Finding 1160372 (2024-002)

Material Weakness in Internal Control Over Financial Reporting – Multiple Adjustments to Financial Statements Criteria – Effective internal controls require that financial transactions and accounts be accurately recorded and reported in the general ledger. According to GAAP (Generally Accepted Accounting Principles) and sound financial management practices, adjustments should be minimal if proper controls, reconciliations, and review procedures are in place throughout the reporting period. Condition—During the audit, multiple material adjustments were required to correct errors in the financial statements. These adjustments included corrections to various balance sheet accounts, grant revenue, and recognizing unrecorded notes payable discovered by management in September 2024. Cause – The root cause of these multiple adjustments appears to be inadequate internal controls over financial reporting. Effect – The multiple adjustments indicate that the financial statements initially presented were unreliable, increasing the risk of material misstatements. This undermines the users' confidence in the organization’s financial reports and could lead to adverse consequences, including loss of donor trust, regulatory noncompliance, or financial penalties. Recommendation—We recommend that management implement enhanced controls over financial reporting to minimize the need for multiple adjustments. Routine monthly recognition of key accounts should detect discrepancies early. A formal review and approval process of journal entries and adjustments should also be implemented, and accounting personnel should be trained to strengthen their knowledge in complex financial reporting areas.