Finding 23218 (2022-001)

Significant Deficiency
Requirement
L
Questioned Costs
-
Year
2022
Accepted
2023-09-28
Audit: 25930
Organization: County of Mercer (PA)

AI Summary

  • Core Issue: Lack of internal controls led to significant adjustments needed for accurate financial statements, impacting compliance with GAAP.
  • Impacted Requirements: Essential reconciliations for balance sheet accounts were not performed, resulting in reliance on auditors for necessary adjustments.
  • Recommended Follow-Up: Management should assign individuals for regular reconciliations and reviews to strengthen internal controls over financial reporting.

Finding Text

Finding 2022-001 ? Internal Control over Financial Reporting and Account Adjustments Condition: Internal controls were not in place to ensure accuracy of financial statements, which resulted in material adjustments that were identified by the auditors in order for the financial statements to be prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Adjustments were identified as being required based on the auditor?s review of the trial balance information provided for audit. Adjustments identified to management included: recording of intergovernmental revenues, balancing of interfund transactions, accruing accounts payable, recording of taxes receivable, and balancing pension funds. Material adjustments noted include those required to major federal programs Emergency Rental Assistance Program (ALN 21.023) and Coronavirus State and Local Fiscal Recovery Funds (ALN 21.027). These adjustments were necessary to properly reflect current year operations and balances as of the year-end. Management does review and accept the financial statements prior to their final issuance, and adjustments required were provided to the auditors based on preliminary identification by the auditors and subsequent discussions with management. Criteria: Auditing standards place emphasis on determining an entity?s ability to fully prepare their own external financial statements, including the posting of all adjustments necessary to present GAAP financials and evaluating the need for all necessary financial statement disclosures. Reliance on auditors to ensure comprehensive financial reporting is considered to be an internal control deficiency. Cause: Internal controls were not in place to ensure that the County of Mercer (County) reconciled some of its balance sheet accounts, including interfund accounts, accounts payable, unearned revenues, taxes receivable, and pension accounts, to the general ledger and did not post necessary adjustments for balances to be recorded in accordance with GAAP. Effect: Significant adjustments were required to be recorded in order for the financial statements to be prepared in accordance with GAAP. Recommendation: We recommend that management evaluate their internal controls over the financial reporting process and ensure that an individual is assigned to reconcile balance sheet accounts on a monthly, quarterly, and annual basis. We also recommend that a second individual be assigned to review the reconciliations and ensure that the financial statements are prepared in accordance with GAAP. Management?s Response: Management agrees with this finding. See separate Corrective Action Plan.

Corrective Action Plan

Finding 2022-001 - Internal Control over Financial Reporting and Account Adjustments as described in Section II (impacts two of the major federal programs COVID-19 Emergency Rental Assistance Program (ALN 21.023) and COVID-19 Coronavirus State and Local Fiscal Recovery Funds (ALN 21.027)), Auditor's Recommendation: We recommend that management evaluate their internal controls over the financial reporting process and ensure that an individual is assigned to reconcile balance sheet accounts on a monthly, quarterly, and annual basis. We also recommend that a second individual be assigned to review the reconciliations and ensure that the financial statements are prepared in accordance with GAAP. Corrective Action Plan: The following procedures had been in place in prior years but were not followed completely in preparing trial balances for audit. During the period from January 1 following year-end until the trial balances are submitted for audit, both the Fiscal Office and the Controller's accounts payable processing will continue to evaluate invoices presented for payment. If either the invoice date, the date of delivery of goods or services, or a contractual down payment falls in the prior year, the item will be dated in the prior year. The trial balances of all restricted funds will be evaluated by the Fiscal Administrator to identify unexpended restricted revenues. These will be reclassified to "deferred revenue" accounts on the balance sheet of the respective fund. A representative of the Controller will approve and post those entries to the general ledger. The "payment under protest" of real estate taxes has been unusual in past years. However, we understand that it could be more common until the county-wide reassessment is completed for use in 2026. Accordingly, we will evaluate any such case and adjust the recorded "deferred total amount" to "estimated collection amount" in the current period. All of the above procedures have been re-adopted as of September 27, 2023 to constitute and implement our corrective action plan. We believe the above enhancement of our procedures will maintain our system of internal control to produce timely trial balances for audit and reporting.

Categories

Internal Control / Segregation of Duties HUD Housing Programs Reporting

Other Findings in this Audit

  • 23219 2022-001
    Significant Deficiency
  • 23220 2022-002
    Material Weakness
  • 599660 2022-001
    Significant Deficiency
  • 599661 2022-001
    Significant Deficiency
  • 599662 2022-002
    Material Weakness

Programs in Audit

ALN Program Name Expenditures
21.023 Covid-19 Emergency Rental Assistance Program $5.98M
21.027 Covid-19 Coronavirus State and Local Fiscal Recovery Funds $5.55M
14.231 Covid-19 Emergency Solutions Grant Program $281,604
93.659 Adoption Assistance $221,565
14.228 Community Development Block Grants/state's Program and Non-Entitlement Grants in Hawaii $181,217
93.563 Child Support Enforcement $173,161
93.958 Block Grants for Community Mental Health Services $156,047
93.558 Temporary Assistance for Needy Families $144,573
20.205 Highway Planning and Construction $119,907
97.042 Emergency Management Performance Grants $107,528
93.667 Social Services Block Grant $102,076
16.738 Edward Byrne Memorial Justice Assistance Grant Program $70,127
14.228 Covid-19 Community Development Block Grants/state's Program and Non-Entitlement Grants in Hawaii $60,958
93.674 John H. Chafee Foster Care Program for Successful Transition to Adulthood $56,552
93.150 Projects for Assistance in Transition From Homelessness (path) $56,180
14.231 Emergency Solutions Grant Program $48,982
90.404 Hava Election Security Grants $48,243
16.034 Covid-19 Coronavirus Emergency Supplemental Funding Program $46,076
93.556 Mary Lee Allen Promoting Safe and Stable Families $43,485
84.181 Special Education-Grants for Infants and Families $36,206
93.645 Stephanie Tubbs Jones Child Welfare Services Program $35,161
93.658 Foster Care_title IV-E $31,673
97.029 Flood Mitigation Assistance $30,842
93.669 Child Abuse and Neglect State Grants $27,953
15.226 Payments in Lieu of Taxes $27,675
10.568 Emergency Food Assistance Program (administrative Costs) $17,230
12.112 Payments to States in Lieu of Real Estate Taxes $8,947
15.611 Wildlife Restoration and Basic Hunter Education $2,911
93.556 Promoting Safe and Stable Families $2,652
93.090 Guardianship Assistance $67
93.778 Medical Assistance Program $18