CHOICES FOR FAMILIES, INCNon-Profit

2020-001?QUESTIONED PURCHASES Federal Agency: U.S.D.A. Federal Program Title: Child and Adult Care Food Program CFDA Number: 10.558 Award Period: As presented in Schedule of Expenditures of Federal Awards. Compliance Requirement: Allowable Costs Types of Finding ? (A)Material Weakness in Internal Control Over Financial Reporting ? (D) Material Weakness in Internal Control Over Compliance of Federal Awards ? (H) Instance of Material Non-compliance Statement of Condition During our audit, we examined 3 months of the organization?s credit card purchases and other disbursements. The following purchases were questioned: Questioned Purchases Vendor Amount Reason ZIA ATV $ 2,900.00 Receipts lacked the expected detail for a repair of a vehicle. We also interviewed staff and received conflicting information of whether a vehicle needed repairs. In addition, due to COVID employees had to work from home and not travel to clients. Lastly, we contacted the vendor, who stated they do not repair the type of vehicle stated in the receipt (Dodge Dakota pickup truck). It is also noted that an addition purchase from this vendor, ZIA ATV, was identified in a prior year for $3,500. We, therefore, question the validity of the purchase. Furniture City $ 3,418.55 The receipt submitted to the auditor was received only after some difficulty. It identified furniture purchased during the pandemic in March of 2020 to be placed in CFF?s administrative office. Per our interview with an employee, it was noted that no new furniture had been purchased for the office during the pandemic. We, therefore, question the validity of the purchase. Baillio's $ 2,059.99 The requested detailed receipt was received only after some difficulty. A refrigerator was purchased in September of 2020, but per our interview with an employee, there was no knowledge of the existence of a refrigerator of this type at CFF?s office. After the auditor discussed the issue with the Chair of the Board of Directors, the Board Chair questioned the Executive Director (ED) about the refrigerator. At this time it was discovered the refrigerator was located, unopened, in the Executive Director?s home. The refrigerator was immediately moved from the ED?s home to CFF?s administrative office by a maintenance worker employed by the Board Chair. We, therefore, question the validity of the purchase. LHM Chrysler and Dodge $ 10,000.00 A vehicle was purchased in March of 2020, and the auditor received a non-itemized receipt and vehicle registration for the vehicle allegedly purchased. Per our interview with an employee of CFF, we discovered that the vehicle allegedly purchased had actually been used for several years prior to March 2020 by the Executive Director. The auditor then sent a confirmation to Larry H Miller Chrysler (LHM) to confirm the purchase of the vehicle (Dodge Dakota pickup truck). Per our telephone call with a representative of LHM discussing the purchase, the LHM representative stated that the information submitted with the confirmation letter did not match what was purchased. This included the VIN of the vehicle. We, therefore, question the validity of the purchase. Total $ 18,378.54 Questioned Costs: Unknown Criteria ? IRS regulations as well as other compliance requirements necessitate that all purchases be supported by itemized detailed receipts and also include clear business purpose. ? According to ?200.303 Internal Controls of 2 CFR Part 200, the non-Federal entity must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Effect Due to the fact that there was a lack of itemized detailed receipts and the explanations for the purchases were contradicted by CFF staff and vendors during the auditor?s interviews, these purchases have been identified as fraud risks. Therefore, CFF?s funding sources may require further investigations, and it is possible that funding could be lost and changes in personnel could be required. In addition, if it is determined that an individual personally benefited from the purchases, it would be defined as an ?excess benefit transaction,? which would be required to be reported on the organization?s form 990. The financial penalties related to such transactions are the following: 1. The person who benefited from the excess benefit transaction (EBT) is required to pay back the amount of the excess benefit received plus interest. 2. The person would be subject to a 25% excise tax on the amount of the EBT. 3. If the EBT is not corrected during the taxable year in which the 25% penalty is assessed, an additional excise tax penalty of 200% is assessed. 4. Organization management (the board, etc.) can also be assessed an excise tax of 10% if they approved the EBT transaction or knowingly participated in the transaction. Cause Lack of internal controls over credit card purchases and other cash disbursements. Recommendation We recommend an investigation by the Board take place which should include a determination if misappropriations took place and to what extent. Also, we recommend that agencies overseeing the organization be contacted to make them aware of the issue. Once the Board has come to its conclusion, appropriate actions should be taken, which may include civil or legal measures.