Finding 501826 (2023-001)

Material Weakness
Requirement
P
Questioned Costs
-
Year
2023
Accepted
2024-10-07
Audit: 323929
Organization: Cadence Care Network (OH)
Auditor: Packer Thomas

AI Summary

  • Core Issue: Many general ledger accounts were not reconciled, leading to significant audit adjustments and unreliable financial statements.
  • Impacted Requirements: Accurate and timely account reconciliations are essential for sound financial reporting, which is currently lacking.
  • Recommended Follow-Up: Management should formalize monthly accounting procedures and establish a comprehensive closing schedule to ensure all significant accounts are reconciled.

Finding Text

ACCOUNT RECONCILIATIONS: STATEMENT OF CRITERIA: A SOUND ACCOUNTING SYSTEM REQUIRES THAT THE FINANCIAL STATEMENT ACCOUNTS ARE RECORDED AND RECONCILED IN AN ACCURATE AND TIMELY MANNER. STATEMENT OF CONDITION: A SIGNIFICANT NUMBER OF GENERAL LEDGER ACCOUNTS WERE NOT RECONCILED TO THE UNDERLYING SUPPORTING DOCUMENTATION RESULTING IN A SIGNIFICANT NUMBER OF AUDIT ADJUSTMENTS BEING MADE AS PART OF AUDIT PROCEDURES. STATEMENT OF CAUSE: OVER THE LAST TWO YEARS THE ORGANIZATION HAS EXPERIENCED RAPID GROWTH AND DIVERSIFICATION. MOST OF THIS GROWTH AND DIVERSIFICATION OCCURED AS OUR CHIEF FINANCIAL OFFICER (OVER 20 YEARS OF SERVICE) WAS IN THE PROCESS OF RETIRING AND WE WERE IN THE PROCESS OF HIRING A NEW ONE. AS A RESULT, THE ORGANIZATION LOST MUCH INSTITUTIONAL MEMORY AND FOUND ITSELF FOCUSING ON BUILDING TOWARD THE FUTURE. GROWTH AND DIVERSIFICATION INCLUDE: A MERGE THAT OCCURED ON 7/1/2022 ALLOWING US TO GAIN A FOOTPRINT IN MASSILLON, TOLEDO, AND UPPER SANDUSKY OHIO, THE ESTABLISHMENT OF A SOCIAL ENTERPRISE (CADENCE COFFEEHOUSE AND CREPERIE), AND THE AWARD OF THE OHIORISE CONTRACT WITH AETNA. THESE ACTIVITIES ALL STARTED TO GAIN MOMENTUM IN THE LAST HALF OF FY 21-22, ALLOWED FOR APPROXIMATELY 130 NEW EMPLOYEES FROM JANUARY 22 TO DATE, AND CAUSED THE FOCUS OF OUR CFO TO BE SQUARELY REDIRECTED AT FUTURE FOCUSED BUSINESS ISSUES. THE NEW CFO HAS BEEN GETTING ACCLIMATED TO PREVIOUS POLICIES AND PROCEDURES, WHILE ESTABLISHING A FRAMEWORK FOR A MORE INTEGRATED AND ROBUST SYSTEM UTILIZING FINANCIAL EDGE NXT WITH THE HOPE THAT WE BECOME NIMBLER WHILE ESTABLISHING SOLID ACCOUNTING PRACTICES. ANOTHER FACTOR THAT BECAME CLEAR AS THE YEAR PROGRESSED IS THAT WE WOULD NEED TO HIRE A STAFF ACCOUNTANT TO PROVIDE SUPPORT TO THE CFO AND TAKE CARE OF THE DAY-TO-DAY POSTING AND GENERAL BOOKKEEPING DUTIES. DUE TO THE CURRENT LABOR CRISIS, THIS PROCESS TOOK APPROXIMATELY 8 MONTHS FROM WHEN WE INITIALLY POSTED THE POSITION. AS OF JANUARY 1ST, 2023, WE ARE FULLY STAFFED. STATEMENT OF EFFECT: BECAUSE OF THESE INSTANCES NOTED ABOVE, A SIGNIFICANT NUMBER OF GENERAL LEDGER ACCOUNTS WERE NOT RECONCILED TO THE UNDERLYING SUPPORTING DOCUMENTATION, RESULTING IN A SIGNIFICANT NUMBER OF GENERAL LEDGER ACCOUNTS BEING MISSTATED. THIS LED TO A SIGNIFICANT NUMBER OF AUDIT ADJUSTMENTS BEING MADE. UNRELIABLE GENERAL LEDGER ACCOUNT BALANCES MAKE IT MORE DIFFICULT FOR THE GOVERNANCE BOARD TO MAKE DECISIONS BASED ON MONTHLY FINANCIAL STATEMENTS. RECOMMENDATION: MANAGEMENT SHOULD FORMALIZE MONTHLY ACCOUNTING AND CLOSING PROCEDURES TO INCLUDE RECONCILIATION OF ALL SIGNIFICANT ACCOUNT BALANCES AND TO ENSURE ACCURATE FINANCIAL REPORTING INFORMATION IS BEING MAINTAINED BY THE ORGANIZATION. MANAGEMENT RESPONSE: MANAGEMENT AT CADENCE CARE NETWORK AGREES WITH AUDITORS THAT THEY SHOULD FORMALIZE MONTHLY ACCOUNTING AND CLOSING PROCEDURES TO ENCOMPASS RECONCILIATION OF ALL SIGNIFICANT ACCOUNT BALANCES. CURRENTLY, MANAGEMENT IS DEVELOPING A COMPREHENSIVE MONTHLY CLOSING SCHEDULE THAT WILL OUTLINE THE CLOSING TASKS, THEIR RESPECTIVE DUE DATES, AND THE ASSIGNED RESPONSIBLITIES. ADDITIONALLY, MONTHLY FINANCIAL MEETINGS ARE BEING ESTABLISHED TO ENHANCE PREPAREDNESS FOR MONTH-END AND PROVIDE A PLATFORM TO ADDRESS ANY ISSUES, INEFFICIENCIES, OR BARRIERS ENCOUNTERED BY THE FINANCE DEPARTMENT. FUTHERMORE, THE EXECUTIVE TEAM IS DILIGENTLY REVIEWING THE FINANCIAL POLICIES TO ALIGN THEM MORE EFFECTIVELY WITH THE RAPID GROWTH EXPERIENCED BY CADENCE CARE NETWORK.

Corrective Action Plan

RECOMMENDATION: MANAGEMENT SHOULD FORMALIZE MONTHLY ACCOUNTING AND CLOSING PROCEDURES TO INCLUDE RECONCILIATION OF ALL SIGNIFICANT ACCOUNT BALANCES AND TO ENSURE ACCURATE FINANCIAL REPORTING IS BEING MAINTAINED BY THE ORGANIZATION.

Categories

Reporting

Other Findings in this Audit

  • 501827 2023-002
    Material Weakness
  • 501828 2023-003
    Significant Deficiency
  • 501829 2023-004
    Significant Deficiency
  • 1078268 2023-001
    Material Weakness
  • 1078269 2023-002
    Material Weakness
  • 1078270 2023-003
    Significant Deficiency
  • 1078271 2023-004
    Significant Deficiency

Programs in Audit

ALN Program Name Expenditures
93.658 Foster Care Title IV-E $816,611
84.425 Education Stabilization Fund $350,373
93.670 Child Abuse and Neglect Discretionary Activities $120,600