Audit 370771

Material Weakness in Internal Control Over Financial Reporting – Untimely Closing of Books Criteria – According to best practices in financial reporting and accounting standards, including GAAP (Generally Accepted Accounting Principles), financial records should be closed promptly—typically within 30 to 45 days after the end of the reporting period. Timely closing ensures accurate, complete, and relevant financial information is available for decision-making and reporting to stakeholders. Condition—The organization failed to close its books within the timeframe for the fiscal year ending September 30, 2023. Several accounts were not adequately reconciled from prior years, which delayed the finalized financial statements 10 months past the deadline. Cause—The delays were due to insufficient staffing, a change in accounting leadership, inadequate closing procedures, and delays in information such as the 211 Glendale Promissory Information. Effect – The untimely closing process resulted in inaccurate interim financial reports shared with the board and increased audit risk, as late adjustments and reconciliations may compromise the reliability of financial data. Recommendation—We recommend developing and implementing a financial close calendar, automating key processes, hiring and training additional staff, and conducting monthly close reviews.

Material Weakness in Internal Control Over Financial Reporting – Multiple Adjustments to Financial Statements Criteria – Effective internal controls require that financial transactions and accounts be accurately recorded and reported in the general ledger. According to GAAP (Generally Accepted Accounting Principles) and sound financial management practices, adjustments should be minimal if proper controls, reconciliations, and review procedures are in place throughout the reporting period. Condition—During the audit, multiple material adjustments were required to correct errors in the financial statements. These adjustments included corrections to various balance sheet accounts, grant revenue, and recognizing unrecorded notes payable discovered by management in September 2024. Cause – The root cause of these multiple adjustments appears to be inadequate internal controls over financial reporting. Effect – The multiple adjustments indicate that the financial statements initially presented were unreliable, increasing the risk of material misstatements. This undermines the users' confidence in the organization’s financial reports and could lead to adverse consequences, including loss of donor trust, regulatory noncompliance, or financial penalties. Recommendation—We recommend that management implement enhanced controls over financial reporting to minimize the need for multiple adjustments. Routine monthly recognition of key accounts should detect discrepancies early. A formal review and approval process of journal entries and adjustments should also be implemented, and accounting personnel should be trained to strengthen their knowledge in complex financial reporting areas.