Public Prep Charter School AcademiesNon-Profit

Criteria: Requirements per section 2 CFR Part 200 Subpart E of the Uniform Guidance state that costs charged to federal awards must be determined in accordance with GAAP, be adequately documented, and be allocable to the federal award, and be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated. Condition: During our audit procedures, we reviewed the grant schedules prepared by the outsourced financial consulting firm and noted they did not properly reconcile to the grant activity as recorded. Consequently, we proposed significant adjustments to properly record the grant activity. We consider this to be a material weakness in internal control over compliance in the area of allowable costs/cost principles. Cause: During the 2022 fiscal year, the outsourced financial consulting firm did not identify expenditures of federal funds on a timely or consistent basis throughout the year, resulting in significant effort to properly identify and reflect allowable expenditures of federal funds at year-end. Effect or Potential Effect: If expenditures of federal funds are not properly tracked throughout the year, management may not fully utilize grant funds during the grant period or may improperly identify unallowable costs as federal expenditures under the applicable grants. This could result in disallowance of grant expenditures. Questioned Costs: N/A Context: The outsourced financial consulting firm estimated amounts of federal grant expenditures throughout the year but did not have a process in place to reconcile the estimated amounts to the specific expenditures. As a result, the outsourced financial consulting firm went through multiple iterations of preparing the federal expenditure details. Recommendation: We recommend the Organization transfer the day-to-day finance operations to the expanded internal finance team to reduce reliance on the outsourced financial consulting firm. This will allow the Organization to devote the necessary resources to managing the finance and accounting function, including tracking of expenditures of federal funds, on a more accurate and timely basis. Federal grant revenues and expenditures should be reconciled on a monthly basis to ensure charges are in accordance with GAAP, adequately documented, and allocable to the federal award. Views of responsible officials: Public Prep agrees with the audit finding and acknowledges our responsibility for the design, implementation and reviews of internal controls related to financial reporting on Federal awards.