Finding Text
Finding 2022-001 is also a finding for the major federal award program audit as it impacted the expenses charged to the federal award above. Prior to the adjustments to correct the balances, the expenses reported on the SEFA for ALN 90.500 were overstated by approximately $10,428,000. This is a repeat of finding 2021-004.
Criteria
As part of the Corporation’s monthly and year-end closing procedures, the Corporation should ensure that account analysis and reconciliations are performed and all monthly and year-end adjustments are posted. In addition, management should review monthly and year-end financial reports to determine if there are any unusual balances that need to be investigated to ensure the completeness and accuracy of the accounting records.
Condition and Context
During the audit, there were several errors which would be expected to have been discovered during the financial close process or review of the financial reports. Adjustments were needed to correct improperly expensed fixed assets and correct depreciation expense, correct rent and other expenses and prepaid expenses, correct payroll and other benefits expenses and accruals, and correct government grants revenue and the related refundable advance balances. As a result, net adjustments were recorded by the Corporation which decreased prepaid expenses by approximately $985,000, increased property and equipment by approximately $13,153,000, increased accounts payable and accrued expenses by approximately $1,739,000, increased refundable advances by $10,428,000, and decreased government grant revenue and various expenses by approximately $10,428,000. There were also adjustments to correct the classification of various expenses and liabilities. The amounts reported on the consolidated financial statements included these adjustments to correct and reconcile the balances as of and for the year ended September 30, 2022.
Cause
The limited number of staff and turnover within the accounting department restricted the Corporation’s ability to perform the necessary monthly and year-end reconciliations and review of the accounts in a timely manner. This resulted in delayed audits in previous years which delayed the reconciliations in the current year as well as the current year audit. In addition, in February 2023, the Corporation had a ransomware attack which required the Corporation to restore the financial activity from a back-up and some of the account reconciliations had to be recreated.
Effect
This could lead to inaccurate financial information, on the basis of which the Corporation’s decisions are made. In addition, it is not allowing the Corporation to complete its audit in a timely manner and by the due date required by the Uniform Guidance, which is 9 months after the Corporation’s year end.
Repeat Finding
Yes, this is a repeat of finding 2021-001.
Recommendation
We recommend that, as part of the system of internal control over the monthly closing process, accounting staff be assigned to review the detailed schedules of liability and asset account reconciliations for accuracy and completeness and that any unusual balances, such as long-outstanding balances or negative balances, should be reviewed and adjustments posted. In addition, procedures should be established to ensure that costs related to property and equipment projects that were added during the year are properly classified. We also recommend that the Corporation implement any additional procedures needed to ensure that monthly reconciliations are a priority and are both completed and subsequently reviewed by an independent individual in a timely manner. Furthermore, we recommend that the Corporation enhance its procedures to ensure that the evidence of review of schedules and other reconciliations, such as sign-offs by both the preparer and reviewer on the documents, are retained.
Views of Responsible Officials and Planned Corrective Actions
See corrective action plan.