Espiritu Community Development Corporation

Condition: For FAL 10.185, all 40 vendor disbursements tested lacked evidence of supervisory approval, as the payment request forms were not signed by the designated approver prior to payment. For FAL 10.558, 27 of thirty-two vendor disbursements tested lacked documented supervisory approval prior to payment. Finally for FAL 84.010A, two of the ten vendor disbursements tested lacked documented supervisory approval prior to payment. In each noted instance, payments were processed without evidence that the School performed and documented a review in accordance with established internal control procedures.

Criteria: According to 2 CFR §200.303, Internal Controls, non-Federal entities must establish and maintain effective internal control over federal awards that provides reasonable assurance the entity is managing the award in compliance with federal statutes, regulations, and the terms and conditions of the award. Further, under 2 CFR §§200.403, Factors Affecting Allowability of Costs, and 200.405, Allocable Costs, costs charged to federal awards must be necessary, reasonable, allocable, and conform to any limitations or exclusions set forth in federal regulations or award terms.

Cause: The School did not consistently enforce established approval procedures, and monitoring controls were not operating effectively to ensure payment request forms were reviewed and signed prior to disbursement.

Effect: Failure to document supervisory approval increases the risk that unallowable, inaccurate, or unsupported expenditures could be processed and charged to federal programs without detection.

Recommendation: We recommend that the School enforce existing policies requiring documented supervisory approval prior to processing payments and implement monitoring procedures to ensure approval documentation is completed and retained. In addition, the School should strengthen pre-payment review procedures to ensure expenditures are evaluated for allowability, necessity, reasonableness, and proper allocation in accordance with 2 CFR Part 200 and applicable program requirements. Training should be provided to personnel responsible for processing and approving federal program expenditures to reinforce compliance responsibilities.

Management’s Response: The School’s responsible officials’ views and planned corrective action are in its corrective action plan at the end of the report.

Condition: Expenditures for the Child and Adult Care Food Program were incorrectly reported as expenditures to other nutrition programs.

Criteria: According to 2 CFR §200.303, Internal Controls, non-Federal entities must establish and maintain effective internal control over federal awards that provides reasonable assurance the entity is managing the award in compliance with federal statutes, regulations, and the terms and conditions of the award. Further, under 2 CFR §§200.400, Policy Guide, and 200.405, Allocable Costs, costs are to be adequately supported as charged to the Federal award and must be necessary, reasonable, allocable, and conform to any limitations or exclusions set forth in federal regulations or award terms.

Cause: The School did not understand the need to properly identify expenditures to the appropriate formula grant nutrition program.

Effect: Although expenditures were properly reported collectively over all the nutrition programs, expenditures for specific nutrition programs were incorrectly reported for various separately funded nutrition programs.

Recommendation: We recommend that the School properly identify and report nutrition program expenditures by program.

Management’s Response: The School’s responsible officials’ views and planned corrective action are in its corrective action plan at the end of the report.

Condition: The data collection form and financial reporting package for the year ended June 30, 2024, was not filed within 9 months of the fiscal year.

Criteria: According to 2 CFR §200.512, Report Submission, requires that the audit must be completed and the data collection form and reporting package must be submitted within the earlier of 30 calendar days after receipt of the auditor's report(s), or nine months after the end of the audit period.

Cause: The cause is due to additional effort required to correct the accounting records which delayed the start of the audit.

Effect: The effect is the late filing of the audit and data collection form.

Recommendation: We recommend that the School establish a system of monitoring for the filing of all required reporting and that the chief operating officer review the monitoring list on a regular basis consistent with the timing of report filings.

Management’s Response: The School’s responsible officials’ views and planned corrective action are in its corrective action plan at the end of the report.

Condition and Context: While the School completed a physical observation of its assets, it did not reconcile its detailed fixed asset listing to the physical observation. Criteria: According to 2 CFR 200.313 Equipment, a physical inventory of the property must be performed and the results reconciled with the property records at least once every two years. Cause and Effect: The cause is a lack of resources to perform a physical inventory of the property and equipment. The effect is the possibility of purchasing assets using federal funds that are not properly accounted for in the accounting records. Recommendation: We recommend that in addition to conducting a physical inventory of the School's capital assets on at least a biennial basis, that the School update its accounting records based on the results of the physical inventory. Management’s Response: The School’s responsible officials’ views and planned corrective action are in its corrective action plan at the end of the report.

Condition and Context: The four quarterly reports were not filed within the 30 days required by the contract. Criteria, Cause and Effect: According to 2 CFR §200.327, Financial Reporting, information must be collected with the frequency required by the terms and conditions of the Federal award. The contracts require the filing of quarterly reports within 30 days after the quarter-end. The cause is an oversight that quarterly reports were due for the grant. The effect is the late filing of the quarterly reports. Recommendation: We recommend that the School establish a system of monitoring for the filing of all required reporting and that the chief operating officer review the monitoring list on a regular basis consistent with the timing of report filings. Management’s Response: The School’s responsible officials’ views and planned corrective action are in its corrective action plan at the end of the report.

Condition and Context: The School used funding from the grant to complete renovation and construction projects. The School requested the contractors to provide certified payroll reports in the proposal meetings, however they did not obtain the reports from the contractors. Criteria, Cause and Effect: According to 40 USC §3142, Rate of Wages for Laborers and Mechanics, contracts in excess of $2,000, using federal funds, for construction shall contain a provision stating the minimum prevailing wage to be paid to various classes of laborers. Prior to payment the contractor is required to submit certified payroll reports and a statement of compliance with these prevailing wages. The cause is an oversight of obtaining the certified payroll reports prior to payment to contractors. The effect is not verifying the prevailing wages were paid to contractors. Recommendation: We recommend that the School establish a system of monitoring contracts for construction greater than $2,000 in which the wage rate requirement exists and verify the certified payroll reports are received prior to payment. Management’s Response: The School’s responsible officials’ views and planned corrective action are in its corrective action plan at the end of the report.