Criteria: A proper internal control structure requires that account reconciliations be performed timely and accurately, and financial reporting comply with generally accepted accounting principles. Condition: A number of items were noted regarding the Credit Union?s accounting records as outlined below: 1. As of December 31, 2022, the Credit Union classified deferred costs associated with the origination of loans within prepaid and other assets for financial reporting purposes. To comply with GAAP, these deferred costs should be classified as a component of loans to members. In addition, the Credit Union was amortizing these costs to loan servicing expense. GAAP requires that these costs be amortized against interest income as an adjustment of loan yield over the estimated life of the loans. These classification errors resulted in an understatement of loans to members and an overstatement of prepaid and other assets by approximately $71,000 as of December 31, 2022. In addition, interest income on loans and loan servicing expenses were overstated by approximately $45,000. (No adjustment was recorded to the audited financial statements for this issue as it was not deemed material to the Credit Union?s financial statements taken as a whole.) 2. The Credit Union?s accrued liability for employee bonus expenses was determined to be understated by approximately $55,000 as of December 31, 2022. As a result, accrued liabilities and compensation expense were understated by approximately $55,000 as of December 31, 2022. (No adjustment was recorded to the audited financial statements for this item as it was not deemed material to the Credit Union's financial statements taken as a whole.) 3. During 2021 and 2022, the Credit Union recorded fixed asset purchases within accumulated depreciation accounts versus the fixed asset cost accounts. To comply with GAAP, fixed asset additions should be recorded to fixed asset cost accounts. Accumulated depreciation accounts should be adjusted for depreciation expense and fixed asset disposals. As a result, the cost of fixed assets was understated and accumulated depreciation was overstated by approximately $91,000 and $524,000 as of December 31, 2022, and 2021, respectively. Total cost and accumulated depreciation is summarized in Note 4 to the audited financial statements. (An adjustment was recorded to the audited financial statements for this item as it was deemed material to the audited financial statements taken as a whole.) 4. During 2022, the credit union improperly reclassified fixed assets purchased during 2021, approximating $166,00, from an accumulated depreciation account to depreciation and maintenance expenses. As a result, the cost of fixed assets was understated and depreciation and maintenance expense was overstated by approximately $166,000 as of December 31, 2022. (An adjustment was recorded to the audited financial statements for this item as it was deemed material to the audited financial statements taken as a whole.) 5. During 2022, the Credit Union received $10,000,000 in subordinated debt from the Department of the Treasury through the Emergency Capital Investment Program (ECIP). This subordinated debt is payable in full on June 28, 2052, and carries 0% interest for the first 24 months. After this initial period, interest rates range from 0.50% to 2.00%. Although the arrangement has 0% interest for the first 24 months, GAAP requires that interest expense be recognized over the entire term of the agreement. Interest rates are based on estimated qualified lending in relation to the amount of the subordinated debt. Using those criteria, estimated interest expense during 2022 would have approximated $58,000. (No adjustment was recorded to the audited financial statements for this item as it was not deemed material to the Credit Union's financial statements taken as a whole.) 6. During our review of general ledger account reconciliations, we noted that the following accounts were not being formally reconciled: ITM Cash Accounts: As of December 31, 2022, the Credit Union ITM accounts contained combined balances of approximately $171,000. While we were able to determine their balances were reasonable as of December 31, 2022, these accounts should be formally reconciled and reviewed monthly. TBC FCU Merger Vizo Cash Account: As of December 31, 2022, the TBC FCU merger Vizo bank account balance was approximately $75,000. We noted a small variance approximating $500 between the bank statement and the recorded amount in the general ledger. The difference represents interest earned on the account. Although the amount was immaterial, if the account was reconciled monthly, the interest income would have been recorded in the proper period. AP Checks in Process Liability Account: As of December 31, 2022, this accounts payable clearing account contained a balance of approximately $26,000. The balance was compromised of posting errors that were subsequently corrected in January 2023. Although the amount was immaterial, if the account was reconciled monthly, the corrections would have been recorded in the proper period. Clearing for CPS Liability Account: As of December 31, 2022, this accounts payable clearing account contained a balance of approximately $450,000. This reconciliation contained an unreconciled difference of approximately $21,000. 7. During our review of general ledger account reconciliations, we noted that the following accounts contained stale dated reconciling items outstanding over 90 days: Teller Capture Deposits in Transit: As of December 31, 2022, this cash account contained a balance of approximately $163,000. Approximately $29,000 in stale dated reconciling items were noted. Cashier?s Checks Outstanding: As of December 31, 2022, this liability account contained a balance of approximately $608,000. Approximately $3,500 in stale dated reconciling items were noted. ATM Deposit: As of December 31, 2022, this liability account contained a balance of approximately $29,000. Approximately $1,000 in stale dated reconciling items were noted.
CDFI Program ? CFDA No. 21.024; Grant Nos. 21RRP057045: Grant period ? December 31, 2022. Condition: The Credit Union has contracted with a third-party vendor, Inclusiv, for CDFI reporting purposes. According to Inclusiv?s reporting, the Credit Union met the closing financial products goal (loans deployed) in the designated target market (TM) requirement as reported on the Annual Performance Report. Based on our testing, we were also able to support that the Credit Union satisfied the requirements. However, we were unable to obtain a list of identifiable loans that met the eligibility requirements or documentation that validated the loan data reported by Inclusiv was reasonably accurate. In addition, the amount reported by the Credit Union was the total loans issued in 2022 versus the loans specific to the CDFI Rapid Response Program (RRP) grant. Criteria: Eligible loans meeting an established threshold (performance goal) as outlined in the Grant Assistance Agreement are to be deployed within the TM. Questioned Costs: None Context: Eligible loan deployment as reported in the Performance Progress Report was overstated and were unable to be supported on an individual basis. Effect: Performance goals as stipulated in the Grant Assistance Agreement may not be met or reported inaccurately. Cause: There was not a control in place to validate Inclusiv?s analysis or specifically identify eligible loans reported on the Performance Progress Report.
CDFI Program ? CFDA No. 21.024; Grant Nos. 21RRP057045: Grant period ? December 31, 2022. Condition: The Credit Union incorrectly reported the amount of federal expenditures recognized on the Use of Award Report for the year ended December 31, 2022. Criteria: As outlined in the grant agreement, the use of grant awards for a performance period should be accurately reported to the CDFI via the Use of Award report. Questioned Costs: None Context: The amount reported in the Use of Awards Report was overstated by approximately $51,000. Effect: Use of grant funds as stipulated in the Grant Assistance Agreement may not be met or reported inaccurately. Cause: There was not a control in place to reconcile the actual amount of the grant funds utilized as reflected in the accounting records to the amount reported in the Use of Awards Report.
Criteria: A proper internal control structure requires that account reconciliations be performed timely and accurately, and financial reporting comply with generally accepted accounting principles. Condition: A number of items were noted regarding the Credit Union?s accounting records as outlined below: 1. As of December 31, 2022, the Credit Union classified deferred costs associated with the origination of loans within prepaid and other assets for financial reporting purposes. To comply with GAAP, these deferred costs should be classified as a component of loans to members. In addition, the Credit Union was amortizing these costs to loan servicing expense. GAAP requires that these costs be amortized against interest income as an adjustment of loan yield over the estimated life of the loans. These classification errors resulted in an understatement of loans to members and an overstatement of prepaid and other assets by approximately $71,000 as of December 31, 2022. In addition, interest income on loans and loan servicing expenses were overstated by approximately $45,000. (No adjustment was recorded to the audited financial statements for this issue as it was not deemed material to the Credit Union?s financial statements taken as a whole.) 2. The Credit Union?s accrued liability for employee bonus expenses was determined to be understated by approximately $55,000 as of December 31, 2022. As a result, accrued liabilities and compensation expense were understated by approximately $55,000 as of December 31, 2022. (No adjustment was recorded to the audited financial statements for this item as it was not deemed material to the Credit Union's financial statements taken as a whole.) 3. During 2021 and 2022, the Credit Union recorded fixed asset purchases within accumulated depreciation accounts versus the fixed asset cost accounts. To comply with GAAP, fixed asset additions should be recorded to fixed asset cost accounts. Accumulated depreciation accounts should be adjusted for depreciation expense and fixed asset disposals. As a result, the cost of fixed assets was understated and accumulated depreciation was overstated by approximately $91,000 and $524,000 as of December 31, 2022, and 2021, respectively. Total cost and accumulated depreciation is summarized in Note 4 to the audited financial statements. (An adjustment was recorded to the audited financial statements for this item as it was deemed material to the audited financial statements taken as a whole.) 4. During 2022, the credit union improperly reclassified fixed assets purchased during 2021, approximating $166,00, from an accumulated depreciation account to depreciation and maintenance expenses. As a result, the cost of fixed assets was understated and depreciation and maintenance expense was overstated by approximately $166,000 as of December 31, 2022. (An adjustment was recorded to the audited financial statements for this item as it was deemed material to the audited financial statements taken as a whole.) 5. During 2022, the Credit Union received $10,000,000 in subordinated debt from the Department of the Treasury through the Emergency Capital Investment Program (ECIP). This subordinated debt is payable in full on June 28, 2052, and carries 0% interest for the first 24 months. After this initial period, interest rates range from 0.50% to 2.00%. Although the arrangement has 0% interest for the first 24 months, GAAP requires that interest expense be recognized over the entire term of the agreement. Interest rates are based on estimated qualified lending in relation to the amount of the subordinated debt. Using those criteria, estimated interest expense during 2022 would have approximated $58,000. (No adjustment was recorded to the audited financial statements for this item as it was not deemed material to the Credit Union's financial statements taken as a whole.) 6. During our review of general ledger account reconciliations, we noted that the following accounts were not being formally reconciled: ITM Cash Accounts: As of December 31, 2022, the Credit Union ITM accounts contained combined balances of approximately $171,000. While we were able to determine their balances were reasonable as of December 31, 2022, these accounts should be formally reconciled and reviewed monthly. TBC FCU Merger Vizo Cash Account: As of December 31, 2022, the TBC FCU merger Vizo bank account balance was approximately $75,000. We noted a small variance approximating $500 between the bank statement and the recorded amount in the general ledger. The difference represents interest earned on the account. Although the amount was immaterial, if the account was reconciled monthly, the interest income would have been recorded in the proper period. AP Checks in Process Liability Account: As of December 31, 2022, this accounts payable clearing account contained a balance of approximately $26,000. The balance was compromised of posting errors that were subsequently corrected in January 2023. Although the amount was immaterial, if the account was reconciled monthly, the corrections would have been recorded in the proper period. Clearing for CPS Liability Account: As of December 31, 2022, this accounts payable clearing account contained a balance of approximately $450,000. This reconciliation contained an unreconciled difference of approximately $21,000. 7. During our review of general ledger account reconciliations, we noted that the following accounts contained stale dated reconciling items outstanding over 90 days: Teller Capture Deposits in Transit: As of December 31, 2022, this cash account contained a balance of approximately $163,000. Approximately $29,000 in stale dated reconciling items were noted. Cashier?s Checks Outstanding: As of December 31, 2022, this liability account contained a balance of approximately $608,000. Approximately $3,500 in stale dated reconciling items were noted. ATM Deposit: As of December 31, 2022, this liability account contained a balance of approximately $29,000. Approximately $1,000 in stale dated reconciling items were noted.
CDFI Program ? CFDA No. 21.024; Grant Nos. 21RRP057045: Grant period ? December 31, 2022. Condition: The Credit Union has contracted with a third-party vendor, Inclusiv, for CDFI reporting purposes. According to Inclusiv?s reporting, the Credit Union met the closing financial products goal (loans deployed) in the designated target market (TM) requirement as reported on the Annual Performance Report. Based on our testing, we were also able to support that the Credit Union satisfied the requirements. However, we were unable to obtain a list of identifiable loans that met the eligibility requirements or documentation that validated the loan data reported by Inclusiv was reasonably accurate. In addition, the amount reported by the Credit Union was the total loans issued in 2022 versus the loans specific to the CDFI Rapid Response Program (RRP) grant. Criteria: Eligible loans meeting an established threshold (performance goal) as outlined in the Grant Assistance Agreement are to be deployed within the TM. Questioned Costs: None Context: Eligible loan deployment as reported in the Performance Progress Report was overstated and were unable to be supported on an individual basis. Effect: Performance goals as stipulated in the Grant Assistance Agreement may not be met or reported inaccurately. Cause: There was not a control in place to validate Inclusiv?s analysis or specifically identify eligible loans reported on the Performance Progress Report.
CDFI Program ? CFDA No. 21.024; Grant Nos. 21RRP057045: Grant period ? December 31, 2022. Condition: The Credit Union incorrectly reported the amount of federal expenditures recognized on the Use of Award Report for the year ended December 31, 2022. Criteria: As outlined in the grant agreement, the use of grant awards for a performance period should be accurately reported to the CDFI via the Use of Award report. Questioned Costs: None Context: The amount reported in the Use of Awards Report was overstated by approximately $51,000. Effect: Use of grant funds as stipulated in the Grant Assistance Agreement may not be met or reported inaccurately. Cause: There was not a control in place to reconcile the actual amount of the grant funds utilized as reflected in the accounting records to the amount reported in the Use of Awards Report.