Finding Text
Criteria or Specific Requirement: 2 CFR 200.328 and 31 CFR section 35.4(c) requires submission of quarterly and annual project and expenditure reports which are due to the Department of Treasury 30 days after the end of each quarter and April 30th, of the year proceeding, respectively. The project and expenditure report contains specific instructions on how to complete the report. Within the project and expenditure report, ‘Expenditure Categories’ is a critical component to be completed by reporting “obligations” and “expenditures” on each project. As defined in the report, “obligation” is an order placed (such as a contract) and similar transactions that require payment; “expenditure” is when the service has been rendered or the good has been delivered to the entity, and payment is due. Condition: Upon review and testing of the quarterly reports as submitted to the Department of Treasury, it was noted that amounts reported as expenditures for certain projects included amounts that were obligated but not yet incurred (service was not yet rendered or the good was not yet received) until a subsequent quarter. The expenditures as reported were allowable expenditures, but the timing of the expenditures was reported in the incorrect period. In addition, upon testing the expenditures as reported in the unadjusted schedule of expenditures of federal awards (the “schedule”), it was noted that $549,431 was improperly included as expenditures belonging to the fiscal year ended September 30, 2022. The expenditures identified were prematurely recorded in the general ledger since the equipment was not received until after year-end. The City’s schedule of expenditures of federal awards for the fiscal year ended September 30, 2022 required a correction to remove those amounts from the schedule and to add those amounts to the subsequent fiscal year’s schedule. Cause: The Grants Administrator’s lack of understanding of the proper manner in which the obligations and expenditures are required to be reported in the quarterly reports resulted in expenditure amounts being reported in the incorrect quarters. 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, 2022 and were incorrectly included in the unadjusted schedule of expenditures of federal awards. The Grants Administrator utilized the amounts recorded as expenditures in the accounting system to prepare the quarterly reports. Expenditures should be recorded in the City’s general ledger utilizing the date services are rendered and/or goods are received. Proper monthly review of the expenditure accounts should have led to identifying expenditures that were recorded but not yet incurred. Effect or Potential Effect: The two conditions listed above resulted in differences between expenditure amounts as correctly adjusted and reported in the schedule of expenditures of federal awards, versus expenditure amounts as reported and submitted to the Department of Treasury in the quarterly reports. Future reports may be incorrectly completed if obligation amounts and expenditure amounts are not following the criteria to properly enter amounts in the quarterly reports. Questioned Costs: None. Context: During compliance testing of the reporting compliance requirement, it was noted that the total expenditures included in the schedule of expenditures of federal awards for the fiscal year ended September 30, 2022 did not agree to the total expenditures reported in the quarterly expenditure reports as submitted to the Department of Treasury for the same period. During testing of disbursements as included in the schedule of expenditures of federal awards for the major Federal program, and during internal control and compliance testing, from a total of forty-five disbursements it was noted there were four disbursements, amounting to a total of $549,431, recorded within accounts payable as capital outlay expenditures which were improperly recorded in the fiscal year ended September 30, 2022 and improperly included in the schedule of expenditures of federal awards. 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 and reported in the fiscal year ended September 30, 2023. Adjustments were made accordingly for proper recording, reporting, and presentation in the financial statements and schedule of expenditures of federal awards. 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. If properly prepared and recorded, the subledgers for expenditures by federal awards will be generated with accurate expenditure amounts for the fiscal year. 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. The Grants Administrator and Finance Department should prepare a reconciliation of the expenditures as reported in the schedule of expenditures of federal awards for the major Federal program for the fiscal year ended September 30, 2022, as well as expenditures incurred from October 1, 2022 through today, and compare to the expenditures as reported in all quarterly reports through September 30, 2023. An analysis should be completed to determine the differences between the expenditures incurred by quarter versus expenditures as reported by quarter, and to determine the differences in total between expenditures incurred and expenditures reported in the quarterly and annual project and expenditure reports. The Grants Administrator should then review the Department of Treasury’s Project and Expenditure Report User Guide of State and Local Fiscal Recovery Funds, and/or contact the grantor, to determine if reports as previously submitted should be corrected for the timing difference, or to determine what the correct course of action should be.