Audit 391403

2023-005: Segregation of Duties (Significant Deficiency) Criteria: Internal controls are designed to safeguard assets and help prevent loss from employee dishonesty or error. A fundamental concept in an adequate system of internal control is the segregation of duties, which follows the basic premise that no one employee should have access to both physical assets and the related accounting records or to all phases of a transaction. Condition/context: During the course of our audit, we noted several instances where there is not an adequate segregation of duties: • All receipts are received and deposited by the Chief Financial Officer (CFO), who also has the ability to make adjustments and/or changes to the accounting records. However, all grant revenues, which compose 99% of the Organization’s revenue, are electronically deposited into the Organization’s bank account. • The CFO has check-signing authority and also the ability to make adjustments and/or changes to the accounting records. The Organization has implemented a compensating control that requires all disbursements to have dual signatures. In addition, bank reconciliations are reviewed monthly by the Chief Executive Officer (CEO). • The CFO has the authority to set up vendors/employees in the accounting system and also approve payments to vendors/employees. The Organization has implemented a compensating control that requires all disbursements to have dual signatures. In addition, timecards are also reviewed and approved by each employee’s supervisory personnel. • The CFO prepares the Schedule of Expenditures of Federal Awards (SEFA), Wage Rate Study and the related average payroll rate utilized for payroll reimbursements of Federal expenditures, which are not subjected to an independent review process. Cause: The concentration of closely related duties and responsibilities by a small staff makes it difficult to establish an adequate system of internal checks on the accuracy and reliability of the accounting records. Effect: Without properly designed internal control systems, the Organization could be susceptible to a misappropriation of assets (theft of money) and/or inaccurate financial reporting. In addition, as a result of an improperly calculated average payroll rate, the Organization under-reported allowable expenditures for reimbursement. Questioned costs: $0 Identification as a repeat finding: Yes; see prior-year finding 2022-001. Recommendation: We recommend that current internal control policies and procedures continue to be reviewed to ensure that proper segregation is obtained when feasible. While we recognize that the Organization is not large enough to permit a segregation of duties that provides for an effective system of internal accounting control, we believe it is important that the Board of Directors remain cognizant that the condition does exist and provide oversight when possible. Views of responsible officials and planned corrective actions: Management concurs with the finding. See Exhibit I.