Finding 981305 (2023-003)

Finding 2023-003 Inadequate Tracking of Federal Expenses (Allowable Costs) Federal Programs: All Criteria: In accordance with CFR 200.302 organizations receiving Federal awards must maintain accurate records that adequately identify the source and application of Federal funds. This includes tracking Federal expenditures separately and distinctly within their accounting system. Additionally, in accordance with CFR 200.303, 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. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: The Organization's use of class codes in QuickBooks to track Federal expenses was found to be inadequate. Although the Organization uses QuickBooks to record financial transactions, there is no systematic method in place to ensure that Federal expenditures are properly classified and tracked using distinct class codes. Cause: The deficiency in tracking Federal expenses within QuickBooks using class codes appears to stem from a lack of understanding or awareness of the requirements outlined in Uniform Guidance. Additionally, there may be insufficient training provided to staff responsible for financial management and accounting practices. Effect or Potential Effect: Without proper tracking of Federal expenses using class codes, the Organization risks commingling Federal funds with other sources of revenue, which could lead to inaccurate reporting and potential non-compliance with Uniform Guidance requirements. This deficiency increases the likelihood of errors in financial reporting and raises concerns about the Organization's ability to demonstrate proper stewardship of Federal funds. Questioned Costs: Indeterminable. Context: The Organization does not currently use its financial management system to leverage the tracking of Federal funds between programs; the tracking is currently manual, based on Excel spreadsheets, and difficult to track/audit. Recommendation: It is recommended that the Organization establish and implement procedures to effectively track Federal expenses within QuickBooks using distinct class codes in accordance with 2 CFR 200.302. This may involve providing training to staff on the proper use of class codes and ensuring that all Federal expenditures are consistently and accurately classified in the accounting system.