Finding Text
2022-001: Audit Adjustments and Oversight of the Financial Reporting Process Material Weakness Criteria ? Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Condition ? During the annual audit, approximately twenty adjustments were made to the Corporation?s financial statements to properly record development activity that in the aggregate, were material to the financial statements. Management reviewed, approved, and accepted responsibility for the audit adjustments before the financial statements were issued. The need for us to record significant audit adjustments indicates a break down in the internal controls related to preparing and reviewing the Corporation?s financial statements which we consider a material weakness because a misstatement of financial statements could occur and not be prevented or detected. Cause ? There was significant staff turnover in fiscal year 2022. The new finance team members had a steep learning curve around properly accounting for certain real estate activities, particularly development related accounting. Also, during the year-end close, the Director of Operations ? the most knowledgeable individual in this area was ill and unable to perform the in-depth review that she ordinarily would have performed before financials were sent to the auditors. Effect ? A material misstatement of the financial statement could occur and not be prevented or detected. Members of management using the Corporation?s internal books and records may not have complete and accurate information throughout the year. Recommendation ? We recommend the Corporation develop and implement a process around properly recording and reviewing development accounting to ensure that necessary adjustments and reconciliations are performed before year-end. This review should ensure that the books for the year under audit make sense, not just the books for the project?s life to date. Additionally, additional education and cross training should be implemented in the accounting team to offset the negative effect of the Director of Operations being unavailable in the future. Auditee's comments and response ? The Corporation continues to work on educating their new team and implementing good financial statement review processes. Management also intends to implement a simplified development accounting process going forward. Responsible party for corrective action: Kris Meyer, Director of Operations