Financial Statement Finding - LACK OF SEGREGATION OF DUTIES Criteria: A fundamental concept in a good system of internal controls is the segregation of duties. Duties should be separated so that no one person performs incompatible duties or has complete control of any type of transaction. Condition: The Fund does not currently have an internal control system to allow for proper segregation of duties in certain areas of the accounting duties. Cause: Due to the relatively small size of the Fund’s staff, the Fund is not able to attain segregation of duties to the extent required for ideal internal control. This is not unusual in an organization of this size, and generally it is not economically feasible to provide for complete adherence to the segregation of duties concept. Effect: Proper segregation of duties helps minimize the chance of undetected errors and if not mitigated there is potential of misappropriation of assets. Recommendation: Due to the small size of the Fund, there is limited options available to them. Under this situation, the most effective control is management and the board’s oversight and knowledge of the matters relating to the operations of the Fund. Views of Responsible Officials and Planned Corrective Actions The Fund’s management is aware of this condition and believes that it is not economically feasible to attain the ideal segregation of duties. Management attempts to mitigate the associated risks by doing the following: (1) Identifies areas where the lack of segregation of duties exists and where there are higher risks of errors or fraud occurring. (2) Implements limited segregation to the extent possible to reduce risks without impairing efficiency. (3) Uses the knowledge that management and the Board of Directors has of operations by having them review certain accounting records and reports. (4) Monitors the effectiveness of the above actions and makes changes as considered appropriate.
Financial Statement Finding - LACK OF ACCOUNT RECONCILIATIONS Criteria: Proper internal control over financial reporting requires that balance sheet accounts be reconciled on a periodic basis, reviewed by an individual independent of preparation, and that reconciling items be resolved in a timely manner. This process ensures the accuracy, completeness, and validity of financial statement balances. Condition: The Fund does not consistently perform reconciliations for its balance sheet accounts. Specifically, management does not prepare or review reconciliations that compare supporting documentation to the general ledger for certain key accounts. Cause: Management has not established formal policies or procedures requiring regular account reconciliations, nor assigned clear responsibility for the preparation and review of reconciliations. Effect: As a result, errors, omissions, or unauthorized transactions may not be detected on a timely basis. This increases the risk that material misstatements in the financial statements could occur and remain uncorrected, potentially impacting the reliability of financial reporting and management’s ability to make informed decisions. Recommendation: We recommend that management establish and implement formal policies and procedures requiring periodic (e.g., monthly or quarterly) reconciliations of all significant balance sheet accounts. These reconciliations should be prepared by knowledgeable personnel and independently reviewed, with reconciling items investigated and resolved in a timely manner. Documentation evidencing preparation and review should be retained to support the control’s execution. Views of Responsible Officials and Planned Corrective Actions Management acknowledges the importance of timely and accurate account reconciliations and plans to strengthen internal controls in this area by taking the following actions: (1) Develop and implement formal policies and procedures requiring periodic reconciliation of all significant balance sheet accounts. (2) Assign clear responsibility for the preparation and independent review of reconciliations. (3) Ensure reconciliations are completed in a timely manner and reconciling items are appropriately investigated and resolved. (4) Maintain documentation to evidence the preparation and review of reconciliations. (5) Monitor compliance with established procedures and make adjustments as necessary to improve effectiveness.
Financial Statement Finding - LACK OF DETAILED CAPITAL ASSET RECORDS Criteria: Effective internal control requires organizations to maintain complete and accurate capital asset records to support balances recorded in the general ledger. Detailed property records should include key information such as acquisition date, cost, location, asset description, estimated useful life, depreciation method, accumulated depreciation, and disposition details. These records are necessary to ensure proper capitalization, depreciation, safeguarding of assets, and compliance with applicable financial reporting standards. Condition: The Company does not maintain sufficiently detailed records for its capital assets. Specifically, there is no complete and centralized property record system to track key asset information. Cause: Management has not established formal policies or procedures requiring the maintenance of detailed capital asset records, nor implemented a system or assigned responsibility for tracking and updating fixed asset information. Effect: As a result, there is an increased risk that capital assets may be inaccurately recorded, improperly depreciated, or not recorded at all. These conditions may lead to material misstatements in the financial statements and limit management’s ability to effectively manage and safeguard Company assets. Recommendation: We recommend that management establish and maintain a detailed capital asset register for all significant fixed assets. The register should include relevant identifying and financial information and be periodically reconciled to the general ledger. Management should also implement formal policies governing asset capitalization, depreciation, physical inventories, and disposals. Views of Responsible Officials and Planned Corrective Actions: Management acknowledges the importance of maintaining accurate and complete capital asset records and plans to enhance internal controls in this area by taking the following actions: (1) Establish formal policies and procedures to develop and implement a centralized capital asset register that governs capitalization, depreciation, tracking, and disposal of assets. (2) Assign responsibility for maintaining and updating capital asset records. (3) Perform periodic reconciliations of the asset register to the general ledger. (4) Conduct periodic physical inventories and inspections of capital assets to verify existence and condition. (5) Monitor compliance with established procedures and refine processes as necessary to improve effectiveness.
Financial Statement Finding - PREPARATION OF GAAP BASED FINANCIAL STATEMENTS Criteria: Internal controls over financial reporting include those related to the actual preparation and review of the audited financial statements in conformity with generally accepted accounting principles (GAAP). Condition: The Fund has limited internal resources to prepare full-disclosure financial statements required by GAAP. Cause: Management has elected to have the financial statements and the related notes to the financial statements prepared by the independent auditor as part of the audit. Effect: Inadequate controls over financial reporting of the Fund could result in the likelihood that the Fund would not be able to prepare the financial statements and the related notes to the financial statements without the assistance of the auditors. Recommendation: For entities of the Fund’s size, it generally is not practical to obtain the internal expertise to handle all aspects of the external financial reporting. Management should continually be aware of the financial reporting requirements and should review and approve the completed financial statements. Views of Responsible Officials and Planned Corrective Actions The Fund’s management is aware of this significant deficiency and addresses it by obtaining our assistance in the preparation of the Fund’s annual financial statements. Management reviews and approves the completed statements and distributes them to the users.
Major Federal Programs Finding - MATERIAL WEAKNESS IN INTERNAL CONTROL OVER COMPLIANCE – EQUIPMENT MANAGEMENT Criteria: Uniform Guidance (2 CFR 200.313(d)) requires non federal entities to maintain detailed property records for equipment acquired with federal funds, including: • Description of the property • Serial number or other identification number • Source of funding • Acquisition date and cost • Location, use, and condition • Disposition data Condition: The auditee does not maintain a fixed asset listing for equipment purchased with federal grant funds. No formal register or inventory exists to document asset descriptions, acquisition dates, serial numbers, locations, or condition. Management was unable to provide evidence that required equipment records are maintained or that a physical inventory. Cause: The absence of a fixed asset listing appears to result from a lack of established internal controls and oversight related to equipment management. No formal process exists to track federally funded equipment or ensure compliance with Uniform Guidance requirements. Effect Because no equipment records are maintained, the organization is unable to demonstrate compliance with federal equipment management requirements. This deficiency creates a heightened risk of: • Loss, theft, or misappropriation of federally funded assets • Inaccurate financial reporting of capital assets • Inability to support the existence, condition, or location of equipment • Noncompliance that could impact future federal funding The lack of controls and documentation represents a material weakness in internal control over compliance and resulted in material noncompliance with federal grant requirements. Recommendation Management should establish and maintain a complete fixed asset listing that includes all federally funded equipment and required data elements. A full physical inventory should be conducted to establish an initial baseline. Policies and procedures should be implemented to ensure: • Timely recording of new acquisitions • Tracking of asset locations and condition • Documentation of disposals • Physical inventory at least every two years • Ongoing monitoring for compliance with Uniform Guidance Views of Responsible Officials and Planned Corrective Actions Management concurs with this finding. They acknowledge that the organization did not maintain a fixed asset listing for equipment purchased with federal grant funds, resulting in noncompliance with the equipment management requirements of 2 CFR 200.313. They recognize the importance of maintaining accurate property records to ensure proper stewardship of federally funded assets and to support compliance with Uniform Guidance. Management has begun developing a formal fixed asset register that will include all required data elements, such as asset descriptions, serial numbers, acquisition dates, funding sources, locations, and condition. They have also established written procedures to ensure that all future acquisitions, disposals, and transfers are recorded timely and accurately. A physical inventory will be conducted to establish a complete baseline of federally funded equipment.