Finding Text
2023-001 Financial Reporting – Material Adjustments and Report Reclassifications
Criteria: Proper financial closing and reconciliation procedures should be in place to identify and adjust the financial records to ensure the financial statements are fairly stated and presented in accordance with applicable standards. These procedures should be followed not only for yearend closing and reporting, but on a routine basis to ensure financial records are accurate through the reporting period.
Condition: During audit procedures, the auditors proposed audit adjustments and account reclassification entries that, if not made, would have resulted in the financial statements being materially misstated. Specifically, adjustments were necessary to reconcile federal grant funds received but not accurately reflected in the financial records. Additionally, adjustments were necessary to reconcile the rental revenues between tenant payments and government subsidized rental payments.
Cause: Certain adjustments for yearend accruals were not made by management. Additionally, certain reclassification adjustments were not identified that were necessary to present the financial statements accurately in accordance with applicable standards. Internal control processes and procedures do not currently include a review of actual rental payment transactions after the initial transaction is recorded. As a result, when actual rental payment funding sources differ from that of the initial transaction generated from the tenant management system, changes are not being identified or reflected in the financial records.
Effect: Housing Initiatives, Inc.’s system of internal control may not prevent, detect, or correct misstatements in the financial statements.
Questioned Costs: Not applicable
Auditor’s Recommendation: The auditor will continue to work with Housing Initiatives, Inc., providing information and training where needed, to make Housing Initiatives, Inc. personnel more knowledgeable about its responsibility for the financial statements. The auditor recommends that Housing Initiatives, Inc. review the various monthly and year-end processes and transactions necessary to close and reconcile the financial records.
Auditee’s Response: Housing Initiatives, Inc. acknowledges its responsibility for the financial statements and proper presentation of such. Housing Initiatives, Inc. has continued to work with internal staff as well as consultants to continually update processes and procedures to ensure that financial activity is properly captured and recorded.