VISIT PLEASANT HILL
REPORT TO THE BOARD OF DIRECTORS
INCLUDING REQUIRED COMMUNICATIONS
October 18, 2024
Board of Directors of
Visit Pleasant Hill
Pleasant Hill, California
This report summarizes certain matters required by professional auditing standards to be communicated to you in your oversight responsibility for Visit Pleasant Hill’s financial reporting process. We are pleased to present this report related to our audit of Visit Pleasant Hill for the year ended March 31, 2024.
This report is intended solely for the information and use of the Board of Directors and management and is not intended to be and should not be used by anyone other than these specified parties.
It will be our pleasure to respond to any questions you have regarding this report. We appreciate the opportunity to be of service to Visit Pleasant Hill.
Cropper Accountancy Corporation
October 18, 2024
TABLE OF CONTENTS
__________________________________________________________________ Page No.
Required Communications 3 - 5
Summary of Accounting Estimates 6 – 7
Summary of Recorded Audit Adjustments 8
Summary of Passed Audit Adjustments 9
Internal Control Findings and Recommendations 10 - 13
3 Required Communications
Statement on Auditing Standard No. 114 requires the auditor to communicate certain matters to keep those charged with governance adequately informed about matters related to the financial statement audit that are, in our professional judgment, significant and relevant to the responsibilities of those charged with governance in overseeing the financial reporting process.
The following summarizes these communications.
Area
_____________________________
Comments
_____________________________________
Auditors’ Responsibility Under
Professional Standards
Our responsibility has been described to you in our
arrangement letter dated May 23, 2024. That
responsibility, as described by professional standards, is to express an opinion about whether the financial
statements prepared by management with your
oversight are fairly presented, in all material respects, with the cash basis of accounting, which is a basis of
accounting different from U.S. generally accepted
accounting principles. Our audit of the financial
statements does not relieve you or management of your
responsibilities.
Accounting Practices Adoption of, or Change in, Accounting Policies Management is responsible for the selection and use of
appropriate accounting policies. The significant
accounting policies set forth by Visit Pleasant Hill are described in Note 1 to the financial statements. You
have chosen the cash basis of accounting modified to
reflect prepaid expenses and capital assets, as
applicable.
Significant or Unusual Transactions
We did not identify any significant or unusual
transactions or significant accounting policies in
controversial or emerging areas for which there is a lack of authoritative guidance or consensus.
Alternative Treatments Discussed with
Management
We discussed alternative methods of cash-basis
accounting (whether the organization should report on
the “pure” cash basis or a “modified” cash basis which
4 will require prepaids and capital assets to be reported).
In either case, it is a matter of board policy.
Recently Issued Accounting Pronouncements and
Developments
There have been no new standards affecting Visit
Pleasant Hill when reporting on a basis other than
GAAP.
Management’s Judgments and
Accounting Estimates
Summary information about the process used by
management in formulating particularly sensitive
accounting estimates is in the attached “Summary of
Accounting Estimates”.
Financial Statement Disclosures We have no significant observations regarding the neutrality, consistency, and clarity of the disclosures in the financial statements.
Audit Adjustments The audit adjustments recorded by Visit Pleasant Hill are shown on the attached “Summary of Recorded
Audit Adjustments”.
Uncorrected Misstatements The passed audit adjustments are shown on the attached “Summary of Passed Audit Adjustments”.
Disagreements with Management We encountered no disagreements with management over the application of significant accounting
principles, the basis for management’s judgments on
any significant matters, the scope of the audit, or
significant disclosures to be included in the financial statements.
Consultations with Other
Accountants
We are not aware of any consultations management had
with other accountants about accounting or auditing
matters.
Significant Issues Discussed with
Management
We discussed the significant deficiencies in internal
controls as described further beginning on page 10.
Difficulties Encountered in
Performing the Audit
Management did not provide the requested California
Choice worksheets in order to calculate the benefits
overage paid by Visit Pleasant Hill. See
recommendations beginning on page 10.
5 Certain Written Communications
Between Management and Our
Firm
Financial Statement Disclosures
Management has provided an audit representation letter
dated October 18, 2024.
The disclosures in the financial statements are neutral, consistent, and transparent. Certain financial statement disclosures are more sensitive to financial statement
users such as those regarding estimates, related parties, and the basis of accounting.
6 Visit Pleasant Hill
Summary of Accounting Estimates
Year Ended March 31, 2024
Area
__________
Accounting Policy
_________________
Estimation Process
________________
Prepaid Expenses
and Capital Assets
Depreciation
Visit Pleasant Hill’s
policy is to reflect
expenses for future
fiscal years as a prepaid
asset on the statement of
assets, liabilities, and
net assets.
In addition, capital
assets benefiting future
fiscal years are
capitalized, as
applicable.
Visit Pleasant Hill’s
policy is to capitalize
all furniture and
equipment and other
intangible assets (such
as software and web
site development)
greater than $3,000 and
that assets by
depreciated on a
straight-line basis as
follows:
Computer hardware and
software – 3 years
Website development – 3
years
Furniture and equipment – 5
years
Management estimates the value of the prepaid
asset based on supporting invoices and contracts,
distinguishing between goods and services already
provided at year end versus those paid in advance
of the goods and services yet to be provided.
Unless otherwise noted on an invoice or contract,
judgments are made to estimate such prepaid
expense and capital assets.
Management calculates depreciation in an Excel
spreadsheet on a straight-line basis with estimated
useful lives per policy.
7 Cost Allocations Management’s
current practice is to
allocate natural costs
into functional
categories based on
management
judgment and
estimated
proportions of
payroll.
A formal policy has not yet been set forth to allocate
indirect costs among functional categories. As such,
salaries and wages have been allocated based on
management judgment by job position. Other costs are
recorded in the books and records in sufficient detail
to determine whether the cost is a programmatic
function.
8 Visit Pleasant Hill
Summary of Audit Adjustments**
Year Ended March 31, 2024
**We were not able to calculate the employer-paid healthcare overage given the circumstances described starting on page 10; however, any amounts to be reimbursed would not affect cashbasis financial statements and, as such, would not be a 2024 audit adjustment.
Adjusting Journal Entry #1
To eliminate accounts payable to report on the cash basis Credit card payables
Expenses (various)
DR $ 4,763
CR $ 4,763
Adjusting Journal Entry #2
To report fiscal 2025 expenses paid in 2024 as prepaid expense Prepaid expenses
Expenses (various)
DR $ 2,439
CR. $2,439
Adjusting Journal Entry #3
To eliminate City fee expense to reflect expenses on a cash basis Assessment revenues
City fee expenses
DR. $13,201
CR. $ 13,201
Adjusting Journal Entry #4
To correct financial reporting errors with regard to payroll and related expense Salaries and wage expense
Retirement plan expense
Retirement plan expense
Payroll tax expense
DR $9,563
4,290
CR $9,563
4,290
9 Visit Pleasant Hill
Summary of Passed Audit Adjustments
Year Ended March 31, 2024
None on a cash basis.
10 Visit Pleasant Hill
Internal Control Deficiencies and Recommendations
Year Ended March 31, 2024
In accordance with auditing standards generally accepted in the United States of America, we considered Visit Pleasant Hill’s internal control over financial reporting (internal control) as a basis for designing our auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Visit Pleasant Hill’s internal control. Accordingly, we do not express an opinion on the effectiveness of Visit Pleasant Hill’s internal control.
As such, our consideration of internal control was for a limited purpose and was not designed to identify all deficiencies in internal control that might be significant deficiencies and material weaknesses. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
We consider the deficiencies addressed in this report to be significant deficiencies1 as defined below with respect to internal controls over financial reporting.
STRENGTHENING THE CONTROL ENVIRONMENT AND TONE AT THE TOP –
FINANCIAL POLICIES AND PROCEDURES
During fiscal 2024, Visit Pleasant Hill began to establish formal financial policies and procedures by formalizing their employee expense reimbursement policy and addressing internal controls within that respective business process.
Formalized policies and procedures are a key component to strengthen the control environment within an organization. They provide clarity, enhance accountability, and facilitate compliance, 1 A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, 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 deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control over financial reporting was for the limited purpose described in the engagement letter and would not necessarily identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses.
11 ultimately contributing to a more effective and resilient operational framework. By investing in well-documented policies and procedures, organizations can better manage risks, promote ethical behavior, and achieve their strategic objectives.
From a top-side perspective and during fiscal 2024, 46% of Visit Pleasant Hill’s expenses were related to payroll and benefits. The organization has not designed internal controls over financial reporting with regard to payroll and benefits. Relatedly, the organization has not formally set forth an executive compensation policy. During the audit, errors in financial reporting and benefits processing were noted as follows:
• The healthcare benefit contractually offered to employees and as presented to the Board of Directors differed from the more expensive plan actually provided. As such, the amount of employer contribution each month was substantially higher than it would have been with the basic plan intended. There were no internal controls designed to prevent or detect this error. In addition and given the circumstances, we recommend that an independent third party calculate the overage paid by Visit Pleasant Hill so that the board of directors can determine next steps.
• Salaries and wage expense was understated in QuickBooks due to an erroneous processing error, also misstating payroll tax expense and retirement plan expense. There were no internal controls designed to prevent or detect this error.
RECOMMENDATIONS
We recommend Visit Pleasant Hill take steps to strengthen their control environment and “tone at the top” by formalizing their financial policies and procedures, and in particular payroll and benefits risks and controls. Risks should be assessed, and controls designed to mitigate those risks including the following:
Segregation of Duties
• Role Division: Separate responsibilities among employees (or contractors) for payroll processing, timekeeping, and disbursement. For example, one person should handle payroll calculations while another manages the actual disbursement of funds. Independent reviews and approvals by designated individuals can improve segregation of responsibilities in a small business environment and provide accountability.
Access Controls
• User Permissions: Limit access to payroll systems based on roles. Only authorized personnel should have the ability to edit employee records or initiate payroll transactions.
Regular Reconciliation
• Bank and Payroll Reconciliation: Regularly reconcile payroll records with QuickBooks and bank statements to ensure that all payroll disbursements match with the amounts recorded in the accounting system.
Timekeeping Systems
• Automated Time Tracking: Time worked and vacation taken should be tracked in a timekeeping system and reviewed by a direct report. Utilize electronic timekeeping 12 systems that require employee log-ins and approval workflows to reduce the risk of falsified time records.
Payroll Processing Reviews
• Independent Review: Have a designated person review payroll summaries before processing payments. This review should check for discrepancies or unusual entries.
Verification of Employee Data
• Regular internal audits: Conduct periodic audits of employee data, including payroll records and benefit enrollments, to verify accuracy and completeness.
Benefit Administration Controls
• Eligibility Checks: Implement controls to verify employee eligibility for benefits, ensuring that only qualified employees receive benefits.
Change Management Procedures
• Approval for Changes: Establish formal procedures for making changes to payroll or benefits, such as salary adjustments or new hires. Require documented approval from management.
Documentation and Record Keeping
• Retention Policies: Maintain thorough documentation for all payroll transactions, changes, and employee benefits. This documentation supports audits and compliance checks.
Employee Training and Awareness – in applicable circumstances • Ongoing Training: Provide training for employees or contractors involved in payroll and benefits administration on policies, procedures, and compliance requirements to foster a culture of integrity.
Whistleblower Policies – which Visit Pleasant Hill has done in a separate policy • Reporting Mechanisms: Create channels for employees to report suspected fraud or unethical practices in payroll and benefits administration without fear of retaliation.
Executive Compensation Policy and Employee Compensation Agreements • Formally document a formal Executive Compensation Policy that is fair, transparent and effective in supporting Visit Pleasant Hill’s mission. Such a policy should include, but not be limited to, the following: (1) evidence of full board approval of compensation agreements and any changes thereto, (2) contemporaneous substantiation of deliberation and decision, (3) costing of existing and proposed compensation and benefit plans, and (4) analysis of independent comparability data.
Regular System Reviews
• Technology Assessment: Regularly assess payroll software and systems for vulnerabilities and ensure they are updated to protect against cybersecurity threats. • The payroll processing company provides a SOC report (service auditors’ report) which discloses any internal control issues within the payroll company and also sets forth the internal controls needed at Visit Pleasant Hill. We recommend obtaining such report from 13 the payroll company each year and reviewing the report to ensure that Visit Pleasant Hill’s payroll controls conform to their recommendations.
Formally designing and implementing internal controls over payroll and benefits (through policies and procedures) can significantly reduce the risk of errors, fraud, and non-compliance in payroll and benefits administration. By strengthening a culture of accountability and transparency, organizations can enhance their overall financial integrity and operational efficiency.