Finding Text
Criteria or Specific Requirement
2 CFR 200.303 requires that non-federal entities receiving federal awards establish and maintain internal control over the federal awards that provides reasonable assurance that the non-federal entity is managing the federal
awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards. One of the objectives of internal control over compliance as found in 2 CFR section 200.1 include that transactions
should be properly recorded and accounted for in order to permit the preparation of reliable financial statements and federal reports.
Condition
This deficiency is related to the financial statements finding 2023-01, as listed in Part II above. The City’s financial statements required material audit adjusting journal entries for the financial statements to be presented in
accordance with generally accepted accounting principles (GAAP). The financial statements are required to be the product of a financial reporting system that offers reasonable assurance that management is able to produce
financial statements in accordance with GAAP. A portion of the adjustments were related to expenditures which were paid by and applied to funding provided by the ARPA Coronavirus State and Local Fiscal Recovery Funds
Program. The issue pertained to the financial statement assertion of cutoff; the expenditures were allowable expenditures in accordance with the federal award requirements.
Cause
The City’s year-end procedures did not identify certain necessary adjustments in a timely manner in order to remove capital outlay expenditures that were incorrectly recorded during the fiscal year ended
September 30, 2023.
Effect or Potential Effect
Adjusting journal entries were proposed as certain accounts were misstated on the unadjusted financial statements, resulting in expenditures being incorrectly included in the unadjusted schedule of expenditures of
federal awards.
Questioned Costs
None.
Context
During testing of subsequent disbursements and the potential for unrecorded liabilities and during internal control and compliance testing of the major Federal program, it was noted there were two invoices, amounting to a total
of $415,821, recorded within accounts payable as capital outlay expenditures which were improperly recorded in the fiscal year ended September 30, 2023. As evidenced by the invoice date and ship date within the invoices, the
equipment was not shipped, and the equipment was not received by the City, until after year-end. The expenditures should be recorded in the fiscal year ended September 30, 2024. Repeat Finding
This is a variation of a prior year finding from 2022. See summary schedule of prior audit findings.
Recommendation
Management should ensure year-end closing procedures are completed in a timely manner and are sufficient to assure accounts and financial statements are prepared in accordance with GAAP. Management should assess the risk associated with this condition and identify any additional processes that can be incorporated into their existing controls to improve the deficiency; such as, minimizing the likelihood of year-end material audit adjustments through review of transactions and balances for general propriety and accuracy within one month after year-end.
Follow-up and inquiries can be made timely for any transactions for which proper recording is unclear to management, if any. The Grants Administrator should maintain an up-to-date listing of expenditures by award (for
all federal, state, and local awards) and should communicate with the Finance Department on a monthly basis to review the listing and determine the proper period in which the expenditures should be recorded and presented.