Finding Text
Finding 2024-001: Material Weakness - Employee Fraud ALN: 16.027, 16.526 Condition and Context: During the prior year 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 2024 is approximately $6,000, of which approximately $500 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 meant that the fraud went undetected. Effect: This resulted in an overstatement of 2024 expenses for approximately $6,000, of which an adjustment was required to properly reflect expenses for the year ended December 31, 2024. Questioned Costs: $6,000, of which $500 relates to federal grants. Recommendation: We recommend the Association carefully review their internal control procedures as it relates 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: Upon the discovery of fraud in 2024, Management took immediate action to address the issue and prevent future occurrences. Actions taken in 2024 include: • Improved the segregation of duties between the approval and recording 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. • The employee was terminated prior to discovering the fraud.