Finding Text
Criteria: Management is responsible for ongoing evaluation of financial condition and liquidity and for performing the GAAP-required going-concern assessment. Effective internal control over financial reporting includes robust budget-to-actual monitoring, timely corrective actions to align spending with available resources, and formal documentation of liquidity assessments. Condition/Context: The Organization incurred continuing losses in fiscal year 2024, primarily due to lower-than-budgeted recoveries of the 15% administrative allowance on the All Children Thrive award and insufficient cost reductions to offset revenue shortfalls. At December 31, 2024 and continuing into 2025, the Organization financed operating shortfalls using a $300,000 line of credit and extended vendor terms. These conditions were significant factors in the auditor’s conclusion that substantial doubt exists regarding the Organization’s ability to continue as a going concern (absent management’s plans). Cause: Heavy reliance on cost-reimbursable funding where subrecipients underspent, limited unrestricted fundraising, and delayed budget adjustments to reduce the cost structure. Effect/Possible Effect: Heightened risk of financial statement misstatement if required going-concern disclosures, or related measurement considerations, are incomplete or not timely. Continued strain on liquidity could impair the Organization’s ability to meet obligations as they come due. Questioned Costs: Not applicable (financial statement control finding). Recommendation: Formalize a liquidity and financial condition monitoring plan with (1) board-approved triggers for timely cost containment, (2) monthly cash-flow forecasts tied to grant billing reality, (3) specific targets for unrestricted fundraising/diversification, and (4) documentation of the going-concern evaluation each reporting period, including assessment of the feasibility and timing of management’s plans. Views of Responsible Officials: Management’s response and corrective action plan will be provided in the separate Corrective Action Plan.