MONTEREY JAZZ FESTIVALNon-Profit

Finding Number: 2021-004 Material Weakness ? Internal Control over Compliance and Compliance Finding - Allowable Activities and Costs Federal Award: No. 59.075 Shuttered Venue Operators Grant ? COVID 19 Federal Agency: Small Business Administration Pass-Through Entity: Not applicable Criteria or Specific Requirement: 2 CFR section 200.303a states the nonfederal entity must establish and maintain effective internal controls over the federal awards that provide reasonable assurance that the nonfederal entity is managing the federal awards in compliance with federal statues, regulations, and the terms and conditions of the federal awards. The Festival should have controls to ensure that costs charged to federal awards comply with the cost principles contained in Subpart E ? Cost Principles (2 CFR 200.400). Condition: Fundraising costs, contract costs, unallocated depreciation, and costs of prior period accounting services unrelated to the 2021 Single Audit were charged to the federal award. In addition, a prepaid expenditure was erroneously duplicated and, therefore, the same expenditure was charged three times to the federal award. Fundraising costs and prior period accounting services are not allowable costs of federal funding and is further prohibited in 2 CFR 200.442. 2 CFR 200.320 states the nonfederal entity must have and use documented procurement procedures, consistent with the standards of this section and section 200.317, 200.318, 200.319 for the acquisition of property or services required under a federal award or sub-award. As part of the requirement, a competitive bid must be accepted. The Festival does not have a procurement policy (Finding 2021-007). Therefore, contract cost are not allowable. 2 CFR 200.436 states depreciation cost should be properly allocated to federal awards. The Festival applied the total amount of depreciation to the federal award. Thus, the Festival is not in compliance with 2 CFR 200.436 and depreciation cost charged to the federal award are not allowable. 2 CFR 400.403 states costs must be necessary and reasonable and determined in accordance with GAAP. Cause: The Festival did not have policies and procedures over cost principles establishing allowability or allowability of certain expenditures in accordance with 2 CFR 200.400 ? Subpart E Cost Principles. The Festival lacked internal controls to prevent, detect, or correct the same expenditure being charged multiple times to federal award. Effect or potential effect: Unallowable activities and costs were charged to the federal award and additional unallowable activities and costs may not detected or corrected. Questioned costs: See Schedule of Findings and Questioned Costs for chart/table Context: The Festival charged monthly payroll expenditures to the federal award, of which certain payroll costs may have been or were attributed to fundraising activities, as payroll is allocated to fundraising based on a percentage of total payroll. As such, the payroll expenditures finding represents a systemic problem. The Festival also charged non-payroll related fundraising expenditures to the federal award. Hence, the non-payroll fundraising expenditures finding represents as systemic problem. The Festival did not have a procurement policy containing procedures for accepting a competitive bid. Thus, the contract expenditures finding represents a systemic problem. The Festival did not properly allocate depreciation costs to the federal award. As such, the depreciation expenditures finding represents a systemic problem. There were multiple prepaid expenditures charged to the federal award and may be other duplicated expenditures that were not detected or corrected. Therefore, prepaid expenditures finding represents a systemic problem. The prior year accounting costs finding represents an isolated instance. Recommendation: We recommend management implement policies and procedures to ensure compliance with Uniform Guidance cost principles. View of Responsible Officials: The Festival will implement new controls to prevent unallowable costs such as fundraising payroll and non-payroll costs, as well as the accidental multiple records noted, from being included in all future federal award reports. These controls will include the creation of class and department codes that will allow for the segregation of those accounts from being applied to federal awards. Removing these allocations will also prevent the isolated instance of capturing prior period prepaid expenses from being included in the schedule of expenditures of federal awards as well. The Festival will remove unallowable costs identified in this finding from its final budget submission when it is submitted to the responsible agency. The Festival does not believe that the reduction of these expenses from the final budget will materially affect the outcome of the award given the additional costs the Festival bore in its execution of the grant. Expected completion date December 31, 2022.

Finding Number: 2021-005 Material Weakness ? Internal Control over Compliance - Recordkeeping Federal Award: No. 59.075 Shuttered Venue Operators Grant ? COVID 19 Federal Agency: Small Business Administration Pass-Through Entity: Not applicable Criteria or Specific Requirement: 2 CFR Part 200.302 requires the financial management system of nonfederal entities: (a) must be sufficient to permit the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to federal statues, regulations and terms and conditions of the federal award, (b) provide for records that identify adequately the source and application of funds. Additionally, the Small Business Administration requires when splitting a cost between funding sources, records must clearly demonstrate how the cost was divided and how the allowable cost was charged to the award (SVOG Post-Application Guidance). Condition: Though total expenditures exceeded the amount of the federal award, the Festival could not clearly identify which expenditures were charged to the Federal award and how the awards reconciled to the general ledger. Furthermore, - Tracking of federal expenditures was not performed separately in the Festival?s financial management system. Internal spreadsheets utilized to track federal expenditures did not reconcile to the general ledger or the SVOG budget. - Underlying detail to support the federal expenditures exceeded the amount of federal expenditures by approximately $1,500,000 and therefore it was unclear how costs were divided. The excess population may have included unallowable costs. - It was unclear if federal funding was used to supplement, not supplant, other federal and non-federal funding sources. Cause: The Festival did not have policies and procedures in place to account for expenditures charged to the federal awards, such as use of a separate functional classification in the accounting software, which led for difficulties to traced funds and adequately identify the source and application of funds. While the Festival did use the exhaustion method for budget categories within the period of performance, this led to significant variances in specific budget categories, and it was unclear how expenditures were divided. Effect or potential effect: Noncompliance with Post Federal Award Requirements ? 2 CFR 200 Subpart due to inadequate tracking of funds. Possible unallowable activities and costs could have been charged to the federal award and not detected or corrected. Questioned costs: Unknown. Context: Deemed a systematic problem. Recommendation: We recommend management implement policies and procedures to comply with Post Award Requirements and ensure that tracking of federal expenditures provides for accurate identification of allowable costs charged to the award. View of Responsible Officials: The Festival will correct the way it captures allowable federal expenditures in its records to ensure that all future reports reconcile the general ledger with the SEFA as required. The corrective measures will include the reclassification of allowable expenses by class and department codes in order to designate those items as federally approved allocations. In addition, the Festival will implement better cost approval procedures in order to identify allowable costs. Expected completion date December 31, 2022.

Finding Number: 2021-006 Significant Deficiency ? Internal Controls over Compliance ? Schedule of Federal Expenditures of Federal Awards (SEFA) Federal Award: No. 59.075 Shuttered Venue Operators Grant ? COVID 19 Federal Agency: Small Business Administration Pass-Through Entity: Not applicable Criteria or Specific Requirement: Management is responsible for the preparation and fair presentation of the Schedule of Federal Expenditures. This includes the design, implementation, and maintenance of internal controls relevant to the preparation and fair presentation of the Schedule of Expenditures of Federal Awards. Condition: The Schedule of Expenditures of Federal Awards (SEFA) for the year ended December 31, 2021 did not accurately reflect the federal expenditures incurred during the year then ended. Corrections were required to properly state federal expenditures for the year ended December 31, 2021. Cause: Expenditures incurred during the audited period were not reconciled to the total expenditure amount presented on the SEFA. Effect or potential effect: The SEFA was overstated as it included a grant that was expended in a subsequent fiscal year. Questioned costs: None. Context: The original SEFA provided to the auditors included federal expenditures incurred in a subsequent fiscal year. The SEFA was subsequently updated by the Festival. Recommendation: We recommend management implement procedures to reconcile federal expenditures incurred to the SEFA. View of Responsible Officials: The Festival will correct the way it captures allowable federal expenditures in its records to ensure that all future reports reconcile the general ledger with the SEFA as required. The corrective measures will include the reclassification of allowable expenses by class and department code in order to designate those items as federally approved allocations. The Festival would like it to be noted that much of the misstatement of the expenditures in this current audit were due to the inadvertent presentation of internal workbooks in lieu of formal SEFA and general ledger reports. The Festival will make sure that this doesn?t happen again moving forward. Expected completion date December 31, 2022.

Finding Number: 2021-007 Significant Deficiency ? Internal Controls over Compliance ? Policies and Procedures Federal Award: No. 59.075 Shuttered Venue Operators Grant ? COVID 19 Federal Agency: Small Business Administration Pass-Through Entity: Not applicable Criteria or Specific Requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards requires: (a) Nonfederal entities to maintain written procedures for determining the allowability of costs in accordance with Subpart E Cost Principles and the terms and conditions of the federal awards (Section 200.302 (7)). (b) Nonfederal entity must have and use documented procurement procedures for any method of procurement used for the acquisition of property or services required under a federal award. The adopted policy should include information regarding micro purchases, small purchases, sealed bids, competitive proposals, and sole purpose.(Section 200.320). Condition: The Festival did not adopt required provision of Uniform Guidance regarding written procedures. Cause: It is unknown why the Festival did not fully implement requirements of Uniform Guidance. Effect or potential effect: The Festival may not be in compliance with Uniform Guidance. Questioned costs: None. Context: The Festival did not adopt required policies and procedures before expending federal awards. Recommendation: We recommend management document and formally adopt written policies and procedures as required by Uniform Guidance. View of Responsible Officials: The Festival?s Board of Directors will adopt a set of policies that include the acquisition of property as allowed under federal guidelines, along with other policies that will designate allowable expenditures that comply with Uniform Guidance. The Festival would like it noted that the absences of policies governing the allowable acquisition of properties is because it has never intended to purchase any such equipment. The omission of this policy was unintentional. Expected completion date December 31, 2022.

Finding Number: 2021-008 Significant Deficiency ? Internal Controls over Compliance ? Lack of approval documentation, review, and communication. Federal Award: No. 59.075 Shuttered Venue Operators Grant ? COVID 19 Federal Agency: Small Business Administration Pass-Through Entity: Not applicable Criteria or Specific Requirement: Pursuant to 2 CFR section 200.303(a), the nonfederal entity must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. Condition: While the client established internal controls over compliance, they were ineffective in detecting unallowable costs and did not have approval documentation, review, and communication. Cause: Lack of approval documentation, review, and communication lead to ineffective internal controls over compliance. Effect or potential effect: Noncompliance with Post Federal Award Requirements ? 2 CFR 200 Subpart 303(a). Noncompliance with federal statutes, regulations, and terms and conditions of the federal award. Possible unallowable activities and costs could have been charged to the federal award and not detected or corrected. Questioned cost: None Context: Deemed to be a systemic problem. Recommendation: We recommend the client review and improve their internal controls over compliance to include effective approval documentation, review, and communication. View of Responsible Officials: Now that it no longer needs to manage its internal COVID-19 related restrictions, the Festival will correct its internal approval and control process to ensure compliance with Post Award Federal Requirements. Those restrictions temporarily prevented staff from using conventional means to approve allowable costs when needed. The corrective actions will include the adoption of additional classes and department codes that can be used by managers and directors to ensure compliance with allowable costs of the grant expenses. Expected completion date December 31, 2022.