MICHIGAN FEDERATED CHAPTERS OF THE COUNCIL FOR EXCEPTIONAL CHILDRENNon-Profit

Criteria ? Management is responsible for ensuring the accounting records reconcile to supporting documentation and the records also comply with U.S. generally accepted accounting principles (GAAP) requirements prior to the start of the audit. Condition ? Material audit adjustments were required in order for the accounting records, and thus the Organization?s financial statements, to not be materially misstated. Context ? The day to day activity was recorded in the accounting software and the cash accounts were reconciled timely. However, adjustments were necessary for receivables and investments to be record accurately on an accrual basis. Cause ? Management was recording grant activity on a cash basis as funds were received and investments were reconciled to the wrong sub-total on the investment statement. Effect ? Journal entries to adjust receivables and investments were required to be prepared and recorded as part of the audit process. Recommendation ? The Organization should implement procedures to ensure all necessary journal entries to comply with U.S. GAAP reporting are prepared and recorded prior to the start of the audit.

Criteria ? The Organization is responsible for the preparation and / or identification of errors and omissions in financial statements to ensure they are prepared in accordance with U.S. GAAP. Condition ? The Organization is relying its independent external auditor to assist with the financial statements and related note preparation in accordance with U.S. GAAP. Context ? Basic financial statements are being prepared timely by management; however, a majority of the related notes were not complete. Cause ? Management has historically not been required to provide financial statements in accordance with U.S. GAAP. Effect ? The Organization did not have all the necessary related notes to the financial statements. Recommendation ? The Organization should identify someone within their governance or contract with an external firm to prepare U.S. GAAP basis financial statements.

Criteria ? The Organization is responsible for complete and accurate reporting of balances and activities for all divisions (funds) that are required to be combined into the Organization?s financial statements. Condition ? The Organization has a decentralized method of accounting in which various divisions maintain their own accounting records. These divisions have the authority to approve disbursements and enter into commitments. Context ? The divisions have a liaison assigned to communicate activity to the Board of Directors on a regular basis, but the financial monitoring is limited and inconsistent. Cause ? Due to the decentralized nature of the division?s accounting and inconsistent board reporting by the divisions, complete and accurate combined financial statement was not readily available. Effect ? The Organization was unable to readily provide complete financial statements, including any eliminating journal entries between the various accounting records. Recommendation ? The Organization should centralize their accounting by providing access to appropriate individuals to the accounting software and to increase the frequency of financial reporting by the divisions to the Board of Directors. An alternative recommendation would be the divisions form their own legal entity with their own tax-exempt status.