Finding 1073834 (2023-004)

MW-2023-04 LACK OF SEGREGATION OF DUTIES IN JOURNAL ENTRY PROCESSING FEDERAL AGENCY: U.S. DEPARTMENT OF EDUCATION CLUSTER/PROGRAM: COVID-19 - ELEMENTARY AND SECONDARY SCHOOL EMERGENCY RELIEF (ESSER) FUND AWARD NAME: COVID-19 - ELEMENTARY AND SECONDARY SCHOOL EMERGENCY RELIEF (ESSER) FUND AL NUMBER(S): 84.425D AWARD YEAR: 2023 COMPLIANCE REQUIREMENT: ACTIVITIES ALLOWED/ALLOWABLE COSTS TYPE OF FINDING Internal Control over Compliance – Material Weakness CRITERIA Journal entries should be prepared and approved by different individuals to ensure adequate segregation of duties as a part of the City’s internal control process. This is a best practice and helps to prevent the potential for errors and fraud to be undetected. CONDITION During our audit, we observed that the preparer and reviewer for two of the journal entries tested were the same. There was no evidence of approval by an individual other than the preparer before these entries were posted. CAUSE The absence of a secondary approval for journal entries prepared suggests a weakness in the internal control process, where the requirement for independent review and approval is not being enforced. EFFECT OR POTENTIAL EFFECT The lack of segregation of duties increases the risk of undetected errors and unauthorized entries, which could lead to financial misstatements, fraud, and reduced reliability of financial records. This could compromise the integrity of the financial reporting process. RECOMMENDATION We recommend that the client establish a policy requiring that all journal entries be approved by an individual other than the preparer before posting. The School Business Administrator or any other preparer should ensure that a secondary reviewer, such as a senior accountant or another administrator, reviews and approves all journal entries. Implementing this control will strengthen the segregation of duties and enhance the accuracy and integrity of financial reporting. VIEWS OF RESPONSIBLE OFFICIAL AND PLANNED CORRECTIVE ACTION See accompanying Corrective Action Plan.