Finding 562058 (2024-001)

Criteria: To maintain compliance with grant reporting requirements and ensure effective internal control over financial reporting, grant receivables recorded in the accounting system must be adjusted once actual amounts are confirmed and paid by the grantor. This ensures accurate reporting despite any delays in the grantor’s review and payment processes. Additionally, internal controls should ensure that deposits and adjustments are accurately allocated to the correct grant codes, and that grant income is recorded in the correct accounting period. Condition: Audit procedures identified discrepancies across multiple ARPA reimbursement requests submitted to the passthrough entity, El Paso County. Delays in the County’s review and approval process resulted in adjustments to invoices throughout the fiscal year. However, management did not reflect these adjustments in their accounting software, resulting in an unadjusted difference of $15,095. Furthermore, a duplicate grant invoice totaling $34,361 from the prior fiscal year was recorded, overstating grant revenue in the current year. Regarding the Permanent Supportive Housing (“PSH”) and Emergency Solutions Grants Program (“ESG”) grants, one instance was noted where deposits were misclassified between the two grants. Cause: Management has not implemented or adhered to adequate internal controls to ensure accurate and complete reporting of grant receivables and revenue in the accrual basis of accounting. In the case of the ARPA County grant discrepancies, management did not record grantor-requested adjustments in the Organization’s accounting software. Additionally, management did not have internal controls in place to detect and correct a duplicate grant accounts receivable entry for $34,361. Regarding the PSH and ESG grants, management did not adequately verify the source of deposits, leading to their misclassification. Effect: ARPA County grant revenue was misstated by $15,095 and required an audit adjustment to reflect the actual final grant reports approved by the County. Additionally, the duplicate entry of $34,361 resulted in an overstatement of opening net assets in the current fiscal period and also required an audit adjustment. For the PSH and ESG grants, an audit adjustment was necessary to correct the misclassification. These issues indicate that the Organization does not have effective internal controls over the reconciliation of grant income and expenses necessary to prepare the Schedule of Expenditures of Federal Awards. Questioned costs: None. Recommendations: The Organization should strengthen compliance and internal control procedures to ensure that grant reporting objectives and financial reporting accuracy are consistently met and maintained. Management should ensure that any adjustments resulting from the grantor’s review of submitted invoices are accurately recorded in the Organization’s accounting software. Additionally, management should promptly record auditor-proposed adjustments and exercise caution to avoid duplicating revenue entries when related transactions are completed in subsequent fiscal periods. To further improve reporting accuracy, internal controls should be implemented to properly identify and attribute incoming deposits to the correct grant. Management should also establish a systematic and timely reconciliation process for all grant receivable and revenue accounts on a monthly basis. This process should include close attention to invoice sequencing and source codes, enabling prompt identification and resolution of any discrepancies that may arise.