Finding Text
Finding 2023-003 Lack of Documentation to Support Expenditures
Type of Finding:
Noncompliance and Material Weakness in Internal Control over Compliance
Condition and Context:
The Organization failed to maintain financial records that properly substantiated expenditures which limited the ability to test several compliance requirements as part of audit procedures. These issues were most prevalent in testing direct disbursements. As part of audit procedures, 81 transactions were selected in a testing sample from a population which included 315 transactions. Of the 81 transactions tested, the Organization was unable to provide sufficient source documentation to support 21 of the transactions. Further, vendor and contract files were not consistently maintained and failed to provide adequate support to detail the history, method, and selection of procurement.
Criteria:
According to Uniform Guidance 2 CFR §200.302(b)(3), the Organization's financial management system must maintain records that sufficiently identify the amount, source, and expenditure of Federal funds for Federal awards. These records must contain information necessary to identify Federal awards, authorizations, financial obligations, unobligated balances, as well as assets, expenditures, income, and interest. All records must be supported by source documentation.
Cause:
The Organization failed to implement appropriate policies and procedures that would allow the administrative and accounting departments to obtain the necessary documentation to support incurred expenditures. The Organization also failed to implement an effective system of internal controls and processes that would require expenditure approvals which would improve the storage of appropriate documentation.
Effect:
The effect of not maintaining appropriate source documentation to support expenditures could result in federal funds being misused or inappropriately spent. Failure to obtain the appropriate documentation likely limits the Organization's ability to review and approve expenditures internally. The inability to submit receipts on cost reimbursement grants could lead to disallowed grant claims. Additionally, a lack of documentation prevents the Organization's funders or auditors to evaluate the expenditures and hold the organization accountable for their expenditures to ensure compliance. Consequences of these actions would lead to questioned costs that may require repayment to the funding source and potentially a loss of future funding.
Questioned Costs:
Known questioned costs of $27,358 were identified. "
Repeat Finding:
This is not a repeat finding.
Recommendation:
It is recommended that the Organization's management develop and implement a robust document retention system for all elements of the financial reporting cycle. Documents should be stored in way that allows for them to be recalled upon request.
Views of Responsible Officials:
The Organization retained a licensed CPA firm with significant expertise in financial reporting and single audit compliance. The Organization will collaborate with the CPA firm to develop a standardized process for recording and tracking gift card transactions and allotments, ensuring accountability and traceability. Develop and enforce a formal policy requiring comprehensive documentation (e.g., invoices, receipts, contracts) for all expenditures over a certain threshold (e.g., $500 or higher). This policy will include requirements for approval and justification prior to disbursement. Require all staff to complete requisition forms for supplies or purchases in advance of procurement. These forms will include itemized details, purpose of purchase, and approval signatures. The Organization will update processes to ensure vendor and contract files include critical details: procurement history, selection method, contract terms, and vendor agreements. These files will be consistently maintained and reviewed for completeness. The Organization will strengthen the credit card usage process to require staff to submit itemized receipts, purpose of purchase, and pre-approval for all credit card transactions. This will include monthly reconciliations and management review of all credit card statements. The Organization will implement periodic internal reviews to ensure compliance with the new documentation and procurement processes. The CPA firm will assist with quality checks and provide ongoing guidance.