Finding Text
Criteria: An effective system of internal control over financial reporting requires that donor-restricted contributions be tracked accurately and that donor restrictions be released in income timely when the related purpose or time conditions have been satisfied, in accordance with applicable accounting standards and organizational policies. Additionally, for federal awards and other restricted funding sources, controls must ensure expenditures and related releases are recorded in accordance with applicable requirements and reflected accurately in financial reporting. Condition: Wesleyan College did not consistently record the release of donor restrictions in a timely manner upon satisfaction of donor-imposed purpose or time restrictions. In several instances, releases were recorded in periods subsequent to when the underlying conditions were met, and supporting documentation for the timing of releases was not always contemporaneous. Cause: The deficiency resulted from insufficiently formalized procedures for monitoring the satisfaction of donor restrictions and initiating timely releases. Additionally, coordination gaps between departments, and significant staffing turnover contributed to delays in communicating when restriction conditions had been fulfilled and recording releases timely for financial reporting purposes. Effect or Potential Effect: As a result, restricted and unrestricted net asset balances may not have been presented accurately between reporting periods, and management’s ability to rely on interim financial information related to donor-restricted activity was reduced. This condition also increases the risk that expenditures charged to restricted funding sources, including federal awards, may not be matched with the appropriate release of restrictions in the correct period. While no material misstatements were identified, the potential for misclassification errors exists. Recommendation: Wesleyan College should ensure the monitoring and recording of donor restrictions in a timely manner upon satisfaction of donor-imposed purpose or time restrictions. Views of Responsible Officials: Management plans to enhance controls over donor restriction tracking by implementing clearer procedures for identifying restriction satisfaction, improving cross-department communication, and strengthening review controls to ensure timely and accurate recording of donor restriction releases. Auditor’s Evaluation of the Views of Responsible Officials: Wesleyan College’s response is appropriate to ensure that donor-restricted contributions be tracked accurately and that donor restrictions be released in income timely when the related purpose or time conditions have been satisfied.