Finding Text
Condition Found:
During our search for unrecorded liabilities, we noted that the cost of numerous services performed during the year ended June 30, 2024 were not recorded in accounts payable. In addition, prior year accruals were not properly reversed.
Criteria:
Internal controls around the cutoff of payables are critical for the accuracy of the accrual basis of accounting. Under the accrual basis of accounting, expenses are recorded when then they occur or transferred to the buyer, rather than at the time expenses are paid.
Cause:
Expenses relating to the 2024 fiscal year were not recorded in the proper period.
Possible Asserted Effect:
Due to inappropriate cutoff procedures established at year-end, the School did not record accruals for printing and utilities services totaling approximately $48,228. In addition, the School did not book the accruals for payables of approximately $13,000 and credit card payable of approximately $24,000. Lastly, $153,000 of accounts payable from the end of the prior year were still included in payables at June 30, 2024. Overall, accounts payable was adjusted by approximately $86,000. Future years will likely experience similar errors if proper internal controls are not designed and implemented.
Repeat Finding:
See Finding 2023-001 for a similar finding in the prior year.
Recommendation:
We recommend that the School prepare written instructions to be included in the School’s accounting policies and procedures manual that indicate basic procedures to achieve proper cutoff and completeness of accounts payable, accrued liabilities and prepaid expenses in the financial closing process, as well as specific positions/staff responsible for performing such procedures and controls.
Management Response:
Management acknowledges the auditors’ recommendation regarding the need to strengthen the accounts payable policy to improve operational efficiency and minimize risks. We will ensure segregation of duties so that no single employee has control over the entire payment process. Responsibility for Accounts Payable is assigned to the Business Manager with oversight from and approval by the Internal Auditor. We are committed to strengthening internal controls and ensuring the accounts payable function operates effectively, aligns with best practices, and mitigates risks.