LANSING – The Michigan Strategic Fund’s internal control over financial reporting did not ensure it properly recorded and reported investment impairment losses, the auditor general concluded in reviewing the MSF’s basic financial statements through the last fiscal year.
As a result, MSF overstated its investments and net increase (decrease) in fair value of investments by $751,266 in its fiscal year 2012-13 governmental fund and government-wide financial statements, the audit said.
The agency agreed that it had to implement internal control over financial reporting to ensure it met certain standards but also said its policy only adjusted investment values for impairment losses when a significant event occurred, such as a bankruptcy filing or the closing of the investee’s business.
Similar conclusions were recently reached for the Michigan Economic Development Corporation’s internal control as a whole, leading to three “significant deficiencies,” the auditor general concluded.
The audit released Tuesday also found the Fund’s internal control over financial reporting did not ensure it properly recorded and reported loan interest revenue related to capitalized interest.
As a result, the audit said, the MSF overstated its interest and investment earnings revenue and beginning fund balance by $1.3 million and $4.1 million, respectively, and MSF understated its deferred revenue by $5.3 milion in its fiscal year 2012-12 governmental fund financial statements. But the MSF corrected its financial statements and properly disclosed the accounting restatement in its financial statement notes, the audit noted.
Similarly, the MSF improperly recorded loan interest receivable and corresponding revenue for loans the Fund deemed uncollectible. Because the MSF deemed the loan uncollectible, it should not have been recorded interest receivable and corresponding revenue for the loan. As a result, MSF overstated both its interest revenue and receivable write-off expenditures by $797,356.
The agency responded by agreeing with a recommendation to implement internal control over financial reporting to ensure it meets standards, but said it was also important to note it was a revenue classification error and did not impact MSF’s fund balance in prior years.
Finally, the MSF also had not established effective access controls over its salesforce customer relationship management system by not limiting the number of system administrators and not assigning appropriate access rights to system administrations to “ensure proper segregation of duties.” The audit said it noted 18 system administrators who had the ability to log in as other users and perform activities without the use of a password.
The agency responded that it had implemented or would implement corrective action.
The audit did not identify any instances of noncompliance or other matters applicable to the basic financial statements required to be reported.
This story was provided by Gongwer News Service. To subscribe, click on Gongwer.Com
