Finding Text
FINDING 2022-001 - FINANCIAL CLOSING AND REPORTING - TYPE: MATERIAL WEAKNESS -
FEDERAL AND STATE OF NEW JERSEY AWARDS: ALL
Criteria
Controls should be in place to evaluate accounts, review and approval of transactions, record entries into the general ledger in a timely, complete and accurate manner and generate a final trial balance and financial statements.
Condition
The Agency’s existing process of initiating, reviewing and approving transactions, maintaining supporting documentation, closing the books and preparing financial statements includes recording a significant number of manual post-closing entries and audit adjustments. We noted the following control deficiencies, which in combination, are considered a material weakness:
• Supporting documentation for journal entries is not maintained in one central location nor does it evidence formal review by an individual at least one level above the preparer.
• Weaknesses over recording rental activity include recording rental income on a cash basis and inconsistent application of late rental fees and utility payments charged to tenants.
• Charges to corporate debit and credit cards are not formally reviewed by management.
• Accounts receivable aging is not maintained timely or reconciled and uncollected accounts receivable balances are not followed up on for correct recorded balances. Lack of controls over the timing of revenue recorded resulted in material adjustments.
• Day care expenses are not consistently allocated to grants that are reimbursed based on student attendance/meal counts.
• Weakness over recording fixed assets additions, in-kind donations, and disposals, maintaining fixed asset schedule, and reviewing fixed assets for impairment.
• Child care fees are recorded on a cash basis.
• Property taxes and utility payments are consistently paid late, resulting in significant penalties and accrued interest and difficulty reconciling to balance due at year-end.
• Expenses not consistently allocated to grants that are reimbursed based on student attendance/meal counts and weakness over preparation and review of statement of functional expenses.
• Difficulty locating documentation and agreements supporting current year transactions.
• Accounts payable aging not maintained timely or reconciled.
• Payroll not accrued properly or timely.
• The Agency spent funds for the Neighborhood Revitalization Tax Credit program before receiving budget modification approval from the grantor resulting in delays or not receiving expense reimbursements.
Cause
Failure to enforce its policies and procedures over financial closing and reporting and turnover of personnel in the accounting department.Effect
Agency’s initial trial balance was materially misstated.
Identification of a Repeat Finding
This is a repeat finding from the immediate previous audit, 2021-01.
Recommendation
Management has begun to implement new controls in the accounting department and hire additional staff and external consultants. We recommend management to continue to develop and further refine its financial reporting processes. Management should continue to conduct a thorough assessment of the adequacy and completeness of the Agency’s accounting and financial closing and reporting policies and procedures. Based on the results of the continued assessment, management should develop additional policies and procedures and/or reinforce the existing policies and procedures to personnel.
Views of Responsible Officials and Planned Corrective Actions
The Agency agrees with this finding and will adhere to the corrective action plan in this audit report.