Finding Text
Reference Number: 2025-002 (Material Weakness - Internal Control over Financial Reporting and Noncompliance – Preparation of the Schedule of Expenditure of Federal Awards) Background: The Organization is required to prepare a Schedule of Expenditures of Federal Awards (SEFA) in accordance with 2 CFR 200.510(b), which serves as the basis for determining major programs and calculating the percentage of coverage under 2 CFR 200.518. During our audit, we identified omitted federal expenditures totaling $157,189 that primarily related to ALN 93.566. Criteria: • 2 CFR 200.510(b): The auditee must prepare a SEFA that includes total federal awards expended for each federal program. • 2 CFR 200.518(f): The auditor must obtain sufficient coverage of total federal awards expended (generally at least 40% for low-risk auditees and 20% for high-risk auditees). • 2 CFR 200.303(a): The auditee must establish and maintain effective internal control over federal awards to provide reasonable assurance of compliance, including accurate financial reporting. Condition: The Organization’s SEFA did not include $157,189 of federal expenditures. As a result, total federal expenditures were understated, and the auditor’s initial major program determination and testing did not achieve the required percentage of coverage under Uniform Guidance. Cause: Management’s controls over SEFA preparation and review were not adequately designed or implemented to ensure completeness of federal award identification and reporting. Specifically: • There was no formal reconciliation of federal expenditures to the general ledger and grant activity. • The review control did not include procedures to validate completeness of all ALNs, particularly for pass-through or less prominent programs. Effect: • The SEFA was materially misstated due to federal expenditures that were not included. • The initial major program determination resulted in insufficient audit coverage relative to total federal expenditures. • Additional audit procedures were required to achieve compliance with 2 CFR 200.518. • There is an increased risk that other federal programs or compliance requirements could be improperly reported or tested. Questioned Costs: None. Recommendation: We recommend that management strengthen internal controls over SEFA preparation and review by: • Implementing a formal SEFA preparation checklist that includes reconciliation of total federal expenditures to the general ledger and grant records. • Establishing a control to identify all federal awards by ALN, including pass-through funding, prior to SEFA finalization. • Enhancing management review procedures to include verification of completeness and accuracy, with documented evidence of review. • Coordinating with program personnel to ensure all sources of federal funding are captured. Views of Responsible Officials: Management acknowledges the omission of federal expenditures from the SEFA and agrees with the finding. Corrective actions will include implementing enhanced reconciliation and review controls to ensure completeness of the SEFA in future reporting periods.