Finding Text
Criteria or Specific Requirement – A key principal of internal control is ensuring that no one single individual has control over physical assets and the related accounting records. Proper segregation of duties should be maintained to prevent or detect and correct misstatements of the financial statements. Conditions – In 2024, the Organization did not have proper segregation of duties. The Accountant performed, or had access to, all major functions. This individual processed deposits, recorded receipts in the accounting system and reconciled the bank accounts. We did not see evidence of formal review of the bank reconciliations by someone other than the Accountant. This individual also approved expenses and processed payments of expenses. We did not see any evidence of the review of approval of expenditures on the invoices. The Accountant did not sign checks, but there is no evidence that the check signer reviewed the supporting documentation and the Organization’s policies do not indicate the check signer needed to review the supporting documentation. In 2024, journal entries made to the accounting records were made by the Accountant and were not reviewed by a second individual. Context – All major functions of the accounting system could be performed by the Accountant. Revenue in 2023 was approximately $2,800,000 compared to revenue of approximately $12,500,000 in 2024. This substantial increase in activity would have made it more difficult to identify improper activity which may have made the board of director’s monthly financial statement review less effective. Cause – The fast growth of the Organization during 2024 increased the need for a more structured accounting environment. Management did not identify this deficiency and make appropriate changes until 2025. Effect or Potential Effect – The lack of segregation of duties could allow for theft of assets or improper use of funds and concealment of these activities in the accounting records. Recommendation – While we recognize the challenges that smaller organizations such as the Boys and Girls Clubs of Western Nevada may face in fully segregating duties, we recommend taking steps to reduce control gaps wherever feasible.Views of Responsible Officials and Planned Corrective Actions – Management acknowledges the audit findings and agrees that the organization’s rapid and significant growth during 2024 placed increased demands on existing accounting systems, staffing capacity, and internal controls. While financial operations remained functional during this period of expansion, appropriate measures and controls were not fully scaled to match the organization’s growth and increasing complexity. Management views this as a capacity and controls issue driven by unprecedented growth, rather than a lack of commitment to financial accountability or compliance. Leadership recognizes the importance of strengthening internal controls to ensure accurate financial reporting, safeguard assets, and maintain strong governance practices moving forward. To address these findings, management will utilize the SAS 115 letter issued by the auditor as a roadmap for corrective action. Specific planned actions include implementing enhanced internal control procedures, segregating duties where feasible, and improving documentation of accounting processes. In addition, management will increase the Finance Committee's role and oversight to provide regular review and governance of financial operations, policies, and controls. The organization will also implement control sampling and periodic reviews to validate the accuracy and consistency of accounting functions, identify potential weaknesses early, and ensure corrective actions are effective. These measures, combined with ongoing monitoring and committee oversight, will strengthen financial management practices and position the organization to responsibly support continued growth. Management is committed to the timely implementation of these corrective actions and to maintaining strong fiscal stewardship consistent with the organization’s mission and fiduciary responsibilities.