Finding Text
2022-02 Material Weakness Criteria: Organizations receiving federal funds are required to have monitoring policies and procedures in place to provide reasonable assurance that material misstatements in the financial statements are detected. Condition: Management decided that a payable to a related party was not supportable and extinguished the debt on its books. The other entity did not confirm that the debt is incorrect or forgiven. Context: Deficiency was discovered while performing substantive testing on liability balances. Effect: Material misstatements in the financial statements were not detected in a timely manner. Cause: Management did not obtain written documentation to support its position to extinguish the debt from its accounting records. Recommendation: The Organization should obtain a legally binding document prior to recording a debt extinguishment. Response: We acknowledge and will receive formal documentation that will legally forgive the debt or formalize the promissory note