Finding Text
Condition Found: During our search for unrecorded liabilities, we noted that the cost of numerous services performed during the year ended June 30, 2023, were not recorded in accounts payable. In addition, there was a credit card overpayment that was improperly netted with expenditures made during the period. Further, prior year accruals were not properly reversed. Criteria: Internal controls around the cutoff of payables are critical for the accuracy of the accrual basis of accounting. Under the accrual basis of accounting, expenses are recorded when then they occur or transferred to the buyer, rather than at the time when expenses are paid. Cause: Management overlooked the service periods associated with certain invoices at year-end. Possible Asserted Effect: Due to inappropriate cutoff procedures established at year-end, the School did not record accruals for utilities services totaling $11,621. In addition, the School did not book healthcare services in the correct period and the accruals for payable was decreased by $12,987. Overall, accounts payable was adjusted by $93,504 on a net basis. Future years will likely experience similar errors if proper internal controls are not designed and implemented. Repeat Finding: See Finding 2022-001 for a similar finding in the current year. Recommendation: We recommend that the School prepare written instructions to be included in the School’s accounting policies and procedures manual that indicate basic procedures to achieve proper cutoff and completeness of accounts payable, accrued liabilities and prepaid expenses in the financial closing process, as well as specify the positions/staff responsible for performing such procedures and controls. Management Response: Contributing to the discrepancies with these accrual entries is the timing of the audit. Preliminary audit field work began before the end of the fiscal year and official on-campus fieldwork was completed on August 4 and we had not yet closed our July financial statements. The School made the required adjustments to their accounting records. The School will prepare written instructions to be included in the School’s accounting policies and procedures manual that indicate basic procedures to achieve proper cutoff and completeness of accounts payable, accrued liabilities and prepaid expenses in the financial closing process, as well as specify the positions/staff responsible for performing such procedures and controls. This will be completed in time to improve the cutoff procedures for the year ending June 30, 2024 (FY 2024).