Texas Association for the Education of Young Children, Inc.Non-Profit

Management Response: TXAEYC acknowledges that during testing, certain samples did not include documented approval of invoices prior to allocation to grant activities. We recognize the need for robust internal controls to reduce the risk of noncompliance. To remedy this, the organization will implement a strict prior approval process for all grant expenditures. We will update our standard operating procedures to ensure that every invoice is reviewed and approved by authorized personnel before being allocated to the grant. Furthermore, all support for these approvals will be documented and kept on file to ensure a clear audit trail. Parties Responsible and Timeline Updates to the expenditure approval procedures in the Accounting Manual will be drafted by the Executive Director and Accountant and submitted to the Finance Committee and Governing Board for approval by April 30, 2026. Implementation of the prior approval documentation process will begin immediately upon Board approval.

Management Response: Management acknowledges that funding percentages in the accounting system did not match the cost allocation plan for several transactions, resulting in a nominal overcharge to the grants. To prevent this in the future, management will institute a mandatory verification step where funding percentages entered into the accounting system are cross-referenced directly against the approved cost allocation plan. We will ensure that the amounts charged to grants agree strictly with the approved percentages. Any discrepancies or rounding issues will be addressed by allocating differences to the organization's operating expense class rather than a government grant, ensuring federal awards are not overcharged. Parties Responsible and Timeline The Executive Director and Accountant will conduct a review of current system percentages against the cost allocation plan immediately. Updates to the internal review process for cost allocations will be approved by TXAEYC’s Finance Committee and Governing Board by April 30, 2026.

2024-002

Management Response: TXAEYC’s Payroll Processing section of the Accounting Manual will be updated to reflect the following changes: “Direct supervisors will review and approve their direct reports’ timesheets to ensure time is accurately recorded and all hours worked are assigned a cost allocation. The Director of Operations conducts a second layer of approval for all employee timesheets and processes payroll via the payroll platform. The Director of Operations may not process payroll without ensuring Supervisor Approval has been entered for all timesheets within the payroll platform. Additionally, the Director of Operation shall approve the timesheet of the Executive Director/Chief Executive Officer.” Parties Responsible and Timeline Updates to the Accounting Manual will be approved by TXAEYC’s Finance Committee and Governing board by April 30, 2025. The Director of Operation will implement changes to approved by the Finance Committee and Governing Committee immediately following their approval.

Management Response: The variance from the cost allocation is related to rounding errors as a result of the sum of the allocation percentages adding up to slightly over 100 percent. This is due to rounding errors when utilizing formula functions within Microsoft Excel. Additionally, when applying the allocation percentages to a shared expenses, the resulting amounts do not always add up to the exact amount of the expenses. Typically, the resulting cautions produce an error within less than $5 and/or less than 1% of the total expense. TXAEYC staff manually adjust the allocated expenses to add up to the total expense. To remedy this from happening in the future, if any rounding issues produce a difference in the total expenses allocated, the difference will be allocated to the organization’s operating expense class rather than a class associated with a government grant. The following language will be added to the TXAEYC Accounting Manual: “Allocations percentages should be rounded to two decimal places (example 3.21%). If the total of percentages does not fully equal 100 percent, the difference should be added to the allocation percentage assigned to TXAEYC operating expenses. If the sum exceeds 100 percent, an equal amount should be attempted to be subtracted from each class associated with a government grant and added to the allocation percentage assigned to TXAEYC operating expenses. When applying the indirect cost allocations, if the total of the allocations when summed do not equal the total expense amount, the difference should be added to the allocations to TXAEYC operating expenses.” Parties Responsible and Timeline Updates to the Accounting Manual will be approved by TXAEYC’s Finance Committee and Governing board by April 30, 2025.

The administration of Texas Association for the Education of Young Children acknowledges receipt of the following audit findings for the fiscal year 2023. While in agreement with the findings, management provides the following response: Commencing in July 2023, an executive team was assembled, comprising the appointment of a Chief Financial Officer and a Director of Operations. Before this, the Executive Director managed all operations and finances, assisted by a Finance Manager and Administrative Assistant. The inclusion of over 25 years of professional leadership and Master level education of the CFO and DOO was crucial to accommodate the growth experienced by TXAEYC in preceding months and anticipated in FY23. Additionally, it led to an additional level of check and balances on operational and financial responsibilities. Upon the arrival of CFO Casey Cole, effective August 1, 2022, TXAEYC updated its accounting policies and procedures to align with GAAP and general best practices. This update guaranteed the provision of timely reports and documentation for all financial transactions, encompassing accounts payable, vendor profiles, contracts, and procurement, overseen by the DOO. The CFO collaborates with an external accounting firm tasked with managing data entry and monthly reconciliations, offering support and guidance as necessary. The involvement of the accounting firm enhances the review process and provides additional expertise to ensure the accuracy of financial records. Finding 2023-001: Internal Control Over Compliance: Federal Award Findings and Questioned Costs Management Response: The finding for not obtaining an open request for proposal was dated to fiscal year 2022 – not 2023. The request for proposal process was not followed as it was not posted to the public as policy states. Multiple vendors were sought out for quotes/RFI (request for information) due to the limited availability of qualified contractors. 1. Board Training: o Since fiscal year 2022, comprehensive board trainings have been conducted at the onset of each fiscal year. These sessions encompass a review of policies and procedures that TXAEYC must abide that include but are not limited to those that fall under the purview of the board and its committees. Both new and existing board members participate in these training to ensure alignment with organizational policies and best practices. 2. Updated Accounting Manual: o In fiscal year 2023, an updated Accounting Manual was developed. This revised manual contains clearer policies and delineates the responsibilities of staff and board members including procurement processes and adherence to established policies. o The manual was revised by the CFO, reviewed by the Finance Committee multiple times, and underwent executive staff leadership review. After extensive review, it was then sent to the board for final review and vote for unanimous approval, then implemented. 3. Enhanced Oversight with the Hiring of the CFO and DOO: o The recruitment of a Chief Financial Officer (CFO) and a Director of Operations (DOO) has strengthened oversight over procurement practices. The CFO and DOO are tasked with reviewing contracts and spearheading procurement activities, ensuring strict adherence to organizational policies and regulations. 4. Re-establishment of Finance Committee: o Recognizing the absence of a Finance Committee in fiscal year 2022, steps have been taken to re- establish this vital oversight body. The Finance Committee will play a pivotal role in monitoring procurement activities, reviewing financial processes, and providing guidance to ensure compliance with organizational policies and regulatory requirements. Additionally, further corrective measures will be implemented, including: • Conducting regular audits of procurement processes to identify and address any deviations from established policies. • Implementing a centralized procurement system to streamline and standardize procurement practices across the organization. • Providing ongoing training and guidance to staff involved in procurement to enhance their understanding of policies and procedures. • Establishing clear protocols for vendor selection and evaluation to ensure transparency and fairness in the procurement process. Parties Responsible: Oversight of Procurement: Director of Operations Board Training: Executive Director Maintaining a Finance Committee: Board of Directors Oversight of financial policies and procedures being followed: Chief Financial Officer Date of expected completion of corrective actions: The items outlined in the management response have already been put in place as of Fiscal Year 2023 and will continue to be fulfilled and monitored by responsible parties.