Finding 478428 (2023-001)

Material Weakness Repeat Finding
Requirement
ABMN
Questioned Costs
-
Year
2023
Accepted
2024-07-15
Audit: 315127
Auditor: Bbd LLP

AI Summary

  • Core Issue: The Director of Finance has overlapping responsibilities that compromise segregation of duties, increasing the risk of errors or fraud.
  • Impacted Requirements: Lack of adequate segregation allows one individual to both manage assets and record transactions, violating internal control principles.
  • Recommended Follow-Up: Review and adjust staff roles related to financial reporting to enhance accountability and implement necessary safeguards.

Finding Text

Segregation of Duties Material Weakness in Internal Control Condition: During our audit, we noted that the duties of the Director of Finance were such that lend themselves to improper segregation of duties due to the structure of being a small nonprofit organization. Segregation of duties ensures that the same person who has physical assets to assets is not the same person who posts transactions to the financial records and performs reconciliation procedures related to those assets. Criteria: Adequate segregation of duties reduces the likelihood that errors (intentional or unintentional) will remain undetected by providing for separate processing by different individuals at various stages of a transaction and for independent review of the work performed. The basic idea underlying segregation of duties is that no one employee or group of employees should be in a position both to perpetrate and conceal errors or irregularities in the normal course of their duties. In general, the principal incompatible duties to be segregated are: authorization of transactions, custody of assets, and recording or reporting of transactions. Effect: Although we noted during our prior audits that there was oversight over MNM’s financial activities by the Executive Director on a daily basis and the Board of Directors through review of financial information at their bi-monthly meetings, the Director of Finance was able to circumvent these compensating controls and misappropriate assets of MNM as described in the notes to the financial statements. Cause: The extent to which MNM can segregate duties is limited being a small non-profit based on the number of personnel, their skill set and workload, and the overall cost of implementing the proper segregation of duties. Auditor Recommendation: Revaluate the current duties of the staff responsible for financial reporting of MNM related to segregation of duties and compensating controls and implement safeguards to ensure that responsible employees follow through and are held accountable for their financial duties.

Corrective Action Plan

Management’s Response: Management has revised MNM’s segregation of duties and compensating controls surrounding financial reporting and has implemented the appropriate safeguards to ensure they are adhered to. MNM has developed written procedures and incorporated the following controls surrounding cash receipts and disbursements. • Maintenance of a daily log of cash receipts and disbursements • Restrict access to cash and checks to authorized individuals • Maintain adequate supporting documentation for all cash receipts and disbursements • Recount of daily cash receipts by more than one individual for accuracy • Make deposits and post to accounts receivable on a regular basis at a minimum weekly • Safeguard cash and checks for deposits in a secure location (i.e. safe or lockbox) • Cash receipts are verified to daily log and supporting documentation as part of bank reconciliation process • Cash receipt and disbursement detail to be reviewed by Executive Director

Categories

Internal Control / Segregation of Duties Material Weakness Reporting Matching / Level of Effort / Earmarking

Other Findings in this Audit

  • 478429 2023-002
    Material Weakness Repeat
  • 478430 2023-003
    Significant Deficiency
  • 1054870 2023-001
    Material Weakness Repeat
  • 1054871 2023-002
    Material Weakness Repeat
  • 1054872 2023-003
    Significant Deficiency

Programs in Audit

ALN Program Name Expenditures
93.600 Head Start $918,300
93.575 Child Care and Development Block Grant $697,822