Finding 1054870 (2023-001)

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