Finding 478400 (2023-002)

2023-002 - Deficiency in Internal Controls Over SEFA Preparation and Material Adjustments Finding Type: Material Weakness in Internal Control Over Compliance Programs: Coronavirus State and Local Fiscal Recovery Funds (Assistance Listing Number 21.027) and Capitalization Grants for Clean Water State Revolving Funds (Assistance Listing Number 66.458) Criteria: According to 2 CFR § 200.508(b), the auditee is responsible for preparing appropriate financial statements, including the Schedule of Expenditures of Federal Awards (SEFA). The Uniform Guidance requires that auditees maintain adequate internal controls over financial reporting to ensure that financial statements and the SEFA are accurate, complete, and prepared in accordance with applicable regulations. Condition/Finding: During the course of our federal single audit, it was observed that the Schedule of Expenditures of Federal Awards (“SEFA”) was prepared by the auditor instead of the Township. Although the Township reviewed and accepted the SEFA, the preparation was not independently performed by the Township. Additionally, the auditor proposed and the Township accepted material proposed audit adjusting journal entries that impacted the federal awards reported on the SEFA. Cause: The Township lacks sufficient staff with the necessary skills and knowledge to independently prepare the SEFA. As a result, the Township relies on the auditor to compile this schedule and to propose material audit adjustments. The Township has limited resources, which contributes to this reliance. Effect: Reliance on the auditor to prepare the SEFA and to propose material audit adjustments indicates a deficiency in the Township’s internal controls over financial reporting. This situation increases the risk that the SEFA may not be accurately or completely prepared if the auditor does not perform these tasks. Additionally, this reliance could potentially result in a significant deficiency or material weakness in the Township’s internal control over financial reporting. Questioned Costs: No costs have been questioned as a result of this finding. Repeat Finding: No Recommendation: To correct this finding in the future, we recommend that the Township take the following actions: 1. Staff Training: Provide additional training to current staff on the requirements and preparation of the SEFA to build the necessary skills and knowledge internally. 2. Develop Detailed Procedures: Develop and document detailed procedures and guidelines for preparing the SEFA, including checklists and timelines, to assist staff in the accurate preparation of this schedule. 3. Review and Approval Process: Establish a robust review and approval process where a knowledgeable individual within the organization reviews the SEFA for accuracy and completeness before submission. 4. Improve Internal Controls: Enhance internal controls over financial reporting to ensure that material audit adjustments are minimized and that the financial statements and SEFA are prepared accurately and independently. View of Responsible Officials (Corrective Action): See corrective action plan.