Finding Text
Finding No. 2022-001 Material weakness in internal control over financial reporting ? contract monitoring/compliance Condition and context: Based upon the previous years? audits, management and the Board of Directors have worked during fiscal year 2022 to address certain deficiencies which have been identified surrounding financial reporting; however, a continued material weakness during the year involved the School?s monitoring and payments made in conjunction with the contractual arrangement with the School?s primary vendor, which provides various curriculum, instruction, technology and other services, Connections Education, LLC. The agreement in part provides for various per student upfront fees for enrollment and related technology fees being invoiced on a monthly basis which are not supported by sufficient detail of actual students/participants. Additionally, other services provided, supporting detail provided is not being formally documented/reviewed to the amount invoiced, prior to payment. Effect or potential effect: The School may have overpaid amounts to the vendor. Questioned cost: The School paid an aggregate of $2.9 million associated with these fees. Cause: The School and the vendor?s established contractual arrangement established does not provide sufficient clarity as to terms/conditions for certain upfront per student fees. Additionally, current management has worked on implementing more formalized internal controls surrounding all aspects of the School?s financial reporting system. Subsequent to year end, management and the Board of Directors have engaged legal counsel in communications with the vendor regarding the agreement. Criteria: Adequate internal controls surrounding financial reporting and compliance with contractual arrangements should ensure that all contractual arrangements are clearly evidenced as to terms and conditions; moreover, it is important that all invoices received from vendors are accompanied by sufficient detail that can be formally reconciled to the contractual terms. Identification as a repeat finding: As indicated above, material weaknesses in financial reporting were reported in the prior year (inclusive of contractual arrangements). Auditor?s recommendations: We recommend the School ensure that all contractual arrangements are clearly defined as to all specific terms and conditions. Given the nature of the School?s operations and the many working components within the arrangement, it is essential that all terms be clear and understood by all parties prior to execution of the agreement. Furthermore, it is imperative that the School ensure appropriate detail is provided for all charges (per unit, etc.) and is formally reconciled to the underlying contract (and documented accordingly) to ensure that the School only pays in accordance with agreed-upon terms. All documentation should be formally reconciled and attested to by appropriate personnel and maintained together. Legal counsel should be consulted in the establishment of material contractual arrangements.