Audit 395510

Criteria: Management is responsible for the preparation and fair presentation of the financial statements in accordance with U.S. generally accepted accounting principles (GAAP), including the proper timing of revenue recognition for costreimbursement grants in accordance with Accounting Standards Codification (ASC) 958. In addition, 2 CFR 200.303 – Internal Controls requires nonfederal entities to establish and maintain effective internal control over financial reporting and compliance to provide reasonable assurance that transactions are recorded in the proper accounting period. Further, 2 CFR 200.510(b) requires the auditee to prepare a Schedule of Expenditures of Federal Awards (SEFA) that accurately reflects federal expenditures for the fiscal year. Condition: During the audit, it was identified that cash received from federal granting agencies under cost-reimbursement grants prior to year-end were appropriately recorded as refundable advances; however, reimbursable expenditures incurred prior to year-end were not fully recognized as contribution revenue and federal expenditures in the appropriate fiscal year. As a result, audit adjustments were required to recognize contribution revenue and federal expenditures related to costs incurred prior to year-end and to update the SEFA to reflect the corrected expenditures. The updated SEFA resulted in an additional federal program being identified as a major program subject to audit. Cause: Internal controls were not sufficiently designed to ensure that reimbursement requests submitted to federal granting agencies were evaluated and incorporated into the revenue recognition and SEFA preparation process. Specifically, while cash received in advance was properly recorded as refundable advances, management did not have a control in place to identify reimbursable expenditures incurred prior to year-end and convert refundable advances to contribution revenue and federal expenditures in the appropriate fiscal period. Effect: Failure to recognize reimbursable grant revenue and federal expenditures in the proper fiscal year resulted in the understatement of contribution revenue and federal expenditures, including amounts reported on the SEFA, prior to audit adjustments. This condition affected the determination of major programs and increased the risk that federal awards may not be accurately reported for audit purposes. Questioned Costs: None. Recommendation: We recommend that management strengthen internal controls over cost-reimbursement grant accounting by implementing procedures to ensure that reimbursable expenditures are identified, reviewed, and recorded in the appropriate fiscal year. This should include reconciliation of reimbursement requests, refundable advances, recorded revenue, and amounts reported on the SEFA, along with documented supervisory review of year-end cutoff procedures. Views of Responsible Officials: Management acknowledges the above finding and will continue to enhance its year-end grant review and reconciliation procedures. During the year ended June 30, 2025, management implemented enhanced grant accounting practices, including engaging an outsourced accounting firm. Management also clarified roles and responsibilities related to federal reporting requirements and implemented additional oversight and training. Management remains committed to the ongoing improvement of internal controls over federal grant reporting and compliance.