Finding Text
2024-001 Internal Control over Financial Reporting and Accounting Records (Material Weakness) -
Repeated and Modified (Prior Year Finding 2023-001)
Criteria or Specific Requirements:
According to generally accepted accounting principles (GAAP), the School management is responsible
for establishing and maintaining a system of internal controls over financial reporting. The School’s
systems of internal controls must extend beyond the cash basis general ledger and the supporting
schedules prepared by the School; rather, it must also include controls over the GAAP basis financial
statements to ensure that a material misstatement would be prevented and/or detected.
The School's management is responsible for the design and implementation of internal controls over the
recording of activity in the accounting records, account balances, and financial statement disclosures.
This internal control structure is established to ensure misstatements in the financial statements are
prevented and/or detected. Maintenance of adequate supporting documentation is an integral part of a
sound internal control system to safeguard assets and accomplish timely preparation and submission of
financial reports. Good accounting and internal control practices require that all transactions must
originate with authorizing documents and be supported by properly approved documents such as
purchase orders, bills, petty cash reimbursement forms, payroll and time records, contracts, or other
supporting documents. Additionally, regular and timely reconciliation of general ledger accounts to
subsidiary ledgers and supporting documents is essential to ensure accuracy and integrity of financial
information.
Condition:
During our review of the School’s accounting records and internal control processes, we identified that
internal controls over financial reporting were not adequately designed or effectively implemented. The
School lacks an effective internal control structure over its year-end financial close and reporting process,
including controls over the timely and accurate recording and reconciliation of unearned revenue, grant
revenue, and accounts receivable.
The following exceptions were noted:
Bank reconciliations were not reviewed or cleared on a timely basis throughout the fiscal year.
For 15 search for unrecorded liabilities samples reviewed, it was observed that the cut-off procedure
for 4 samples was not followed, leading to the inaccurate recording of current fiscal year expenses.
Audit adjustments were recorded for unearned revenue, grant revenue, and accounts receivable to
correct material misstatements identified during testing.
Cause:
The School’s policies and procedures related to financial reporting were not adequately established or
implemented to ensure timely and accurate financial reporting. There was a lack of established internal
controls and procedures over accounting records. The School staff did not ensure that all of the required
documentation and procedures were in place. Effect:
The lack of implementing adequate policies and procedures over accounting records may result in nonauthorized
or incorrect calculation of invoices. Also, the probability that fraud or material errors will occur
and go undetected generally increases. Without established and adequate internal controls over financial
reporting and year-end reconciliation procedures, the School's balances lack certainty about accuracy of
the balances.
Auditor's Recommendation:
We recommend management to design and implement effective internal control procedures to ensure
the accuracy and completeness of the general ledger and financial statements. Management should
ensure timely completion of bank reconciliations to effectively monitor cash balances. We recommend
that the management reaffirm adherence to approved policies and procedures regarding the process of
journal entries.