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ASG reimbursement process causes cash flow problems

fili@samoanews.com

An audit of the American Samoa Government’s federal grant reimbursement process found that the government is slow in processing reimbursements for local funds, as well as recovering indirect costs from federal grantors, causing in some cases temporary cash shortages at the ASG Treasury.
 
Conducted by the Territorial Audit Office, the audit was performed because ASG has experienced cash flow problems in the past, said the TAO audit report released yesterday. Additionally, ASG’s audited financial statements for fiscal years 2009 to 2011 reported an average of over $33 million due from the federal government by the end of FY 2011.
 
According to the audit report titled, “Department of Treasury Grants Reimbursement Audit Fiscal Year 2011”, the amounts reported as due from the federal government — cited in the ASG audit financial statements — were as follows: $34.62 million for FY 2009; $31.90 million FY 2010; and $33.955 million FY 2011.
 
TAO says the audit assessed whether Treasury’s Grants Management Division has established adequate internal controls over the recording, billing and collection of grant related local expenditures to ensure timely reimbursement from the federal government.
 
“We found that ASG has opportunities to speed up the process for reimbursement of previously spent local funds, as well as recovering indirect costs more quickly,” the report states.
 
It explains that much of the time, ASG disburses “local” funds — in the General Fund account — on grant-funded programs, then must seek reimbursement from the respective federal grantor agency.
 
Moreover, extended lengths of time between expenditure of local funds and subsequent reimbursement “can create temporary cash shortage at ASG Treasury and cause tension with private sector vendors waiting to be paid.”
 
According to the audit, ASG relies heavily on a variety of federal agencies for funding local programs and in the Single Audit Report for the period ending Sept. 30, 2011, ASG’s external auditors reported expenditures of federal awards of approximately $221.3 million
 
It says the American Recovery and Reinvestment Act (ARRA) spending accounted for about $45 million of the total expenditures; and federal awards to ASG entities such as the American Samoa Power Authority, America Samoa Community College and the LBJ Medical Center accounted for $38.7 million of total federal spending.
 
Also noted in the report is that the U.S. Department of Education awards accounted for over $54 million in federal expenditures in FY 2011 or nearly a quarter of total federal expenditures. Awards from the federal departments of Agriculture, Homeland Security, Interior, Transportation, Health & Human Services and Energy account for most of the remaining expenditures.
 
 INDIRECT COSTS
 
Under ‘Condition 1’ of the report, TAO says grants management didn’t submit reimbursement requests for indirect costs in a timely and consistent manner. It says ASG is reimbursed for indirect costs, or overhead associated with administering federal grants.
 
In FY 2011, ASG received about $3.9 million in reimbursements for indirect costs and the audit found that grants management did not submit requests for these costs in a timely and consistent manner.
 
The two primary reasons identified by the audit for this occurrence, is that ASG did not obtained federal approval of its proposed indirect cost rate prior to the start of each fiscal year and grants management’s procedures do not specifically address the frequency with which reimbursement requests for indirect coast should be submitted.
 
Of the $3.9 million in federal reimbursements for indirect costs for FY 2011, the local Department of Education grants and grants for the School Lunch Program account for over $2.4 million of total indirect cost reimbursement.  However, TAO says grants management submitted only six reimbursement requests for $1.62 million in DOE grants and $802,000 for indirect costs for the school lunch program grants.
 
For the remaining federal grants with indirect costs totaling $1.45 million, grants management generally submitted only one to three reimbursement requests for the entire fiscal year, said TAO, adding that ASG didn’t receive any reimbursement until it was six months into the fiscal year.
 
According to TAO, the reimbursement proposals are to be submitted to the U.S. Department of Interior by a certain deadline for approval, but ASG failed to do that from FY 2011 to FY 2013.
 
CAUSE OF LATE SUBMITTALS
 
TAO outlined the cause of the late submittals, saying ASG cannot meet DOI’s due date for submitting indirect cost proposals, because it is unable to close its books at year-end and issue audited financial statements in a timely manner.
 
It says that the external auditors, in one of its findings from the FY 2011 Single Audit report, found that ASG does not reconcile accounts in a timely manner and does not produce timely Annual Financial Statements and Schedule of Federal Awards.
 
The external auditors attributed the problems, in part, to the “Treasury Department not being fully and adequately staffed throughout 2011 and early 2012,” said TAO.
 
The external auditors also noted Treasury “lacks accounting policies, procedures, and controls to ensure a robust internal control structure governing the general ledger maintenance and the financial closing and reporting process,” said TAO.
 
Furthermore, Treasury does not reconcile the general ledger back to source documents and data on a monthly basis.
 
External auditors recommended that Treasury reassign duties and/or add personnel to ensure that monthly accounting reconciliations are performed to produce accurate and timely financial statements.
 
The external auditors further recommended that Treasury re-examine and strengthen accounting policies, procedures and controls to ensure accurate and timely financial statements, and to ensure subsidiary accounts are accurately and timely maintained and reconciled.
 
The audit report also stated that Treasury should use checklists each month and on an annual basis to ensure that all major accounts are reconciled and analyzed. Moreover, Treasury should continue to assess the appropriateness of outsourcing the preparation of the financial statements and implementation of new accounting standards, compared to the cost of developing sufficient in-house expertise.
 
External auditors’ recommendations were supported by TAO and urged Treasury to comply with the recommendations.
 
TREASURY REPY
 
In his Apr. 22 reply to TAO, the ASG Treasurer Dr. Falema’o ‘Phil’ Pili concurred with the recommendations saying that he has already established implementation of the Single Audit Report’s recommendations “as a high priority”.
 
Currently, said Pili, he has begun implementing the realignment of personnel and revision of all Treasury Department policies and procedures in order to strengthen internal controls over accounting for grants and local funds; ensure the safeguarding of all ASG assets; and facilitate the accurate and timely issuance of ASG financial statements.
 
TAO also recommended that Treasury develop and implement a formal policy and procedure that specifies both the frequency and dollar threshold for submitting reimbursements for indirect costs.
 
Pili concurred with the recommendation saying that Treasury is, to a certain extent, at the mercy of DOI’s approval process as to when it can request reimbursement of indirect costs for the fiscal year.
 
He also said that Treasury is in the process of revising its Grants Division policies and procedures manual, which will establish parameters governing frequency and minimum thresholds for the reimbursement of indirect costs from those federal agencies who will allow indirect costs to be charged against their grants.
 
Later this week Samoa News will report on other issues and recommendations from the TAO report.



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