Institutional Federal Compliance Report 2021

The State did not have internal controls in place at a level of precision that would prevent, or detect and correct, errors in the accrual analysis. This is a repeat observation.

Risk

The State’s payable to local governments, advances, and related activity are not properly reported in its basic 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 basic 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) and to verify the mathematical accuracy of its analysis. Furthermore, we recommend that the State consider utilizing historical disbursement transaction detail to determine the year-end accrual. DHSES asserts that discrepancies or findings will continue on future audits given the inherent limitations in the collaboratively-developed methodology for determining liability. This methodology is limited, in part, because it relies on data in the FEMA Quarterly Report, which is prepared by the federal government. DHSES will explore alternatives to determine its liability to limit findings in the future. DHSES is developing formalized policies and procedures for determining the liability under the current methodology. Further, DHSES will speak with FEMA to request corrections on any formatting or formula errors prior to FEMA sending the QPR report to DHSES and will review the data once the data entry is complete. Finally, DHSES will utilize the SFS data to determine the total disbursements made to applicants within the fiscal year The Bureau of Financial Reporting (BFR), as the responsible party for the State's financial statements, will continue to support DHSES in their efforts to mitigate the risk of misstatement in the future. BFR will work more closely with DHSES to identify the best sources of data to provide for next year's financial statements and offer advice as they formalize their policies and procedures as the current methodology is flawed. As recommended, the updated policies and procedures should consider the use of historical data. BFR can offer assistance with the data that is maintained in SFS. Management Response - OSC Management Response - DHSES

4