appropriately monitor the award. Questioned Costs: None noted.  Context: The audit procedures included testing the reporting compliance for two grants. One of the two grants tested had a report that was submitted after the required due date and included financial activity related to the subsequent grant period. No reporting exceptions were identified for the other grant tested. The transactions tested were selected using a nonstatistical sampling approach and were not intended to be statistically representative of the population. Recommendation: We recommend that management strengthen its procedures over federal award reporting to ensure that required reports are prepared and submitted by established deadlines. Such procedures should also include a review of reported expenditures and receipts to verify that amounts are attributable to the applicable reporting and grant period prior to submission. Views of Responsible Officials: Management acknowledges this finding and will address remediation in management's corrective action plan.

2024-002 Untimely submission of data collection form and compliance with reporting requirements Federal Programs Information Funding Agency: U.S. Department of Health and Human Services Pass-Through Agency: TN Department of Mental Health & Substance Abuse Services 1) 93.959 Federal Block Grants for Prevention of Substance Abuse DGA 78087_2023-2024_023 and DGA 82413_2024-2026_204 2) 93.788 Opioid STR H79TI0883307 and DGA 78005_2022-2023_076 Criteria In accordance with 2 CFR Section 200.512(a), the audit must be complete, and the data collection form and the reporting package must be submitted within the earlier of 30 days after receipt of the auditor’s report(s), or nine months after the end of the audit period, adjusted for any extension permitted by the Office of Management and Budget. Mending Hearts did not meet the nine-month deadline. Condition The audit, reporting package and data collection form for the year ended June 30, 2024, was not filed by the deadline of March 31, 2025, to the Federal Audit Clearinghouse. Cause Mending Hearts has been in a period of expansion of their operations and has also experienced administrative staff changes, resulting in limited resources available to produce a complete, accurate and timely closing of the books. Effect or potential effect Delays in submission of audit reports, reporting packages and data collection forms raise concerns about Mending Hearts’ reliability in adhering to accounting and compliance requirements in a timely manner, potentially jeopardizing its ability to secure funding. Recommendation We recommend that Mending Hearts’ ensure that administrative staffing is sufficient to support the accounting and financial reporting functions of the organization. Views of responsible officers Management acknowledges this finding and will address remediation in the accompanying management’s corrective action plan in appendix A.

Criteria As required by the Uniform Guidance, a non-federal entity may not earn or keep any profit resulting from federal assistance, unless explicitly authorized by terms and conditions of the award. Condition Mending Hearts elected to charge the de minimis rate of 10 percent of modified total direct costs (“MTDC”) to the grant but did not calculate the de minimis rate using the appropriate base. Cause Rather than calculating 10 percent of MTDC to determine reimbursement requests, Mending Hearts allocated and requested reimbursement of indirect costs based on the total indirect costs included in the grant budget. Context The year ended June 30, 2023 represents the first year in which Mending Hearts has received a grant including budgeted indirect costs. Testing of indirect costs was based on the total direct costs requested for reimbursement during the fiscal year and, therefore, 100% of the indirect costs were tested. Auditor’s Recommendations Mending Hearts should determine MTDC prior to calculating the amount of indirect costs to include in grant reimbursement requests. The calculation should be reviewed by someone other than the individual preparing the calculation. Views of Responsible Officials Management agrees with the auditor’s recommendation and will calculate indirect cost reimbursement requests using the appropriate base going forward, and will implement appropriate review and approval procedures over the process. A future reimbursement request will be adjusted to offset the excess funding that was received during the year ended June 30, 2023. Effect Mending Hearts received excess funding of indirect costs of approximately $9,300 during the fiscal year. As correction of the excess funding will be made on a future reimbursement request, this largely represents a timing difference between costs incurred and the reimbursement of the related indirect costs allowed under the terms of the grant. Questioned Costs Questioned costs did not meet the $25,000 reporting threshold.

Criteria Under the requirements of the Federal Funding Accountability and Transparency Act (“FFATA”), recipients of grants or cooperative agreements are required to report first-tier subawards of $30,000 or more to the Federal Funding Accountability and Transparency Act Subaward Reporting System (“FSRS”) no later than the last day of the month following the month in which the subaward was made. Condition Mending Hearts did not timely report the $200,000 subaward granted to Meharry Medical College during the year ending June 30, 2023. Cause Mending Hearts was not aware of the FFATA reporting requirement. Effect Mending Hearts did not provide timely reporting of the $200,000 subaward granted to Meharry Medical College. Upon becoming aware of the filing requirements, Mending Hearts completed the required filing. Questioned Costs None. Context The year ended June 30, 2023 represents the first year in which Mending Hearts was subject to the FFATA reporting requirement, and the PPW grant is the only grant received during the year that included a pass-through of funding to a subrecipient. Testing, therefore, included the entire population of grants subject to the reporting requirement. Auditor’s Recommendations Mending Hearts should gain an understanding of when FFATA reporting is required, carefully review awards to identify grants subject to the reporting requirement, identify key data elements required for complete and accurate reporting, and ensure that reporting is completed no later than the last day of the month following the month in which a subaward is made. Views of Responsible Officials Management agrees with the auditor’s recommendation. On March 22, 2024, Mending Hearts registered with the FSRS and filed the required FFATA report associated with PPW subaward granted to Meharry Medical College.

Item #2021-001 Substance Abuse and Mental Health Services Projects of Regional and National Significance CFDA No. 93.243 Criteria Mending Hearts, Inc. (the ?Organization?) currently has no process whereby drawdown requests and underlying calculations are reviewed prior to submission. Condition and Context The monthly drawdown requests and underlying calculations submitted for reimbursement under the federal grant were not reviewed by an independent party prior to submission. Questioned Cost None Cause The Organization?s management was unaware that an independent review of the drawdown requests submitted was necessary. Effect The Organization submitted drawdown requests that were not reviewed by third party other than the preparer prior to submission. Recommendation We recommend the Organization?s management implement procedures whereby requests made in accordance with grant terms are reviewed by an independent party prior to submission to help ensure intentional or unintentional errors do not occur.

Item #2020-001 Substance Abuse and Mental Health Services Projects of Regional and National Significance CFDA No. 93.243 Criteria Mending Hearts, Inc. (the ?Organization?) currently has no process whereby drawdown requests and underlying calculations are reviewed prior to submission. Condition and Context The monthly drawdown requests and underlying calculations submitted for reimbursement under the federal grant were not reviewed by an independent party prior to submission. Questioned Cost None Cause The Organization?s management was unaware that an independent review of the drawdown requests submitted was necessary. Effect The Organization submitted drawdown requests that were not reviewed by third party other than the preparer prior to submission. Recommendation We recommend the Organization?s management implement procedures whereby requests made in accordance with grant terms are reviewed by an independent party prior to submission to help ensure intentional or unintentional errors do not occur. Views of Responsible Officials and Planned Corrective Actions The Organization agrees with the finding and the recommended procedures will be implemented.