2023 – 004 Material Weakness in Internal Control Over Preparation, Reconciliation, and Retention of the Schedule of Expenditures of Federal Awards (SEFA)
Recommendation:
4. Develop a Standardized SEFA Reconciliation Process – Implement formal policies and procedures requiring that SEFA expenditure...
2023 – 004 Material Weakness in Internal Control Over Preparation, Reconciliation, and Retention of the Schedule of Expenditures of Federal Awards (SEFA)
Recommendation:
4. Develop a Standardized SEFA Reconciliation Process – Implement formal policies and procedures requiring that SEFA expenditures be reconciled to the general ledger on a monthly basis, with documentation maintained for audit purposes.
5. Enhance System Controls for Grant Expenditures – Modify the financial system to allow for the proper segregation of state and federal expenditures from non-grant funds, ensuring that expenditures are properly classified at the time of entry.
6. Require Monthly Documentation Reviews – Establish a control requiring management to review and approve SEFA reconciliation schedules on a monthly or quarterly basis to ensure accuracy and completeness.
7. Implement a Centralized Documentation Retention Policy – Require that all SEFA-related reconciliation records, including general ledger tie-outs and manual adjustments, be retained in a centralized, accessible location.
8. Provide Grants Management Training – Conduct training for grants management and accounting personnel on SEFA preparation requirements, including Uniform Guidance compliance and best practices for documentation and reconciliation.
Management View: Management partially agrees with the finding. While we acknowledge that documentation supporting SEFA reconciliation was incomplete, we believe that federal expenditures were properly accounted for. We would like to address some of the auditors’ points individually:
• “The SEFA is prepared based on amounts requested for reimbursement instead of directly based on expenditures incurred.” Most grant awards do not fully fund the programs they support, most grant awards do not run concurrently with Prism Health North Texas’ fiscal year (i.e., with the Calendar Year), and most grant awards are not spent in equal monthly amounts. It is correct that the 2023 SEFA was based on grant-appropriate expenditures that occurred during Calendar Year 2023 and were submitted to those grant sponsors for reimbursement. This will not necessarily reach the full cost to Prism for each grant-supported program, nor is it likely to exactly match any annual grant award amount.
• “Expenses recorded in the general ledger represent expenses incurred to operate the program in addition to direct grant expenditures; the Organization only requests reimbursement for direct program expenditures allowable under the program.” As we confirmed verbally with the audit partner on April 25, 2025, this statement is intended to provide information and context and is not a criticism or intended to point out any problem. As stated above, most grant awards do not fully fund the programs they support; therefore, the general ledger necessarily includes both expenses the sponsor will reimburse and expenses the sponsor will not reimburse.
Nonetheless, we are enhancing our reconciliation procedures and documentation practices to fully meet audit requirements. Finding 2023-004 refers to the auditors’ assessment of the SEFA preparation and reconciliation processes that occurred in Calendar Year 2023. As of this writing, Prism Health North Texas has already changed its SEFA preparation and reconciliation processes and meets many of the recommendations above.
Action Taken:
4. Documentation Retention – On April 25, 2025, management created a structured and easily accessible system for storing all relevant information for all grants management personnel.
a. A logical naming system for files identifying the SEFA period, the funding agency and identified general ledger expenditures claimed on the SEFA.
b. We are now documenting the difference between all GL transactions and those submitted for sponsor reimbursement (i.e., SEFA components) in a single document per fund code, arranged by fiscal year. Previously this documentation was kept by invoice and arranged by grant year.
c. Management will continue to ensure all expenditure-related support, such as invoices and purchase orders, is saved electronically to all financial transactions.
5. SEFA Reconciliation – Management has decided to move from an annual to quarterly SEFA reconciliation process to enhance the frequency of management oversight in SEFA draft preparation. VP of Finance will prepare the SEFA for independent review by the CFO. This will be put into a written policy/procedure.
6. System Enhancements – Prism’s current accounting system does not accommodate this. However, Prism is already in the later stages of selecting a new Enterprise Resource Planning (ERP) solution, with this as one of our key selection criteria. Our new ERP should allow for expenditures within the same cost center to be identified as grant-reimbursable or non-grant-reimbursable at the time of entry. We have identified opportunities in new financial management software solutions that we are scheduled to demo May 12th and the 16th of 2025. Opportunities such as:
a. The ability to tag grant-reimbursable transactions, to segment our award cost center into two important categories.
i. The full cost to manage a specific program
ii. Identified cost claimed on the SEFA
b. Dedicated grant modules that will allow us to establish business rules and workflows to streamline and digitize critical aspects of grant management.
7. Staff Engagement – Cross department coordination meetings occur monthly between the Finance organization and the Grants Management team to continue to foster alignment and collaboration in our grant cycles. A general overview of SEFA, including how to prepare and organize the monthly reconciliations, has already occurred with some of the grants accountants.
Anticipated Completion Date: We expect all but system enhancements to be in place by July 31st, 2025, to contribute significantly to the strength of our internal controls and stakeholder confidence in our SEFA reporting.
Responsible Contact Person(s):
• Name: General Laffitte
• Title: Vice President of Finance and Accounting
• Phone: 214-623-6896
• Address: 3900 Junius St. Ste. 300, Dallas, Texas 75246
• Name: Jana Voege
• Title: Chief Financial Officer
• Address: 3900 Junius St. Ste. 300, Dallas, Texas 75246