Finding Text
Finding 2025-003: Reportable Finding Considered a Material Weakness over Compliance and Internal Controls over Compliance – Allowable Cost and Cost Principles: Records Retention and Documentation Maintenance Agency: United States Department of Agriculture – National Institute of Food and Agriculture Program: Beginning Farmer and Rancher Development Program ALN# 10.311, Grant ID: 2022-49400-38183 Program Year: 2025 Criteria: 2 CFR §200.334 requires that non-Federal entities must maintain records that adequately document compliance with Federal award requirements and provide support for costs charged to Federal programs for three years from the date of the submission of their quarterly or annual financial report. The Uniform Guidance further requires financial and programmatic records, supporting documents, statistical records, and other records pertinent to a Federal award to be retained and accessible for review. Effective internal controls should ensure that grant agreements and supporting documentation are maintained, safeguarded, and recoverable throughout the required retention period. Condition: During testing of the major program, the Organization was unable to provide a copy of the executed grant agreement governing the Federal award. In addition, during testing of indirect expenses, one transaction selected for testing could not be supported because the underlying receipt was corrupted during the transfer of accounting databases and was no longer accessible. As a result, the terms and conditions of the Federal award could not be independently verified through review of the grant agreement, and one indirect expense transaction out of a sample of 20 for a population of 196, in the amount of $7.50 could not be tested for compliance due to missing supporting documentation. Cause: The Organization did not maintain adequate controls over document retention and electronic records management to ensure grant agreements and supporting documentation were preserved and remained accessible following system migrations and database transfers and changeover of management responsible for the program. Effect: Failure to retain grant agreements and supporting documentation may impair the Organization's ability to demonstrate compliance with Federal award requirements. In addition, the absence of supporting documentation increases the risk that unallowable or unsupported expenditures could be charged to Federal awards and remain undetected. Because management controls did not identify and correct these documentation deficiencies on a timely basis, there is a reasonable possibility that material noncompliance with Federal award requirements could occur and not be prevented, detected, or corrected in a timely manner. Therefore, this deficiency is considered a material weakness in internal control over compliance. Questioned costs: None Perspective: Statistical sampling was not used, however, the sampling methodology followed AICPA guidelines. No additional instances of missing or corrupted documentation were identified during the audit. Accordingly, the issue appears limited in occurrence, however, the missing grant agreement represents a significant control failure over required grant documentation. Repeat finding: This is not a repeat finding. Recommendation: We recommend the organization establish and implement a formal records retention policy addressing Federal award documentation requirements, maintain centralized electronic and backup copies of all award agreements, amendments, and supporting documentation, implement validation procedures following software conversions or database migrations to verify that all supporting documentation remains accessible and recoverable. Periodically review document repositories to ensure required grant and expenditure documentation is retained throughout the applicable Federal retention period, and designate responsibility for monitoring compliance with record retention requirements for Federal awards. Management’s response (unaudited): See Corrective Action Plan