Finding Text
Finding 2023-002: Material Weaknesses - Proper Coding/Classification of Expenses
Condition and Context: During the audit, we noted that several disbursements that should have been
recorded as prepaid expenses were incorrectly coded to various expense line items including federal
grants expenses and recorded in the current period. Criteria: Financial statements prepared on the accrual basis of accounting in conformity with accounting
principles generally accepted in the United States of America (GAAP), require expenses to be recognized
in the period incurred/benefited.
Cause: The Association recorded expenses in the wrong period.
Effect: This resulted in an overstatement of expenses in the general ledger by $66,464 which included
$24,362 related to federal grants plus $4,334 in related indirect costs.
Questioned Costs: $66,464, of which $28,696 relates to federal grants.
Recommendation: We recommend that the during the approval process, the Association carefully review
their invoices to ensure that they are properly coded, and expenses are properly recognized in the period
the expense was incurred.
Management Response:
Updated the Association’s financial processes and guidelines around invoice approval.
Made better use of the AP/Invoice management system (bill.com) to ensure invoices are routed
to the correct approvers and to the correct ledger accounts.
Simplified the chart of accounts to provide less scope for error.
Now preparing financial statements monthly, instead of quarterly and comparing variances
against prior month and monthly budget, which will generate any anomalies.