Finding Text
Lack of a Formal Process to Identify and Evaluate Loan Impairment
Material Weakness
Condition: The Organization does not have a regular process in place to identify and evaluate loans for impairment. As a result, an audit adjustment of $2 million was required to increase the allowance for uncollectible loans.
Criteria: Adequate internal control functions over the financial reporting process.
Cause: Oversight by management.
Effect: The absence of a regular review process increases the risk of misstated financial statements and inadequate loan loss reserves.
Recommendation: Recommendation: We recommend implementing a structured loan review process, including periodic assessments, documentation of impairment evaluations, and board oversight.
View of Responsible Official and Planned Corrective Action: Management agrees with the finding. See corrective action plan.