Finding Text
Criteria: Effective internal control over financial reporting requires that key financial responsibilities, including authorization of transactions, recordkeeping, and custody of assets, be appropriately segregated among different individuals to reduce the risk of errors or fraud occurring and not being detected in a timely manner. Condition: The Executive Director is responsible for both the final approval and authorization of disbursements and the recording of transactions into the accounting system. These responsibilities represent incompatible duties that are not adequately segregated. Cause: This condition appears to result from limited staffing and a lack of formal controls to ensure appropriate segregation of duties within the financial reporting process. Effect: The concentration of authorization and recordkeeping responsibilities in a single individual increases the risk that errors, omissions, or unauthorized transactions could occur and not be detected in a timely manner. While the Board of Directors provides some level of oversight, such review is not sufficiently formalized or comprehensive to fully mitigate the control risk. Recommendation: We recommend that the Organization implement compensating controls to address the lack of segregation of duties, such as enhanced and documented review of disbursements and financial activity by an independent member of the Board of Directors, including periodic review of detailed financial reports, bank reconciliations, and supporting documentation. Management’s Response: Management agrees with the finding and indicates that, due to limited staffing, complete segregation of duties is not feasible; however, it will strengthen compensating controls by increasing the level of Board oversight and implementing more formalized review and approval procedures over financial activity.