New England Farm Workers' Council Inc.
May 6, 2014 · Read the full official report (PDF) ↗
Published May 6, 2014 Audit covers July 1, 2009 – March 31, 2012 Under Suzanne M. Bump · 2011–2023
source
“During our audit period, the New England Farm Workers’ Council Inc. (NEFWC) used as much as $782,224 in Commonwealth funds to pay—either directly or indirectly through the management fee assessed by its related party, Partners for Community Inc. (PfC)—for nonreimbursable expenses and did not properly report these expenses as nonreimbursable in the financial statements it filed with the state’s Operational Services Division (OSD) as required by OSD guidelines.”
Read the plain-English breakdown
This is a Massachusetts State Auditor performance audit of New England Farm Workers’ Council Inc. covering July 1, 2009 through March 31, 2012.
“This report details the audit objectives, scope, methodology, findings, and recommendations for the audit period, July 1, 2009 through March 31, 2012.”
Auditors reviewed whether NEFWC had proper controls over state-funded administrative expenses, related-party transactions, and financial reporting to the Commonwealth.
“The objectives of our audit were to (1) assess NEFWC’s control environment and determine whether the internal controls that it has established over its operations ensure that the various administrative expenses NEFWC charged against its state contracts are reasonable and allocable to those contracts, (2) analyze selected transactions conducted between NEFWC and its related parties to determine whether they were reasonable and allowable, and (3) determine whether expenditure information reported by NEFWC to the Commonwealth was in accordance with guidance issued by the state’s Operational Services Division (OSD).”
The audit matters because NEFWC received large amounts of public money for programs such as childcare, shelter assistance, heating help, job training, and youth employment, so weak controls could affect how taxpayer-funded services are managed.
“During our audit period, NEFWC provided a variety of services, including the following:”
If you are a Massachusetts taxpayer or someone who relies on public services, the issue is whether money meant for state-funded programs was properly documented, program-related, and reported.
“Any costs paid for with state funds should be adequately documented and be related to the agency’s state-funded activities.”
The auditor’s bottom line was that NEFWC should work with the state to resolve the questioned costs and repay any amount the state decides must be repaid.
“NEFWC should cooperate with OSD in resolving the issues regarding nonreimbursable costs identified in this report and should reimburse the Commonwealth for any such costs that OSD determines must be repaid.”
The report says NEFWC agreed with many recommendations and planned changes to its financial systems, reporting, lobbying-cost controls, CEO benefit review, and board composition.
“NEFWC agrees with many of the recommendations you have made.”
The findings were not just about paperwork; the auditor said NEFWC had significant control weaknesses, related-party risks, and a board that did not meet contract requirements, which could weaken independent oversight.
“Our audit identified significant weaknesses in the control environment at NEFWC.”
“Nonreimbursable” means a cost the state will not pay for under these contracts; the auditor says those costs must be clearly reported, and if they are not, state or federal money is presumed to have paid them.
“It is presumed that Commonwealth and Federal funds have been used to defray non-reimbursable costs when those costs are not appropriately disclosed.”
9 figure(s) pending source verification - not shown
What the Auditor checked
- Did not comply Assess NEFWC’s control environment and determine whether the internal controls that it has established over its operations ensure that the various administrative expenses NEFWC charged against its state contracts are reasonable and allocable to those contracts.
- Did not comply Analyze selected transactions conducted between NEFWC and its related parties to determine whether they were reasonable and allowable.
- Did not comply Determine whether expenditure information reported by NEFWC to the Commonwealth was in accordance with guidance issued by the state’s Operational Services Division.
What the Auditor found
Why it matters: Commonwealth funds were used for costs that were not reimbursable, and the costs were not properly reported as nonreimbursable in required financial filings.
Standard: OSD regulation 808 Code of Massachusetts Regulations 1.05(8), 808 CMR 1.02, 808 CMR 1.05, and OSD UFR reporting guidelines. ( 808 Code of Massachusetts Regulations 1.05(8); Financial Accounting Standards Board’s Accounting Standards Codification 850-10-05-3 )
3 recommendations
- NEFWC should cooperate with OSD in resolving the issues regarding nonreimbursable costs and reimburse the Commonwealth for any costs OSD determines must be repaid.agency: partially agreed
- NEFWC should not use state funding for nonreimbursable costs, should document state-funded costs, and should disclose nonreimbursable costs in UFRs.agency: partially agreed
- NEFWC should competitively procure consultant services where practicable, define consultant scopes of work, and prevent lobbying costs from being charged to state contracts.agency: agreed
Agency response & Auditor reply
Agency: "NEFWC agrees with many of the recommendations you have made."
Auditor: "NEFWC contends that it was not reimbursed for the $782,224 of nonreimbursable costs that the Office of the State Auditor (OSA) identified during our audit because of the deficits it says it incurred in its state-funded programs that were funded by non-state sources."
Why it matters: The agency could not substantiate whether services were provided, reasonable, allowable, or free of prohibited lobbying costs.
Standard: 808 CMR 1.03(8), 808 CMR 1.05(26), and 808 CMR 1.05(18). ( 808 CMR 1.03(8); 808 CMR 1.05(26); 808 CMR 1.05(18) )
1 recommendation
- NEFWC should competitively procure consultant services where practicable, use clear scopes of services, and prevent lobbying costs from being charged to state contracts.agency: agreed
Agency response & Auditor reply
Agency: "NEFWC agrees with your recommendation that it identify and prevent lobbying costs from being allocated to state contracts in the UFR."
Auditor: "In its response, NEFWC acknowledges that two of the consultant contracts were for lobbying services, which are specifically nonreimbursable costs against NEFWC’s state contracts."
Why it matters: The agency could not substantiate the CEO’s reimbursable time, and reported compensation exceeded applicable reimbursement and disclosure requirements.
Standard: 808 CMR 1.05(26), 808 CMR 1.05(24), and OSD UFR Audit and Preparation Manual compensation-disclosure guidance. ( 808 CMR 1.05(26); 808 CMR 1.05(24) )
1 recommendation
- NEFWC should document CEO time, comply with OSD compensation-disclosure requirements, and ensure reported CEO compensation does not exceed OSD limits.agency: partially agreed
Agency response & Auditor reply
Agency: "NEFWC disputes that it does not now adequately support the CEO’s salary."
Auditor: "As noted above, under 808 CMR 1.05(26) any costs that are not adequately documented are nonreimbursable program costs to NEFWC’s state contracts."
Why it matters: State contracts were charged for an unsupported fringe benefit, and taxable benefits were not properly reported to the IRS for calendar years 2009 and 2010.
Standard: 808 CMR 1.05(9), 808 CMR 1.05(26), and IRS Publication 15-B. ( 808 CMR 1.05(9); IRS Publication 15-B )
1 recommendation
- NEFWC should ensure any CEO benefits comply with OSD regulations and that taxable benefits are properly reported.agency: partially agreed
Agency response & Auditor reply
Agency: "The Board of Directors of NEFWC shall be asked to review the practice of paying the CEO a monthly payment in lieu of a car."
Auditor: "Therefore, this $32,377 represents nonreimbursable charges against NEFWC’s state contracts."
Why it matters: State funds paid costs unrelated to NEFWC’s social-service program purposes.
Standard: 808 CMR 1.05(12). ( 808 CMR 1.05(12) )
1 recommendation
- NEFWC should not use state funding for costs that are nonreimbursable under OSD regulations.
Agency response & Auditor reply
Agency: "The unsecured loan was needed to cover the 20% down payment and some improvements (paving the parking lot)."
Auditor: "As noted above, we determined that $35,750 of the amount we are questioning was attributable to purchasing a building, which was not related to NEFWC’s social-service programs, so this $35,750 represents nonreimbursable costs."
Why it matters: NEFWC could not show what was purchased, who attended, or whether the restaurant charges were related to reimbursable program activity.
Standard: 808 CMR 1.05(26) and 808 CMR 1.05(12). ( 808 CMR 1.05(26) )
1 recommendation
- NEFWC should ensure state-funded costs are adequately documented and related to state-funded activities.agency: agreed
Agency response & Auditor reply
Agency: "NEFWC agrees with the preliminary report that the monthly invoices are not reconciled to the original source documents."
Auditor: "Summaries of expenses do not provide adequate documentation because they lack the detail necessary to document that the expenses were reasonable and allowable in accordance with OSD regulations."
Why it matters: State funds paid unsupported or non-program-related costs, and capital items were expensed instead of capitalized and depreciated.
Standard: 808 CMR 1.05(26), 808 CMR 1.05(12), and 808 CMR 1.02. ( 808 CMR 1.05(26); 808 CMR 1.02 )
1 recommendation
- NEFWC should ensure state-funded costs are adequately documented, program-related, and disclosed properly if nonreimbursable.
Agency response & Auditor reply
Agency: "NEFWC believes that the $26,495 in expenses for repairs and renovations did not need to be capitalized because they did not contribute to the extension of the useful life of the asset."
Auditor: "Regarding the accounting for these costs, based on the nature and amount of these expenses, OSA believes that the cost of these items should have been capitalized and depreciated over their useful lives in accordance with OSD regulations and PfC policies."
Why it matters: State funds paid travel and lodging costs that NEFWC could not document as related to state social-service programs.
Standard: 808 CMR 1.05(26) and 808 CMR 1.05(12). ( 808 CMR 1.05(26) )
1 recommendation
- NEFWC should ensure costs paid with state funds are documented and related to state-funded activities.
Agency response & Auditor reply
Agency: "Participation in this initiative is consistent with PFC/NEFWC’s mission and social and economic development activities."
Auditor: "We are not questioning whether these expenses are consistent with NEFWC’s mission; rather, these costs are nonreimbursable because they were undocumented and, in OSA’s opinion, not related to NEFWC’s state program activities."
Why it matters: State contracts were charged for legal expenses that appeared tied to non-state-funded economic development, agency development, or federally funded activities.
Standard: 808 CMR 1.05(26). ( 808 CMR 1.05(26) )
1 recommendation
- NEFWC should ensure costs paid with state funds are adequately documented and related to state-funded activities.
Agency response & Auditor reply
Agency: "NEFWC/PFC properly engaged legal counsel regarding several matters including NEFWC’s designation as a 501(c)(3) tax exempt organization, the impact of possible undue compensation or lobbying activities upon such designation, the legality of NEFWC’s involvement in for-profit activities such as the Hippodrome and the Hampden Entertainment District, Inc., and the propriety of various real estate transactions."
Auditor: "We do not question the need for NEFWC to procure the legal service in question; however, we determined that these costs were not reimbursable because there was inadequate documentation to substantiate that they were directly related to NEFWC’s state-funded activities."
Why it matters: The board may not have been independent enough to oversee NEFWC effectively, especially related-party transactions and internal controls.
Standard: Section 11(a) of OSD’s General Contract Conditions and Chapter 180, Section 6A, of the Massachusetts General Laws. ( Chapter 180, Section 6A, of the Massachusetts General Laws; Section 11(a) of OSD’s General Contract Conditions )
1 recommendation
- NEFWC should comply with state contract board-composition requirements and consider adding more independent board members.agency: agreed
Agency response & Auditor reply
Agency: "NEFWC agrees that it is imperative that it change the composition of the Board to reflect the requirements, terms and conditions of its state contracts."