Finding Text
Condition: During our audit, we noted that the Corporation’s internal controls over billing and collections were not operating effectively. Tenant receivables increased by 46% compared to the prior year, indicating delays in the collection of tenant rent. Additionally, deposits in transit totaling $14,701 were included in the bank reconciliation, with amounts outstanding for more than 90 days. Criteria: In accordance with 2 CFR §200.303, management is responsible for establishing and maintaining effective internal controls over federal awards, including processes to ensure timely billing, collection, and safeguarding of cash receipts. This includes regular review of tenant receivable balances, prompt identification of delinquent accounts, and timely deposit of funds. Cause: The control deficiencies appear to be primarily due to frequent staff turnover within the property management side, resulting in inconsistent execution of rent collection and deposit procedures. Effect: The significant increase in tenant receivables and the presence of deposits in transit aged over 90 days indicate ongoing weaknesses in internal controls. These deficiencies impaired the effective management of tenant receivables and necessitated material audit adjustments to properly state cash receipts and reconcile bank balances. Recommendation: The Corporation should implement a formal process to reconcile tenant receivable aging schedules as part of the monthly close. Additionally, tenant rent collections should be deposited at least weekly to ensure timely recording and improved tracking of cash receipts. Management’s Response: Management is in agreement with the auditors’ findings. The managing agent has hired an accounts receivable personnel to ensure rent collections and deposits are processed in a timely and consistent manner.