PANHANDLE INDEPENDENT LIVING CENTER, INC

MATERIAL WEAKNESS 2022-001 - Financial Management Lacks General Knowledge to Apply Generally Accepted Accounting Principles (GAAP) in the Preparation of Annual Financial Statements and Governmental Accounting Standards in the Preparation of the Annual Schedule of Expenditures of Federal Awards (SEFA): Criteria: Auditing standards require that PILC be able to take responsibility for the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America. Government auditing standards require that PILC be able to take responsibility for the preparation of PILC?s Schedule of Expenditures of Federal Awards (SEFA) in accordance with accounting principles generally accepted in the United States of America. As part of these requirements and standards, PILC is expected to employ and/or contract with personnel with general knowledge to apply Generally Accepted Accounting Standards in the preparation of the annual financial statements and Governmental Accounting Standards in the preparation of the annual SEFA. Such responsible personnel should also have general experience and knowledge with grant accounting and reporting practices. We noted a significant number of audit adjustments during the 2022 audit, some of which were required to adjust the Organization?s financial statements to the accrual basis of accounting from the cash basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America. Condition and Context: During the 2022 audit, we noted that PILC did not employ personnel with general knowledge to apply Generally Accepted Accounting Standards in the preparation of the annual financial statements and Governmental Accounting Standards in the preparation of the annual SEFA. We noted at or around PILC?s fiscal year end of September 30, 2022, PILC hired an outsourced Chief Financial Officer (CFO) whom is a licensed Certified Public Accountant (CPA) in the state of Texas. Cause: PILC did not employ personnel with general knowledge to apply Generally Accepted Accounting Standards in the preparation of the annual financial statements and Governmental Accounting Standards in the preparation of the annual SEFA. Effect or Potential Effect: PILC?s Management cannot take responsibility for the preparation of the annual financial statements in accordance with Generally Accepted Accounting Standards and preparation of the SEFA in accordance with Governmental Accounting Standards. Recommendation: We noted that PILC hired an outsourced Chief Financial Officer (CFO) whom is a licensed Certified Public Accountant (CPA) in the state of Texas immediately prior to the September 30, 2022 fiscal year end. We recommend that the outsourced CFO adjust PILC?s books for end of year accruals and prepare the SEFA in accordance with GAS. Responsible Official?s Response: PILC hired an outsourced Chief Financial Officer (CFO) whom is a licensed Certified Public Accountant (CPA) in the state of Texas immediately prior to the September 30, 2022 fiscal year end. The outsourced CFO will adjust PILC?s books for end of year accruals and prepare the SEFA in accordance with GAS.

2022-002 - Management Review and Approval of Monthly Grant Revenue Reports: Criteria: Generally Accepted Accounting Principals (GAAP) requires that management of PILC to develop internal controls for all of PILC?s operations, including internal controls surrounding the review and approval of monthly grant revenue reports. Condition and Context: During our review of internal controls, we noted that PILC has not implemented sufficient controls surrounding Management?s review and approval of monthly grant revenue reports. Cause: PILC did not maintain adequate Internal Controls to document management preparation and reviews and approvals of monthly grant revenue reports during the year ended September 30, 2022. Effect or Potential Effect: PILC could potentially request federal grant funds and record federal grant revenue which had not previously been incurred for reimbursement and met qualifying grant requirements for recognition. Recommendation: We recommend that PILC implement internal controls for management?s review and approval of monthly grant revenue reports, including an officer of PILC (CFO and/or Chief Operating Officer) review, approve and sign/initial all monthly grant reports prior to submission to enhance internal controls and the ability for auditors and others to review and document the internal control process and its effectiveness. Responsible Official?s Response: PILC has implement internal controls for management?s review and approval of monthly grant revenue reports, including an officer of PILC (CFO and/or Chief Operating Officer) will review, approve and sign/initial all monthly grant reports prior to submission.

2021-001 Grant Reporting Condition: The reporting of expenditures for a non-major Federal program was not fully supported by underlying accounting records. This grant was not considered a major program but is a finding as result of follow-up audit procedures. Criteria: Required reports for Federal awards should include all activity of the reporting period, be supported by applicable accounting or performance records, and be fairly presented in accordance with governing requirements. Cause: The Organization records and classifies expenditures in its accounting system by grant and/or program in order to account for budgeted expenditures. Certain program expenditures were not classified as program expenditures when they should have been. Program expenditures recorded were not reconciled to the annual required reporting for the grant and as a result, the report expenditures were overstated. Effect: Grant expenditures for 2021 were overstated on the annual reporting by $34,868 and a refundable advance was not recorded. It was determined that the prior year report was also overstated by $53,620. A refundable advance was recorded in 2020 but has not been refunded. Recommendation: Procedures should be in place to ensure that all grant expenditures are properly identified, recognized and classified. Reports should be reconciled to the underlying records before submission. Views of Responsible Officials and Planned Corrective Actions: PILC?s CFO, S Scheffe, will ensure grant drawdowns are supported by current expenses, reconciled for reporting purposes and the database is monitored to verify expenses are classed accurately. PILC?s CEO, J Rogers, is currently in communication with ACL to develop a plan to settle the overages with ACL. This process is ongoing.

2019-001 Net Assets Condition: Beginning net assets did not agree to the ending net assets of the previous year. Criteria: Net assets should properly reflect the beginning net assets of the Organization adjusted for the reporting period?s change in net assets. Cause: Various entries were made during the year to the net assets account that should have been posted to accounts other than net assets. Effect: Beginning net assets was materially understated by $30,829. Recommendation: Care should be exercised in allowing transactions to be posted to the net assets. The net assets account should be monitored to detect improper activity. Views of Responsible Officials and Planned Corrective Actions: The Chief Financial Officer will lock the prior year?s entries in QuickBooks after the adjusting journal entries have been made. The lock is password protected to ensure that no further entries can be made to the prior year. Also, the Chief Financial Officer will review the net assets account quarterly to make sure there are not any entries into this account

2019-002 Payroll Condition: Certain payroll compensation was improperly recorded as employee benefits instead of payroll salaries and wages. Criteria: Payroll and related employee expense accounts should properly reflect the costs of payroll. Compensation and fringe benefits should be recorded accurately to their respective expense accounts. Cause: Compensation related to health benefits was recorded and reported as fringe benefits even though it was considered as taxable wages to the employees. A payroll setting in the accounting software misdirected this compensation to the fringe benefits account. Effect: Payroll expense was understated by $86,201 and employee benefit expense was overstated by the like amount. Payroll tax reporting and information returns were not affected. Recommendation: Care should be exercised and underlying activity monitored to ensure that payroll transactions are properly posted. Views of Responsible Officials and Planned Corrective Actions: The Chief Financial Officer will change QuickBooks tracking to reflect the correct accounting of fringe benefits and wages.

2019-003 Property and Equipment Condition: Property and equipment that had been disposed of in prior years was still included in the property and equipment accounts and the associated accumulated depreciation was still included in the accumulated depreciation account. Criteria: Account balances should only indicate property and equipment that exist and are still being used by the Organization. Cause: Property and equipment that were disposed of in the prior years were not identified and removed from the books. The property and equipment listing in the depreciation schedule was not periodically reviewed for deleted items and accordingly, the assets were not removed from the books. Effect: The property and equipment accounts were overstated by $133,554 and accumulated depreciation was overstated by $121,689. Recommendation: The listing of property and equipment should be reviewed at least annually to identify disposals that occurred during the year. Transactions during the year should be reviewed to ensure expenditures for property and equipment are identified and capitalized in accordance with the Organization?s capitalization policy. Views of Responsible Officials and Planned Corrective Actions: The Chief Operating Officer will conduct an Inventory list and identify property that has been disposed of. A copy of the revised inventory list will be provided to the CFO. An annual inventory will be conducted and ongoing reviews of disbursements will be conducted to ensure that disbursements are processed in accordance with established procedure; the results will be reviewed by the CFO and COO.

2019-004 Investment in Milagro Property Management, LLC Condition: On a stand-alone basis, Panhandle Independent Living Center?s financial statements did not properly reflect its investment in Milagro Property Management, LLC. Criteria: Assets should be properly reflected in the statement of financial position. Cause: The investment in Milagro Property Management, LLC was not recorded as an investment asset but as a reduction in net assets when funds of PILC were used to acquire the property held in Milagro in a prior year. Effect: On PILC?s stand-alone statement of financial position, the investment in Milagro was understated by $334,244 and its net assets was understated by a like amount. On a consolidated basis, the investment and the capital of Milagro are offset and therefore on a consolidated basis there was not misstatement. Recommendation: The statement of financial position of PILC should properly reflect the existence of all assets. Views of Responsible Officials and Planned Corrective Actions: The Chief Financial Officer will enter an adjusting journal entry to record the investment. The CFO will ensure that future investments are accurately entered.

2019-005 Disbursements Condition: Disbursements did not always indicate all of the proper approvals. Check requests require multiple approvals in accordance with the Organization?s policy. Check requests should have had multiple approvals but sometimes a required approval was missing. Criteria: All disbursements should be property authorized. Cause: Established accounting policy regarding approvals was not always followed. Effect: Disbursements had approval but sometimes did not have all of the required approvals in the documentation for the disbursement. Context: A sample of 65 expenditures totaling $195,806 was selected for audit from a population totaling $493,424. The test found 21 check requests that were missing at least one of the required approvals. Recommendation: Improvement is needed in disbursement processing and procedures to ensure that all check disbursements are properly authorized and supported. Employees should adhere to the established accounting policies for payables and disbursements. Views of Responsible Officials and Planned Corrective Actions: The Chief Executive Officer will conduct ongoing reviews of disbursements to ensure that disbursements are processed in accordance with established procedures.

2019-006 Eligibility Determination Condition: Determination of program eligibility documentation was missing some of the required approvals. Criteria: The required eligibility determination should be documented including approvals. Cause: Procedures are in place for multiple approval of documentation before assistance is authorized but the eligibility determination approval form did not have all of the signatures. Effect: Documentation was incomplete as to all of the signatures. Context: A sample of 18 eligibility determinations was selected. The test found 13 approval exceptions. Recommendation: Procedures should ensure that all signatures have been obtained and documented. Views of Responsible Officials and Planned Corrective Actions: The Chief Operating Officer will review the eligibility documentation to ensure that eligibility procedures adhere to established procedures.