12 & 12 INCNon-Profit

Finding No. 2020-001 ? Internal Controls over Financial Close Significant Deficiency Criteria: The financial close impacts on normal period close activities, processes, review, and approval cycles ? including the synthesis and sharing of supporting documentation are critical to the production and review of fairly presented financial statements. Condition: Organizations are reacting to the impact the coronavirus 2019 (COVID-19) pandemic has had on their people and operations. As organizations enact crisis management and recovery plans ?with a focus on ensuring the safety of their people and assets?businesses are reorganizing their resources to mission critical areas in an effort to maintain business operations. Many organizations are accustomed to in-office processing of financial close activities, live discussions and review sessions, and ease of access to data that may not be as readily available as organizations transition to remote work. During the audit, we noted the an exception to the Organization?s normal processes, an error in a year end journal entry for accrued payroll was undetected at the time the trial balance was provided at the time of audit fieldwork. Cause: We believe this exception is due to the resulting changes in the timing of activities and procedures. A variance was identified by the finance committee during a review of year end financials, but due to delayed timing in review the exception was not corrected by management prior to the audit. Effect: The financial close impacts on normal period close activities, processes, review, and approval cycles ? including the synthesis and sharing of supporting documentation are critical to the production and review of fairly presented financial statements. An adjustment was necessary to properly report liability. Recommendation: We recommend continuing to develop and improve processes related to a virtual close, including enhancing existing meeting procedures to take into account reviews occurring remotely, and refining processes to resolve questions raised during reviews. As your close process changes, your controls during close, and final reporting may be modified as well. Additional due diligence over changing control environments may also be required. Management Response: See corrective action plan on page 40.

Criteria: 2 CFR 200.302(b)(1) states that a nonfederal entity (auditee) must identify in its accounts all federal awards received and expended, as well as the federal programs under which they were received. Federal program and award identification must include, as applicable, the CFDA title and number, the federal award identification number and year, the name of the federal agency, and the name of the pass-through entity, if any. This information enables the auditee to reconcile amounts presented in the financial statements to related amounts in the schedule of expenditures of federal awards. Condition: During the performance of auditing procedures on the Schedule of Expenditures of Federal and State Awards (SEFA), we noted that some CFDA titles and numbers did not agree to grant awards documents. Corrections were proposed, accepted by the auditee, and made to the SEFA presented in this report. Cause: 12 & 12, Inc. (12 & 12) did not have a proper system of internal controls in place to prevent or to detect and correct errors on the SEFA. Effect: 12 & 12 should have proper controls in place over the preparation of the SEFA to ensure accurate reporting of federal and state awards. Without a proper system of internal controls in place that operates effectively, material misstatements of the SEFA could remain undetected. Recommendation: We recommend that 12 & 12 establish policies and procedures to ensure that internal controls are in effect which provide reasonable assurance regarding the reliability of information reported so that federal and state funds are identified and reported accurately on the SEFA in accordance with Uniform Guidance requirements. Management Response: See corrective action plan on page 43 on report.

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