Finding Text
Material Misclassifications
• Criteria: A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions to prevent or detect misstatements of the financial statements on a timely basis. AU-C Section 265 Communication Internal Control Related Matters Identified in an Audit, identifies deficiencies in controls over the period-end financial reporting process, including controls over procedures used to enter transactions and journal entries into the general ledger and to record recurring and nonrecurring adjustments to the financial statements that was not initially identified by the entity’s internal controls even if management subsequently corrects the misstatement.
• Condition: Material misclassifications in the financial statements under audit.
• Context: Several items were discovered that were misclassified. More specifically, several disbursements were noted that contained tangible assets that were more than the capitalization threshold and the useful lives of those assets exceeded one year.
• Effect: Expenses were overstated by $598,437 and capital assets were understated by $598,437.
• Recommendation: Review procedures for proper classification of expenditures and enforce capitalization policy.
• Views of Responsible Officials and Planned Corrective Actions: We will review our policies and procedures regarding classification of expenditures. We will