Finding Text
Finding 2024-001 Financial Close Process
Type of Finding:
Material Weakness in Internal Control over Financial Reporting
Criteria:
Management is responsible for adopting sound accounting policies and establishing and maintaining a system of internal control for the fair presentation of the basis financial statements in accordance with accounting principles generally accepted in the United States of America.
Condition:
The auditors noted a lack of a strong financial close process which led to several material audit adjustments that were proposed during the audit and recorded by the client to properly reflect various financial statement accounts.
Cause:
Personnel responsible for the month-end close and financial statement reporting process lack the necessary skills, knowledge, and experience regarding the applicable requirements dictated under accounting principles generally accepted in the United States of America.
Possible or Known Effect:
The impact resulting from an inadequate financial close process has several profound effects. First, the deficiency compromises the reliability and integrity of financial statements, raising concerns about the accuracy of reported financial data and information. Second, the lack of an effective financial close process contributes to delays in the preparation and issuance of financial statements, impeding the organization's ability to provide financial statement users with timely information. Third, inaccurate financial reporting hinders effective resource allocation and budgeting, potentially leading to misguided financial decisions and mismanagement of funds. Finally, inadequate financial reporting processes could lead to non-compliance with federal reporting requirements and regulations.
Questioned Costs:
There were no questioned costs identified.
Repeat Finding:
This finding is not a repeat finding from the prior year.
Recommendation:
We recommend that the Organization review their current financial statement close process paying special attention to all balance sheet reconciliations and general ledger review of expense transactions. Considering the amount of activity on a monthly basis we recommend reconciling balance sheet accounts on a monthly or quarterly basis.
Views of Responsible Officials:
The Organizations’ Board and Executive Team consisting of the CEO, COO and key Organization staff to include the independent bookkeeper and Grant and Finance Manager recognize the need to further significantly improve on the oversight and reconciliation of the financial statement process. A comprehensive financial close process will be formalized and documented, which will include clear timelines, task ownership, and internal controls to ensure the timely and accurate reconciliation of all accounts prior to audit submission. Beginning in 2025, all financial transactions and balances will undergo rigorous monthly reviews to ensure proper classification in the correct financial statement accounts, reducing the likelihood of errors.