Loma Linda University

Finding 2025-001: Internal control deficiency and noncompliance over Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Reporting related to broadband services expenditures. Identification of the federal program: Assistance Listing Number 11.028 • Connecting Minority Communities Pilot Program • U.S. Department of Commerce • Federal award identification number: 06-09-C13050 • Federal award year: January 15, 2023 through January 14, 2026 Criteria or specific requirement (including statutory, regulatory or other citation): Title 2, Subtitle A, Chapter II, Part 200, Subpart D, 200.303 – Internal controls. The non-Federal entity must: (a) 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. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Title 2, Subtitle A, Chapter II, Part 200, Subpart E, 200.400 – Policy guide. The application of these cost principles is based on the fundamental premises that: (b) The non-Federal entity assumes responsibility for administering Federal funds in a manner consistent with underlying agreements, program objectives, and the terms and conditions of the Federal award. Title 2, Subtitle A, Chapter II, Part 200, Subpart E, 200.403 – Factors affecting allowability of costs. Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for state and local governments and Indian tribes only, as otherwise provided for in this part. (g) Be adequately documented. According to the Connecting Minority Communities Pilot Program Post-Award Frequently Asked Questions: Q. Can a CMC grantee use grant funds to prepay for multiple years of qualifying broadband service? A. Yes, so long as the cost and terms are reasonable, eligible under the NOFO, and the grantee makes full payment for that service during the grant’s two-year period of performance. Q. What is the process for disbursement of funds? What is the typical timeframe? A. Unless otherwise stated in a Specific Award Condition, the advance method of payment will be authorized. Non-Federal entities must time advance payment requests so that Federal funds are on hand for no more than 30 calendar days before being disbursed by Non-Federal entity for allowable award costs. According to the Federal Financial Report Instructions: • Federal Cash 10b – Cash Disbursements – Enter the cumulative amount of Federal fund disbursements (such as cash or checks) as of the reporting period end date. Disbursements are the sum of actual cash disbursements for direct charges for goods and services, the amount of indirect expenses charged to the award, and the amount of cash advances and payments made to subrecipients and contractors. • Federal Expenditures and Unobligated Balance 10e – Federal Share of Expenditures – Enter the amount of Federal fund expenditures. For reports prepared on a cash basis, expenditures are the sum of cash disbursements for direct charges for property and services; the amount of indirect expenses charged; and the amount of cash advance payments and payments made to subrecipients. For reports prepared on an accrual basis, expenditures are the sum of cash disbursements for direct charges for property and services; the amount of indirect expense incurred; and the net increase or decrease in the amounts owned by the recipient for (1) goods and other property received; (2) services performed by employees, contractors, subrecipients, and other payees; and (3) programs for which no current services or performance are required. Condition: During our testing over activities allowed or unallowed and allowable costs/cost principles, we observed management did not make full payment to prepay for multiple years of qualifying broadband services expenditures during the period under audit and submitted and received reimbursement for the broadband services expenditures greater than 30 calendar days before disbursement. In addition, during our testing over reporting, we observed management included the broadband services expenditures in the federal financial report for federal cash 10b – cash disbursements and federal expenditures and unobligated balance 10e – federal share of expenditures line items; however, as full payment was not made, these line items should exclude the broadband services expenditures. Cause: Management did not have effective internal controls in place over the compliance requirement as stated in the criteria or specific requirement section above. Effect or potential effect: Management submitted and received reimbursement from the grantor for broadband services expenditures without making full payment during the period under audit. In addition, the federal financial report incorrectly included the broadband services expenditures. Without effective internal controls, unallowed expenditures and incorrectly reporting expenditures could occur in the future. Questioned costs: $176,003 – Assistance Listing Number 11.028 – Federal award identification number – 06-09-C13050 Questioned costs were computed as the one individually significant expenditure selected for testing procedures. Questioned costs means an amount, expended or received from a Federal award, that (1) is noncompliance or suspected noncompliance with Federal statutes, regulations, or the terms and conditions of the Federal award or (2) at the time of the audit, lacked adequate documentation to support compliance. Context: During our testing over activities allowed or unallowed and allowable costs/cost principles, we observed an individually significant expenditure in the amount of $176,003 that was selected for testing procedures. The sampling was a statistically valid sample. The expenditure represented multiple years of qualifying broadband services to be incurred after the audit period. Management did not make full payment to prepay for multiple years of qualifying broadband services expenditures during the period under audit and submitted and received reimbursement for the broadband services expenditures greater than 30 calendar days before disbursement. In addition, management included the broadband services expenditures in the federal financial report for federal cash 10b – cash disbursements and federal expenditures and unobligated balance 10e – federal share of expenditures line items; however, as full payment was not made, these line items should exclude the broadband services expenditures. Identification as a repeat finding, if applicable: No. Recommendation: Management should make full payment of the broadband services expenditures prior to the end of the period of performance and develop and implement effective internal controls to ensure prepaid expenditures are in compliance with the activities allowed or unallowed and allowable costs/cost principles compliance requirements and reported correctly in the federal financial report. Views of responsible officials: Management has made full pre-payment for broadband services before the project period end date of January 14, 2026 to be in compliance and will implement a review of future prepaid expenditures, if applicable to any grants. Management has reviewed the reporting requirements of the Federal Financial Report and will implement a review to ensure that cash disbursements are accurately reported in future reports. Any discrepancies between sponsor communications and award agreements will be reviewed by management for correct interpretation and financial presentation.

Finding 2025-001 – Internal control deficiency and noncompliance over Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Reporting related to broadband services expenditures Connecting Minority Communities Pilot Program During testing over the Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Reporting compliance requirement, management did not have effective internal controls in place over the compliance requirements related to the award. Management submitted and received reimbursement from the grantor for broadband services expenditures without making full payment during the period under audit. In addition, management included the broadband services expenditures in the federal financial report for federal cash 10b – cash disbursements and federal expenditures and unobligated balance 10e – federal share of expenditures line items; however, as full payment was not made, these line items should exclude the broadband services expenditures. Management Response and Action Plan: Management has made full pre-payment for broadband services before the project period end date of January 14, 2026 to be in compliance and will implement a review of future prepaid expenditures, if applicable to any grants. Management has reviewed the reporting requirements of the Federal Financial Report and will implement a review to ensure that cash disbursements are accurately reported in future reports. Any discrepancies between sponsor communications and award agreements will be reviewed by management for correct interpretation and financial presentation. Responsible Person: Cindy Dickson, Executive Director/AOR- Research Innovation & Industry Relations Target Date: January 2026

Finding 2024-001: Internal control deficiency and noncompliance over Activities Allowed or Unallowed and Allowable Costs/Cost Principles related to payroll expenditures. Identification of the federal program: Assistance Listing Number 11.028 • Connecting Minority Communities Pilot Program • U.S. Department of Commerce • Federal award identification number: 06-09-C13050 • Federal award year: January 15, 2023 through January 14, 2025 Criteria or specific requirement (including statutory, regulatory or other citation): Title 2, Subtitle A, Chapter II, Part 200, Subpart D, 200.303 – Internal controls. The recipient and subrecipient must: (a) Establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Title 2, Subtitle A, Chapter II, Part 200, Subpart E, 200.400 – Policy guide. The application of these cost principles is based on the fundamental premises that: (b) The recipient and subrecipient are responsible for administering Federal funds in a manner consistent with Federal statutes, regulations, and the terms and conditions of the Federal award. Title 2, Subtitle A, Chapter II, Part 200, Subpart E, 200.403 – Factors affecting allowability of costs. Except where otherwise authorized by statute, costs must meet the following criteria to be allowable under Federal awards: (d) Be accorded consistent treatment. For example, a cost must not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost. (e) Be adequately documented. Condition: During our testing over the Activities Allowed or Unallowed and Allowable Costs/Cost Principles compliance requirement, we observed management did not have effective internal controls in place to ensure salaries, fringe benefits, and indirect costs were correctly allocated to the Federal award. Cause: Management did not have effective internal controls in place over the compliance requirement as stated in the criteria or specific requirement section above. Effect or potential effect: Management overstated the salaries, fringe benefits, and indirect costs that was charged and reimbursed from the grantor. Without effective internal controls, other overstatements of salaries, fringe benefits, and indirect costs could occur in the future. Questioned costs: $23,159: • Assistance Listing Number 11.028 • Federal Award Identification Number – 06-09-C13050 Questioned costs were computed by taking the difference between the salaries, fringe benefits, and indirect costs charged and reimbursed by the grantor in the amount of $150,695 and the calculated salaries, fringe benefits, and indirect costs for each employee taking the employee’s hourly rate multiplied by the hours worked and time and effort percentage and fringe benefit percentage and indirect cost percentage in the amount of $127,536. Context: During our testing over Activities Allowed or Unallowed and Allowable Costs/Cost Principles, we obtained a listing of 31 salaries and fringe benefits expenditures and selected a sample of 5. The total value of the 5 salaries and fringe benefits expenditures was $107,639 with the associated indirect costs expenditures was $43,056 out of the total population of $539,696. The hourly rate used to calculate salaries for each employee included the fringe benefit percentage which was also applied to the calculated salaries which resulted in an overstatement of salaries, fringe benefits, and indirect costs. Identification as a repeat finding, if applicable: No. Recommendation: We recommend management refund the questioned costs to the grantor and develop and implement effective internal controls to ensure salaries, fringe benefits, and indirect costs were correctly allocated to the Federal award. Views of responsible officials: Management has adjusted for the incorrect allocation with the grantor (i.e., refunded the questioned costs) and will implement an additional review control of the allocation and final calculation of salaries, fringe benefits, and indirect costs.

Finding 2024-001 – Internal control deficiency and noncompliance over Activities Allowed or Unallowed and Allowable Costs/Cost Principles related to payroll expenditures Connecting Minority Communities Pilot Program – Accuracy During testing over the Activities Allowed or Unallowed and Allowable Costs/Cost Principles compliance requirement, management did not have effective internal controls in place to ensure salaries, fringe benefits, and indirect costs were correctly allocated to the Federal award. Management Response and Action Plan: Management has adjusted for the incorrect allocation with the grantor (i.e., refunded the questioned costs) and will implement an additional review control of the allocation and final calculation of salaries, fringe benefits, and indirect costs. Responsible Person: Executive Director of Sponsored Project Administration Target Date: February 2025