CELL MICROSYSTEMS, INC. DURHAM, NORTH CAROLINA SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS YEAR ENDED DECEMBER 31, 2017
INDEX TO SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS YEAR ENDED DECEMBER 31, 2017 PAGES INDEPENDENT AUDITOR S REPORT ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS 2-3 EXHIBIT SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS YEAR ENDED DECEMBER 31, 2017 4 NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS 5 INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR A FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE 6-8 SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED DECEMBER 31, 2017 9-10
INDEPENDENT AUDITOR S REPORT ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS Gary Pace, Ph.D., J.D., CEO Cell Microsystems, Inc. Durham, North Carolina Report on the Schedule of Expenditures of Federal and State Awards We have audited the accompanying schedule of expenditures of federal and state awards for the U.S. National Institute of Health Research Grant Cluster of Cell Microsystems, Inc. for the year ended December 31, 2017, and the related notes (the financial statement). Management s Responsibility for the Schedule of Expenditures of Federal and State Awards Management is responsible for the preparation and fair presentation of this financial statement in accordance with accounting principles generally accepted in the United States of America, this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of a financial statement that is free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statement. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statement.
INDEPENDENT AUDITOR S REPORT ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS 3 CONTINUED We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statement referred to above presents fairly, in all material respects, the expenditures of federal and state awards for the U.S. National Institute of Health Research Grant Cluster of Cell Microsystems, Inc. for the year ended December 31, 2017, in accordance with accounting principles generally accepted in the United States of America. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated May 21, 2018 on our consideration of Cell Microsystems, Inc. s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Cell Microsystems Inc. s internal control over financial reporting and compliance. Stancil PC Raleigh, North Carolina May 21, 2018
CELL MICROSYSTEMS, INC. SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS YEAR ENDED DECEMBER 31, 2017 Federal Passed CFDA Through to Total Federal Federal/State Grantor/Pass-through Grantor/Program Number Contract # Receipts Subrecipients Expenditures Federal Awards: U.S. National Institute of Health Research Grant Cluster Automated Isolation of Single Cells Using High-Resolution and Subcellular Imaging 93.859 2R44GM119888-02A1 $ 426,390 $ 103,535 $ 399,296 The CellRaft AIR System: Workflow Automation for Stem Cell Isolation and Recovery: Year 1 93.859 2R42GM106421-02 173,135-162,176 The CellRaft AIR System: Workflow Automation for Stem Cell Isolation and Recovery: Year 2 93.859 5R42GM106421-03 737,490 331,828 690,666 The CellRaft Array for Screening and Isolation of Highly Effective Cytotoxic T Cells: Part I 93.855 1R41AI126905-01 172,990 132,855 161,541 The CellRaft Array for Screening and Isolation of Highly Effective Cytotoxic T Cells: Part II 93.855 2R42AI126905-02 75,038-70,129 High Throughput CRISP/Cas9 Cell Line Generation Using the CellRaft Array Platform 93.172 1R41HG009467-01A1 65,540-61,252 Total U.S. National Institute of Health 1,650,583 568,218 1,545,060 Total Federal Awards 1,650,583 568,218 1,545,060 State Awards: North Carolina Department of Commerce One North Carolina SBIR/STTR Phase I Program Year 1 N/A 52406 11,157-11,157 One North Carolina SBIR/STTR Phase I Program Year 2 N/A 54490 48,750-48,750 Total State Awards 59,907-59,907 Total Federal and State Awards $ 1,710,490 $ 568,218 $ 1,604,967 See Independent Auditor's Report and Accompanying Notes to the Financial Statement. 4
CELL MICROSYSTEMS, INC. 5 NOTES TO THE FINANCIAL STATEMENT YEAR ENDED DECEMBER 31, 2017 NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF PRESENTATION The accompanying schedule of expenditures of federal and state awards (the financial statement) includes the federal award activity of Cell Microsystems, Inc. under programs of the federal government for the year ended December 31, 2017. The information in this financial statement is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the financial statement presents only a selected portion of the operations of Cell Microsystems, Inc. it is not intended to and does not present the financial position, results of operations, or cash flows of Cell Microsystems, Inc. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Expenditures reported on the financial statement are reported on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. BASIS OF ACCOUNTING The accompanying financial statement of Cell Microsystems, Inc. has been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. ESTIMATES The preparation of the financial statement in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. INDIRECT COST RATES Indirect costs were based on rates established within each individual grant and ranged between 30% and 40% of certain categories of direct costs. These established rates were used in lieu of the 10% de minimis indirect cost rate.
INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR A FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE Gary Pace, Ph.D., J.D. Cell Microsystems, Inc. Durham, North Carolina Report on Compliance for U.S. National Institute of Health Research Grant Cluster We have audited Cell Microsystems, Inc. s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on its U.S. National Institute of Health Research Grant Cluster for the year ended December 31, 2017. Management s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of federal awards applicable to the U.S. National Institute of Health Research Grant Cluster. Auditor s Responsibility Our responsibility is to express an opinion on compliance for Cell Microsystems, Inc. s U.S. National Institute of Health Research Grant Cluster based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on the U.S. National Institute of Health Research Grant Cluster occurred. An audit includes examining, on a test basis, evidence about Cell Microsystems, Inc. s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for Cell Microsystems, Inc. s U.S. National Institute of Health Research Grant Cluster. However our audit does not provide a legal determination of Cell Microsystems, Inc. s compliance.
INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR A FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE CONTINUED 7 Opinion on Compliance for U.S. National Institute of Health Research Grant Cluster In our opinion, Cell Microsystems, Inc. complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on its U.S. National Institute of Health Research Grant Cluster for the year ended December 31, 2017. Other Matters The results of our auditing procedures disclosed instances of noncompliance which are required to be reported in accordance with the Uniform Guidance and which are described in the accompanying schedule of findings and questioned costs as items 2017-01 and 2017-02. Our opinion on Cell Microsystems, Inc. s U.S. National Institute of Health Research Grant Cluster is not modified with respect to these matters. Cell Microsystems, Inc. s response to the noncompliance findings identified in our audit is described in the accompanying schedule of findings and questioned costs. Cell Microsystems, Inc. s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. Report on Internal Control Over Compliance Management of Cell Microsystems, Inc. is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Cell Microsystems, Inc. s internal control over compliance with the types of requirements that could have a direct and material effect on its U.S. National Institute of Health Research Grant Cluster to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for its U.S. National Institute of Health Research Grant Cluster and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Cell Microsystems, Inc. s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.
INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR A FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE 8 CONTINUED Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that have not been identified. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, we identified certain deficiencies in internal control over compliance, as described in the accompanying schedule of findings and questioned costs as items 2017-01 and 2017-02 that we consider to be significant deficiencies. Cell Microsystems, Inc. s response to the internal control over compliance findings identified in our audit is described in the accompanying schedule of findings and questioned costs. Cell Microsystems, Inc. s response was not subject to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Stancil PC Raleigh, North Carolina May 21, 2018
CELL MICROSYSTEMS, INC. 9 SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED DECEMBER 31, 2017 Section I. Summary of Auditor s Results Noncompliance material to the financial statement noted? yes X no Federal Awards Internal control over major federal programs: Material weakness(es) identified? yes X no Significant Deficiency(ies) identified that are not considered to be material weaknesses? _X yes none reported Noncompliance material to federal awards? yes X no Type of auditor s report issued on compliance for major federal programs: Unqualified Any audit findings disclosed that are required to be reported in accordance with Section 510(a) of Circular A-133? yes X no Identification of major federal programs: CFDA No. Names of Federal Program or Cluster 93.859 NIH Research Cluster Grants 93.855 93.172 Dollar threshold used to distinguish between Type A and Type B Programs: $ 500,000 Auditee qualified as low-risk auditee? yes X no
CELL MICROSYSTEMS, INC. 10 SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED DECEMBER 31, 2017 State Awards There is no major state program for Cell Microsystems, Inc. Significant Deficiencies Section II Financial Statement Findings 2017-01: Salaries, taxes, and benefits were incorrectly allocated against grants due to one employee s timesheet not posting total hours correctly. Management Response: Beginning March 2018, the timesheet will automatically check whether an employee s time adds up to full time and whether the sum of the rows and columns is equal. The timesheet will indicate a good or bad result for each parameter. The autocheck feature is not editable by the employee. 2017-02: Monthly worker s compensation costs were charged against grants even after a refund of worker s compensation premiums was received based on a worker s compensation audit. As a result, the total worker s compensation cost charged against grants for the year ended December 31, 2017 exceeded the total worker s compensation cost for the entire year, net of the refund received. Management Response: It is unusual to receive a refund on recurring expenses so there is no change needed to how day-to-day expenses are allocated on a monthly basis. However, any subsequent refunds will be allocated against grants in the same methodology as expenses to ensure a reasonable allocation of net costs against grants. Accounting for the refund and correction of on-gong allocation of workers compensation insurance rolled over into 2018 and, therefore, the adjustment was not observed in the audit for calendar year 2017. Overall reimbursement under the affected grants has not exceeded the awarded amounts. Section III Federal Award Findings and Questioned Costs 2017-02: A total of $1,919 was charged against NIH grants related to worker s compensation expense for the year ended December 31, 2017. After a refund of $1,779, total worker s compensation cost incurred for the year totaled $520. Of that amount, only $434 should have been coded against NIH grants, resulting in $1,485 in questioned Costs. None Reported Section IV State Award Findings and Questioned Costs