Finding Text
Type of Finding: Material Weakness
Criteria: 2 CFR Section 200.302 of the Uniform Guidance requires that a non-federal entity provide for accurate, current, and complete disclosure of the financial results of each Federal award or program. Additionally, 2 CFR Section 200.303 of the Uniform Guidance requires the non-Federal entity to 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.
Condition: We identified the following issues during our audit procedures over the SEFA and federal grant expenditure reports (SEFA project rollout): The preliminary SEFA provided by the Agency excluded eight federal programs with approximately $779,000 of federal revenues. The preliminary SEFA provided by the Agency contained various inaccuracies for contract numbers and
contract periods, which resulted in various corrections subsequent to receipt of the preliminary SEFA. Thirty-two project reports for cost reimbursable federal grants contained variances over $25,000 between federal revenues and expenditures. Through procedures performed in other audit areas, we identified approximately $908,000 of contract
labor invoices and expenditures not accrued on the Agency’s consolidated financial statements and excluded from the preliminary SEFA. These expenditures were related to the Emergency Food and Shelter Program (EFSP) (ALN #97.024). The Agency received advanced funding throughout the year from FEMA for operating the Centro De Bienvenida (CDB). The complete and final reconciliation for federal grant deferred revenues to account for the balance of advanced funds was not timely provided at the start of audit fieldwork. Various adjustments were pending to deferred revenue accounts, specifically EFSP-allowable expenditures for the
CDB and reversal of prior year deferred revenues for expenditures incurred in the current year. This resulted in approximately $490,000 of adjustments to deferred revenue accounts during the audit. The Agency identified approximately $123,000 of disallowed expenditures, which required reclassification from the CDB federal project code to general funds. This amount was not provided until after completion of the Agency’s expense receipt review project which was after the start of audit fieldwork.
The specific issues and/or observations noted above included material adjustments proposed during the audit to properly reconcile the federal award expenditures and obtain a complete and accurate SEFA. These adjustments and findings also resulted in four versions of the SEFA received by the auditor throughout our audit procedures.
Cause: Lack of timely review and oversight of federal project expenditures, including the SEFA rollout report. In addition, the preliminary SEFA and underlying support was not timely reviewed by management after it was prepared by accounting staff. Effect or potential effect: Not implementing a timely review of federal grant expenditures (SEFA rollout report) and deferred revenue reconciliations, including information contained in the SEFA, increases the risk of material errors to the consolidated financial statements that would not be detected by management in a timely manner.
Recommendation: We recommend the Agency implement adequate and timely oversight of federal grant expenditures to ensure proper compliance with federal expenditure reporting and SEFA preparation. We understand that the agency’s federal grant budget significantly increased during the fiscal year with the operation
of the CDB. Thus, it is expected that increased federal funding levels would require more levels oversight to ensure compliance with proper financial management of the grants.
Repeat Finding: No
Questioned Costs: None
Views of Responsible Officials and Planned Corrective Actions: Management agrees with the finding. See Corrective Action Plan.