Finding Text
Finding 2024-001: Payroll Accruals - Material Weakness in Internal Controls over Financial Reporting and Internal Control over Federal Programs and Compliance Finding Federal Agency(ies): United States Agency for Global Media Federal Program(s): International Broadcasting Independent Grantee Organizations Assistance Listing Number(s): 90.500 Pass-through Entity (if applicable): N/A Award Identification Number and Year: MN01-24-GO-00001 (2024) Criteria or Specific Requirement: The general standards for internal controls over financial reporting set forth the objective of a system of internal control that provides for management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. Additionally, 2 CFR 200.303 Internal Controls states that recipients must establish, document, and maintain effective internal control over Federal awards that provides reasonable assurance that the recipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the guidance in "Standards for Internal Control in the Federal Government" issued by the Comptroller General of the United States or the "Internal Control-Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: Prior to the start of our audit, the Organization noted that they had gone through an extensive balance sheet account cleanup process but had a few balance sheet accounts that had not yet been reconciled or cleaned and they were aware of adjustments that still needed to be made, but with the reduction in staff had not been able to address. The largest balance of these remaining accounts was the payroll accruals. As such, the Organization had not yet accrued payroll expenditures for the final pay period of the fiscal year. Additionally, it was confirmed that accrued payroll balances presented in the preliminary trial balance were related to prior year activity that was not accounted for properly. Such balances were adjusted during the audit, and a restatement of the opening net deficit was posted. Cause: At the end of the 2024 fiscal year, the Organization was in the midst of a restructuring, and did not have adequate resources in place in the finance and accounting department to properly review and reconcile the year end payroll accruals. This has now been corrected through the audit process. Effect or Potential Effect: Material errors with respect to year payroll accruals increase the risk that the financial statements as a whole, as well as the expenditures reported to USAGM, will not be presented correctly and also impacts the ability of management to make accurate financial decisions. However, the Organization knew what the correct balance should be so the ability to make accurate financial decisions was not impacted. Questioned Costs: NoneContext: The misstatement attributable to missed September 2024 payroll accruals was an understatement of expenses of approximately $2.48 million. The misstatement attributable to prior year activity was approximately $1 million (an increase in the net deficit). Identification as a Repeat Finding, if Applicable: Repeat of Finding 2023-001 and 2023-002 Recommendation: We recommend that management devote additional resources to the accounting and finance team to provide capacity for the implementation of thorough review and reconciliation process during year-end close.