Finding 480549 (2023-002)

Material Weakness
Requirement
B
Questioned Costs
-
Year
2023
Accepted
2024-08-06

AI Summary

  • Core Issue: There are unreconciled differences between the general ledger and account detail reports for accounts receivable, inventory, and customer deposits.
  • Impacted Requirements: Compliance with internal control standards as outlined in federal regulations is not being met, specifically regarding monthly reconciliations.
  • Recommended Follow-Up: The authority should review policies and software used for accounting, and ensure monthly reconciliations are conducted to strengthen internal controls.

Finding Text

MONTH END CLOSING-ALN 21.027-FEDERAL PROGRAM-CORONAVIRUS STATE AND LOCAL FISCAL RECOVERY FUNDS- FEDERAL AGENCY: DEPARTMENT OF THE TREASURY-CRITERIA: CHAPTER 2, PART 200, § 200,303, "ESTABLISH AND MAINTAIN EFFECTIVE INTERNAL CONTROL OVER THE FEDERAL AWARD THAT PROVIDES REASONABLE ASSURANCE THAT THE NON-FEDERAL ENTITY IS MANAGING THE FEDERAL AWARD IN COMPLIANCE WITH FEDERAL STATUTES, REGULATIONS, AND THE TERMS AND CONDITIONS OF THE FEDERAL AWARD". ONE COMPONENT OF AN EFFECTIVE INTERNAL CONTROL SYSTEM IS PROPER SUPERVISORY REVIEW AND USE OF CONTROL PROCEDURES TO ENSURE ADEUATE DETAIL OF MONTH END FINANCIAL CLOSE ENSURING ASSETS AND LIABILITIES ARE MAINTAINED AND RECORDED. CONDITION: RECONCILIATIONS OF ACCOUNTS RECEIVABLE, INVENTORY AND CUSTOMER DEPOSITS IN PREPARATION FOR YEAR-END FINANCIAL STATEMENTS REVEALED UNRECONCILED DIFFERENCES BETWEEN THE GENERAL LEDGER AND THE ACCOUNT DETAIL REPORTS. CAUSE AND EFFECT: INADEQUATE CONTROL OVER THE SOFTWARE AND RECONCILIATION TO THE GENERAL LEDGER CAUSED THE UNRECONCILED DIFFERENCES. THE DIFFERENCE IN INVENTORY WAS ADJUSTED BY MANAGEMENT. THE DIFFERENCES IN ACCOUNTS RECEIVABLE AND CUSTOMER DEPOSITS WERE NOT MATERIAL TO THE FINANCIAL STATEMENTS AND ADJUSTMENTS HAVE BEEN WAIVED. RECOMMENDATION: I RECOMMEND THE AUTHORITY REVIEW ITS POLICIES AND SOFTWARE UTILIZED TO ACCOUNT FOR THE BALANCE SHEET ITEMS. MONTHLY RECONCILIATION OF INVENTORY, ACCOUNTS RECEIVABLE AND CUSTOMER DEPOSIT DETAILS TO THE GENERAL LEDGER IS A KEY COMPONENT TO INTERNAL CONTROL. RESPONSIBLE OFFICIAL'S RESPONSE: MANAGEMENT WILL WORK WITH THE SOFTWARE COMPANY AND EMPLOYEES TO IMPLEMENT PROCEDURES TO ENSURE MONTHLY RECONCILIATIONS OF BALANCE SHEET ITEMS.

Corrective Action Plan

CORRECTIVE ACTION PLAN: IMPROVING MONTH-END CLOSING RECONCILIATION-OBJECTIVE: TO ENHANCE THE ACCURACY AND EFFICIENCY OF THE MONTH-END CLOSING PROCESS, PARTICULARLY IN RECONCILING ACCOUNTS RECEIVABLE, INVENTORY, AND CUSTOMER DEPOSITS. 1. IDENTIFY AND DOCUMENT CURRENT ISSUES-ACTION: CONDUCT A THOROUGH REVIEW OF CURRENT MONTH-END CLOSING PROCEDURES TO IDENTIFY SPECIFIC ISSUES AND DISCREPANCIES IN ACCOUNTS RECEIVABLE, INVENTORY, AND CUSTOMER DEPOSITS. RESPONSIBILITY: FINANCE TEAM LEAD. TIMELINE: 1 WEEK 2. IMPLEMENT ENHANCED RECONCILIATION PROCEDURES - ACTION: DEVELOP AND DOCUMENT DETAILED RECONCILIATION PROCEDURES FOR ACCOUNTS RECEIVABLE, INVENTORY, AND CUSTOMER DEPOSITS, INCLUDING STEP-BY-STEP INSTRUCTIONS AND TIMELINES. RESPONSIBILITY: ACCOUNTING MANAGER. TIMELINE: 2 WEEKS-3. STANDARDIZE DATA ENTRY AND REPORTING-ACTION: ESTABLISH STANDARDIZED PROCESSES FOR DATA ENTRY, REPORTING, AND RECORD-KEEPING TO ENSURE CONSISTENCY AND ACCURACY ACROSS ALL FINANCIAL DOCUMENTS. RESPONSIBILITY: DATA ENTRY SPECIALIST. TIMELINE: 2 WEEKS. 4. UPGRADE ACCOUNTING SOFTWARE AND TOOLS-ACTION: ASSESS CURRENT ACCOUNTING SOFTWARE AND TOLLS FOR GAPS OR INEFFICIENCIES. INVEST IN UPGRADES OR NEW TOOLS IF NECESSARY TO IMPROVE RECONCILIATION PROCESSES. RESPONSIBILITY: IT MANAGER AND FINANCE DIRECTOR. TIMELINE: 4 WEEKS. 5. TRAIN STAFF ON REVISED PROCEDURES. ACTION: CONDUCT TRAINING SESSIONS FOR ALL RELEVANT STAFF ON THE UPDATED RECONCILIATION PROCEDURES AND ANY NEW SOFTWARE OR TOLLS. ENSURE THAT EVERYONE UNDERSTANDS THEIR ROLES AND RESPONSIBILITIES. RESPONSIBILITY: HR TRAINING COORDINATOR. TIMELINE: 2 WEEKS. 6. IMPLEMENT REGULAR RECONCILIATION REVIEWS. ACTION: ESTABLISH A SCHEDULE FOR REGULAR RECONCILIATION REVIEWS (E.G. WEEKLY OR BI-WEEKLY) TO CATCH AND ADDRESS DISCREPANCIES EARLY. ASSIGN RESPONSIBILITY FOR THESE REVIEWS TO SENIOR STAFF MEMBERS. RESPONSIBILITY: SENIOR ACCOUNTANT. TIMELINE: ONGOING, WITH INITIAL SETUP WITHIN 1 WEEK. 7. ENHANCE INTERNAL CONTROLS AND MONITORING. ACTION: REVIEW AND STENGTHEN INTERNAL CONTROLS RELATED TO ACCOUNTS RECEIVABLE, INVENTORY, AND CUSTOMER DEPOSITS. IMPLEMENT ADDITIONAL MONITORING MECHANISMS TO DETECT AND PREVENT ERRORS OR FRAUD. RESPONSIBILITY: INTERNAL AUDITOR. TIMELINE: 3 WEEKS. 8. DEVELOP AND TRACK PERFORMANCE METRICS. ACTION: CREATE PERFORMANCE METRICS TO TRACK THE EFFICIENCY AND ACCURACY OF THE MONTH-END CLOSIN PROCESS. REGULARLY REVIEW THESE METRICS TO IDENTIFY AREAS FOR IMPROVEMENT. RESPONSIBILITY: FINANCE DIRECTOR. TIMELINE: 2 WEEKS. 9. CONDUCT POST-IMPLEMENTATION REVIEW. ACTION: AFTER IMPLEMENTING THE CORRECTIVE ACTIONS, CONDUCT A COMPREHENSIVE REVIEW TO ASSESS THE EFFECTIVENESS OF THE CHANGES. SOLICIT FEEDBACK FROM STAFF AND MAKE ANY NECESSARY ADJUSTMENTS. RESPONSIBILITY: FINANCE TEAM LEAD AND ACCOUNTING MANAGER. TIMELINE: 1 MONTH AFTER IMPLEMENTATION. 10. CONTINUOUS IMPROVEMENT. ACTION: ESTABLISH A PROCESS FOR ONGOING EVALUATION AND REVINEMENT OF MONTH-END CLOSING PROCEDURES. ENCOURAGE STAFF TO PROVIDE FEEDBACK AND SUGGEST IMPROVEMENTS REGULARLY. RESPONSIBILITY: CONTINOUS IMPROVEMENT COMMITTEE. TIMELINE: ONGOING. EXPECTED OUTCOMES: IMPROVED ACCURACY AND EFFICIENCY IN RECONCILING ACCOUNTS RECEIVABLE, INVENTORY, AND CUSTOMER DEPOSITS. REDUCED DISCREPANCIES AND ERRORS IN MONTH-END FINANCIAL REPORTS. ENHANCED STAFF KNOWLEDGE AND ADHERENCE TO UPDATED PROCEDURES BETTER FINANCIAL OVERSIGHT AND CONTROL. BY FOLLOWING THIS CORRECTIVE ACTION PLAN, WE AIM TO STREAMLINE THE MONTH-END CLOSING PROCESS, ENSURING THAT FINANCIAL STATEMENTS ARE ACCURATE, TIMELY, AND RELIABLE.

Categories

Equipment & Real Property Management Matching / Level of Effort / Earmarking Internal Control / Segregation of Duties

Other Findings in this Audit

  • 480550 2023-002
    Material Weakness
  • 1056991 2023-002
    Material Weakness
  • 1056992 2023-002
    Material Weakness

Programs in Audit

ALN Program Name Expenditures
11.307 Economic Adjustment Assistance $68,256
21.027 Coronavirus State and Local Fiscal Recovery Funds $30,000