Audit of the Corporation for National and Community Service’s (CNCS) Fiscal Year 2019 Consolidated Financial Statements

Strengthen coordination between Accounting and Financial Management Services and the Office of Budget to ensure that transactions are recorded accurately and timely. (modified repeat)

Appropriate use of SVs/JVs;

Determining and maintaining relevant documentation to support each SV/JV;

Use of specific and accurate SV/JV descriptions; and

Timely review and approval of SVs/JVs for accuracy and propriety. (modified repeat)

Complete the Trust Accounting Handbook to clearly reflect the assumptions used in the Trust Obligation and Liability Model and the Monthly Obligation and Liability Calculator, including establishing control activities; finalize materiality thresholds applied; update accounting transactions, and clearly identify periods when adjustments will be made regardless of materiality. (new)

Strengthen controls to ensure the Trust modeling is performed by trained personnel to: (a) Conduct detailed analysis and validation of data sources. (b) Review and ensure the reasonableness of assumptions used and document the rationale behind estimation assumptions. (c) Consider changes in conditions or programs that require further research and analysis. Update the assumptions when necessary. (d) Compare estimates with subsequent results to assess the reliability of the assumptions and data used to develop estimates.

Conduct detailed analysis and validation of data sources.

Review and ensure the reasonableness of assumptions used and document the rationale behind estimation assumptions.

Consider changes in conditions or programs that require further research and analysis. Update the assumptions when necessary.

Compare estimates with subsequent results to assess the reliability of the assumptions and data used to develop estimates.

Document and implement policies and procedures to include the following: (a) Establish a thorough and robust quality control process to ensure that the Trust Obligation and Liability Model (TOLM) and Monthly Obligation and Liability Calculator (Calculator) are reviewed by qualified CNCS personnel prior to relying on its outputs to record transactions. All errors identified for which management ultimately decided against making updates to the TOLM or Calculator should be documented along with an explanation as to how management arrived at the final decision; (b) Perform monthly reviews and reconciliations of the recorded new and outstanding obligations to ensure the accounting information is valid and proper; (c) Review obligation amounts to ensure amounts accurately reflect the status of the obligation; (d) Review obligations to verify that amounts, timeframe (i.e., grant dates are correctly reflected in the obligation); (e) Ensure obligations are sufficiently supported (i.e., by documentary evidence); and (f) Perform complete reconciliations of all outstanding obligations monthly, and ensure any discrepancies identified are promptly researched and resolved.

Establish a thorough and robust quality control process to ensure that the Trust Obligation and Liability Model (TOLM) and Monthly Obligation and Liability Calculator (Calculator) are reviewed by qualified CNCS personnel prior to relying on its outputs to record transactions. All errors identified for which management ultimately decided against making updates to the TOLM or Calculator should be documented along with an explanation as to how management arrived at the final decision;

Perform monthly reviews and reconciliations of the recorded new and outstanding obligations to ensure the accounting information is valid and proper;

Review obligation amounts to ensure amounts accurately reflect the status of the obligation;

Review obligations to verify that amounts, timeframe (i.e., grant dates are correctly reflected in the obligation);

Ensure obligations are sufficiently supported (i.e., by documentary evidence); and

Perform complete reconciliations of all outstanding obligations monthly, and ensure any discrepancies identified are promptly researched and resolved. (repeat)

Coordinate with the Office of the Chief Risk Officer (OCRO) to properly identify the National Service Trust Fund’s financial reporting risks and incorporate those risks into the OCRO’s annual testing of key controls. (modified repeat)

Develop a succession plan to ensure the required expertise is available in anticipation of planned employee turnover, particularly with respect to the complex trust calculations. CNCS needs to: (a) Train, mentor, and work to retain qualified employees; (b) Cross-train employees so that knowledge of the model will reside with multiple staff rather than with one person; and (c) Implement a peer review process to carry out the necessary quality control reviews of the Trust Obligation and Liability Model and the Monthly Obligation and Liability Calculator.

Train, mentor, and work to retain qualified employees;

Cross-train employees so that knowledge of the model will reside with multiple staff rather than with one person; and

Implement a peer review process to carry out the necessary quality control reviews of the Trust Obligation and Liability Model and the Monthly Obligation and Liability Calculator. (repeat)

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 the following key factors for grant accrual estimation: (a) Percentage of CNCS grantees who drawdown funds in advance versus those on a reimbursable basis and their related grant amounts to its grant spending as a whole. If different key programs have different spending patterns, perform this analysis at the program level; (b) An inventory of relevant and reliable grant data to be used for the grant accrual assumptions and documentation to support what data is considered relevant and reliable; (c) Grantees' incurred but not reported (IBNR) reporting pattern from when the expenses have been incurred to the time those expenses are included the grantees' Federal Financial Reports (FFR). Grantee surveys may be conducted to confirm the reasonableness of an IBNR estimate methodology. When alternative procedures are used, management should provide its data-based analysis to validate its assertion; and (d) Post-accrual analysis to compare the accrual (without the IBNR) and the expenditures reported in the FFRs for the same quarter. Thresholds should be established and documented based on materiality and the degree of risk that management is willing to accept. When grantees' reported spending pattern deviates from its methodology, an analysis should be performed to determine whether any deviation is acceptable or the methodology should be further refined to reflect the actual grantees' reported expenditure pattern.

Percentage of CNCS grantees who drawdown funds in advance versus those on a reimbursable basis and their related grant amounts to its grant spending as a whole. If different key programs have different spending patterns, perform this analysis at the program level;

An inventory of relevant and reliable grant data to be used for the grant accrual assumptions and documentation to support what data is considered relevant and reliable;

Grantees' incurred but not reported (IBNR) reporting pattern from when the expenses have been incurred to the time those expenses are included the grantees' Federal Financial Reports (FFR). Grantee surveys may be conducted to confirm the reasonableness of an IBNR estimate methodology. When alternative procedures are used, management should provide its data-based analysis to validate its assertion; and

Post-accrual analysis to compare the accrual (without the IBNR) and the expenditures reported in the FFRs for the same quarter. Thresholds should be established and documented based on materiality and the degree of risk that management is willing to accept. When grantees' reported spending pattern deviates from its methodology, an analysis should be performed to determine whether any deviation is acceptable or the methodology should be further refined to reflect the actual grantees' reported expenditure pattern. (modified repeat)

Revise and implement policies and procedures for the grant accrual methodology so that: (a) A validation process is established for management to verify the accuracy of the grant accrual, so that management can make any necessary adjustments to improve the precision of the grant accrual and to account for grant advances and payables to ensure the resulting amounts are materially consistent with grantees’ drawdown and spending patterns; (b) It addresses how the calculations are used to arrive at the Grants Payable and Advances to Other line items in the financial statements.

A validation process is established for management to verify the accuracy of the grant accrual, so that management can make any necessary adjustments to improve the precision of the grant accrual and to account for grant advances and payables to ensure the resulting amounts are materially consistent with grantees’ drawdown and spending patterns;

It addresses how the calculations are used to arrive at the Grants Payable and Advances to Other line items in the financial statements. (modified repeat)

Strengthen internal control to ensure procurement documents are properly approved and retained. (repeat)

Analyze procurement undelivered orders balances quarterly to verify that balances are still valid for those without financial activities for an extended period. (repeat)

Research, resolve and document the disposition of any abnormal undelivered orders transactions/balances. (repeat)

Conduct validation assessment of amounts accrued for the incurred but not reported on a periodic basis. As part of the validation, CNCS should consider the following: (a) Subsequent activities against the amount estimated to determine the level of precision in the estimation; (b) Trend the validation results and adjust the incurred but not reported estimation process to address any recurring significant fluctuations; and (c) Update the incurred but not reported estimation process as necessary to reflect changes in payment patterns.

Subsequent activities against the amount estimated to determine the level of precision in the estimation;

Trend the validation results and adjust the incurred but not reported estimation process to address any recurring significant fluctuations; and

Update the incurred but not reported estimation process as necessary to reflect changes in payment patterns. (repeat)

Evaluate the materiality thresholds used in the accrual estimation to ensure it is appropriate to prevent misstatements. The materiality threshold used should be appropriate that, in the aggregate, identified misstatements would not rise to a level that will significantly impact management’s assertions on the financial statements. (new)

Implement controls to ensure that transactions interfaced from eGrants are reflected in Momentum for the correct amounts, accounts, and number of transactions. (new)

Determine the root cause behind the differences noted in the Undelivered Orders balance between Momentum and the Undelivered Orders balance derived from the net of grant award amount from the Notice of Grant Award and the grant expenditures from the Payment Management System, and take the appropriate steps in resolving the reason behind the variances that are occurring. (new)

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 the future. (repeat)

Determine the root causes and resolve expenditure differences between the Payment Management System and Momentum. (repeat)

Strengthen controls around the review of expired grant obligations by ensuring that: (a) All financial, performance and other required reports are submitted no later than 90 calendar days after the end date of the period of performance. (b) Document justifications for all required reports submission extensions granted to the grantee.

All financial, performance and other required reports are submitted no later than 90 calendar days after the end date of the period of performance.

Document justifications for all required reports submission extensions granted to the grantee. (repeat)

Update the CNCS transaction code posting logic for recording grant expenditures to comply with the United States Standard General Ledger guidance. (repeat)

Establish a requirement for Grant Officer/Portfolio Managers to provided documented certification that all required grantee information has been received, accepted, and documented before the grant is closed out. (repeat)

Establish a control requiring the Grant Officer/Portfolio Manager to provide documented certification, upon grant closeout, verifying the total award amount to total award expenses for the deobligated recovery amount. (repeat)

Inform all Grant Officers/Portfolio Managers to ensure that a reduction in funding to the award of a grant should be documented in eGrants which would result in modified Notice of Grant Awards. (new)