Neighborhood Housing Services of BaltimoreNon-Profit

Criteria: The accounting department should have a standardized month end close process in order to ensure that the accounting records and reports are complete. This close process should be completed within one month, each month, so that management and programmatic staff are making decisions based on accurate and timely data. Condition: During 2021, there was not a standardized month end close In place and closing procedures were not performed timely. As a result, there were delays in account reconciliations, and in some cases (such as due to/due from accounts between funds) there was no reconciliation performed. There were multiple instances of inaccurate and negative liability account balances resulting from non-GAAP treatment of revenue transactions. Cause: The accounting department was overwhelmed by the impacts of COVID-related remote work and the additional time it required and was unable to correct this issue during the year ended August 31, 2021. Effect: Financial reports provided during the year included incomplete and sometimes inaccurate information. The audit process was delayed several times, resulting in a funder deadline being missed, due to incomplete information provided to the auditor. Recommendation: We recommend that the Organization analyze its accounting function and determine if it has sufficient resources in place to complete a timely month end close process. Given its goals of expanded operations, it is important to resolve these issues correctly to ensure management is receiving the information it needs to make decisions and to monitor operations for effectiveness and efficiency. Ideally this process should include a standardized checklist which is reviewed and approved by a member of management outside the accounting function to ensure it is being completed on a monthly basis. Views of Responsible Officials and Planned Corrective Actions: We are aware of the timeliness issue and agree with the finding. Subsequent to the audit fieldwork beginning, the CFO resigned and the Organization is currently hiring new leadership for the accounting department. The organization is also developing a formal month end close process including a checklist of activities. The completed checklist will be provided to the Executive Director each month along with the monthly financial statements for review.

Criteria: The Organization has developed policies related to disbursements, including approvals by non-finance personnel for any non-recurring/non-standard transactions and rules related to expense coding and capitalization. Condition: Our disbursement sample indicated multiple instances in which internal policies related to approval, coding, and capitalization were not followed. In some instances, this resulted in incorrect classification of charges. Cause: Approvals of expenses were difficult to obtain in the remote environment established in 2021 in response to COVID-19. Criteria for coding expenses was not disseminated throughout the finance team and accordingly, certain transactions were recorded inappropriately. Effect: Incorrectly categorized expenses result in inaccurate financial reports, which are then used to make business decisions. Expenses which are not properly authorized put the Organization at greater risk of asset misappropriating, and risk expending grant dollars for disallowed purposes. Context: 60 transactions were selected across all disbursements made during the year ended August 31, 2021. Authorization could not be found for 4 transactions. Coding was incorrect on 5 transactions, including 1 which should have been capitalized, 1 posted to a revenue account, and 2 which were posted to the wrong project in the system. None of the charges were unallowable under the relevant grant agreements. Recommendation: The Organization should provide training to accounting staff and program and management staff responsible for approving and coding transactions to ensure all relevant personnel understand what is expected of their role in the process. The Organization should consider altering its process for disbursements to include more detailed review of coding by higher level accounting personnel. The Organization should consider leveraging technology to build an approval process which is less dependent on individuals being at a physical office location to review and approve disbursement documentation. Views of Responsible Officials and Planned Corrective Actions: We are aware of the internal control issue and agree with the finding. Subsequent to the audit fieldwork beginning, the CFO resigned and the Organization is currently hiring new leadership for the accounting department. This new management team member will be responsible to implement a new process resulting in greater assurance on the coding and approval process. Extensive internal training for all staff involved in the disbursement approval process will be provided.