Finding Text
2022-001 Accounting System, Processes and Reporting Identification as a Repeat Finding: Repeat of Finding 2021-001Finding:Internal control processes over financial accounting did not ensure that all transactions were properly recorded in accordance with U.S. GAAP on a timely basis.Criteria:The Urban League is responsible for day-to-day transactional accounting as well as annual financial statement reporting. As such, the Organization is responsible for implementing adequate procedures to ensure that such information and reports are accurate and complete.Uniform Guidance Section 2 CFR 200.303(a), Internal Controls, requires that non-federal entities must establish and maintain effective internal controls over the federal award that provides reasonable assurance that the non-federal entity is managing the award in compliance with federal statutes, regulations and the terms and conditions of the federal award.Sample Size and Population:Sampling was not applicable to this finding.Condition and Context:The Organization experienced turnover in its accounting and finance department at the beginning of the fiscal year. In the midst of the transition in staffing, historic knowledge of accounting for certain transactions was lost and reconciliations prepared did not use accurate accounting records and lacked clerical accuracy.Effect:Interim financial statements utilized by the Board of Directors for decision making in FY2022 did not accurately reflect the financial condition of the Organization on a U.S. GAAP basis. The Organization?s internal controls failed to identify material errors in accounting including the following:? 18 months of operating activities were recorded within the consolidating Partnership?s accounting records for the 12 month period ended June 30, 2022.? $704,017 in advanced payments of federal funds that were received in the year ended June 30, 2021 were recognized as revenue during that year and were not appropriately reflected as refundable advances as of that date as disclosed in Note 20 of the financial statements.? Material adjustments were identified in the Organization?s accounting for restricted revenue and net assets with donor restrictions.? The Organization's accounting for a fiscal sponsor relationship did not appropriately reflect accounting for such relationships under ASC 958, Not-For-Profit Entities.Cause:The errors identified in the Partnership?s accounting records reflect errors in the design of reconciliations. The errors in accounting for advanced payments of federal funds reflect documentation retention matters addressed in Finding 2021-006. Additionally, the errors in accounting for advanced payments, restricted revenue, and fiscal sponsor relationships reflect errors in identifying the accounting treatment for contract terms.Recommendations:? Perform analytics of financial data at least quarterly to identify unusual activity that may indicate errors in accounting.? Establish a process for reviewing contract terms and evaluating, communicating, and documenting the appropriate accounting treatment.? Obtain training on ASC 958, Not-for-Profit Entities.? Engage a third-party CPA to review accounting reconciliations on a quarterly basis.Questioned Costs: NoneManagement Response and Corrective Action Plan: See Corrective Action PlanContact Person: Mansour Camara, CFO