Finding Text
FINDING 2022-002 ? Capitalizing Property and Equipment Condition Found: During our testing of property and equipment, we noted multiple expenditures related to property and equipment that were not recorded properly. In one instance, a residence was purchased through a financing arrangement in which the disbursement was recorded as the total cost. In other instances, the School capitalized purchases based on what was disbursed instead of the total invoice received. In addition, there was an issue in correctly capitalizing improvements of buildings and donated assets. Lastly, there were disposals of vehicles that were improperly recorded by lowering depreciation expense instead of accumulated depreciation. Criteria: Property and equipment expenditures should be scrutinized by management to ensure that the proper amounts are capitalized, including reviewing the total invoice instead of the amount disbursed. In addition, donated property should be valued at the fair value on the date of the donation using third party appraisals when appropriate. Lastly, disposal of assets should decrease the accumulated depreciation balance and the gain/loss account, without affecting the depreciation expense. Cause: The School did not have adequate procedures in place to identify and record transactions related to property and equipment. Possible Asserted Effect: This resulted in numerous adjustments totaling approximately $995,000. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend the following: ? Property and equipment purchased under a financing arrangement should be reviewed thoroughly by management, and the total cost and related debt should be recorded on the purchase date. The asset cost should be depreciated over the estimated useful life, and subsequent payments on the debt should be recorded as reductions of the liability accrued. ? Property and equipment should be recorded based on the invoice and not that based on the disbursement made. Management should review the invoice along with the disbursement made. ? A written policy should be developed for recognizing in-kind contributions of goods and services. This policy will be most beneficial in that it will allow for easier and more consistent accounting treatment for contributed goods and services. Management Response: The School made the required adjustments to their accounting records. The School is reviewing their accounting policies and procedures and the recommendations above. The School will update their procedures during the FY 2023.