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;
- 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;
- Material Weaknesses:
-
-
- 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;
- 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 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;
- 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;
- 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;
- 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;
- 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;
- 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
- 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.
- 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
- 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
- Significant Deficiencies:
-
-
- 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.