2025-001 Limited Segregation of Duties Over Cash Receipts – Material Weakness Criteria – Effective internal controls require an segregation of duties so that no one individual handles a transaction from its inception to completion. Proper segregation of duties is a fundamental element of internal control to prevent and detect errors or fraud in the cash receipts process. Condition – During our review of the cash receipts process for the year ended June 30, 2025, we noted that the individual responsible for opening the mail, preparing the deposit summary, and depositing funds was granted full access to the accounting software, including the ability to enter, modify, and delete transactions. Although this individual is not supposed to record deposits in the accounting system, they have the ability to do so. The second individual involved in the cash receipts process, who has always had access to the accounting software, is responsible for recording deposits (often including recording the original revenue) and performing the bank reconciliation. Additionally, there is no documentation that a review of the bank reconciliation occurs by a separate individual on a monthly basis. This results in a lack of adequate segregation of duties, as both individuals have overlapping access and responsibilities in the cash receipts process. Cause – Change Inc. expanded system access for operational convenience, allowing the individual handling physical cash receipts to also have full access to the accounting software. Management has not implemented compensating controls or periodic independent reviews to mitigate the risks associated with this access and overlap of duties. Effect – The lack of segregation of duties increases the risk that errors or misappropriation of cash could occur and not be detected in a timely manner. This could result in financial losses to Change Inc. and misstatements in the financial statements. Recommendation – We recommend that management segregate the duties of opening mail, preparing deposit summaries, depositing funds, recording cash receipts in the accounting system, and reconciling bank statements among different employees to the extent possible. If staffing limitations prevent full segregation, management should implement compensating controls, such as a documented periodic independent review of bank reconciliations and cash receipt records by someone not involved in the cash receipts process and restrict system access to only those functions necessary for each employee’s role. Auditee's comments and response – Management is in agreement with this finding. Change Inc.’s process has been updated to ensure the person opening mail, preparing the deposit summary, and depositing funds do not have access to the accounting software. Responsible party for corrective action: Jill Johnson, Executive Director Repeat Finding: No
2025-002 Inadequate Documentation and Training for CECL Calculation Process – Material Weakness Criteria – Government Auditing Standards and generally accepted accounting principles (GAAP) require that organizations maintain effective internal controls over financial reporting, including controls to ensure accurate and timely implementation of new accounting standards such as the Current Expected Credit Losses (CECL) model. Effective internal controls should include sufficient documentation and training to ensure continuity in key accounting processes. Condition – During the audit, it was noted that the individual responsible for the CECL calculation left the organization during the year. The replacement staff member did not have adequate understanding of the prior calculations or the supporting workpapers. As a result, the CECL adjustment was not recorded at the beginning of the audit, and it required multiple discussions and attempts before a reasonable estimate was determined and recorded. Cause – The organization’s documentation of the CECL calculation process and related workpapers was insufficient to allow for effective transition and training of new personnel. There was a lack of formal instructions and procedures and training to ensure continuity in the application of the CECL model. Effect – The lack of adequate documentation and training increased the risk of material misstatement in the financial statements and delayed the timely recording of the CECL adjustment. This could have resulted in inaccurate financial reporting and noncompliance with applicable accounting standards, and may impact the organization’s ability to comply with future financial reporting requirements. Recommendation – We recommend that management enhance the documentation of the CECL calculation process and provide comprehensive training for staff responsible for this area. Formal written procedures should be developed to ensure that future transitions in personnel do not disrupt the accurate and timely application of the CECL model. Auditee's comments and response – Management is in agreement with this finding. Change Inc. will capture detailed documentation of the CECL calculation process, including training and detailed written procedures. Responsible party for corrective action: Jill Johnson, Executive Director Repeat Finding: No
2025-003 Medical Billing Revenue Recognition Internal Controls – Significant Deficiency Criteria – Generally accepted accounting principles (GAAP) and sound internal control practices require entities to maintain accurate and complete financial records and implement effective internal controls over revenue recognition. This includes requiring effective internal controls ensuring that revenue recorded in the accounting system is reconciled to subsidiary systems to ensure completeness and accuracy of financial reporting. Condition – During our audit, we noted that the Organization’s medical billing system, which tracks a significant portion of revenue, operates independently from the accounting system. The two systems are not integrated, and no regular reconciliation is performed between them. Revenue is recorded in the accounting system on a cash basis throughout the year, with monthly adjustments made to record receivable balances based on reports from the billing system. At year-end, the schedule provided from the billing software did not reconcile to the unadjusted trial balance. Significant time and effort by both the audit team and management was required to reconcile the billing schedule to the accounting system, with only an immaterial difference remaining after adjustments. Cause – The Organization has not established formal procedures or assigned responsibility for performing and documenting reconciliations between the billing and accounting systems. Effect – There is an increased risk that revenue may be misstated due to errors or omissions, and that misstatements or irregularities may not be detected and corrected in a timely manner. The lack of timely reconciliation also results in significant inefficiencies during the audit process and increases the risk of material misstatement in the financial statements. Recommendation – We recommend that the Organization develop and implement formal procedures to reconcile the billing system to the accounting system on a monthly basis. The reconciliation should be reviewed and approved by management, and any discrepancies should be investigated and resolved promptly. Auditee's comments and response – Management is in agreement with this finding. Change Inc. is developing formal procedures to include monthly reconciliation between accounting and billing systems. Responsible party for corrective action: Jill Johnson, Executive Director Repeat Finding: No
2025-004: Lack of Documentation of Suspension/Debarment Testing at Time of Procurement Federal Department: Department of Labor Assistance Listing #: 17.274 Internal Controls Material Weakness Category of Finding – Procurement, Suspension, and Debarment Criteria - In accordance with 2 CFR 200.213 and 2 CFR part 180, recipients of federal funds must not enter into covered transactions with parties that are suspended or debarred. The Uniform Guidance requires that entities verify the exclusion status of vendors or subrecipients by checking the System for Award Management (SAM) Exclusions list (https://sam.gov) prior to entering into a covered transaction. Documentation of this verification should be retained in the procurement file to demonstrate compliance. Additionally, the DOLYB grant agreements specifically require that Change Inc. determine whether any individual or entity receiving any portion of assistance is currently debarred, suspended, excluded, or disqualified by any Federal department or agency, and report any funds awarded to these individuals or entities to DOLYB within 30 days. Condition - During the audit, it was noted that Change Inc. has a written procurement policy consistent with Uniform Guidance, and most transactions under the YouthBuild program did not require formal suspension/debarment testing. However, during the year, the program used federal funds to acquire a van, which met the threshold for suspension/debarment testing. For this transaction, there was no documentation on file to demonstrate that the suspension/debarment check was performed at the time of purchase. The client subsequently ran the SAM.gov check during the audit, confirming the vendor was not suspended or debarred, but there was no evidence that this verification occurred prior to the purchase. Context – This was the only transaction identified during the audit period that met the requirements for suspension/debarment testing. All other transactions were below the threshold or otherwise not subject to this requirement. Cause - The lack of documentation appears to be due to oversight in the procurement process for this specific transaction, as the client’s written procedures were not followed for this purchase. Effect - Without documentation that the suspension/debarment check was performed at the time of procurement, and a review process ensuring this documentation occurred, there is an increased risk that federal funds could be expended with parties that are suspended or debarred and not report this information timely, resulting in potential noncompliance with federal regulations. Failure to report such a disbursement may result in required repayment of assistance received by Change Inc. and render Change Inc. ineligible to apply for additional assistance from DOLYB in future funding rounds. Questioned Costs - None identified, as the vendor was confirmed not to be suspended or debarred when checked during the audit. Recommendation - We recommend that the client ensure suspension/debarment checks are performed, reviewed, and documented at the time of procurement for all applicable transactions. Documentation, such as a dated screenshot or printout from SAM.gov, should be retained in the procurement file to demonstrate compliance with Uniform Guidance requirements. Auditee’s comments and response – Change Inc. developed an updated procurement policy that went into place July 1, 2024. Our Operations Manager did not follow the policy. This staff member is no longer with the organization. We have implemented new training for managers and directors about the procurement policy to ensure proper execution going forward. Responsible party for corrective action: Jill Johnson, Executive Director Repeat Finding: No