Common Single Audit Findings and Remediation Series: Cash Management

June 2018 | Article

By Kurt Schlicker

Last month, we kicked off the discussion on remediating common single audit findings with a dive into activities allowed and allowable costs. Therefore, this month we expand the discussion and address the common findings in relation to cash management.

You might be thinking that cash management is relatively straightforward. All you have to do is request funds on a reimbursement basis or for immediate cash needs. Easy, right? While cash management can be easy, there are a few key details that some organizations need to remember to avoid findings that could have otherwise been easily prevented.

Internal Controls
The most common finding is also one of the most basic findings: lack of internal controls. Grantees are required to maintain internal controls when they receive federal funds, and, for cash management, these controls are required to be maintained in writing. Many organizations have controls in place for approving invoices, timecards and reports; however, when it comes to cash management, the controls are sometimes forgotten. Organizations often view the process of drawing funds to be so simple that they don’t think about why a basic control, such as a review of the cash draw request by someone independent of the preparation of the cash draw request, is important. Why is this important? What if a mistake is made and the funds are drawn from the wrong grant, for an unallowable cost, for an incorrect amount, or not for immediate cash needs (when advance funding is allowable)? A mistake like that could lead to a significant amount of questioned costs and embarrassment. A simple cash management control can help ensure these little mistakes don’t happen and can save the organization from a finding. Best practices indicate that internal controls be designed in accordance with the COSO framework, so don’t forget to review that as your organization is evaluating their cash management controls.

Records
Another common finding, which is often prevented by implementing the controls discussed in the previous paragraph, is the sufficiency of the records used to support cash draws. It does not matter whether the grant is reimbursement basis or whether the grant allows for advance funding; the basic premise of keeping adequate records to support the cash draw request remains the same—grantees must have support for the allowable costs they are requesting in their reimbursement or advance funding requests. What is the easiest way to ensure your records support your draw requests? The answer is simple: establish a good internal control that incorporates an independent review process. If the reviewer is going to approve a draw request, there needs to be supporting records for the reviewer to examine. These records are vital to proper record-keeping as well as a successful audit, whether the auditor is the external CPA or a state or federal auditor. Ask yourself this question: if an auditor requests the support for a cash draw request, could you provide records that show exactly which allowable costs are being reimbursed, or, if you are drawing in advance, could you provide records to show that the draw was for an immediate cash need? If you are unsure, the answer is probably no, and your record-keeping requirements should be reviewed.

Treasury State Agreement
Lastly, there is one common finding that is only applicable to states, and is an area that is confusing to almost everyone involved - the funding techniques in the Treasury State Agreement (TSA). Large grant programs (as defined by 31 CFR 205.5) at a state have specific funding techniques that are specified in the TSA. What is the problem? Many of the funding techniques have been rolled forward from the days of a largely manual check process and the agreement is not updated for the current funding technique. If you are part of a state and involved in one of the large programs at that state, make sure you understand what you are agreeing to in the TSA. If the funding technique doesn’t make sense in the current environment of the program, the remediation is not to change all your processes but instead to amend and update the TSA to reflect the current funding technique. As long as the technique is “interest neutral,” it should be a quick fix and will avoid a finding.

Should you have any questions regarding these matters, please don’t hesitate to reach out to an Eide Bailly professional.

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