Criteria: Applicable standards state that management is responsible for having internal controls in place to provide appropriate and reliable financial reports, and to select and apply appropriate accounting principles. Management is not required to prepare their financial reports, but management needs to demonstrate the level of qualifications and controls to prepare their financial reports without significant deficiencies in these controls.
Condition: During the current year audit, the University did not have adequate controls over financial reporting to allow for timely, accurate financial reporting. Not all general ledger accounts were reconciled to subsidiary ledgers or other supporting detail at least on a quarterly basis.
Context: The University experienced turnover in key accounting positions resulting in a lack of timely reconciliations and production of timely financial reports. Due to the lack of reconciliation controls, there were delays in beginning audit fieldwork and several iterations of the trial balance as management worked to reconcile activity. Management also identified several asset and liability accounts, which had not been reconciled in several years. These account balances primarily related to receivables, accounts payables, and other accrued expenses.
Effect: Not having accurate transactions posted in a timely manner can affect the financial statement information that is available for making informed business decisions and supervision of operations. This weakness in accounting infrastructure increases the risk of errors in the financial records and is less likely to detect irregularities, including fraud on a timely basis. The quarterly reconciliation process allows for the preparation for accurate quarterly financial statements.
Cause: The above condition appears to be the result of the inability to fully implement a timely review and reconciliation process.
Recommendation: We recommend the University implement internal control procedures, which require general ledger accounts to be reconciled at least quarterly.
Views of responsible officials and planned corrective action: Management agrees with the finding. Procedures will be implemented to ensure that account balances are reconciled periodically. Based on the nature and balance of the account, it will be determined whether the account will be reconciled monthly or quarterly.
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