NeighborWorks Housing Services of Pueblo, Inc.Non-Profit

Monthly Reconciliation and Closing Procedures Material Weakness Condition: Our audit procedures revealed that there is currently no process to ensure that monthly account reconciliation procedures take place. As a result, we proposed over 50 adjustments to the original trial balances. Criteria: Adequate internal control functions over the financial reporting process. Cause: Oversight by management. Effect: Opportunity for misappropriation of assets and that a misstatement of the Organization's financial statements will not be prevented, or detected and corrected, on a timely basis. Recommendation: We recommend that a detailed monthly checklist be developed to outline all necessary month-end closing procedures needed, including the individuals responsible for preparing and reviewing the items. As part of this checklist, each statement of financial position account should be accompanied by an account reconciliation which agrees to the general ledger. This will help improve internal controls over financial reporting. View of Responsible Official and Planned Corrective Action: Management agrees with the finding. See corrective action plan.

Lack of a Formal Process to Identify and Evaluate Loan Impairment Material Weakness Condition: The Organization does not have a regular process in place to identify and evaluate loans for impairment. As a result, an audit adjustment of $2 million was required to increase the allowance for uncollectible loans. Criteria: Adequate internal control functions over the financial reporting process. Cause: Oversight by management. Effect: The absence of a regular review process increases the risk of misstated financial statements and inadequate loan loss reserves. Recommendation: Recommendation: We recommend implementing a structured loan review process, including periodic assessments, documentation of impairment evaluations, and board oversight. View of Responsible Official and Planned Corrective Action: Management agrees with the finding. See corrective action plan.

Real Estate Held for Sale and Development Tracking Material Weakness Condition: Condition: The Organization does not reconcile its real estate held for sale to the general ledger. Criteria: Adequate internal control functions over the financial reporting process. Cause: Oversight by management. Effect: Misstatement of the Organization's financial statements will not be prevented, or detected and corrected, on a timely basis. Recommendation: We recommend that the Organization review detailed real estate listings and the supporting documentation from third parties on at least a quarterly basis and reconcile the listing to the general ledger, with any large discrepancies investigated. Additionally, we recommend that purchases and sales of real estate be tracked on an individual item basis to include the date of the purchase and/or sale. This will help ensure that real estate held for sale or development is accurately recorded in the financial statements. View of Responsible Official and Planned Corrective Action: Management agrees with the finding. See corrective action plan.

Separate Trial Balances Material Weakness Condition: During the course of the audit, it was noted that the Organization currently utilizes a single trial balance for both NeighborWorks and Southern Colorado Community Lending, which resulted in several adjustments to the general ledger in order to reconcile certain balances between entities. Effect: Inaccurate financial reporting that compromise the accuracy and transparency of financial reporting between the entities. Recommendation: We recommend separate trial balances for both parent and subsidiary and regular reconciliation of intercompany balances during month end procedures to improve internal controls over financial reporting. View of Responsible Official and Planned Corrective Action: Management agrees with the finding. See corrective action plan.

Lack of Separate Cash Accounts for Southern Colorado Community Lending Material Weakness Condition: The inability to automate intercompany transactions and the lack of monthly reconciliations of intercompany balances make it difficult to determine the correct year-end cash balance. Criteria: Adequate internal control functions over the financial reporting process. Cause: Oversight by management. Effect: Inaccurate financial reporting that compromise the accuracy and transparency of financial reporting between the entities. Recommendation: We recommend further separation of cash balances in SCCL, monthly reconciliations of intercompany balances, and timely settlement of intercompany balances. View of Responsible Official and Planned Corrective Action: Management agrees with the finding. See corrective action plan.

Due To/Due From Accounts Not Reconciled Timely Material Weakness Condition: Due to/due from accounts have not been reconciled or trued up for an extended period, making it difficult to determine the accuracy of the year-end balances. Criteria: Adequate internal control functions over the financial reporting process. Cause: Oversight by management. Effect: Inaccurate financial reporting that compromise the accuracy and transparency of financial reporting between the entities. Recommendation: We recommend implementing a formal reconciliation process, ensuring that due to/due from accounts are reviewed and adjusted at least on a quarterly basis. View of Responsible Official and Planned Corrective Action: Management agrees with the finding. See corrective action plan.

Restricted Grants and Contributions Material Weakness Condition: There is a lack of internal controls related to tracking of donor restrictions. Specifically, there was no formal process to track and manage restricted contributions with donor-imposed restrictions. Criteria: Adequate internal control functions over the financial reporting process. Cause: Oversight by management. Effect: Risk of non-compliance with accounting standards and the potential of misuse of donor funds. Recommendation: We recommend the Organization establish an internal process to accurately track, monitor and report donor restrictions to ensure compliance with accounting principles and transparency in financial reporting. View of Responsible Official and Planned Corrective Action: Management agrees with the finding. See corrective action plan.

Year-end Bank Reconciliations Material Weakness Condition: At the time of our audit test work, the year end bank reconciliations, prepared by the Director of Finance, included several large reconciling items and were not reviewed independent of preparation. Criteria: Adequate internal control functions over the financial reporting process. Cause: Oversight by management. Effect: Opportunity for misappropriation of assets, and possibility that a misstatement of the Organization's financial statements will not be prevented, or detected and corrected, on a timely basis. Recommendation: We recommend all bank reconciliations be reviewed and approved as part of month-end procedures to improve internal controls of accuracy and transparency of financial reporting. View of Responsible Official and Planned Corrective Action: Management agrees with the finding. See corrective action plan.