Finding Text
Finding Reference Number: 2024-001 (repeat of 2023-001) – Preparation of Financial Statements
Criteria: Management is responsible for establishing and maintaining
effective internal controls over financial reporting. Effective internal
controls are an important component of a system that supports the
preparation of external year-end financial statements and related
note disclosures, as well as the oversight of the external financial
reporting process by those charged with governance.
Condition and Context: Beacon, Inc. (“Beacon”) does not currently have in place the
processes and controls that would assure the preparation of external
year-end financial statements and related note disclosures in
accordance with the modified cash basis of accounting.
Cause: Preparation of the external financial statements and related note
disclosures, with a closing process to identify and correct material
misstatements in the financial statements would require the in-house
ability to maintain appropriate technical knowledge and to research
current and changing accounting standards as well as unique
industry considerations. Beacon has not allocated sufficient
resources toward developing these capabilities because
management believes the cost of doing so outweighs the benefits.
Effect: Beacon engages the auditors to draft the year-end external financial
statements and to perform the necessary steps to ensure the
disclosures are complete. Once drafted, the financial statements are
submitted to management for review and approval. While this
practice is common and practical, it must be reported as a material
weakness in internal control over financial reporting in internal
control over financial reporting since the year-end external financial
statement preparation cannot be carried out in-house.
Recommendation: Beacon, Inc. should review and consider enhancements to the
external financial reporting procedures and controls in place to make
improvements as they are practical to do so.
Responsible Official’s Response: Management concurs with the reported finding. The current
economics of the organization does not allow us to correct this
weakness. We believe our current accounting capacity is sufficient
for routine day-to-day needs. We will continue to seek outside
guidance through our annual independent audit to correct minor
errors that sometimes occur or to perform other accounting needs.