PROMISE HOUSE INC.Non-Profit

Noncompliance: Lack of substantiation of grant expenditures Federal Program U.S. Department of Health and Human Services Transitional Living for Homeless Youth, ALN 93.550 Transitional Living for Pregnant and Parenting Youth, ALN 93.550 Transitional Living Program for LGBTQ, ALN 93.550 Compliance Requirement: Allowable costs, period of performance Criteria Program requirements state that the federal grant funds are to be spent on allowable costs per the approved budget for program expenditures. Condition Expenditures for the programs during the fiscal year were less than the federal draws received from the grantor. Federal expenditures were not properly allocated to the program within the general ledger. Cause Monthly federal draws were made for one-twelfth of the annual grant instead of actual monthly expenditures. The Organization?s financial office did not communicate with the Organization?s program employees to identify actual expenditures or allocate expenditures to the program, resulting in federal funds being drawn to cover unsubstantiated expenditures. Monthly draws were not reduced for vacancies in personnel or for reduced leasing costs. Effect The Organization drew grant funds of $122,549 for unsubstantiated and unallocated costs, including fringe benefits and program-related expenditures such as supplies, food, and security, for the period September 2020 through August 2021. As of August 31, 2021, $122,549 was reported as deferred federal grant revenue in the statement of financial position as the conditions of the grants had not been satisfied. Questioned Costs $122,549 Repeat Finding Yes; prior year finding 2020-001 Recommendation The Organization should improve communication between the finance and program departments, providing for a program-specific employee to review financial budgets and expenditures monthly to verify all federal grant draws are appropriate and properly substantiated. The president should review both financial and programmatic documentation prior to approving the federal draws. Views of responsible officials Management agrees with the finding and has approved and posted the auditors? proposed adjustment for the deferred federal grant revenue of $151,512 as of August 31, 2021. See management?s Corrective Action Plan attached to this report.

Noncompliance: Lack of substantiation of matching funds Federal Program U.S. Department of Health and Human Services Transitional Living for Pregnant and Parenting Youth, ALN 93.550 Compliance Requirement: Matching Criteria The notice of award requires a non-federal share of the award of approximately 10% of the total award. Condition For the fiscal year ended August 31, 2021, no matching funds were allocated or attributed to the grant within the Organization?s general ledger. No substantiation was provided for the matching requirement. It is possible matching expenditures were made by the Organization during the fiscal year but were not properly allocated to the grant program in the general ledger. Cause The Organization?s finance office did not properly track expenditures related to the Transitional Living for Pregnant and Parenting Youth (TLP MGH) program, resulting in no internal documentation of matching costs. The program employees did not review the financial reports. Effect The Organization did not track matching funds and could not provide substantiation of the non-federal matching funds. As a result, the Organization does not appear to meet the 10% match requirement for the fiscal year ended August 31, 2021. Questioned Costs Approximately 10% of the expended funds during the fiscal year. Repeat Finding Yes; prior year finding 2020-002 Recommendation The Organization should improve communication between the finance and program departments, providing for a program-specific employee to review financial budgets and expenditures monthly to verify all federal grant draws are appropriate and properly substantiated, including the non-federal share of expenditures. More than one employee should be involved in the preparation of the federal financial reports. Views of responsible officials Management has agreed with the need to substantiate expenditures and appropriately allocate expenditures within the general ledger to the appropriate programs. See management?s Corrective Action Plan attached to this report.

Noncompliance: Unable to locate required financial and performance reports Federal Program U.S. Department of Health and Human Services Transitional Living for Homeless Youth, ALN 93.550 Transitional Living for Pregnant and Parenting Youth, ALN 93.550 Transitional Living Program for LGBTQ, ALN 93.550 Compliance Requirement: Reporting Criteria The notice of award requires the Organization to submit an annual federal financial report (SF-425) within 90 days after the end of each budget period. The annual SF-425 report must reflect final accounting for the budget period and ensure that any cost share has been met in proportion to the amount of federal funds expended. The Organization is also required to report project progress on a semi-annual basis using the Program Progress Report (PPR) which is due 30 days after the end of the second and fourth quarter of the budget period. Condition For the fiscal year ended August 31, 2021, grant period ended September 30, 2021, the Organization could not locate or obtain the required annual SF-425 reports or any PPR reports for the above federal programs. Cause It is unknown if the required reports were filed by the former Chief Financial Officer and former Chief Program Officer. If the reports were filed, the Organization?s finance office did not properly retain copies of the filed reports. Effect We were unable to test compliance or internal controls over reporting for the fiscal year ended August 31, 2021. Recommendation The Organization should implement a review by the President or board for the proper filing of required federal reports and a retention policy for a shared electronic location for filed federal reports. Views of responsible officials Management has agreed with the need to meet the reporting compliance requirement and will work to implement the recommendations above. See management?s Corrective Action Plan attached to this report.

Noncompliance: Lack of substantiation of grant expenditures Federal Program U.S. Department of Housing and Urban Development Supportive Housing Program, ALN 14.267 Compliance Requirement: Special Tests, Period of performance Criteria Program requirements state that the federal grant funds for rent, the rent paid must be reasonable in relation to rents being charged in the area for comparable housing units. The Organization may charge only allowable costs during the approved budget period. Condition Expenditures for the programs during the performance period (and fiscal year) were less than the federal draws received from the grantor. Federal expenditures for rent assistance were not properly allocated to the program or recorded within the general ledger. Half of the rent expenditures selected for testing did not have properly documented reasonable rent or approval for participation in the program. Cause Monthly federal draws were made for one-twelfth of the annual grant instead of actual monthly expenditures. The Organization?s financial office did not communicate with the Organization?s program employees to identify actual expenditures or allocate expenditures to the program, resulting in federal funds being drawn to cover unsubstantiated rent expenditures. Program employees believe the federal funds were spent on rental assistance during the year but current accounting personnel could not identify additional appropriate rental expenditures made during the period of performance. Due to COVID-19 restrictions and employees working remotely, program participant files could not be located for substantiation. Effect The Organization drew grant funds of $64,981 for unsubstantiated rental assistance expenditures for the period September 2020 through August 2021. As of August 31, 2021, $64,981 was reported as deferred federal grant revenue in the statement of financial position as the conditions of the grants had not been satisfied. Of the 31 testing selections totaling $21,234 for rent reasonableness, 15 selections totaling $10,961 did not have evidence of the rent reasonableness checklist and approval or documentation of program approval. However, we note that the rent payments made were substantiated by proof of payment for the specified program and the rental rates were consistent with the rental rates that were evidenced by the rent reasonableness checklist and approval forms for similar expenditures. As such, the $10,961 is not reported as questioned costs. Questioned Costs $64,981 Recommendation The Organization should improve communication between the finance and program departments, providing for a program-specific employee to review financial expenditures identified by the accountants monthly to verify all federal grant draws are appropriate and properly substantiated. The president should review both financial and programmatic documentation prior to approving the federal draws. The Organization should also establish a regular internal review of program participant files to verify all files contain the completed forms and evidence proper approvals to meet compliance requirements. Views of responsible officials Management agrees with the finding and has approved and posted the auditors? proposed adjustment for the deferred federal grant revenue of $64,981as of August 31, 2021. Internal procedures will be reviewed for program participant files. See management?s Corrective Action Plan attached to this report.

Noncompliance: Over expenditure on administrative costs Federal Program U.S. Department of Housing and Urban Development Supportive Housing Program, ALN 14.267 Compliance Requirement: Earmarking Criteria The notice of award requires no more than 10 percent of the grant awarded to be used for paying the costs of administering assistance. Condition For the fiscal year ended August 31, 2021, the Organization spent 11 percent of total expended grant funds on administrative costs. Cause The Organization?s finance office did not properly track or reconcile rent assistance expenditures for the program; it is unknown if those expenditures occurred. This resulted in a decrease of $69,481 of non-administrative grant expenditures and therefore a higher than budgeted percentage of administrative costs. The program employees did not review the financial reports. Effect The Organization does not appear to meet the less than 10% administrative cost requirement for the fiscal year ended August 31, 2021. Questioned Costs Approximately 1% of the expended funds during the fiscal year, or approximately $2,400. Recommendation The Organization should improve communication between the finance and program departments, providing for a program-specific employee to review financial expenditures monthly to verify all federal grant draws are appropriate and properly substantiated, including the administrative portion of expenditures. More than one employee should be involved in the preparation of the federal financial reports. Views of responsible officials Management has agreed with the need to substantiate expenditures and appropriately allocate expenditures within the general ledger to the appropriate programs. See management?s Corrective Action Plan attached to this report.

Significant Deficiency: Lack of allocation of expenses to programs and lack of substantiation for allocation of personnel time. Criteria The Organization is required by US GAAP and the OMB to maintain documented internal controls and to implement the internal controls over grant expenditures. The Organization is also required to maintain accounting records to support the federal draws for reimbursement of grant expenditures. Condition The Organization has documented internal controls requiring a two-month time study for all employees that provide shared services to multiple programs or administrative positions. The internal control system also requires monthly allocation of personnel costs and shared expenditures to the specific programs the costs are directly related to. During the year ended August 31, 2021, the Organization did not implement its requirement to perform the time allocation study. There is no documentation of the allocation of salary percentage of the chief program officer to the federal grant Transitional Living Program (ALN 93.550) or the executive director, chief operating officer, or chief program officer to the federal grant Supporting Housing Program (ALN 14.267), other than the approved grant budget. The payroll system cannot be relied upon for reporting employees in their appropriate programs. Allocation entries for shared expenditures were not made accurately within the general ledger system for the year ended August 30, 2021. Cause The chief operating officer (COO) was the primary employee over the financial system with minimal support. She did not require or perform the allocation study for the past three years, even with significant changes in personnel. There is a lack of communication between the finance and program departments and the payroll system was not consistently updated for changes in programs for the personnel. The monthly allocations of personnel and supporting expenditures were not recorded timely and were not made for all federal programs. Effect The grant program budgets were not adequately supported during the fiscal year due to the lack of allocation of expenditures and payroll costs. Repeat Finding Yes; prior year finding 2020-004 Recommendation The Organization should implement the control of performing a time allocation study on an annual basis, formally document it, and revise allocations as necessary. The payroll system should be revised to properly reflect the proper program for each employee. The finance office should implement the monthly allocation of expense entries to all programs. Views of responsible officials Management is working to improve internal communication, internal documentation of the employees that work under each program and updating the payroll system to properly identify programs and departments. See management?s Corrective Action Plan attached to this report.

Material Weakness: Lack of support and review of federal draws. Criteria The Organization?s internal control system required the COO to prepare the federal draw form including the amounts associated with each government grant and present to the President for review and signature. The President is required to review and sign the federal draw form. The federal grants require the federal draws to be substantiated for actual reimbursable expenditures in order to satisfy the conditions of the federal grant. Condition During the fiscal year ended August 31, 2021, the COO prepared the federal draw forms and the President signed the forms, based only on internal budgets that had been developed at the beginning of the fiscal year, not supported by actual expenditures. A full reconciliation to the general ledger for actual program expenditures to the federal draws could not be performed. Cause The COO had not allocated actual expenses to the grant programs so the federal draws could not be fully substantiated. The COO also did not verify the budgeted expenditures had been made for each of the major programs tested. The President did not perform a thorough review or monitoring prior to signing his approval. There was a lack of communication between the finance office and the program employees. Subsequent to year end, a new chief financial officer and grant accountant attempted to reconcile the federal draws but were unable to due to lack of accurate general ledger recording and allocation of expenditures. Effect The federal draws were not adequately supported by actual expenditures and the general ledger system, and the conditions of the grants were not met. See findings 2021-002 and 2021-005 for amounts recorded as deferred grants for the year ended August 31, 2021. Repeat Finding Yes; prior year finding 2020-005 Recommendation Actual expenditures should be utilized from the general ledger system to support the monthly federal draws. The president should review both financial and programmatic documentation prior to approving the federal draws. Views of responsible officials Management is working to improve internal communication and properly record grant-related expenditures to the appropriate grant program within the general ledger system monthly. See management?s Corrective Action Plan attached to this report.

Noncompliance: Federal funds drawn prior to the start of the program and lack of substantiation of grant expenditures. Federal Program Transitional Living for Pregnant and Parenting Youth, CFDA 93.550 Compliance Requirement: Allowable costs, period of performance Criteria: Program requirements state that the federal grant funds are to be spent on allowable costs per the approved budget for program expenditures. The approved budget did not allow for indirect costs. Condition: The grant award period began September 30, 2019, and the Organization drew funds on the grant monthly beginning in October 2019. The program did not begin until March 2020, at which time personnel were hired for the program and a home was leased. Expenditures for the program, other than personnel and lease costs, were not allocated to the program within the general ledger. Cause: The Organization?s financial office did not communicate with the Organization?s program employees to identify the start of the program, resulting in federal funds being drawn to cover payroll for employees that were not yet hired and other expenditures that were not for the specified program. The financial employees did not identify and allocate program-related expenditures such as supplies and food to the program within the general ledger. Effect: The Organization drew grant funds of $101,391 for personnel and indirect costs prior to the start of the program in March 2020. The Organization drew grant funds of $22,304 for indirect (unsubstantiated) costs for the period March 2020 through August 2020. As of August 31, 2020, $123,695 was reported as deferred federal grant revenue in the statement of financial position as the conditions of the grant had not been satisfied. Questioned Costs: $123,695 Recommendation: The Organization should improve communication between the finance and program departments, providing for a program-specific employee to review financial budgets and expenditures monthly to verify all federal grant draws are appropriate and properly substantiated. The president should review both financial and programmatic documentation prior to approving the federal draws. Management?s Response: Management agrees with the finding and has approved and posted the auditors? proposed adjustment for the deferred federal grant revenue of $123,695 as of August 31, 2020. See management?s Corrective Action Plan attached to this report.

Noncompliance: Lack of substantiation of matching funds. Federal Program Transitional Living for Pregnant and Parenting Youth, CFDA 93.550 Compliance Requirement: matching Criteria: The notice of award requires a non-federal share of the award of approximately 10% of the total award. Condition: For the fiscal year ended August 31, 2020, no matching funds were allocated or attributed to the grant within the Organization?s general ledger. No substantiation was provided for the matching requirement. The Organization did report $27,038 of matching expenditures for the program for the period September 30, 2019 through September 30, 2020 on the Federal Financial Report SF-425. Cause: The Organization?s finance office did not properly track expenditures related to the Transitional Living for Pregnant and Parenting Youth (TLP MGH) program, resulting in no internal documentation of matching costs. The program employees did not review the financial reports. Effect: The Organization reported matching funds without substantiation of the non-federal matching funds. We also note that the program did not start until March 2020 and had no activity prior to that date. As a result, the Organization does not appear to meet the 10% match requirement for the fiscal year ended August 31,2020. Questioned Costs: 10% of the drawn funds Recommendation: The Organization should improve communication between the finance and program departments, providing for a program-specific employee to review financial budgets and expenditures monthly to verify all federal grant draws are appropriate and properly substantiated, including the non-federal share of expenditures. More than one employee should be involved in the preparation of the federal financial reports. Management?s Response: Management has agreed with the need to substantiate expenditures and appropriately allocate expenditures within the general ledger to the appropriate programs. See management?s Corrective Action Plan attached to this report.

Noncompliance: Federal funds drawn for payroll covered by Paycheck Protection Program Federal Program All included in the Schedule of Expenditures of Federal Awards Compliance Requirement: Allowable costs Criteria: The Office of Management and Budget (OMB) has stated that the federal government prohibits an organization from being reimbursed twice for the same expense. Per Memorandum M 20-26, payroll costs paid with Paycheck Protection Program (PPP) loans must not also be reimbursed by federal awards. Condition: For the year ended August 31, 2020, the Organization received both PPP funds and federal award funds for the same personnel costs during an 8-week period. Cause: The Organization applied for and was granted PPP loan forgiveness based on an 8-week loan period, for 100% of payroll costs during the chosen period. During the same 8-week period, the Organization drew federal funds to reimburse payroll costs. Effect: The Organization utilized two sources of government revenue for the same payroll costs for an 8-week period. Had the Organization filed for PPP loan forgiveness based on the allowed 24-week period option, the payroll costs reimbursed by federal awards would have been appropriately excluded. Questioned Costs: Approximately $180,000 Recommendation: The Organization should exclude all federal program award reimbursements for payroll from the PPP 2 loan application for forgiveness for the PPP 2 loan received in the fiscal year ended August 31, 2021 or repay loan funds for the payroll reimbursed by other federal awards. Management?s Response: Management was not able to revise the application for loan forgiveness through the Small Business Administration. Had the Organization been able to revise the forgiveness application to reflect a 24-week period, there would not have been a double-use of funds. See management?s Corrective Action Plan attached to this report.

Significant Deficiency: Lack of allocation of expense to programs and lack of substantiation for allocation of personnel time. Criteria: The Organization is required by US GAAP and the OMB to maintain documented internal controls and to implement the internal controls over grant expenditures. The Organization is also required to maintain accounting records to support the federal draws for reimbursement of grant expenditures. Condition: The Organization has documented internal controls requiring a two-month time study for all employees that provide shared services to multiple programs or administrative positions. The internal control system also requires monthly allocation of personnel costs and shared expenditures to the specific programs the costs are directly related to. During the year ended August 31, 2020, the Organization did not implement its requirement to perform the time allocation study. There is no documentation of the allocation of 10% each of the executive director and chief operating officer salaries to the Basic Center Program federal grant (CFDA 93.623), other than the approved grant budget. The payroll system cannot be relied upon for reporting employees in their appropriate programs. Allocation entries for shared expenditures were not made within the general ledger system until August 30, 2020. Cause: The chief operating officer (COO) was the primary employee over the financial system with minimal support. She did not require or perform the allocation study for the past two years, even with significant changes in personnel. There is a lack of communication between the finance and program departments and the payroll system was not updated for changes in programs for the personnel. The controller and chief operating officer did not identify expenditures monthly that needed to be allocated to the specific programs. Effect: The grant program budgets were not adequately supported during the fiscal year due to the lack of allocation of expenditures and payroll costs on a monthly basis. Recommendation: The Organization should implement the control of performing a time allocation study on an annual basis, formally document it, and revise allocations as necessary. The payroll system should be revised to properly reflect the proper program for each employee. The finance office should implement the monthly allocation of expense entries. Management?s Response: Management is working to improve internal communication, internal documentation of the employees that work under each program, and updating the payroll system to properly identify programs and departments. See management?s Corrective Action Plan attached to this report.

Material Weakness: Lack of support and review of federal draws. Criteria: The Organization?s internal control system requires the COO to prepare the federal draw form including the amounts associated with each government grant and present to the President for review and signature. The President is required to review and sign the federal draw form. The federal grants require the federal draws to be substantiated for actual reimbursable expenditures in order to satisfy the conditions of the federal grant. Condition: During the fiscal year ended August 31, 2020, the COO prepared the federal draw forms and the President signed the forms, based only on internal budgets that had been developed at the beginning of the fiscal year, not supported by actual expenditures. For the TLP MGH program, federal draws were approved prior to the start of the program, see finding 2020-001. Cause: The COO had not allocated actual expenses to the grant programs so the federal draws could not be fully substantiated. The COO also did not verify the TLP MGH program had started with the program employees. The President did not perform a thorough review or monitoring prior to signing his approval. There was a lack of communication between the finance office and the program employees. Effect: The federal draws were not adequately supported by actual expenditures and the general ledger system, and draws were made on the TLP MGH program for five months prior to the start of the program. Recommendation: Actual expenditures should be utilized from the general ledger system to support the monthly federal draws. The president should review both financial and programmatic documentation prior to approving the federal draws. Management?s Response: Management is working to improve internal communication and properly record grant-related expenditures to the appropriate grant program within the general ledger system monthly. See management?s Corrective Action Plan attached to this report.