2025-002 Finding: Material Weakness in Internal Control Over Compliance and Material Non-Compliance Federal Agency: U.S. Department of Education Federal Programs: 84.063 Federal Pell Grant Program; 84.268 William D. Ford Federal Direct Loan Program Compliance Requirement: Cash Management Repeat Finding: No Criteria: Title 2 U.S. Code of Federal Regulations (CFR) Part 200.305 requires non-Federal entities using the advance payment method to minimize the time between the transfer of federal funds and their disbursement. Advance payments must be limited to the minimum amounts needed and aligned with the entity’s actual, immediate cash requirements. To use the advance payment method, entities must maintain written cash management procedures and financial management systems that provide effective control and accountability over federal funds. In addition, 2 CFR 200.302(b)(3) and (b)(6) require entities to maintain financial management systems and written procedures sufficient to permit the tracing of federal funds to underlying expenditures and to implement the cash management requirements of 2 CFR 200.305. 2 CFR 200.303 further requires entities to establish and maintain effective internal control over federal awards to provide reasonable assurance of compliance, including monitoring activities. For Title IV Student Financial Assistance programs, 34 CFR 668.162(b) requires institutions using the advance payment method to request funds only for amounts needed immediately for disbursements made or to be made to eligible students and to disburse those funds no later than three business days after receipt. Condition: The College did not have written procedures governing drawdowns, including draw calculations, timing, approvals, reconciliations, or the return of excess funds. Tested draws were not consistently supported by documentation evidencing the accuracy of the expenditures being reimbursed. In addition, the College did not perform or document reconciliations between underlying disbursement records and authorized draw requests and did not monitor cash balances to identify whether positive balances were carried forward from period to period. As a result, the College could not demonstrate that draw amounts consistently reflected only eligible expenditures incurred during the applicable period. Cause: Management had not established a formal, documented cash management control framework, and responsibilities for draw preparation, review, approval, reconciliation, and monitoring were not clearly defined. As a result, draw requests, supporting documentation, and reconciliations were prepared inconsistently or not retained, and controls were not in place to identify or prevent excess cash on hand. Effect: Because the College did not maintain written cash management procedures, retain consistent support for draw calculations, or perform and document reconciliations of draws to underlying student disbursements and cash balances, the College could not demonstrate that Title IV funds were drawn only for actual, immediate cash needs or that drawn funds were timely disbursed in accordance with advance payment requirements. This condition increases the risk that the College may draw excess cash or draw funds in advance of need, be unable to detect or prevent noncompliance due to inadequate internal controls, and be subject to the return of excess funds, administrative actions, or questioned costs if noncompliance could be quantified. Recommendation: The College should strengthen cash management controls over the SFA Cluster by implementing the following: 1. Adopting written cash management procedures addressing draw calculations, timing of draws, approvals and segregation of duties, required supporting documentation, reconciliation requirements, and the identification and return of excess cash. 2. Maintaining a standardized draw file for each draw that includes approval evidence, supporting disbursement detail, a reconciliation to student-level disbursements by award type, and documentation of cash balances before and after the draw. 3. Performing and retaining monthly reconciliations between student-level disbursement records and federal cash activity, including documented supervisory review. Auditor’s Note: The engagement team noted that the cash management control deficiencies described in this finding have a direct impact on the College’s ability to support other Title IV compliance requirements that rely on traceable federal cash activity, including Return of Title IV Funds (R2T4). Specifically, where the College does not retain draw or return support, does not perform reconciliations between underlying student transactions and authorized activity, and does not maintain a clear audit trail of federal cash balances, it may be unable to demonstrate that Title IV funds were returned to the Department when required and that such returns can be traced from student-level determinations through COD activity and ultimately to federal cash activity (e.g., G5). View of Responsible Officials: See Auditee’s Corrective Action Plan. Questioned Costs: $0, Unknown