Finding Text
Finding number: 2022-001Criteria: Internal controls over financial reporting are critical to ensuring that the financial statements and related footnotes are reported in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).Condition: During the audit, we noted that the Organization has not been accounting for construction in progress and the related note payable when payments to the contractor were made by the bank on behalf of the Organization. Additionally, the Organization accounted for the purchase of land as construction in progress.Cause: The contractor submitted certifications directly to the bank for payment on behalf of the Organization. The Organization also received a copy of the certification and notice that the bank released the payment to the contractor. However, the Organization failed to record the liability and asset in their internal financial statements.Effect: As a result, the land, fixed assets and the related note payable were understated.Recommendation: Construction assets and the related note payable should be recorded as construction is completed and the funds are released by the bank to the contractor.Management?s Response: The Organization will record future disbursements from the bank in the appropriate accounts in the period that the construction is completed and the loan is disbursed, as well as recording land purchases appropriately.