Finding Text
Condition: The City’s personnel maintains the accounting records using the cash basis of accounting. As a result, adjusting journal entries are required to convert the cash basis financial records to be in conformity with accounting principles generally accepted in the United States of America. Criteria: An appropriate system of internal control requires the City to maintain the accounting records in compliance with reporting requirements. Cause: As a small City with limited staff, the City does not prepare cash to accrual adjusting journal entries. Effect: The potential exists that a material misstatement of the annual financial statements could occur and not be prevented or detected by the City’s internal control system. Recommendation: The City should consider preparing cash to accrual adjusting journal entries at least on an annual basis prior to the audit.