Finding Text
2025-001 Internal Control over Financial Reporting and Accounting Records (Material Weakness) - Repeated and Modified (Prior Year Finding 2024-001) Criteria or Specific Requirements: According to generally accepted accounting principles (GAAP), the School management is responsible for establishing and maintaining a system of internal controls over financial reporting. The School’s systems of internal controls must extend beyond the cash basis general ledger and the supporting schedules prepared by the School; rather, it must also include controls over the GAAP basis financial statements to ensure that a material misstatement would be prevented and/or detected. The School's management is responsible for the design and implementation of internal controls over the recording of activity in the accounting records, account balances, and financial statement disclosures. This internal control structure is established to ensure misstatements in the financial statements are prevented and/or detected. Maintenance of adequate supporting documentation is an integral part of a sound internal control system to safeguard assets and accomplish timely preparation and submission of financial reports. Good accounting and internal control practices require that all transactions must originate with authorizing documents and be supported by properly approved documents such as purchase orders, bills, petty cash reimbursement forms, payroll and time records, contracts, or other supporting documents. Additionally, regular and timely reconciliation of general ledger accounts to subsidiary ledgers and supporting documents is essential to ensure accuracy and integrity of financial information. Condition: During our review of the School’s accounting records and internal control processes, we identified that internal controls over financial reporting were not adequately designed or effectively implemented. The School lacks an effective internal control structure over its year-end financial close and reporting process, including controls over the timely and accurate recording and reconciliation of unearned revenue, grant receivable, and capital assets. Audit adjustments were recorded for unearned revenue, grant revenue, and accounts receivable to correct material misstatements identified during testing. Cause: The School’s policies and procedures related to financial reporting were not adequately established or implemented to ensure timely and accurate financial reporting. There was a lack of established internal controls and procedures over accounting records. The School staff did not ensure that all of the required documentation and procedures were in place. Effect: The lack of implementing adequate policies and procedures over accounting records may result in nonauthorized or incorrect calculation of invoices. Also, the probability that fraud or material errors will occur and go undetected generally increases. Without established and adequate internal controls over financial reporting and year-end reconciliation procedures, the School's balances lack certainty about the accuracy of the balances. Auditor's Recommendation: We recommend management to design and implement effective internal control procedures to ensure the accuracy and completeness of the general ledger and financial statements.