Core Issue: The Board of Directors and management company failed to confirm the correct loan interest rate, leading to a significant discrepancy in accrued interest.
Impacted Requirements: Accurate reporting of contract terms in financial statements is essential to avoid errors and misstatements.
Recommended Follow-Up: Enhance internal controls and collaborate with the Board and management to ensure accurate financial reporting moving forward.
Finding Text
Section II --- Financial Statement Findings ? Criteria or specific requirement: Assignment of responsibility that the Board of Directors or management company is responsible for confirming contract terms and that these terms are reported correctly each year in the financial statements. ? Condition: Accrued interest of loan from Long Beach Housing Development Company had been accrued at 3% for all prior years. Actual interest rate is 6.625% per original signed contract. ? Effect: Could result in undetected errors and misstated financial statements. ? Cause: Governing body relied on management company and auditors to confirm loan terms each year ? Recommendation: Improve internal controls to prevent these types of adjustments. The auditor will work with the management company and Board of Directors about it's responsibility for the financial statements. ? Management's response: Board of Directors and management company will incorporate additional internal controls to detect material adjustments and prevent materially misstated financial statements.
Categories
Matching / Level of Effort / EarmarkingInternal Control / Segregation of Duties