Finding Text
2023-001: Segregation of Duties (Significant Deficiency)
Criteria: A fundamental concept in an adequate system of internal control is the segregation of duties, which follows the basic premise that no one employee should have access to both physical assets and the related accounting records or to all phases of a transaction.
Condition/context: During the course of our audit, we noted that the Accountant has access to all modules of the accounting system. Specifically, she has the ability to initiate, record, and process general journal entries without an independent review. However, we noted that there are compensating controls in place (e.g., the Executive Director reviews monthly reconciliations and the Executive Director and the Treasurer of the Board of Directors review the financial statements).
Cause: Due to the small size of the Organization, the ability to properly segregate duties is limited.
Effect: Without an adequate segregation of duties, the Organization could be susceptible to a misappropriation of assets and/or inaccurate financial reporting.
Questioned costs: $0
Identification as a repeat finding: No.
Recommendation: We recommend that current internal control policies and procedures continue to be reviewed to ensure that proper segregation is obtained when feasible. While we recognize that the Organization is not large enough to permit a segregation of duties that provides for an effective system of internal accounting control, we believe it is important that the Board of Directors remains cognizant that the condition exists and provide oversight when possible.
If the Treasurer (or other member) of the Board of Directors possesses the requisite skills, knowledge and expertise, this control deficiency could be mitigated by providing a complete list of all journal entries posted by the Accountant to the Treasurer for review on a monthly basis, in conjunction with a summary cover sheet that the Treasurer could sign off on indicating that he/she has reviewed and approved the journal entries.
Views of responsible officials and planned corrective actions: See Exhibit I.