Finding Type: Immaterial Noncompliance / Significant Deficiency in Internal Control over Compliance (Reporting). Program: Coronavirus State and Local Fiscal Recovery Funds; U.S. Department of Treasury; ALN 21.027, Small Business Support Hubs Program passed through the Michigan Strategic Fund. Audito...
Finding Type: Immaterial Noncompliance / Significant Deficiency in Internal Control over Compliance (Reporting). Program: Coronavirus State and Local Fiscal Recovery Funds; U.S. Department of Treasury; ALN 21.027, Small Business Support Hubs Program passed through the Michigan Strategic Fund. Auditor Description of Condition and Effect: Reporting did not agree to the audited general ledger or to the schedule of expenditures of federal awards (SEFA) due to: 1) Management recording in the general ledger and reporting to the pass-through agency, amounts that were transfers to an internal program, the actual costs of which were being reported under a separate cost center. Because transfers to an internal program do not qualify as grant expenditures or, for that matter expenses in general, the amounts reported as cumulative expenditures of grant funds were reported inaccurately, and 2) Audit adjustments were necessary to adjust subrecipient expenses per the general ledger to actual costs per the subrecipient reporting and back up files. In the initial general ledger, the balance of advances from the prior year, plus advances paid to subrecipients during the year, were incorrectly recorded as grant expenses. In addition, we noted that the reports did not appear to be reviewed for accuracy or completeness. As a result of this condition, the Organization reported inaccurate amounts to the grant pass-through agency. Questioned Costs: No costs were required to be questioned as a result of this finding inasmuch as our testing did not identify any unallowed costs. Auditor Recommendation: We recommend that management continue reviewing all transfers to an internal program, refundable advances associated with revenues, and those made to subrecipients, particularly around year-end, to identify amounts that should be recorded as refundable advances and what amounts should be recorded as grant expenses. This is important because the general ledger can then be used as a base for all grant financial reporting. We further recommend that the reporting be reconciled to the schedule of expenditures of federal awards at year-end. In addition, all reports should be reviewed and approved by appropriate personnel prior to submission. Management's Acknowledgment Management acknowledges that the root cause — the general ledger not serving as a clean, reliable basis for grant financial reporting without manual correction — reflects a structural accounting setup issue compounded by insufficient oversight of the reporting workflow. The core distinction between internal transfers, subrecipient advances, and actual incurred costs must be consistently reflected in GL coding from the point of transaction entry. The SOP's reporting and reconciliation provisions are only effective if the underlying GL data is structured correctly. Corrective Action Plan (see table)