Finding Text
Finding 2024-001 Financial Management Tasks Finding Type: Significant Deficiency in Internal Controls Criteria: Government Auditing Standards require that a nonprofit entity establish and implement internal control policies to ensure that financial statements are properly prepared, reviewed, and reconciled on a timely basis, and that all financial information is accurate. According to the LSC Financial Guide, recipients must have procedures in place to properly account for and track all capitalized real and personal property, conduct a physical count of assets listed in the property subsidiary ledger at least once every two years, and maintain a cost allocation policy that is consistently applied. Condition: Based on our 2024 audit, we received the trial balance three times—in March, May, and June and each version contained significant differences. For the initial versions of the trial balance many accounts either lacked supporting schedules or the schedules provided did not reconcile to the corresponding trial balance accounts. The financial statements were not prepared or reconciled in accordance with the supporting records. For example, accounts payable and accounts receivable schedules were not provided; the property and equipment schedule provided was from 2023 with no updates, which was not reasonable; indirect cost allocations were incomplete; and grant expense allocations were not properly prepared or reconciled. Cause: MLSC did not have an effective process in place to ensure the timely preparation, review, and reconciliation of financial statements on a periodic basis. Effect: As a result, the financial records were incomplete and inaccurate, creating audit conditions that increased the risk of material misstatement and reduced the reliability of financial reporting. Finding 2024-001 Financial Management Tasks, continued Recommendation: We recommend that MLSC strengthen its internal control procedures over financial reporting by: 1. Establishing a formal timeline and responsibilities for the preparation, review, and reconciliation of financial statements. 2. Ensuring that all supporting schedules (including accounts receivable, accounts payable, and fixed asset schedules) are reconciled to the general ledger before submission to auditors. 3. Performing periodic reviews of indirect cost allocations and grant expense allocations to ensure they are accurate and comply with the organization’s cost allocation policy. 4. Conducting regular training for accounting and management staff on financial reporting and reconciliation procedures in accordance with LSC and Government Auditing Standards requirements. Management’s Response and Corrective Action Plan: MLSC acknowledges the finding and concurs with the auditor’s recommendation. Management is committed to maintaining accurate, timely, and reliable financial reporting in accordance with Government Auditing Standards and the LSC Financial Guide. Responsible person: Exec. Director, Lee Pliscou Corrective action planned: MLSC currently has a Financial Management and Internal Control Policy. This policy is strictly being enforced and fully implemented to ensure compliance with both the LSC Financial Guide and Government Auditing Standards. • MLSC has established a financial oversight and audit committee, and identifies the duties of the committee in writings. • The financial oversight and audit committee is required to review quarterly the management report prepared by the Chief Fiscal Officer. • The Chief Fiscal Officer will review and reconcile the subsidiary ledger after the month-end close and before the submission of monthly report to the Board of Directors. • To ensure that internal controls are strengthened and that future financial statements are properly prepared, the Chief Fiscal Officer will conduct an annual training with all accounting staff on reconciliation procedures before the year-end close. Anticipated completion date: Dec. 31, 2026