2025-001 Financial Reporting – Material Adjustments Criteria: Internal controls over financial reporting should be designed and implemented to ensure that financial statements are free from material misstatement, whether due to error or fraud, and that such misstatements are prevented or detected and corrected on a timely basis. Condition: During the audit, material audit adjustments were proposed and accepted by management. The adjustments were necessary to correct material misstatements in the financial statements that had not been identified by the organization’s internal control processes. Significant adjustments included: • Recording loan forgiveness, which corrected the overstatement of liabilities and understatement of revenues • Reclassifying HOME program assistance from revenue to deferred loan liability, which corrected the overstatement of revenues and changes in net assets and the understatement of liabilities • Reclassifying development costs from expenses to property and equipment, which corrected the understatement of assets and overstatement of expenses. Cause: The Organization’s internal control processes did not identify or correct these misstatements prior to the audit. This suggests certain review and reconciliation procedures may not be operating effectively. Effect: Financial statements generated from the accounting system and provided to the board may contain error(s), which could potentially affect decision-making and oversight. Auditor’s Recommendation: We recommend that management review and enhance its financial reporting processes, including implementing more robust review procedures and reconciliations, to help ensure that misstatements are identified and corrected prior to the audit. Auditee’s Response: Management agrees with this finding and agrees with the recommendation. Management will evaluate current procedures and implement improvements to strengthen the accuracy and completeness of financial reporting. Contact Person: Brad Hinkfuss Anticipated Completion: December 31, 2026