Finding 2024-003 - Segregation of Duties Fiscal Year Finding Initially Occurred: FY 2024 (Initial Finding) Name of Federal Agency: U. S. Department of Housing and Urban Development (HUD) Award Year: 2021 and 2024 Criteria or specific requirement: Statements on Auditing Standards, Communicating Inter...
Finding 2024-003 - Segregation of Duties Fiscal Year Finding Initially Occurred: FY 2024 (Initial Finding) Name of Federal Agency: U. S. Department of Housing and Urban Development (HUD) Award Year: 2021 and 2024 Criteria or specific requirement: Statements on Auditing Standards, Communicating Internal Control Related Matters Identified in an Audit, require the auditor to report on whether the Society has appropriate segregation of duties relating to all aspects of its bookkeeping and accounting procedures. Good internal control requires a complete separation of duties with respect to handling and recording transactions No one person should have access to both physical assets and the related accounting records or to all phases of a transaction. Condition: There is an absence of an absolute segregation of duties in the accounting process due primarily to an accounting department that lacks the size and resources to function in an ideal manner that could assist in reducing the likelihood of a material misstatement. Cause of condition: Limited available staff, coupled with the size of the Society, and prohibitive costs currently prevent an absolute segregation of duties. The Society believes the cost far outweighs the perceived benefits. Potential effect of condition: The lack of an absolute segregation of duties weakens the Society's internal control structure's ability to absolutely prevent and/or detect possible misstatements or compliance issues through second-party independent verification for safeguarding of assets, potential material misstatement, and safeguarding of assets within the Society's financial statements. Recommendation: We understand that the added costs of providing an absolute segregation of duties will, in most cases, outweigh the projected benefits of the added controls, and therefore, may be considered unjustified. However, we are obligated by recently adopted auditing standards to bring this condition to the attention of management and the Board. Those charged with governance are obligated to consider the validity of these comments in light of the circumstances surrounding this condition and respond as they consider necessary. Their response may very well entail acceptance and continuance of this condition as the best perceived alternative under the circumstances. Response of responsible SC UpLift Official: Absolute separation of duties is rarely, if ever, seen within small to medium-sized organizations simply because of the lack of a cost-benefit justification for the added segregation of duties. In the absence of absolute segregation of duties, we implore mitigating controls that reduce the likelihood of material misstatement. We believe that the added costs of providing an absolute segregation of duties will far outweigh the projected benefits of the added controls, and therefore, consider it as unjustifiable.