Finding Text
LACK OF SEGREGATION OF DUTIES AND DISBURSEMENT CONTROLS RESULTING IN MISAPPROPRIATION OF FUNDS (ALN 10.558) Criteria: Uniform Guidance requires non-federal entities to establish and maintain effective internal control over federal awards that provides reasonable assurance that the entity is managing federal awards in compliance with statutes, regulations, and the terms and conditions of the awards. This includes safeguarding assets and implementing controls over cash disbursements. Additionally, costs charged to federal awards must be adequately controlled, supported, and allowable in accordance with program requirements and 2 CFR 200 Subpart E (as applicable to the program). Condition: During the fiscal year ended December 31, 2024, the Organization identified a loss of $109,375 resulting from an employee issuing unauthorized disbursements. The disbursements were processed without appropriate independent review and approval and were not detected timely due to deficiencies in cash disbursement controls, including elements of segregation of duties and oversight. Effect: As a result, the Organization incurred a loss of $109,375 and was exposed to an increased risk of additional misappropriation and noncompliance. To the extent any portion of the unauthorized disbursements was paid from federal award funds (directly or indirectly), the Organization has incurred unallowable costs and may be required to reimburse the applicable federal program. Cause: The unauthorized disbursements occurred because key preventive and detective controls over disbursements were not adequately designed and/or operating effectively, including: • Insufficient segregation of duties within the cash disbursement process (e.g., ability to initiate/prepare and execute disbursements without independent authorization). • Lack of independent review of disbursement activity (e.g., bank activity, canceled checks/ACH detail, vendor/payee changes). • Inadequate secondary approval thresholds and/or documentation requirements for nonroutine or manual transactions. Questioned Costs: Known questioned costs: $109,375 Recommendation: We recommend that the Organization strengthen internal controls over disbursements to prevent and detect unauthorized transactions, including: • Implement robust segregation of duties so that no one individual can initiate, approve, and execute disbursements. • Require independent approval for all disbursements, including electronic payments, with documented support (invoice, contract, receiving evidence). • Establish dual authorization controls with thresholds for wire/ACH and changes to vendor master/payee information. • Require an independent person to perform and document monthly bank reconciliations and review of bank statements, canceled checks, ACH/wire reports, and exception items. • Provide periodic governance oversight, including review of disbursement summaries, budget-to-actual reports, and unusual transactions. • If federal funds may have been impacted, perform a lookback analysis to identify the funding source of the misappropriated amounts and repay any unallowable amounts to the appropriate program, as required.