Most tribal governments would rather avoid audit findings for various reasons, including added scrutiny from funding agencies and the extra work required in the audit process to develop a corrective action plan.
Audit findings can be symptomatic of an ineffective internal-control environment. This can raise concerns about a tribe’s ability to process, record, and report transactions in its financial statements and ultimately spend federal grant or contract funds appropriately.
Findings may result in operating and financial penalties, such as disallowed costs. In all circumstances, they draw unwanted attention from federal agencies and incur time spent by a tribe’s finance team to respond and implement corrective actions. Fortunately, many of the most common audit findings can be avoided.
As you review the top four issues identified during an audit, keep in mind the following commonalities:
- Lack of internal controls
- Insufficient support, including a lack of documentation
- Reporting inaccuracies
This list of issues is based on experience working with tribal governments as well as the results of approximately 1,000 tribal government compliance requirement audit findings from 2013–2017 audit reports filed with the Federal Audit Clearinghouse.
Activities Allowed and Allowable Costs
Of the twelve compliance requirements in the Office of Management and Budget (OMB) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards—commonly referred to as uniform guidance—it should come as no surprise that activities allowed and allowable costs comprise a significant area where auditors spend time.
One of the top problems with tracking activities allowed and allowable costs is the lack of internal controls, including the following:
- Insufficient paper trail to support costs
- Lacking documentation of adequate approvals
Additionally, program managers and staff may be unfamiliar with uniform guidance as it pertains to allowable costs, which can lead to improper spending of grant funds.
Typical audit findings are around expenditures that aren’t in accordance with allowable cost criteria as well as ineffective controls over certain disbursements, such as:
- Misallocation of payroll costs
- Lack of proper approvals
- Incorrect charges of indirect costs
Equipment and Real-Property Management
Most findings aren’t necessarily in complex areas but rather in more routine areas, such as equipment and real-property management—another area where deficiencies are often found.
Uniform guidance requires tribal entities to take physical inventory of their real property and reconcile those results with property records at least every two years. Performing this inventory work can be time consuming and requires the deployment of resources from their regular duties, which means it’s often near the bottom of a tribal entity’s to-do list. Because of this lack of prioritization, audit findings are common in this area.
Reporting is an often-overlooked audit area that may not always receive a detailed review, either internally or externally.
In these cases, findings are often the result of insufficient support for the quarterly government reports required by government grantees. In such cases, the information reported might not reconcile to underlying data or the general ledger. This can be attributed to the following:
- Lack of internal controls over the preparation of required reports, including personnel without appropriate training
- No review completed at an appropriate level that could correctly identify misstatements
A careful review of these reports before they’re filed can often mitigate these issues, keeping in mind that the amounts reported should always reconcile with the general ledger.
An audit finding may also occur in instances where reports required to be filed under an applicable grant agreement were either not filed at all or filed after the due date.
Procurement, Suspension, and Debarment
The issuance of uniform guidance around federal grants and contracts has changed various procedures relating to the procurement of goods and services. Most tribal governments have already effectively updated their written procurement policy to reflect those changes. However, findings continue to occur in certain areas, such as:
- Not performing suspension and debarment checks on
- Not documenting the check was performed
For procurement, findings are often related to either awarding sole-source contracts with insufficient or improper justification or not sufficiently documenting the procurement process—both for small purchases and those requiring formal, competitive bids.
We’re Here to Help
For more information about how to better prepare for your next audit, contact your Moss Adams professional.