oversight

APPALACHIAN REGIONAL COMMISSION
  OFFICE OF INSPECTOR GENERAL
       AUDIT OF GRANT AWARD
   Center for Rural Entrepreneurship
        Christiansburg, Virginia




       Final Report Number: 20-04
        Grant Number: PW-18729

             December 2019




              Prepared by:

       Leon Snead & Company, P.C.
                                                    TABLE OF CONTENTS




                                                                                                                                          Page


Background ......................................................................................................................................1

Objective, Scope, and Methodology ................................................................................................1

Summary of Audit Results ...............................................................................................................2

Finding and Recommendation .........................................................................................................3

     A. Financial Management ..........................................................................................................3

Appendix - Grantee’s Response
Background

Leon Snead & Company, P.C. completed an audit of grant number PW-18729 awarded by the
Appalachian Regional Commission (ARC) to the Center for Rural Entrepreneurship (the Center).
The grant was administered by LOCUS Impact Investing (LOCUS). The audit was conducted at
the request of the ARC Office of Inspector General to assist the office in its oversight of ARC
grant funds.

ARC awarded $1,747,806 and required a matching contribution of $513,977. The total estimated
project cost is $2,261,783. The initial period of performance for the grant was November 1, 2016
through September 30, 2019. The ending date was subsequently extended to March 31, 2020 via
amendment.

The project is Building Entrepreneurial Communities: The Foundation of an Economic Transition
for Appalachia. LOCUS is the lead partner for the project, which includes community
development organizations from the states of Kentucky, Ohio, and West Virginia. They
will provide training and coaching support for each of the three community development
organizations. These organizations will target communities and focus on community engagement
and team development at the local level to adapt the Entrepreneurial Communities framework and
process in Central Appalachia. This will involve establishing entrepreneurial support systems that
can identify new and developing entrepreneurs, assist new and expanding business development
entrepreneurial skills, prepare for investment, and make connections with existing sources.

The grant was made under the Partnerships for Opportunity and Workforce and Economic
Revitalization (POWER) Initiative, which is an integrated, multi-agency effort to align and invest
federal economic and workforce development resources in communities and regions negatively
impacted by changes in the coal economy.

Objectives, Scope, and Methodology

The audit objectives were to determine whether: (1) program funds were managed in accordance
with the ARC and Federal grant requirements; (2) grant funds were expended as provided for in
the approved grant budget; (3) internal grant guidelines, including program (internal) controls,
were adequate and operating effectively; (4) accounting and reporting requirements were
implemented in accordance with generally accepted accounting principles (or other applicable
accounting and reporting requirements); and (5) the matching requirements and (6) the established
performance measures were met.

At the time of the audit, ARC funding of $1,247,448 had been expended and matching
contributions were $372,049. We reviewed $379,631 of the expenditures and $117,553 of the
matching contributions to determine whether they were properly supported and allowable.

We reviewed documentation provided by LOCUS and interviewed personnel to obtain an overall
understanding of the grant activities, the accounting system, and general operating procedures
and controls. We reviewed written policies and administrative procedures to determine if
they complied with federal requirements and were adequate to administer the grant. We reviewed
financial and project performance reports to determine if they were submitted in accordance with



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requirements. We evaluated grant results discussed in the project performance reports to
determine if the planned performance goals and objectives were met.

The on-site fieldwork was performed at the LOCUS office in Christiansburg, Virginia during the
period of October 28 through November 1, 2019. The audit results were discussed with LOCUS
officials at the conclusion of the on-site visit. The grantee was in general agreement with the
results.

The primary criteria used in performing the audit were 2 CFR 200, the ARC Code, the grant
agreement, and the Memorandums of Understanding between LOCUS and the three community
development organizations. The audit was performed in accordance with Generally Accepted
Government Auditing Standards.

Summary of Audit Results

The ARC expenditures of $379,631 and the match of $117,553 tested for the grant were properly
supported and allowable. LOCUS’s matching contribution was on track to be met. Financial and
project performance reports were submitted to ARC timely and accurately. LOCUS had an
adequate process in place for obtaining and recording performance data related to the overall goals
of the grant.

We compared the planned performance measures with the actual performance measures reported
by the grantee on the most recent project performance report. These results were confirmed by the
grantee. As shown below, LOCUS has met or exceeded four of the five performance measures
and is on track to meet the fifth performance measure.

                                     Planned           Actual          Planned        Actual
    Performance Measure
                                     Outputs          Outputs*        Outcomes       Outcomes*
 Communities Served                     16               16                0              0
 Participants Served                    160              202               0              0
 Plans/Reports Developed                16                6                0              0
 Communities Served                      0                0               16              16
 Participants Improved                   0                0               80             134
*As of September 30, 2019

However, we identified one area that requires management attention. We determined that
LOCUS’s written financial management policies and procedures did not fully comply with 2 CFR
200 requirements. This matter and the corresponding recommended corrective action are
discussed in the Finding and Recommendation section of this report.




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                                Finding and Recommendation

A. Financial Management

LOCUS’s written policies and procedures did fully comply with 2 CFR 200 requirements for
financial management. Our review of LOCUS’s financial and internal control procedures
determined they did not include written procedures for making payments and ensuring the
allowability of costs are in accordance with the cost principles for federal awards.

2 CFR 200, Uniform Administrative Procedures, Cost Principles, and Audit Requirements for
Federal Awards, requires grantees to comply with all applicable federal regulations, including
financial management. Specifically, 2 CFR 200.302, Financial Management, requires grantees to
have written procedures:
   (1) to implement 2 CFR 200.305 requirements for payments; and
   (2) for determining the allowability of costs in accordance with 2 CFR 200, Subpart E, Cost
       Principles for Federal Awards.
2 CFR.200.305 requires that payment methods must minimize the time elapsing between the
receipt and disbursement of federal funds. It further states that:
   1. In order to receive advance payments, grantees must maintain or demonstrate the
      willingness to maintain (1) written procedures that minimize the time elapsing between the
      receipt and disbursement of funds; and (2) financial management systems that meet the
      standards for fund control and accountability.
   2. Advance payments must be limited to the minimum amounts needed and be timed in
      accordance with the actual, immediate cash needs of the grantee.
   3. The timing and amount of advance payments must be as close as administratively feasible
      to the actual disbursement.

Recommendation

LOCUS should modify its existing written financial management policies and procedures to ensure
they fully comply with the 2 CFR 200 requirements listed above.

Grantee’s Response

The grantee responded that they concur with the recommendation. They stated that the
Organization will enhance its current policies and procedures to incorporate detailed language on
the compliance with 2 CFR 200, including, but not limited to, requirements for payment methods
in accordance with 2 CFR 200.305 and determining the allowability of costs as required by 2 CFR
200, Subpart E. Policies will be updated no later than April 30, 2020.

Auditor’s Comments

ARC will determine whether the information provided in the grantee’s response is adequate to
resolve the finding and close the recommendation.


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Appendix
Appendix