Finding Text
2025-001 - Internal Control over Financial Close and Reporting - (Significant Deficiency) Criteria: The Organization's Management is responsible for establishing and maintaining effective internal control over financial reporting to provide reasonable assurance that material misstatements of the financial statements are prevented, or detected and corrected, on a timely basis. Effective year-end financial close controls should include procedures to identify, evaluate, and record expenditures and related liabilities incurred as of fiscal year-end, including appropriate review of subsequent disbursements, outstanding obligations, and supporting documentation. Condition: During our audit, we noted the following: We identified certain expenditures that were incurred as of December 31, 2025, but were not accrued or recorded at fiscal year-end. Based on our review of the underlying invoices and supporting documentation, these expenditures met the applicable accrual requirements as of December 31, 2025. Accordingly, expenditures and related liabilities were understated as of fiscal year-end. Cause: The Organization’s year-end financial close controls were not adequately designed or implemented to ensure that all expenditures and related liabilities incurred as of fiscal year-end were identified, evaluated, and recorded. In certain instances, the Organization relied on subsequent approval by program or project managers as the trigger for recording liabilities rather than evaluating whether an obligation existed as of fiscal year-end in accordance with applicable accounting requirements. Effect: The identified expenditures and related liabilities were not recorded as of fiscal year-end. In addition, deficiencies in the year-end accrual and cutoff process increase the risk that other expenditures and liabilities may not be identified and recorded in the appropriate accounting period and that resulting financial statement misstatements may not be detected and corrected on a timely basis. Auditor's Recommendations: We recommend that management establish and implement a formal, documented year-end financial close process that includes detailed cutoff procedures, identification and recording of necessary accruals, review and approval requirements, and retention of supporting documentation. Management should also establish a closing checklist and assign responsible personnel to ensure all financial transactions are recorded accurately and in the appropriate accounting period prior to finalizing the financial statements.