Finding Text
2025-002 —Commingling of Federal Award Funds in the General Ledger Type of Finding: Material weakness in internal control over compliance Federal Program and Specific Federal Award Information All federal grant awards are affected by this finding. Criteria Under 2 CFR 200.302(b)(1), a non-federal entity is required to identify in its accounts all federal awards received and expended and the federal programs under which they were received. Under 2 CFR 200.303, the auditee must establish, document, and maintain effective internal control over federal awards that provides reasonable assurance that the federal awards are managed in compliance with federal statutes, regulations, and the terms and conditions of the federal awards. Condition During our audit we noted that federal award receipts and expenditures for all federal programs were not separately identified in the general ledger. As a result, federal award transactions were commingled in the accounting records and could not be readily traced, accumulated, or reconciled by individual federal award without additional manual analysis outside the general ledger. The condition resulted a material weakness in internal control over compliance, because controls were not designed and/or operating effectively to ensure federal award activity was identified and tracked in the accounting records at the level required by Uniform Guidance. Cause The Organization did not have adequate internal controls, policies, and procedures in place to ensure that all federal awards were separately identified, tracked, and reported in the general ledger in accordance with Uniform Guidance requirements. Specifically: • The Organization had not designed its chart of accounts to separately identify federal award receipts and expenditures by program, award number, award year, funding source, and Assistance Listing number. • Policies and procedures did not require federal award transactions to be coded at the grant or award level when recorded in the general ledger. • Personnel in the finance department are relatively new to the Organization and federal award guidelines related to the structure of the general ledger was not an area for which new personnel have received training. Effect Because federal award funds were commingled in the general ledger, the Organization did not maintain accounting records that readily identified federal awards received and expended by program and award. This increases the risk that: • Federal expenditures may be charged to the incorrect program, award, period, or funding source; • Unallowable or unsupported costs may be charged to federal awards and not detected timely, including increasing the potential to duplicate expenses charged to federal awards; • The schedule of expenditures of federal awards may be incomplete, inaccurate, or not properly reconciled to the accounting records; and • Financial and programmatic reports submitted to the federal agency or pass-through entity may be inaccurate. Questioned Costs No questioned costs were identified as a result of this finding. However, the commingling of federal award activity in the general ledger creates a risk that questioned costs could exist but not be detected without additional analysis. Recommendation We recommend that the Organization strengthen internal controls over federal award accounting and compliance by implementing procedures to ensure federal award activity is separately identified in the accounting records. Such procedures should include, at a minimum: 1. Chart of accounts / project coding — Establish separate general ledger accounts, fund codes, project codes, grant codes, or other accounting identifiers for each federal program and award, including Assistance Listing number, award number, award year, federal agency, and pass-through entity, as applicable. 2. Transaction-level coding — Require all federal receipts and expenditures to be coded to the appropriate federal program and award at the time transactions are recorded in the general ledger. 3. Invoicing for federal grant programs should be generated directly from the general ledger after all expenses for the period are coded and entered. 4. Written policies and procedures — Develop and implement written grant accounting policies that define roles, responsibilities, required coding fields, review procedures, and reconciliation requirements. 5. Training — Provide training to accounting and program personnel responsible for identifying federal awards, recording, approving, and monitoring federal award transactions. Views of Responsible Officials / Management Response Management agrees with the finding. Corrective actions are currently being implemented to strengthen internal controls over federal award accounting and compliance and to ensure federal award activity is separately identified and tracked in the general ledger. (See separately issued corrective action plan.)