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Audit

Audit  Audit of the Berkshire County Arc, Inc. (BCArc)

The audit shows questionable use of state funding at the Berkshire County Arc, Inc. (BCArc), a nonprofit organization located in Pittsfield, MA, that serves children and adults with intellectual and developmental disabilities, and individuals who need assistance with daily living. The audit examined July 1, 2017 through June 30, 2019.

Organization: Office of the State Auditor
Date published: May 25, 2021

Executive Summary

In accordance with Section 12 of Chapter 11 of the Massachusetts General Laws, the Office of the State Auditor (OSA) has conducted a performance audit of Berkshire County Arc, Inc. (BCArc) for the period July 1, 2017 through June 30, 2019. The purpose of this audit was to determine whether (1) BCArc’s management staff members were fully qualified for their positions and the compensation BCArc provided to them was allowable according to BCArc’s policies and procedures and Section 1.05(24) of Title 808 of the Code of Massachusetts Regulations (CMR); (2) BCArc’s credit card expenditures were documented and allowable in accordance with its policies and procedures and 808 CMR 1.04(1), 1.04(5), 1.05(3), 1.05(9), 1.05(10), 1.05(12), 1.05(23), and 1.05(26); and (3) BCArc conducted its related-party transactions2 in accordance with 808 CMR 1.05(8) and 1.05(12).

This audit was conducted as part of OSA’s ongoing efforts to audit human service contracting activity by state agencies and to promote accountability, transparency, and cost-effectiveness in state contracting.

Below is a summary of our findings and recommendations, with links to each page listed.

Finding 1a
 

BCArc charged $124,247 in nonreimbursable expenses to its state contracts.

Finding 1b
 

BCArc’s president and chief executive officer (CEO) used agency credit card reward travel miles for his personal travel.

Finding 1c
 

BCArc did not properly administer its inventory of non–generally accepted accounting principles (GAAP) fixed assets.

Recommendations
 
  1. BCArc should cooperate with the state Operational Services Division (OSD)2 and determine how much of this $124,247 of nonreimbursable credit card expenses BCArc should reimburse to the Commonwealth.
  2. BCArc should amend its policies and procedures to ensure that all credit card expenses are properly documented according to OSD regulations.
  3. BCArc management should establish monitoring controls to ensure that management reviews all credit card expenses before payment and determines whether they are reimbursable to BCArc’s state contracts.
  4. BCArc should properly identify and correctly report all nonreimbursable expenses on its Uniform Financial Statements and Independent Auditor’s Reports.
  5. BCArc should stop using the American Express and Citibank cards that are linked to the president and CEO’s account and obtain new cards issued in its own name.
  6. BCArc should enhance its policies and procedures to require that all cards be issued in its name and that any travel rewards or other incentives issued by card companies be used solely for its benefit.
  7. BCArc’s board should provide effective oversight over cards by periodically reviewing card statements to determine whether rewards are earned and how they are used.
  8. BCArc should develop policies and procedures for the administration of its non-GAAP fixed assets that include a requirement that its inventory records contain all key information and be maintained and current for each asset as suggested in the “Fixed Assets—Acquisition Policy.”

Finding 2
 

BCArc charged at least $651,540 in unallowable related-party expenses against its state contracts.

Recommendations
 
  1. BCArc should cooperate with OSD to resolve any identified issues regarding nonreimbursable costs and should reimburse the Commonwealth for any such costs that OSD determines must be repaid.
  2. BCArc should perform a fair market rent determination for the properties it leases from Berkshire Omega annually and use this information to determine what rents it should pay Berkshire Omega for these properties (i.e., the lower of the fair market rent or Berkshire Omega’s actual costs related to the properties).
  3. BCArc should stop using state funds to pay for any capital improvements to Berkshire Omega’s properties and should enter into repayment agreements with Berkshire Omega for the capital improvements for which it has already paid.
  4. BCArc should not pay for the maintenance of Berkshire Omega’s properties or its bookkeeping expenses.

Finding 3
 

BCArc allowed inappropriate use of its credit cards.

Recommendations
 
  1. BCArc should amend its credit card policies to limit card use to employees and establish monitoring controls to ensure that all employees and contractors comply with this requirement.
  2. BCArc should improve its internal controls over credit cards to prevent the cards from providing a personal benefit to anyone.

Finding 4
 

BCArc did not have required documentation for $43,192 in client fund expenditures.

Recommendation
 

BCArc should develop procedures to monitor the use of client funds to ensure that all expenses paid for with these funds are properly approved using the Savings Withdrawal Form.

 

Post-Audit Action

BCArc’s board of directors indicated that as a result of the problems identified in Finding 1b, the agency had implemented a new credit card policy prohibiting any employee from deriving a personal benefit from an agency credit card.

 

A PDF copy of the audit of the Berkshire County Arc, Inc. is available here.

 

1.     Related-party transactions can involve various parties, such as individuals, their family members, organizations, and trusts. According to the Financial Accounting Standards Board’s “Statement of Financial Accounting Standards No. 57,” a party “is a related party if it can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.”

2.     OSD is the state agency responsible for regulating and overseeing the activities of all the state’s contracted human service providers, such as BCArc.

Table of Contents

Appendix

Downloads

Open PDF file, 1.08 MB,  Audit of the Berkshire County Arc, Inc. (English, PDF 1.08 MB)

Contact

Phone

Main (617) 727-2075

Online

Auditor@MassAuditor.gov

Fax

(617) 727-3014

Address

Massachusetts State House
Room 230
Boston, MA 02133
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