Finding 478000 (2022-002)

Material Weakness Repeat Finding
Requirement
L
Questioned Costs
-
Year
2022
Accepted
2024-07-09
Audit: 314739
Organization: Human Response Network (CA)

AI Summary

  • Core Issue: There is a material weakness in internal controls due to inadequate account reconciliations, leading to significant adjustments needed for accurate financial reporting.
  • Impacted Requirements: Failure to meet federal documentation standards resulted in delays for the Single Audit reporting package and annual audit reports to funding agencies.
  • Recommended Follow-Up: Implement timely monthly reconciliations for all accounts to quickly identify and correct errors, ensuring accurate financial records and compliance with regulations.

Finding Text

2022-01 - Account Reconciliations (Material weakness in internal controls) Criteria: Code of Federal Regulations requires that recipients of federal awards maintain adequate documentation and records to support the transactions recorded by the organization and the financial reports generated during the year. Condition: Several of the general ledger accounts required significant adjustments and clean up in order to be presented in accordance with U.S. generally accepted accounting principles and to agree to supporting documentation at June 30, 2022. Cause: During the year ended June 30, 2022, unusually high turnover and new personnel within the accounting department continued to lead to many delays in performing accurate and timely month end account reconciliations during the year. Effect: Delays were encountered which resulted in the organization being unable to submit the Single Audit reporting package by the deadline required by Uniform Guidance. In addition, various funding agencies were not provided with a timely annual audit report as required. The preparation of accurate and timely financial records in accordance with generally accepted accounting principles is essential to all organizations accepting governmental funding. Without adequate financial records, management must base its decisions on incomplete and/or inaccurate information during the year. Additionally, an inadequate accounting system can result in cash flow shortages, inaccurate reports to funding agencies, and cause other problems detrimental to the success of the Organization's mission. Transactions must be properly recorded and accounted for in order to: • Permit the preparation of reliable financial statements and federal reports. • Maintain accountability over assets. • Demonstrate compliance with laws, regulations, and other compliance requirements. Recommendation: We believe that monthly reconciliations of all general ledger and balance sheet accounts should be performed timely and accurately to quickly identify errors and any needed corrections. If reconciliations are performed infrequently, errors and omissions can occur, resulting in potentially inaccurate financial records which could require significant corrections upon discovery. Any reconciling differences should be corrected before the books are closed for the month. A benefit of monthly reconciliations is that errors do not accumulate but can be identified and attributed to a particular period, which makes it easier to perform future reconciliations. Management's Response: The Organization agrees with this finding and will adhere to the corrective action as detailed in the attached Corrective Action Plan

Corrective Action Plan

Explanation and Corrective Action Taken: The audit for the Year Ended June 30, 2021 was completed in June 2023 which has caused a rippling effect for subsequent audits to be late. The Fiscal Officer that was responsible for the June 30, 2021 audit did not prepare or provide the necessary financial information to the Auditors. That Fiscal Officer resigned in March 2022 and the position remained vacant until August 1st, 2022. In August 2022, the preceding Fiscal Officer was rehired. During their prior employment from February 2013 until March 2021 there were no audit findings. In addition to the Fiscal Officer position being vacant for five months, there was a new fiscal coordinator position created and the fiscal assistant position had gone through 3 staff members in less than three years. There are no staff at Human Response Network with accounting experience except for the Fiscal Officer and fiscal department of three. The rehired Fiscal Officer determined that many balance sheet accounts were not reconciled monthly. It was discovered that closing entries had not been done and the financial statements provided to the auditors were inaccurate. The accounts not reconciled included the following accounts: • Cash • Contracts Receivable to the General Ledger • Prepaid Expenses to Accrue Expenses • Depreciation / Property & Equipment Schedule • Accounts Payable Aging to the General Ledger • Deferred Revenue to the General Ledger The Fiscal Officer performed a thorough review of the allocation methodology, journal entries, and other accounting transactions to ensure that the transactions were recorded properly and pooled expenses were correctly allocated. There were a number of transactions that were not coded correctly. Pooled expenses were allocated correctly. The trial balance discrepancies from Fiscal Year 2021/22 were researched and reconciled and all the balance sheet accounts were reconciled. Transactions were re-coded to their correct account. The Fiscal Officer continues training staff on the proper procedures and use of the financial software. An audit engagement letter for 2021/22 was executed on September 15, 2023. The majority of information was provided to the Auditors between November 2023 and early February 2024. Scheduling conflicts prevented continued work on the audit until late-May 2024. Human Response Network agrees that monthly reconciliations of all general ledger and balance sheet accounts should be performed timely and accurately. As of August 2022, Human Response Network staff began reconciling accounts and projects on a regular basis as a part of the monthly closing process. Staff continue to receive ongoing training and mentoring by the experienced staff members.

Categories

Reporting Internal Control / Segregation of Duties Material Weakness

Other Findings in this Audit

  • 478001 2022-002
    Material Weakness Repeat
  • 478002 2022-002
    Material Weakness Repeat
  • 478003 2022-002
    Material Weakness Repeat
  • 478004 2022-002
    Material Weakness Repeat
  • 478005 2022-002
    Material Weakness Repeat
  • 478006 2022-002
    Material Weakness Repeat
  • 478007 2022-002
    Material Weakness Repeat
  • 478008 2022-002
    Material Weakness Repeat
  • 1054442 2022-002
    Material Weakness Repeat
  • 1054443 2022-002
    Material Weakness Repeat
  • 1054444 2022-002
    Material Weakness Repeat
  • 1054445 2022-002
    Material Weakness Repeat
  • 1054446 2022-002
    Material Weakness Repeat
  • 1054447 2022-002
    Material Weakness Repeat
  • 1054448 2022-002
    Material Weakness Repeat
  • 1054449 2022-002
    Material Weakness Repeat
  • 1054450 2022-002
    Material Weakness Repeat

Programs in Audit

ALN Program Name Expenditures
93.575 Child Care and Development Block Grant $279,893
16.575 Crime Victim Assistance $253,493
93.600 Head Start $198,860
14.231 Emergency Solutions Grant Program $196,949
93.596 Child Care Mandatory and Matching Funds of the Child Care and Development Fund $141,857
21.019 Coronavirus Relief Fund $57,321
93.671 Family Violence Prevention and Services/domestic Violence Shelter and Supportive Services $43,281
10.558 Child and Adult Care Food Program $33,161
21.023 Emergency Rental Assistance Program $13,489