Audit 360908

Finding 2024-001: Significant Deficiency: Financial Reporting Criteria: Generally accepted accounting principles, under Accounting Standards Codification Topic (ASC) 842, requires that entities recognize material leases as a liability and a right-of-use asset on the balance sheet. Condition: During the audit, we noted that the accounting for right-of-use assets and related liabilities under ASC 842 was not accurate. Effect or potential effect: The Credit Union’s assets and liabilities were understated by approximately $3.6 million. There was no effect on net income. Recommendation: Implement the necessary procedures and calculations to accurately record the liability and right-of-use asset on the balance sheet. Questioned costs: None. Views of responsible officials: Management agrees with the finding and has contracted with a third-party to assistance with the software used to account for leases under the requirements of ASC 842.

Finding 2024-002: Material Weakness: Activities Allowed and Unallowed Criteria: Section 1A of the grant agreement requires that the Credit Union expend its CDFI ERP Award in eligible activities including providing financial products in low-or moderate-income majority minority census tracts that are also ERP-Eligible geographies. Condition: For the year ended September 30, 2024, First Financial Credit Union did not track on an individual loan basis the financial products provided under the grant’s eligible activities. Of the 40 loans selecting for testing, we found that all loans met the low-or moderate-income majority census tract requirement but only 53% loans met the ERP-Eligible geographies requirement. (The Credit Union met the Performance Goals outlined in Section 1A of the grant agreement). Effect or potential effect: Performance goals as stipulated in the grant agreement may not be met or reported inaccurately. Recommendation: Establish control procedures to identify and track eligible loans deployed during a grant performance period and reconcile the totals to the underlying loan date. Questioned costs: None. Views of responsible officials: Management agrees with the finding and has established procedures to identify eligible loans deployed in the eligible ERP-Eligible geographies. These loans will be reconciled to the underlying loan servicing systems.

Finding 2024-003: Material Weakness: Uniform Guidance Administrative Requirements Criteria: Section 5.1 of the grant agreement incorporates 2 CFR Part 200, which establishes uniform administrative requirements, cost principles, and audit requirements for Federal awards (Uniform Guidance (UG) Administrative Requirements). UG administrative requirements puts emphasis on written policies and procedures as central in its objective to maintain effective internal controls over federal awards. Condition: First Financial Credit Union did not develop written policies and procedures relating to the administration of its federal grant program. Effect or potential effect: Lack of written policies could result in deficiencies relating to accountability, transparency or improper use of federal grant funds. Recommendation: We recommend the Credit Union establish policies and procedures for its federal grant programs required by the grant agreement. Questioned costs: None. Views of responsible officials: Management agrees with the finding. Policies and procedures as described above will be established and implemented during the current year.

Finding 2024-004: Material Weakness: Reporting Criteria: Section B of the grant agreement, Annual Report Submission Deadlines, requires OMB Standard Form 425 (SF 425) be filed by October 15, 2024. The form is utilized to report federal cash disbursements. Condition: First Financial Credit Union filed the report on October 25, 2024, 10 days after the due date. In addition, the Credit Union reported provision for credit loss (PCL) expense of $2,778,000 in the federal cash disbursements section of the form. Although PCL is an allowable use of award funds, there were no federal cash disbursements of grant funds during the current fiscal year. These were inadvertent errors that occurred. Federal grant administration is a relatively new activity undertaken by the Credit Union. Effect or potential effect: Reporting inaccurate information and late submission of the required reports may increase scrutiny by the CDFI over the Credit Union’s grant administration. This may result in losing future funding or potential repayment grant funds. Recommendation: We recommend the Credit Union establish a procedure to track reporting due dates and ensure only federal cash disbursements are reported on Form SF 425. Questioned costs: None. Views of responsible officials: Management agrees with the finding. A process as described above will be established and implemented during the current year. Only federal cash disbursements, if any, will be reported on Form 425 going forward.

Finding 2024-001: Significant Deficiency: Financial Reporting Criteria: Generally accepted accounting principles, under Accounting Standards Codification Topic (ASC) 842, requires that entities recognize material leases as a liability and a right-of-use asset on the balance sheet. Condition: During the audit, we noted that the accounting for right-of-use assets and related liabilities under ASC 842 was not accurate. Effect or potential effect: The Credit Union’s assets and liabilities were understated by approximately $3.6 million. There was no effect on net income. Recommendation: Implement the necessary procedures and calculations to accurately record the liability and right-of-use asset on the balance sheet. Questioned costs: None. Views of responsible officials: Management agrees with the finding and has contracted with a third-party to assistance with the software used to account for leases under the requirements of ASC 842.

Finding 2024-002: Material Weakness: Activities Allowed and Unallowed Criteria: Section 1A of the grant agreement requires that the Credit Union expend its CDFI ERP Award in eligible activities including providing financial products in low-or moderate-income majority minority census tracts that are also ERP-Eligible geographies. Condition: For the year ended September 30, 2024, First Financial Credit Union did not track on an individual loan basis the financial products provided under the grant’s eligible activities. Of the 40 loans selecting for testing, we found that all loans met the low-or moderate-income majority census tract requirement but only 53% loans met the ERP-Eligible geographies requirement. (The Credit Union met the Performance Goals outlined in Section 1A of the grant agreement). Effect or potential effect: Performance goals as stipulated in the grant agreement may not be met or reported inaccurately. Recommendation: Establish control procedures to identify and track eligible loans deployed during a grant performance period and reconcile the totals to the underlying loan date. Questioned costs: None. Views of responsible officials: Management agrees with the finding and has established procedures to identify eligible loans deployed in the eligible ERP-Eligible geographies. These loans will be reconciled to the underlying loan servicing systems.

Finding 2024-003: Material Weakness: Uniform Guidance Administrative Requirements Criteria: Section 5.1 of the grant agreement incorporates 2 CFR Part 200, which establishes uniform administrative requirements, cost principles, and audit requirements for Federal awards (Uniform Guidance (UG) Administrative Requirements). UG administrative requirements puts emphasis on written policies and procedures as central in its objective to maintain effective internal controls over federal awards. Condition: First Financial Credit Union did not develop written policies and procedures relating to the administration of its federal grant program. Effect or potential effect: Lack of written policies could result in deficiencies relating to accountability, transparency or improper use of federal grant funds. Recommendation: We recommend the Credit Union establish policies and procedures for its federal grant programs required by the grant agreement. Questioned costs: None. Views of responsible officials: Management agrees with the finding. Policies and procedures as described above will be established and implemented during the current year.

Finding 2024-004: Material Weakness: Reporting Criteria: Section B of the grant agreement, Annual Report Submission Deadlines, requires OMB Standard Form 425 (SF 425) be filed by October 15, 2024. The form is utilized to report federal cash disbursements. Condition: First Financial Credit Union filed the report on October 25, 2024, 10 days after the due date. In addition, the Credit Union reported provision for credit loss (PCL) expense of $2,778,000 in the federal cash disbursements section of the form. Although PCL is an allowable use of award funds, there were no federal cash disbursements of grant funds during the current fiscal year. These were inadvertent errors that occurred. Federal grant administration is a relatively new activity undertaken by the Credit Union. Effect or potential effect: Reporting inaccurate information and late submission of the required reports may increase scrutiny by the CDFI over the Credit Union’s grant administration. This may result in losing future funding or potential repayment grant funds. Recommendation: We recommend the Credit Union establish a procedure to track reporting due dates and ensure only federal cash disbursements are reported on Form SF 425. Questioned costs: None. Views of responsible officials: Management agrees with the finding. A process as described above will be established and implemented during the current year. Only federal cash disbursements, if any, will be reported on Form 425 going forward.