Finding Text
2022-001: Inadequate Controls over Preparation of Financial Statements Condition: The City currently does not prepare financial statements under generally accepted accounting principles. The external auditors prepare the statements and disclosures and management approves and takes responsibility for the statements after they are prepared. Criteria: Accounting standards dictate that management is responsible for preparation of the financial statements. An audit of the financial statements of an organization requires the evaluation of the internal control system?s design of controls in generating and overseeing of the financial statements to be audited. The organization must have the ability to prepare and evaluate the financial statements? format, content, and disclosures in accordance with generally accepted accounting principles and recognize any material items missing in the financial statements through the organization?s control system. This is true whether the organization prepares the financial statements or not. These controls can be established or achieved by use of a third party organization or internally, but external auditors are never considered a control element. Cause: The City believes its current reporting meets all of the City?s internal needs. While management knows their responsibility for understanding and presenting the annual financial statements, they do not believe it is currently cost beneficial to design and/or strengthen controls over the accounting departments financial reporting process. Effect: The City does not have proper controls over financial statements preparation. Recommendation: We recommend the City continue to monitor the need, costs, and benefits of developing a control structure to oversee the preparation of financial statements in accordance with generally accepted accounting principles. Management Response: The City feels we meet our internal needs and it is not cost beneficial to hire a third party to prepare the financial statements.