Mexico Water DistrictLocal Government

When completing our audit testing, it was determined that the beginning balances for a significant number of balance sheet accounts were incorrect and materially misstated. The material misstatements in the beginning balances were caused by the 2022 audit adjusting journal entries not being recorded in the accounting system. A properly designed and functioning accounting system has no materially misstated balances. A significant number of balance sheet accounts were materially misstated for all of 2023.

Uniform Guidance 2 CFR 200.303 states that non-federal entities must establish and maintain effective internal control over the federal award, stating that, "internal controls should be in compliance with guidance in "Standards for Internal Control in the Federal Government" issued by the Comptroller General of the United States or the "Internal Control Integrated Framework", issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).". The accounting department consists of one (1) individual responsible for all accounting functions, including writing and signing checks. Checks signed by the accountant are then mailed for payment without review and approval by another party. This lack of segregation creates a risk that unauthorized transactions could be approved and processed without appropriate oversight. Additionally, there is an increased potential for undetected errors or fraudulent activities. The current organizational structure and limited staffing resources have led to overlapping responsibilities, where duties are not adequately separated due to practical constraints. The absence of proper segregation of duties increases the risk of misappropriation of assets, inaccurate financial reporting, and potential non-compliance with applicable regulations and internal policies. The effectiveness of internal controls is compromised, potentially undermining the reliability of financial statements and safeguarding of assets.

The non-Federal entity must have and use documented procurement procedures consistent with State, local, and tribal laws and regulations and the standards identified in 2 CFR § 200.318 (c)(1) for the acquisition of property or services required under a Federal award or sub-award. During the audit period, it was noted that the District does not have a formal Conflict of Interest Policy in place. The absence of such a policy indicates a lack of formal procedures to identify, disclose, and manage potential conflicts of interest among employees, board members, and other stakeholders. The District has not yet developed or implemented a Conflict of Interest Policy, which may be due to oversight or a lack of awareness of the importance of such a policy in maintaining ethical standards and regulatory compliance. The absence of a Conflict of Interest Policy increases the risk of potential conflicts of interest going unreported and unmanaged. This could lead to decisions that are not made in the best interest of the District, potential legal or regulatory issues, and damage to the District's reputation.