Finding Text
Finding 2020-007 Material Weakness in Internal Control over Compliance and Schedule of Expenditures of Federal Awards (SEFA) Preparation and Completeness Information on Federal Programs: Criteria: In accordance with 2 CFR §200.510(b) and §200.518(b), non-federal entities are required to prepare a complete and accurate Schedule of Expenditures of Federal Awards (SEFA) that properly reflects all federal awards expended during the fiscal year, including pass-through awards, and that reconciles to the underlying accounting records. Additionally, recipients are required to maintain adequate documentation to demonstrate compliance with federal program requirements. Conditions: During audit testing of the (SEFA) for the year ended December 31, 2020, the following errors related to the preparation of the SEFA were noted: 1) A direct program federal award under CFDA Number 93.498, COVID-19 Provider Relief Fund and American Rescue Plan (ARP) Rural Distributions, administered by the U.S. Department of Health and Human Services was omitted from the SEFA. As a result, federal expenditures of $54,674 related to this grant were not initially reported and were subsequently added to the SEFA. Aside from this omission, the Center was unable to provide supporting documentation for acceptance of the grants terms and conditions and use of the funds for allowable COVID-related expenses or lost revenues. Section III – Federal Awards Findings and Questioned Costs (Continued) A. Current Year Findings and Questioned Costs – Major Federal Award Program Audit (Continued) Finding 2020-007 Material Weakness in Internal Control over Compliance and Schedule of Expenditures of Federal Awards (SEFA) Preparation and Completeness (Continued) Conditions (Continued): 2) A pass through federal award under CFDA Number 93.426 (Health Centers Program), administered by the Hawaii Primary Care Association (HPCA), was omitted from the SEFA. As a result, federal expenditures of $31,000 related to this grant were not initially reported and were subsequently added to the SEFA. 3) For the Coronavirus Relief Fund award (CFDA 21.019) under the U.S. Department of the Treasury, the SEFA initially reported total expenditures of $417,676. However, when auditors requested supporting detail, the detailed listing of expenditures totaled $442,216, resulting in an understatement of $24,540. The SEFA was revised to reflect the corrected expenditure amount. 4) For the same Coronavirus Relief Fund award (CFDA 21.019), approximately $251,483 of revenue received and recorded by the Center was not included in the total federal expenditures reported on the SEFA. An additional $251,483 was required to be added to the SEFA to properly present total expenditures for this program. Cause: The Center did not have adequate internal controls over the identification, tracing, and reporting of federal awards. Specifically, there was: • No formal process to ensure all federal awards, including pass-through funding, were captured in the SEFA. • Lack of reconciliation between the general ledger and SEFA. • Insufficient review procedures over the completeness and accuracy of the SEFA. • Inadequate documentation retention practices for federal compliance. Effect or Potential Effect: As a result of these deficiencies, the SEFA initially omitted two federal awards and understated federal expenditures, resulting in an inaccurate presentation of federal expenditures. These errors could affect the identification of major programs and compliance with Uniform Guidance reporting requirements if not detected and corrected. Questioned Costs: $54,974. Section III – Federal Awards Findings and Questioned Costs (Continued) A. Current Year Findings and Questioned Costs – Major Federal Award Program Audit (Continued) Finding 2020-007 Material Weakness in Internal Control over Compliance and Schedule of Expenditures of Federal Awards (SEFA) Preparation and Completeness (Continued) Recommendations: We recommend that management strengthen internal controls over the preparation and review of the SEFA by implementing the following procedures: • Develop and use a standardized SEFA preparation checklist that includes identification of all federal awards received during the year, including pass-through awards, verification of the correct CFDA Numbers, and confirmation of the appropriate federal awarding agencies. • Perform and document a reconciliation of the SEFA to the general ledger, grant revenue schedules, and detailed expenditure reports for each federal program to ensure completeness and accuracy of reported expenditures. • Establish procedures to compare federal revenue received to expenditures reported on the SEFA and investigate and resolve any significant variances to ensure that all eligible expenditures are properly included. View of Responsible Officials: Management understands and agrees with the finding and acknowledges deficiencies in SEFA preparation and reconciliation processes. Corrective actions include: • Implementing a standardized SEFA preparation checklist to identify all federal awards, including pass-through funding. • Requiring a documented reconciliation of the SEFA to the general ledger, grant schedules and supporting reports. • Establishing procedures to compare federal revenue to expenditures and investigate variances. • Strengthening documentation retention practices to support all reported federal expenditures. • Providing training to finance personnel on Uniform Guidance and SEFA requirements.