Finding 1078200 (2022-001)

Material Weakness
Requirement
P
Questioned Costs
-
Year
2022
Accepted
2024-10-04
Audit: 323854
Organization: Isuroon (MN)

AI Summary

  • Core Issue: There is a material weakness in the financial reporting process due to inadequate internal controls and staff turnover, leading to unrecorded audit adjustments.
  • Impacted Requirements: GAAP compliance is compromised, risking misstatements in grants receivable, revenue accounts, and expenses.
  • Recommended Follow-Up: Implement stronger controls, hire an experienced Finance Director, and provide ongoing GAAP training for staff to improve financial reporting accuracy.

Finding Text

Audit adjustments and Oversight of Financial Reporting Process: Material Weakness. Criteria – In accordance with generally accepted accounting principles in the United States of America (GAAP) and best practices for nonprofit organizations, internal controls over financial reporting should be designed to ensure that transactions are recorded in the proper period and properly classified and that the closing process identifies any necessary adjustments. Condition – The closing processes did not identify material audit adjustments that were required to accurately reflect grants receivable and related grant/contribution revenue account, interest expense and related accrual, and depreciation expense. Context – Management is responsible for the recording, processing, summarizing, and review of accounting data (i.e., maintaining books and records) and for making necessary adjustments to those books and records before the audit and preparation of financial statements. Cause – During the year, Isuroon experienced turnover of key staff within the accounting unit. Isuroon has limited staff with knowledge of GAAP standards and insufficient internal controls to analyze and review adjustments to reconcile to GAAP at year-end, and to keep the financial statements from being materially misstated. Effect – Errors in recording transactions to the proper period and general ledger accounts could result in a misstatement of the financial statements. Recommendation – We recommend that Isuroon management implements controls over the financial closing process to ensure all necessary adjustments at fiscal year-end are recorded and reviewed, so the financial statements are free from material misstatements. View of Responsible Officials and Corrective Action Plan – We agree that due to the turnover of finance staff and the lack of consistent leadership in the finance department, we realized the need for strong leadership for our finance team. Consequently, the recruitment of an experienced Finance Director is in process, who has extensive experience working with nonprofit organizations, the U.S. government, and the United Nations. This new hire will ensure the finance department has strong leadership with a deep understanding of GAAP standards and the complexities involved in nonprofit accounting. Additionally, existing staff members will receive comprehensive training on GAAP and other relevant financial procedures to ensure they have the necessary knowledge and skills to perform their duties accurately. This training will be ongoing to keep the staff updated on any changes in accounting standards and practices. Furthermore, Isuroon will engage a certified accounting firm to conduct monthly reviews of its books of accounts. This firm will provide regular feedback and guidance, identifying any discrepancies or areas needing improvement and suggesting best practices to ensure compliance with GAAP and the accuracy of financial reporting. By implementing these measures, we aim to establish robust internal controls over the financial closing process, ensuring all necessary adjustments are recorded and reviewed in a timely manner. This comprehensive approach will mitigate the risk of material misstatements, enhance the reliability of financial statements, and demonstrate a commitment to transparency and accountability in financial management.

Categories

Internal Control / Segregation of Duties Material Weakness Reporting

Other Findings in this Audit

  • 501757 2022-001
    Material Weakness
  • 501758 2022-001
    Material Weakness
  • 501759 2022-001
    Material Weakness
  • 501760 2022-002
    Significant Deficiency
  • 501761 2022-002
    Significant Deficiency
  • 501762 2022-002
    Significant Deficiency
  • 501763 2022-003
    Significant Deficiency
  • 501764 2022-004
    Significant Deficiency
  • 1078199 2022-001
    Material Weakness
  • 1078201 2022-001
    Material Weakness
  • 1078202 2022-002
    Significant Deficiency
  • 1078203 2022-002
    Significant Deficiency
  • 1078204 2022-002
    Significant Deficiency
  • 1078205 2022-003
    Significant Deficiency
  • 1078206 2022-004
    Significant Deficiency

Programs in Audit

ALN Program Name Expenditures
59.008 Disaster Assistance Loans $795,554
93.576 Refugee and Entrant Assistance Discretionary Grants $234,223
21.023 Emergency Rental Assistance Program $70,833