Finding Text
Financial Statement Audit Finding:
Finding 2024-002 - Lack of appropriate controls over contribution classification and pledge
recording increases the risk of material misstatements in the financial statements.
Type of Finding: Material Weakness
Criteria:
Under generally accepted accounting principles (GAAP) for nonprofit organizations, contributions
should be classified and recorded based on donor restrictions as defined in ASC 958-605. Pledges
receivable must be recognized in the appropriate period when the unconditional promise to give is
made. Furthermore, Government Auditing Standards (GAGAS) emphasize the need for accurate
financial reporting and effective internal control systems over financial reporting to maintain
transparency and accountability in publicly funded entities.
Condition:
During the audit, we noted that the Organization restated its net asset balances as of June 30, 2023,
due to certain errors. Specifically, there was an understatement of pledges receivable and related
revenue, and errors in the classification of contributions with and without donor restrictions. The
restatement resulted in a decrease in net assets with donor restrictions of $128,368, an increase in
net assets without donor restrictions of $158,368, and an overall increase in change in net assets of
$30,000 for the year ended June 30, 2023.
Cause:
The errors appear to stem from deficiencies in the Organization’s internal controls over the
classification and recording of contributions and pledges receivable. The current system did not
consistently apply accounting policies for donor restrictions and recognition of pledges.
Effect:
The failure to properly classify contributions with time and/or purpose restrictions, or report promises
to give in the proper period, increases the risk of reporting contribution revenue in the wrong
accounting period and may affect the Organization's ability to comply with donor restrictions and
funding requirements.
Repeat Finding from Prior Year:
No Recommendation:
We recommend that management enhance internal controls over contribution accounting, particularly
regarding the classification of contributions with and without donor restrictions. This may include
additional training for accounting personnel, more robust review procedures, and improved
documentation for donor intent. The Organization should also consider implementing a periodic
review process of net asset classifications to detect and correct misstatements promptly.