Finding Text
Criteria: Per Financial Operations and Accounting Procedures For Insured Handbook 4370.2, Chapter 2: Financial Operations and Accounting: 2-3 Maintenance of Books and Accounts B states that “Books and accounts must be complete and accurate. The books of original entry must be kept current at all times, and postings must be made a least monthly to ledger accounts. Standard journal entries may be established for recurring items and posted monthly.”
Condition: As a result of our audit, we proposed thirty-seven (37) audit adjusting entries to correct the books as originally provided to us for audit. Most of these adjustments proposed were material to the financial statements. Adjustments were necessary for basis areas such as due from the owner, replacement reserve, insurance escrow MIP escrow, fixed assets, accumulated depreciation, accounts payable, accrued wages payable, accrued payroll taxes, net assets, revenue, and expenses.
Cause: Management Agent did not properly reconcile the statement of financial positions accounts (balance sheet) on a monthly basis. It appears that there is no systematic method of ensuring that timely and complete monthly reconciliation and closing procedures take place. This situation leads to a continuing and growing backlog of transactions and journal entries that are not posted into the accounting system, which renders the accounting information virtually useless in making well-informed business decisions. This accounting function disorganization will ultimately cause significant errors in the financial records and financial statements as well as allow for possible irregularities, including fraud, to exist and continue without notice.
Effect: The Project audited financial statements were not performed on a timely basis. The audit financial statements are due nine months and/or September 30, 2022. Also, many of the statements of financial position accounts (“balance sheet accounts”) were materially misstated.
Recommendation: It is important to reconcile subsidiary ledgers or supporting schedules to the general ledger to ensure the accuracy of financial information and minimize the risk of misstatement or misappropriation. We strongly recommend that a policy be implemented whereby all subsidiary ledgers and/or supporting schedules are reconciled to the general ledger on a monthly basis. We also recommend that appropriate management-level personnel review the reconciliations for accuracy and document evidence of their review for audit purposes.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.