Management Response and Remediation on Identified Material Weakness
Evaluation of Disclosure Controls and Procedures. The registrant maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the registrant’s filings under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Investment Company Act of 1940, as amended (the “Company Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the registrant’s management, including its principal executive officer (“PEO”) and principal financial officer (“PFO”), as appropriate, to allow timely decisions regarding required disclosure. The registrant’s management, including the PEO and PFO, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Subsequent to the original filing of the registrant’s Form N-CEN for the fiscal year ended August 31, 2020, a material weakness in internal controls was identified regarding the over-issuance of authorized shares, which resulted in an overstatement in net assets reported in Government Obligations Fund’s financial statements for the fiscal year ended August 31, 2020. Management previously concluded that the registrant’s disclosure controls and procedures were effective as of August 31, 2020, but due to the identification that the over-issued shares should be treated as a liability, it was determined that a material weakness existed in the design of internal controls related to the registrant’s accounting for these over-issued shares. As a result, the registrant has since concluded that its disclosure controls and procedures were not effective as of August 31, 2020.
A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis.
Remediation of Material Weakness in Internal Control over Financial Reporting. Following the identification and review of the matter described above, the registrant has enhanced the effectiveness of its controls and procedures related to the accounting for authorized shares.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
First American Funds, Inc.
In planning and performing our audit of the financial statements of First American Funds, Inc. (the Company) (comprised of the Government Obligations Fund, Institutional Prime Obligations Fund, Retail Prime Obligations Fund, Retail Tax Free Obligations Fund, Treasury Obligations Fund, and U.S. Treasury Money Market Fund) as of and for the year ended August 31, 2020, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), we considered the Company’s internal control over financial reporting, including controls over safeguarding securities, as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements and to comply with the requirements of Form N-CEN, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
The management of the Company is responsible for establishing and maintaining effective internal control over financial reporting. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of controls. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of a company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Our consideration of the Company’s internal control over financial reporting was for the limited purpose described in the first paragraph and would not necessarily disclose all deficiencies in internal control that might be material weaknesses under standards established by the PCAOB. However, we noted the following deficiency involving internal control over financial reporting that we consider to be a material weakness as defined above. This deficiency was considered in determining the nature, timing and extent of the procedures to be performed in our audit of the financial statements of the Company for the year ended August 31, 2020, and this report does not affect our report on the financial statements of the Company dated October 23, 2020, except Note 9, as to which the date is May 3, 2023.
The Company’s internal control over financial reporting was not effective as of August 31, 2020, due to a material weakness in the operating effectiveness of controls related to tracking share issuances as compared to authorized shares and the associated accounting analysis for over-issued shares previously accounted for as equity rather than as liabilities in the financial statements for the Government Obligations Fund.
This report is intended solely for the information and use of management and the Board of Directors of First American Funds, Inc. and the Securities and Exchange Commission and is not intended to be and should not be used by anyone other than these specified parties.
/s/ Ernst & Young LLP
Minneapolis, MN
May 3, 2023