BOOKER T WASHINGTON CHILD DEVELOPMENT CENTER, INC

2025-101 – Allowable Costs/Costs Principles – (Significant Deficiency in Internal Controls over Compliance, Other Compliance Finding)

Federal program information:

Funding agency: U.S. Department of Health and Human Services Title: Head Start CFDA number: 93.600 Award number and years: 161092-0; July 1, 2024 through June 30, 2025 Pass-through grantor: City of Phoenix Compliance Requirements: Allowable Costs/Costs Principles

Questioned Costs: $102,814

Criteria: The Uniform Guidance requires the Organization consistently apply the cash basis of accounting or the accrual basis of accounting for expenses reported to the grantor for reimbursement, unless there is an allowed encumbrance period.

Condition: In fiscal year 2025 the Organization reported $102,814 of disbursements to the grantor as expenses, even though these were recorded as prepaid expenses under U.S. generally accepted accounting principles at fiscal year-end, indicating that the goods or services have not been fully received by the Organization. These amounts consisted of annual or two-year contracts entered into by the Organization for periods beginning in fiscal year 2025 and extending through 2026 and 2027.

Cause and Effect: The Organization submits all invoices along with billing request to the grantor. In addition, the Organization felt that these disbursements fell under the “Fiscal Year Clause” of the contract. As a result, the determination made by management was that these are allowable costs. However, the “Fiscal Year Clause” in the contract may not be clear and may not apply to these types of prepaid expenses and therefore, the Organization may have charged expenses to the grantor outside of the contract period of performance.

Auditors’ Recommendations: The Organization should work with the grantor to obtain written clarification as to the allowability of prepaid amounts for reimbursement in the year of the payment rather than the year of the expense. Further, the Organization should ensure that billings to the grantor are on the modified accrual basis of accounting since the financial statements are reported on the accrual basis of accounting.

Federal program information:

Funding agency: U.S. Department of Health and Human Services Title: Head Start CFDA number: 93.600 Award number and years: 161092-0; July 1, 2024 through June 30, 2025 Pass-through grantor: City of Phoenix Compliance Requirements: Allowable Costs/Costs Principles

Questioned Costs: Unknown

Criteria: The Pass-through Grantor, the City of Phoenix, requires that the Organization provides a 25% match (nonfederal share) of the federal funding.

Condition: In fiscal year 2025 the Organization reported total federal amounts for the Head Start program of $5,072,777 which would require a nonfederal share (match) of $1,268,194 based on the 25% requirement. However, the Organization was only able to document a nonfederal match of $1,033,057, a shortfall of $235,137.

Cause and Effect: The Organization did not analyze quarterly reports to determine if matching requirements were being met on an ongoing basis. As a result, the Organization is out of compliance with contract requirements.

Auditors’ Recommendations: The Organization should establish policies where the required match is periodically summarized throughout the year and analyzed to ensure that the required match will be met by contract year end.

2024-101 – Reporting-Report Submission – (Significant Deficiency in Internal Controls over Compliance) Repeat Finding Federal program information: Funding agency: U.S. Department of Health and Human Services Title: Head Start CFDA number: 93.600 Award number and years: 152734, 152734-019; July 1, 2023 through June 30, 2024 Pass-through grantor: City of Phoenix Compliance Requirements: Reporting Questioned Costs: N/A Criteria: 200.512 of the Uniform Guidance requires that the Organization submit an annual single audit reporting package and submit the data collection form prior to nine months after the end of the audit period. Condition: The Organization did not submit its single audit reporting package or data collection form within the required deadline. Cause and Effect: The Organization had turnover in finance staff and had not established policies and procedures to ensure the annual single audit is completed timely. As a result, the Organization did not comply with federal requirements. Auditors’ Recommendations: Management should ensure that the annual single audit is completed within the required timeframe. This finding is similar to prior year finding 2023-102.

Federal program information: Funding agency: U.S. Department of Health and Human Services Title: Head Start CFDA number: 93.600 Award number and years: 152734, 152734-014; July 1, 2022 through June 30, 2023 Pass-through grantor: City of Phoenix Compliance Requirements: Allowable Costs/Cost Principles Questioned Costs: Unknown Criteria: The Pass-through Grantor, the City of Phoenix, requires that the Organization provide a 25% match (nonfederal share) of the federal funding. Condition: During fiscal year 2023, the total federal amounts reported for the Head Start program related to the non-COVID-19 related contracts was $4,843,064 which would require a $1,210,766 match based on 25%. Of the match that Booker T. Washington Child Development Center was initially able to document, $192,182 related to meals provided by a school district for free to the Booker T. Washington children. The value of these free meals in total as calculated by the Organization was $796,647, but only $192,182 was needed to cover the shortfall from other categories. These free meals were not contemplated as part of the Budgeted match when the contract with the City of Phoenix was established, nor were these free meals included as part of the Quarterly Admin reports provided to the City. Cause and Effect: During the year, the Organization determined that $808,793 of the required match was met through expenses of other funding sources. However, it only $598,268 of these other funding sources was spent on program related items during fiscal year 2023, causing $192,182 of this reported match to not be legitimate. Due to this $192,182 shortfall, the Organization rethought its sources of matching funds and determined that they believe that the Organization received $796,647 in free meals provided to kids that could be used to make up for this $192,182 shortfall in the required match. These free meals were not specified in the quarterly reports submitted to the City of Phoenix because these free meals were considered part of the required match only after the auditors determined that the reported match categories that could be supported was short of the requirement by $192,182, Auditors’ Recommendations: The Organization should establish policies where the required match is periodically summarized throughout the year and analyzed to ensure that the required match will be met by contract year end.

Federal program information: Funding agency: U.S. Department of Health and Human Services Title: Head Start CFDA number: 93.600 Award number and years: 152734, 152734-014; July 1, 2022 through June 30, 2023 Pass-through grantor: City of Phoenix Compliance Requirements: Reporting Questioned Costs: N/A Criteria: 200.512 of the Uniform Guidance requires that the Organization submit an annual single audit reporting package and submit the data collection form prior to nine months after the end of the audit period. Condition: The Organization did not submit its single audit reporting package or data collection form within the required deadline. Cause and Effect: The Organization had turnover in finance staff and had not established policies and procedures to ensure the annual single audit is completed timely. As a result, the Organization did not comply with federal requirements. Auditors’ Recommendations: Management should ensure that the annual single audit is completed within the required timeframe. This finding is similar to prior year finding 2022-102