Finding Text
ALN 14.251 and ALN 21.027 Finding #2024‐004 Incorrect Recording of Expenditures that were Notes Receivable Draws Repeat Finding: No Condition: The Organization recorded $2,425,133 of federal program expenditures as expenses in the year ended December 31, 2024. These amounts represented disbursements made to a subrecipient under terms that required repayment, and therefore should have been recorded as a note receivable. The Organization did not recognize the note receivable nor properly classify the related transactions, resulting in a misstatement of expenditures and assets. Criteria: In accordance with 2 CFR 200.302 and generally accepted accounting principles (GAAP), the Organization is required to maintain accurate, current, and complete disclosure of financial results of each federal award. Accounting records must adequately identify the source and application of federal funds and properly classify transactions, assets, liabilities, and equity in accordance with GAAP. Cause: The misclassification occurred because the Organization did not have sufficient internal controls to ensure that disbursements under this program were evaluated for the proper accounting treatment (i.e., expense versus note receivable/loan). Effect: Federal program expenditures were overstated by $2,245,133 and assets were understated by the same amount. The lack of proper classification may affect stakeholders’ understanding of the Organization’s financial position and federal compliance. Questioned Costs: None noted, as the expenditures were incurred under the program; however, the classification error represents a material reporting misstatement. Perspective Information: The condition noted represents $2,425,133 of expenditures, which were inaccurately reported. Recommendation: We recommend that the Organization strengthen its review process over accounting for federal program disbursements. Policies and procedures should require evaluation of whether disbursements meet the definition of an expense or a loan/note receivable in accordance with GAAP and federal reporting requirements. Reporting Views of Responsible Officials: The Organization agrees with the finding. The Organization’s accountant was unaware that the federal grant payments to the subrecipient were considered draws on a note receivable. Corrections have been made to improve communication with the accountant to ensure the accountant is aware of key grant provisions and to ensure note receivable draws are being properly accounted for in the general ledger.