Houston-Galveston Area Council Houston Works FY12 Audit

Houston-Galveston Area Council
July 23, 2012

Russell Tomlin
Interim Chief Executive Officer
Houston Works, USA
P_O.Box 667128
Houston, TX 77266-7128
Dear Mr. Tomlin:
On June 11-22, 20 i 2, monitors representing H-GAC visited Houston Works for the FY12
financial compliance review for H-GAC's workforce system contract with Houston Works for
the period of October 1, 2011 through May 31 , 2012. We would like to thank you and Houston
Works staff members who assisted the monitors in their review. A copy of the report is attached
to this letter.
There are findings in multiple areas, including accounting policies and procedures, accounting
information system, procurement, accounts payable, cash management, property management
and inventory, cost allocation and budget, financial reporting, subcontracts, and insurance. Some
of these findings remain the same as those from the prior two years' reviews, indicating Houston
Works did not take action to correct these problems as it stated it would.
Please provide H-GAC a written response to the report's findings and recommendations as soon
as possible.
After we receive your response, we will make a determination about further action steps related
to the repeat finding in this report. If you have any questions about the monitors' report, please
call Sharron Powell at 713.993 .2445.
Sincerely,
~ ~ l--..
, Mike Temple D
Manager, Workforce
Attachment
cc: Rodney Bradshaw
MiUie Foster
Lucretia Hammond
Michael McLauchlan
Mailing Address
PO Box 22777
Physical Address
3555 Timmons Lane. Suite 120
Houston. Texas 77227- 2777
Houston. Texas 77027-6466
Phone 713-627 -3200 Recvcled Phone 713-627-3200
HOUSTON-GALVESTON AREA COUNCIL
WORKFORCE SOLUTIONS FINANCIAL MONITORING REPORT OF
HOUSTONWORKS, U.S.A.
JULY 13, 2012
TABLE OF CONTENTS
Page
FINANCIAL MONITORING REPORT .. .... ...... ........ ...... ..... ...... ... ..... ... ....... .... ......... .......... .... ........ ............ ..... 1
SUMMARY OF FINANCIAL MONITORING PROCESS .. .. ... ... .. .. ............ .. ............. .. .... .. .. .. ... .. ........ .. .. ......... 2
SCOPE AND OBJECTIVES .. .. .. .... .... ... .. ..... .. ... .. .. .... .. ... .... ... .. ...................... ....... ... .. ... ... .... ...... ...... ...... ... ... ... 2
PROCEDURES PERFORMED, OBSERVATIONS AND FINDINGS ........ ... ... ...... .. ......... .. ... .. ... ....... .. ... ...... 3
CONCLUSION .. .... ...... ... .. ... ... .. .. ... ... .. .. ..... ..... .. .... .. .... ..... ... .. ..... ..... .. ........ ...... .... ... ..... ..... ... ..... ... ... .. ... ... .. .... 23
CLOSING ... .... ......... .... .. ...... ..... ... ....... ....... ...... ....... .......... ....... ....... ... ...... ..... .... .. ..... .... ..... ...... ..... .. ...... ..... ... 23
weaver,
To: Houston Galveston Area Council
3555 Timmons, Suite 120
Houston, Texas 77027
This report presents the results of the financial monitoring procedures performed for the Houston
Galveston Area Council (H-GAC) - Contractor, HoustonWorks, U.S.A. (HoustonWorks) from June 11,
2012 through July 13, 2012 relating to financial monitoring procedures over contractor funding for
Contract Number 103-12 for the period October 1, 2011 through May 31, 2012 within the contract
spending period October 1,2011 through September 30,2012.
Procedures were performed at the HoustonWorks administrative offices at 2118 Smith Street in Houston,
Texas. The objectives of the financial monitoring procedures are as follows:
A. To ensure that written policies and procedures address the fundamental requirements of the H-GAC
financial guidelines, and applicable state and federal guidance.
B. To verify that HoustonWorks has adequate internal controls within the financial and accounting
processes are designed to ensure compliance with the guidance identified in the policies and
procedures.
C. To verify that the financial controls are operating as designed and transactions are processed and
reported accurately.
To accomplish these objectives, we conducted interviews with selected HoustonWorks employees. We
also reviewed documentation and performed specific testing procedures.
The procedures were performed based on general guidelines provided by H-GAC . We were not engaged
to, and did not perform an audit, in which the objective would be the expression of an opinion.
Accordingly, we do not express such an opinion.
This report is intended solely for the use of H-GAC and should not be used by those who have not agreed
to the procedures and taken responsibility for the sufficiency of the procedures for their purposes. The
following report summarizes the procedures performed, observations and findings.
Weaver and Tidwell, L.L.P.
Houston, Texas
July 17, 2012
AN INDEPENDENT WEAVER AND TIDWEllllP HOUSTON
MEMBER OF BAKER TILLY CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS 24 GREENWAY PLAZA, SUITE 1800, HOUSTON, TX 77046
INTERNATIONAL WWWWEAVERllP.COM P: (713) 850 8787 F: (713) 850 1673
HOUSTON - GALVESTON AREA COUNCIL
WORKFORCE SOLUTIONS FINANCIAL MONITORING REPORT
JULY 17,2012
SUMMARY OF THE FINANCIAL MONITORING PROCESS
The Houston Galveston Area Council (H-GAC) is the region-wide voluntary association of local
governments in the 13-county area of southeast Texas. Its service area is 12,500 square miles and
contains more than 5.7 million people. H-GAC's mission is to serve as the instrument of local government
cooperation, promoting the region's orderly development and the safety and welfare of its citizens.
The Gulf Coast workforce system is made up of the Gulf Coast Workforce Board and its operating
affiliate, Workforce Solutions. The Board sets the agenda for the region's workforce policy and
determines the strategic direction and operational guidelines for its operating affiliate. H-GAC houses the
Board's staff and serves as the home office for the affiliate contractors, providing fiscal and management
services. During the last year, Workforce Solutions provided employment services to 405,639 individuals
and 43,298 area employees with over $200 million in resources through its Employer Service Division
and 25 local career offices.
Houston Works, U.S.A. (Houston Works) provides a variety of workforce services to the general public
through the Workforce Solutions career offices. H-GAC establishes franchise requirements governing
how Houston Works operates and delivers services under the Workforce Solutions name. Under the
Workforce Solutions name, Houston Works uses grants provided by the state and federal government.
The funding streams integrated into the Workforce Solutions career offices include state and federal
funds available through the U.S. Department of Labor, U.S. Department of Health and Human Services,
U.S. Department of Agriculture funding streams including Workforce Investment Act, Temporary
Assistance for Needy Families, Employment Services, Supplemental Nutrition Assistance Program
(SNAP), Employment Services authorized by the Wagner-Peyser Act, Child Care and Development Fund,
Jobs for Veterans Act of 2002, and Trade Act of 1974, as amended. HoustonWorks offers these services
at the following offices: Astrodome, East End, Hobby, Northline, Northeast, Northshore, Pasadena, and
Southwest.
The purpose of this financial monitoring process is to report on contractor compliance related to contract
number 103-12 requirements and related reimbursements for expenses incurred.
SCOPE AND OBJECTIVES
The scope of our procedures to perform financial monitoring included the review of policy and
procedures, conducting interviews, tests of transactions, and internal controls against documented
policies for the period of October 1, 2011 to May 31, 2012 to validate performance of the following
identified areas:
1. Accounting Policies and Procedures
2. Accounting Information System
3. Procurement
4. Accounts Payable
5. Personnel (Human Resources and Payroll)
6. Cash Management
7. Property Management and Inventory
8. Cost Allocation and Budget
9. Financial Reporting
10. Customer Complaints
11. Subcontracts
12. Insurance
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JULY 17, 2012
The objectives of our procedures are as follows:
A. To ensure that written policies and procedures address the fundamental requirements of the H
GAC financial guidelines, and applicable state and federal guidance.
B. To verify that HoustonWorks has adequate internal controls within the financial and accounting
processes are designed and operating to ensure compliance with the guidance identified in the
policies and procedures.
C. To verify that the financial controls are operating as designed and transactions are processed and
reported accurately.
PROCEDURES PERFORMED, OBSERVATIONS AND FINDINGS
We conducted an entrance conference identifying participants, purpose, scope, and timing of the financial
monitoring procedures. The opening meeting was conducted on Thursday, June 7, 2012 at the office of
HoustonWorks located at 2118 Smith Street, Houston, Texas at 10:00 am. Attendees included the
following :
Russell Tomlin HoustonWorks Executive Director
Terry Hudson Consultant
Rudy Martinez Director of Finance
Monica Williams Senior Director of Administration
Georgetta Mitchell Customer Service Supervisor
Sharron Powell HGAC Representative
Alyssa Martin Weaver and Tidwell, LLP
Tamara Shepherd Weaver and Tidwell, LLP
To complete these objectives we performed a variety of procedures such as conducting interviews with
key individuals, inspecting written policies and procedures and validating them against the financial
guidance provided by H-GAC, the Texas Workforce Commission and federal regulations. Furthermore,
we performed specific detail testing based on the criteria identified in the formal policies and procedures
as well as the financial guidance provided by H-GAC , the Texas Workforce Commission and the federal
regulations.
The following information is presented for each area:
Financial Monitoring Objective
Procedures or Tests Performed
Observations
Findings (if applicable)
Recommendations (if findings are applicable)
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JULY 17, 2012
The issues identified in our procedures will be classified as Observations or Findings which are defined
as follows :
Observation: The financial areas identified are not considered to be non-compliance issues with
federal and state rules and regulations or contract requirements. The intent for the
recommendation of the observations is to strengthen the subcontractor's current processes and
controls.
Finding: The financial areas identified are considered to be non-compliance issues with federal
and state rules and regulations or contract requirements. The subcontractor must implement a
corrective action plan immediately to address these findings.
The issues identified in our procedures have also been risk rated based on criticality to Houston Works
according to the below risk definitions:
High - The issue(s) noted are likely to have a significant financial, compliance or operational
consequence to the organization.
Medium - The issue(s) noted, though may not have a significant financial, compliance or
operational consequence, exposes the organization to increased risk.
Low - The issue(s) noted are considered insignificant individually as it relates to potential for
negative financial, compliance or operational consequence to the organization.
1. Accounting Policies and Procedures
A. Procedure: We obtained the Accounting Policies and Procedures over Purchasing, Accounts
Payable, Cash Disbursements, Fixed Assets, Payroll , and Financial Close and Reporting and
reviewed for the following to determine if policies and procedures address H-GAC financial
guidance in the following areas:
i. Accrual basis of accounting
ii . Detailed records that support receipts and expenditures
iii . Timely reporting of financial activity
iv. A complete and well documented audit trail for all financial transactions
v. Budgeting and expenditure tracking
vi. Salary limitation
vii. Program income
viii. Travel allowability, request and approval, classification and reimbursement
ix. Cost allocation
x. Cash balance reconciliation
Finding:
1. Medium - (FIN AP-1) The Payroll policies and procedures do not address review and
approval of employee payroll to ensure that all salaries and merit bonus' remain below
the maximums identified by the H-GAC contract.
2. High - (F IN-AP-3) The HoustonWorks Payroll poliCies and Cash Disbursement policies
do not adequately address the requirements of H-GAC or the Texas Workforce
Commission with regards to the review and approval of payroll to ensure no employee's
salary breaches the salary cap and the procedures to be taken in the event of a duplicate
payment.
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JULY 17,2012
Recom mendation:
1. We recommend HoustonWorks update policies and procedures to clearly state the
payroll review and approval process that would ensure the H-GAC and Texas Workforce
Commission salary cap requirements are met. In addition, the policies and procedures
should indicate how payments are to be tracked in order to avoid duplicate payments.
2. We recommend HoustonWorks design, implement, and document standard procedures
for the review and approval of all salaries and merit bonuses to be conducted annually
that would ensure maximum salary and bonus amounts do not exceed H-GAC contract
requirements.
B. Procedure: We completed a Risk Control Matrix for the Purchasing, Accounts Payable, Cash
Disbursements, Fixed Assets, Payroll, and Financial Close and Reporting processes to identify
inherent risks not addressed by internal controls.
Findings: High - (FIN RCM-1) For the areas of Purchasing, Accounts Payable, Cash
Disbursements, and Fixed Assets, we identified risks that are not addressed by the internal
controls to ensure the critical activities are covered:
1. Purchasing and Accounts Payable:
a. Fictitious vendors are not setup.
b. Only expenditures that have available budget are approved.
2. Cash Disbursements:
a. Cash disbursements are recorded in the proper period.
3. Inventory/Fixed Assets:
a. Recorded assets have future benefits.
b. Access to the inventory tracking system is restricted.
Recommendations: We recommend that HoustonWorks design, implement, and document
standard procedures that would ensure the following:
1. Purchasing and Accounts Payable - all vendors have been verified to be legitimate prior
to being added to the vendor list. Additionally, prior to approving purchase orders in MIP,
availability of budgeted funds has been verified.
2. Cash Disbursements - All cash disbursement transactions are recorded in the proper
period.
3. Inventory/Fixed Assets - All recorded assets are assessed to have future benefits to the
Workforce Solutions program. Additionally, access to the inventory (fixed asset) tracking
sheet should be restricted to those employees who are responsible for the accuracy of
the data. The access level should be based on the job responsibilities of each employee.
C. Procedure: We reviewed policies and procedures for cash disbursement, cash receivable, fixed
assets, payroll, financial closing and financial reporting to determine if they address adequate
internal controls that would ensure appropriate segregation of duties, access controls, and
accurate classification of costs.
Finding: Medium - (FIN RCM-2) Based on gaps identified in internal control coverage, adequate
controls to ensure appropriate segregation of duties and access controls are not in place.
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JULY 17, 2012
Recommendation: We recommend that HoustonWorks review its job description documentation
for employees and ensure that the assigned duties are aligned with job titles and descriptions.
Additionally, based on this review, access to MIP, Microix and the assets tracking spreadsheet
should be revised to ensure appropriate access rights .
Accounting Policies and Procedures Results Summary: HoustonWorks policies and procedures
are adequately documented. However, they do not address areas of risk that would ensure
appropriate salary amounts are paid to meet H-GAC and Texas Workforce Commission salary cap
requirements. Further, they do not address areas of risk that funds would be obligated without
available budget amounts.
2. Accounting Information System
A. Procedure: We performed a system walkthrough and interviewed appropriate staff to gain an
understanding of the accounting system utilized by the organization. We verified that internal
controls exist over the accounting system to provide reasonable assurance over the following:
i. That the accounting system is used to capture all program transactions.
ii. Access to data is restricted to appropriate personnel and access rights are established.
iii. A back-up process exists to ensure that complete and accurate information is available
for financial reporting .
iv. Posted data cannot be altered after posting.
Observation: (OB AIS-5) After invoices have been received, the Contracts and Billing Assistant
will obtain receipt documentation, such as the packing slip on an email documenting the amount
and quantity received. This documentation should be signed and forwarded by the receiver when
received .
Findings:
1. High - (FIN AIS-1) The Director of Finance handles all requests to create MIP accounts
for new users, prepares the workflow assignments, and assigns access rights based on
his personal judgment and expectation of job duties which is a segregation of duties
issue. If the employee changes roles or leaves Houston Works at any time, the Director
of Finance will alter his MIP profile or remove them from the system.
2. High - (FIN AIS-2) We identified that while there are systematic controls available to
ensure that the accounting system is used to capture all program transactions, has an
appropriate back-up system, and the access rights and access to data is appropriately
restricted. We identified multiple segregation of duties issues with the assigned rights and
profiles as identified below:
There were four users with access to MIP that are not listed in the employee
directory.
The Executive Administrative Assistant can add/edit invoices, enter cash receipts,
enter cash disbursements, add/edit payroll, and perform General Ledger
transactions.
The Contract and Billing Assistants can enter Accounts Payable Credits, select
Accounts Payable invoices to pay, prepare the Check Register, and process
manual checks.
The Director of Finance is responsible for assigning access, can edit his own
access rights, and has the ability to alter posted data.
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JULY 17, 2012
Recommendations:
1. We recommend the Director of Finance either has administrative rights to MIP or
processing access only, but not both. He may have the ability to approve requests for
new users, as well as prepare workflows assignments; however, the administrative ability
to implement changes should be assigned to another management level employee so as
to maintain appropriate segregation of duties.
2. We recommend HoustonWorks review job responsibilities and access level as follows:
Implement procedures to review the user access list and ensure that all employees
that appear on the list are current and have appropriate access levels. Additionally,
a procedure to immediately terminate access when an employee is no longer
employed should be implemented as part of the exit process.
Assign appropriate access levels to employees based on their job description and
responsibilities.
Reassigns the responsibilities of the Contract and Billing Assistant and ensure
there is no conflict in duties performed where the recording of accounts payable
and processing of checks are being performed by the same individual.
Director of Finance duties should be updated to where he would not have the
responsibility of preparing, approving and editing MIP profiles while at the same
time having processing rights.
B. Procedure: We interviewed key staff to understand if key accounting, procurement, accounts
payable, payroll, coding classification, cost allocation policies are understood and followed.
Observation: (OB AIS-6) The payroll allocation is based on Time Study reports that are
performed monthly and are used to allocate shared costs to different funding streams. However,
the Time Study reports are performed after the fact as the previous months' report is what is used
to perform the allocation of payroll hours to contract funding streams.
Finding: High - (FIN AIS-3) There are no formal processes in place for the late payment of
selected invoices due to shortage of cash flow that comply with H-GAC policies and procedures.
However, there appears to be appropriate understanding of key accounting, procurement,
accounts payable, payroll, coding classification and cost allocation among accounting staff.
Recommendation: We recommend HoustonWorks follow documented processes and pay all
invoices timely when they are due. Any informal procedures performed that circumvent
documented policies and allow for late invoice payments should be eliminated.
C. Procedure: We documented the management information system used to record all program
transactions, who the users are and access levels.
Findings: High - (FIN AIS-2) We identified that while there are systematic controls available to
ensure that the accounting system is used to capture all program transactions, has an
appropriate back-up system, and the access rights and access to data is appropriately restricted .
We identified multiple segregation of duties issues with the assigned rights and profiles as
identified below:
There were four users with access to MIP that are not listed in the employee directory.
The Executive Administrative Assistant can add/edit invoices, enter cash receipts, enter
cash disbursements, add/edit payroll, and perform General Ledger transactions.
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JULY 17,2012
The Contract and Billing Assistants can enter Accounts Payable Credits, select Accounts
Payable invoices to pay, prepare the Check Register, and process manual checks.
The Director of Finance is responsible for assigning access, can edit his own access
rights , and has the ability to alter posted data.
Recommendations: We recommend HoustonWorks review job responsibilities and access level
as follows :
We recommend HoustonWorks implement procedures to review the user access list and
ensure that all employees that appear on the list are current and have appropriate access
levels. Additionally, a procedure to immediately terminate access when an employee is
no longer employed should be implemented as part of the exit process.
We recommend HoustonWorks assign appropriate access levels to employees based on
their job description and responsibilities.
We recommend HoustonWorks reassigns the responsibilities of the Contract and Billing
Assistant and ensure there is no conflict in duties performed where the recording of
accounts payable and processing of checks are being performed by the same individual.
We recommend that the Director of Finance duties should be updated to where he would
not have the responsibility of preparing, approving and editing MIP profiles while at the
same time having processing rights.
D. Procedure: We obtained the chart of accounts utilized by the organization and determined if
contract funding can be monitored and tracked sufficiently, transactions can be recorded in
sufficient detail to permit proper classification, all budget line items are included and can be
identified, and sources can be adequately identified for each fund application .
Observations:
1. (08 AIS-1) The budgeting and tracking module in MIP is available but not in use because
of improper implementation .
2. (08 AIS-7) Purchasing transactions are entered through a purchase order process. This
process also includes the submission and approval of employee reimbursements.
3. (08 AIS-6) The payroll allocation is based on Time Study reports that are performed
monthly and are used to allocate shared costs to different funding streams. However, the
Time Study reports are performed after the fact as the previous months' report is used to
perform the allocation of payroll hours to contract funding streams.
4. (08 AIS-8) Coding is currently structured to apply costs to "cost pools" rather than
directly to a specific fund .
Accounting Information System Results Summary: HoustonWorks does not have procedures in
place that ensure all transactions are adequately identified and recorded. The inappropriate access
levels that are assigned to staff raises the risk of transactions being altered or deleted.
3. Procurement
A. Procedure: We obtained and reviewed the HoustonWorks Procurement Policies and Procedures
to determine if policies and procedures address the following procurement guidelines:
i. Purchasing methods, including bidding
ii . Request For Proposal solicitation, submission and Evaluation
iii . Vendor selection
iv. Purchase Requests Processing
v. Conflict of interest
vi . Standards of conduct
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vii. Historically Underutilized Businesses (HUB)
viii. Vendor list
ix. Procurement records
x. Small purchase methods for goods with an aggregate cost of $100,000 or less
xi. WIA Adult and Dislocated Worker Training Providers List
xii. Suspension and Debarment
xiii. Cost Analysis
Finding: No issues noted.
B. Procedure: We reviewed Procurement policies and procedures to determine if they adequately
address internal controls that would ensure appropriate review and approval of purchase
requests and Purchase orders, use of approved vendors only, appropriate and accurate receipt of
goods.
Findings:
1. High - (FIN PP-1) The Procurement Policies and Procedures do not fully address the
use of the Request for Purchase Review form to obtain prior approval from H-GAC for
inventory purchases over $5,000.
2. Medium - (FIN PP-2) The Procurement Policies and Procedures do not address
maintenance of the vendor list, as recommended by the Texas Workforce Commission's
Federal Guidelines for Contract Management to ensure that vendors selected are from
qualified sources.
Recommendations:
1. We recommend HoustonWorks update the Procurement Policies and Procedures to
indicate when it is required to utilize a Request for Purchase Review form to get prior
approval from H-GAC for any purchases greater than $5,000.
2. We recommend that HoustonWorks update the Procurement Policies and Procedures to
address the method in which the vendor list will be maintained including how vendors will
be added and deleted as well as the employees who will be responsible for that function .
Procurement Results Summary: HoustonWorks policies and procedures are adequately
documented. However, formal procedures are not being adhered to ensure that H-GAC related
purchases are allowable and valid. Additionally, procurement related responsibilities are informally
distributed which allows for inappropriate segregation of duties. This raises the risk of fake vendors
being added to the list and items being procured and received without verification.
4. Accounts Payable
A. Procedure: We obtained and reviewed the Accounts Payable Policies and Procedures to
determine if accounts payable policies address fund obligations and commitments, obligations
and encumbrances, cost coding and classification, and duplicate payments
Finding: Low - (FIN AP-2) The Cash Disbursement Policies and Procedures do not address the
actions to prevent, or to be taken in the event of a duplicate payment.
Recommendation: We recommend that HoustonWorks document standard procedures that
clearly state appropriate action to be taken which would prevent duplicate payments.
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JULY 17,2012
B. Procedure: We reviewed Accounts Payable policies and procedures in place to determine if they
addressed adequate internal controls that would ensure the following:
i. Invoice review and approval
ii. Appropriate segregation of duties
iii. Check signing authority
iv. Payments are tracked to ensure that they are not duplicated
v. Payment obligations are appropriately identified and processed.
Observations:
1. (OB AIS-1) The budgeting and tracking module is available but not in use because of
improper implementation.
2. (OB AIS-2) The submission and approval of employee reimbursements is handled
through a purchase order process where employees are entered into the accounting
system as vendors, rather than through payroll.
3. (OB AIS-3) Coding is currently structured to apply costs to "cost pools" rather than
directly to a specific grant, making it difficult to track expenditures according to funding
stream.
4. (OB AIS-4) After invoices have been received, the Contracts and Billing Assistant often
obtains receipt documentation, such as a packing slip on an email documenting the
amount and quantity received, rather than receiving a signed copy from the person
receiving the inventory.
Findings:
1. High - (FIN AIS-1) The Director of Finance handles all requests to create MIP accounts
for new users, prepares the workflow assignments, and assigns access rights based on
his personal judgment and expectation of job duties which is a segregation of duties
issue. If the employee changes roles or leaves HoustonWorks at any time, the Director of
Finance will alter his MIP profile or remove them from the system.
2. High - (FIN SOD-1) We identified two instances of inappropriate segregation of duties 1)
were the IT Manager is responsible for the purchase and record IT assets and 2) were
the Director of Finance prepares and approves employee MIP profiles.
3. High - (FIN-AIS-4) The Accounts Payable Aging Report shows $497,340.09 in
outstanding payables for the review period ending May 31, 2012 of which $410,930.77 is
attributable to the H-GAC contract expenditures. Only $39,397.35 is current and the
remaining amount, or 81.9%, is past due as presented in the table below. We also noted
that is a total of $51,462 .00 which is attributed to rental delinquency of Comercio
Properties which is the leasing company for the building in which the headquarters is
located.
HoustonWorks Tolal H-GAC Portion
Current
$ 39,397.35 7.9%
$ 37,946.95
9.2%
130 Days Past Due
$ 277,213.56 55.7%
$ 214,463.88
52.2%
3160 Days Past Due
$ 130.233.32 26.2%
$ 123,317.97
30.0%
6190 Days Past Due
$ 23,468.38 4.7% $ 10,384.49 2.5%
I ~ Over 90 Days Past Due
$ 27,027.48 5.4% $ 24,817.48 6.0%
Total $ 497,340.09 100.0% $ 410,930.77 100.0%
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JULY 17, 2012
Recommendations:
1. We recommend the Director of Finance either has administrative rights to MIP or
processing access only, but not both. He may have the ability to approve requests for
new users, as well as prepare workflow assignments; however, the administrative ability
to implement changes should be assigned to another management level employee so as
to maintain appropriate segregation of duties.
2. We recommend that the IT Manager duties be separated as to remove the ability to add,
delete or edit the inventory (fixed asset) tracking sheet.
3. We recommend HoustonWorks design, implement and document standard procedures to
ensure that all payment obligations are appropriately and accurately identified as well as
paid timely to avoid additional fees, penalties and negative credit rating.
c. Procedure: We obtained a population of all non-payroll transactions for the monitoring scope
period of October 1, 2011 to May 31, 2012 and selected a sample that includes all transaction
types and verify all transactions are identified and classified according to the chart of accounts,
transactions are recorded in proper accounting period in which the transaction occurred, records
are maintained to the level of detail that establishes funds have been used in compliance with
contract requirements, and all items have appropriate supporting documentation and approval.
Findings:
1. Medium - (FIN EX-8) We found one issue out of a sample of eight, or an error rate of
12.5%, with mileage reimbursement transactions. There was one instance where the
required Travel Expense Report detailing mileage incurred was not signed and approved
by an appropriate employee prior to being paid, as required by HoustonWorks.
2. High - (FIN EX-g) We were unable to verify the validity of the monetary amount of the
transfer from the General account to the Chase Payroll account on February 29, 2012 in
our selected sample or the amount of vacation pay covered by the transfer to the Payroll
account on May 3, 2012 due to a lack of sufficiently detailed support.
3. High - (FIN EX-10) FIN EX-10 We identified one SOD issue for an account transfer from
the General to Payroll account. We confirmed with Irma Soledad, Accounting Manager,
that the transaction was performed on December 23, 2011 by Rudy Martinez, Director of
Finance, to reconcile a mathematical error on his part. He initially transferred
$282,745.05 to the Payroll account and the correct amount should have been
$287,745.05, so there are two transfers to Payroll documented for December 23, 2011
and no documented approval for the second transfer.
Recommendations:
1. We recommend HoustonWorks ensures that all mileage reimbursement requests are
appropriately reviewed and approved prior to payment as required by the HoustonWorks
Accounting Policies and Procedures.
2. All account transfers to the Payroll account from an H-GAC funded account should be
supported by sufficient documentation to document the amount of the transfer along with
supporting details such as documentation of the number of hours included in the transfer
amount, the total expense represented by those hours by person, and the allocation of
the cost of those hours and the method behind the allocation.
3. The ability for the Director of Finance to initiate and approve transactions in the banking
system should be immediately segregated whereby the transactions must be reviewed
and approved by a second member of management.
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JULY 17, 2012
D. Procedure: We obtained a population of all employee reimbursable transactions for the
monitoring scope period of October 1, 2011 to May 31, 2012 and selected a sample to verify that
for each transaction, all reimbursed items have supporting documentation such as approved
purchase order and receipts and all transactions have been paid prior to reimbursement by
ensuring that reimbursement date is after receipt date.
Observation: (OB EX-1) We observed one instance where the Purchase Order for a transaction
was miscoded to a different General Ledger account than the one the transaction was actually
posted under. The selected reimbursement was coded to the Tuition account, 6845, under the
Indirect Cost Pool, 911, but the corresponding General Ledger entry for the reimbursement was
coded under the Billings Payable - Vendors account, 2130, in the H-GAC Career Office Cost
Pool, 944. This error was self-corrected by HoustonWorks and appropriate documentation exists
to document the approval of the correction by HoustonWorks senior management.
Findings:
1. Medium - (FIN EX-5) We found one instance where the required application for
reimbursement of tuition costs through the Educational Assistance benefit was not signed
and approved at time of payout.
2. High - (FIN EX-6) There were five instances where no Purchase Requisition or Expense
Report, as required by HoustonWorks' Policies and Procedures, was submitted prior to
reimbursement.
3. High - (FIN EX-7) While the policies point to the use of expense reports, in practice
HoustonWorks does not follow documented policies and procedures. HoustonWorks
relies on purchase orders for employee reimbursements. We found one instance where
an employee was reimbursed for expenses, but no purchase order was submitted.
Recommendations:
1. We recommend that HoustonWorks implement procedures to ensure that all education
tuition reimbursements be approved prior to payment and empower the employee's in the
cash disbursement function to delay payments until appropriate supporting
documentation is available.
2. We recommend that the responsibility for the completeness and accuracy of all expense
reports be assigned to a single employee in the accounting department to ensure there is
appropriate documentation for all expense reports and that all the costs included in those
reports are allowable. Furthermore, we recommend that no payments be made to
employees for expenses that were not approved or lack sufficient supporting
documentation.
3. We recommend that HoustonWorks implement an expense report process to comply with
the formal policies and procedures currently documented.
Accounts Payable Results Summary: HoustonWorks does not adhere to documented policies and
procedures related to accounts payable. The informal process being performed does not ensure that
outstanding obligations are paid timely. The process currently in place allows for increased debt as
payable amounts accumulate late fees and interest charges. Additionally, processing of invoices
without adequate supporting documentation raises the risk of unallowable items being charged to H
GAC funding streams.
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JULY 17, 2012
5. Personnel (Human Resources and Payroll)
A. Procedure: We obtained and reviewed the Personnel Policies and Procedures to ensure that
they address the following:
i. Employee classification and organizational structure
ii. Equal Employment Opportunity
iii. Hiring and termination procedures
iv. Drug testing for new employees
v. Background checks
vi . Compensation and payroll
vii. Benefits
viii. Absences , vacations and holidays
ix. Harassment
x. Substance abuse
xi. Employee evaluation
xii. Dispute procedures and employee appeals
Finding: No issue noted.
B. Procedure: We reviewed policies and procedures to determine if they addressed adequate
controls that would ensure accurate background checks are performed prior to hiring, a drug free
workplace environment exists, employee roles are appropriately classified, and that no individual
may be placed in a WIA employment activity if a member of that person's immediate family is
directly supervised by or directly supervises that individual.
Observatio ns:
1. (OB HR-1) We documented three instances where an IT Work Request was not
submitted for completion prior to a terminated employee's last day worked .
HoustonWorks, does not currently have polices for the removal of logical access of
terminated employees.
2. (OB HR-2) HoustonWorks, H-GAC and Texas Workforce Commission do not currently
have any policies in place regarding credit checks for fiscal employees.
c. Procedure: We obtained and reviewed job descriptions and the organizational chart to verify that
they match current roles being performed by employees.
Finding: Medium - (FIN HR-1 ) We were unable to verify the assignment of job responsibilities
and reporting structure because accurate job descriptions and a current organizational chart were
not made available at the time of the engagement fieldwork .
Recommendation: We recommend that HoustonWorks document and maintain current job
descriptions that would be made available upon request.
D. Procedure: We obtained a population of all payroll related transactions for the monitoring scope
period of October 1, 2011 to May 31, 2012 and selected a sample to verify the payee is a
documented employee per the approved staff listing, payroll is calculated at the documented pay
rate, and the payroll amount is supported by approved timesheet.
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JULY 17, 2012
Findings:
1. Medium - (FIN EX- 1) There were three instances where an employee's time sheet was
prepared or approved, but the employee did not certify or approve the prepared
timesheet prior to payment.
2. Medium - (FIN EX-2) There were two instances where an employee's time sheet was
prepared and submitted, but never approved prior to payment.
3. High - (FIN EX-3) We identified three instances where the employee's time sheet was
not available. One transaction in the amount of $1,807.84 was for merit pay and two
transactions, in the amounts of $3,667.45 and $4,823.23, were for vacation pay. Without
the completed timesheet, there is no documented approval for the merit payout amount
and no validation for the vacation hours paid.
4. High - (FIN EX-4 ) We noted two instances where HoustonWorks provided payroll
information for the selected employee for the wrong time period. We were unable to verify
payroll details for these transactions due to a lack of sufficiently detailed support.
Recommendations:
1. Employees should certify their timesheets as correct when submitted for payment.
Furthermore, procedures should be developed to ensure timesheets are prepared in a
timely manner prior to the distribution of that cycle's payroll .
2. Timesheets should be approved on a regular and consistent basis by the employee's
direct supervisor. Furthermore, procedures should be developed to ensure approval by
the employee's direct supervisor prior to that payroll cycle and include procedures to
escalate the approval to the next level supervisor in the event that the employee's direct
supervisor is unavailable.
3. We recommend that HoustonWorks evaluate the current archival methods for payroll
data to identify procedures which would ensure that the payroll data is accurate,
complete, and readily available for review.
4. HoustonWorks should maintain complete and accurate support documentation for all
payroll expenses. These should be available for review upon request as required by the
H-HGAC contract.
E. Procedure: We reviewed the Quarterly payroll tax returns (941 and TEC) for the organization
and the Annual payroll tax returns (940, W-3 and W-2) to verify they were current.
Personnel (Human Resources and Payroll) Results Summary: HoustonWorks personnel
procedures do not sufficiently describe how job responsibilities would be adequately distributed in
order to lower the risk of inappropriate segregation of duties. Additionally, we were not provided with
a documentation that indicated what the job descriptions are currently and therefore we could not
verify that employees where performing their intended responsibilities.
6. Cash Management
A. Procedure: We interviewed appropriate staff and performed a walkthrough of the cash
management process to gain an understanding of the cash management process utilized by the
organization and determine if checks are retained securely under lock and key, who has access
to checks, who has check signing authority, and how many signatures required to authorize a
check.
Finding: No issues were noted.
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JULY 17, 2012
B. Procedure: We judgmentarry selected a sample of monthly bank reconciliations for the
Operating, Payroll, and accounts for the period of October 1, 2011 to May 31, 2012
and verified that each reconciliation is mathematically the unadjusted balance on the
reconciliations agree to bank statement, each reconciliation ending balance agrees to the general
and bank reconciliations were performed timely (within 30 days).
Observation: (OB BR-1) The April 2012 bank reconciliation for the Chase General account
showed a negative balance of $32,789.25 for the month due to checks issued on April 2012
being held in of of H-GAC funding on May 3,2012, rather than being properly
voided and reissued.
1. High - (FIN BR-1) There were five instances of bank reconciliations not performed within
30 carendar of the bank statement as required by H-GAC Contract
Management Policies and Procedures. Reconciliations for November for the General,
Payroll, and Non-Federal accounts were performed 1 86 and 139 days, respectively,
after the statements closed. Reconciliations for December for the General and Non
Federal accounts were performed 72 and 78 respectively, after the statements
closed.
2. (FIN BR-2) The November 2011 Chase General account bank reconciliation
ending balance did not match the General Ledger. An un-reconciled difference of $29.95
was documented for the month.
1. We recommend HoustonWorks perform all bank reconciliations within 30 days of the
bank statement date as required by the HoustonWorks Accounting Policies and
Procedures. This would ensure that any variances are noted and resolved timely.
2. We recommend HoustonWorks perform procedures to ensure that
any bank reconciliation variances are investigated and resolved.
Cash Management Results Summary: HoustonWorks is in compliance with the minimum
requirements regarding the security and authorization of checks. However, we identified instances of
non-compliance regarding the appropriate identification and processing of payment obligations which
raises the risk that will be beyond an time frame or will be
incurred.
7. Property Management and Inventory
We obtained and reviewed Property (Inventory) Policies and
to determine if policies and procedures address H-GAC property procedures for
property purchase and property property property tagging, annual
inventory property safeguards and maintenance.
B. We reviewed policies and procedures to determine if address adequate controls
that would ensure proper segregation of duties, access to inventory management system,
accurate identification and classification of capital and that all and equipment
disposal is appropriately reviewed and approved prior to disposal.
A.
ADVISORY SERVICES 15 of 23
JULY 17,2012
Observations:
1. (08 INV-1) The annual inventory at HoustonWorks is performed via a manual sheet to
shelf count, even though they have the devices necessary to scan the barcodes printed
on each asset tag, they are not currently being used due to lack of proper maintenance.
2. (08 INV-2) There is no formal process for inventory disposals. The IT and non-IT
disposals are managed separately and at different times, creating inconsistency in the
overall disposal process.
Finding: High - (FIN INV-1 ) The HoustonWorks inventory database is not secure.
HoustonWorks maintains an Excel spreadsheet to track inventory which the Property Control
Officer, Procurement Manager, and Director of IT all have write access to this spreadsheet
allowing them to change or edit the inventory listing at will.
Recommendation: We recommend that HoustonWorks secure the inventory spreadsheet by
restricting access only to those whose job responsibilities will not be in conflict such as having
custody to the inventory and having read and write access.
C. Procedure: We obtained a population of all property and equipment (inventory) purchased or in
service from October 1, 2011 to May 31, 2012 and selected a sample from all items with a unit
acquisition cost of $500 and greater. We used the sample to verify the inventory records contain
the purchase price, brand name, make and model, serial number, model or other identifying
number, purchase date, physical location, funding source and percent of funding, and prior H
GAC approval for any purchases with a unit price of $5,000 and greater.
Observation: (08 ITT-1 ) The purchase price for a Dell OptiPlex computer purchased in 2008
and still in use was documented as $0 in the Inventory Spreadsheet.
Findings:
1. High - (FIN ITT-1) The percentage of purchase price covered by H-GAC or other funding
streams was not documented for any of the 40 items in our sample and there is currently
no area in the Inventory Spreadsheet to record this data.
2. Medium - (FIN ITT-2) The make, model, and/or serial number was not recorded for two
inventory items in use during the review period, one being a set of hand dryers, and the
other a Sony TV.
Recommendations:
1. We recommend that for any items to be shared between funding streams, HoustonWorks
develop procedures to document the percentages allocated to each funding stream and
include that information in the inventory database.
2. We recommend that procedures be implemented to ensure the accuracy and
completeness of each item entered or within the inventory database including the make,
model, and serial number.
D. Procedure: We verified that any inventory purchases greater than $5,000 were approved by H
GAC prior to purchase.
Finding: No issues noted .
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JULY 17,2012
E. Procedure: We verified that a Notice of Inventory Transfer was completed and approved by
appropriate organizational personnel and H-GAC staff per contract requirement for a sample of
equipment transfers.
Finding: High - (FIN ITT-3) There were two instances out of a sample of fifteen transfers, or
13.2%, where Notice of Transfer forms for equipment moved between locations were not signed
and approved by the releasing or receiving manager at the time of transfer.
Recommendation: We recommend that Notice of Transfer forms are approved by the involved
Center Managers prior to the item transfer. Furthermore, we recommend that all items found
during the annual inventory in the incorrect physical location, as documented in the inventory
database, be returned to the documented physical location until a Notice of Transfer has been
properly approved.
F. Procedure: For any disposal of property and equipment we verified that a written request was
submitted to and an approval was obtained from H-GAC prior to disposal.
Finding: There were no identified disposals during our scope period.
G. Procedure: For disposed equipment with a market value of greater than $5,000 we verified that
the state or federal portion was accurately reimbursed to H-GAC.
Finding: There were no identified disposals during our scope period.
H. Procedure: We verified that an inventory count has been performed within the last 12 months for
each item of non-expendable property with an acquisition cost of $500 or more.
Observations:
1. (OB-INV-1) The document we received from the Property Control Officer includes all
inventory and is a current, active document. However we cannot verify or attest to the
completeness and accuracy of this inventory as it is not a system-generated report, but
an Excel Spreadsheet accessed and modified by several individuals at HoustonWorks.
Additionally, Houston Works does not have a systematic methodology of tracking
inventory. Changes are not adequately tracked from period to period and tied back to the
General Ledger.
2. (OB INV-2) HoustonWorks stores all inventory data in an Excel spreadsheet. There have
been various process owners in charge of editing and updating the Inventory
spreadsheet in the past three years. While H-GAC does not require that HoustonWorks
use a specific method of maintain inventory records, using an Excel spreadsheet that has
not been consistently maintained creates a risk inaccurate quantities being used in
inventory counts and reported to H-GAC.
3. (OB INV-5) The annual inventory for HoustonWorks is coordinated by the Property
Control Officer and conducted by one other employee. This year, the inventory count was
taken in April and the Property Control Officer has already made plans to re-perform the
count because the counts did not appear reasonable to the Property Control Officer
during her review.
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JULY 17,2012
Property Management and Inventory Results Summary: HoustonWorks is not in compliance with
the inventory database or transfer documentation requirements identified by H-GAC, Texas
Workforce Commission, federal and state guidance which raises the risk that inventory records will be
inaccurate, incomplete, or insufficiently documented. However, our procedures concluded that
HoustonWorks is in compliance with the requirements for inventory purchases greater than $5,000
and the annual inventory count. There were no property disposals during our testing period so we
were unable to verify HoustonWorks' compliance with the documentation requirements of inventory
disposal.
8. Cost Allocation and Budget
A. Procedure: We obtained and reviewed the Cost Allocation Plan for the current contract year,
contract number 103-12, to ensure the following :
i. Cost Allocation Plan was submitted to H-GAC within 30 days of the contract date.
ii. Cost Allocation Plan addressed rationale for how costs are allocated among various
funding streams and cost categories.
iii. Cost Allocation Plan addressed the rationale for how costs are allocated to an H-GAC
contract as opposed to other funding sources.
iv. Cost Allocation Plan addressed indirect, pooled costs, direct charging and facilities costs.
v. Cost Allocation Plan was certified by an authorized official of the organization certifying
that the plan has been prepared in accordance with authorizing legislation and
regulations, and state or other applicable requirements.
vi. Any changes to the cost allocation plan or methodology was submitted to H-GAC within
10 days of implementation, and the cost allocation complies with Texas Workforce
Commission (TWC) Financial Manual for Grants and Contracts, Chapter 11, Cost
Allocation and includes Organization information and current budget or financial
statement.
B. Procedure: We compared the Cost Allocation Plan to the approved budget and ensured that
category amounts matched .
Finding: High - (FIN CA-1) We identified that there were differences in the Cost Allocation Plan
and the most current approved budget. See Table 1 below for additional information on the
results:
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JULY 17,2012
T bl 1 C t All f B d t A a e : os oca Ion u Ige versus lpprovedB d U t e
LINE ITEM EXPENSE
Cost Allocation
Total
Budget Total
Variance Between Cost
Allocation Line Item and
Budget Line ltem*
Personnel Wages & Salaries $ 9,444,471.00 $ 9,472,607.00 $ 28,136.00 0.3%
Personnel Fringe Benefits $ 2,773,841.00 $ 2,782,105.00 $ 8,264.00 0.3%
AudiULegal/Non Staff Services $ 137,800.00 $ 137,800.00 $ - 0.0%
Consulting Services Only $ 67,550.00 $ 67,550.00 $ -
0.0%
Facilities - Career Offices Only $ 2,193,102.00 $ ,416,924.00 $ 223,822.00 10.2%
Facilities - other than Career $ 211,329.00 $ 211,329.00 $ - 0.0%
Offices
Equipment - IT $ 135,838.00 $ 135,838.00 $
-
0.0%
Equipment - Other Equip. & Fum $ 849,230.00 $ 849,230.00 $
-
0.0%
Communications - IT /Network $ 31,430.00 $ 31,430.00 $
-
0.0%
Communications - Other than IT $ 398,933.00 $ 362,533.00 $ (36,400.00) -9.1%
Travel - In Region $ 57,801.00 $ 57,801 .00 $ - 0.0%
Travel - Out-of-Region $ 11,645.00 $ 11 ,645.00 $ - 0.0%
Insurance $ 123,532.00 $ 123,532.00 $ - 0.0%
Office Supplies $ 148,647.00 $ 148,647.00 $ - 0.0%
Printing/Photocopying $ 45,300.00 $ 45,300.00 $ - 0.0%
Public Info/Outreach $ 30,010.00 $ 30,010.00 $ - 0.0%
Subscriptions - Assoc dues $ 7,500.00 $ 7,500.00 $ - 0.0%
Subscriptions - Resource Room $ 8,283.00 $ 8,933.00 $ 650.00 7.8%
Subcontracts $ 51,650.00 $ 51,650.00 $ - 0.0%
Total $ 16,727,892.00 $ 16,952,364.00 $ 224,472.00 1.3%
'Varlance = (Budget Total - Cost Allocation Total)/Cost Allocation Total
Recommendation: We recommend that HoustonWorks develop procedures to ensure the most
current approved budget accurately reflects the approved budget in the Cost Allocation Plan.
c. Procedure: We performed a walk forward process based on a judgmentally selected sample of
budget months to verify that monthly fund balances and accumulative fund balances are accurate
within budget line items.
Finding: High - (FIN CA-2) We were unable to verify that the accumulative fund balances are
accurate within line items because we were not provided with all financial billing reports submitted
to H-GAC. We identified three instances out of a sample of five where the actual expenditures for
the month exceeded the budgeted expenditures for that month. See Table 2 below for additional
information on the results:
weaver
JULY 17, 2012
Month Table 2: Cost Allocation Variances from
Selection
1
2
3
4
5
Month Budget Line Item Period Spend Billing Allocation Variance
ratio Plan ratio
Recommendation: We recommend that HoustonWorks develop procedures to review the billing
ratios against the Cost Allocation Plan on a monthly basis to ensure the accumulated amounts do
not exceed the budgeted ratio.
Cost Allocation and Budget Results Summary: HoustonWorks is in compliance with the
contractual requirements regarding the required items to be included in the Cost Allocation Plan as
well as the authorization, submission and change notification requirements identified by H-GAC.
However, we identified instances of non-compliance regarding the included budget in the approved
Cost Allocation Plan which increases the risk that HoustonWorks will be unable to accurately track
the allocated funds. We also identified instances of non-compliance regarding the allocation of
expenses in comparison to the budgeted amounts which increases the risk that HoustonWorks will
exceed the budgeted line items without prior H-GAC approval.
9. Financial Reporting
A. Procedure: We interviewed appropriate staff and performed a walkthrough to gain an
understanding of the cost allocation and financial reporting process. We obtained all monthly
financial reports from October 1, 2011 to May 31, 2012 and proof of submission to H-GAC to
verify financial reports match supporting documentation submitted to H-GAC, total expenditure
line item amounts are within the budgeted monthly funding streams amounts by comparing the
corresponding submitted financial reports and GL expenditure amounts for the period, any budget
amount variances are approved by appropriate organizational staff and H-GAC, reports were
submitted to H-GAC no later than the close of business on the ninth of the month for expenditures
through the end of the previous month, and that financial reports were reviewed and approved
prior to submission to H-GAC.
Findings:
1. High - (FIN FR-1) Financial reporting for the sampled periods of October 2001,
December, 2011, February 2012 and April 2012 did not have variances in the total
amounts reported to H-GAC . However, there was a variance within cost allocation
category in Administration costs for WIA Adult funding stream for the month of December
2012 of $2,977.52.
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RISK ADVISORY SERVICES Page 20 of23
JULY 17,2012
2. Medium - (FIN FR-2) There is not a documented review and approval process. Reports
submitted to H-GAC for the months of March, April and May do not indicate that the
Director of Finance reviewed the reports prior to submission. These reports were
submitted by the Contract and Billing Assistant.
Recommendations:
1. We recommend that all financial reports submitted to H-GAC be reviewed to ensure that
all cost allocations categories as well as the totals are mathematically accurate and
representative of the General Ledger. Furthermore this review should be formally
documented and archived.
2. We recommend that a formal review and approval process be implemented for all
financial reports submitted to H-GAC. We recommend that the Director of Finance and
the Chief Executive Officer both be included in the review prior to the submission of the
financial report and formally evidence their review.
B. Procedure: We reviewed policies and procedures and interviewed appropriate staff to gain a
thorough understanding of the contract close out reporting process. We also identified controls in
place that ensure accurate reporting including cut off period, items are reported in the correctcost
allocation categories and budget line items as well as timely submission of reports to H-GAC.
Finding: Low - Policies were documented adequately but we were unable to test as the closeout
procedures had not been performed as of May 31,2012. No issues noted.
C. Procedure: We verified that the A-133 Single Audit has been performed and submitted to H-GAC
within 30 days of completion or nine months of the end of the audit period.
Finding : No issues noted.
Financial Reporting Results Summary: HoustonWorks is in compliance with the minimum
requirements identified by H-GAC, Texas Workforce Commission, federal and state guidance with
regards to the documentation of close out procedures, the performance and reporting of an annual A
133 Single Audit, the approval of budget amount variances, adequately supported financial reports
and the timely submission of financial reports. However, we identified instances of non-compliance in
the financial reporting process specifically regarding the reporting of budget to actual variances and
the review and approval of financial reports prior to submission to H-GAC which raise the risk of
unauthorized, incorrect, or inaccurate reports will be submitted to H-GAC.
10. Customer Complaints
A. Procedure: We verified that the Workforce Solutions complaint poster is posted in clear and
open view of public traffic.
Customer Complaints Results Summary: HoustonWorks is in compliance with the minimum
requirements identified by H-GAC, Texas Workforce Commission, federal and state guidance.
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JULY 17, 2012
11. Subcontracts
A. Procedure: We obtained a list of all subcontracts and verified that subcontractors were not
suspended or debarred by checking the Excluded Parties List at: www.elps.gov, subcontractors
were approved by H-GAC if applicable, subcontractors certified that they are current with State
franchise taxes or that they are a non-profit corporation. Additionally, we verified that subcontract
contract language includes provisions as stated in Section III of H-GAC Contract Management
Policies and Procedures and that all subcontractor invoice payments were timely and for
allowable costs.
Finding: Medium - (FIN SU8-1) HoustonWorks does not currently have a process in place to
verify that subcontractors are not debarred and are current with their state franchise taxes.
Recommendation: We recommend that procedures be implemented to verify that all new
subcontractors are not debarred and are current with their state franchise taxes prior to the
execution of any contracts with the subcontractor. Furthermore, we recommend that all
subcontractors that have contracts with HoustonWorks, as well as all vendors which meet the
subcontractor criteria as identified in the H-GAC financial guidance, be reviewed on an annual
basis to ensure they continue to remain off the debarment list and continue to be current with
their state franchise taxes.
Subcontracts Results Summary: HoustonWorks cannot support their compliance with the
requirements identified by H-GAC, Texas Workforce Commission, federal and state guidance
because a subcontractor review and approval process does not exist. This increases the risk that
contracts will be inappropriately executed, or will not provide sufficient clauses to maintain
compliance with H-GAC procedures.
12. Insurance
A. Procedure: We obtained certificates of insurance providing coverage on commercial general
liability, worker's compensation and all equipment and inventory purchased with H-GAC funds
and ensured that H-GAC is listed as loss payee for all equipment items and all minimum
threshold amounts of coverage are met (10% of total contract amount) .
Finding: Medium - (FIN IN-1 ) The Texas Workforce Commission's Financial Management of
Grant Contracts and H-GAC's contract management policies and procedures require that
HoustonWorks, as a workforce services provider, list H-GAC as the loss payee on all insurance
and bonding certificates. For each of the five policies reviewed , H-GAC was not listed as a loss
payee.
Recommendation: We recommend that HoustonWorks immediately initiate actions to list H-GAC
as a loss payee on the insurance policies as required by the H-GAC Contract Management
policies and procedures.
Insurance Results Summary: Insurance coverage retained by HoustonWorks meets the minimum
coverage threshold criteria identified by H-GAC policies and procedures, but does not follow all
minimum requirements regarding the loss payee designation clauses . This raises the risk that H-GAC
will not recover their portion of the loss of fixed assets in the event of a catastrophic loss.
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JULY 17, 2012
CONCLUSION
Based on our procedures, we recommend that HoustonWorks prepare an action plan to address the
identified noncompliance items, including expected timelines for completion, and submit the action plan to
H-GAC for review and approval. Subsequent monitoring procedures should be performed to ensure the
issues identified have been appropriately addressed.
CLOSING
We conducted a closing meeting to identify procedures performed and communicate results of our
procedures. The closing meeting was conducted on Thursday, June 21,2012, at 10:00 AM.
Attendees included:
Russell Tomlin HoustonWorks Executive Director
Rudy Martinez Director of Finance
Monica Williams Senior Director of Administration
Irma Soledad Accounting Manager
Georgetta Mitchell Customer Service Supervisor
Shaun Loether IT Manager
Terry Hudson Consultant
Mike Temple H-GAC Representative
Sharron Powell H-GAC Representative
Alyssa Martin Weaver and Tidwell, LLP
Tamara Shepherd Weaver and Tidwell, LLP
weaver

Houston-Galveston Area Council Houston Works FY12 Audit

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Houston-Galveston Area Council

July 23, 2012

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