Finding 401238 (2023-001)

Finding 2023-001: Allowable Costs/Cost Principles, Reporting, and Special Tests and Provisions U.S. Department of Commerce Economic Development Cluster Economic Adjustment Assistance ALN 11.307 Condition: There were not adequate internal controls in place to ensure that the loan monitoring procedures of the submitted ‘Revolving Loan Fund Plan’ (RLF Plan) were being complied with including obtaining financial statements and federal income tax returns, insurance renewals, and performing site visits. We also noted that there were not adequate internal controls to identify and correct material misstatements in key line items in the Form ED-209, Revolving Loan Fund Financial Report (report) for the Legacy or Cares Revolving Loan Funds or submit the reports timely. The key line items contain critical information and should reconcile to the Authority's financial documents and account balances. Additionally, one revolving phase loan disbursement was selected to review the standard loan documents and it was noted that the required application was not available for review. Criteria: Pursuant to 2 CFR section 200.303(a), the nonfederal entity must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. Revolving Loan Fund (RLF) recipients must administer RLFs in accordance with an RLF Plan approved by EDA. Pursuant to 13 CFR 307.14 (a) All RLF Recipients, including those receiving Recapitalization Grants for existing RLFs, must complete and submit an RLF report, using Form ED-209, in a format and at a frequency as required by EDA. Pursuant to 13 CFR 307.14 (b) All RLF Recipients must certify as part of the RLF report to EDA that the RLF is operating in accordance with the applicable RLF Plan and that the information provided is complete and accurate. Pursuant to 13 CFR 307.11 (a) (1) (ii) the standard loan documents must include the loan application. Cause: The current internal control system in place was not adequate to ensure: loan monitoring procedures were followed in accordance with the RLF Plan approved by the EDA, reports were completed accurately and timely and the required loan application was maintained. Effect: The loan monitoring procedures were not followed and therefore required information was not obtained, the reports were not filed timely and do not contain accurate information and the loan application was not maintained. Question Costs: None Identification as a Repeat Finding: This is a repeat finding of 2022-002. Recommendation: We have the following recommendations: 1) the Authority should implement procedures to ensure that the RLF program is administered in accordance with the plan approved by the EDA, 2) the Authority should implement procedures to ensure that required reports are reviewed for accuracy prior to being submitted by the due date, and 3) the Authority should have internal controls in place to review the standard loan documentation to ensure all documentation is completed, submitted, and retained. View of Responsible Official: Management agrees with the finding. See separate corrective action plan.