Finding Text
Program
ALN 16.575 - Crime Victim Assistance
Criteria
Establishment and maintenance of internal controls over the financial reporting process.
Condition
Our testing identified several instances of management override of controls over payroll processing. The employee responsible for processing payroll initiated an early payment of that employee's personal payroll 4 days prior to the actual pay date. This same individual frequently adjusted personal payroll tax withholdings throughout the year sometimes not withholding any payroll taxes, sometimes only withholding FICA taxes, sometimes withholding higher levels of taxes seemingly to make up for previous adjustments, and often adjusted the amount being withheld for federal and state withholdings on the employee's personal payroll. At year-end payroll withholdings were adjusted back to the appropriate levels for that year-end pay period, but then were subsequently once again reduced after year-end. The same employee who is entering payroll changes into Quickbooks is the employee who is also submitting payroll for processing. There does not seem to be a final approval by another party prior to payroll processing.
Questioned costs
None
Context
The finding is the result of audit procedures performed and observation and inquiry with Organization management.
Effect
Management override of controls is a material concern that is the result of a deficient control environment. Management override of controls can lead to inaccurate financial reporting and increased fraud risks, ultimately harming the Organization's financial health and reputation. Material misstatements could occur without being prevented or detected and corrected.
Cause
The root cause is an inadequate internal control environment and inadequate monitoring of financial processes.
Recommendation
We recommend the Organization revisit its internal control policies and procedures to incorporate an appropriate level of segregation of duties within the payroll process.
Views of the Responsible Officials and Planned Corrective Action
The employee responsible for processing payroll adjusted their own withholdings several times throughout the year without proper documentation or approval. Inadequate segregation of duties results in there being no final approval of payroll processing by another individual. The adjustments were corrected at the end of fiscal year 2023 to reflect normal withholdings. The Organization has adjusted its internal controls to include a final approval of payroll and withholdings by the executive director and board treasurer. The newly contracted outside financial agency will be responsible for the processing of all payroll withholdings. The executive director and the treasurer will have online access to the accounts for oversight.