Finding Text
Criteria: Effective internal control over financial reporting requires that management maintain complete and accurate accounting records and prepare financial statements, including all required disclosures, in accordance with the applicable financial reporting framework, and retain sufficient documentation to support governance activities. This includes maintaining complete Board meeting minutes and retaining documentation supporting the basis for compensation, including bonuses. Condition: The Organization does not maintain a complete general ledger or trial balance and does not track balance sheet accounts within its accounting system. The system used is limited to recording income and expense transactions and does not support the preparation of full financial statements. As a result, management does not prepare complete financial statements or related disclosures. Financial statements are prepared annually by a third-party accountant in connection with Form 990 preparation, with limited documented evidence of management review. In addition, the Organization does not consistently retain documentation supporting key governance and financial reporting activities. Specifically, complete Board meeting minutes were not available for all meetings held during the year, and documentation supporting the basis for employee compensation decisions, including performance evaluations and bonus determinations, is not maintained. Cause: This condition appears to result from reliance on an accounting system that is not designed to support full financial reporting, combined with insufficient expertise and lack of formal policies and procedures governing financial reporting, documentation retention, and review controls. Effect: The absence of complete accounting records and a formal financial reporting process significantly increases the risk that financial statements and related disclosures may be incomplete, inaccurate, or not in conformity with the applicable reporting framework. Errors or omissions may not be identified or corrected in a timely manner, resulting in a reasonable possibility of material misstatement. Additionally, the lack of complete Board meeting minutes reduces transparency over governance activities and limits the ability to demonstrate appropriate oversight of financial reporting matters. The absence of documentation supporting compensation decisions increases the risk that recorded expenses may not be adequately supported or consistently applied. Collectively, these deficiencies weaken the overall control environment. Recommendation: We recommend that the Organization implement a financial reporting process that includes maintaining a complete general ledger and trial balance, recording all balance sheet accounts, and preparing complete financial statements and disclosures on a periodic basis. Management should establish review procedures to ensure the accuracy and completeness of financial reporting, whether performed internally or with the assistance of external accountants. In addition, the Organization should implement formal policies and procedures requiring the preparation, approval, and retention of complete Board meeting minutes for all meetings, as well as the retention of supporting documentation for significant estimates and transactions, including compensation decisions and bonus determinations, to ensure that all amounts recorded in the financial statements are adequately supported. Management’s Response: Management agrees with the finding and acknowledges the limitations of its current financial reporting and documentation practices. Management indicates it will evaluate options to improve its accounting system and financial reporting capabilities, strengthen review procedures over financial statements prepared by external accountants, and implement policies to ensure that Board meeting minutes and supporting documentation for compensation decisions are properly maintained going forward.