Finding Text
Finding 2024-003
Federal assistance listing number and name: 10.415 Rural Rent Housing Loans
Awards numbers and years: 2024
Federal agency: United States Department of Agriculture
Compliance Requirement: Activities allowed or unallowed, allowable costs/ cash management, eligibility,
equipment, period of performance, procurement, program income, reporting, special tests
Questioned Costs: None
Criteria:
Generally Accepted Auditing Standard AU-C 265“Communicating Internal Control Related Matters
Identified in an Audit” requires the auditor to communicate potential weaknesses in internal control that
are considered significant deficiencies in internal control.
Condition and Context:
Management has requested that the auditor propose certain year-end adjustments to bring the financial
statements into conformity with Generally Accepted Accounting Principles (GAAP). For example, cash
to accrual adjustments, depreciation calculations and adjustments, adjustments to debt and interest
expense, interest subsidy adjustments, etc.
Cause:
The management company has certain reporting requirements for its affordable housing project which it
manages. These requirements may include agency budget to actual reporting, tax reporting deadlines to
limited partners and financial audit reporting deadlines. Due to the number of projects managed, these
adjustments would require additional accounting personnel to meet the deadlines. Consequently, the
Management Company requests the auditor to propose certain standard recurring adjustments to facilitate
meeting the deadlines.
Effect:
All adjustments proposed by the auditor are required to be reviewed and approved by Management.
There is a risk that the auditor may propose an incorrect journal entry, and the error may not be detected
by management.
Recommendation:
Management needs to evaluate the risk of requesting the auditor to propose standard annual journal
entries. Based upon management’s risk assessment of the internal control deficiency, management may
decide to hire additional temporary accounting personnel to make the required entries.