Finding Text
Finding 2023-004 Failure to Create and Implement Effective Internal Controls over Federal Compliance
Type of Finding:
Material Weakness in Internal Control over Compliance
Condition and Context:
The Organization failed to develop, implement, and monitor an appropriate system of internal controls that ensure compliance in relevant compliance categories. Audit procedures required the assessment of internal controls over Allowable Activities, Allowable Costs, Period of Performance, Procurement, Suspension, and Debarment. In all compliance requirement categories assessed, it was determined that the Organization had no system of internal controls in place to properly offset the risks involved. It is likely that all other compliance requirement categories not assessed during the audit also have material weaknesses. Ultimately, this failure to implement an effective system of internal controls has led to the Organization having multiple instances of noncompliance and material questioned costs.
Criteria:
According to Uniform Guidance 2 CFR §200.303, the recipient and subrecipient must (a) Establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
Cause:
Organizational leadership, including officers overseeing grants and accounting, do not appear to have the necessary skills, knowledge, and experience to create and implement an effective system of internal controls over compliance.
Effect:
The impact of failing to implement internal controls over relevant compliance requirements leads to an unacceptable level of inherent risk of material noncompliance in virtually all federally funded activities. This has and will continue to lead to material noncompliance in several compliance categories. This could lead to federally funds being misspent or inappropriately safeguarded, and funders could require the Organization to payback funds.
Questioned Costs:
There were no questioned costs identified.
Repeat Finding:
This is not a repeat finding.
Recommendation:
It is recommended that the Organization review federal Uniform Guidance compliance requirement categories and establish a robust system of internal controls to ensure compliance in all relevant categories.
Views of Responsible Officials:
The Organization retained a licensed CPA firm with significant expertise in financial reporting and single audit compliance. The Organization will develop and implement a system of internal controls to address federal compliance requirements. Implement procedures to verify all vendors against the Suspension and Debarment list prior to procurement, ensuring compliance with federal guidelines. Maintain detailed procurement records that include procurement method, vendor selection justification, and award documentation. Provide mandatory compliance training for all relevant staff to increase understanding of federal requirements and internal control processes. The training will cover key areas such as allowable costs, period of performance, procurement rules, and documentation standards.