CENTER FOR POSITIVE CHANGES

Finding 2021-1 Accurate and Timely Financial Reporting The Board of Directors of a nonprofit organization has legal responsibility for the organization?s work. The board is responsible for short- and long-term planning, and they must ensure that systems are in place for administering the effectively using resources and guarding against misuse. In order to fulfill their responsibilities, board members must be able to rely on financial information that is ? Accurate: Information must be reliable and accurate. Resolve any questions about the quality of recordkeeping or accounting first. ? Timely: Information should be available to the board within 2 or 3 months at the latest. ? In context: Information should be presented in relationship to the history, goals, and programs of the organization. ? Appropriate: No one size fits all financial report exists. Reports must be designed to communicate information specific to the organization?s current circumstances in a format that matches the knowledge level and role of board members. Financial reports should be on the agenda at every board meeting. The board should regularly review the Organization?s: ? Income statement showing income and expenses for the period compared to budget. ? Balance sheet showing assets and liabilities. ? Budget, which should be based on programmatic plans and should be approved annually by the board before the start of the fiscal year. In addition, the Organization has the following reporting responsibilities: ? The California Department of Social Services requires an annual audit report to within the earlier of 30 days after receipt of the audit report or nine months after the Organization?s fiscal year. ? If the Organization expends $700,000 or more in federal funding, it is required to submit its annual audit to the Single Audit Clearing House by nine months after the Organization?s fiscal year. ? IRS 990 information returns are due five and half months after year-end, without extensions. Finding 2021-1- Accurate and Timely Financial Reporting (Continued) Condition During our audit of the Center for Positive Changes (Organization), we noted that the Organization has systems in place to invoice for services and ensure that expenses are properly authorized and supported. However, during 2021 year these transactions were not being captured, recorded, and reconciled within the accounting system on a timely basis. The lack of an accurate and timely reporting system has resulted in the Organization not providing the Board of Directors financial statements needed for them to make sound financial decisions as well as complying with: ? The California Department of Social Services and Single Audit annual audit reporting requirements. ? Timely filing of federal form 990 and California form 199 tax-exempt information returns. Actions Taken or Planned: In response to Auditors Findings as documented in the Schedule of Findings and Question Cost year ended December 31, 2021, on page 23 of 29, paragraph 1 entitled 2021-1 Accurate and Timely Financial Reporting and Recommendation, we the client respond as follows: We agree with the finding and analysis as documented in the report. Prior to retaining the said auditor, we hired Supporting Strategies, a third-party professional firm, to ensure that transactions are captured, recorded, and reconciled within the accounting system on a timely basis. This ensures that financial statements are prepared and presented to the board no later than 10 days after the month for which the income and expenses have been recorded. There has been a change in the accounting department within Center for Positive Changes. The Accounting Director is no longer with the agency. We have hired a Accounts Payable and Accounts Receivable Specialist, who has a degree in accounting and working knowledge of The Quick Books Accounting Program. The Accounts Payable and Accounts Receivable Specialist works with Supporting Strategies to ensure Center for Positive Changes is complying with these changes and has addressed the auditors concerns and ensures we will remain in compliance.

2020-001

Finding 2020-1 - Accurate and Timely Financial Reporting Criteria The board of directors of a nonprofit organization has legal responsibility for the organization?s work. The board is responsible for short and long-term planning, and they must ensure that systems are in place for administering and effectively using resources and guarding against misuse. In order to fulfill their responsibilities, board members must be able to rely on financial information that is ? Accurate: Information must be reliable and accurate. Resolve any questions about the quality of recordkeeping or accounting first. ? Timely: Information should be available to the board within 2 or 3 months at the latest. ? In context: Information should be presented in relationship to the history, goals, and programs of the organization. ? Appropriate: No one-size-fits-all financial report exists. Reports must be designed to communicate information specific to the organization?s current circumstances in a format that matches the knowledge level and role of board members. Financial reports should be on the agenda at every board meeting. The board should regularly review the Organization?s: ? Income statement showing income and expenses for the period compared to budget; ? Balance sheet showing assets and liabilities; ? Budget, which should be based on programmatic plans and should be approved annually by the board before the start of the fiscal year. In addition, the Organization has the following reporting responsibilities: ? The California Department of Social Services requires an annual audit report to within the earlier of 30 days after receipt of the audit report or nine months after the Organization's fiscal year ? If the Organization expends $700,000 or more in federal funding, it is required to submit its annual audit to the Single Audit Clearing House by nine months after the Organization's fiscal year ? IRS 990 information returns are due five and half months after year-end, without extensions. Finding 2020-1 - Accurate and Timely Financial Reports (Continued) Condition In the time, we have been involved with Center for Positive Changes (Organization), there have been substantial improvement in the Organization?s ability to invoice for services, capture expenses associated with the Organization?s operations and assure that the expenses are properly authorized, supported and recorded within the accounting system. However, although the information has been captured and recorded within the accounting system, the board of directors is not being provided regular financial statements for review. If they had, they would not have been accurate and valuable, as demonstrated below: During our audit, we made a significant number of adjustments to the financial statement to achieve accuracy. It is the auditor's responsibility to audit the financial statements and not correct them. Our adjustments resulted in a decrease in net income by $36,000. The Organization operates seven homes, with each home having unique operating challenges. For the board to make a sound financial decision about each home and the Organization, they need to know how each home is performing. During our audit, to correctly report the cost of operating each home, we had to assist with reallocate direct salaries and wages and allocate related employer payroll taxes and employee benefits. The lack of an accurate and timely reporting system has also resulted in the Organization not complying with: ? The California Department of Social Services and Single Audit annual audit reporting requirements. ? Timely filing of federal form 990 and California form 199 tax-exempt information returns. Actions Taken or Planned: In Response to Auditors Findings as documented in the Schedule of Findings and Question Cost year Ended December 31, 2020 on page 25 of 35, paragraph 1 entitled 2020-1 Accurate and Timely Financial Reports and Recommendation, we the client respond as follows: We agree with the finding and analysis as documented in the report. Prior to retaining said auditor, we hired Sara Lynch and accountant of accounting solutions, a third-party professional firm to ensure that all payroll and employee benefit costs for each home are captured, allocated and recorded according to the exact time worked at each home and to ensure that financial statements are prepared and presented to the board no later than 10 days after the month for which the income and expenses have been recorded. We further acknowledge that due to staffing shortages, to include staff suffering from physical challenges resulting from long term covid, that we fell behind and had a truly difficult time catching up and found that the only way to ensure 100% compliance, which we were committed to doing, was by not only hiring a third party accounting professional to perform as stated above, but to increase the staffing in the accounting department by one individual who not only has a degree in accounting, but a working knowledge of The Quick Books Accounting Program and 5 years minimum experience in cost allocation, payroll processing and bank reconciliation. We believe that this will address the auditors concerns as stated above and will ensure that we are not only compliant to date, but that we will remain complaint. Finding 2020-1 - Accurate and Timely Financial Reporting Actions Taken or Planned: In 2021, while engaged in the covid staffing challenges, we made a decision to change payroll service providers from paychex to paycom and to go from Quick Books Desk top to Quick books online. We did this to streamline the onboarding process, to include new hire orientation, benefit registration, payroll data set up, as well as all other things employee services related and to ensure that proper access to our accounting files was given to our professional accounting firm that we retained. The conversion has presented many challenges, especially in the areas of payroll allocation, which ultimately had to be completed manually because paycoms ability to produce an iff file for upload was mis-represented by its sales and marketing team, which ultimately didn?t matter because Quick books on line doesn?t allow you to import one. Also when we transitioning from Quick books desk top to quick books on line we noticed that portions of our chart of accounts, reconciled revenue and bank reconciliations didn?t transfer. We performed an extensive internal quality control audit, which ended in us manually recording transactions that had been previously recorded, which caused our income to be overstated by $36,000.00 as documented by the audit. We were forced to change our strategy mid-stream, which caused us to be extremely late in our financial reporting. We believe that the structural changes that we have made coupled with retaining external and internal professional help, will mitigate any and all of the challenges that we have had with the accuracy and timeliness of financial reporting.