COASTAL COMMUNITY RESILIENCE INCNon-Profit

FINANCIAL STATEMENT FINDING: Material Weakness in Internal Control over Accrual Method of Accounting Major Program Number: 14.272 CDBG ? Disaster Recovery Grants ? Pub. L. No. 113-2 Cluster Criteria: Effective internal control over accrual accounting requires oversight by management or the governing board. Due to the small staff size, the governing board must play an integral part in periodically reviewing the accounting records to ensure revenue and expenses are recorded in the correct accounting period. Condition: Grant funds received in advance were recorded as grant revenue, grant expenses, and grant loans receivable in the amount $1,369,444, $376,128, and $993,316, respectively, for the year ended December 31, 2020; however, eligible grant expenses incurred and loans distributed to subrecipients for the year ended December 31, 2020 totaled $165,007 and $505,989, respectively. As a result of this error, grant revenue was overstated by $698,448, grant expenses were overstated by $211,121, loans receivable were overstated by $487,327, accounts payable were overstated by $698,447, and refundable advances were understated by $698,448. In addition, expenses totaling $8,033 incurred during the year ended December 31, 2020 were not recorded as expenses and included in accounts payable at year-end. Effect or Potential Effect: The effect of errors identified are outlined above and have since been corrected by management. Context: There is evidence of a lack of understanding on the procedures related to the accrual method of accounting. There is also a lack of oversight by management and the board of directors over financial reporting. Recommendation: Due to the small staff size, a member of the board with suitable skills, knowledge, and experience should review grant agreements to ensure amounts are recorded in the correct period. View of Responsible Official: Management agrees with the finding and the recommendation. Corrective Action Plan: See Client's Corrective Action Plan (Unaudited). FINDINGS AND QUESTIONED COSTS FOR FEDERAL AWARDS Material Weakness in Internal Control over Accrual Method of Accounting Major Program Number: 14.272 CDBG ? Disaster Recovery Grants ? Pub. L. No. 113-2 Cluster Criteria: Effective internal control over accrual accounting requires oversight by management or the governing board. Due to the small staff size, the governing board must play an integral part in periodically reviewing the accounting records to ensure revenue and expenses are recorded in the correct accounting period. Condition: Grant funds received in advance were recorded as grant revenue, grant expenses, and grant loans receivable in the amount $1,369,444, $376,128, and $993,316, respectively, for the year ended December 31, 2020; however, eligible grant expenses incurred and loans distributed to subrecipients for the year ended December 31, 2020 totaled $165,007 and $505,989, respectively. As a result of this error, grant revenue was overstated by $698,448, grant expenses were overstated by $211,121, loans receivable were overstated by $487,327, accounts payable were overstated by $698,447, and refundable advances were understated by $698,448. In addition, expenses totaling $8,033 incurred during the year ended December 31, 2020 were not recorded as expenses and included in accounts payable at year-end. Questioned costs: As noted above, expenses and loans receivable treated as expenses on the SEFA were overstated in as of December 31, 2020 in the amount of $211,121 and $487,327, respectively. Effect or Potential Effect: The effect of errors identified are outlined above and have since been corrected by management. Context: There is evidence of a lack of understanding on the procedures related to the accrual method of accounting. There is also a lack of oversight by management and the board of directors over financial reporting. Recommendation: Due to the small staff size, a member of the board with suitable skills, knowledge, and experience should review grant agreements to ensure amounts are recorded in the correct period. View of Responsible Official: Management agrees with the finding and the recommendation. Corrective Action Plan: See Client's Corrective Action Plan (Unaudited).

FINANCIAL STATEMENT FINDINGS: Significant Deficiency in Internal Control over Burden Rate Calculation Major Program Number: 14.272 CDBG ? Disaster Recovery Grants ? Pub. L. No. 113-2 Cluster Criteria: The indirect cost burdened rate per hour must include only the allowable cost included in 2 CFR part 200, subpart E, and by the federal grant award. Careful calculations must be completed in order to be certain to allocate the indirect cost to each hour worked and thereby to each federal program. The total hours included in benefits for vacation and holidays cannot be recharacterized as direct labor hours without recomputing the burdened rate per hour. No one expense can be reimbursed in duplicate, once as a direct expenses and secondly as an indirect expense. Condition: The calculation of the "Burdened Cost Rate" to include the direct and indirect costs for each employees' labor hour was erroneously calculated. The list of errors include: Direct Labor Costs for Hours Worked: Item 1 - The vacation and holiday pay, which was 200 hours per employee, was not excluded from the annual salary to compute the direct labor cost. Indirect Labor Costs ? Fringe Benefits and Wage Related Expenses: Item 2 - Incorrect calculation of Social Security FICA tax for one employee. Item 3 - Inclusion of the cost of long-term disability, short-term disability, and accidental death & dismemberment insurances that are withheld from the employees' net pay. Effect or Potential Effect: The errors in computing the burdened cost per hour rate for two employees resulted in an inflated rate per hour used to request reimbursement from the federal program funds through October 2020. The total amount of the over-reimbursement for indirect costs totaled approximately $56,640 is evidence of significant deficiency in compliance. The Organization engaged a third-party consultant to review and update the burden rate effective November 2020. Additionally, the Organization and their funding source agreed the amount of $56,640 was overbilled by the Organization will be repaid to the funding source from a non-federal source. Context: There is evidence of a lack of understanding on the procedures to follow when computing the burdened cost rate per hour for an employee. Recommendation: Management should seek guidance from the oversight agency when computing the burdened cost rate to be certain all fringe and payroll related expenses are allowable. There is guidance available from the federal agency's website as to how to calculate the per hour rate, how to identify and accumulate all indirect costs related to payroll. View of Responsible Official: Management agrees with the finding and the recommendation. Corrective Action Plan: See Client's Corrective Action Plan (Unaudited). Repeat Finding: This is a repeat finding reported in prior years. FINDINGS AND QUESTIONED COSTS FOR FEDERAL AWARDS: Significant Deficiency in Internal Control over Burden Rate Calculation Major Program Number: 14.272 CDBG ? Disaster Recovery Grants ? Pub. L. No. 113-2 Cluster Criteria: The indirect cost burdened rate per hour must include only the allowable cost included in 2 CFR part 200, subpart E, and by the federal grant award. Careful calculations must be completed in order to be certain to allocate the indirect cost to each hour worked and thereby to each federal program. The total hours included in benefits for vacation and holidays cannot be recharacterized as direct labor hours without recomputing the burdened rate per hour. No one expense can be reimbursed in duplicate, once as a direct expenses and secondly as an indirect expense. Condition: The calculation of the "Burdened Cost Rate" to include the direct and indirect costs for each employees' labor hour was erroneously calculated. The list of errors include: Direct Labor Costs for Hours Worked: Item 1 - The vacation and holiday pay, which was 200 hours per employee, was not excluded from the annual salary to compute the direct labor cost. Indirect Labor Costs ? Fringe Benefits and Wage Related Expenses: Item 2 - Incorrect calculation of Social Security FICA tax for one employee. Item 3 - Inclusion of the cost of long-term disability, short-term disability, and accidental death & dismemberment insurances that are withheld from the employees' net pay. Questioned costs: The incorrect burden rate calculation resulted in the overstatement of indirect costs in the amount of $56,640 through October 2020. Effect or Potential Effect: The errors in computing the burdened cost per hour rate for two employees resulted in an inflated rate per hour used to request reimbursement from the federal program funds through October 2020. The total amount of the over-reimbursement for indirect costs totaled approximately $56,640 is evidence of significant deficiency in compliance. The Organization engaged a third-party consultant to review and update the burden rate effective November 2020. Additionally, the Organization and their funding source agreed the amount of $56,640 was overbilled by the Organization will be repaid to the funding source from a non-federal source. Context: There is evidence of a lack of understanding on the procedures to follow when computing the burdened cost rate per hour for an employee. Recommendation: Management should seek guidance from the oversight agency when computing the burdened cost rate to be certain all fringe and payroll related expenses are allowable. There is guidance available from the federal agency's website as to how to calculate the per hour rate, how to identify and accumulate all indirect costs related to payroll. View of Responsible Official: Management agrees with the finding and the recommendation. Corrective Action Plan: See Client's Corrective Action Plan (Unaudited). Repeat Finding: This is a repeat finding reported in prior years.

Material Weakness in Internal Control over Payroll and Related Expenses; Major Program #14.272 National Disaster Resilience Competition (CDBG-NDR). Criteria: Effective internal control over payroll processing and reporting requires continuous monitoring and oversight by management or the governing board. Due to the small staff size, the governing board must play an integral part in periodically reviewing the payroll records to ensure the employees are paid according to their approved annual salary. Condition: Accrued wages were recorded for fiscal year ended December 31, 2017 in the amount of $81,433; however, the gross wages paid to the employee, one paycheck paid in 2018 and the second paid in 2019, totaled $110,356. As a result of this error, the employee's gross wages were overpaid, and the employer's share of payroll taxes and matching contribution to the employee's 401k retirement plan were based on an incorrect wage base. The overpayment was not detected nor has it been corrected. Effect or Potential Effect: The employee was paid more than the approved annual salary, the employer's payroll taxes were inflated, and the contributions to the 401k retirement account was more than what was approved. The 2019 overpayment totals $30,500 in wages and related expenses and benefits. Context: There was no evidence of proper authorization or reconciliation of the additional amount paid to satisfy the remaining 2017 wages accrued before it was submitted for processing with the third party payroll processor. Recommendation: A member of the board with the skills, knowledge, and experience should review the payroll reports on a monthly basis to determine the paychecks are disbursed according to the approved annual salaries. View of Responsible Individual: The responsible official, Executive Director, Paul Robinson, was operating under the understanding that the burdened rate calculations were appropriate and correct. The Organization is currently correcting calculation issues as outlined the Corrective Action Plan (Unaudited). Corrective Action Plan: See Client's Corrective Action Plan (Unaudited).

Material Weakness in Internal Control over Payroll and the Calculation of the Indirect Fringe and Benefits Cost; Major Program #14.272 National Disaster Resilience Competition (CDBG-NDR), and Virginia Matching NDR Grant ( #16-NDR-02). Criteria: The requirements of 2 CFR part 200, subpart E (Cost Principles), which includes the costs principles applicable to a non-federal entity, and apply to all federal awards received by the entity, regardless of whether the awards are received directly from the federal awarding agency or indirectly through a pass-through entity. Federal awards include cost-reimbursement contracts under the Federal Acquisition Regulation (FAR). Indirect costs for wage related expenses and fringe benefits are allowable costs, and should be identified after the direct costs have been determined. A cost may not be allocated to a federal award as an indirect cost if any other costs of like circumstances for the same purpose has been assigned to a federal award as a direct cost. A predetermined rate is an indirect cost rate applied to a specified period, and the rate is based on an estimate of the costs to be incurred during the period. Condition: The calculation of the "Burdened Cost Rate" to include the direct and indirect costs for each employees' labor hour was erroneously calculated. The list of errors include: Direct Labor Costs for Hours Worked - Item 1 - The vacation and holiday pay, which was 200 hours per employee, was not excluded from the annual salary to compute the direct labor cost. The dollar value of the vacation and holiday pay for all employees was $36,418; and Indirect Labor Costs - Fringe Benefits and Wage Related Expenses - Item 2 - Incorrect calculation of Social Security FICA tax for one employee. Item 3 - Inclusion of the cost of long-term disability, short-term disability, and accidental death & dismemberment insurances that are withheld from the employees' net pay. Effect or Potential Effect: The financial information supplied to support the requests for reimbursement from the pass-through entity were overstated due to the inflated rate per hour for the salaries and related expenses and benefits. The result is that the federal awards utilized to reimburse the entity exceeded the actual costs by approximately $21,715. Context: There is a lack of oversight by management and the board of directors over the calculation of the burdened cost rate per hour for each employee. Recommendation: Due to the small staff size, a member of the board with suitable skills, knowledge, and experience should review the annual calculation of the burdened cost rate for accuracy and completeness, and to determine that the items included in fringes and benefits are allowable. View of Responsible Individual:The responsible official, Executive Director, Paul Robinson, was operating under the understanding that the acceptance of the draws for reimbursement was deemed to be the accurate amount. The Organization is currently organizing a repayment plan for the employee and new procedures are being established as outlined the Corrective Action Plan (Unaudited). Corrective Action Plan: See Client's Corrective Action Plan (Unaudited).