Finding Text
Proper Tracking of Net Asset Restrictions and Releases of Net Assets. Condition and Criteria: During the audit, it was noted that the Organization does not have a consistent process to properly track net asset balances and net asset restrictions throughout the year. Specifically, approximately $4 million of restricted funds included in beginning net assets were not adequately monitored or allocated by purpose in the accounting records. Under U.S. GAAP, nonprofit organizations are required to classify and track net assets in accordance with donor-imposed restrictions to ensure accurate financial reporting and compliance with the terms of contributions. Prior Year Audit Finding: N/A Cause and Effect: The Organization lacks formalized procedures for tracking and monitoring net assets with donor restrictions and net assets without donor restrictions on an ongoing basis. As a result, restricted funding was not properly tracked throughout the year by purpose, increasing the risk of misstatement of net asset balances and potential misapplication of donor-restricted funds. Inadequate monitoring of net asset restrictions also weakens internal controls and could result in noncompliance with donor restrictions or U.S. GAAP reporting requirements. Recommendation: We recommend that management implement formal procedures to monitor and track net assets and donor-imposed restrictions on an ongoing basis. This could include maintaining detailed sub-ledgers for restricted funds, reconciling net asset balances regularly, and clearly documenting the purpose and restrictions of all contributions. Regular tracking and reconciliation will strengthen internal controls, ensure proper classification of net assets in accordance with U.S. GAAP, and support accurate financial reporting throughout the year. Management’s Response: Healing Transitions acknowledges the findings noted in the Schedule of Findings and Questioned Costs. Management reviewed the matters identified and addressed them during the audit process in coordination with the auditors. Corrective actions included updating accounting treatments and disclosures related to capital assets, contributed property, and supporting schedules, as well as strengthening internal review procedures around complex or non-routine transactions. All necessary adjustments have been recorded, and management believes these actions adequately address the items noted. Management does not believe the issues identified resulted in material misstatements of the financial statements and will continue to refine internal processes to support accurate and timely financial reporting.