Audit of the Berkshire County Arc, Inc. (BCArc)
May 25, 2021 · Berkshire County Arc, Inc. (BCArc) · Read the full official report on mass.gov ↗
Published May 25, 2021 Audit covers July 1, 2017 – June 30, 2019 Under Suzanne M. Bump · 2011–2023
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“During our audit period, we found issues with Berkshire County Arc, Inc.’s (BCArc’s) credit cards involving nonreimbursable expenses, credit card reward travel miles used for personal travel, and improper administration of fixed assets.”
Read the plain-English breakdown
This is a Massachusetts State Auditor performance audit of Berkshire County Arc, a nonprofit human service provider, covering July 1, 2017 through June 30, 2019.
“This report details the audit objectives, scope, methodology, findings, and recommendations for the audit period, July 1, 2017 through June 30, 2019.”
The auditor reviewed BCArc as part of a broader effort to check how state-funded human service contracts are being managed.
“This audit was conducted as part of OSA’s ongoing efforts to audit human service contracting activity by state agencies and to promote accountability, transparency, and cost-effectiveness in state contracting.”
The report says money spent on questionable or unsupported costs could have instead supported state-funded services.
“BCArc could have used this $124,247 to pay for reimbursable expenses for its state-funded programs.”
If you are a taxpayer, client, family member, or community member, this matters because BCArc provides services to people with disabilities, brain injuries, autism, and people needing daily living support.
“During our audit period, BCArc provided residential and support services to individuals with developmental disabilities, brain injuries, and autism, as well as individuals who need help with activities of daily living at home.”
The auditor found costs that may need to be repaid, especially if state officials determine they were not reimbursable under state rules.
“BCArc should cooperate with OSD to resolve any identified issues regarding nonreimbursable costs and should reimburse the Commonwealth for any such costs that OSD determines must be repaid.”
BCArc is expected to work with state oversight officials, improve its controls, and the report says its board already changed its credit card policy after one finding.
“BCArc’s board of directors indicated that as a result of the problems identified in Finding 1b, the agency had implemented a new credit card policy prohibiting any employee from deriving a personal benefit from an agency credit card.”
The audit is significant because BCArc received tens of millions of dollars from state and public sources, and the report found weaknesses in how some money, cards, records, and related-party arrangements were handled.
“During fiscal years 2018 and 2019, BCArc received revenue from the following sources.”
OSD means the state office that oversees human service providers like BCArc; related-party expenses are costs involving connected organizations or people, where extra care is needed to avoid conflicts or overpayment.
“OSD is the state agency responsible for regulating and overseeing the activities of all the state’s contracted human service providers, such as BCArc.”
7 figure(s) pending source verification - not shown
What the Auditor checked
- Complied Are BCArc’s management staff members qualified for their positions, and is their level of compensation reasonable and properly documented in accordance with its policies and procedures and Section 1.05(24) of Title 808 of the Code of Massachusetts Regulations (CMR)?
- Did not comply Are BCArc’s credit card expenditures documented and allowable in accordance with its policies and procedures and 808 CMR 1.04(1), 1.04(5), 1.05(3), 1.05(9), 1.05(10), 1.05(12), 1.05(23), and 1.05(26)?
- Did not comply Does BCArc comply with all the requirements of 808 CMR 1.05(8) and 1.05(12) regarding related-party transactions?
What the Auditor found
Why it matters: State contract funds may have been used for costs that should have been paid with non-state funds, reducing resources available for reimbursable program expenses.
Standard: 808 CMR 1.04(1), 808 CMR 1.05(3), 1.05(10), 1.05(12), 1.05(23), and 1.05(26), and OSD UFR Audit & Preparation Manual guidance. ( Section 1.04(1) of Title 808 of the Code of Massachusetts Regulations; Section 1.05 of Title 808 of the Code of Massachusetts Regulations; OSD’s UFR Audit & Preparation Manual )
4 recommendations
- BCArc should cooperate with OSD and determine how much of this $124,247 of nonreimbursable credit card expenses BCArc should reimburse to the Commonwealth.
- BCArc should amend its policies and procedures to ensure that all credit card expenses are properly documented according to OSD regulations.agency: already implemented
- BCArc management should establish monitoring controls to ensure that management reviews all credit card expenses before payment and determines whether they are reimbursable to BCArc’s state contracts.
- BCArc should properly identify and correctly report all nonreimbursable expenses on its UFRs.
Agency response & Auditor reply
Agency: "Nevertheless, BCArc acknowledges that some of the funds identified as nonreimbursable by OSA were not correctly listed on its 2018 and 2019 UFRs."
Auditor: "Although BCArc may have had sufficient non-state funds to pay for these expenses according to its UFRs, the funds were not used to do so."
Why it matters: BCArc lost the opportunity to reduce agency travel costs and use the savings for client services.
Standard: BCArc Corporate Compliance Program Guiding Principles and 808 CMR 1.05(9)(a). ( 808 CMR 1.05(9)(a) )
3 recommendations
- BCArc should stop using the American Express and Citibank cards that are linked to the president and CEO’s account and obtain new cards issued in its own name.
- BCArc should enhance its policies and procedures to require that all cards be issued in its name and that any travel rewards or other incentives issued by card companies be used solely for its benefit.agency: already implemented
- BCArc’s board should provide effective oversight over cards by periodically reviewing card statements to determine whether rewards are earned and how they are used.
Agency response & Auditor reply
Agency: "BCArc’s CEO was required to guarantee the credit cards used by BCArc, making the CEO personally liable for the payments."
Auditor: "Whether or not the president and CEO was required to guarantee the credit cards used by BCArc, we believe he should have accounted for the reward travel miles earned through purchases made by BCArc and ensured that they were used for business, not personal, travel."
Why it matters: BCArc could not perform a periodic physical inventory, making assets highly susceptible to theft or misuse.
Standard: Fixed Assets—Acquisition Policy issued jointly by the Office of the Comptroller of the Commonwealth and OSD. ( Fixed Assets—Acquisition Policy )
1 recommendation
- BCArc should develop policies and procedures for the administration of its non-GAAP fixed assets that include a requirement that its inventory records contain all key information and be maintained and current for each asset as suggested in the “Fixed Assets—Acquisition Policy.”
Agency response & Auditor reply
Agency: "BCArc maintains inventory of all capital items valued at $5,000 or more in accordance with the Agency Capitalization Level that BCArc uses pursuant to its contracts."
Auditor: "Although BCArc maintained an inventory of its GAAP6 fixed assets, it did not properly administer its inventory of non-GAAP fixed assets."
Why it matters: BCArc could have used the funds to pay for reimbursable expenses for state-funded programs.
Standard: 808 CMR 1.05(8) and 808 CMR 1.05(12). ( 808 CMR 1.05(12); 808 CMR 1.05(8) )
4 recommendations
- BCArc should cooperate with OSD to resolve any identified issues regarding nonreimbursable costs and should reimburse the Commonwealth for any such costs that OSD determines must be repaid.
- BCArc should perform a fair market rent determination for the properties it leases from Berkshire Omega annually and use this information to determine what rents it should pay Berkshire Omega for these properties.agency: agreed
- BCArc should stop using state funds to pay for any capital improvements to Berkshire Omega’s properties and should enter into repayment agreements with Berkshire Omega for the capital improvements already paid for.agency: agreed
- BCArc should not pay for the maintenance of Berkshire Omega’s properties or its bookkeeping expenses.
Agency response & Auditor reply
Agency: "BO leases the real estate to BCArc at cost."
Auditor: "Our report correctly points out that BCArc should only pay Berkshire Omega for expenses that are allowable under OSD regulations."
Why it matters: Personal use of a company credit card is an unsound business practice and creates a higher risk of card misuse.
Standard: BCArc’s contract with the contractor stated that the contractor was not eligible for BCArc employee benefits or services. ( BCArc contract terms )
2 recommendations
- BCArc should amend its credit card policies to limit card use to employees and establish monitoring controls to ensure that all employees and contractors comply with this requirement.
- BCArc should improve its internal controls over credit cards to prevent the cards from providing a personal benefit to anyone.
Agency response & Auditor reply
Agency: "BCArc adheres to a formal conflict of interest policy and at no time did the wife of BCArc’s CEO (Consultant) use a BCArc credit card."
Why it matters: There is inadequate assurance that all expenses charged to client funds were incurred with client knowledge and consent.
Standard: BCArc Individual Funds Procedure requiring Savings Withdrawal Form approval. ( BCArc Individual Funds Procedure )
1 recommendation
- BCArc should develop procedures to monitor the use of client funds to ensure that all expenses paid for with these funds are properly approved using the Savings Withdrawal Form.agency: already implemented
Agency response & Auditor reply
Agency: "BCArc states unequivocally that all client fund expenses were legitimate."
Auditor: "Our testing in this area was not intended to specifically identify improper use of client funds but rather to determine whether BCArc had implemented effective internal controls over the administration of these funds that ensured that expenditures of the funds were proper."
Verified dollar findings
Money paid out that the audit found should not have been - overpayments, unallowable and nonreimbursable charges, improper claims.