Finding Text
Finding 2022-001 Financial Close Process Type of Finding: Material Weakness in Internal Control over Financial Reporting Condition and Context: The auditors noted a lack of a strong financial close process which led to several material audit adjustments that were proposed during the audit and recorded by the client to properly reflect various financial statement accounts. Criteria: Management is responsible for adopting sound accounting policies and establishing and maintaining a system of internal control for the fair presentation of the basis financial statements in accordance with accounting principles generally accepted in the United States of America. Cause: Personnel responsible for the month-end close and financial statement reporting process lack the necessary skills, knowledge, and experience regarding the applicable requirements dictated under accounting principles generally accepted in the United States of America. Effect: The impact resulting from an inadequate financial close process has several profound effects. First, the deficiency compromises the reliability and integrity of financial statements, raising concerns about the accuracy of reported financial data and information. Second, the lack of an effective financial close process contributes to delays in the preparation and issuance of financial statements, impeding the organization's ability to provide financial statement users with timely information. Third, inaccurate financial reporting hinders effective resource allocation and budgeting, potentially leading to misguided financial decisions and mismanagement of funds. Finally, inadequate financial reporting processes could lead to non-compliance with federal reporting requirements and regulations. Questioned Costs: There were no questioned costs identified. Recommendation: We recommend that the Organization review their current financial statement close process paying special attention to all balance sheet reconciliations and general ledger review of expense transactions. Considering the amount of activity on a monthly basis we recommend reconciling balance sheet accounts on a monthly or quarterly basis. Views of Responsible Officials: The Organization?s Board and Executive Team consisting of the Chief Executive Officer (?CEO?) and the Chief Operating Officer (?COO?) recognize the existence of gaps in the financial accounting practices at the organization during the year ending 2022. A transition occurred between independent bookkeepers during the year causing these discrepancies. The Executive Team recognized the need to hire staff and put new policies and processes in place. The Organization began this process in October of 2022 with the hiring of a Finance Manager. Additionally, a transition occurred in the first quarter of 2023 to a new independent bookkeeper with strong training in nonprofit accounting. The Organization will adopt all GAAP nonprofit accounting practices in 2023. New processes have been adopted to reconcile the financial statements weekly. The Finance Manager and Bookkeeper meet weekly for additional oversight. Balance sheet accounts are reconciled monthly and presented to the COO and Board Treasurer.