Finding Text
Finding Number: 2022-001 Repeat Finding: No Type of Finding: Material Weakness Description: Internal Control over Financial Reporting Condition: The CFO position was vacant for a significant part of the year ended June 30, 2022. We have identified the following matters related to the CFO's absence: During the audit, Wipfli LLP proposed several adjusting journal entries to properly record construction in process, grants receivable, property and equipment, refundable advance liability, grant revenue and expenses which we deem to be material in relation to the financial statements. We noted that not all accounts were consistently reconciled on a timely basis and adjusting journal entries are not consistently reviewed by someone other than the preparer. Since the internal controls of the Organization did not detect and record the adjustments described above prior to the audit, a material weakness exists in the Organization?s internal controls over financial reporting and the preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America. Access to the general ledger, subsidiary ledgers, and assets of the Organization - The budget analyst and certain other individuals have full access to all functions in the accounting software and have the ability to make changes in the general ledger and subsidiary ledgers including fixed assets, accounts payable, and payroll-related ledgers. These individuals also have access to general assets of the Organization, including bank accounts. The lack of segregation of duties and compensating oversight controls creates risk of significant errors or fraudulent transactions, leading to the potential of misstated financial statements. Out of a sample of 25 nonpayroll related cash disbursements transactions there were a total of 13 where the payment was made with an electronic funds transfer without indication of approval for payment. Criteria: Uniform Guidance 200.302(b)(4) states each non-federal entity must provide for ?effective control over, and accountability for, all funds, property, and other assets.? Cause: The internal controls of the Organization were not effective in preventing or detecting and correcting the misstatements described above prior to the audit. In an organization with a small number of personnel in its business office and accounting department, there may be an inadequate segregation of duties. This results in certain internal control limitations, including, but not limited to, proper review and approval of cash disbursements prior to processing. Effect: As a result of the financial reporting matters identified in the condition paragraph, including the lack of segregation of duties, the potential for misstatements or misappropriated assets exits as does a material weakness exists in the Organization?s internal controls over financial reporting and material noncompliance with activities allowed or unallowed and allowable costs/cost principles. Recommendation: We recommend the Organization implement procedures, such as timely reconciling of accounts and review of all reconciliations and adjusting journal entries by someone other than the preparer, to provide sufficient internal control over financial reporting so all necessary transactions are recorded in accordance with generally accepted accounting principles. Management should review the user access list for the accounting software to ensure users only have access to what is needed based on their role in the Organization. Management should establish proper mitigating review procedures to be performed by someone who would not have access to the general ledger, subsidiary ledgers, and assets of Higher Horizons Day Care Center, Inc. We recommend that the Organization adopt a policy whereby all payments are approved by a responsible and knowledgeable individual prior to processing to ensure that costs charged to the federal program are allowable. View of responsible officials: Management agrees with the finding and has committed to a corrective action plan.