HOMEBOY INDUSTRIESNon-Profit

Criteria: U.S. Code of Federal Regulations, Title 2, Part 200, section 510(b) Schedule of Expenditures of Federal Awards requires recipients of federal awards to prepare a schedule of expenditures of federal awards (SEFA) for the period covered by the auditee?s financial statements to accurately reflect federal awards expended for individual federal programs during the auditee?s fiscal year. The determination of when a Federal award is expended must be based on when the activity related to the Federal award occurs. Condition: For the Community Development Block Grant Program for Entitlement Communities (CDBG) (Assistance Listing Number 14.218), the grant was erroneously identified as a city (or local government) grant and therefore, total expenditures of $589,466 incurred during the year were not initially properly identified and reported on the SEFA. Cause: Homeboy Industries was initially unaware that the funds granted by the City of Los Angeles were pass-through federal funds. Effect or Potential Effect: As a result, until the SEFA was corrected, it did not report the complete activity under the loan program for the year ended December 31, 2022. Questioned Costs: N/A. Recommendation: Homeboy Industries should establish a thorough internal review process to ensure amounts reported on the SEFA represent complete and accurate expenditures incurred in the applicable fiscal year. Repeat Finding: Not Applicable

Criteria: A comprehensive system of internal control requires all expenditures be properly approved and supported by appropriate documentation. In addition, in accordance with Part 2 CFR 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, section 200.403 all expenditures charged to federal programs are required to be allowable costs under the program and need to be adequately documented and recorded based on the actual cost incurred and/or approved for the program. Condition and Context: During our testing of costs charged to the Federal program, we identified 2 instances of costs totaling $9,554 being charged to the grant that did not have the appropriate supporting documentation and were incorrectly billed to the grant. In addition, the Organization?s indirect costs were charged based on an indirect cost rate that was higher than the approved indirect cost rate, which resulted in charging the grant an additional $5,579 during the year ended December 31, 2021. Cause: Policies and procedures either did not exist or were not appropriately implemented to ensure that expenses billed were reconciled to supporting documentation before billing such amounts. Effect or Potential Effect: Because of the absence of appropriate internal controls, amounts that were not properly supported and reviewed were billed to the program.

Criteria: Homeboy Industries is required to comply with certain allowable cost requirements per section 200.300 of the Uniform Guidance. Appropriate documentation must be retained to support expenditures incurred in the execution of federally funded programs. Per the Coronavirus Relief Fund program guidance released by the U.S. Department of the Treasury, for a cost to be considered to have been incurred, performance or delivery must occur during the covered period but payment of funds need not to be made during that time. Condition and Context: We tested 303 food voucher selections and noted that for 152 of those selections, there was no signature evidencing that the recipient received the food voucher. As noted above, for a cost to be considered to have been incurred, performance or delivery must occur, which we are not able to verify as the signatures of the recipients were not present. Cause: Policies and procedures either did not exist or were not appropriately implemented to ensure that supporting documentation was maintained correctly. Effect or Potential Effect: Because of the absence of appropriate documentation, we were unable to confirm the allowability, validity, and completeness of the amounts noted above. Questioned Costs: We noted $38,000 of questioned costs as a result. Recommendation: We recommend Homeboy Industries revisit its procedures to ensure adequate supporting documentation be retained to support federal expenditures. We also recommend that accounting and designated management staff members review such underlying support prior to submission for reimbursement.