Institutional Federal Compliance Report 2021

Additionally, the current methodology does not take into consideration the portion of the accrual that will be funded solely by the State, which represents between 10 and 25 percent of any given project. Therefore, amounts reported as payable to local governments, local government assistance expenditures, due from the federal government, and federal grant revenue were overstated in the federal special revenue fund and understated in the general fund by equal amounts. Although the State reviewed its methodology and implemented incremental internal controls in the current year, their efforts did not reflect a level of precision that would prevent, or detect and correct, material errors in the accrual analysis.

Risk

The State’s payable to local governments, advances, and related activity are not properly reported in its government-wide and fund financial statements.

Recommendations

The State should have formal policies and procedures in place to ensure the completeness and accuracy of accounting records and subsequent reporting of the disaster assistance recovery program in the State’s financial statements. We recommend that management implement internal controls to routinely review and validate the completeness and accuracy of project-specific details underlying its analysis, including applicant expenditures incurred to date and cumulative amounts disbursed to applicants (whether through reimbursement or prepayment). Furthermore, we recommend that the State consider utilizing historical disbursement transaction detail to determine the year-end accrual. Finally, we recommend that management enhance their methodology to separately account for the federal- and state-funded shares of the liability within the fund financial statements. DHSES continues to address the inherent limitations of the data sources that were previously identified as part of the collaboratively-developed methodology for determining liability. The continued use of FEMA generated reports as the basis of comparison to disbursement data generated from SFS will only result in future discrepancies or findings as the FEMA reports are not cumulative in nature. Because KPMG used SFS data which included all Disaster Recovery PA projects (large and small; open and closed) while FEMA’s quarterly report includes only open, large projects, this methodology will increasingly underestimate the year-end accrual. Further, the current reporting functionality in SFS does not include payment data at the project level, which is necessary to ensure an accurate comparison with the FEMA reports. While DHSES has made modifications to the methodology over the past year to enhance reporting, the overarching limitations of the methodology remain. Therefore, DHSES has already begun the process of developing alternative methodologies and will work with OSC over the next year to collaboratively finalize an alternative methodology for liability reporting. OSC’s Bureau of Financial Reporting & Oil Spill Remediation (BFROSR), as the responsible party for the State’s financial statements, will continue to support DHSES in their efforts to develop alternate methodologies used to calculate liabilities in an effort to mitigate the risk of misstatement in the future. BFROSR will work closely with DHSES to offer advice as they formalize their policies and procedures to report their payable to local government accrual accurately. As recommended, the updated policies and procedures should consider the use of historical data. BFROSR can offer assistance with the data that is maintained in SFS. Management Response - OSC Management Response - DHSES