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 Berkshire County Arc, Inc. (BCArc) for the period July 1, 2017 through June 30, 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.
To achieve our objectives, we gained an understanding of the internal controls we determined to be relevant to the objectives by reviewing all applicable Operational Services Division regulations as well as agency policies and procedures. We also conducted interviews with responsible agency officials about control activities. We evaluated the design and implementation of the relevant controls and tested their operating effectiveness over management employee compensation, credit card expenses, and related parties.
In addition, we conducted further audit testing, as described below.
Management Qualifications and Compensation
We tested whether all 45 management-level employees had qualifications that were consistent with their job titles and responsibilities. We did this by obtaining each management-level employee’s resume, if available, and comparing the information therein to the employee’s job title and job description, which listed job qualification requirements.
We obtained salary information for all management-level employees from BCArc’s payroll records. We compared the annual salaries for these employees that were charged to BCArc’s state contracts to the maximum salary amounts that can be charged to state contracts according to 808 CMR 1.05(24). We tested whether salary increases for these employees were reasonable. Specifically, we obtained the personnel files for all 45 management-level employees and reviewed the documentation in the files to determine whether the reasons for salary increases were documented and appeared to be reasonable, based on promotions and/or good performance evaluations. Further, we obtained a list of all 11 management-level employees who received executive compensation bonuses during the audit period. We reviewed all the documentation (Executive Compensation Bonus Reports) regarding the awarding of these bonuses to determine whether they were awarded consistently with the agency’s policies.
Credit Card Expenses
During our audit period, BCArc had 51 credit cards. Three of these credit cards (2 for Best Buy and 1 for Sears) were not in use during our audit period; therefore, we only tested 48 credit cards, as follows.
We selected the entire populations of Citibank and American Express credit card purchases from our audit period. The Citibank population consisted of 2,855 purchases, totaling $615,424; the American Express population consisted of 233 purchases, totaling $18,881. We reviewed credit card statements and all available supporting documentation (e.g., receipts, invoices, and purchase orders) on file for these purchases to determine whether they were appropriate (i.e., related to BCArc’s state-funded contracts), properly authorized, and documented.
We selected a nonstatistical, judgmental sample of 10 months of the 24-month audit period for the Home Depot, Walmart, and Staples credit cards. The Home Depot sample consisted of 280 purchases, totaling $39,030; the Walmart sample consisted of 195 purchases, totaling $31,916; and the Staples sample consisted of 72 purchases, totaling $8,739. We reviewed credit card statements and supporting documentation (e.g., receipts, invoices, and purchase orders) on file for these purchases to determine whether they were appropriate (i.e., related to BCArc’s state-funded contracts), properly authorized, and documented.
We selected the entire population of Big Y credit card purchases from our audit period. This population consisted of 45 purchases, totaling $3,348. We reviewed the receipts and supporting documentation (e.g., purchase orders) on file for these purchases to determine whether they were appropriate (i.e., related to BCArc’s state-funded contracts), properly authorized, and documented.
We selected the entire population of ExxonMobil credit card gas purchases from our audit period. This population consisted of 1,011 purchases, totaling $38,353. We calculated the average monthly expense, and using the number of vehicles BCArc owns, we calculated the average monthly expense per vehicle to determine whether the expenses seemed excessive.
During our review of BCArc’s Citibank, American Express, and Home Depot credit card purchases, we found that in addition to using these cards to make business purchases, BCArc used them to purchase personal items and services for its clients. In those instances, we determined whether the Savings Withdrawal Forms required by BCArc’s policies were on file and property completed.
When nonstatistical sampling methods were used, we could not project the results of our testing to the population.
Credit Card Reward Travel Miles
Thirteen of BCArc’s 48 credit cards were associated with credit card programs that allowed cardholders to accumulate reward travel miles based on the dollar value of purchases made on the card. We requested that BCArc officials provide us with a summary of the reward travel miles accumulated on these cards, as well as the miles used on them, during the audit period for both business and personal travel. In particular, we requested a summary of the reward travel miles used by BCArc’s president and chief executive officer (CEO), because he was listed as the cardholder. The specific information we requested included the total number of reward travel miles used for business and personal purposes, flight destinations, and dates of travel. However, BCArc could only provide us with a summary of the total reward travel miles used during the audit period. Therefore, we interviewed BCArc’s president and CEO regarding this matter and reviewed agency cell phone bills to determine the dates and times when he appeared to have traveled. We interviewed 4 of the 11 members of BCArc’s board of directors to determine whether they knew and approved of the president and CEO’s use of reward travel miles earned from agency expenses.
We obtained the inventory lists of non–generally accepted accounting principles5 equipment, furnishings, and other goods at BCArc’s residential homes and administration buildings. We reviewed these lists to determine whether inventory was properly documented in accordance with 808 CMR 1.04, which requires unique asset identification (ID) numbers (tag or serial numbers), specific descriptions, purchase prices, and purchase dates. During our review of the Citibank, American Express, Home Depot, Walmart, and Staples credit card purchases, we found 316 inventory items purchased during the audit period, totaling $73,711, which we compared to the inventory lists to determine whether the items were included.
We inspected BCArc’s Uniform Financial Statements and Independent Auditor’s Reports (UFRs) for fiscal years 2018 and 2019, including the notes related to Berkshire Omega, to determine whether BCArc properly disclosed its related-party transactions. We also inspected Berkshire Omega’s audited financial statements, BCArc’s Related Party Allocation Plan, Berkshire Omega’s leases, Berkshire Omega’s maintenance contracts, and Berkshire Omega’s rent calculations to determine whether the disclosed related-party transactions were allowable in accordance with 808 CMR 1.05(8)(12).
We inspected the rent calculations for the properties owned by Berkshire Omega and leased to BCArc to determine how the rent payments were calculated and what they consisted of. Also, we inspected Berkshire Omega’s audited financial statements and monthly financial statements to determine whether they contained any financial information related to BCArc.
We requested the calculation/determination of the fair market rent costs for Berkshire Omega's properties during our audit period. We did not receive the calculation/determination because none has been performed since 2006.
We obtained and inspected BCArc’s contracts with the spouse of BCArc’s president and CEO, and her business Your Personal Best: Workshops for Success, and compared them to submitted invoices and service reports to determine whether the services provided were included in the contracts.
Also, we inspected BCArc’s credit card transactions to determine whether the spouse of BCArc’s president and CEO used and/or benefited from the credit cards.
Data Reliability Assessment
BCArc uses the Economized Time Services (ETS) Panorama system to record and process all accounting transactions. We determined the reliability of the data obtained from ETS by testing selected system controls (configuration management and contingency planning) that were in place during our audit period. Additionally, we performed validity and integrity tests, including (1) testing for blank fields, (2) scanning for duplicate records, and (3) looking for dates outside the audit period. We also selected a judgmental sample of 80 hardcopy supporting documents (e.g., credit card statements) and traced them to ETS data (e.g., general ledger account number, general ledger department number, and transaction amount) for agreement.
BCArc uses the Complete Payroll Solutions (CPS) system to manage and maintain employee attendance and other employee information, such as payroll, benefits, and applicant tracking. We determined the reliability of the data obtained from CPS by testing selected system controls (access controls, configuration management, contingency planning, and segregation of duties) that were in place during our audit period. Additionally, we performed validity and integrity tests, including (1) testing for blank fields, (2) scanning for duplicate records, and (3) looking for dates outside the audit period. We also performed the following tests:
- We selected a judgmental sample of 34 employees from CPS and traced them to hardcopy supporting documentation (e.g., employee personnel files that contained employee IDs, employee names, salary effective dates, and salary amounts) for agreement.
- We selected a judgmental sample of 21 employees from hardcopy supporting documentation (e.g., employee personnel files that contained employee IDs, employee names, salary effective dates, and salary amounts) and traced them to CPS data for agreement.
To assess the reliability of the total number of related-party organizations with which BCArc did business during the audit period, we reviewed BCArc’s UFRs for fiscal years 2018 and 2019 and the Secretary of State’s website.
We obtained a representation letter from BCArc management confirming that they had provided all credit card and related-party records.
Based on our audit work, we determined that the data obtained for our audit were sufficiently reliable for the purposes of our audit work.
|Date published:||May 25, 2021|