For the second year in a row, an independent audit of CNCS’s consolidated Fiscal Year 2018 financial statements resulted in a disclaimer of opinion, the worst possible outcome for a financial statement audit. CNCS did not cure the four material weaknesses and one significant deficiency identified in the FY 2017 audit. This year, the auditors reported six additional material weaknesses and another significant deficiency.In layman’s terms, the financial statements were unauditable and likely subject to pervasive material errors. CNCS’s financial transaction recording, processing and reporting are not sufficiently reliable to produce reliable financial statements.Key audit findings were:•Disclaimer of Opinion: CNCS was unable to provide adequate evidential matter to support a significant number of transactions and account balances due to inadequate processes and controls to support transactions and estimates, and incomplete records to support accounting for transactions in accordance with generally accepted accounting principles. We were unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. •Ten material weaknesses and two significant deficiencies in CNCS’s internal control over financial reporting. These issues included: ◦Material Weaknesses:◾Internal Controls Program: The system of internal controls failed to identify numerous and pervasive material weaknesses that the auditors found in financial reporting and in specific material line items on the financial statements;◾Financial System and Reporting: CNCS’s financial reporting was hindered by limitations in its financial system and the timing and difficulties arising from a system upgrade, insufficient accounting staff and inadequate internal controls;◾Trust Fund Unpaid Obligations: CNCS significantly overstated its Trust obligation balance and obligated substantially more than is necessary to pay its anticipated liabilities;◾Trust Service Award Liability: The model used to establish the liability included calculation errors and lacked quality controls, which impair significantly the accuracy of the reported liability;◾Grants Accrual Payable and Advances: Key assumptions underlying this estimate are not validated and properly documented based on historical data analysis and grantees’ actual spending patterns;◾Undelivered Orders and Accounts Payable – Procurement: CNCS did not have adequate internal controls to ensure the accuracy of obligated balances and to de-obligate stale and invalid obligations related to contracts and purchase orders;◾Property and Equipment: CNCS did not timely capitalize its Internal Use Software at interim financial reporting periods; ◾Undelivered Orders – Grants: There were unexplained disparities between various grant and financial management systems within CNCS regarding grant expenditures and grant award amounts; grants were not timely closed-out;◾Recoveries of Prior Year Obligations: CNCS was unable to provide any documentation to support about one-third of the sampled transactions; and◾Other Liabilities: CNCS was unable to provide any supporting documentation for approximately $14 million of the $20 million balance reported as of June 30, 2018.◦Significant Deficiencies: ◾Information Technology Security Controls: There were new and continued control weaknesses in the information security program that need to be addressed in configuration management, access control and security management; and ◾Accounts Receivable and Allowance for Doubtful Accounts: CNCS did not follow its Debt Management Policy by writing off Accounts Receivable items delinquent for two years or more.We made 70 recommendations to CNCS. The recommendations include immediate corrective actions to address pervasive material weaknesses and significant deficiencies.CNCS responds that it “does not entirely concur” with the findings and recommendations, but does not specify its disagreements or the basis for them. CNCS provides various reasons and explanations for the difficulties that it encountered, but the auditors have not audited and cannot validate these explanations.The independent accounting firm of CliftonLarsonAllen LLP, performed the audit of the CNCS fiscal year 2018 consolidated financial statements, under contract with CNCS-OIG.
Open Recommendations
| Recommendation Number | Significant Recommendation | Recommended Questioned Costs | Recommended Funds for Better Use | Additional Details | |
|---|---|---|---|---|---|
| 10a | No | $0 | $0 | ||
| The process to determine and document CNCS’s balance fluctuation expectations should be based on a combination of internal and external operating factors, and program and financial relevant information available.Pending since FY 2017 | |||||
| 10b | No | $0 | $0 | ||
| The materiality threshold used to determine significant balance fluctuations that require further research should be more conservative than that used by external auditors and consistent with the materiality thresholds used by the OCRO (as part of the OCRO’s OMB Circular No. A‐123 assessment) to ensure integration and consistency between AFMS and OCRO.Pending since FY 2017 | |||||
| 10c | No | $0 | $0 | ||
| Detailed process to research significant balance fluctuations. CNCS should research and explain all significant balance fluctuations at the account and transaction level. Maintain and have the supporting documentation readily available.Pending since FY 2017 | |||||
| 10f | No | $0 | $0 | ||
| Address fatal and non‐fatal Government wide Treasury Account Symbol Trial Balance (GTAS) edit failures.Pending since FY 2017 | |||||
| 10g | No | $0 | $0 | ||
| Address all balance differences and retain supporting documentation of related research.Pending since FY 2017 | |||||
| 18 | No | $0 | $0 | ||
| Develop a plan to upgrade its financial system to include OC codes which should be associated with USSGL in accordance with OMB Circular No. A‐11.Pending since FY 2017 | |||||
| 19 | No | $0 | $0 | ||
| Provide mandatory training to CNCS accounting staff on the proper use of OC, sub general ledger accounts, and document/transaction types on all obligation and expense transactions. | |||||
| 27a | No | $0 | $0 | ||
| tracking the sequence of SVs for completeness; | |||||
| 27b | No | $0 | $0 | ||
| appropriate use of SVs; | |||||
| 27c | No | $0 | $0 | ||
| determining and maintaining relevant documentation to support each SV; | |||||
| 27d | No | $0 | $0 | ||
| use of specific and accurate SV descriptions; | |||||
| 29a | No | $0 | $0 | ||
| review obligations to verify that amounts, timeframe (i.e., grant dates are correctly reflected in the obligation) and age are accurately reflected in the status of the obligation to confirm their validity;Pending since FY 2017 | |||||
| 29b | No | $0 | $0 | ||
| ensure obligations are sufficiently supported (i.e., by documentary evidence);Pending since FY 2017 | |||||
| 29d | No | $0 | $0 | ||
| perform complete reconciliations of all outstanding obligations monthly, and ensure any discrepancies identified are promptly researched and resolved.Pending since FY 2017 | |||||
| 35 | No | $0 | $0 | ||
| Develop a succession plan to ensure the required expertise is available in the event of employee turnover. Such succession planning is key to helping CNCS continue achieving its internal and external reporting objectives. CNCS needs to:Pending since FY 2017 | |||||
| 35a | No | $0 | $0 | ||
| Train, mentor, and work to retain qualified employees;Pending since FY 2017 | |||||
| 35b | No | $0 | $0 | ||
| Institute continued cross‐training so that knowledge of the model will reside with multiple staff rather than with one person; andPending since FY 2017 | |||||
| 35c | No | $0 | $0 | ||
| Implement a peer review process to carry out the necessary quality control reviews of the TSAL model.Pending since FY 2017 | |||||
| 36 | No | $0 | $0 | ||
| Strengthen controls to ensure the TSAL modelling is performed by trained personnel to: | |||||
| 36a | No | $0 | $0 | ||
| Conduct detailed analysis and validation of data sources; | |||||
| 36b | No | $0 | $0 | ||
| Review and ensure the reasonableness of assumptions used and document the rationale behind these assumptions; | |||||
| 36c | No | $0 | $0 | ||
| Consider changes in conditions or programs that require further research and analysis. Update the assumptions when necessary; | |||||
| 36d | No | $0 | $0 | ||
| Compare estimates with subsequent results to assess the reliability of the assumptions and data used to develop estimates. | |||||
| 41 | No | $0 | $0 | ||
| Coordinate with the program and grant officers to gather and analyze key grant programs’ (AmeriCorps State and National and Senior Corps) historical data and the grantees’ spending pattern to develop factors relevant for grant accrual estimation.Pending since FY 2017 | |||||
| 42 | No | $0 | $0 | ||
| Centralize storage of all procurement documents in contract files and maintain them electronically. | |||||
| 43 | No | $0 | $0 | ||
| Strengthen internal control to ensure procurement documents are properly approved and retained. | |||||
| 44 | No | $0 | $0 | ||
| Analyze procurement UDO balances quarterly to verify that balances are still valid for those without financial activities for an extended period. | |||||
| 45 | No | $0 | $0 | ||
| Research, resolve and document the disposition of any abnormal UDO transactions/balances. | |||||
| 46 | No | $0 | $0 | ||
| Correct the financial system’s posting logic to ensure all future transactions are recorded properly in accordance with USSGL. | |||||
| 47 | No | $0 | $0 | ||
| Develop, document and implement an accounts payable accrual methodology to include the recognition and reporting of the IBNR. The methodology should also document key controls related to review and approval process of the accrual estimation. Pending since FY 2017 | |||||
| 48 | No | $0 | $0 | ||
| Conduct validation assessment of amounts accrued for the IBNR on a periodic basis. As part of the validation, CNCS should consider the following: | |||||
| 48a | No | $0 | $0 | ||
| Subsequent activities against the amount estimated to determine the level of precision in the estimation; | |||||
| 48b | No | $0 | $0 | ||
| Trend the validation results and adjust the IBNR estimation process to address any recurring significant fluctuations; and | |||||
| 48c | No | $0 | $0 | ||
| Update the IBNR estimation process as necessary to reflect changes in payment patterns. | |||||
| 49 | No | $0 | $0 | ||
| Analyze contractor‐developed‐software costs that were expensed but not capitalized in accordance with accounting standards. CNCS should record appropriate adjustments to correct the IUS balance based on its analysis. | |||||
| 50 | No | $0 | $0 | ||
| Update CNCS policy to recognize and record capitalized costs during the period they are incurred. | |||||
| 51 | No | $0 | $0 | ||
| Determine the root causes and resolve discrepancies in the grant award amounts recorded in the NGA in eGrants and in Momentum to prevent such differences from occurring in future. | |||||
| 52 | No | $0 | $0 | ||
| Determine the root causes and resolve expenditure differences between PMS and Momentum. | |||||
| 53a | No | $0 | $0 | ||
| All financial, performance and other required reports are submitted no later than 90 calendar days after the end date of the period of performance. | |||||
| 53c | No | $0 | $0 | ||
| Document justifications for all required reports submission extensions granted to the grantee. | |||||
| 54 | No | $0 | $0 | ||
| Update the CNCS transaction code posting logic for recording grant expenditures to comply with the USSGL guidance. | |||||
| 56 | No | $0 | $0 | ||
| Require the program and grant officers who perform the grant close‐out in Momentum to certify that all required grantee information has been received and reviewed; and any final notices or changes to grant funding have been communicated and accepted by grantees. The process should require a second‐level of review before grants are closed‐out. All supporting documents should also be made readily available for review. | |||||
| 58 | No | $0 | $0 | ||
| Reconcile the amounts reported in Other Liabilities to supporting documents to verify that Other Liabilities is supported by valid transactions and properly classified. | |||||
| 59 | No | $0 | $0 | ||
| Develop a financial reporting checklist to ensure completeness and recording of all transactions. | |||||
| 6040 | No | $0 | $0 | ||
| Develop a multi‐year strategy to better strategically prioritize and allocate resources to address the new and continuing weaknesses identified and work towards automation, continuous monitoring and consistent application of controls. | |||||
| 6141 | No | $0 | $0 | ||
| Enforce the agency‐wide information security program across the enterprise and improve performance monitoring to ensure controls are operating as intended at all facilities.Pending since FY 2017 | |||||
| 6242 | No | $0 | $0 | ||
| Strengthen and refine the process for communicating CNCS facility specific control deficiencies to CNCS facility personnel, and coordinate remediation of the control deficiencies.Pending since FY 2017 | |||||
| 6343 | No | $0 | $0 | ||
| Strengthen and refine the process for holding system owners and information system security officers accountable for remediation of control deficiencies and ensuring that the appropriate security posture is maintained for CNCS information systems.Pending since FY 2017 | |||||
| 6444 | No | $0 | $0 | ||
| Strengthen and refine the process for holding contractors accountable for remediation of control deficiencies in CNCS information systems.Pending since FY 2017 | |||||
| 6545 | No | $0 | $0 | ||
| Implement all detailed recommendations in the FY 2018 FISMA Evaluation report.Pending since FY 2017 | |||||
| 67 | No | $0 | $0 | ||
| Reconcile the AR subsidiary ledger to the general ledger monthly. | |||||
| 68 | No | $0 | $0 | ||
| Reevaluate the policies and procedures for calculating the allowance for doubtful accounts. Related policies and procedures should include: (a) CFO Office’s staff’s periodic review of the accounts receivable aging report, (b) assessment of the collectability of outstanding balances based on the age of the debt, collections attempted and received thus far and other information about the debtor and (c) determination for possible write‐offs. | |||||
| 69 | No | $0 | $0 | ||
| Revise the Allowance for Doubtful Accounts methodology to be consistent with the Debt Management Policy. | |||||
| 70 | No | $0 | $0 | ||
| Track and revise collection efforts based on data analysis. A reasonable timeframe for writeoffs should be established for accounts receivable without any activity. Once an outstanding receivable is deemed uncollectible, it should be written off in accordance with management’s established policy. | |||||
| 10e | Yes | $0 | $0 | ||
| Research and retain supporting documents required for any identified account balance differences derived from its abnormal balance review or the tie point analysis.Pending since FY 2017 | |||||
| 27e | Yes | $0 | $0 | ||
| timely review and approval of SVs; and | |||||
