Finding Text
2025-002 Inadequate Documentation and Training for CECL Calculation Process – Material Weakness Criteria – Government Auditing Standards and generally accepted accounting principles (GAAP) require that organizations maintain effective internal controls over financial reporting, including controls to ensure accurate and timely implementation of new accounting standards such as the Current Expected Credit Losses (CECL) model. Effective internal controls should include sufficient documentation and training to ensure continuity in key accounting processes. Condition – During the audit, it was noted that the individual responsible for the CECL calculation left the organization during the year. The replacement staff member did not have adequate understanding of the prior calculations or the supporting workpapers. As a result, the CECL adjustment was not recorded at the beginning of the audit, and it required multiple discussions and attempts before a reasonable estimate was determined and recorded. Cause – The organization’s documentation of the CECL calculation process and related workpapers was insufficient to allow for effective transition and training of new personnel. There was a lack of formal instructions and procedures and training to ensure continuity in the application of the CECL model. Effect – The lack of adequate documentation and training increased the risk of material misstatement in the financial statements and delayed the timely recording of the CECL adjustment. This could have resulted in inaccurate financial reporting and noncompliance with applicable accounting standards, and may impact the organization’s ability to comply with future financial reporting requirements. Recommendation – We recommend that management enhance the documentation of the CECL calculation process and provide comprehensive training for staff responsible for this area. Formal written procedures should be developed to ensure that future transitions in personnel do not disrupt the accurate and timely application of the CECL model. Auditee's comments and response – Management is in agreement with this finding. Change Inc. will capture detailed documentation of the CECL calculation process, including training and detailed written procedures. Responsible party for corrective action: Jill Johnson, Executive Director Repeat Finding: No