2023-003 (2019-010) CASH MANAGEMENT – Repeated and Modified
Federal Agency: U.S. Department of Homeland Security/FEMA
Federal Program Title & Assistance Listing Number: Disaster Grants – Public Assistance (Presidentially Declared Disasters) - 97.036
Emergency Management Performance Grants – 97.042
Pre-Disaster Mitigation – 97.047
Homeland Security Grant Program – 97.067
Award Period: Various
Type of Finding: Significant Deficiency in Internal Control over Compliance, Other Non-compliance
Condition
In the audit for fiscal year ended June 30, 2022, the Department was unable to provide sufficient audit evidence regarding the accuracy, completeness, and valuation of the Federal accounts receivable/payable and related deferred inflows of resources balances as of June 30, 2022. During fiscal year 2023 and during fiscal year-end close, management continued to research, identify, and resolve a substantial majority of them by dollar amount. As a result of resolving these issues, the Department made or will make some untimely drawdowns of federal awards outside the quarterly reporting process.
As a result of research performed by management and from the final reconciliation of those balances as of June 30, 2023, management was able to reduce the deficit fund balance in the Federal Grants Fund from $11,169,582 (before restatement) to $8,645,124, as of June 30, 2022 and 2023, respectively.
Of the June 30, 2023 balance, $5,808,116 of the deficit balance is driven by revenues that were classified as deferred inflows, and are considered to be unavailable as they relate to FEMA funds that were not received within 90 days after fiscal year-end. For the two largest balances that make up this amount, first, management expects to draw $1,814,028 in Homeland Security Grant funds in early November 2023. Also, the Department has incurred $2,944,261 in management costs that they expect to bill to the Public Assistance Disaster Grants.
Of the remaining deficit of $2,887,586 in the Federal Grants Fund that is not explained by these deferred inflows, the entire amount relates to $2,989,552 in grants awarded to two subrecipients several years ago, for which the Department is not able to draw funds from the federal government. These amounts have been allowed for (see Note 4).
Management’s Progress for Repeated Findings: Management did make significant progress implementing adequate controls to resolve the finding from the prior years, resulting in an improvement from a Qualified Opinion to an Unmodified Opinion on the Federal Grants Fund, Federal Grants Fund Budgetary Comparison, and for Governmental Activities. 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 significant 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.