Finding Text
Reference Number: 2024-001 – Inadequate Controls over Grant Revenue
Type of Finding: Significant Deficiency in Internal Control over Financial Reporting
Criteria
Management is responsible for the preparation and fair presentation, as well as the accuracy of its financial statements in accordance with accounting principles generally accepted in the United States of America. This includes the design, implementation, and maintenance of internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to error or fraud. Accounting principles promulgated over the years for not-for-profit organizations require substantial interpretation and judgment relating to the proper classification of net assets as well as the difficult question regarding the determination of whether grant funds are to be recorded as a contribution or an exchange transaction.
Condition
During the audit, we found that the Organization has no formal processes in place for the reconciliation and analysis of its grants and for making these classification decisions. Audit adjustments were required to properly record grant revenue with and without donor restrictions and net assets with and without donor restrictions. In addition, the Organization required assistance in reconciling grant programs to the Schedule of Expenditures of Federal Awards (SEFA) and identifying that all federal grant programs were included in the SEFA.
This is a repeat finding of 2023-001.
Cause
The Organization has experienced significant turnover in key personnel in the Organization’s finance department and management in past years. Absent robust accounting policies and procedures, when vacancies occur, information can be lost and as individuals are getting up to speed, some processes may not be fully executed if they are manual and not fully embedded into an automated system.
Effect
Due to turnover of key personnel, internal controls were either lacking or not designed properly and mitigating controls were not sufficient to effectively identity misstatements in grant revenue. Audit adjustments were required to properly record grant revenue with and without donor restrictions and net assets with and without donor restrictions.
Recommendation
We suggest that, in order to ensure understanding of and compliance with specific grant terms as well as consistency of reporting for all such grant agreements, the appropriate personnel review grant agreements on a timely basis and establish documented and consistent procedures pertaining to the appropriate accounting for all grants. We believe that this process will make accounting for and classifying of grants an easier and more routine task. Thus, this should also achieve more consistent accounting and financial statement presentation.
Views of Responsible Officials and Planned Corrective Action
Person responsible: Leona Smith Di Faustino, Interim Executive Director
Corrective Action Plan: In the year being audited (July 1, 2023-June 30, 2024), we have removed our Fiscal Audit Consultant and replaced that with a Director of Finance employee that has the skill, knowledge, and education for this matter to be resolved for subsequent audits. Also, moving forward each new grant contract will be discussed with our CPA firm for guidance on the proper application of the grant/contract as it relates to the proper classification of restricted and unrestricted funds.
Anticipated Implementation Date: July 1, 2024