Finding Text
Reference Number
2024-003 – Inadequate Controls over the Preparation of the Schedule of Expenditures Federal Awards (SEFA)
Evaluation of Finding
Material Weakness and Noncompliance
Condition
During the audit, we found an error related to the WIFIA loan liability account that resulted in a correction to the account balance and SEFA in the amount of $7,306,842.
Criteria
Management is responsible for the preparation and fair presentation, as well as the accuracy of its financial statements, including disclosures and compliance in accordance with accounting principles generally accepted in the United States of America and Uniform Guidance. This includes the design, implementation, and maintenance of internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to error or fraud. Recipients of federal awards must maintain accurate, current, and complete disclosure of the financial results of each federal award or program in order to be in compliance with 2 CFR 200.302(b)(3).
Cause of Condition
A complete reconciliation of the WIFIA loan liability account to capture all grant expense activity incurred during fiscal year 2024 did not occur or was not completed timely prior to submission of the trial balance.
Effect or Potential Effect of Condition
The Agency did not have in place a systematic method for ensuring that timely and complete year-end closing procedures were in operation before presenting the trial balance to the auditors, resulting in a significant correction in the WIFIA loan liability balance in the financial statements that should normally be captured through the closing process. This adjustment has been reported and posted by the Agency, that if they had not done so, would materially misstate the financial statements.
Recommendation
The Agency should put in place formalized procedures to ensure the accurate reporting of the WIFIA loan liability account and reduce significant adjustments post-audit. We suggest management also establish monthly reconciliations of the WIFIA loan liability to ensure all grant expense activity is captured.
Management Response
Monterey One Water acknowledges the importance of ensuring accurate and complete reporting of the WIFIA loan liability account. The Agency recognizes that the reconciliation of this account was still in progress at the time of the trial balance submission, which led to subsequent adjustments.
To enhance our financial reporting processes, we have implemented additional review procedures to ensure all
grant-related liabilities are reconciled prior to financial statement preparation. This includes working with the grant administrator to incorporate structured reconciliations of the WIFIA loan liability as part of our monthly and year-end closing processes.