Finding Text
2022-001 Audit Adjustments and Oversight of the Financial Reporting Process Material Weaknesses Criteria ? Nonprofit organizations are required to prepare financial statements in accordance with generally accepted accounting principles (GAAP). Management is responsible for establishing and maintaining internal controls, including monitoring, for the fair presentation in the consolidated financial statements including the notes to consolidated financial statements, in conformity with accounting principles generally accepted in the United States of America. Condition ? During the audit for the year ended June 30, 2022, 5 audit adjustments were made that, in the aggregate, were material to the financial statements. The entries were to correct the recording the House of Charities beginning of year balances. Net assets were adjusted by approximately $800,000. Management reviewed, approved, and accepted responsibility for the audit adjustments before the financial statements were issued. The need for us to record significant audit adjustments indicates a break down in the internal controls related to preparing the Agate?s financial statements which we consider a material weakness because a misstatement of financial statements could occur and not be prevented or detected. Cause ? Turnover in the Finance Director position and increased complexity of accounting due to merging with another nonprofit organization contributed to the misstatements. Effect ? A material misstatement of the financial statements could occur and not be prevented or detected. Recommendation ? We recommend management develop and implement a financial statement review and approval process to ensure that necessary adjustments and reconciliations are performed for the consolidated financial statements. Auditee's comments and response ? Agate hired a new Finance Director during the year who was learning the intricacies of the Organization through year-end. During this she discovered that the entries from the merger were missing but did not have all the necessary information to adjust the financials. By the end of the audit, she had a thorough understanding of the Organization and is aware of what adjustments need to be made going forward. Responsible party for corrective action: Laura Straw, Finance Director Repeat Finding: No