Finding Text
Finding 2023-001: Material Weakness - Employee Fraud
Condition and Context: During the audit, we became aware that a key and trusted employee devised a
scheme to defraud the Association using their company issued corporate credit card for personal charges.
The employee hid the scheme from the Association by submitting altered credit card statements. The
altered credit card statements included deleting what appeared to be personal charges, altering dates,
reference numbers, and vendor descriptions. In addition, the employee added fictitious charges to the
statements submitted.
The cost related to 2023 is approximately $230,000 of which $77,299 related to federal grants.
Criteria: Management is responsible for the preparation of the financial statements and is responsible
for the design, implementation, and maintenance of a system of controls that can prevent and detect
a material misstatement whether due to fraud or error in timely manner.
Cause: The deliberate manipulation of systems and documents by the employee perpetrating the fraud,
as well as the lack of comprehensive reconciliation of credit card data by the third party accounting
firm retained by the Association, meant that the fraud went undetected.
Effect: This resulted in an overstatement of 2023 expenses for approximately $230,000 of which an
adjustment was required to properly reflect expenses for the year ended December 31, 2023.
Questioned Costs: $230,000 of which $77,299 relates to federal grants.
Recommendation: We recommend the Association carefully review their internal control procedures as
it related to credit card processing by having management review the original credit card statement
and compare it to the statement submitted prior to approving payment.
Management Response: Management has implemented the following measures to address the issue
and prevent future occurrences:
Improved the segregation of duties between the approval, recording, and the booking of all expense
transactions.
Automated the uploads of credit card transactions directly into the accounting system to prevent
any manual manipulation and reconciled the transactions to the statements.
Updated the Association policies around vendor management and allowable/non allowable
operating expenses.
We terminated the employee prior to discovering the fraud.