Finding Text
2021-001 Delayed Financial Reporting
Material Weakness in Internal Control
Condition: During our audit of the Authority’s financial statements, numerous adjustments were needed to properly report the financial statements in accordance with generally accepted accounting principles. Certain accounts had not been properly reconciled and corrective entries were not readily available. Significant audit adjustments were necessary for several audit areas and the audit was significantly delayed due to these adjustments.
Context: We obtained the financial information from the Authority’s general ledger system. As part of our audit process, the financial information was compared to the unaudited submission sent to the U.S. Department of Housing and Urban Development Real Estate Assessment Center (“REAC”). While applying audit procedures, significant adjustments were identified as necessary to properly reflect the financial data in accordance with generally accepted accounting principles and to reflect the data schedule in accordance with HUD requirements.
Criteria: In accordance with AU-C 265, when a deficiency or a combination of deficiencies in internal control is identified, which indicates that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected and corrected on a timely basis, a material weakness should be reported. In accordance with HUD rules and regulations, the Authority is required to have policies and procedures in place to ensure the submission of their audited financial information to REAC within 9 months after the fiscal year end.
Cause: The Authority was unable to maintain proper oversight of its financial closing processes and recording keeping during COVID. As a result the Authority did not have access to accurate closing schedules and was not able to implement the internal controls and processes to ensure that the general ledger and the unaudited REAC submission was complete and accurate.
Effect: The general ledger and the unaudited data submitted to REAC required numerous and material audit adjustments that delayed the audit, and therefore HUD could not provide proper timely financial oversight based on the unaudited REAC submission.
Auditor’s Recommendations: The Authority should continue to develop and implement internal controls over both internal and external reporting, and the year-end close process to ensure reporting remains accurate and timely, with any unexpected financial data being investigated and corrected before it is reported. The Authority should consider additional staff training on development activities.
Management Response: See Corrective Action Plan.