Finding Text
Criteria: The general ledger and accounting records used to maintain the financial information of the Organization should be reconciled in conjunction with the preparation of monthly internal financial statements.
Condition: We noted that significant adjustments were made to correct the account balances during the audit as well as adjustments to record expenses in the proper period.
Cause: At the time of the audit, the Organization did not have a formal financial statement close process.
Effect or Potential Effect: Misstatements due to unrecorded transactions and improper cut off occurred in the presentation of the monthly and year-end financial statements.
Recommendation: We recommend that management develop and implement a comprehensive formal closing process, accompanied by robust internal control mechanisms. This will ensure accuracy, efficiency, and compliance in financial reporting, ultimately enhancing the organization's overall financial integrity and operational effectiveness.
Additionally, the proper review of contracts and agreements is imperative to ensure the proper recording of revenue and expenditures in the appropriate period. We recommend that management review its policies and procedures related to recognition of revenue and expenditures and ensure that the process has sufficient controls that are designed to ensure the proper recording of revenue and expenses. If necessary, any unusual items should immediately be investigated and adjusted in the books to minimize the significance of year-end adjusting journal entries.
Views of Responsible Officials:
The Organization acknowledges the deficiencies in the closing process that resulted in significant adjustments to correct account balances during the audit, as well as adjustments to record expenses in the proper period. These deficiencies were primarily caused by various staffing changes and shortages, including within key management. In May 2023, the Organization hired a new Finance Director. It was determined at that time that the Finance Department had not been adequately staffed for almost a year. In August of 2023, the resignation of the General Director and Chief Advancement Officer was communicated to the staff, and a new General Director assumed the role in October of 2023. Other changes in personnel followed, including the transfer of the Finance Associate to another department. These unforeseen changes in key leadership and other personnel gaps further contributed to temporary challenges during the audit in 2023-2024. The result of these changes caused a shift in responsibilities amongst the remaining staff and a further burden on the Finance Department. The cumulative result of these circumstances resulted in a limited capacity to obtain the information necessary to properly analyze all the accounts during the monthly closing process. To address the impact of these deficiencies and challenges, an accounting firm was engaged to manage the Organization’s accounting and financial reporting in October of 2024. This firm is working closely with the Organization to secure all the documentation needed for the accurate recording of revenue and expenses in the appropriate period.