Finding 1208882 (2025-002)

Finding 2025-002: Significant Deficiency in Internal Control over Compliance – Documenta􀆟on, Drawdown Support, and Timeliness Type of Finding: Significant Deficiency in Internal Control over Compliance (Uniform Guidance) Criteria In accordance with 2 CFR 200.303, non-Federal en􀆟􀆟es must establish and maintain effec􀆟ve internal control over federal awards to provide reasonable assurance of compliance with federal statutes, regula􀆟ons, and the terms and condi􀆟ons of the federal award. 2 CFR 200.516 requires auditors to report, as audit findings in the federal awards sec􀆟on of the schedule of findings and ques􀆟oned costs, significant deficiencies and material weaknesses in internal control over major programs and material noncompliance with the provisions of federal statutes, regula􀆟ons, or the terms and condi􀆟ons of federal awards related to a major program. Condi􀆟on During the audit of ALN 93.959, we encountered significant delays in obtaining suppor􀆟ng documenta􀆟on for expenditures selected for tes􀆟ng. In many instances, documenta􀆟on was not readily available and required substan􀆟al 􀆟me and effort for management to locate, assemble, or reconstruct. In addi􀆟on, we observed that:  Documenta􀆟on suppor􀆟ng drawdown requests and reimbursement claims was not maintained in a centralized, organized manner that would allow for 􀆟mely retrieval or ready tracing to the underlying accoun􀆟ng records; and  Drawdown ac􀆟vity for the program was not performed on a rou􀆟ne basis (for example, reimbursement requests were some􀆟mes accumulated over several months and then requested in large batches, rather than through a more regular process), and support for these batched drawdowns o􀅌en had to be recreated at the 􀆟me of the audit. Although the expenditures and drawdowns tested were ul􀆟mately supported and agreed to the underlying accoun􀆟ng records, the delays and need to recreate drawdown support indicate that documenta􀆟on and internal control over compliance with recordkeeping and cash-management-related requirements were not consistently maintained in an organized and readily accessible manner. Cause The en􀆟ty does not have sufficiently effec􀆟ve procedures and internal controls in place to ensure that:  Suppor􀆟ng documenta􀆟on for federal program expenditures and drawdowns is maintained contemporaneously with the underlying transac􀆟ons;  Drawdown requests are rou􀆟nely prepared and supported in a manner that clearly demonstrates that costs were incurred prior to reques􀆟ng reimbursement; and  Documenta􀆟on is organized and stored in a centralized manner that allows for 􀆟mely retrieval for management, auditors, or federal/pass-through agencies. Effect As a result of these deficiencies:  There is an increased risk that noncompliance with federal requirements (including documenta􀆟on and cash-management-related requirements) could occur and not be prevented, or detected and corrected, in a 􀆟mely manner;  The en􀆟ty may be unable to readily support expenditures or drawdowns upon request by auditors, federal awarding agencies, or pass-through en􀆟􀆟es; and  Audit inefficiencies and delays occurred due to the 􀆟me required to obtain and/or recreate necessary documenta􀆟on. While our tes􀆟ng did not iden􀆟fy unsupported or unallowable costs for the items selected, the described deficiencies represent a significant deficiency in internal control over compliance for the affected major program. Recommenda􀆟on We recommend that management strengthen internal control over compliance and documenta􀆟on for federal programs by: 1. Implemen􀆟ng procedures to ensure that all suppor􀆟ng documenta􀆟on for federal expenditures and drawdowns is prepared and retained contemporaneously with the underlying transac􀆟ons; 2. Organizing documenta􀆟on in a centralized, consistent manner (for example, by grant and period) that permits 􀆟mely retrieval and clear linkage to the general ledger and reimbursement requests; 3. Establishing and following a regular process and 􀆟metable for preparing and submi􀆫ng reimbursement requests, supported by schedules that reconcile drawdowns to underlying expenditures and accoun􀆟ng records; and 4. Periodically reviewing documenta􀆟on and drawdown files for completeness, organiza􀆟on, and compliance with applicable Uniform Guidance and award-specific requirements. Management Response Management agrees with the finding and will strengthen procedures over documenta􀆟on and drawdown processes, including 􀆟mely, organized maintenance of suppor􀆟ng documenta􀆟on and improved processes for preparing and suppor􀆟ng reimbursement requests.