Finding Text
2022-002: Community Development Financial Institutions Fund – Assistance Listing No. 21.020, Capital Magnet – Assistance Listing No. 21.011, Rapid Response Program – Assistance Listing No. 21.024, and SBDC Core – Assistance Listing No. 59.037, Restatement of Schedule of Expenditures of Federal Awards, Material Weakness Criteria and Condition: Recipients of federal funds are required to prepare a complete and accurate Schedule of Expenditures of Federal Awards. Additionally, recipients must establish and maintain effective internal controls over federal awards to provide reasonable assurance of accurate financial reporting. Context: The Organization restated the 2022 Schedule of Expenditures of Federal Awards by a material amount, a result of misinterpretation of reporting requirements for loan loss reserves and allocations of other allowable purposes. Cause: The omission occurred due to a misinterpretation of reporting requirements involving the treatment of grant expenditures for the purpose of lending capital and loan loss reserve funds, which differs in nature from general program expenditures. Management identified the issue and determined a change in reporting was needed to simplify tracking and reporting of federal grants, and to ensure compliance with the technical definition of expenditures in the guidance.
Effect: The exclusion of loan loss reserves and other allocated amounts resulted in an understatement of total federal expenditures on the Schedule of Expenditures of Federal Awards. Recommendation: We recommend that the Organization implement a formalized review process to ensure all applicable expenditures, including loan loss reserves, are properly recorded. Views of Responsible Officials and Planned Corrective Actions: We agree with the finding and have established a process to ensure all expenditures are properly included in the SEFA.