Internal Controls Over Financial Reporting. Condition and Criteria: As a result of turnover in the accounting department and lack of consistency of accounting personnel, the Organization does not have sufficiently designed or consistently implemented internal controls to ensure accurate and complete financial reporting. Key controls, including timely reconciliations, review and approval of journal entries, and maintaining adequate documentation were not consistently performed throughout the year. Effective internal controls over financial reporting include documented policies, segregation of duties, timely reconciliations, and supervisory review to ensure accuracy and completeness. Prior year audit finding: N/A Cause and Effect: The lack of internal controls over financial reporting creates a reasonable possibility of material misstatement in the financial statements that may not be prevented or detected timely and have contributed to delays in year-end close and the audit process. Recommendation: The Organization has already taken an important step by engaging a contract accountant to assist with cleaning up the accounting records, reconciling financial information, and recording transactions in accordance with U.S. GAAP. As the Organization transitions these responsibilities to the new financial staff member, we recommend providing thorough training, clear expectations, and appropriate oversight to ensure continuity and consistency in accounting and financial reporting. Establishing structured guidance and ongoing monitoring will help strengthen internal controls and promote a smooth and sustainable transition in the finance function. Management’s Response: Healing Transitions acknowledges the findings noted in the Schedule of Findings and Questioned Costs. Management reviewed the matters identified and addressed them during the audit process in coordination with the auditors. Corrective actions included updating accounting treatments and disclosures related to capital assets, contributed property, and supporting schedules, as well as strengthening internal review procedures around complex or non-routine transactions. All necessary adjustments have been recorded, and management believes these actions adequately address the items noted. Management does not believe the issues identified resulted in material misstatements of the financial statements and will continue to refine internal processes to support accurate and timely financial reporting.
Proper Tracking of Net Asset Restrictions and Releases of Net Assets. Condition and Criteria: During the audit, it was noted that the Organization does not have a consistent process to properly track net asset balances and net asset restrictions throughout the year. Specifically, approximately $4 million of restricted funds included in beginning net assets were not adequately monitored or allocated by purpose in the accounting records. Under U.S. GAAP, nonprofit organizations are required to classify and track net assets in accordance with donor-imposed restrictions to ensure accurate financial reporting and compliance with the terms of contributions. Prior Year Audit Finding: N/A Cause and Effect: The Organization lacks formalized procedures for tracking and monitoring net assets with donor restrictions and net assets without donor restrictions on an ongoing basis. As a result, restricted funding was not properly tracked throughout the year by purpose, increasing the risk of misstatement of net asset balances and potential misapplication of donor-restricted funds. Inadequate monitoring of net asset restrictions also weakens internal controls and could result in noncompliance with donor restrictions or U.S. GAAP reporting requirements. Recommendation: We recommend that management implement formal procedures to monitor and track net assets and donor-imposed restrictions on an ongoing basis. This could include maintaining detailed sub-ledgers for restricted funds, reconciling net asset balances regularly, and clearly documenting the purpose and restrictions of all contributions. Regular tracking and reconciliation will strengthen internal controls, ensure proper classification of net assets in accordance with U.S. GAAP, and support accurate financial reporting throughout the year. Management’s Response: Healing Transitions acknowledges the findings noted in the Schedule of Findings and Questioned Costs. Management reviewed the matters identified and addressed them during the audit process in coordination with the auditors. Corrective actions included updating accounting treatments and disclosures related to capital assets, contributed property, and supporting schedules, as well as strengthening internal review procedures around complex or non-routine transactions. All necessary adjustments have been recorded, and management believes these actions adequately address the items noted. Management does not believe the issues identified resulted in material misstatements of the financial statements and will continue to refine internal processes to support accurate and timely financial reporting.
Proper Tracking of Endowment Activity. Condition and Criteria: During the audit, it was noted that the Endowment activity is not consistently tracked or recorded in the accounting system throughout the year. Current practice involves recording Endowment transactions only at year-end. According to U.S. GAAP, all significant financial activity should be recorded in the accounting records as it occurs to ensure accurate and complete financial reporting. Prior year audit finding: N/A Cause and Effect: Endowment activity is not monitored and recorded on an ongoing basis, which results in all transactions being captured only at year-end. This approach increases the risk of material misstatement in the consolidated financial statements, as errors, omissions, or irregularities may go undetected for an extended period. Delayed recording also reduces the effectiveness of internal controls, potentially allowing errors or fraudulent activity to persist before being identified and corrected. Recommendation: We recommend that management implement processes to track and record Endowment activity on a regular and timely basis throughout the year. This could include maintaining a running ledger of contributions, disbursements, investment income, and other activity, with periodic reconciliations to ensure completeness and accuracy. Regular tracking will strengthen internal controls, promote compliance with U.S. GAAP, and enhance the reliability of financial reporting. Management’s Response: Healing Transitions acknowledges the findings noted in the Schedule of Findings and Questioned Costs. Management reviewed the matters identified and addressed them during the audit process in coordination with the auditors. Corrective actions included updating accounting treatments and disclosures related to capital assets, contributed property, and supporting schedules, as well as strengthening internal review procedures around complex or non-routine transactions. All necessary adjustments have been recorded, and management believes these actions adequately address the items noted.B4 Management does not believe the issues identified resulted in material misstatements of the financial statements and will continue to refine internal processes to support accurate and timely financial reporting.
Preparation of the Schedule of Expenditures of Federal Awards. Federal Program Information: Coronavirus State and Local Fiscal Recovery Funds (FAL #21.027) Condition and Criteria: The Schedule of Expenditures of Federal Awards (SEFA) is prepared using source information other than the financial reports generated by the accounting system. As a result, the Organization's internally prepared SEFA did not agree to the Organization's financial records. Prior Year Audit Finding: N/A Cause and Effect: The SEFA was prepared and reconciled to the amount of cash drawdowns for the year rather than total expenditures incurred for the year. This could result in a material misstatement in the SEFA. Context: This represents a systemic problem. Questioned Costs: None. Recommendation: The SEFA should be prepared and reconciled to the general ledger by an employee knowledgeable of the grant activity for the year. Someone other than the preparer should review the SEFA for accuracy and completeness to identify any errors and maintain proper internal controls over the preparation of the SEFA. Management’s Response: Healing Transitions acknowledges the findings noted in the Schedule of Findings and Questioned Costs. Management reviewed the matters identified and addressed them during the audit process in coordination with the auditors. Corrective actions included updating accounting treatments and disclosures related to capital assets, contributed property, and supporting schedules, as well as strengthening internal review procedures around complex or non-routine transactions. All necessary adjustments have been recorded, and management believes these actions adequately address the items noted. Management does not believe the issues identified resulted in material misstatements of the financial statements and will continue to refine internal processes to support accurate and timely financial reporting.