Audit 315127

Segregation of Duties Material Weakness in Internal Control Condition: During our audit, we noted that the duties of the Director of Finance were such that lend themselves to improper segregation of duties due to the structure of being a small nonprofit organization. Segregation of duties ensures that the same person who has physical assets to assets is not the same person who posts transactions to the financial records and performs reconciliation procedures related to those assets. Criteria: Adequate segregation of duties reduces the likelihood that errors (intentional or unintentional) will remain undetected by providing for separate processing by different individuals at various stages of a transaction and for independent review of the work performed. The basic idea underlying segregation of duties is that no one employee or group of employees should be in a position both to perpetrate and conceal errors or irregularities in the normal course of their duties. In general, the principal incompatible duties to be segregated are: authorization of transactions, custody of assets, and recording or reporting of transactions. Effect: Although we noted during our prior audits that there was oversight over MNM’s financial activities by the Executive Director on a daily basis and the Board of Directors through review of financial information at their bi-monthly meetings, the Director of Finance was able to circumvent these compensating controls and misappropriate assets of MNM as described in the notes to the financial statements. Cause: The extent to which MNM can segregate duties is limited being a small non-profit based on the number of personnel, their skill set and workload, and the overall cost of implementing the proper segregation of duties. Auditor Recommendation: Revaluate the current duties of the staff responsible for financial reporting of MNM related to segregation of duties and compensating controls and implement safeguards to ensure that responsible employees follow through and are held accountable for their financial duties.

Internal Control Over Financial Reporting Material Weakness in Internal Control Condition: During our audit procedures we noted that timely and complete monthly and annual financial account reconciliations did not take place. As a result, we proposed and management recorded journal entries to correct the misstatements that had a material effect on MNM’s accounting records. Criteria: Preparing reliable financial information is a key responsibility of management. The ability to effectively manage MNM requires access to timely and accurate financial information that informs decision making. Management’s ability to fulfill its financial reporting responsibilities depends in part on the design and effectiveness of the controls and safeguards over financial reporting. Effect: Errors and/or fraud can occur and not be detected and corrected on a timely basis. Cause: Lack of management oversight. Auditor Recommendation: We recommend that procedures and controls are implemented in order to prepare timely and accurate financial information in accordance with generally accepted accounting principles.

Single Audit Submission to Federal Audit Clearinghouse Federal Agencies: U.S. Department of Health and Human Services Pass-through Entity: School District of Philadelphia Head Start – Assistance Listing #93.600 Significant Deficiency Condition: The audit for fiscal year 2022 was not completed and submitted timely to the Federal Audit Clearinghouse by the appropriate due date as required by the Uniform Guidance. Criteria: As required by the Uniform Guidance the audit shall be completed and reporting packages shall be submitted to the Federal Audit Clearinghouse within the earlier of 30 days after receipt of the auditor’s report, or nine months after the end of the audit period, unless a longer period is agreed to in advance by the cognizant or oversight agency for the audit. Effect: In accordance with the Uniform Guidance, MNM did not meet the criteria for a low-risk auditee because the audit was not filed by the due date. Cause: Delays in the independent audit process prevented the timely filing of the audit with the Federal Audit Clearinghouse as required by the Uniform Guidance. Auditor Recommendation: Implement procedures to ensure the timely filing of the audit with the Federal Audit Clearinghouse as required by the Uniform Guidance.

Segregation of Duties Material Weakness in Internal Control Condition: During our audit, we noted that the duties of the Director of Finance were such that lend themselves to improper segregation of duties due to the structure of being a small nonprofit organization. Segregation of duties ensures that the same person who has physical assets to assets is not the same person who posts transactions to the financial records and performs reconciliation procedures related to those assets. Criteria: Adequate segregation of duties reduces the likelihood that errors (intentional or unintentional) will remain undetected by providing for separate processing by different individuals at various stages of a transaction and for independent review of the work performed. The basic idea underlying segregation of duties is that no one employee or group of employees should be in a position both to perpetrate and conceal errors or irregularities in the normal course of their duties. In general, the principal incompatible duties to be segregated are: authorization of transactions, custody of assets, and recording or reporting of transactions. Effect: Although we noted during our prior audits that there was oversight over MNM’s financial activities by the Executive Director on a daily basis and the Board of Directors through review of financial information at their bi-monthly meetings, the Director of Finance was able to circumvent these compensating controls and misappropriate assets of MNM as described in the notes to the financial statements. Cause: The extent to which MNM can segregate duties is limited being a small non-profit based on the number of personnel, their skill set and workload, and the overall cost of implementing the proper segregation of duties. Auditor Recommendation: Revaluate the current duties of the staff responsible for financial reporting of MNM related to segregation of duties and compensating controls and implement safeguards to ensure that responsible employees follow through and are held accountable for their financial duties.

Internal Control Over Financial Reporting Material Weakness in Internal Control Condition: During our audit procedures we noted that timely and complete monthly and annual financial account reconciliations did not take place. As a result, we proposed and management recorded journal entries to correct the misstatements that had a material effect on MNM’s accounting records. Criteria: Preparing reliable financial information is a key responsibility of management. The ability to effectively manage MNM requires access to timely and accurate financial information that informs decision making. Management’s ability to fulfill its financial reporting responsibilities depends in part on the design and effectiveness of the controls and safeguards over financial reporting. Effect: Errors and/or fraud can occur and not be detected and corrected on a timely basis. Cause: Lack of management oversight. Auditor Recommendation: We recommend that procedures and controls are implemented in order to prepare timely and accurate financial information in accordance with generally accepted accounting principles.

Single Audit Submission to Federal Audit Clearinghouse Federal Agencies: U.S. Department of Health and Human Services Pass-through Entity: School District of Philadelphia Head Start – Assistance Listing #93.600 Significant Deficiency Condition: The audit for fiscal year 2022 was not completed and submitted timely to the Federal Audit Clearinghouse by the appropriate due date as required by the Uniform Guidance. Criteria: As required by the Uniform Guidance the audit shall be completed and reporting packages shall be submitted to the Federal Audit Clearinghouse within the earlier of 30 days after receipt of the auditor’s report, or nine months after the end of the audit period, unless a longer period is agreed to in advance by the cognizant or oversight agency for the audit. Effect: In accordance with the Uniform Guidance, MNM did not meet the criteria for a low-risk auditee because the audit was not filed by the due date. Cause: Delays in the independent audit process prevented the timely filing of the audit with the Federal Audit Clearinghouse as required by the Uniform Guidance. Auditor Recommendation: Implement procedures to ensure the timely filing of the audit with the Federal Audit Clearinghouse as required by the Uniform Guidance.