Finding 2021-001: Year-End Close and Review
Condition and Criteria: During the prior year audit, we discovered deficiencies in internal controls over the year-end close and review process. The Organization had difficulties providing an appropriate trial balance for the current year. Upon receiving the trial balance, we noted numerous adjustments were needed to reverse prior year audit entries, clear out funds from prior years that should have no activity, and to balance expenditures and revenues in funds from the current year. Additionally, various year-end balances required adjustment including grants receivable and accrued wages. It is our understanding these errors were a result of the Organization not being able to see the impact of beginning balances on some year-end balance sheet accounts.
Current Status: We noted in the current year, there were numerous material adjustments needed to be made, similar to those described above and were caused by the aforementioned trial balance issues, which resulted in the net overstatement of assets in the amount of $10,680, liabilities in the amount of $6,595, and net assets in the amount of $4,085. The potential effect of these deficiencies is the misstatement year-end asset, liability, and net asset balances. We continue to recommend the Organization obtain a better understanding of the accounting system to allow for a thorough year-end close and review process. The year-end review should include reviewing current balances compared to the prior year, reviewing grant drawdowns near year-end to ensure they are recognized in the fiscal year the related costs were incurred, agreeing federal revenues earned to federal expenditures for cost-reimbursable grants, and reviewing details of account balances, as necessary, prior to providing the trial balance for audit.
Finding 2022-002: Invalid Journal Entries
Condition and Criteria: During the current year audit, we discovered deficiencies in internal controls over journal entries posted to the Organization's records. We identified numerous entries, primarily related to payroll, that the Organization reviewed and confirmed were invalid as they did not have appropriate supporting documentation. This required the Organization to reverse all the identified entries and re-reconcile several months of records. A majority of identified entries related to expenses that were requested for reimbursement for federal programs, see 2022-001 below.
Cause: The Organization had an inexperienced fiscal officer during part of 2022. The officer posted invalid entries while trying to reconcile the cash accounts due to their lack of understanding related to the accounting system. After year-end the inexperienced fiscal officer was replaced, however, no review of year-end balances and entries posted throughout 2022 took place prior to providing the trial balance for audit.
Effect: The effect of these deficiencies in internal controls was a net understatement of $76,729 to net assets. Due to a majority of the identified understatement being directly related to federal program expenditures requested for reimbursement, this also resulted in a reclassification of $75,540 from revenue to deferred revenue not included in the understatement above. The potential effect of these deficiencies is the misstatement of year-end asset, liability, and net asset balances.
Recommendation: We recommend the Organization perform a thorough year-end review which should include comparing current balances to the prior year, reviewing details of account balances, as necessary, and reviewing journal vouchers posted during the year for reasonableness, prior to providing the trial balance for audit.
Finding 2022-001: Invalid Journal Entries (Compliance)
Condition and Criteria: During the current year audit, we discovered deficiencies in internal controls over journal entries posted to the Organization's records. We identified numerous entries, primarily related to payroll, that the Organization reviewed and confirmed were invalid as they did not have appropriate supporting documentation. This required the Organization to reverse all the identified entries and re-reconcile several months of records. $76,720 of costs related to federal expenditures charged to the major program. These entries were invalid and therefore the activities and costs related to the expenses were unallowed.
Cause: The Organization had an inexperienced fiscal officer during part of 2022. The officer posted invalid entries while trying to reconcile the cash accounts due to their lack of understanding related to the accounting system. These entries were then included in reimbursement requests for the federal program.
Effect and Questioned Costs: The effect of these deficiencies in internal controls was known questioned costs of $75,540 charged to the major program. This resulted in over payment of federal funds to the Organization in the amount of $75,540. The potential effect of these deficiencies is the misstatement of federal expenditures reported on the Schedule of Expenditures of Federal Awards and the noncompliance with Allowable Activities and Allowable Costs requirements per the Compliance Supplement.
Recommendation: We recommend the Organization perform a thorough year-end review which should include comparing current balances to the prior year, reviewing details of account balances, as necessary, and reviewing journal vouchers posted during the year for reasonableness, prior to submitting reimbursement requests for federal programs.
2022-003: Delinquent Audit Report
Condition and Criteria: The audit for the current year ended December 31, 2022 was not submitted to the Federal Audit Clearinghouse within the statutory deadline of the earlier of nine months after the end of the fiscal year or thirty days after the date of the auditors' report. Internal controls should be in place to provide reasonable assurance that accounting records and information pertaining to the audit process are finalized and made available to allow adequate time to complete the audit prior to the statutory deadline.
Cause: There is not a process in place to provide reasonable assurance that the accounting records and information pertaining to the audit process are finalized and made available to the auditors to allow adequate time to complete the audit and reporting prior to the statutory deadline.
Effect or Potential Effect: Submission of the audited financial statements and auditors' reports to the Federal Audit Clearinghouse may be delinquent resulting in the Organization not qualifying as a low-risk auditee and being subject to more stringent audit requirements.
Recommendation: We recommend the Organization implement procedures to ensure the accounting records and information pertaining to the audit process are finalized and made available to the auditors to allow adequate time to complete the audit prior to the statutory deadline.
Finding 2021-001: Year-End Close and Review
Condition and Criteria: During the prior year audit, we discovered deficiencies in internal controls over the year-end close and review process. The Organization had difficulties providing an appropriate trial balance for the current year. Upon receiving the trial balance, we noted numerous adjustments were needed to reverse prior year audit entries, clear out funds from prior years that should have no activity, and to balance expenditures and revenues in funds from the current year. Additionally, various year-end balances required adjustment including grants receivable and accrued wages. It is our understanding these errors were a result of the Organization not being able to see the impact of beginning balances on some year-end balance sheet accounts.
Current Status: We noted in the current year, there were numerous material adjustments needed to be made, similar to those described above and were caused by the aforementioned trial balance issues, which resulted in the net overstatement of assets in the amount of $10,680, liabilities in the amount of $6,595, and net assets in the amount of $4,085. The potential effect of these deficiencies is the misstatement year-end asset, liability, and net asset balances. We continue to recommend the Organization obtain a better understanding of the accounting system to allow for a thorough year-end close and review process. The year-end review should include reviewing current balances compared to the prior year, reviewing grant drawdowns near year-end to ensure they are recognized in the fiscal year the related costs were incurred, agreeing federal revenues earned to federal expenditures for cost-reimbursable grants, and reviewing details of account balances, as necessary, prior to providing the trial balance for audit.
Finding 2022-002: Invalid Journal Entries
Condition and Criteria: During the current year audit, we discovered deficiencies in internal controls over journal entries posted to the Organization's records. We identified numerous entries, primarily related to payroll, that the Organization reviewed and confirmed were invalid as they did not have appropriate supporting documentation. This required the Organization to reverse all the identified entries and re-reconcile several months of records. A majority of identified entries related to expenses that were requested for reimbursement for federal programs, see 2022-001 below.
Cause: The Organization had an inexperienced fiscal officer during part of 2022. The officer posted invalid entries while trying to reconcile the cash accounts due to their lack of understanding related to the accounting system. After year-end the inexperienced fiscal officer was replaced, however, no review of year-end balances and entries posted throughout 2022 took place prior to providing the trial balance for audit.
Effect: The effect of these deficiencies in internal controls was a net understatement of $76,729 to net assets. Due to a majority of the identified understatement being directly related to federal program expenditures requested for reimbursement, this also resulted in a reclassification of $75,540 from revenue to deferred revenue not included in the understatement above. The potential effect of these deficiencies is the misstatement of year-end asset, liability, and net asset balances.
Recommendation: We recommend the Organization perform a thorough year-end review which should include comparing current balances to the prior year, reviewing details of account balances, as necessary, and reviewing journal vouchers posted during the year for reasonableness, prior to providing the trial balance for audit.
Finding 2022-001: Invalid Journal Entries (Compliance)
Condition and Criteria: During the current year audit, we discovered deficiencies in internal controls over journal entries posted to the Organization's records. We identified numerous entries, primarily related to payroll, that the Organization reviewed and confirmed were invalid as they did not have appropriate supporting documentation. This required the Organization to reverse all the identified entries and re-reconcile several months of records. $76,720 of costs related to federal expenditures charged to the major program. These entries were invalid and therefore the activities and costs related to the expenses were unallowed.
Cause: The Organization had an inexperienced fiscal officer during part of 2022. The officer posted invalid entries while trying to reconcile the cash accounts due to their lack of understanding related to the accounting system. These entries were then included in reimbursement requests for the federal program.
Effect and Questioned Costs: The effect of these deficiencies in internal controls was known questioned costs of $75,540 charged to the major program. This resulted in over payment of federal funds to the Organization in the amount of $75,540. The potential effect of these deficiencies is the misstatement of federal expenditures reported on the Schedule of Expenditures of Federal Awards and the noncompliance with Allowable Activities and Allowable Costs requirements per the Compliance Supplement.
Recommendation: We recommend the Organization perform a thorough year-end review which should include comparing current balances to the prior year, reviewing details of account balances, as necessary, and reviewing journal vouchers posted during the year for reasonableness, prior to submitting reimbursement requests for federal programs.
2022-003: Delinquent Audit Report
Condition and Criteria: The audit for the current year ended December 31, 2022 was not submitted to the Federal Audit Clearinghouse within the statutory deadline of the earlier of nine months after the end of the fiscal year or thirty days after the date of the auditors' report. Internal controls should be in place to provide reasonable assurance that accounting records and information pertaining to the audit process are finalized and made available to allow adequate time to complete the audit prior to the statutory deadline.
Cause: There is not a process in place to provide reasonable assurance that the accounting records and information pertaining to the audit process are finalized and made available to the auditors to allow adequate time to complete the audit and reporting prior to the statutory deadline.
Effect or Potential Effect: Submission of the audited financial statements and auditors' reports to the Federal Audit Clearinghouse may be delinquent resulting in the Organization not qualifying as a low-risk auditee and being subject to more stringent audit requirements.
Recommendation: We recommend the Organization implement procedures to ensure the accounting records and information pertaining to the audit process are finalized and made available to the auditors to allow adequate time to complete the audit prior to the statutory deadline.