Finding Text
Criteria: The Association is required by a US Department of Agriculture (USDA) loan agreement to fund a reserve account at the sum of $204 each month until a balance of $24,480 is achieved (see Note 4 to the financial statements).
Condition: The Association’s controls were not effective to ensure that the required reserve funding deposits were made during the year, per the terms of the loan agreement.
This internal control deficiency is considered to be a significant deficiency.
Context: Our procedures included examining the reserve account bank statements and bank reconciliation reports.
Cause: The Association had turnover in their finance director position and those remaining with the entity did not have familiarity with the terms of the loan agreement.
Effect: By not transferring the required amount of funds to the reserve account, they are not in compliance with the terms of their loan agreement.
Recommendation: We recommend that Association staff familiarize themselves with the terms of the loan agreement and put controls in place to ensure funds are properly transferred to the reserve account at least annually.
View of Responsible Officials: There is no disagreement with this audit finding.