Finding 540529 (2024-004)

Material Weakness Repeat Finding
Requirement
C
Questioned Costs
-
Year
2024
Accepted
2025-03-28

AI Summary

  • Core Issue: The Department has a material weakness in internal controls over cash management, leading to unreliable financial reporting.
  • Impacted Requirements: Compliance with federal regulations (2 CFR Part 200) and state accounting practices (NMSA 1978 §6-5-2) is not being met, affecting the accuracy and timeliness of financial information.
  • Recommended Follow-up: Management should enhance control processes for federal receivables and ensure consistent application of accounting practices to prevent future discrepancies.

Finding Text

2024-004 CASH MANAGEMENT Federal agency: U.S. Department of Homeland Security/FEMA Federal Program Title & Assistance Listing Number: Disaster Grants – Public Assistance (Presidentially Declared Disasters) - 97.036 Hazard Mitigation Grant Program – 97.039 Emergency Management Performance Grants – 97.042 Homeland Security Grant Program – 97.067 Award Period: Various Type of Finding: Material Weakness in Internal Control over Compliance Material Non-compliance Compliance Areas: Cash Management Questioned Costs: None Condition Management has been unable to provide sufficient appropriate audit evidence relating to the completeness, existence, accuracy, and valuation of the Department’s federal revenue, accounts receivable/payable and related deferred inflows of resources reported as of June 30, 2024. This was included in our basis for qualifying opinion on Governmental Activities and the Federal Grants Fund. The Department lacked effective processes and controls for determining the amount Due From Federal Government as part of its year-end close process. The Department did not consistently apply its process for recording the Due From amount for all federal grants throughout the year. The Federal Grants Fund (Fund 40280) has a deficit fund balance of $24,515,842 and a $31,837,546 balance related to deferred inflows for FEMA grant funds that were not received within the 90-day period of availability after fiscal year-end. Subsequent drawdowns/collections on the June 30, 2024 amount Due From Federal Government of $37,384,520 were poor, with the Department drawing down or receiving $10,160,346 from July 1, 2024 through November 22, 2024. The accounts receivable summary by grant as of June 30, 2024 contained abnormal credit balances in the amount of $328,175, which the Department will need to research to determine if there are any overdrawn amounts. Management’s Progress for Repeated Finding: Management did make progress implementing adequate controls to resolve the finding from the prior years, by billing and receiving amounts from previous fiscal years. However, a material weakness still exists over controls over these account balances. Criteria According to §200.303 Internal controls of 2 CFR Part 200, the non- Federal entity must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Specific to the Department, federal reimbursement requests are completed quarterly with the reporting process. According to NMSA 1978 §6.-5-2, the Financial Control Division (the division) shall issue a manual of model accounting practices containing the procedures and policies. State agencies shall comply with the model accounting practices established by the division, and the administrative head of each state agency shall ensure that the model accounting practices are followed. According to FIN 16 General Accounting Practices in the Manual of Model Accounting Practices, all reporting of financial information must be timely, complete, and accurate, to the state agency’s management and to oversight agencies and entities. Effect State agency’s management and other agencies and entities may not be able to rely on the financial information presented by the Department due to untimely, incomplete, and inaccurate financial reporting. The Federal Government may place the Department on controlled draws. Cause While the Department has made improvements from prior year related to the reconciliation and draw down of all federal receivables, the Department continues to lack an effective control environment that allows for timely and accurate drawdowns, financial reporting, and accounting of the Department’s Federal accounts receivable/payable balance and related deferred inflows of resources.

Corrective Action Plan

Recommendation We recommend the Department train its staff on the various aspects of financial grant management including the specific requirement of the grants for which the Department receives federal funding. We recommend that the reconciliation process over grants be well documented and closely monitored by management. We recommend the Department work closely with the FEMA to establish a going forward point for the reconciliation of grants and the Federal accounts receivable/payable balance. Management Response Corrective Action: We concur with this finding and the auditor's recommendation. The Department is working to perform a comprehensive reconciliation of all grants and complete any draw down requests for grant funding that has been expended but not drawn down. The initial completion of billing for all the older grants and projects is estimated to be by March 2025. In addition to the historical reconciliation, the finance team is working to ensure that current grant expenditures are drawn down on a monthly basis when possible. The historical grant reconciliation must be prepared and reviewed prior to submitting the draw requests. Due Date of Completion: June 30, 2025 Responsible Person(s): Deputy Cabinet Secretary

Categories

Cash Management Internal Control / Segregation of Duties Reporting

Other Findings in this Audit

  • 540530 2024-004
    Material Weakness Repeat
  • 540531 2024-004
    Material Weakness Repeat
  • 540532 2024-004
    Material Weakness Repeat
  • 540533 2024-005
    Significant Deficiency Repeat
  • 540534 2024-005
    Significant Deficiency Repeat
  • 540535 2024-005
    Significant Deficiency Repeat
  • 540536 2024-006
    Significant Deficiency
  • 540537 2024-006
    Significant Deficiency
  • 540538 2024-007
    -
  • 1116971 2024-004
    Material Weakness Repeat
  • 1116972 2024-004
    Material Weakness Repeat
  • 1116973 2024-004
    Material Weakness Repeat
  • 1116974 2024-004
    Material Weakness Repeat
  • 1116975 2024-005
    Significant Deficiency Repeat
  • 1116976 2024-005
    Significant Deficiency Repeat
  • 1116977 2024-005
    Significant Deficiency Repeat
  • 1116978 2024-006
    Significant Deficiency
  • 1116979 2024-006
    Significant Deficiency
  • 1116980 2024-007
    -

Programs in Audit

ALN Program Name Expenditures
97.036 Disaster Grants - Public Assistance (presidentially Declared Disasters) $149.18M
97.039 Hazard Mitigation Grant $58.14M
97.067 Homeland Security Grant Program $6.23M
97.042 Emergency Management Performance Grants $5.22M
97.008 Non-Profit Security Program $630,343
97.047 Bric: Building Resilient Infrastructure and Communities $440,909
20.703 Interagency Hazardous Materials Public Sector Training and Planning Grants $111,785
97.023 Community Assistance Program State Support Services Element (cap-Ssse) $65,001
14.218 Community Development Block Grants/entitlement Grants $38,841