Finding Text
CONTROLS OVER FINANCIAL STATEMENT PREPARATION AND
RECONCILIATION PROCEDURES SHOULD BE IMPROVED
HIGHER EDUCATION EMERGENCY RELIEF FUND
STUDENT FINANCIAL AID CLUSTER PROGRAM
(Questioned Costs-Undetermined) Condition:
Management is responsible for the preparation and fair presentation of its financial statements in accordance with generally accepted accounting principles (GAAP) and the schedule of expenditures of federal awards (SEFA). However, we provided assistance to management in the preparation of the financial statements, SEFA, and related disclosures of the University. Effective for the year ended June 30, 2019, the University was charged with the responsibility of implementing FASB ASU No. 2016-14 - Presentation of Financial Statements of Not-For-Profit Entities. The objective of the FASB is to improve the current net asset classification requirements and the information presented in financial statements and notes about a not-for-profit entity’s liquidity, financial performance, and cash flows . FASB ASU No. 2018-08 , Not-for-Profit Entities (Topic 958): Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made and FASB ASU 2016-18 (Topic 230) Statement of Cash Flows, were also required to be implemented beginning 2019. While management demonstrated efforts to comply with the new standards and in its accounting processes, there was still a need for significant adjustments proposed and enhanced disclosures during the audit process to properly state various assets, liabilities, revenue and expense accounts and to the related disclosures.
We also noted that there were significant weaknesses in the internal control over reconciliation procedures in the area of student accounts receivables, posting of various transactions to student accounts, bad debt, financial aid, recording HEERF funds and disbursing HEERF funds (student portion) to eligible students. The general ledger and subsidiary accounts were not reconciled between systems (CAM vs Microsoft Dynamics vs EDExpress)
During the year, the University received new funding from the Coronavirus Aid Relief and Economic Security Act (CARES Act) authorized under the Higher Education and Emergency Relief Fund. We noticed that funding drawn under these grants could not be traced in their entirety to cost centers where disbursements were made for relevant expenditures. The HEERF annual reporting requirement was not complete and accurately reported nor available during the audit.
Context:
Review of the internal controls related to financial statement preparation in accordance with Government Auditing Standards.
Criteria:
Controls should be in place to ensure that financial statements are prepared in accordance with GAAP.
The auditee must prepare financial statements that reflects its financial positions, results of operations or changes in net assets, and where appropriate, cash flows for the fiscal year ended. [2 CFR §200.510(a)].
The financial management system of each non-Federal entity must provide for, comparison of expenditures with budget amounts for each Federal award. [2 CFR §200.302(b)(5)].
Effect:
Management may not be able to obtain complete and accurate financial statements on an interim or fiscal year basis to be used for internal or external reporting purposes on a timely basis. Lack of effective budgeting can lead to budget overruns or inefficient use of grant funds. Cause:
Continual change in accounting function in recent years and turn-over in various departments
Recommendation:
The degree to which assistance in the preparation of the financial statements and the related disclosures by independent auditor is a control deficiency is determined by the knowledge and expertise of those in the University who are charged with the responsibility of financial reporting. As a result, it is our recommendation that key personnel that have a role in the financial reporting process continue to review the functionality of their financial accounting system to see if grant reporting capabilities can be enhanced.
We also recommend that the accounting department and the financial aid department enhance its procedures to improve communications and reconciliation procedures in order to complete the required reconciliation procedure when federal funds are drawn and recorded in the various accounting modules.
Views of Responsible Officials and Planned Corrective Actions:
The University engaged an external consultant in June 2023, hired a new staff accountant in September 2023 and a CFO in November 2023. The University has begun to restructure all accounting and reconciliation functions, including implementation of new accounting software. The University is implementing financial internal controls to improve the financial statements preparation and preparation of the schedule of expenditures and federal awards.