Finding Text
Finding 2023-02 – Preparation of SEFA (Material Weakness)
Program: All
Assistance Listing (AL) No.: N/A
Federal Agency: N/A
Passed Through: N/A
Award Year: Fiscal Year 2022-2023
Compliance Requirement: N/A
Questioned Costs: None
Criteria
Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) §200.510(b) states that the auditee (the Agency) must prepare a SEFA for the period covered by the auditee’s financial statements, which must include the total federal awards expended as determined in accordance with §200.502. In addition, §200.303 of the Uniform Guidance states that the Agency must establish and maintain effective internal control over the federal awards, including controls over the accuracy of program information and expenditure amounts.
Condition
During audit procedures performed over the SEFA, we noted that the Agency incorrectly excluded expenditures from AL No. 20.509 Formula Grants for Rural Areas and Tribal Transit Program in the amount of $2,533,398 and from AL No. 21.019 in the amount of $200,000 on its preliminary SEFA.
Cause of Condition
The Agencies’ existing internal control system is not designed to provide an accurate and complete SEFA. The procedures currently in place did not include sufficient review of the information and supporting documentation relating to federal awards before the SEFA was provided to the external auditors. The first version of the SEFA provided by the Agency reported total expenditures of $6,430,319; the final revised expenditures totaled $9,163,717.
Effect of Condition
The SEFA, which is prepared by the Agency and considered supplementary information to the financial statements, is a key part of the reporting package required by the Uniform Guidance. The SEFA also serves as the primary basis that the external auditors use to determine which programs will be audited as part of the single audit; therefore, the Agency’s responsibility for preparing an accurate and complete SEFA is critical.
The inability to properly identify and track federal expenditures in the SEFA increases the likelihood that federal expenditures would not be fairly reported. There is increased risk of noncompliance with the requirements set forth in the U.S. Office of Management and Budget (OMB) Compliance Supplement, which can jeopardize future federal funding as well as result in the payback of federal awards.
Recommendation
We recommend the Agency implement internal controls to ensure the accuracy of program information, expenditure amounts, and assistance listing numbers. We also recommend the Agency strengthen its year-end closing procedures to ensure that all transactions and federal awards related to the fiscal year are properly captured and recorded in the general ledger to ensure the accuracy and completeness of the financial statements and supplementary schedules. Additionally, we recommend that the Agency provide sufficient resources and adequate oversight within the Agency to oversee the year-end closing procedures and preparation of the financial statements and supporting schedules. Lastly, we recommend the Agency Office provide training on an as needed basis for employees with financial reporting responsibilities.
Management Response and Corrective Action Plan
Noted and management concurs. A few measures have begun to take place chief among which is that 3rd party organization(s) are no longer managing the budget for TCRTA. As of FY 2024-2025 (July 1, 2024) TCRTA will be managing its own internal finances and thus establish sufficient controls.
This report will be shared with the Board of Directors, other stakeholders, and, Tulare County’s Treasury’s office in order to obtain resources toward the net goal of fulfilling these defects.
With respect to this corrective action plan TCRTA has setup a meeting with the Tresury’s office to discuss what the County’s YE closing processes are so that TCRTA can mirror the same.