FORM COMMUNITIES, INC.

Section III – Federal Award Findings and Questioned Costs Finding: #2023-001 Program Title: Block Grants for Community Mental Health Services, Coronavirus State and Local Fiscal Recovery Funds Assistance Listing: 93.958, 21.027 Contract Grant Number: HHS000063200002 & HHS00477100002, 2023-02-02-0043 Federal Award Years: September 1, 2022 to August 31, 2024, March 1, 2023 to February 28, 2025 Federal Agency: U.S. Department of Health and Human Services, U.S. Department of Treasury Allowable Costs Type of Finding: Significant Deficiency and Other Noncompliance Criteria: 2 CFR part 200 establishes cost principles for determining costs applicable to Federal Awards and requires costs be adequately documented. In addition, 2 CFR section 200.430 establishes standards for documentation of personnel expenses with the terms and conditions of the federal award. These awards are subject to the requirements set forth in 45 CFR Part 75, which defines the standards for documentation of personnel expenses as charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed. The records must support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one federal award; a federal award and non-federal award, an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. Condition: Based on procedures performed, we identified payroll expenditures allocated among federal award programs that were not supported by the time and effort allocation certifications. As a result, verification documentation of payroll allocations across federal award programs was not obtained. Cause: Lack of documentation to support payroll allocations across federal award programs. Effect: Noncompliance with Allowable Costs compliance requirements of the Uniform Guidance and terms and conditions of the federal award. Repeat Finding: No Recommendation: We recommend Form Communities improve procedures for tracking and reporting of time allocations across federal award programs to ensure compliance with the compliance requirements and terms and conditions of federal awards. Views of Responsible Officials: Management agrees with the recommendations to improve tracking and reporting of time allocations across federal award programs to conform with the compliance requirements and terms and conditions of federal awards.