Finding Text
2022 – 001: Financial Statement Preparation
Type of Finding:
• Material Weakness in Internal Control over Financial Reporting
Condition: The board and management share the ultimate responsibility for the University's internal control system. While it is acceptable to outsource various accounting functions, the responsibility for internal control cannot be outsourced. Various significant audit adjustments were proposed and posted through the audit process. The adjustments were a necessary step in ensuring the financial statements were fairly stated in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).
Criteria or specific requirement: In an ideal control setting, the University would have a comprehensive control 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 applicable U.S. GAAP.
Context: While performing audit procedures, it was noted that due to staffing turnover and changes, the board and management did not have appropriate procedures in place to provide reasonable assurance that financial statements are prepared in accordance with U.S. GAAP, including retaining supporting documentation and reconciliations.
Effect: It is possible that a misstatement of the University's financial statements could occur and not be prevented or detected by the University's internal control.
Cause: Due to change in management and turnover in office, the University’s controls were not able to detect the adjustments made as part of the audit. The University does not have a comprehensive review process to ensure that the financial statements, including disclosures, are complete, accurate, and supported by the University’s records.
Repeat finding: Yes – 2021-001.
Recommendation: We recommend that management review controls related to financial statement preparation review at the end of each period. Financial statement preparation should include a review of reconciliations and balances to ensure that financial statement line items are properly stated and classified. Internally prepared financial statements should also be thoroughly reviewed by members of the board and management outside the finance department on a periodic (monthly or quarterly).
Views of responsible officials and planned corrective actions: There is no disagreement with the audit finding.