FINDING 2022-001 ? Completeness and Recording of Liabilities Condition Found: During our search for unrecorded liabilities, we noted that the cost of numerous services performed during the year ended June 30, 2022 were not recorded in accounts payable. In addition, there was an overpayment on credit card purchases that was improperly netted with expenditures made during the period. Criteria: Internal controls around the cutoff of payables are critical for the accuracy of the accrual basis of accounting. Under the accrual basis of accounting, expenses are recorded when then they occur or transferred to the buyer, rather than at the time when expenses are paid. Cause: The School did not have adequate cutoff procedures in place at June 30, 2022. Possible Asserted Effect: Due to inappropriate cutoff procedures established at year-end, the School failed to record accruals for utilities services and various professional services totaling approximately $251,000. In addition, there was an overpayment on credit card purchases that caused accounts payable to be overstated by approximately $27,000. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that the School prepare written instructions to be included in the School?s accounting policies and procedures manual that indicate basic procedures to achieve proper cutoff and completeness of accounts payable, accrued liabilities and prepaid expenses in the financial closing process, as well as specify the positions/staff responsible for performing such procedures and controls. Management Response: The School made the required adjustments to their accounting records. The School will prepare written instructions to be included in the School?s accounting policies and procedures manual that indicate basic procedures to achieve proper cutoff and completeness of accounts payable, accrued liabilities and prepaid expenses in the financial closing process, as well as specify the positions/staff responsible for performing such procedures and controls. This will be completed in time to improve the cutoff procedures for the year ending June 30, 2023 (FY 2023).
FINDING 2022-002 ? Capitalizing Property and Equipment Condition Found: During our testing of property and equipment, we noted multiple expenditures related to property and equipment that were not recorded properly. In one instance, a residence was purchased through a financing arrangement in which the disbursement was recorded as the total cost. In other instances, the School capitalized purchases based on what was disbursed instead of the total invoice received. In addition, there was an issue in correctly capitalizing improvements of buildings and donated assets. Lastly, there were disposals of vehicles that were improperly recorded by lowering depreciation expense instead of accumulated depreciation. Criteria: Property and equipment expenditures should be scrutinized by management to ensure that the proper amounts are capitalized, including reviewing the total invoice instead of the amount disbursed. In addition, donated property should be valued at the fair value on the date of the donation using third party appraisals when appropriate. Lastly, disposal of assets should decrease the accumulated depreciation balance and the gain/loss account, without affecting the depreciation expense. Cause: The School did not have adequate procedures in place to identify and record transactions related to property and equipment. Possible Asserted Effect: This resulted in numerous adjustments totaling approximately $995,000. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend the following: ? Property and equipment purchased under a financing arrangement should be reviewed thoroughly by management, and the total cost and related debt should be recorded on the purchase date. The asset cost should be depreciated over the estimated useful life, and subsequent payments on the debt should be recorded as reductions of the liability accrued. ? Property and equipment should be recorded based on the invoice and not that based on the disbursement made. Management should review the invoice along with the disbursement made. ? A written policy should be developed for recognizing in-kind contributions of goods and services. This policy will be most beneficial in that it will allow for easier and more consistent accounting treatment for contributed goods and services. Management Response: The School made the required adjustments to their accounting records. The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-003 ? Recognizing Government Grants and Contributions Condition Found: During our testing of government grants, it was noted that the School filed for the employee retention tax credit (ERC) in February 2022. However, the amounts filed not yet received by June 30, 2022 were not recorded properly as a receivable and revenue as of year-end. Criteria: According to U.S. GAAP, contributions and grants should be recorded when received, if both a right of release and barrier do not exist. With the expenditure of qualified expenses and the filing for funding, there are no additional barriers with which the School needs to satisfy in order to recognize the grant related revenue. Therefore, a receivable and revenue should have been recorded as of year-end. Cause: The School was unaware of the U.S. GAAP requirements related to the recording of the ERC. Possible Asserted Effect: This resulted in an adjustment totaling $1,142,855. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that all correspondence whether from an individual, corporation, foundation, or government entity (including government agreements/grants), be evaluated for whether the School has satisfied all conditions necessary to recognize contribution revenue. In the not-for-profit industry, ?received? generally means ?communicated? and is not necessarily synonymous with ?collected.? A donee may receive a contribution well before it is ever actually collected and deposited into the bank. For such timing differences, a contribution should be recognized immediately for the total amount promised, instead of when collected. Management Response: The School made the required adjustments to their accounting records The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-004 ? Calculation of Allowance for Doubtful Accounts for Receivables Condition Found: During our testing of accounts and notes receivable, it was noted that there were no calculation, schedule, analysis, policy or other supporting documentation for the allowances that are noted within the financial statements. In fact, the allowances as of June 30, 2022 have remained at the same level for the past few years. Criteria: The allowance for doubtful accounts should represent management?s estimate of the amounts that might not be paid by customers. If actual experience differs, then management adjusts its estimation methodology to bring the reserve more into alignment with actual results. In accrual-basis accounting, adjusting the allowance for doubtful accounts at year-end improves the accuracy of financial reports representing a net realizable value for receivables. Cause: Due to staffing changes over past few years, the allowance for doubtful accounts had not been reviewed. Possible Asserted Effect: This resulted in an adjustment totaling $17,000 for the Schell notes receivable allowance. In addition, there could be potentially future material adjusting journal entry to the allowance balances for both tuition and Schell notes receivable if a policy and proper analyses are not performed by management. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that management develop a method to determine an appropriate allowance for doubtful accounts estimation process methodology and consistently use it on a periodic basis, at least annually, to analyze whether an allowance should be recorded. There are several methods for management to use as an analysis to determine the appropriate allowance. We recommend that management consider the following methods: ? Management should develop an accounts receivable schedule that is categorized or based on days the receivable has been outstanding (30 days, 60 days, 90 days, 120+ days, one year, two, years, etc.). This will assist management to evaluate collectability based on how long the receivable has been outstanding. ? Comparing bad debt expense each year to write-offs during that year. Using this ratio over multiple years, rather than a single year could provide an useful method to calculate an accurate allowance. It is reasonable to expect the ratio of bad debt expense to write-offs to be close to 1.0 over an extended period. ? Comparing the beginning allowance for doubtful accounts to subsequent write-offs determines the adequacy of the existing allowance. Lower ratios indicate the allowance may be too low, while higher ratios may signify the accumulation of excessive allowances. Management Response: The School made the required adjustments to their accounting records The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-005 ? Overaward Federal Agency: U.S. Department of Education; Office of Federal Student Aid Pass through Entity: Not applicable Program Name: Federal Direct Student Loan Program ALN and Program Expenditures: 84.268 ($149,449) Award Number: P268K223976 Federal Award Year: July 1, 2021 to June 30, 2022 Questioned Costs: $4,237 Condition Found: There was a combined total of $4,237 of overawards given to four of the twenty-eight students in our sample. Criteria: The total amount of aid a student receives cannot be greater than his or her cost of attendance. Cause: The incorrect cost of attendance was input into the School?s loan spreadsheet that determined the remaining need and loan eligibility for the students in question. Possible Asserted Effect: There was a total of $4,237 in overawards between the four students: ? The first student received $55 of unsubsidized loans that he or she was not eligible to receive. ? The second student received $1,429 of unsubsidized loans that he or she was not eligible to receive. ? The third student received $2,105 of unsubsidized loans that he or she was not eligible to receive. ? The fourth student received $648 of subsidized loans that he or she was not eligible to receive. Repeat Finding: See Finding 2021-004 for a similar finding in the prior year. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: One student who received subsidized loans has unsubsidized loan eligibility left after completing the needs analysis calculation. A total of $648 of subsidized loans should be reclassified to unsubsidized loans. The School should return a total $3,589 of unsubsidized loans for the remaining three students associated with this finding. Going forward, the School should limit subsidized and unsubsidized, plus, and private loan borrowing to the student?s cost of attendance. The Financial Aid Director should verify the correct cost of attendance is used on internally created spreadsheets. Management Response: Management agrees with the auditors? finding and their recommendation. The School will reclassify $648 of subsidized funds as unsubsidized funds. The School will return $3,589 of unsubsidized loan funds to the Department of Education. The Financial Aid Director will limit the total amount of aid a student receives to his or her cost of attendance and verify the cost of attendance used on internally created spreadsheets is correct.
FINDING 2022-007 ? NSLDS Reporting Federal Agency: U.S. Department of Education; Office of Federal Student Aid Pass through Entity: Not applicable Program Name: Federal Direct Student Loan Program ALN and Program Expenditures: 84.268 ($149,449) Award Number: P268K223976 Federal Award Year: July 1, 2021 to June 30, 2022 Questioned Costs: None Condition Found: The incorrect effective date of an enrollment status change was reported to the National Student Loan Database System (?NSLDS?) for one of the twenty-eight students selected for testing. Criteria: NSLDS informs loan servicers of changes in a student?s enrollment status that indicate when the repayments or interest accrual begins and ends. The date a student enrolls, withdraws, graduates, or drops below half-time status should be reported accurately. This information must be reported within sixty days of the status change. Cause: The student withdrew from the School in April 2021 and enrolled in the School again in August 2021. The student attended until March 22, 2022. The NSLDS withdrawal date was reported as April 2021. Possible Asserted Effect: The loan servicers were not aware of the correct deferral, repayment, and interest calculation dates. Repeat Finding: There was not a similar finding in the prior year. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: The Financial Aid Director should update the withdrawal date for the student in question in NSLDS. Procedures should be improved to ensure that the correct withdrawal date is reported in NSLDS. Management Response: The Financial Aid Director updated the withdrawal date in NSLDS for the student in question in November 2022. Procedures will be improved to ensure that the correct withdrawal date is reported in NSLDS.
FINDING 2022-009 ? R2T4 Calculations Federal Agency: U.S. Department of Education; Office of Federal Student Aid Pass through Entity: Not applicable Program Name: Federal Pell Grant Program Federal Direct Student Loan Program ALN and Program Expenditure: 84.063 ($484,684) 84.268 ($149,449) Award Number: P063P203976 P268K223976 Federal Award Year: July 1, 2021 to June 30, 2022 Questioned Costs: 84.063 ($1,167.43) Condition Found: All seven of the R2T4s completed by the School during the fiscal year were reviewed. The following items were noted: ? One R2T4 was calculated correctly, but $1,533.02 of Federal Grant funds were returned instead of $1,617.45 as required by the R2T4 calculation. ? One R2T4 was calculated correctly; however Federal Pell Grant funds totaling $1,083 were not returned to the Department of Education as required by the R2T4 calculation. ? One R2T4 was calculated correctly, but the funds were not returned timely. The correct amount of funds were returned before audit fieldwork began. Criteria: A R2T4 calculation is required when a student withdraws from all courses during an enrollment period. Funds are required to be returned to the Department of Education or lender within forty-five days of the date of determination. Cause: ? The incorrect amount was returned to the Department of Education. ? Due to a miscommunication between the financial aid and business offices, the School missed returning the R2T4 funds. ? Due to a miscommunication between the financial aid and business offices, the School returned the R2T4 funds after forty-five days from the date of determination. Possible Asserted Effect: ? An additional $84.43 of Federal Pell Grant funds should be returned to the Department of Education. ? $1,083 of Federal Pell Grant funds should be returned to the Department of Education. ? The R2T4 funds were not returned within forty-five days from the date of determination. Repeat Finding: See Finding 2021-005 for a similar finding in the prior year. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: The School should return at total of $1,167.43 of Federal Pell Grant funds. The Financial Aid Office should double check the data entry on the R2T4s. Procedures should be improved to ensure that R2T4 funds are returned timely. Management Response: The Student Financial Aid Director returned $84.43 of Federal Pell funds for the first student in question in November 2022. $1,083 of Federal Pell Grant funds were returned for the second student in question on November 4, 2022. Procedures will be improved to ensure that the R2T4 funds are returned timely.
FINDING 2022-001 ? Completeness and Recording of Liabilities Condition Found: During our search for unrecorded liabilities, we noted that the cost of numerous services performed during the year ended June 30, 2022 were not recorded in accounts payable. In addition, there was an overpayment on credit card purchases that was improperly netted with expenditures made during the period. Criteria: Internal controls around the cutoff of payables are critical for the accuracy of the accrual basis of accounting. Under the accrual basis of accounting, expenses are recorded when then they occur or transferred to the buyer, rather than at the time when expenses are paid. Cause: The School did not have adequate cutoff procedures in place at June 30, 2022. Possible Asserted Effect: Due to inappropriate cutoff procedures established at year-end, the School failed to record accruals for utilities services and various professional services totaling approximately $251,000. In addition, there was an overpayment on credit card purchases that caused accounts payable to be overstated by approximately $27,000. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that the School prepare written instructions to be included in the School?s accounting policies and procedures manual that indicate basic procedures to achieve proper cutoff and completeness of accounts payable, accrued liabilities and prepaid expenses in the financial closing process, as well as specify the positions/staff responsible for performing such procedures and controls. Management Response: The School made the required adjustments to their accounting records. The School will prepare written instructions to be included in the School?s accounting policies and procedures manual that indicate basic procedures to achieve proper cutoff and completeness of accounts payable, accrued liabilities and prepaid expenses in the financial closing process, as well as specify the positions/staff responsible for performing such procedures and controls. This will be completed in time to improve the cutoff procedures for the year ending June 30, 2023 (FY 2023).
FINDING 2022-002 ? Capitalizing Property and Equipment Condition Found: During our testing of property and equipment, we noted multiple expenditures related to property and equipment that were not recorded properly. In one instance, a residence was purchased through a financing arrangement in which the disbursement was recorded as the total cost. In other instances, the School capitalized purchases based on what was disbursed instead of the total invoice received. In addition, there was an issue in correctly capitalizing improvements of buildings and donated assets. Lastly, there were disposals of vehicles that were improperly recorded by lowering depreciation expense instead of accumulated depreciation. Criteria: Property and equipment expenditures should be scrutinized by management to ensure that the proper amounts are capitalized, including reviewing the total invoice instead of the amount disbursed. In addition, donated property should be valued at the fair value on the date of the donation using third party appraisals when appropriate. Lastly, disposal of assets should decrease the accumulated depreciation balance and the gain/loss account, without affecting the depreciation expense. Cause: The School did not have adequate procedures in place to identify and record transactions related to property and equipment. Possible Asserted Effect: This resulted in numerous adjustments totaling approximately $995,000. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend the following: ? Property and equipment purchased under a financing arrangement should be reviewed thoroughly by management, and the total cost and related debt should be recorded on the purchase date. The asset cost should be depreciated over the estimated useful life, and subsequent payments on the debt should be recorded as reductions of the liability accrued. ? Property and equipment should be recorded based on the invoice and not that based on the disbursement made. Management should review the invoice along with the disbursement made. ? A written policy should be developed for recognizing in-kind contributions of goods and services. This policy will be most beneficial in that it will allow for easier and more consistent accounting treatment for contributed goods and services. Management Response: The School made the required adjustments to their accounting records. The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-003 ? Recognizing Government Grants and Contributions Condition Found: During our testing of government grants, it was noted that the School filed for the employee retention tax credit (ERC) in February 2022. However, the amounts filed not yet received by June 30, 2022 were not recorded properly as a receivable and revenue as of year-end. Criteria: According to U.S. GAAP, contributions and grants should be recorded when received, if both a right of release and barrier do not exist. With the expenditure of qualified expenses and the filing for funding, there are no additional barriers with which the School needs to satisfy in order to recognize the grant related revenue. Therefore, a receivable and revenue should have been recorded as of year-end. Cause: The School was unaware of the U.S. GAAP requirements related to the recording of the ERC. Possible Asserted Effect: This resulted in an adjustment totaling $1,142,855. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that all correspondence whether from an individual, corporation, foundation, or government entity (including government agreements/grants), be evaluated for whether the School has satisfied all conditions necessary to recognize contribution revenue. In the not-for-profit industry, ?received? generally means ?communicated? and is not necessarily synonymous with ?collected.? A donee may receive a contribution well before it is ever actually collected and deposited into the bank. For such timing differences, a contribution should be recognized immediately for the total amount promised, instead of when collected. Management Response: The School made the required adjustments to their accounting records The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-004 ? Calculation of Allowance for Doubtful Accounts for Receivables Condition Found: During our testing of accounts and notes receivable, it was noted that there were no calculation, schedule, analysis, policy or other supporting documentation for the allowances that are noted within the financial statements. In fact, the allowances as of June 30, 2022 have remained at the same level for the past few years. Criteria: The allowance for doubtful accounts should represent management?s estimate of the amounts that might not be paid by customers. If actual experience differs, then management adjusts its estimation methodology to bring the reserve more into alignment with actual results. In accrual-basis accounting, adjusting the allowance for doubtful accounts at year-end improves the accuracy of financial reports representing a net realizable value for receivables. Cause: Due to staffing changes over past few years, the allowance for doubtful accounts had not been reviewed. Possible Asserted Effect: This resulted in an adjustment totaling $17,000 for the Schell notes receivable allowance. In addition, there could be potentially future material adjusting journal entry to the allowance balances for both tuition and Schell notes receivable if a policy and proper analyses are not performed by management. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that management develop a method to determine an appropriate allowance for doubtful accounts estimation process methodology and consistently use it on a periodic basis, at least annually, to analyze whether an allowance should be recorded. There are several methods for management to use as an analysis to determine the appropriate allowance. We recommend that management consider the following methods: ? Management should develop an accounts receivable schedule that is categorized or based on days the receivable has been outstanding (30 days, 60 days, 90 days, 120+ days, one year, two, years, etc.). This will assist management to evaluate collectability based on how long the receivable has been outstanding. ? Comparing bad debt expense each year to write-offs during that year. Using this ratio over multiple years, rather than a single year could provide an useful method to calculate an accurate allowance. It is reasonable to expect the ratio of bad debt expense to write-offs to be close to 1.0 over an extended period. ? Comparing the beginning allowance for doubtful accounts to subsequent write-offs determines the adequacy of the existing allowance. Lower ratios indicate the allowance may be too low, while higher ratios may signify the accumulation of excessive allowances. Management Response: The School made the required adjustments to their accounting records The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-006 ? Authorization to Hold Credit Balances Federal Agency: U.S. Department of Education; Office of Federal Student Aid Pass through Entity: Not applicable Program Name: Federal Pell Grant ALN and Program Expenditures: 84.063 ($484,684) Award Number: P063P213976 Federal Award Year: July 1, 2021 to June 30, 2022 Questioned Costs: None Condition Found: For three of the twenty-eight students in our sample, the School held Title IV credit balances for longer than fourteen days without written authorization. Criteria: An institution may not hold a credit balance, which is caused by federal student financial aid funds, on a student?s account for more than fourteen days without written authorization from the student. Cause: Staffing changes at the School lead to the authorization to hold credit balance forms not being completed. Possible Asserted Effect: The Title IV credit balance was not returned timely to the student. Repeat Finding: There was not a similar finding in the prior year. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: The credit balances were returned to the students in question before the end of the academic year. Communication should be improved between the offices involved in the disbursement process to ensure that credit balances are refunded timely. Management Response: The credit balances were returned to the students in question before the end of the academic year. The financial aid office will follow-up with the cashier to ensure that, in the absence of a signed authorization to hold credit balances, the credit balance refunds are processed timely.
FINDING 2022-008 ? Pell Award Calculation Federal Agency: U.S. Department of Education; Office of Federal Student Aid Pass through Entity: Not applicable Program Name: Federal Pell Grant Program ALN and Program Expenditure: 84.063 ($484,684) Award Number: P063P213976 Federal Award Year: July 1, 2021 to June 30, 2022 Questioned Costs: $181 Condition Found: The amount of Pell grant awarded was calculated incorrectly for one of the twenty-nine students who received Pell in our sample. The student was awarded Pell grant funds as if the student was enrolled full-time when the student was enrolled ? time. Cause: The Financial Aid Office was not informed that the student decided to take nine hours (3/4 time) instead of twelve hours (full-time). Possible Asserted Effect: $181 needs to be returned to the Department of Education. Communication between offices should be improved to ensure that the financial aid office is informed when a student makes changes to their enrollment status. Repeat Finding: See Finding 2021-006 for a similar finding in the prior year. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: The School should return $181 of Federal Pell Grant funds to the Department of Education. Communication between the offices should be improved so that the financial aid office is promptly made aware of changes in a student?s enrollment status. Management Response: The School returned the $181 in question to the Department of Education in December 2022. Communication will be improved between the various offices on campus.
FINDING 2022-009 ? R2T4 Calculations Federal Agency: U.S. Department of Education; Office of Federal Student Aid Pass through Entity: Not applicable Program Name: Federal Pell Grant Program Federal Direct Student Loan Program ALN and Program Expenditure: 84.063 ($484,684) 84.268 ($149,449) Award Number: P063P203976 P268K223976 Federal Award Year: July 1, 2021 to June 30, 2022 Questioned Costs: 84.063 ($1,167.43) Condition Found: All seven of the R2T4s completed by the School during the fiscal year were reviewed. The following items were noted: ? One R2T4 was calculated correctly, but $1,533.02 of Federal Grant funds were returned instead of $1,617.45 as required by the R2T4 calculation. ? One R2T4 was calculated correctly; however Federal Pell Grant funds totaling $1,083 were not returned to the Department of Education as required by the R2T4 calculation. ? One R2T4 was calculated correctly, but the funds were not returned timely. The correct amount of funds were returned before audit fieldwork began. Criteria: A R2T4 calculation is required when a student withdraws from all courses during an enrollment period. Funds are required to be returned to the Department of Education or lender within forty-five days of the date of determination. Cause: ? The incorrect amount was returned to the Department of Education. ? Due to a miscommunication between the financial aid and business offices, the School missed returning the R2T4 funds. ? Due to a miscommunication between the financial aid and business offices, the School returned the R2T4 funds after forty-five days from the date of determination. Possible Asserted Effect: ? An additional $84.43 of Federal Pell Grant funds should be returned to the Department of Education. ? $1,083 of Federal Pell Grant funds should be returned to the Department of Education. ? The R2T4 funds were not returned within forty-five days from the date of determination. Repeat Finding: See Finding 2021-005 for a similar finding in the prior year. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: The School should return at total of $1,167.43 of Federal Pell Grant funds. The Financial Aid Office should double check the data entry on the R2T4s. Procedures should be improved to ensure that R2T4 funds are returned timely. Management Response: The Student Financial Aid Director returned $84.43 of Federal Pell funds for the first student in question in November 2022. $1,083 of Federal Pell Grant funds were returned for the second student in question on November 4, 2022. Procedures will be improved to ensure that the R2T4 funds are returned timely.
FINDING 2022-001 ? Completeness and Recording of Liabilities Condition Found: During our search for unrecorded liabilities, we noted that the cost of numerous services performed during the year ended June 30, 2022 were not recorded in accounts payable. In addition, there was an overpayment on credit card purchases that was improperly netted with expenditures made during the period. Criteria: Internal controls around the cutoff of payables are critical for the accuracy of the accrual basis of accounting. Under the accrual basis of accounting, expenses are recorded when then they occur or transferred to the buyer, rather than at the time when expenses are paid. Cause: The School did not have adequate cutoff procedures in place at June 30, 2022. Possible Asserted Effect: Due to inappropriate cutoff procedures established at year-end, the School failed to record accruals for utilities services and various professional services totaling approximately $251,000. In addition, there was an overpayment on credit card purchases that caused accounts payable to be overstated by approximately $27,000. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that the School prepare written instructions to be included in the School?s accounting policies and procedures manual that indicate basic procedures to achieve proper cutoff and completeness of accounts payable, accrued liabilities and prepaid expenses in the financial closing process, as well as specify the positions/staff responsible for performing such procedures and controls. Management Response: The School made the required adjustments to their accounting records. The School will prepare written instructions to be included in the School?s accounting policies and procedures manual that indicate basic procedures to achieve proper cutoff and completeness of accounts payable, accrued liabilities and prepaid expenses in the financial closing process, as well as specify the positions/staff responsible for performing such procedures and controls. This will be completed in time to improve the cutoff procedures for the year ending June 30, 2023 (FY 2023).
FINDING 2022-002 ? Capitalizing Property and Equipment Condition Found: During our testing of property and equipment, we noted multiple expenditures related to property and equipment that were not recorded properly. In one instance, a residence was purchased through a financing arrangement in which the disbursement was recorded as the total cost. In other instances, the School capitalized purchases based on what was disbursed instead of the total invoice received. In addition, there was an issue in correctly capitalizing improvements of buildings and donated assets. Lastly, there were disposals of vehicles that were improperly recorded by lowering depreciation expense instead of accumulated depreciation. Criteria: Property and equipment expenditures should be scrutinized by management to ensure that the proper amounts are capitalized, including reviewing the total invoice instead of the amount disbursed. In addition, donated property should be valued at the fair value on the date of the donation using third party appraisals when appropriate. Lastly, disposal of assets should decrease the accumulated depreciation balance and the gain/loss account, without affecting the depreciation expense. Cause: The School did not have adequate procedures in place to identify and record transactions related to property and equipment. Possible Asserted Effect: This resulted in numerous adjustments totaling approximately $995,000. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend the following: ? Property and equipment purchased under a financing arrangement should be reviewed thoroughly by management, and the total cost and related debt should be recorded on the purchase date. The asset cost should be depreciated over the estimated useful life, and subsequent payments on the debt should be recorded as reductions of the liability accrued. ? Property and equipment should be recorded based on the invoice and not that based on the disbursement made. Management should review the invoice along with the disbursement made. ? A written policy should be developed for recognizing in-kind contributions of goods and services. This policy will be most beneficial in that it will allow for easier and more consistent accounting treatment for contributed goods and services. Management Response: The School made the required adjustments to their accounting records. The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-003 ? Recognizing Government Grants and Contributions Condition Found: During our testing of government grants, it was noted that the School filed for the employee retention tax credit (ERC) in February 2022. However, the amounts filed not yet received by June 30, 2022 were not recorded properly as a receivable and revenue as of year-end. Criteria: According to U.S. GAAP, contributions and grants should be recorded when received, if both a right of release and barrier do not exist. With the expenditure of qualified expenses and the filing for funding, there are no additional barriers with which the School needs to satisfy in order to recognize the grant related revenue. Therefore, a receivable and revenue should have been recorded as of year-end. Cause: The School was unaware of the U.S. GAAP requirements related to the recording of the ERC. Possible Asserted Effect: This resulted in an adjustment totaling $1,142,855. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that all correspondence whether from an individual, corporation, foundation, or government entity (including government agreements/grants), be evaluated for whether the School has satisfied all conditions necessary to recognize contribution revenue. In the not-for-profit industry, ?received? generally means ?communicated? and is not necessarily synonymous with ?collected.? A donee may receive a contribution well before it is ever actually collected and deposited into the bank. For such timing differences, a contribution should be recognized immediately for the total amount promised, instead of when collected. Management Response: The School made the required adjustments to their accounting records The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-004 ? Calculation of Allowance for Doubtful Accounts for Receivables Condition Found: During our testing of accounts and notes receivable, it was noted that there were no calculation, schedule, analysis, policy or other supporting documentation for the allowances that are noted within the financial statements. In fact, the allowances as of June 30, 2022 have remained at the same level for the past few years. Criteria: The allowance for doubtful accounts should represent management?s estimate of the amounts that might not be paid by customers. If actual experience differs, then management adjusts its estimation methodology to bring the reserve more into alignment with actual results. In accrual-basis accounting, adjusting the allowance for doubtful accounts at year-end improves the accuracy of financial reports representing a net realizable value for receivables. Cause: Due to staffing changes over past few years, the allowance for doubtful accounts had not been reviewed. Possible Asserted Effect: This resulted in an adjustment totaling $17,000 for the Schell notes receivable allowance. In addition, there could be potentially future material adjusting journal entry to the allowance balances for both tuition and Schell notes receivable if a policy and proper analyses are not performed by management. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that management develop a method to determine an appropriate allowance for doubtful accounts estimation process methodology and consistently use it on a periodic basis, at least annually, to analyze whether an allowance should be recorded. There are several methods for management to use as an analysis to determine the appropriate allowance. We recommend that management consider the following methods: ? Management should develop an accounts receivable schedule that is categorized or based on days the receivable has been outstanding (30 days, 60 days, 90 days, 120+ days, one year, two, years, etc.). This will assist management to evaluate collectability based on how long the receivable has been outstanding. ? Comparing bad debt expense each year to write-offs during that year. Using this ratio over multiple years, rather than a single year could provide an useful method to calculate an accurate allowance. It is reasonable to expect the ratio of bad debt expense to write-offs to be close to 1.0 over an extended period. ? Comparing the beginning allowance for doubtful accounts to subsequent write-offs determines the adequacy of the existing allowance. Lower ratios indicate the allowance may be too low, while higher ratios may signify the accumulation of excessive allowances. Management Response: The School made the required adjustments to their accounting records The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-001 ? Completeness and Recording of Liabilities Condition Found: During our search for unrecorded liabilities, we noted that the cost of numerous services performed during the year ended June 30, 2022 were not recorded in accounts payable. In addition, there was an overpayment on credit card purchases that was improperly netted with expenditures made during the period. Criteria: Internal controls around the cutoff of payables are critical for the accuracy of the accrual basis of accounting. Under the accrual basis of accounting, expenses are recorded when then they occur or transferred to the buyer, rather than at the time when expenses are paid. Cause: The School did not have adequate cutoff procedures in place at June 30, 2022. Possible Asserted Effect: Due to inappropriate cutoff procedures established at year-end, the School failed to record accruals for utilities services and various professional services totaling approximately $251,000. In addition, there was an overpayment on credit card purchases that caused accounts payable to be overstated by approximately $27,000. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that the School prepare written instructions to be included in the School?s accounting policies and procedures manual that indicate basic procedures to achieve proper cutoff and completeness of accounts payable, accrued liabilities and prepaid expenses in the financial closing process, as well as specify the positions/staff responsible for performing such procedures and controls. Management Response: The School made the required adjustments to their accounting records. The School will prepare written instructions to be included in the School?s accounting policies and procedures manual that indicate basic procedures to achieve proper cutoff and completeness of accounts payable, accrued liabilities and prepaid expenses in the financial closing process, as well as specify the positions/staff responsible for performing such procedures and controls. This will be completed in time to improve the cutoff procedures for the year ending June 30, 2023 (FY 2023).
FINDING 2022-002 ? Capitalizing Property and Equipment Condition Found: During our testing of property and equipment, we noted multiple expenditures related to property and equipment that were not recorded properly. In one instance, a residence was purchased through a financing arrangement in which the disbursement was recorded as the total cost. In other instances, the School capitalized purchases based on what was disbursed instead of the total invoice received. In addition, there was an issue in correctly capitalizing improvements of buildings and donated assets. Lastly, there were disposals of vehicles that were improperly recorded by lowering depreciation expense instead of accumulated depreciation. Criteria: Property and equipment expenditures should be scrutinized by management to ensure that the proper amounts are capitalized, including reviewing the total invoice instead of the amount disbursed. In addition, donated property should be valued at the fair value on the date of the donation using third party appraisals when appropriate. Lastly, disposal of assets should decrease the accumulated depreciation balance and the gain/loss account, without affecting the depreciation expense. Cause: The School did not have adequate procedures in place to identify and record transactions related to property and equipment. Possible Asserted Effect: This resulted in numerous adjustments totaling approximately $995,000. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend the following: ? Property and equipment purchased under a financing arrangement should be reviewed thoroughly by management, and the total cost and related debt should be recorded on the purchase date. The asset cost should be depreciated over the estimated useful life, and subsequent payments on the debt should be recorded as reductions of the liability accrued. ? Property and equipment should be recorded based on the invoice and not that based on the disbursement made. Management should review the invoice along with the disbursement made. ? A written policy should be developed for recognizing in-kind contributions of goods and services. This policy will be most beneficial in that it will allow for easier and more consistent accounting treatment for contributed goods and services. Management Response: The School made the required adjustments to their accounting records. The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-003 ? Recognizing Government Grants and Contributions Condition Found: During our testing of government grants, it was noted that the School filed for the employee retention tax credit (ERC) in February 2022. However, the amounts filed not yet received by June 30, 2022 were not recorded properly as a receivable and revenue as of year-end. Criteria: According to U.S. GAAP, contributions and grants should be recorded when received, if both a right of release and barrier do not exist. With the expenditure of qualified expenses and the filing for funding, there are no additional barriers with which the School needs to satisfy in order to recognize the grant related revenue. Therefore, a receivable and revenue should have been recorded as of year-end. Cause: The School was unaware of the U.S. GAAP requirements related to the recording of the ERC. Possible Asserted Effect: This resulted in an adjustment totaling $1,142,855. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that all correspondence whether from an individual, corporation, foundation, or government entity (including government agreements/grants), be evaluated for whether the School has satisfied all conditions necessary to recognize contribution revenue. In the not-for-profit industry, ?received? generally means ?communicated? and is not necessarily synonymous with ?collected.? A donee may receive a contribution well before it is ever actually collected and deposited into the bank. For such timing differences, a contribution should be recognized immediately for the total amount promised, instead of when collected. Management Response: The School made the required adjustments to their accounting records The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-004 ? Calculation of Allowance for Doubtful Accounts for Receivables Condition Found: During our testing of accounts and notes receivable, it was noted that there were no calculation, schedule, analysis, policy or other supporting documentation for the allowances that are noted within the financial statements. In fact, the allowances as of June 30, 2022 have remained at the same level for the past few years. Criteria: The allowance for doubtful accounts should represent management?s estimate of the amounts that might not be paid by customers. If actual experience differs, then management adjusts its estimation methodology to bring the reserve more into alignment with actual results. In accrual-basis accounting, adjusting the allowance for doubtful accounts at year-end improves the accuracy of financial reports representing a net realizable value for receivables. Cause: Due to staffing changes over past few years, the allowance for doubtful accounts had not been reviewed. Possible Asserted Effect: This resulted in an adjustment totaling $17,000 for the Schell notes receivable allowance. In addition, there could be potentially future material adjusting journal entry to the allowance balances for both tuition and Schell notes receivable if a policy and proper analyses are not performed by management. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that management develop a method to determine an appropriate allowance for doubtful accounts estimation process methodology and consistently use it on a periodic basis, at least annually, to analyze whether an allowance should be recorded. There are several methods for management to use as an analysis to determine the appropriate allowance. We recommend that management consider the following methods: ? Management should develop an accounts receivable schedule that is categorized or based on days the receivable has been outstanding (30 days, 60 days, 90 days, 120+ days, one year, two, years, etc.). This will assist management to evaluate collectability based on how long the receivable has been outstanding. ? Comparing bad debt expense each year to write-offs during that year. Using this ratio over multiple years, rather than a single year could provide an useful method to calculate an accurate allowance. It is reasonable to expect the ratio of bad debt expense to write-offs to be close to 1.0 over an extended period. ? Comparing the beginning allowance for doubtful accounts to subsequent write-offs determines the adequacy of the existing allowance. Lower ratios indicate the allowance may be too low, while higher ratios may signify the accumulation of excessive allowances. Management Response: The School made the required adjustments to their accounting records The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-001 ? Completeness and Recording of Liabilities Condition Found: During our search for unrecorded liabilities, we noted that the cost of numerous services performed during the year ended June 30, 2022 were not recorded in accounts payable. In addition, there was an overpayment on credit card purchases that was improperly netted with expenditures made during the period. Criteria: Internal controls around the cutoff of payables are critical for the accuracy of the accrual basis of accounting. Under the accrual basis of accounting, expenses are recorded when then they occur or transferred to the buyer, rather than at the time when expenses are paid. Cause: The School did not have adequate cutoff procedures in place at June 30, 2022. Possible Asserted Effect: Due to inappropriate cutoff procedures established at year-end, the School failed to record accruals for utilities services and various professional services totaling approximately $251,000. In addition, there was an overpayment on credit card purchases that caused accounts payable to be overstated by approximately $27,000. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that the School prepare written instructions to be included in the School?s accounting policies and procedures manual that indicate basic procedures to achieve proper cutoff and completeness of accounts payable, accrued liabilities and prepaid expenses in the financial closing process, as well as specify the positions/staff responsible for performing such procedures and controls. Management Response: The School made the required adjustments to their accounting records. The School will prepare written instructions to be included in the School?s accounting policies and procedures manual that indicate basic procedures to achieve proper cutoff and completeness of accounts payable, accrued liabilities and prepaid expenses in the financial closing process, as well as specify the positions/staff responsible for performing such procedures and controls. This will be completed in time to improve the cutoff procedures for the year ending June 30, 2023 (FY 2023).
FINDING 2022-002 ? Capitalizing Property and Equipment Condition Found: During our testing of property and equipment, we noted multiple expenditures related to property and equipment that were not recorded properly. In one instance, a residence was purchased through a financing arrangement in which the disbursement was recorded as the total cost. In other instances, the School capitalized purchases based on what was disbursed instead of the total invoice received. In addition, there was an issue in correctly capitalizing improvements of buildings and donated assets. Lastly, there were disposals of vehicles that were improperly recorded by lowering depreciation expense instead of accumulated depreciation. Criteria: Property and equipment expenditures should be scrutinized by management to ensure that the proper amounts are capitalized, including reviewing the total invoice instead of the amount disbursed. In addition, donated property should be valued at the fair value on the date of the donation using third party appraisals when appropriate. Lastly, disposal of assets should decrease the accumulated depreciation balance and the gain/loss account, without affecting the depreciation expense. Cause: The School did not have adequate procedures in place to identify and record transactions related to property and equipment. Possible Asserted Effect: This resulted in numerous adjustments totaling approximately $995,000. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend the following: ? Property and equipment purchased under a financing arrangement should be reviewed thoroughly by management, and the total cost and related debt should be recorded on the purchase date. The asset cost should be depreciated over the estimated useful life, and subsequent payments on the debt should be recorded as reductions of the liability accrued. ? Property and equipment should be recorded based on the invoice and not that based on the disbursement made. Management should review the invoice along with the disbursement made. ? A written policy should be developed for recognizing in-kind contributions of goods and services. This policy will be most beneficial in that it will allow for easier and more consistent accounting treatment for contributed goods and services. Management Response: The School made the required adjustments to their accounting records. The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-003 ? Recognizing Government Grants and Contributions Condition Found: During our testing of government grants, it was noted that the School filed for the employee retention tax credit (ERC) in February 2022. However, the amounts filed not yet received by June 30, 2022 were not recorded properly as a receivable and revenue as of year-end. Criteria: According to U.S. GAAP, contributions and grants should be recorded when received, if both a right of release and barrier do not exist. With the expenditure of qualified expenses and the filing for funding, there are no additional barriers with which the School needs to satisfy in order to recognize the grant related revenue. Therefore, a receivable and revenue should have been recorded as of year-end. Cause: The School was unaware of the U.S. GAAP requirements related to the recording of the ERC. Possible Asserted Effect: This resulted in an adjustment totaling $1,142,855. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that all correspondence whether from an individual, corporation, foundation, or government entity (including government agreements/grants), be evaluated for whether the School has satisfied all conditions necessary to recognize contribution revenue. In the not-for-profit industry, ?received? generally means ?communicated? and is not necessarily synonymous with ?collected.? A donee may receive a contribution well before it is ever actually collected and deposited into the bank. For such timing differences, a contribution should be recognized immediately for the total amount promised, instead of when collected. Management Response: The School made the required adjustments to their accounting records The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-004 ? Calculation of Allowance for Doubtful Accounts for Receivables Condition Found: During our testing of accounts and notes receivable, it was noted that there were no calculation, schedule, analysis, policy or other supporting documentation for the allowances that are noted within the financial statements. In fact, the allowances as of June 30, 2022 have remained at the same level for the past few years. Criteria: The allowance for doubtful accounts should represent management?s estimate of the amounts that might not be paid by customers. If actual experience differs, then management adjusts its estimation methodology to bring the reserve more into alignment with actual results. In accrual-basis accounting, adjusting the allowance for doubtful accounts at year-end improves the accuracy of financial reports representing a net realizable value for receivables. Cause: Due to staffing changes over past few years, the allowance for doubtful accounts had not been reviewed. Possible Asserted Effect: This resulted in an adjustment totaling $17,000 for the Schell notes receivable allowance. In addition, there could be potentially future material adjusting journal entry to the allowance balances for both tuition and Schell notes receivable if a policy and proper analyses are not performed by management. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that management develop a method to determine an appropriate allowance for doubtful accounts estimation process methodology and consistently use it on a periodic basis, at least annually, to analyze whether an allowance should be recorded. There are several methods for management to use as an analysis to determine the appropriate allowance. We recommend that management consider the following methods: ? Management should develop an accounts receivable schedule that is categorized or based on days the receivable has been outstanding (30 days, 60 days, 90 days, 120+ days, one year, two, years, etc.). This will assist management to evaluate collectability based on how long the receivable has been outstanding. ? Comparing bad debt expense each year to write-offs during that year. Using this ratio over multiple years, rather than a single year could provide an useful method to calculate an accurate allowance. It is reasonable to expect the ratio of bad debt expense to write-offs to be close to 1.0 over an extended period. ? Comparing the beginning allowance for doubtful accounts to subsequent write-offs determines the adequacy of the existing allowance. Lower ratios indicate the allowance may be too low, while higher ratios may signify the accumulation of excessive allowances. Management Response: The School made the required adjustments to their accounting records The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-005 ? Overaward Federal Agency: U.S. Department of Education; Office of Federal Student Aid Pass through Entity: Not applicable Program Name: Federal Direct Student Loan Program ALN and Program Expenditures: 84.268 ($149,449) Award Number: P268K223976 Federal Award Year: July 1, 2021 to June 30, 2022 Questioned Costs: $4,237 Condition Found: There was a combined total of $4,237 of overawards given to four of the twenty-eight students in our sample. Criteria: The total amount of aid a student receives cannot be greater than his or her cost of attendance. Cause: The incorrect cost of attendance was input into the School?s loan spreadsheet that determined the remaining need and loan eligibility for the students in question. Possible Asserted Effect: There was a total of $4,237 in overawards between the four students: ? The first student received $55 of unsubsidized loans that he or she was not eligible to receive. ? The second student received $1,429 of unsubsidized loans that he or she was not eligible to receive. ? The third student received $2,105 of unsubsidized loans that he or she was not eligible to receive. ? The fourth student received $648 of subsidized loans that he or she was not eligible to receive. Repeat Finding: See Finding 2021-004 for a similar finding in the prior year. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: One student who received subsidized loans has unsubsidized loan eligibility left after completing the needs analysis calculation. A total of $648 of subsidized loans should be reclassified to unsubsidized loans. The School should return a total $3,589 of unsubsidized loans for the remaining three students associated with this finding. Going forward, the School should limit subsidized and unsubsidized, plus, and private loan borrowing to the student?s cost of attendance. The Financial Aid Director should verify the correct cost of attendance is used on internally created spreadsheets. Management Response: Management agrees with the auditors? finding and their recommendation. The School will reclassify $648 of subsidized funds as unsubsidized funds. The School will return $3,589 of unsubsidized loan funds to the Department of Education. The Financial Aid Director will limit the total amount of aid a student receives to his or her cost of attendance and verify the cost of attendance used on internally created spreadsheets is correct.
FINDING 2022-007 ? NSLDS Reporting Federal Agency: U.S. Department of Education; Office of Federal Student Aid Pass through Entity: Not applicable Program Name: Federal Direct Student Loan Program ALN and Program Expenditures: 84.268 ($149,449) Award Number: P268K223976 Federal Award Year: July 1, 2021 to June 30, 2022 Questioned Costs: None Condition Found: The incorrect effective date of an enrollment status change was reported to the National Student Loan Database System (?NSLDS?) for one of the twenty-eight students selected for testing. Criteria: NSLDS informs loan servicers of changes in a student?s enrollment status that indicate when the repayments or interest accrual begins and ends. The date a student enrolls, withdraws, graduates, or drops below half-time status should be reported accurately. This information must be reported within sixty days of the status change. Cause: The student withdrew from the School in April 2021 and enrolled in the School again in August 2021. The student attended until March 22, 2022. The NSLDS withdrawal date was reported as April 2021. Possible Asserted Effect: The loan servicers were not aware of the correct deferral, repayment, and interest calculation dates. Repeat Finding: There was not a similar finding in the prior year. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: The Financial Aid Director should update the withdrawal date for the student in question in NSLDS. Procedures should be improved to ensure that the correct withdrawal date is reported in NSLDS. Management Response: The Financial Aid Director updated the withdrawal date in NSLDS for the student in question in November 2022. Procedures will be improved to ensure that the correct withdrawal date is reported in NSLDS.
FINDING 2022-009 ? R2T4 Calculations Federal Agency: U.S. Department of Education; Office of Federal Student Aid Pass through Entity: Not applicable Program Name: Federal Pell Grant Program Federal Direct Student Loan Program ALN and Program Expenditure: 84.063 ($484,684) 84.268 ($149,449) Award Number: P063P203976 P268K223976 Federal Award Year: July 1, 2021 to June 30, 2022 Questioned Costs: 84.063 ($1,167.43) Condition Found: All seven of the R2T4s completed by the School during the fiscal year were reviewed. The following items were noted: ? One R2T4 was calculated correctly, but $1,533.02 of Federal Grant funds were returned instead of $1,617.45 as required by the R2T4 calculation. ? One R2T4 was calculated correctly; however Federal Pell Grant funds totaling $1,083 were not returned to the Department of Education as required by the R2T4 calculation. ? One R2T4 was calculated correctly, but the funds were not returned timely. The correct amount of funds were returned before audit fieldwork began. Criteria: A R2T4 calculation is required when a student withdraws from all courses during an enrollment period. Funds are required to be returned to the Department of Education or lender within forty-five days of the date of determination. Cause: ? The incorrect amount was returned to the Department of Education. ? Due to a miscommunication between the financial aid and business offices, the School missed returning the R2T4 funds. ? Due to a miscommunication between the financial aid and business offices, the School returned the R2T4 funds after forty-five days from the date of determination. Possible Asserted Effect: ? An additional $84.43 of Federal Pell Grant funds should be returned to the Department of Education. ? $1,083 of Federal Pell Grant funds should be returned to the Department of Education. ? The R2T4 funds were not returned within forty-five days from the date of determination. Repeat Finding: See Finding 2021-005 for a similar finding in the prior year. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: The School should return at total of $1,167.43 of Federal Pell Grant funds. The Financial Aid Office should double check the data entry on the R2T4s. Procedures should be improved to ensure that R2T4 funds are returned timely. Management Response: The Student Financial Aid Director returned $84.43 of Federal Pell funds for the first student in question in November 2022. $1,083 of Federal Pell Grant funds were returned for the second student in question on November 4, 2022. Procedures will be improved to ensure that the R2T4 funds are returned timely.
FINDING 2022-001 ? Completeness and Recording of Liabilities Condition Found: During our search for unrecorded liabilities, we noted that the cost of numerous services performed during the year ended June 30, 2022 were not recorded in accounts payable. In addition, there was an overpayment on credit card purchases that was improperly netted with expenditures made during the period. Criteria: Internal controls around the cutoff of payables are critical for the accuracy of the accrual basis of accounting. Under the accrual basis of accounting, expenses are recorded when then they occur or transferred to the buyer, rather than at the time when expenses are paid. Cause: The School did not have adequate cutoff procedures in place at June 30, 2022. Possible Asserted Effect: Due to inappropriate cutoff procedures established at year-end, the School failed to record accruals for utilities services and various professional services totaling approximately $251,000. In addition, there was an overpayment on credit card purchases that caused accounts payable to be overstated by approximately $27,000. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that the School prepare written instructions to be included in the School?s accounting policies and procedures manual that indicate basic procedures to achieve proper cutoff and completeness of accounts payable, accrued liabilities and prepaid expenses in the financial closing process, as well as specify the positions/staff responsible for performing such procedures and controls. Management Response: The School made the required adjustments to their accounting records. The School will prepare written instructions to be included in the School?s accounting policies and procedures manual that indicate basic procedures to achieve proper cutoff and completeness of accounts payable, accrued liabilities and prepaid expenses in the financial closing process, as well as specify the positions/staff responsible for performing such procedures and controls. This will be completed in time to improve the cutoff procedures for the year ending June 30, 2023 (FY 2023).
FINDING 2022-002 ? Capitalizing Property and Equipment Condition Found: During our testing of property and equipment, we noted multiple expenditures related to property and equipment that were not recorded properly. In one instance, a residence was purchased through a financing arrangement in which the disbursement was recorded as the total cost. In other instances, the School capitalized purchases based on what was disbursed instead of the total invoice received. In addition, there was an issue in correctly capitalizing improvements of buildings and donated assets. Lastly, there were disposals of vehicles that were improperly recorded by lowering depreciation expense instead of accumulated depreciation. Criteria: Property and equipment expenditures should be scrutinized by management to ensure that the proper amounts are capitalized, including reviewing the total invoice instead of the amount disbursed. In addition, donated property should be valued at the fair value on the date of the donation using third party appraisals when appropriate. Lastly, disposal of assets should decrease the accumulated depreciation balance and the gain/loss account, without affecting the depreciation expense. Cause: The School did not have adequate procedures in place to identify and record transactions related to property and equipment. Possible Asserted Effect: This resulted in numerous adjustments totaling approximately $995,000. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend the following: ? Property and equipment purchased under a financing arrangement should be reviewed thoroughly by management, and the total cost and related debt should be recorded on the purchase date. The asset cost should be depreciated over the estimated useful life, and subsequent payments on the debt should be recorded as reductions of the liability accrued. ? Property and equipment should be recorded based on the invoice and not that based on the disbursement made. Management should review the invoice along with the disbursement made. ? A written policy should be developed for recognizing in-kind contributions of goods and services. This policy will be most beneficial in that it will allow for easier and more consistent accounting treatment for contributed goods and services. Management Response: The School made the required adjustments to their accounting records. The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-003 ? Recognizing Government Grants and Contributions Condition Found: During our testing of government grants, it was noted that the School filed for the employee retention tax credit (ERC) in February 2022. However, the amounts filed not yet received by June 30, 2022 were not recorded properly as a receivable and revenue as of year-end. Criteria: According to U.S. GAAP, contributions and grants should be recorded when received, if both a right of release and barrier do not exist. With the expenditure of qualified expenses and the filing for funding, there are no additional barriers with which the School needs to satisfy in order to recognize the grant related revenue. Therefore, a receivable and revenue should have been recorded as of year-end. Cause: The School was unaware of the U.S. GAAP requirements related to the recording of the ERC. Possible Asserted Effect: This resulted in an adjustment totaling $1,142,855. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that all correspondence whether from an individual, corporation, foundation, or government entity (including government agreements/grants), be evaluated for whether the School has satisfied all conditions necessary to recognize contribution revenue. In the not-for-profit industry, ?received? generally means ?communicated? and is not necessarily synonymous with ?collected.? A donee may receive a contribution well before it is ever actually collected and deposited into the bank. For such timing differences, a contribution should be recognized immediately for the total amount promised, instead of when collected. Management Response: The School made the required adjustments to their accounting records The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-004 ? Calculation of Allowance for Doubtful Accounts for Receivables Condition Found: During our testing of accounts and notes receivable, it was noted that there were no calculation, schedule, analysis, policy or other supporting documentation for the allowances that are noted within the financial statements. In fact, the allowances as of June 30, 2022 have remained at the same level for the past few years. Criteria: The allowance for doubtful accounts should represent management?s estimate of the amounts that might not be paid by customers. If actual experience differs, then management adjusts its estimation methodology to bring the reserve more into alignment with actual results. In accrual-basis accounting, adjusting the allowance for doubtful accounts at year-end improves the accuracy of financial reports representing a net realizable value for receivables. Cause: Due to staffing changes over past few years, the allowance for doubtful accounts had not been reviewed. Possible Asserted Effect: This resulted in an adjustment totaling $17,000 for the Schell notes receivable allowance. In addition, there could be potentially future material adjusting journal entry to the allowance balances for both tuition and Schell notes receivable if a policy and proper analyses are not performed by management. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that management develop a method to determine an appropriate allowance for doubtful accounts estimation process methodology and consistently use it on a periodic basis, at least annually, to analyze whether an allowance should be recorded. There are several methods for management to use as an analysis to determine the appropriate allowance. We recommend that management consider the following methods: ? Management should develop an accounts receivable schedule that is categorized or based on days the receivable has been outstanding (30 days, 60 days, 90 days, 120+ days, one year, two, years, etc.). This will assist management to evaluate collectability based on how long the receivable has been outstanding. ? Comparing bad debt expense each year to write-offs during that year. Using this ratio over multiple years, rather than a single year could provide an useful method to calculate an accurate allowance. It is reasonable to expect the ratio of bad debt expense to write-offs to be close to 1.0 over an extended period. ? Comparing the beginning allowance for doubtful accounts to subsequent write-offs determines the adequacy of the existing allowance. Lower ratios indicate the allowance may be too low, while higher ratios may signify the accumulation of excessive allowances. Management Response: The School made the required adjustments to their accounting records The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-006 ? Authorization to Hold Credit Balances Federal Agency: U.S. Department of Education; Office of Federal Student Aid Pass through Entity: Not applicable Program Name: Federal Pell Grant ALN and Program Expenditures: 84.063 ($484,684) Award Number: P063P213976 Federal Award Year: July 1, 2021 to June 30, 2022 Questioned Costs: None Condition Found: For three of the twenty-eight students in our sample, the School held Title IV credit balances for longer than fourteen days without written authorization. Criteria: An institution may not hold a credit balance, which is caused by federal student financial aid funds, on a student?s account for more than fourteen days without written authorization from the student. Cause: Staffing changes at the School lead to the authorization to hold credit balance forms not being completed. Possible Asserted Effect: The Title IV credit balance was not returned timely to the student. Repeat Finding: There was not a similar finding in the prior year. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: The credit balances were returned to the students in question before the end of the academic year. Communication should be improved between the offices involved in the disbursement process to ensure that credit balances are refunded timely. Management Response: The credit balances were returned to the students in question before the end of the academic year. The financial aid office will follow-up with the cashier to ensure that, in the absence of a signed authorization to hold credit balances, the credit balance refunds are processed timely.
FINDING 2022-008 ? Pell Award Calculation Federal Agency: U.S. Department of Education; Office of Federal Student Aid Pass through Entity: Not applicable Program Name: Federal Pell Grant Program ALN and Program Expenditure: 84.063 ($484,684) Award Number: P063P213976 Federal Award Year: July 1, 2021 to June 30, 2022 Questioned Costs: $181 Condition Found: The amount of Pell grant awarded was calculated incorrectly for one of the twenty-nine students who received Pell in our sample. The student was awarded Pell grant funds as if the student was enrolled full-time when the student was enrolled ? time. Cause: The Financial Aid Office was not informed that the student decided to take nine hours (3/4 time) instead of twelve hours (full-time). Possible Asserted Effect: $181 needs to be returned to the Department of Education. Communication between offices should be improved to ensure that the financial aid office is informed when a student makes changes to their enrollment status. Repeat Finding: See Finding 2021-006 for a similar finding in the prior year. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: The School should return $181 of Federal Pell Grant funds to the Department of Education. Communication between the offices should be improved so that the financial aid office is promptly made aware of changes in a student?s enrollment status. Management Response: The School returned the $181 in question to the Department of Education in December 2022. Communication will be improved between the various offices on campus.
FINDING 2022-009 ? R2T4 Calculations Federal Agency: U.S. Department of Education; Office of Federal Student Aid Pass through Entity: Not applicable Program Name: Federal Pell Grant Program Federal Direct Student Loan Program ALN and Program Expenditure: 84.063 ($484,684) 84.268 ($149,449) Award Number: P063P203976 P268K223976 Federal Award Year: July 1, 2021 to June 30, 2022 Questioned Costs: 84.063 ($1,167.43) Condition Found: All seven of the R2T4s completed by the School during the fiscal year were reviewed. The following items were noted: ? One R2T4 was calculated correctly, but $1,533.02 of Federal Grant funds were returned instead of $1,617.45 as required by the R2T4 calculation. ? One R2T4 was calculated correctly; however Federal Pell Grant funds totaling $1,083 were not returned to the Department of Education as required by the R2T4 calculation. ? One R2T4 was calculated correctly, but the funds were not returned timely. The correct amount of funds were returned before audit fieldwork began. Criteria: A R2T4 calculation is required when a student withdraws from all courses during an enrollment period. Funds are required to be returned to the Department of Education or lender within forty-five days of the date of determination. Cause: ? The incorrect amount was returned to the Department of Education. ? Due to a miscommunication between the financial aid and business offices, the School missed returning the R2T4 funds. ? Due to a miscommunication between the financial aid and business offices, the School returned the R2T4 funds after forty-five days from the date of determination. Possible Asserted Effect: ? An additional $84.43 of Federal Pell Grant funds should be returned to the Department of Education. ? $1,083 of Federal Pell Grant funds should be returned to the Department of Education. ? The R2T4 funds were not returned within forty-five days from the date of determination. Repeat Finding: See Finding 2021-005 for a similar finding in the prior year. Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: The School should return at total of $1,167.43 of Federal Pell Grant funds. The Financial Aid Office should double check the data entry on the R2T4s. Procedures should be improved to ensure that R2T4 funds are returned timely. Management Response: The Student Financial Aid Director returned $84.43 of Federal Pell funds for the first student in question in November 2022. $1,083 of Federal Pell Grant funds were returned for the second student in question on November 4, 2022. Procedures will be improved to ensure that the R2T4 funds are returned timely.
FINDING 2022-001 ? Completeness and Recording of Liabilities Condition Found: During our search for unrecorded liabilities, we noted that the cost of numerous services performed during the year ended June 30, 2022 were not recorded in accounts payable. In addition, there was an overpayment on credit card purchases that was improperly netted with expenditures made during the period. Criteria: Internal controls around the cutoff of payables are critical for the accuracy of the accrual basis of accounting. Under the accrual basis of accounting, expenses are recorded when then they occur or transferred to the buyer, rather than at the time when expenses are paid. Cause: The School did not have adequate cutoff procedures in place at June 30, 2022. Possible Asserted Effect: Due to inappropriate cutoff procedures established at year-end, the School failed to record accruals for utilities services and various professional services totaling approximately $251,000. In addition, there was an overpayment on credit card purchases that caused accounts payable to be overstated by approximately $27,000. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that the School prepare written instructions to be included in the School?s accounting policies and procedures manual that indicate basic procedures to achieve proper cutoff and completeness of accounts payable, accrued liabilities and prepaid expenses in the financial closing process, as well as specify the positions/staff responsible for performing such procedures and controls. Management Response: The School made the required adjustments to their accounting records. The School will prepare written instructions to be included in the School?s accounting policies and procedures manual that indicate basic procedures to achieve proper cutoff and completeness of accounts payable, accrued liabilities and prepaid expenses in the financial closing process, as well as specify the positions/staff responsible for performing such procedures and controls. This will be completed in time to improve the cutoff procedures for the year ending June 30, 2023 (FY 2023).
FINDING 2022-002 ? Capitalizing Property and Equipment Condition Found: During our testing of property and equipment, we noted multiple expenditures related to property and equipment that were not recorded properly. In one instance, a residence was purchased through a financing arrangement in which the disbursement was recorded as the total cost. In other instances, the School capitalized purchases based on what was disbursed instead of the total invoice received. In addition, there was an issue in correctly capitalizing improvements of buildings and donated assets. Lastly, there were disposals of vehicles that were improperly recorded by lowering depreciation expense instead of accumulated depreciation. Criteria: Property and equipment expenditures should be scrutinized by management to ensure that the proper amounts are capitalized, including reviewing the total invoice instead of the amount disbursed. In addition, donated property should be valued at the fair value on the date of the donation using third party appraisals when appropriate. Lastly, disposal of assets should decrease the accumulated depreciation balance and the gain/loss account, without affecting the depreciation expense. Cause: The School did not have adequate procedures in place to identify and record transactions related to property and equipment. Possible Asserted Effect: This resulted in numerous adjustments totaling approximately $995,000. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend the following: ? Property and equipment purchased under a financing arrangement should be reviewed thoroughly by management, and the total cost and related debt should be recorded on the purchase date. The asset cost should be depreciated over the estimated useful life, and subsequent payments on the debt should be recorded as reductions of the liability accrued. ? Property and equipment should be recorded based on the invoice and not that based on the disbursement made. Management should review the invoice along with the disbursement made. ? A written policy should be developed for recognizing in-kind contributions of goods and services. This policy will be most beneficial in that it will allow for easier and more consistent accounting treatment for contributed goods and services. Management Response: The School made the required adjustments to their accounting records. The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-003 ? Recognizing Government Grants and Contributions Condition Found: During our testing of government grants, it was noted that the School filed for the employee retention tax credit (ERC) in February 2022. However, the amounts filed not yet received by June 30, 2022 were not recorded properly as a receivable and revenue as of year-end. Criteria: According to U.S. GAAP, contributions and grants should be recorded when received, if both a right of release and barrier do not exist. With the expenditure of qualified expenses and the filing for funding, there are no additional barriers with which the School needs to satisfy in order to recognize the grant related revenue. Therefore, a receivable and revenue should have been recorded as of year-end. Cause: The School was unaware of the U.S. GAAP requirements related to the recording of the ERC. Possible Asserted Effect: This resulted in an adjustment totaling $1,142,855. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that all correspondence whether from an individual, corporation, foundation, or government entity (including government agreements/grants), be evaluated for whether the School has satisfied all conditions necessary to recognize contribution revenue. In the not-for-profit industry, ?received? generally means ?communicated? and is not necessarily synonymous with ?collected.? A donee may receive a contribution well before it is ever actually collected and deposited into the bank. For such timing differences, a contribution should be recognized immediately for the total amount promised, instead of when collected. Management Response: The School made the required adjustments to their accounting records The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-004 ? Calculation of Allowance for Doubtful Accounts for Receivables Condition Found: During our testing of accounts and notes receivable, it was noted that there were no calculation, schedule, analysis, policy or other supporting documentation for the allowances that are noted within the financial statements. In fact, the allowances as of June 30, 2022 have remained at the same level for the past few years. Criteria: The allowance for doubtful accounts should represent management?s estimate of the amounts that might not be paid by customers. If actual experience differs, then management adjusts its estimation methodology to bring the reserve more into alignment with actual results. In accrual-basis accounting, adjusting the allowance for doubtful accounts at year-end improves the accuracy of financial reports representing a net realizable value for receivables. Cause: Due to staffing changes over past few years, the allowance for doubtful accounts had not been reviewed. Possible Asserted Effect: This resulted in an adjustment totaling $17,000 for the Schell notes receivable allowance. In addition, there could be potentially future material adjusting journal entry to the allowance balances for both tuition and Schell notes receivable if a policy and proper analyses are not performed by management. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that management develop a method to determine an appropriate allowance for doubtful accounts estimation process methodology and consistently use it on a periodic basis, at least annually, to analyze whether an allowance should be recorded. There are several methods for management to use as an analysis to determine the appropriate allowance. We recommend that management consider the following methods: ? Management should develop an accounts receivable schedule that is categorized or based on days the receivable has been outstanding (30 days, 60 days, 90 days, 120+ days, one year, two, years, etc.). This will assist management to evaluate collectability based on how long the receivable has been outstanding. ? Comparing bad debt expense each year to write-offs during that year. Using this ratio over multiple years, rather than a single year could provide an useful method to calculate an accurate allowance. It is reasonable to expect the ratio of bad debt expense to write-offs to be close to 1.0 over an extended period. ? Comparing the beginning allowance for doubtful accounts to subsequent write-offs determines the adequacy of the existing allowance. Lower ratios indicate the allowance may be too low, while higher ratios may signify the accumulation of excessive allowances. Management Response: The School made the required adjustments to their accounting records The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-001 ? Completeness and Recording of Liabilities Condition Found: During our search for unrecorded liabilities, we noted that the cost of numerous services performed during the year ended June 30, 2022 were not recorded in accounts payable. In addition, there was an overpayment on credit card purchases that was improperly netted with expenditures made during the period. Criteria: Internal controls around the cutoff of payables are critical for the accuracy of the accrual basis of accounting. Under the accrual basis of accounting, expenses are recorded when then they occur or transferred to the buyer, rather than at the time when expenses are paid. Cause: The School did not have adequate cutoff procedures in place at June 30, 2022. Possible Asserted Effect: Due to inappropriate cutoff procedures established at year-end, the School failed to record accruals for utilities services and various professional services totaling approximately $251,000. In addition, there was an overpayment on credit card purchases that caused accounts payable to be overstated by approximately $27,000. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that the School prepare written instructions to be included in the School?s accounting policies and procedures manual that indicate basic procedures to achieve proper cutoff and completeness of accounts payable, accrued liabilities and prepaid expenses in the financial closing process, as well as specify the positions/staff responsible for performing such procedures and controls. Management Response: The School made the required adjustments to their accounting records. The School will prepare written instructions to be included in the School?s accounting policies and procedures manual that indicate basic procedures to achieve proper cutoff and completeness of accounts payable, accrued liabilities and prepaid expenses in the financial closing process, as well as specify the positions/staff responsible for performing such procedures and controls. This will be completed in time to improve the cutoff procedures for the year ending June 30, 2023 (FY 2023).
FINDING 2022-002 ? Capitalizing Property and Equipment Condition Found: During our testing of property and equipment, we noted multiple expenditures related to property and equipment that were not recorded properly. In one instance, a residence was purchased through a financing arrangement in which the disbursement was recorded as the total cost. In other instances, the School capitalized purchases based on what was disbursed instead of the total invoice received. In addition, there was an issue in correctly capitalizing improvements of buildings and donated assets. Lastly, there were disposals of vehicles that were improperly recorded by lowering depreciation expense instead of accumulated depreciation. Criteria: Property and equipment expenditures should be scrutinized by management to ensure that the proper amounts are capitalized, including reviewing the total invoice instead of the amount disbursed. In addition, donated property should be valued at the fair value on the date of the donation using third party appraisals when appropriate. Lastly, disposal of assets should decrease the accumulated depreciation balance and the gain/loss account, without affecting the depreciation expense. Cause: The School did not have adequate procedures in place to identify and record transactions related to property and equipment. Possible Asserted Effect: This resulted in numerous adjustments totaling approximately $995,000. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend the following: ? Property and equipment purchased under a financing arrangement should be reviewed thoroughly by management, and the total cost and related debt should be recorded on the purchase date. The asset cost should be depreciated over the estimated useful life, and subsequent payments on the debt should be recorded as reductions of the liability accrued. ? Property and equipment should be recorded based on the invoice and not that based on the disbursement made. Management should review the invoice along with the disbursement made. ? A written policy should be developed for recognizing in-kind contributions of goods and services. This policy will be most beneficial in that it will allow for easier and more consistent accounting treatment for contributed goods and services. Management Response: The School made the required adjustments to their accounting records. The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-003 ? Recognizing Government Grants and Contributions Condition Found: During our testing of government grants, it was noted that the School filed for the employee retention tax credit (ERC) in February 2022. However, the amounts filed not yet received by June 30, 2022 were not recorded properly as a receivable and revenue as of year-end. Criteria: According to U.S. GAAP, contributions and grants should be recorded when received, if both a right of release and barrier do not exist. With the expenditure of qualified expenses and the filing for funding, there are no additional barriers with which the School needs to satisfy in order to recognize the grant related revenue. Therefore, a receivable and revenue should have been recorded as of year-end. Cause: The School was unaware of the U.S. GAAP requirements related to the recording of the ERC. Possible Asserted Effect: This resulted in an adjustment totaling $1,142,855. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that all correspondence whether from an individual, corporation, foundation, or government entity (including government agreements/grants), be evaluated for whether the School has satisfied all conditions necessary to recognize contribution revenue. In the not-for-profit industry, ?received? generally means ?communicated? and is not necessarily synonymous with ?collected.? A donee may receive a contribution well before it is ever actually collected and deposited into the bank. For such timing differences, a contribution should be recognized immediately for the total amount promised, instead of when collected. Management Response: The School made the required adjustments to their accounting records The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.
FINDING 2022-004 ? Calculation of Allowance for Doubtful Accounts for Receivables Condition Found: During our testing of accounts and notes receivable, it was noted that there were no calculation, schedule, analysis, policy or other supporting documentation for the allowances that are noted within the financial statements. In fact, the allowances as of June 30, 2022 have remained at the same level for the past few years. Criteria: The allowance for doubtful accounts should represent management?s estimate of the amounts that might not be paid by customers. If actual experience differs, then management adjusts its estimation methodology to bring the reserve more into alignment with actual results. In accrual-basis accounting, adjusting the allowance for doubtful accounts at year-end improves the accuracy of financial reports representing a net realizable value for receivables. Cause: Due to staffing changes over past few years, the allowance for doubtful accounts had not been reviewed. Possible Asserted Effect: This resulted in an adjustment totaling $17,000 for the Schell notes receivable allowance. In addition, there could be potentially future material adjusting journal entry to the allowance balances for both tuition and Schell notes receivable if a policy and proper analyses are not performed by management. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that management develop a method to determine an appropriate allowance for doubtful accounts estimation process methodology and consistently use it on a periodic basis, at least annually, to analyze whether an allowance should be recorded. There are several methods for management to use as an analysis to determine the appropriate allowance. We recommend that management consider the following methods: ? Management should develop an accounts receivable schedule that is categorized or based on days the receivable has been outstanding (30 days, 60 days, 90 days, 120+ days, one year, two, years, etc.). This will assist management to evaluate collectability based on how long the receivable has been outstanding. ? Comparing bad debt expense each year to write-offs during that year. Using this ratio over multiple years, rather than a single year could provide an useful method to calculate an accurate allowance. It is reasonable to expect the ratio of bad debt expense to write-offs to be close to 1.0 over an extended period. ? Comparing the beginning allowance for doubtful accounts to subsequent write-offs determines the adequacy of the existing allowance. Lower ratios indicate the allowance may be too low, while higher ratios may signify the accumulation of excessive allowances. Management Response: The School made the required adjustments to their accounting records The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.