Finding Text
Finding 2022-04 – Noncompliance with Cash Management and Prompt Payment Requirements Program Number: 93.224, 93.225, 93.493, 93.527 Type of Finding: Internal Control, Compliance and Material Weakness Condition During our audit of cash management and disbursement practices, we noted that the organization maintains accounts payable balances that remain outstanding for several months after invoice dates, indicating that vendors are not being paid in a timely manner. These delays were observed across multiple transactions and were not isolated in nature. The aging of payables suggests that payments are not processed in accordance with established timelines, and there is no evidence of a formal process to monitor or enforce timely disbursement of obligations. In addition, management was unable to provide documentation demonstrating that payments related to federally funded expenditures were made promptly after costs were incurred and recorded. These conditions raise concerns that the organization is not complying with prompt payment requirements and may not be managing federal funds in accordance with cash management standards, particularly where funds are drawn down but not disbursed timely. Criteria Under 2 CFR 200.305 (Cash Management), non-federal entities must minimize the time elapsing between the drawdown of federal funds and disbursement of those funds. Additionally, federal regulations require compliance with applicable Prompt Payment Act requirements (31 U.S.C. 3901–3907), which mandate that vendors be paid in a timely manner to avoid unnecessary delays, penalties, or inefficiencies. Effective internal control also requires that obligations be paid when due, that liabilities be monitored, and that payment processes ensure compliance with both federal and contractual requirements. Cause These deficiencies appear to result from inadequate cash management practices, lack of monitoring of accounts payable aging, insufficient oversight of disbursement processes, and possible liquidity or operational constraints. Additionally, there is no evidence of formal policies or controls to ensure compliance with prompt payment requirements. Effect These conditions create significant risks, including: ▪ Noncompliance with federal cash management requirements ▪ Potential violation of Prompt Payment Act provisions CARESTL HEALTH SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED DECEMBER 31, 2022 43 SECTION III – FEDERAL AWARD FINDINGS AND QUESTION COSTS (Continued) ▪ Increased risk that federal funds are not disbursed timely after drawdown ▪ Exposure to interest penalties or vendor disputes ▪ Inefficient use of federal resources and potential cash flow mismanagement ▪ Increased likelihood of audit findings, questioned costs, and regulatory scrutiny Questioned Costs Likely Questioned Costs: Undeterminable The failure to process payments timely and monitor accounts payable aging constitutes a material weakness in internal control over compliance and results in noncompliance with federal cash management requirements. Recommendation We recommend that management: ▪ Implement procedures to ensure timely payment of all obligations, particularly those related to federal programs ▪ Establish accounts payable aging monitoring and review processes, with escalation of overdue items ▪ Align disbursement practices with 2 CFR 200.305 to ensure funds are drawn and disbursed promptly ▪ Develop and enforce policies consistent with the Prompt Payment Act, including defined payment timelines ▪ Perform periodic reviews of cash flow and payment cycles to ensure compliance ▪ Assign oversight responsibility to ensure timely processing and documentation of payments Strengthening cash management practices will improve compliance with federal requirements and enhance overall financial control. Management Response Management acknowledges the auditor’s observations regarding delayed vendor payments and agrees that improvements in cash management practices are necessary. While we recognize that certain invoices remained outstanding longer than desired, these delays were not the result of intentional noncompliance or disregard for federal requirements. Rather, they were a direct consequence of the organization’s severe operational constraints during the audit period. CARESTL HEALTH SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED DECEMBER 31, 2022 44 SECTION III – FEDERAL AWARD FINDINGS AND QUESTION COSTS (Continued) As outlined in our financial management response to HRSA, CareSTL Health was simultaneously navigating multiple federally driven demands, including an unexpected and unannounced full operational site visit and the pressures associated with reimbursement only funding. These conditions significantly strained liquidity, staffing capacity, and administrative bandwidth. The reimbursement only structure, in particular, created unavoidable timing gaps between the incurrence of costs and the availability of cash to satisfy vendor obligations. These challenges were further compounded by staffing shortages and the inability to retain personnel dedicated to financial operations due to lack of funding. Management agrees with the recommendations provided and has already begun implementing corrective actions to strengthen cash management and ensure timely disbursement of obligations. These actions include: ▪ Establishing formal accounts payable aging review processes ▪ Implementing structured monitoring and escalation procedures for overdue items ▪ Aligning drawdown and disbursement practices with 2 CFR 200.305 ▪ Developing Prompt Payment Act–aligned policies with defined timelines ▪ Conducting periodic cash flow reviews to ensure compliance ▪ Assigning clear oversight responsibility for payment processing and documentation CareSTL Health is committed to improving the timeliness of payments and enhancing internal controls to ensure full compliance with federal cash management and prompt payment requirements moving forward.