Finding Text
Finding 2023-008—Ineffective Control Environment Material Weakness See Finding 2023-001 Federal Program: All federal awards. Questioned costs: None noted. Context: Management and those charged with governance failed to establish and consistently demonstrate a culture of integrity, accountability and compliance with internal control responsibilities. As a result, employees were not provided with clear and consistent expectations regarding adherence to policies, performance of control activities and resolution of identified control deficiencies. This weakened the overall control environment and undermined the effectiveness of controls throughout the organization. Repeat Finding: No Finding 2023-001—Ineffective Control Environment Material Weakness Criteria: Management is responsible for establishing and maintaining effective internal control over financial reporting. The COSO Internal Control – Integrated Framework identifies the Control Environment as the foundation of an effective system of internal control. Principle 1 requires management and those charged with governance to demonstrate a commitment to integrity and ethical values through their directives, actions and behaviors. An effective control environment promotes accountability, reinforces compliance with established policies and procedures, and establishes an organizational culture that supports reliable financial reporting. Condition: IFDC did not sufficiently establish and maintain an appropriate control environment that demonstrates a commitment to strong integrity, ethical values, accountability and adherence to established oversight mechanisms, and policies and procedures. During the audit we identified control issues and concerns related to adherence to established policies and procedures in one instance in which management failed to consistently reinforce responsibilities, respond appropriately to identified control deficiencies, and promote adherence to established policies and procedures during 2023, resulting in misappropriation of assets after year-end. In addition, we noted individuals responsible for financial reporting lacked sufficient knowledge and training to effectively perform assigned control activities. As a result, the foundation necessary to support effective internal control over financial reporting was not operating effectively. Cause: Management and those charged with governance did not sufficiently establish a culture to promote proper conduct, accountability, awareness, and compliance with internal control responsibilities throughout the organization. Oversight activities were not sufficient to ensure established policies and control expectations were consistently followed and enforced. Effect: An inefficient control environment can undermine the effectiveness of internal controls throughout the organization and increase the risk that errors, omissions or fraud, could occur and not be prevented, detected, or corrected on a timely basis. Because the control environment serves as the foundation for all other components of internal control, deficiencies in this area may affect the reliability of financial reporting across multiple account balances and transaction cycles. Recommendation: We recommend management and those charged with governance strengthen the control environment by: • Consistently demonstrating and communicating a commitment to integrity and ethical values. • Establishing clear expectations regarding compliance with internal controls and organizational policies. • Holding personnel accountable for adherence to internal control responsibilities. • Providing periodic ethics and compliance training. • Enhancing governance oversight of financial reporting and internal control matters. • Promptly addressing identified control deficiencies and instances of noncompliance. Views of responsible officials: Management acknowledges the findings and began reinforcing a stronger, more effective culture to promote ethical conduct as of end of 2023. See corrective action plan.