Willow Oak Montessori Foundation, Inc.

Condition & Criteria: In accordance with the promissory notes, Letters of Conditions and Loan Resolution Documents, the Foundation is required to make monthly deposits into a reserve account. One of the monthly deposits was not made and the account balance fell short of the requirement at year end. Cause: Lack of oversight on timing of monthly deposit resulting in deposit being made late. Effect: Noncompliance with executed loan documents. Auditor’s Recommendation: We recommend monitoring of the compliance requirements throughout the year and as part of the financial statement close process including reconciliation of all reserve accounts to ensure all have required amounts. In addition, we recommend and noted the Foundation has deposited the required amount into the account subsequent to year end. Views of Responsible Officials and Planned Corrective Actions: The Foundation remedied the deficiency by depositing the required amount into the account and has an ongoing autopay set up to ensure the monthly amounts are deposited. In addition, the Foundation will reconcile the accounts regularly to ensure the requirement for the account is met.

Condition & Criteria: Significant misstatements were noted during the audit. Effective internal controls include the Foundation?s controls over the financial close process. Cause: The internal control structure of the Foundation has focused primarily on the objective of effectiveness and efficiency of operations. Effect: Significant misstatements were detected, including prior period adjustments, resulting in a material weakness. Auditor's recommendation: While this is not unusual for organizations of similar size, the Foundation should assess the adequacy of the design of its policies and procedures related to the financial close process and design appropriate controls as necessary. Views of responsible officials and planned corrective actions: The current year presented some challenges with non-routine transactions. At the end of the fiscal year, the Foundation hired an outsourced accountant to assist and improve controls. We have and will continue to improve our controls over the year-end financial close process.

Condition & Criteria: As with many smaller organizations, the Foundation?s limited number of staff prevents separation of functions necessary to achieve ideal segregation of duties which normally contributes to a more effective system of internal control over financial reporting. We noted that one employee handles a majority of the day-to-day operations, such as receiving the mail, making deposits, receiving invoices, and preparing checks, which could result in potential abuse. That same employee reviews the bank reconciliations, can print checks, and is also listed as an authorized check signer. Cause: Limited staff and resources were available to provide adequate segregation of duties. Effect: material weakness in internal controls. Auditor's recommendation: We understand that the Foundation has hired an outsourced accountant who has taken on certain duties such as preparation of bank reconciliations. We recommend that the Foundation continue to explore further segregation of duties with the outsourced accountant or other administrative staff, such as opening and logging the mail or shifting check signing authority. We also recommend the Foundation continue to rely on the mitigating controls of the close oversight by the Board of Directors and to evaluate the oversight on a consistent basis. Views of responsible officials and planned corrective actions: The head of the school personally approves invoices and payments. As noted above, we hired an outsourced accountant near the end of the year, who only processes invoices if they are approved. Additionally, the school plans to implement a purchasing system in the next year that features an approval workflow for purchase orders. We will continue to review our processes to determine where duties can be segregated amongst existing staff, and the board will continue to provide close oversight of the Organization and evaluate that oversight on a consistent basis.

Condition & Criteria: In accordance with the Promissory Notes, Letters of Conditions and Loan Resolution Documents, the Foundation was to establish accounts into which the current funds of the Foundation, note proceeds, revenues from operations and any other income should be deposited. The accounts are to be maintained as long as the authorized indebtedness to the USDA is outstanding. In accordance with the Foundation?s loan resolutions, included in the required accounts are a general account, a debt service account and a reserve account. Further, the Foundation was to establish a separate capital replacement reserve of $50,000. While the Foundation has established a separate account from the general account, it includes the commingled funds of both the reserve and debt service payments. Further, the Foundation did not set up the additional required capital replacement reserve of $50,000. Cause: Lack of complete understanding and follow through on the promissory notes, letters of conditions and loan resolution requirements. Effect: noncompliance with executed loan documents. Auditor's recommendation: We recommend careful review of loan resolutions and related agreements in the future to ensure all requirements have been met. We recommend that the Foundation properly set up their capital replacement reserve amount and separate their reserve and debt service account and/or clarify that commingling the funds is appropriate/acceptable by the USDA. Views of responsible officials and planned corrective actions. Management agrees with auditor's recommendations.

Condition & Criteria: The Uniform Guidance requires nonfederal entities to have written policies and procedures and standards of conduct in accordance with 2 CFR 200, Subparts D and E as a part of a system of internal control, relating to federal awards. We noted that the Foundation does not have formal approved policies and procedures. Operations only policies have been drafted, but not yet formally approved as of the audit. Cause: Federal award program is new, and the Foundation has not yet executed and approved formal written policies and procedures. Effect: Noncompliance with Uniform Guidance. Auditor's recommendation: We recommend that the Foundation complete and approve the written policies that have been started. The Foundation should ensure that these include specific policies required under the Uniform Guidance and USDA program, as well as general finance and accounting policies, including a formal capitalization policy. Written procedures, instructions, and assignments of duties will prevent or reduce misunderstandings, errors, inefficient or wasted effort, duplicated or omitted procedures, lack of compliance with federal award program, and other situations that can result in inaccurate or untimely accounting records. A well-devised accounting manual can also help to ensure that all similar transactions are treated consistently, that accounting principles used are proper, and that records are produced in the form desired by management. Views of responsible officials and planned corrective actions: Management agrees with auditor's recommendation.