Insights
Late Audits for Tribes: Navigating Challenges from 2021 and 2022
Insights
Late Audits for Tribes: Navigating Challenges from 2021 and 2022
In the last few years, I’ve seen more and more Tribes struggle to complete their audits on time for fiscal years 2021 and 2022. As someone who has both led and consulted Tribal finance departments, I understand the immense pressure they’ve faced – especially with all the new federal funding that has come their way. The financial and operational challenges, combined with unprecedented external factors, have created a perfect storm that many of us could not expect or predictably prepare for.
Here’s a breakdown of the core reasons for these late audits and what we can do to move forward:
1. COVID Stimulus Funding and the Strain on Finance Departments
The influx of COVID-19 stimulus funds – CARES Act, ARPA, and other relief programs – was a lifeline for Tribes during the pandemic. But it also came with its own set of challenges. With this new funding, Tribal finance departments were suddenly tasked with managing significantly higher levels of spending and compliance. Many were already working at capacity, and these new responsibilities pushed them into overdrive.
Expending and tracking these funds, ensuring compliance with ever-changing federal guidelines, and reporting the expenditures accurately created a massive administrative load. This overwhelmed even the most well-prepared departments and led to delays in month-end and annual financial statement prep.
2. Remote Work and Workforce Challenges
During the pandemic, many Tribal finance departments shifted to remote work or reduced hours. Employees were either working from home or had fewer days in the office, making it even harder to stay on top of the growing workload. On top of that, there were the inevitable sick days due to COVID or family responsibilities.
Remote work, while necessary, slowed down the workflows and the internal review processes essential for audit preparation. Tasks that used to take a few days were suddenly stretched out over weeks. The Wall Street Journal has reported extensively on how remote work has affected overall productivity in various industries, and it was no different for Tribal governments. Without consistent face-to-face collaboration, progress on audit preparation fell behind.
3. Increased Demand on Accounting Firms
Another issue is that the flood of federal funds put a strain on accounting firms. More organizations than ever were receiving federal money, crossing the threshold that requires a federal single audit. The accounting firms that conduct these audits were stretched thin, managing an overwhelming number of clients all needing their audits completed within the same timeframe.
Add to this the shortage of CPAs in the accounting industry – a problem that’s been well-documented – and it becomes clear why so many tribes struggled to get their audits completed on time. Accounting firms simply didn’t have the manpower bandwidth to meet the sudden surge in demand.
4. System Changes Without Training and Full Policy/Procedure Updates
One often overlooked issue I’ve seen is the transition many Tribes have made to new accounting systems over the past few years. As Tribes grow or need to respond to remote work demands, there’s a natural need to upgrade or switch systems. While this is a step in the right direction, many Tribes are not investing enough in updating their full suite of financial policies and procedures – or in providing adequate training to staff after these system changes.
Without thorough policy updates and training, finance departments are left to navigate new systems while still relying on outdated procedures, leading to bottlenecks in compliance and reporting. I’ve seen first-hand how system changes can delay audit preparation when teams are not fully prepared to handle new tools or processes.
Further, I’ve seen many accounting system implementations that simply were botched. Controls turned off, processes broken, and automations that would help Tribes with significantly quicker closes simply were turned off or never implemented in the first place.
The Impact of Late Audits
We can’t ignore the fact that late audits have serious consequences. When Tribes fall behind, it creates a ripple effect that can jeopardize both immediate operations and long-term sustainability:
- Violating Debt Covenants: Many Tribes have financing arrangements that require timely audits. Missing deadlines can lead to violations of debt covenants, putting financing at risk or triggering penalties. It can also prevent a Tribe from issuing new debt for important revenue-generating projects.
- Non-Compliance with the Single Audit Act: Tribes receiving federal funds must comply with the Single Audit Act. Late audits can result in non-compliance, potentially making tribes ineligible for future federal funding and exposing them to potential repayment obligations.
- Grant Compliance: Late audits can also lead to tribes falling out of compliance with grant funding requirements, risking the loss of critical resources. Once a Tribe’s relationship with federal grant-making agencies is compromised, it can be difficult to rebuild that trust.
- Internal Stife: Unavailable audits create friction among leadership and Tribal citizenry. It can erode trust and lead to conflicts and instability that can have long-lasting impacts on a Tribe’s ability to move forward.
Moving Forward: Solutions to Avoid Future Late Audits
The challenges we’ve faced in the last couple of years don’t have to be the new normal. Here are some steps I believe can help Tribes and our external partners get back on track:
- Strengthen Internal Processes: Make sure your finance department has the tools it needs to manage both daily operations and compliance with federal funding requirements. This might include investing in automation tools and better financial reconciliation systems.
- Invest in Policy and Procedure Overhauls: As I mentioned earlier, don’t let system changes outpace your internal controls. When updating accounting systems, also focus on revising policies and providing thorough staff training.
- Co-Source Specialized Functions: Not every Tribe has the capacity or ability to hire a full in-house team for grants or audit preparation. Consider co-sourcing these functions to trusted advisors who specialize in tribal finance and can help ensure you stay on top of compliance.
- Work with Audit Firms Early: Given the increased demand on accounting firms, it’s crucial to schedule audits well in advance and maintain open communication with your auditors to avoid last-minute delays.
- Communicate and Give Grace: When any financial issues arise, it’s important to gain all perspectives to get the full picture. Sharing information with leadership, citizens, agencies, and partners on audit status is important, so be transparent with your staffing issues, needs for temporary or long-term support, and proactive ways to mitigate the issues going forward. It’s important to understand that if your Tribe has had late audits for 2021 and 2022, it’s likely that you’re 2023 audit could be late as well.
In Summary…
The challenges Tribal finance departments faced in 2021 and 2022 were significant, but they’re not insurmountable. By addressing the root causes of late audits and investing in strategic solutions, Tribes can avoid these pitfalls in the future.
