Everett Recovery CafeNon-Profit

Criteria: Management is responsible for the design, implementation and maintenance of internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Condition and Content: Management has not implemented a complete system of internal controls that helps prevent material misstatements from being prevented or detected and identified. During our audit, we identified certain material misstatements such as errors in grant expense accruals, property and equipment, deferred revenues and leases, as well as a lack of segregation of duties around cash. Cause: Controls were not adequately designed. Repeat Finding: N/A Recommendation: We recommend the Organization complete a robust review of the entity’s financial statements and internal control environment to ensure that key controls are properly designed to support the preparation of timely and accurate financial statements including consideration of the skills, knowledge and expertise and time needed to prepare financial statements in conformity with U.S. GAAP. Management should timely post accounting entries and reconcile accounts to ensure financial statements are accurate. Management should also implement a month-end close process to ensure all required journal entries are posted and reviewed, and financial statements are prepared and reviewed. Further, we recommend management review segregation of duties around cash, payroll, bank and balance sheet reconciliations. Management’s Response: Management agrees with the finding. Management plans to complete a review of resources assigned to accounting and finance departments as well as identify and implement sufficient internal controls over financial reporting.

Federal Agency: Department of Health and Human Services Federal Assistance Listing Number: 93.959 Program: Block Grants for Prevention and Treatment of Substance Abuse Program Award/Pass-Through Entity Identifying Numbers: Washington State Health Care Authority Criteria: The grant agreement requires that the Organization comply with period of performance as a direct and material compliance requirement. The Organization should have a system of internal control designed and operating to ensure that requirements related to performance of performance and cutoff are achieved. Condition and Content: Due to lack of internal controls over financial reporting, the Organization did not properly record all grant expenses in the proper periods, resulting in a compliance finding related to the period of performance direct and material compliance requirement. Questioned Costs: None. Cause: The Organization does not have internal controls in place to ensure proper cutoff such that expenditures are always recorded in the proper period. Repeat Finding: N/A Effect: Expenditures could be submitted for federal awards during the wrong contract period. Recommendation: We recommend the Organization complete a review of the entity’s financial statements and internal control environment to ensure that key controls are properly designed to support the preparation of timely and accurate financial statements including consideration of transactions dates to ensure expenditures are properly reported in the correct period and accrued for if necessary. Management’s Response: Management agrees with the finding. Management plans to complete a review of resources assigned to accounting and finance departments as well as identify and implement sufficient internal controls over expenditures cutoff to ensure compliance with the period of performance compliance requirement.