Finding Text
Type of Finding: Material Weakness in Internal Control Over
Financial Reporting
Criteria: The board of directors and management share the ultimate responsibility for the
Organization’s internal control system. While it is acceptable to outsource various accounting
functions, the responsibility for internal control cannot be outsourced.
The Organization engages auditors to assist in preparing its financial statements and accompanying
disclosures. However, as independent auditors, Lethert, Skwira, Schultz & Co., cannot be considered
part of the Organization’s internal control system. As part of its internal control over the preparation
of its financial statements, including disclosures, the Organization has implemented a comprehensive
review procedure to ensure that the financial statements, including disclosures, are complete and
accurate. Such review procedures should be performed by an individual possessing a thorough
understanding of accounting principles generally accepted in the United States of America and
knowledge of the Organization’s activities and operations.
The Organization’s personnel have not monitored recent accounting developments to the extent
necessary to enable them to prepare the Organization’s financial statements and related disclosures,
to provide a high level of assurance that potential omissions or other errors that are material would
be identified and corrected on a timely basis.
Condition: A properly designed system of internal control over financial reporting includes the
preparation of an organization’s financial statements and accompanying notes to the financial
statements by internal personnel of the Organization. Management is responsible for establishing
and maintaining internal control over financial reporting and procedures related to the fair
presentation of the financial statements in accordance with U.S. generally accepted accounting
principles (GAAP).
Cause: The Organization has not adopted a policy over the annual financial reporting under GAAP;
however, they have reviewed and approved the annual financial statements as prepared by the audit
firm.
Effect: The effect of this condition is that the year-end financial reporting is prepared by a party
outside of the Organization. The outside party does not have the constant contact with ongoing
financial transactions that internal staff have. Furthermore, it is possible that new standards may not
be adopted and applied timely to the interim financial reporting. It is the responsibility of the
Organization’s management and those charged with governance to make the decision whether to
accept the degree of risk associated with this condition because of cost or other considerations.
Recommendation: We recommend that management continue reviewing operating procedures in
order to obtain the maximum internal control over financial reporting possible under the
circumstances to enable staff to draft the financial statements internally.
Managements Response: Management will continue to allow the audit firm to create the draft
financial statements and related footnote disclosures, and will review and approve these prior to the
issuance of the annual financial statements.