Finding Text
2017-001 ? Material Audit Adjustments, Financial Statement Preparation, and Preparation of the Schedule of Expenditures of Federal Awards (Repeat Finding) Finding Type: Material weakness over financial reporting. Criteria: Management is responsible for establishing, maintaining, and monitoring internal controls, and for the fair presentation in the financial statements of financial position, results of operations, and cash flows, including the recording of all appropriate journal entries, so that the trial balances from which the audited financial statements are prepared, reflect amounts that are in conformity with U.S. generally accepted accounting principles. In addition, the Authority is required to prepare appropriate financial statements, including the Schedule of Expenditures of Federal Awards (the ?Schedule?). Condition/Finding: We prepared, and management approved of, significant adjustments to the Authority?s general ledger. Material adjustments were discovered during the audit process and because of this condition, the Authority is not in compliance with the required written procedures under the Uniform Guidance. As is the case with many small and medium-sized governmental units, the Authority has historically relied on its independent external auditor to assist with the preparation of the financial statements, the related notes, the management?s discussion and analysis, and, when applicable, the Schedule as part of its external financial reporting process. Accordingly, the Authority?s ability to prepare financial statements in accordance with GAAP is based, in part, on its reliance on its external auditor, who cannot, by definition, be considered part of the Authority?s internal controls. Having the auditor draft the annual financial statements is allowable under current auditing standards and ethical guidelines and may be the most efficient and effective method for preparation of the Authority?s financial statements. However, when an entity (on its own) lacks the ability to produce financial statements that conform to GAAP, or when material audit adjustments are identified by the auditor, auditing standards require that such conditions be communicated in writing as material weaknesses. This is a repeat finding. Cause: This condition was caused by the Authority?s decision to outsource the preparation of its annual financial statements to the external auditor rather than incur the costs of obtaining the necessary training and expertise required for the Authority to perform this task internally because outsourcing the task is considered more cost effective. Effect: The financial statements, and Schedule of Expenditures of Federal Awards, were initially materially misstated until adjusting entries were proposed during the audit. Recommendation: We recommend that management continue to monitor the relative costs and benefits of securing the internal or other external resources necessary to develop material adjustments and prepare a draft of the Authority?s annual financial statements versus contracting with its auditor for these services. View of Responsible Officials (Corrective Action): Management has made an ongoing evaluation of the respective costs and benefits of obtaining internal or external resources, specifically for the preparation of financial statements, and has determined that the additional benefits derived from implementing such a system would not outweigh the costs incurred to do so. Management will continue to review the draft financial statements and notes prior to approving them and accepting responsibility for their content and presentation.