Finding Text
Finding 2022-002: Invalid Journal Entries
Condition and Criteria: During the current year audit, we discovered deficiencies in internal controls over journal entries posted to the Organization's records. We identified numerous entries, primarily related to payroll, that the Organization reviewed and confirmed were invalid as they did not have appropriate supporting documentation. This required the Organization to reverse all the identified entries and re-reconcile several months of records. A majority of identified entries related to expenses that were requested for reimbursement for federal programs, see 2022-001 below.
Cause: The Organization had an inexperienced fiscal officer during part of 2022. The officer posted invalid entries while trying to reconcile the cash accounts due to their lack of understanding related to the accounting system. After year-end the inexperienced fiscal officer was replaced, however, no review of year-end balances and entries posted throughout 2022 took place prior to providing the trial balance for audit.
Effect: The effect of these deficiencies in internal controls was a net understatement of $76,729 to net assets. Due to a majority of the identified understatement being directly related to federal program expenditures requested for reimbursement, this also resulted in a reclassification of $75,540 from revenue to deferred revenue not included in the understatement above. The potential effect of these deficiencies is the misstatement of year-end asset, liability, and net asset balances.
Recommendation: We recommend the Organization perform a thorough year-end review which should include comparing current balances to the prior year, reviewing details of account balances, as necessary, and reviewing journal vouchers posted during the year for reasonableness, prior to providing the trial balance for audit.