Finding Text
Federal Agency: USDA Rural Development
Federal Program Name: Community Facilities Loan
Assistance Listing Number: 10.766
Award Period: 1/1/2023 – 12/31/2023
Type of Finding: Significant Deficiency in Internal Control over Compliance
Criteria: Management is responsible for designing and maintaining a system of internal controls to achieve compliance with provisions of federal awards.
Condition: CLA noted in discussion with management that required monthly reserve account allocations were not set aside for the months October through December 2023 as required per the Loan Closing Terms dated July 25, 2016.
Questioned Costs: $23,220
Context: Per the Loan Closing Terms dated July 25, 2016, the organization is required to set aside $7,740 monthly in a Reserve Account until there is an accumulated amount of $928,800, after which deposits may be suspended. Whenever disbursements are made from the Reserve Account (subject to Governmental approval), monthly deposits resume again until threshold is reached again.
Cause: CLA noted in discussion with management that the monthly reserve payments were not made in October through December 2023 after the Organization transitioned their AP system which had historically printed a monthly statement and distributed payment to the Reserve account via AP check. Due to the change in AP systems and process, these allocations were not set aside and not identified until subsequent to year-end.
Effect: Monthly reserve allocations were not made in October through December 2023.
Recommendation: We recommend management implement process of transfer and review for reserve fund payments to ensure adequacy of reserve account balance per loan agreement.
Views of responsible officials: There is no disagreement with the audit finding.
Corrective action plan: As of May 2024, management is reviewing with their banks to set up ACH for future transfers. The balance as of December 31, 2023 was $671,066 and deposits will continue until reaching the required amount of $928,800.