In accordance with Section 12 of Chapter 11 of the Massachusetts General Laws, the Office of the State Auditor has conducted a performance audit of certain activities of Brockton Area Multi-Services, Inc. (BAMSI) for the period July 1, 2017 through June 30, 2019. For the hiring of the president and chief executive officer (CEO), we extended the audit period through October 31, 2019.
We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.
Below is a list of our audit objectives, indicating each question we intended our audit to answer; the conclusion we reached regarding each objective; and, if applicable, where each objective is discussed in the audit findings.
Partially; see Finding 1
No, see Finding 3
No, see Finding 4
To achieve our audit objectives, we gained an understanding of BAMSI’s internal control environment related to the objectives by reviewing applicable laws, regulations, and agency policies and procedures, as well as conducting inquiries with BAMSI’s staff and management. We evaluated the design of controls over non-payroll expenses, executive management compensation, board member appointments, the hiring process for the president and CEO, and donations. We tested the effectiveness of controls over non-payroll expenses, executive management compensation, board appointments, and the hiring process for the president and CEO to determine whether the controls operated as intended during the audit period. For donations, a control was first implemented in fiscal year 2019; we tested the effectiveness of the control to determine whether it operated as intended during that fiscal year.
We performed the following procedures to obtain sufficient, appropriate audit evidence to address the audit objectives.
To determine whether the 249,353 non-payroll expense transactions charged to contracts between BAMSI and state agencies2 during the audit period complied with 808 CMR 1.05(5), 808 CMR 1.05(9), and 808 CMR 1.05(24), as well as established agency policies and procedures, we examined the supporting original documentation (e.g., receipts, invoices, packing slips, cost allocation plan,3 and depreciation schedules4) on file and performed the following procedures:
- We selected a random statistical sample, using a 95% confidence level, a 50% tolerable error rate, and a 20% expected error rate, of non-payroll expense transactions from BAMSI’s general ledger. We selected 103 of 249,353 transactions and examined supporting documentation (invoices, cost allocation plan, depreciation schedules, and packing slips) to determine whether allowable non-payroll expenses were charged to state contracts in compliance with 808 CMR 1.04 and 1.05.
- We selected a random nonstatistical sample of 10 (totaling $34,582, or 64%) of 25 (totaling $54,430) credit card statements for the president and CEO’s expenses from our audit period. We confirmed that the reimbursable charges had supporting documentation (e.g., receipts, invoices, packing slips) and that BAMSI refrained from charging nonreimbursable items (e.g., interest, travel, lobbying costs, sales tax, and alcohol and/or tobacco) to state contracts in compliance with 808 CMR 1.05.
- We extracted from the general ledger all transactions charged to rent and capital lease interest accounts during the audit period to compile a list of BAMSI’s leased properties. We selected a judgmental, nonstatistical sample of 20 of 58 owners of BAMSI’s leased properties from the list of such owners during the audit period to determine whether BAMSI had leased from any related parties. To obtain the sample, we selected the top 3 owners, who owned the largest number of properties (37, or 36%, of the 104 leased properties), and randomly selected an additional 17 owners. We searched the county registries of deeds for the counties where the properties were located, and the town assessors’ databases for the owners of record, to confirm ownership of all 56 properties that BAMSI leased from the 20 selected owners. For our sample of 20, we determined whether each property owner was a corporation by searching the Secretary of the Commonwealth’s corporate business entity database to determine owners’ or corporate board members’ names. We compared the names of either the corporate board member/s or the owner/s to the list of members of BAMSI’s board or executive management team to confirm that no leased property owner’s name matched that of any member.
- We compared the names of all 18 board members who were active during our audit period to the general ledger and to federal Internal Revenue Service (IRS) 1099-MISC forms5 issued to contractors by BAMSI during the audit period to determine whether compensation received by board members complied with BAMSI’s policies.
- We extracted from the general ledger all 4,073 purchases that cost more than $5,000 and filtered expense transactions for the following general ledger expense accounts: equipment, capital budget buildings and betterments,6 and facility operation. We determined which items were depreciable capital assets.7 We compared all 25 such assets that were purchased during the audit period to determine whether they appeared on BAMSI’s depreciation schedule for assets that cost more than $5,000.
- We extracted from the general ledger all purchases of less than $5,000 from three businesses (Jordan’s Furniture, George Washington Toma TV and Appliance, and Bob’s Discount Furniture) that were made for residential homes8 and day habilitation9 services and expensed to state contracts during our audit period. We traced all 1,154 transactions, totaling $526,326, to the general ledger and determined whether the items purchased were expensed to any of BAMSI’s state contracts. We examined the invoices to determine the delivery addresses. We performed Internet searches of all the delivery addresses to determine whether the addresses were owned or leased by BAMSI. We researched BAMSI-owned property by using Google Maps and tax assessor records to document types of location (single-family home, apartment, and warehouse). We used Excel to sort items by delivery address and analyzed the quantities purchased for each address. We determined the ages of inventory items and compared them to the useful service lives listed for similar assets in the state Operational Services Division’s (OSD’s) UFR Audit & Preparation Manual. We compared the useful life of each item to the date a replacement item was purchased to determine whether BAMSI purchased new items to replace ones that had not reached the end of their useful lives.
We compared the address where each item was placed in service to the last BAMSI inventory on record (February 2017) to determine whether each one was purchased before an equivalent item at the same address had.
BAMSI uses cloud-based software, Ultipro, to process payroll, time and attendance, direct deposit, and payroll reports. To determine whether severance paid during the audit period was provided to employees who were not part of the executive management team, we inspected the Ultipro payroll reports for all employees for fiscal years 2018 and 2019. For the two employees who received severance pay during the audit period, we compared the unique employee identification numbers (IDs) to those of executive management team members to determine whether severance was paid to the executive management team only. We compared the severance payments made during the audit period to the severance agreements, recalculated the amounts of severance payments, and verified that the agreements were signed by either the president and CEO or the chief operations officer (COO).
We selected a nonstatistical sample of six employees to determine whether any executive management team compensation that exceeded the limits imposed on the salaries of officers and managers by OSD was properly reported in BAMSI’s Uniform Financial Statements and Independent Auditor’s Reports (UFRs) as nonreimbursable. To select this sample of six employees, we judgmentally selected the top 3 executive management team members in the organization hierarchy and randomly selected 3 of the other 16 executive management team members from our audit period. We compared Ultipro’s gross wages report for fiscal years 2018 and 2019 to each sampled employee’s salary. We determined whether each salary exceeded OSD limits. When they did, we reconciled the excess amount of gross wages paid to the reported nonreimbursable expenses in the fiscal year 2018 and 2019 UFRs BAMSI submitted to OSD. We determined that the state contract was not charged more than allowed.
We extracted from BAMSI’s general ledger a total of 70 transactions, totaling $244,574, for the audit period that were classified as life insurance, vehicle insurance, leased vehicles, severance pay, deferred compensation, or nonreimbursable account transactions. We compared all 70 transactions to amounts reported in the UFRs to determine whether they were correctly reported as nonreimbursable according to 808 CMR 1.05. We compared the original vehicle leases and life insurance policies to BAMSI’s general ledger and to amounts reported in the UFRs to determine whether nonreimbursable expenses were accurately reported. In addition, we extracted from the general ledger 195 transactions from the audit period that were classified as gas and oil expenses and compared all 195 to the president and CEO’s Citizens Bank credit card statements. Using the credit card totals for gasoline purchases and the president and CEO’s mileage log, we recalculated the personal use and business use allocations charged. We determined that no expenses that were incurred for personal use had been charged to state contracts.
We also compared the fiscal year 2019 total compensation of the three highest-ranking members of BAMSI’s executive management team, or its “C-level officer” team—CEO, chief financial officer, and COO—to the total compensation of other nonprofit organizations’ officers with the same titles for the same period. Through online searches, we identified six similar nonprofit human service providers with fiscal year 2018 revenue commensurate with BAMSI’s. We compared BAMSI C-level officers’ total compensation to that of officers with the same titles at the six selected organizations to determine whether BAMSI’s compensation was comparable to that of similar organizations.
We requested from BAMSI’s Information Technology Department a list of all the online applicants whose applications and resumes had been forwarded to the chairperson of BAMSI’s board affairs committee during the audit period, but the department could not retrieve a list of all online applicants from the system. We received 20 applications from BAMSI’s community engagement manager. We requested email correspondence from the executive assistant to the board affairs committee chairperson. We compared all 20 applications to the board meeting minutes to determine whether the applications on hand had been acknowledged during the board meetings. In the emails, we found the names of 7 additional applicants who had not applied via the online portal; we compared them to the board meeting minutes to determine whether the applicants were acknowledged during the board meetings. We reviewed all 27 applicants’ documentation to determine whether they had the application, resume, and (if applicable) rejection letter required by BAMSI’s bylaws. In addition, for all 6 applicants who joined the board during the audit period, we inspected resumes, applications, and board meeting minutes to determine whether the board affairs committee interviewed them; whether the board voted on their appointment; and whether Criminal Offender Record Information reviews had been performed before their first board meetings. For the 21 applicants the board did not choose, we conducted inquires with the community engagement manager and the board chairperson, and reviewed the board meeting minutes and email correspondence, to determine whether the committee had documented its reasons for not appointing them.
Procedure for Hiring of New President and CEO
We created a timeline—using internal and external emails from the vice president of the Human Resources (HR) Department, the outside consulting firm, and BAMSI’s board members; meeting minutes for the board of directors’ executive sessions; search committee meeting minutes; invoices regarding the outside consulting firm whereof the contract was terminated February 25, 2019; an interview schedule; the job posting for the president and CEO; the engagement letter from the second consulting firm to BAMSI; and the signed and dated offer letter to the candidate for the position of president and CEO—to determine whether BAMSI followed its succession plan to establish a search committee to recommend a candidate to the board. We also performed inquiries with board members and the consulting firm employees who participated in interviewing the candidates and advising the board. We confirmed that all candidates had been interviewed using the same questions on the interviewers’ questionnaire, recalculated the interview category ranking given by the search committee for the final five candidates’ interview questionnaires, and placed them in ranking order by scores to determine whether the final three candidates had the highest scores. We also reviewed original feedback from the CEO roundtable group and the consulting firm to determine the rankings of the final three candidates and whether the top candidate had been offered employment.
We extracted all 622 cash donation transactions from the general ledger and separated them into two strata: restricted and unrestricted donations. For the first stratum (restricted donations), we selected a nonstatistical random sample of 10 of 55 donations, and for the second stratum (unrestricted donations), we selected a nonstatistical random sample of 50 of 567 donations. For both strata, we traced general ledger line items to the supporting copies of donor checks, deposit registers, and a BAMSI donor report to determine whether each donation was classified in the general ledger in accordance with the donor’s request. In addition, we examined donation acknowledgment letters sent to donors and determined that they had been sent out in accordance with BAMSI’s policy.
When nonstatistical sampling methods were used, we could not project the results of our testing to the population.
BAMSI uses Ultipro to process its payroll and payroll tax. We obtained Service Organization Controls (SOC) reports10 regarding Ultipro’s information system general controls covering the audit period, as well as the peer review of the certified public accountant firm that prepared the reports. We verified that the SOC reports described testing of certain information system general controls (security management, access control, configuration management, segregation of duties, and contingency planning) and that they had been tested without exceptions. To determine completeness, we reconciled 2,948 unique employee IDs to Ultipro’s payroll total earnings report to determine whether the IDs appeared on the payroll reports. For completeness and accuracy, we traced 20 randomly selected names from the Ultipro list of employees to the employee HR folders. We next traced 20 randomly selected HR folders to the Ultipro list of employees. In addition, we compared Ultipro’s quarterly payroll earning reports to IRS 941 forms (Employer’s Quarterly Federal Tax Returns) for the audit period.
Sage Micro Information Products, Inc. Nonprofit Accounting Software
BAMSI uses Sage’s Micro Information Products, Inc. (MIP) Nonprofit Accounting Software to record its accounting transactions. We tested certain information system general controls (security management, access controls, configuration management, segregation of duties, and contingency planning) of the MIP database. In addition, we extracted from MIP the general ledger transactions for fiscal years 2018 and 2019 and verified that the transaction dates did not fall outside the audit period. We compared the general ledger expense totals for fiscal years 2018 and 2019 to BAMSI’s expense totals from Schedule A11 of the UFR to determine completeness. To determine completeness and accuracy, we took a random sample of 20 expenses from the general ledger and traced those to invoices, and we took a random sample of 20 invoices and traced them to the general ledger.
Citizens Bank CentreSuite Credit Card Management System
BAMSI uses Citizens Bank’s CentreSuite credit card management system for its approximately 200 employee credit cards. This system allows employees to upload receipts to support their charges. We compared all 25 of the monthly Citizens Bank statements to the CentreSuite reports and to the general ledger for completeness. To assess the accuracy of CentreSuite, we randomly selected a sample of 20 transactions from the audit period and traced them to the general ledger. In addition, we selected 20 transactions from the general ledger and traced them to the CentreSuite report.
Based on the results of our data reliability assessments, we determined that the information obtained for out audit period was sufficiently reliable for the purpose of our audit objectives.
|Date published:||June 1, 2021|