Finding Text
Finding 2022-002 – Compliance Deficiencies (Material Weakness)
Information on the Federal Program – Mental and Behavioral Health Education and Training Grants, FAL No. 93.732, December 31, 2022; Block Grants for Community Mental Health Services FAL No. 93.958, December 31, 2022
Criteria – Good internal controls require proper segregation of duties and supervision of the accounting function.
Condition – A separate forensic audit conducted in 2023 determined that fraud, that began in 2020, was perpetrated and continued until early 2022. The fraud was not prevented or detected earlier because of the Organization’s lack of segregation of duties, poor reviews of financial data and inadequate approval controls.
Questioned Costs – The amount of the $233,718 fraud attributed to 2022 is $25,788.
Context – We noted the following in connection with our testing of internal controls: The Organization became aware that its PayPal account may have been a victim of fraud. Its suspicions were confirmed by a forensic audit.
Effect – The effect of the fraud covered multiple years and attributed to the deficit in the Organization’s net assets without donor restrictions.
Cause – Because the organization did not regularly reconcile its PayPal account, the fraud was able to extend over multiple years.
Repeat Finding – No.
Recommendation – The Organization should strengthen its system of internal controls. Given its limited accounting personnel, it should develop appropriate compensating controls to safeguard assets, detect fraud and produce timely and accurate financial reports. Additionally, the Organization should have annual financial statement audit. Views of Responsible Officials – Management agrees with the auditor's findings and will take further steps to protect its assets, segregate duties, and detect fraudulent activity. Specific actions will be addressed in the Management Corrective Action Plan.