Finding Text
2023-004 Department of Agriculture
Federal Financial Assistance Listing #10.766
Communities Facilities Loans and Grants Cluster
Special Tests & Provisions
Significant Deficiency in Internal Control over Compliance and Noncompliance
Criteria: 2 CFR 200.303(a) establishes that the auditee must establish and maintain effective internal control
over the federal award that provides assurance that the entity is managing the federal award in compliance with
federal statutes, regulations, and conditions of the federal award. Section 4 of the Loan Resolution Security
Agreement dated October 18, 2012, states the Organization must set aside a reserve amount which may be
established as a bookkeeping account or as a separate bank account. Funds may be deposited in institutions
insured by the state or federal government or invested in marketable securities backed by the full faith and
credit of the United States. When approved by the federal agency, funds may be withdrawn for certain specified
Facility purposes.
Condition: Management created the reserve account of $114,600 in December 2022 which was established as a
separate bookkeeping and bank account. However, management transposed the $116,400 amount that was
required to be in the reserve account according to the Letter of Conditions. The Organization underfunded the
actual reserve balance after interest earnings by $521 as of June 30, 2023. Additionally, the Organization
withdrew $100,000 in May 2023 from the reserve account to deposit into the operating account and
subsequently replenished the reserve account within 14 days without obtaining proper federal agency approval.
Cause: Due to a clerical error, the amount required to be included in the reserve account was underfunded in
December 2022. Also, management did not have a control process in place to obtain federal agency approval
over the disbursement from the reserve account.
Effect: The Organization could be in violation of the reserve amount requirements if the federal agency does not
approve of any short-term disbursements of the reserve account.
Questioned Costs: None reported.
Context/Sampling: Sampling was not used.
Repeat Finding from Prior Year: No
Recommendation: We recommend management have a formal review and approval process in place which
monitors any disbursements or replenishments of the reserve account and obtains federal agency approval, as
required.
Views of Responsible Officials: Management agrees with the finding.