Finding Text
2023-001: Community Development Financial Institutions Fund – Assistance Listing No. 21.024, Rapid Response Program, 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 Company restated the 2023 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 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: Loan loss reserves allocated in the wrong period resulted in an understatement of total federal expenditures on the Schedule of Expenditures of Federal Awards.
Recommendation: We recommend that the Company implement a formalized review process to ensure all applicable expenditures, including loan loss reserves, are properly recorded in the period in which assigned.
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.