Finding Text
2023-001 Audit Adjustments and Oversight of the Financial Reporting Process
Material Weakness
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, 2023, 12 audit adjustments were made that, in the aggregate, were material to the financial statements. The entries mostly were to correct errors that occurred in the accounting system transition which occurred in early 2023. 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 Organization’s financial statements. We consider this to be a material weakness because a misstatement of financial statements could occur and not be prevented or detected.
Cause – Changes in the accounting systems along with several temporary employees and the change in HR director resulted in some unusual adjustments during the year that were not recorded correctly and not identified before the audit began.
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. This process should include reconciling significant statement of financial position line items to supporting schedules each month, such as bank reconciliations, receivable aging’s, depreciation schedules, etc.
Auditee's comments and response – Management agrees with the finding. Management developed and implemented a new financial review process as of February 1, 2024.
Responsible party for corrective action: Laura Straw, Finance Director
Repeat Finding: Yes, 2022-001