Audit: Battleship Commission Financial Errors Due To Lack Of Proper Procedure

By Theresa Opeka
Carolina Journal

North Carolina State Auditor Dave Boliek’s office released an audit Friday that found that the USS North Carolina Battleship Commission’s management didn’t have proper procedures in place, resulting in inaccurate fund reporting.

The USS North Carolina Battleship now serves as a memorial and museum in Wilmington. It operates under the North Carolina Department of Natural and Cultural Resources (NCDNCR), which establishes rules and regulations to preserve the decommissioned battleship.

The audit was conducted for the fiscal year ending in September 2024.

Auditors said commission management didn’t do the following:

• Complete and review the reconciliations for three out of six bank accounts between Oct. 1, 2023, and Sept. 30, 2024. As of Sept 30, these three bank accounts held $5.1 million (67%) of the commission’s $7.6 million total cash balance.
• Perform the annual review of user access to the financial system to ensure that the access level is aligned with job responsibilities.
• Provide evidence of an independent review and approval of journal entries. Specifically, auditors tested 182 out of 301 journal entries recorded during the period and found that 17 (9%) of journal entries had no evidence of an independent review and approval.

Boliek’s office said several misstatements occurred as a result of inadequate internal controls over financial reporting, including:

Transactions associated with the pension and other postemployment benefits plans were not recorded correctly. As a result:

• Deferred outflows related to pensions were overstated by $430,000.
• Deferred outflows related to other post-employment benefits were overstated by $191,000.
• Beginning net position was overstated by $248,000.
• Noncapital contributions were overstated by $169,000.
• Other operating expenses were understated by $168,000.
• Salaries and benefits were understated by $36,000.
• Current unrestricted cash was understated by $41,000 because the wrong cash account was used to record a payment, which also overstated current restricted cash by the same amount.
• Noncapital contributions were overstated by $81,000 because a receivable was incorrectly recorded for a transaction that had not taken place, which also overstated receivables by the same amount.
• Because of errors in the calculations, net investment in capital assets was overstated by $96,000, restricted expendable net position was understated by $378,000, and unrestricted net position was overstated by $282,000.
• Additional audit adjustments were required to correct misstatements in the financial statements and notes to the financial statements.

Auditors said that if the errors had not been identified and corrected, financial statement users would have been misinformed about the commission’s financial condition or operating results. In addition, commission management could have made financial decisions based on unreliable or incomplete information.

There is also an increased risk that:

• Fraud could occur and go undetected.
• Cash management issues could arise from not reconciling bank accounts, resulting in the commission not having funds available to meet obligations.
• Audit costs could continue to increase, resulting in the diversion of resources otherwise available to commission management for use towards its principal purpose.

The financial reporting errors occurred due to the centralization of key accounting and financial reporting responsibilities to a single individual. This concentration of responsibilities eliminated necessary segregation of duties, which significantly reduced the commission’s ability to prevent or detect errors.

North Carolina General Statutes require that commission management establish and maintain a proper system of internal controls in accordance with the standards established by the North Carolina Office of the State Controller.

In addition, North Carolina General Statute 143B-1376 requires the state’s chief information officer to establish statewide information technology security standards.

Auditors recommended that commission management strengthen internal controls by reallocating key accounting and financial reporting responsibilities to reduce reliance on a single individual and ensure proper segregation of duties. They also recommended that they implement a formal review and approval process to increase internal oversight.

Jay Martin, executive director of the battleship museum, responded in a letter to Boliek’s office that the commission agreed with the findings and recommendations.

He said they are taking prompt corrective action to strengthen internal controls and comply with state law. He added that they began working with Boliek’s office in July and are also working with NCDNCR.

Theresa Opeka is the Executive Branch reporter for the Carolina Journal.