Condition During testing of cash disbursements, the audit team was unable to locate adequate supporting documentation for selected transactions sufficient to determine whether the costs charged were allowable and the activities were allowed under the applicable federal award(s). Documentation such a...
Condition During testing of cash disbursements, the audit team was unable to locate adequate supporting documentation for selected transactions sufficient to determine whether the costs charged were allowable and the activities were allowed under the applicable federal award(s). Documentation such as invoices, receipts, contracts, approvals, or evidence linking the expenditure to an allowable activity could not be located or provided by the Institute. Criteria Per 2 CFR § 200.403, costs charged to a federal award must be necessary, reasonable, and adequately documented. Per 2 CFR § 200.302 and § 200.334, non-federal entities must maintain financial records, including source documentation (e.g., invoices, receipts, canceled checks, time and effort records) that support the allowability, allocability, and reasonableness of costs charged to federal awards, and these records must be retained and readily accessible for a minimum of three years. Additionally, 2 CFR § 200.404 and § 200.405 require that costs be allocable and consistently applied to allowable program activities. Cause The Institute's recordkeeping and document retention practices did not ensure that supporting documentation for cash disbursements was consistently maintained, organized, or readily retrievable. This may be attributable to insufficient internal controls over document retention, lack of a centralized filing/records system, or turnover in staff responsible for maintaining disbursement records. Effect Without adequate supporting documentation, the Institute cannot demonstrate that disbursed funds were used for allowable costs and allowed activities in accordance with the terms of the federal award(s). This exposes the Institute to the risk of questioned costs, disallowed expenditures, required repayment to the funding agency, and potential findings of noncompliance in future audits. It also limits the Institute's ability to demonstrate accountability and stewardship over federal funds. Recommendation We recommend that the Institute strengthen internal controls over cash disbursements to ensure supporting documentation (invoices, receipts, approvals, and evidence of allowable activity) is obtained and retained for every transaction prior to disbursement. The Institute should implement a centralized, organized recordkeeping system (physical or electronic) for disbursement documentation, with clear responsibility assigned for maintenance and retrieval. The Institute should also provide training to relevant staff on documentation retention requirements under 2 CFR Part 200. Management’s Response Management agrees with the finding and recommendation. The Institute recognizes that complete and readily retrievable supporting documentation is necessary to demonstrate the allowability, allocability, and reasonableness of costs charged to all awards. Management will strengthen its cash disbursement and record-retention procedures to ensure invoices, receipts, approvals, contracts, and other applicable supporting documentation are maintained for each transaction. Action Taken The Institute implemented a centralized electronic recordkeeping process for cash disbursement documentation and assigned responsibility for maintaining and retrieving supporting records. Documentation supporting the expenditure and applicable approvals are retained with the transaction records. Relevant staff have been instructed on documentation and record-retention requirements applicable to federal awards. Management will hold an annual training at the beginning of the new fiscal year available to all ERI employees.