WELLSPRING LIVING, INC.Non-Profit

Significant Deficiency: 2021-001 ? Accounting for Grant Revenue Criteria: An auditee must account for their grant revenue in accordance with U.S. GAAP which requires that revenue be recognized as the associated conditions are met at the amount that is expected to be realized. Condition: The controls in place were not adequate to ensure that grant revenue and associated accounts receivable recognized in the financial statements were in existence and accurately recorded. Cause: Although the Organization has processes in place to prepare monthly subgrant expenditure reports, the significant increase in federal funding, as well as employee attrition at the Organization caused an increase in complexity with accounting for the Organization?s revenue and reconciliation of their accounts receivable aging subledger. Effect: Revenue was not properly recognized by the Organization prior to recording adjusting journal entries proposed by the auditor. Recommendation: The Organization should obtain the appropriate training regarding funding requirements and continue to improve processes and controls related to grant accounting. The grants department should work with grantors and pass-through entities to ensure that revenue being recorded represents the amounts expected to be reimbursed. Additionally, the Organization should, at least on a quarterly basis, inspect their accounts receivable aging for old or unusual items that did not reconcile to the amount of cash received from the grantor to determine that amounts listed in their accounts receivable aging exist, are accurately recorded and that no allowance or reserve on these amounts are necessary. Views of Responsible Officials and Planned Corrective Actions: Information sharing and internal training regarding SEFA preparation remained difficult as the pandemic continued into a second year, and the Organization continued to follow CDC recommendations for remote work and safety protocols. The organization also experienced turnover in several positions that were directly involved in grant reporting and oversight of reporting procedures. The Organization is further defining detailed narratives for procedures to identify, track and report expenditures of federal awards for presentation in the SEFA, as well as revenue recognition within the accounting software for financial statements. Further, cross-training within the Organization will be conducted for both grant reporting, revenue recording and data tracking to improve the quality of information reported and ensure that complete and accurate information is presented in the SEFA.

Criteria: An auditee must prepare appropriate financial statements, including the schedules of expenditures of federal awards (?SEFA?). The SEFA should be for the period covered by the auditee?s financial statements, which must include the total federal awards expended. Condition: The controls in place were not adequate to ensure the SEFA was complete and accurate. Cause: Although the Organization has processes in place to prepare monthly subgrant expenditure reports, the significant increase in federal funding and the fact that this was the first single audit required for the Organization did not allow for the SEFA to be completed accurately. The significant increase in grant revenue and federal funding caused an increase in complexity with preparing the SEFA due to a lack of up-front guidance from awarding agencies and a lack of internal experience in preparing the SEFA. Effect: The SEFA was not complete or accurately prepared. Without proper processes and controls to determine the completeness and accuracy of the SEFA, the Organization risks noncompliance with federal requirements and, potentially, the loss of funding. Recommendation: The Organization should obtain the appropriate training regarding funding requirements and continue to improve processes and controls related to new grants obtained. The grants department should work with grantors and pass-through entities to ensure the SEFA is complete and accurate.