Finding Text
2022-005 Department of Agriculture Federal Financial Assistance Listing #10.766 Communities Facilities Loans and Grants Cluster Special Tests and Provisions Material Weakness in Internal Control over Compliance Criteria: 2 CFR 200.303(a) establishes that the auditee must establish and maintain effective internal control over the federal award that provides assurance that the entity is managing the federal award in compliance with federal statutes, regulations, and conditions of the federal award. The loan resolution security agreements state the Organization must set aside a reserve amount which may be established as a bookkeeping account or as a separate bank account. Funds may be deposited in institutions insured by state and federal government or invested in marketable securities backed by the full faith and credit of the United States. Condition: Management maintained the reserve amount in the pooled investment fund account which was not established as a separate bookkeeping account nor as a separate bank account. Although the pooled investment fund includes marketable securities backed by the full faith and credit of the United States, based on the portfolio mix of the investment pool, additional cash balances on hand need to supplement the investment pool to adequately fund the reserve. The Organization has excess cash available. Further, there is no secondary level of review being performed over the monthly reconciliation of the reserve account. Cause: The Organization was unaware the funds were required to be deposited in institutions insured by state and federal government or invested in marketable securities backed by the full faith and credit of the United States. No formal review process is in place over monthly reconciliation of reserve account. Effect: The Organization could be in violation of the reserve amount requirements if management is not monitoring compliance. Questioned Costs: None reported Context/Sampling: Sampling was not used. Repeat Finding from Prior Year: No Recommendation: We recommend management transfer the required reserve amount to a separate bookkeeping account in the trial balance or establish a separate bank account and ensure the funds are deposited in institutions insured by state and federal government or invested in marketable securities backed by the full faith and credit of the United States. Controls should be established and documented to monitor compliance with the reserve fund provision. Views of Responsible Officials: Management agrees with the finding.