Finding Text
Finding 2025-002 Noncompliance over Cash Management Material Weakness/ Material Noncompliance Criteria: Federal regulations require recipients and subrecipients to maintain appropriate cash management procedures over Federal awards. Under 2 CFR § 200.305(b), advance payments of Federal funds must be limited to the minimum amounts needed and timed to coincide with the organization’s actual, immediate cash requirements. The timing and amount of Federal cash draws should be as close as administratively feasible to the organization’s actual disbursements for allowable program costs. Condition and Context: During our testing of the Organization’s compliance with cash management requirements, we noted that in January 2025, the Board approved the withdrawal of substantially all remaining funds available under the Federal award. Management indicated that the decision was made due to concerns that Federal funding for the grant could be terminated or otherwise become unavailable. At the time of the drawdown, the Organization had incurred approximately $63,000 of program expenditures. As a result, approximately $3.7 million of Federal funds were drawn in excess of expenditures incurred and the Organization’s immediate cash needs. Accordingly, the funds were drawn substantially in advance of the related program expenditures. We considered this matter to represent material noncompliance with the cash management requirements applicable to the Federal award. Cause: The Organization elected to draw substantially all available grant funds due to concerns regarding the potential premature termination or loss of Federal funding. Additionally, the Organization did not have adequate controls in place to ensure that Federal cash draws were limited to amounts necessary to meet immediate program cash requirements. Effect: The Organization maintained a significant amount of Federal funds in excess of its immediate cash needs, resulting in material noncompliance with Federal cash management requirements and the terms and conditions of the Federal award. The excess draw also exposes the Organization to potential repayment requirements and obligations related to interest earned on Federal funds. Under 2 CFR § 200.305, Federal advance payments generally must be maintained in interest-bearing accounts when applicable, and interest earned in excess of $500 per year must be remitted to the Federal government. Questioned Costs: None noted. Repeat Finding: This is not a repeat finding. Recommendation: Management should strengthen its internal controls over Federal cash management and establish written procedures requiring Federal cash draws to be based on actual, immediate cash needs. Prior to each draw, management should document the expenditures incurred and anticipated near-term disbursements supporting the amount requested. Cash draw requests should be reviewed and approved by appropriate personnel and periodically reconciled to actual program expenditures. Management should also review the excess Federal funds on hand and coordinate with the awarding agency or pass-through entity, as appropriate, to determine whether amounts should be returned and whether any interest earned is required to be remitted. Although management indicated that verbal approval was received, written documentation should be obtained and retained to support the organization’s treatment and use of the interest earned. Management Response: Management concurs with this finding. See Corrective Action Plan.