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Independent Audit Part 3: Control structure for ASG general ledger not functioning “as intended”

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Pago Pago, AMERICAN SAMOA — The territorial government “does not have an adequate control system in place to ensure that the general ledger accurately reflects the account balances of the Territory on a monthly, quarterly, or annual basis,” according to the independent audit of ASG’s fiscal year 2019 financial statement, conducted by Utah-based certified public accountant firm, Larson & Company PC.

In its audit report released in April this year, the auditors outlined their “observations” during the audit and among them is ASG’s general ledger is not reconciled to subsidiary ledgers or source documents on a monthly basis, nor is it closed or summarized in such a manner to accurately portray the accounts and activities of the Territory on a monthly basis.

“At year-end, the general ledger was not closed on a timely basis, and management or the auditors posted significant adjustments during and after fieldwork, January – March 2020,” the auditors explained. “Adjusting entries of approximately $6 million were proposed and/or posted to the general fund. Adjusting entries of approximately another $6 million were proposed and/or posted to other funds.”

Another observation is that ASG’s control system does not include measures to ensure that preparation of the Territory’s financial statements and footnotes were prepared in accordance with generally accepted accounting principles (GAAP).

The auditors also observed that ASG does not have proper cutoff of payables at year-end. “There were significant invoices received after year-end that were recorded in the subsequent period which were related to goods and services provided during the current period.” It says noting that these invoices should be identified and accrued back to the correct period as a part of the closing process.

Furthermore ASG maintains spreadsheets for federal grants, grants receivable, and deferred revenue. These spreadsheets, said the auditors, contain significant amounts of data that identifies each grant award, expenditures on an annual basis, and the amount of receivables due, or revenue deferred for each grant.

“However, the spreadsheet does not reconcile to prior year receivables and deferred revenue as a beginning balance. General ledger amounts are adjusted to match ending balances on the spreadsheet at closing,” according to the auditors

As to the cause of the problem, the auditors explained that the accounting policies, procedures, and controls to ensure a robust internal control structure governing the general ledger maintenance and the financial close and reporting process are not functioning as intended.

It says that ASG has added additional staff and contracted with an external Comptroller. This has improved the processes and reporting over the prior period, however, there are controls and processes that still need to be addressed, implemented, and/or adjusted to have a solid internal control reporting structure.

According to the auditors, the accounts are not reconciled in a timely basis and the Territory is not able to produce accurate and timely financial statements. Certain general ledger accounts require significant adjustments after the books should have been closed.

They recommend ASG perform a monthly close process for all of the financial statement accounts. Many of the errors or differences noted result from a lack of monitoring throughout the year.

Additionally, ASG should utilize the additional staff and external Comptroller in order to have a high-level review of all financial statement accounts on a monthly schedule. ASG should be able to produce timely and accurate financial reports at any time during the year, and shortly after the close of the fiscal year.

In response ASG agrees with the finding, according to the auditors report. Upon reflecting on prior year's reconciliation, Treasury Finance has reclassified personnel responsibilities with reinforcement on monthly deadlines. Accountants are to work closely with IT in reconciling the check register to the general ledger, with emphasis on voided checks and check cancellation.

Due to large amounts of wire transfers processed daily, entries are to be booked on a daily basis. Newly assigned accountant for the Grant Fund is responsible for monitoring the booking of cash receipts once received. Journal entries are to be given thorough review for accuracy before posting to avoid any major adjustments in fiscal year-end closing.