Finding Text
Finding: 2023-004
Significant Deficiency:
Inadequate Internal Control over the Schedule of Expenditures of Federal Awards (SEFA)
Criteria: Management and those charged with governance are responsible for the design, implementation, and maintenance of internal control relevant to the accuracy and completeness of federal expenditures and present schedule of expenditures of federal expenditures as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards.
Condition: During our audit, we noticed that the Organization’s federal expenditures were not correctly allocated. We identified instances where: a) several direct program expenditures were not allocated to the federal program in the month they were incurred, b) September 2023 indirect costs were not included for one program, and c) reimbursable federal awards were not recorded as conditions were met. These misstatements resulted in a significant understatement of expenditures reported in the SEFA.
Cause: Inadequate internal control procedures fail to ensure the accurate and timely allocation of federal expenditures to the appropriate programs. Insufficient training or awareness of federal award regulations and compliance requirements results in the misapplication of allocation rules. Ineffective oversight of SEFA preparation processes allows misstatements in expense allocation to go undetected until identified during the audit process.
Effect: Multiple revisions to the client-prepared SEFA and numerous adjustments were required to correct misstatements in revenue resulting from the discrepancies in the client-prepared SEFA.
Recommendation: We recommend management to a) strengthen the design and implementation of internal control procedures to ensure accurate and timely allocation of federal expenditures, b) provide comprehensive training to staff involved in SEFA preparation to improve awareness and understanding of federal award regulations and compliance requirements, and c) implement effective monitoring and oversight procedures to regularly review SEFA preparation process and identify and correct errors or discrepancies promptly.
Views of responsible officials and planned corrective actions: Management agrees with this finding. Please refer to the corrective action plan on page 35.