Finding Text
Assistance Listing, Federal Agency, and Program Name - 93.493 U.S. Department of Health and Human Services, Congressional Directives - Community Project Funding/Congressionally Directed Spending - Construction
Federal Award Identification Number and Year - 1 CE1HS47212 01 00, 2022
Pass through Entity - N/A
Finding Type - Material weakness and material noncompliance with laws and regulations
Repeat Finding - No
Criteria - The SF 425 Federal Financial Report instructions require recipients to indicate whether the report is prepared on the accrual basis of accounting or the cash basis of accounting and should follow an organization’s normal accounting basis.
Condition The Agency’s controls in place for financial reporting submissions did not identify that the SF 425 Federal Financial Report (“FFR”) submitted for the annual reporting period ending August 31, 2023, indicated that the report was prepared on the accrual basis of accounting when the report was actually prepared on the cash basis of accounting. The report filed did not reflect the accrued expenditures for the program.
Questioned Costs - None
Identification of How Questioned Costs Were Computed - N/A – refer to context below for additional information.
Context - During the annual period ended August 31, 2023, the Agency incurred $1,939,218 in matching expenditures for actual construction during the period. During the same period, the Agency made $1,308,829 in cash payments on invoices received from the general contractor for work performed on the project. The amount reported by the Agency on line 10.j—Recipient share of expenditures of the FFR was $1,308,829, which represents the amount of cash basis expenditures for the period. The Agency had indicated on the FFR that the report had been prepared on the accrual basis of accounting, which is consistent with the Agency’s normal financial reporting basis of account, and thus the $1,939,218 amount of actual expenditures incurred during the period should have been reported on line 10.j—Recipient share of expenditures.
Cause and Effect - The total of construction invoices received from the general contractor for actual work performed through May 2023 amounted to $1,308,829, and all such invoices were paid prior to August 31, 2023. The construction invoice for work performed during the period from June 2023 through August 31, 2023 amounted to $630,439, and this invoice was received by the Agency in October 2023. Upon receipt, the invoice was recorded in the accounting records with an effective date of October 31, 2023. As the Agency prepared the FFR using the general ledger activity for construction invoices recorded with effective dates through August 31, 2023, the activity did not include the $630,439 invoice which was not received until October 2023 but which related to expenditures incurred during the reporting period. The result was line 10.j—Recipient share of expenditures was understated by approximately $630,000.
Recommendation - We recommend that the Agency implement controls, including levels of review, to ensure that the basis of accounting indicated on required financial report submissions accurately reflects the basis of accounting used by the Agency.
Views of Responsible Officials and Corrective Action Plan - The Agency agrees and will add additional review over future construction expenditures.