Finding 2025-001: Material Weakness over Financial Reporting Management’s Response Management agrees with the finding and the auditor’s recommendation. Management recognizes that Wellspring’s period-end close and financial reporting review procedures during the audit period did not provide sufficient assurance that material errors in significant account balances and related financial statement disclosures would be prevented, or detected and corrected, on a timely basis. The deficiencies identified during the audit occurred within a broader financial management and internal control environment that was not sufficiently developed for the size and complexity of Wellspring. During 2024 and 2025, the Organization relied extensively on an outsourced Client Accounting Services arrangement. Under this arrangement, the Organization’s accounting was migrated to Sage Intacct using base templates that were not sufficiently tailored to Wellspring’s unique financial reporting and operational requirements. As a result, the Organization did not have sufficiently developed and consistently executed processes for account reconciliation, period-end close, financial statement review, or related supervisory oversight, and the accounting system did not provide an adequate level of configuration and automated control to support these processes. Management accepts responsibility for these conditions and has taken significant steps to address them. Wellspring has strengthened its internal financial operations through the recruitment of experienced nonprofit financial leadership and accounting personnel and is implementing a comprehensive remediation of its financial reporting processes, internal controls, and accounting system. As part of this remediation, the Organization has engaged the software consultancy firm Armanino to conduct a comprehensive review of its accounting system. Based on the results of that review, Armanino will proceed to assist management with a System Remediation Project, which will include the implementation of Sage Intacct’s Advanced Grants Tracking module and Fixed Assets module, as well as a redesign of other system configurations and controls. Management believes its current structure combining internal staffing with external consulting resources positions Wellspring to effectively build and maintain an effective internal control framework over financial reporting. Corrective Action Plan Management is implementing a formal, documented monthly and year-end financial close process designed to provide consistent evidence that significant accounts and financial statement areas have been reconciled, reviewed, and appropriately supported before financial statements are finalized. The corrective action plan includes the following: 1. Formal monthly close process and close checklist Management is implementing a standardized monthly close checklist establishing required procedures, responsible parties, due dates, and supervisory review for significant financial statement accounts. 2. Account reconciliations and supervisory review Significant statement of financial position and statement of activities accounts will be reconciled and supported on a timely basis. Reconciliations will be subject to documented supervisory review, including evidence of review, resolution of reconciling items, and follow-up on outstanding or unusual balances. 3. Capital assets and construction in progress Management is strengthening procedures for capital assets and construction in progress, including reconciliation and review of capital additions, construction-related invoices, retainage, and depreciation. The implementation of the Sage Intacct Fixed Assets module will provide better system support for the Organization’s fixed asset accounting. 4. Accounts receivable and revenue Management is implementing documented review procedures for accounts receivable aging, pledges and other receivables, revenue recognition and cutoff, collectability, and subsequent cash receipts. The implementation of the Sage Intacct Advanced Grants Tracking module will also provide better system support for these processes. 5. Accrued liabilities and period-end cutoff Management is strengthening procedures for identifying, recording, and reviewing accrued liabilities and other period-end obligations to ensure that expenses and liabilities are recorded in the appropriate reporting period. 6. Net asset classification and donor restrictions The initial installation of Sage Intacct was not optimally configured for the efficient tracking of net asset classes and releases from restriction. The ability to record and view purpose and time restrictions within the general ledger and supporting modules is a key emphasis of the system remediation project. New dimensions and documented procedures will allow Wellspring to reliably track net asset classifications and reconcile supporting schedules to the general ledger and financial statement presentation. 7. Journal entry and system controls Management is strengthening controls over journal entries and transaction recording, including appropriate review, approval, and segregation of responsibilities. New system configuration controls include approval workflows, more restrictive user permissions, use of the period close function, and restrictions on direct posting to control accounts and subledger journals. The new controls will be further evaluated and developed as part of the system remediation project. 8. Financial statement and disclosure review Prior to issuance, the financial statements and related disclosures will undergo a documented review by personnel with appropriate technical accounting knowledge. Proposed audit adjustments and other significant adjusting journal entries will likewise be subject to management review and approval. 9. Documentation and evidence of review Management is establishing requirements for retaining evidence of supervisory review, review comments, and resolution of identified issues. The objective is to ensure that the Organization can demonstrate both that controls were performed and that identified issues were appropriately evaluated and resolved. Wellspring’s Board of Directors will meet with administration at least once per quarter to review the financial statements. 10. Ongoing monitoring and internal control improvement The Senior Director of Finance will oversee implementation and ongoing monitoring of these procedures and will continue to evaluate the Organization’s financial reporting processes, accounting system configuration, and other internal controls as part of the Organization’s broader remediation efforts. Responsible Official Casey Richey Senior Director of Finance Anticipated Completion Date The enhanced monthly and year-end close procedures and related supervisory review controls are being implemented during 2026. Management expects the core remediation activities to be substantially implemented by December 31, 2026, with the controls becoming part of Wellspring’s ongoing monthly and annual financial reporting processes thereafter. Management will continue to monitor the effectiveness of the implemented controls and make additional modifications as necessary to ensure that the financial reporting process provides reasonable assurance that material errors are prevented or detected and corrected on a timely basis.