Finding Text
2022-002: 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, nine adjustments were made to IPTF?s financial statements that in the aggregate, were material to the financial statements. Additionally, the financial statements for the year ended June 30, 2021 were restated during the current year due to a prior year error. 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 IPTF?s financial statements which we consider a material weakness because a misstatement of financial statements could occur and not be prevented or detected. Cause ? IPTF?s Finance Director retired during the year and an outside accounting firm was contracted to take over the role of the accounting department. This transition was not clean and certain closing entries that were typically made by the previous Finance Director were missed. Additionally, the existence of a multi-year pledge during the year ended June 30, 2020 was not properly communicated to the accounting department, resulting in the revenue being recorded when the payments were actually received instead of as revenue and receivable when originally pledged. Effect ? A material misstatement of the financial statement could occur and not be prevented or detected. Members of management using IPTF?s internal books and records may not have complete and accurate information throughout the year. Recommendation ? We recommend IPTF develop and implement a financial statement preparation, review and approval process to ensure that necessary adjustments and reconciliations are performed on a monthly basis. IPTF should also ensure that all documents related to pledges are obtained and communicated to the necessary member of management to ensure all transactions are recorded correctly. Auditee's comments and response ? IPTF has hired a new contract accountant and will ensure they establish the recommended procedures. Responsible party for corrective action: Sharon Day, Executive Director