Finding Text
2025-001 Limited Segregation of Duties Over Cash Receipts – Material Weakness Criteria – Effective internal controls require an segregation of duties so that no one individual handles a transaction from its inception to completion. Proper segregation of duties is a fundamental element of internal control to prevent and detect errors or fraud in the cash receipts process. Condition – During our review of the cash receipts process for the year ended June 30, 2025, we noted that the individual responsible for opening the mail, preparing the deposit summary, and depositing funds was granted full access to the accounting software, including the ability to enter, modify, and delete transactions. Although this individual is not supposed to record deposits in the accounting system, they have the ability to do so. The second individual involved in the cash receipts process, who has always had access to the accounting software, is responsible for recording deposits (often including recording the original revenue) and performing the bank reconciliation. Additionally, there is no documentation that a review of the bank reconciliation occurs by a separate individual on a monthly basis. This results in a lack of adequate segregation of duties, as both individuals have overlapping access and responsibilities in the cash receipts process. Cause – Change Inc. expanded system access for operational convenience, allowing the individual handling physical cash receipts to also have full access to the accounting software. Management has not implemented compensating controls or periodic independent reviews to mitigate the risks associated with this access and overlap of duties. Effect – The lack of segregation of duties increases the risk that errors or misappropriation of cash could occur and not be detected in a timely manner. This could result in financial losses to Change Inc. and misstatements in the financial statements. Recommendation – We recommend that management segregate the duties of opening mail, preparing deposit summaries, depositing funds, recording cash receipts in the accounting system, and reconciling bank statements among different employees to the extent possible. If staffing limitations prevent full segregation, management should implement compensating controls, such as a documented periodic independent review of bank reconciliations and cash receipt records by someone not involved in the cash receipts process and restrict system access to only those functions necessary for each employee’s role. Auditee's comments and response – Management is in agreement with this finding. Change Inc.’s process has been updated to ensure the person opening mail, preparing the deposit summary, and depositing funds do not have access to the accounting software. Responsible party for corrective action: Jill Johnson, Executive Director Repeat Finding: No