Finding Text
Finding No: 2024-003 Type: Compliance: Risk of Unearned Revenue Due to Cash‑Basis Accounting and Lack of Reconciliation of Advance Drawdowns Major Program Affected: Agency: U.S. Department of Agriculture Program Name: American Rescue Plan Technical Assistance Investment Program Assistance Listing No.: 10.234 Award No.: 2023-70417-39226 Compliance Requirement: Cash Management C Condition: During our audit, we noted that the auditee records transactions on the cash basis of accounting for the federal program and does not record accruals or deferrals related to grant activity at period‑end. The program permits advance drawdowns of federal funds, but the auditee did not prepare or maintain reconciliations of cumulative advances received to cumulative allowable costs incurred, nor did it assess or record any potential unearned revenue at year‑end. The SF-425 reported a $126,386 difference between the cash receipts and cash expenditures. In addition, there is no documented indirect cost allocation methodology to support the portion of shared or indirect costs charged to the program, which further impairs the ability to demonstrate that advances have been fully earned by allowable expenditures. Board minutes reflect discussion of the potential need to address this issue; however, the cash basis of accounting and lack of reconciliation and allocation processes continued in the current year. Criteria: Federal awards that allow advance funding require that drawdowns be limited to the minimum amounts needed and timed to meet immediate cash requirements, and that funds be used only for allowable, allocable costs of the program. When advances are received, the recipient is expected to monitor and reconcile advances to actual costs incurred and record any unearned amounts to ensure that reported expenditures and balances are accurate and that federal funds are not retained in excess of allowable costs. Amount: $126,386 Cause: The auditee continued to use cash‑basis accounting for the federal program and did not design or implement procedures to (1) reconcile advances to allowable costs incurred, (2) identify and record unearned revenue at year‑end, or (3) establish a documented method for allocating indirect costs to the program, despite prior board discussions acknowledging these risks. Effect or Potential Effect: Because advances were not reconciled to allowable costs and no accruals or deferrals were recorded, there is an increased risk that a portion of the advances remains unearned at year‑end and that federal program expenditures and net position are misstated. This could result in unearned revenue or amounts due back to the grantor not being identified, questioned costs, and heightened scrutiny of the auditee’s grant accounting and cash‑management practices. Repeat Audit Finding: No