(Colorado) -- Unless you're an accountant or just like reading audits for fun, you might not know the difference between a material weakness and a significant deficiency.
When Colorado's audit was released recently, auditors found both. Out of the 176 recommendations made, according to the audit, the state agreed with 171 of them.
According to the audit itself, material weakness is described as:
the most serious level of internal control weakness. A material weakness is a deficiency, or combination of deficiencies, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis.
A Significant Deficiency is a moderate level of internal control weakness. A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged.
There were material weaknesses in the Department of Labor and Employment.
Taken directly from the audit:
The Department over estimated its accounts receivable for UI claimant overpayments by $2.9 million. The Department understated its accounts receivable balance for estimated fraudulently-obtained UI claims by $44.0 million. In addition, the Department failed to record a related federal payable of $10.5 million and an allowance for uncollectible receivables of $13.5 million. The Department incorrectly recorded its Fiscal Year 2021 UI claims estimates which resulted in an adjustment of $2.4 billion to its accounts payable balance and an adjustment of $1.4 billion to its accounts receivable balance for UI claims in Fiscal Year 2022.
There were also issues found in the
Department of Military and Veteran’s Affairs and the Department of Public Safety which didn't record revenue for Covid 19 expenses that the Department of Public Health and Environment (CDPHE) that CDPHE then billed to the Department—which were at that point considered earned, or “recognized” by the Department.
Earning a significant deficiency, the department of Human Services was found to have had issues with its payroll. The audit explains that the department did not comply with its payroll policies explaining issues found included missing time sheets, paying the wrong amount on overtime pay and missing forms.
In the Department of Public Health and Environment inventory issues over Internal Controls over Inventory Adjustments and Valuation were discovered. The audit found that the The Department did not take care to make sure it tracked and took care of inventory.
(from the audit)
The Department’s inventory system and tracking spreadsheets did not agree to the inventory on hand for 23 of the 30 inventory items we sampled (77 percent), which resulted in the value of the inventory noted in the system and on the tracking spreadsheets exceeding the inventory on-hand by approximately $2.0 million. Classification: Significant Deficiency. o Internal Controls Over Financial Reporting. The Department did not record grant revenue for approximately $35.5 million. Classification: Significant Deficiency.
The 514 page audit from the State Auditor's office is available for anyone to read and can be found here: https://leg.colorado.gov/audits/statewide-single-audit-fiscal-year-ended-june-30-2022