Finding Text
2023-001 System of Internal Controls and Resulting Disclaimer of Opinion
Criteria: The Internal Revenue Service (IRS) has defined a charitable organization as “organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, educational, or other specified purposes.” As a result of an entity being recognized as an exempt charitable organization, the nonprofit is entitled to favorable treatment(s) reserved for such entities (e.g., reduced taxation).
Condition: The Organization was unable to produce sufficient appropriate audit evidence to support its assertion that revenues and expenditures related to StartUpNV, Inc. exclusive activities.
Cause: The system of internal controls implemented by the Organization was not well-defined and did not contain appropriate segregation of duties amongst non-interested parties.
Effect: The Organization was unable to provide sufficient appropriate audit evidence to support issuance and receipt of an unmodified audit opinion. This led to delays in the overall audit process resulting in late filing of the Data Collection Form to the Federal Audit Clearinghouse (FAC).
Recommendation: We recommend management design and implement a system of internal controls whereby clear delineation between StartUpNV, Inc. activities and those of interested parties is supported. Further, we recommend that this system of internal controls be well documented and consistently applied. Risk assessment as it relates to general exempt organization compliance, as well as specific compliance related to federal award receipts, should be consistently performed by appropriate, competent personnel. With these systems in place, StartUpNV, Inc. will be better positioned to support regulatory expectations and requirements.
Views of Responsible Officials and Planned Corrective Actions: StartUpNV will create a policy document that shows procedures for internal control of expenditures that includes independent oversight. StartUpNV plans to contract with an outside party to perform an independent review and approval of expenditures prior to grant reimbursement requests and establish formal, documented procedures governing this process. Due to the recent resignation of the board treasurer, the incoming treasurer will assume oversight responsibility for this independent reviewer and budgetary and expenditure controls.
The current Executive Director plans to announce his retirement from the non-profit organization – and announce a Board of Directors search process for his replacement. The appointment of a new Executive Director will address the requirements for the segregation of duties and independence. The Chief of Operations will provide guidance and support to the new Executive Director, ensuring a smooth transition of responsibilities through her planned retirement by the end of the year. The search and hiring process for a new Executive Director is anticipated to be completed within a timeline of 6 months.
System of Internal Controls and Compliance Over Activities Allowed and Unallowed, Allowable Costs/Cost Principles, and Period of Performance; and Resulting Disclaimer of Opinion Over Major Federal Award Program Summary and Reference to Detailed Finding: As noted in finding 2023-001, the system of internal controls implemented by the Organization was not well-defined and did not contain appropriate segregation of duties amongst non-interested parties. As a result of the pervasive nature of this finding, a material weakness in internal control over compliance related to all direct and material compliance requirements is noted.