Finding 517142 (2023-002)

Financial Reporting and Review Processes Assistance Title: COVID-19 - Economic Adjustment Assistance - Coronavirus Aid, Relief, and Economic Security (CARES) Act Revolving Loan Fund Assistance Listing Number: 11.307 Federal Agency: U.S. Department of Commerce Type of Finding: Significant Deficiency and Noncompliance Category of Finding: Reporting Known Questioned Costs: $0 Likely Questioned Costs: $0 Criteria Per the Uniform Guidance (2 CFR Part 200.303), non-federal entities must establish and maintain effective internal control over the federal award to provide reasonable assurance that they are managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. Per the Uniform Guidance (2 CFR Part 200.307), program income means gross income earned by the non-federal entity that is directly generated by a supported activity or earned as a result of the federal award during the period of performance. Additionally, the Form ED-209 Instructions specify that loan origination fee income and interest income must be included in the appropriate line items when completing the ED-209 report. Condition The Program Finance Director creates the financial report using information from the Senior Director of Finance. Once completed, the report is sent to directly to the Federal EDA without further review, except by their main contact at the Federal EDA. Additionally, the compliance test over the ED-209 report revealed that the Organization is consistently omitting loan origination fee income and interest income from federal program income calculations, with a discrepancy of $3,614 identified. Cause The lack of a secondary review process allowed errors and omissions to go undetected. There was a misunderstanding regarding what constitutes program income under federal guidelines, leading to the exclusion of certain income sources from reports. Effect Potential inaccuracies and errors in financial reporting could lead to misrepresentation of the Organization's financial position and noncompliance with federal regulations. This could result in financial penalties, increased scrutiny from federal agencies, or impacts on future funding eligibility. Repeat Finding This is not a repeat finding. Recommendation We recommend that the Organization establish a formal review process for financial reports before submission to federal agencies. This should include verification of all income sources that qualify as program income under federal guidelines. Management’s Response Management concurs with this finding. See Management’s Response and Corrective Action plan section.