Statutory Audits

For the second year in a row, an independent audit of CNCS’s National Service Trust Fund 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 three material weaknesses and one significant deficiency identified in the FY 2017 audit. This year, the auditors reported another new material weakness.

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.
   
• Four material weaknesses and one significant deficiency 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;
       
• • • 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, accounting staff turnover, 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; and
       
• • • 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;
       
• • Significant Deficiency:
    
    • 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.

We made 45 recommendations to CNCS. The recommendations include immediate corrective actions to address pervasive material weaknesses and significant deficiency.

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 aned 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’s National Service Trust Fund FY 2018 financial statements, under contract with CNCS-OIG.

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;
       
• • • 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 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;
       
• • • 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;
       
• • • 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
       
• • • 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
       
• • • 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.

CNCS has devoted significant resources to improving cybersecurity over the past few years, with meaningful progress.  Although its information security program is not yet sufficiently mature, it can reach effectiveness with continued effort and investment.

Achieving effectiveness will require attention to weaknesses that pose significant risks to information security.  Our 2017 evaluation found inadequacies in risk management, configuration management, identity and access management, information security continuous monitoring, and contingency planning.  Enforcement of information security is inconsistent across the enterprise, with field components remaining especially vulnerable. These continuing vulnerabilities leave CNCS operations and assets at risk of unauthorized access, misuse and disruption. Our report offers 34 recommendations to address the identified weaknesses and assist CNCS in strengthening its information security program.  Eight of the recommendations relate to prior findings that have not been completely addressed by CNCS. 

We issued a disclaimer of opinion on the consolidated financial statements of the Corporation for National and Community Service (CNCS) as of September 30, 2017 and for the year then ended. Key audit findings were:

• 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 transactions in accordance with generally accepted accounting principles. Auditors were unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion (disclaimer);
• Four material weaknesses (Financial Reporting; Trust Fund Unpaid Obligations; Trust Service Award Liability Model; Grants Accrual Payable and Advance) and one significant deficiency (Information Technology Security Controls) in CNCS’s internal control over financial reporting;
• No instances of noncompliance with applicable provisions of laws, regulations, contracts, and grant agreements.

Had the scope of the auditors work been sufficient to enable them to express an opinion on the CNCS consolidated financial statements, other material weaknesses or significant deficiencies, or noncompliance or other matters may have been identified and reported.

CNCS did not fully comply with the DATA Act due to weaknesses in its existing financial reporting system (internal control over source systems) and internal control weaknesses within financial reporting, data management, and data reporting processes.  CNCS did not submit complete, timely, quality, and accurate financial and award data for the FY 2017 second quarter.  The Corporation continues to grapple with the implementation challenges previously reported in the readiness review, as well as new challenges identified by this performance audit.

For the sixth consecutive year, the Corporation for National and Community Service (CNCS or the Corporation) did not comply with the Improper Payments Elimination and Recovery Act of 2010, as amended (IPERA), applicable Executive Orders and authoritative implementation guidance from Office of Management and Budget (OMB) in assessing and reporting in its FY 2016 Agency Financial Report (AFR) information concerning improper payments in CNCS programs. The Corporation has acknowledged that it did not meet its obligations in this area.

This memorandum summarizes the results of our readiness review of the implementation of the Digital Accountability and Transparency Act of 2014 (DATA Act) at the Corporation for National and Community Service (the Corporation or the Agency). The objective of this review was to assess the Corporation's efforts and implementation plans to report financial and payment data in accordance with the requirements of the DATA Act. The Office of Inspector General (CNCSOIG) conducted this review between May 2016 and October 2016.

The Corporation for National and Community Service (the Corporation or CNCS) has made significant progress in addressing the information security and privacy weaknesses identified in last year’s Federal Information Security Modernization Act of 2014 (FISMA) evaluation, resolving eight of 17 findings from FY 2015 and closing 67 of 90 recommendations open from prior years. CNCS has improved and updated its policies and procedures for key security program areas, e.g., information security continuous monitoring (ISCM), risk management and Plan of Action and Milestones (POA&M) management. It has also entered into new service level agreements with the information technology (IT) contractor that manages the Corporation’s desktops, servers and network infrastructure. These improvements led evaluators to reduce the severity of two previous program weaknesses from Significant Deficiencies to Control Deficiencies. Evaluators determined that the Corporation implemented improvements to close all seven recommendations related to privacy controls for protection of personally identifiable information (PII).

Nevertheless, much work remains to make information security fully effective at CNCS. The FY 2016 FISMA evaluation uncovered two new weaknesses relating to: (1) secure configuration management policies, procedures and practices; and (2) monitoring and remediation of server backup failures. CNCS’s ISCM and Incident Response Program are rated at Level 2: Defined on a maturity scale that ranges from Level 1: Ad hoc to Level 5: Optimized. Of the 57 security metrics in the remaining areas, testing identified 25 instances of noncompliance with applicable laws, regulations and authoritative guidance governing information security.

An audit of the Corporation for National and Community Service’s financial statements as of September 30, 2016 and 2015, found a recurrent significant deficiency in the Corporation’s internal control over financial reporting. The audit identified the causes of this repeat condition as a lack of governance and oversight, incomplete risk assessment, and inadequate monitoring processes.  There were no instances of noncompliance with applicable provisions of laws, regulations, contracts and grant agreements.  The Corporation’s financial statements presented fairly in all material respects and consistent with accounting principles generally accepted in the United States of America. 

Despite years of trying, the Corporation for National and Community Service (CNCS) remains unable to perform a reliable assessment of the susceptibility of all of its programs and activities to improper payments, and likewise unable to estimate reliably the amount or the rate of improper payments in the AmeriCorps State and National Program in fiscal year (FY) 2015.  CNCS also failed to complete its improper payment assessments for the two Senior Corps programs that it considers susceptible to significant risk of improper payments.  The improper payments information reported in CNCS’s FY 2015 Agency Financial Report (AFR) is therefore unreliable and incomplete in several respects.  CNCS has again been unable to comply with the Improper Payments Elimination and Recovery Act of 2010, as amended (IPERA).  As in the past, we found significant flaws at every stage of CNCS’s improper payments assessment process.  Many of these flaws resulted from a lack of sufficiently qualified personnel to develop a sound testing methodology and execute CNCS’s complex sampling process.

The audit found the following:

• The financial statements present fairly, in all material respects, in accordance with accounting principles generally accepted in the United States of America.
• Two significant deficiencies (Integrity Assurance Program and Information Technology) in the Corporation’s internal control over financial reporting; and
• One instance of noncompliance (Federal Information Security Modernization Act of 2014) with applicable provisions of laws, regulations, contracts.

The two significant deficiencies are a repeat condition from Fiscal Year 2014.

Evaluation of the Corporation’s Information Security and Privacy Program found these were not compliant in a number of respects with FISMA legislation, Office of Management and Budget guidance and applicable National Institute of Standards and Technology security publications.  Evaluations testing found controls were ineffective in eight of 11 areas.  In two of the eight areas, Continuous Monitoring Management and Risk Management, the deficiencies were severe enough to constitute a significant deficiency.

For fiscal year (FY) 2014, the Corporation for National and Community Service (CNCS) did not perform a reliable assessment of the susceptibility of its programs and activities to improper payments, nor did it did it reliably estimate the amount or the rate of improper payments in the AmeriCorps Program.  As a result, the improper payments information reported in CNCS’s FY 2014 Agency Financial Report (AFR) is unreliable and is also incomplete in other respects.  We found significant flaws at every stage of CNCS’s improper payments assessment process.  Some of those flaws had a tendency to understate CNCS’s improper payments.

Given the weaknesses discovered in this evaluation, we believe that CNCS has not met its obligation to perform a susceptibility analysis in FY 2014 and should not wait two years before performing a reliable analysis.  Instead, CNCS should use the information in this evaluation to conduct a more accurate risk assessment in FY 2015, develop a better estimate of improper payments in the AmeriCorps Program, and accurately report the results.

Audit of the Corporation’s Financial Statements found the statements presented fairly the financial position of the Corporation as of September 30, 2014 and 2013.

The auditors also identified two significant deficiencies and one instance of noncompliance with the Federal Information Security Management Act.

Significant Deficiencies:
 

1. Integrity Assurance Program - The Corporation does not yet have a fully functioning internal control monitoring process in place to determine the effectiveness of internal controls and support management’s required annual assurance statement under the Federal Managers Financial Integrity Act.
2. Information Technology – The Corporation’s information technology internal control structure did not support a sound internal control environment in five categories: security management, access controls, configuration management, segregation of duties, and contingency planning.

Kearney & Company, P.C. has concluded that the Corporation's Information Security and Privacy Program was not compliant in a number of respects with FISMA legislation, OMB guidance, and applicable NIST security publications as of September 30, 2014. Their testing found the controls were ineffective in seven of the 12 areas. In four of the seven areas, the deficiencies were severe enough to constitute a significant deficiency; these areas were Continuous Monitoring Management, Risk Management, Plans of Action and Milestones (POA&M), and Privacy.