Finding Text
Criteria: The District did not perform year end adjusting entries prior to the audit engagement, nor were they able to provide final financial statements for PDE’s Annual Financial Report (AFR) and entity wide statements without guidance from the auditor. No population was tested; finding is based upon understanding and review of the internal control system. Condition: During the current year, adjusting fund level journal entries and entity wide adjustments were proposed by the auditors and accepted by the District. In connection with the audit of the District’s financial statements, management has requested that we assist in the drafting of the financial statements, required supplementary information, and related footnote disclosures. AU-C Section 265 entitled Communicating Internal Control Related Matters in an Audit, issued by the American Institute of Certified Public Accountants (AICPA) considers the need for significant adjusting journal entries and assistance when preparing the financial statements to be indicative of an internal control deficiency. Without assistance, the potential exists of the District’s financial statements not conforming to generally accepted accounting principles (GAAP). Cause: While the District’s internal accounting personnel have the ability to interpret and understand its financial statements, both fund and entity wide, they do not have sufficient experience in preparing those financials in accordance with GAAP. Effect: Greater opportunity for error in financial reporting as the District’s management has determined it is more cost-beneficial to utilize services of auditors to assist in drafting financial statements, as opposed to hiring a professional accountant trained in such matters. Questioned Costs: Unknown. Recommendation: Management should establish a process to identify or communicate corrective actions to improve controls over financial reporting. Year-end closing procedures should be adopted by the District to ensure all activity and entries are recorded prior to the audit engagement. DRAFT