Finding Text
2024-004 Reserve Account (NOT A MAJOR PROGRAM) Compliance Requirement Cash Management Category Material weakness in Internal Control and Material Noncompliance ALN 10.770 Program Water and Waste Disposal Loans and Grants (Section 306C) Agency US Department of Agriculture (Rural Development) Criteria 2 CFR § 200.303 – Internal Controls, the non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with 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).” Water and Waste System Grant Agreement, Section 4, Protection and Disposition of the Funds outlines the reserve account requirements: (c) Reserve Account - From the remaining funds in the General Account, after transfers and payments required in (b) and (c), there shall be set aside into an account(s) designated as the Reserve Account(s) the sum of $1,684 each month until the sum of $201,982 is reached. With the prior written approval of the Government, funds may be withdrawn and used for such things as loan installments, emergency maintenance, extensions to facilities and replacement of short-lived assets, subject to conditions established by the Government. RUS Bulletin 1780-12, Exhibit A – Water and Waste System Grant Agreement, the grantee is required to comply with all terms and conditions of the grant agreement. Specially, Section I – Default and Termination Clause: Default by the Grantee will constitute termination of the grant thereby causing cancellation of Federal assistance under the grant. Condition The Authority has a deposit deficiency of $151,462 in the Reserve Account. The balance of the debt service reserve as of June 30, 2024, shall be $201,982. Cause Lack of oversight controls to comply with the cash management compliance requirement. Effect Default by the Authority constitutes a violation of the grant agreement and may result in termination of federal assistance under RUS Bulletin 1780-12. Additionally, under 2 CFR § 200.339, the federal awarding agency may temporarily withhold cash payments pending correction of the deficiency. The noncompliance also exposes the Authority to potential enforcement actions, including repayment of grant funds with interest and restrictions on future federal funding. Questioned Costs None Repeated Finding This finding has been present since fiscal year 2020. However, it was not disclosed in the Schedule of Prior Audit Findings included in the Single Audit reporting packages for fiscal years 2021, 2022, and 2023, as required by 2 CFR §200.511(c). The omission of this repeated finding from the reporting packages represents a departure from federal audit follow-up requirements and may hinder transparency and accountability in the entity’s corrective action process. Recommendation We recommend that management implement a formal review process to ensure that all prior year findings are properly tracked and disclosed in future Single Audit reporting packages. Additionally, we recommend that the understatement in the reserve debt account be addressed through an appropriate deposit to reconcile the balance. Views of Responsible Official (Unaudited) Refer to Corrective Action Plan