Finding Text
2023-001 Significant Deficiency – Segregation of Duties
Condition: Responsibility for approving, executing, and recording transactions and custody of the resulting asset arising from the transaction should be assigned to different individuals.
Criteria: Internal control should be implemented to the degree possible to assign to different individuals the responsibility for approving, executing and recording transactions and custody of the resulting asset arising from the transaction.
Cause: Responsibilities of approval, execution, recording, and custody are not distributed among the office staff to the best degree possible.
Effect: Because of the failure to segregate duties, internal control structure elements do not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by management in the normal course of performing assigned functions.
Recommendation: Responsibilities of approval, execution, recording and custody be distributed among individuals to the degree possible. We recommend that management and the Board of Directors should remain involved in the financial affairs of the Authority to provide oversight and independent review functions and to continue exercising due diligence and professional skepticism in relation to the Authority’s financial operations.
Views of Responsible Officials and Planned Corrective Actions: We will continue segregating duties among the Authority Manager, Board, and Accounting Manager. An individual other than the Accounting Manager will review cancelled checks to ensure payment amount and payee agreed with what was approved by the board.
In late 2023, the Office Manager and Accounting Manager decided to leave their current role to pursue other opportunities. The Authority Manager acted swiftly to fill those positions with the hiring of a new Office Manager and Accounting Manager in August 2023 and October 2023, respectively. Both new employees are being trained on the accounting processes to allow for 1.) redundancy in personnel and 2.) assist in improving controls specific to the segregation of duties for recordkeeping, custody, and authorization. The Authority follows the following federal award reimbursements requests and payment approval process:
Federal Award Reimbursement & Contractor Payment:
1. A licensed independent Engineer detail reviews all invoices/pay applications and signs and certifies the work completed before providing to the Authority.
2. After the Engineer approves invoices/pay applications, they are sent to the Office Manager who begins data entry into PENNVEST’s online request portal. The Office Manager then prepares the payment request packets for the upcoming board meeting and QuickBooks entries for federal award tracking.
3. The Board reviews the submittal packets in detail and provides approval to submit the request for reimbursement to PENNVEST.
4. After Board approval, the Accounting Manager submits the request and corresponding invoice/pay application support to PENNVEST’s online portal.
5. PENNVEST reviews the request for disbursements. Once approved, they wire funds to the Authority’s bank account.
6. After the Authority receives the funds from PENNVEST, they begin the process to pay the Contractors.
7. Payment to contractors occurs through written check or ACH after approval and at minimum two signatures are obtained from the Board and the Authority Manager. All paper checks require two signatures. ACH payments to contractors require a board member approval in the form of a signature on the ACH printout prepared by the Accounting Manager.
8. The Office Manager performs the bank reconciliation process within QuickBooks and clears any outstanding checks on the reconciliation module.
9. The Accounting Manager reviews the bank statement reconciliation and any outstanding account payables.