Audit 396668

INTERNAL CONTROL OVER FINANCIAL REPORTING: REVENUE RECOGNITION- material weakness. Unreimbursed costs billable to certain grants should be recorded as a receivable in the period the costs were incurred (to match revenues and expense). Cash received from grantors in advance of costs incurred should be recognized as deferred revenue. Earned revenue, including fees for services, should be accrued when all performance obligations have been satisfied. Promises to give, including those for donor restricted purposes, should be recorded in the fiscal year when unconditionally promised, rather than recorded in deferred revenue. During fiscal 2024, the Agency reporting monthly financial results on a modified cash basis, converting to GAAP basis at year end. The cutoff of revenue and receivables was not complete and certain promises to give had been recorded to equity. There were material audit adjustments to revenue, net assets, and receivables. IGAAP revenue recognition policies and procedures (by revenue stream have not yet been formally documented and requisite training held. Personnel who process and/or record billings and cash receipts should be trained and understand GAAP revenue recognition criteria, as well as controls over revenue cutoff to ensure completeness of revenues and support. The revenue recognition criteria vary according to the revenue stream (contracts with customers versus gifts and contributions; donated goods versus donated services,etc.). Those policies should include the following: Donor promises to give, including those for donor restricted purposes, should be recorded as revenue when unconditionally promised. Conditional promises to give should be tracked and disclosed in the notes to the financial statements. etc.). Unreimbursed costs billable to grants and contracts should be recorded as a receivable in the period the costs were incurred (to match revenues and expense). Cash received from grantors in advance of costs incurred should be recognized as deferred revenue. Earned revenue, including fees for services, should be accrued when respective performance obligations have been satisfied. A revenue docket is often helpful to document consideration of performance obligations and when those obligations were satisfied prior to contract revenue recognition (ASC 606). Donated goods and services, should be tracked via timesheets and logs, respectively, and recorded at estimated fair value when received according to GAAP recognition criteria and by grant activity.

INTERNAL CONTROL OVER COMPLIANCE: WRITTEN COMPLIANCE POLICIES AND PROCEDURES -- significant deficiency. Written compliance policies and procedures are required by the Uniform Guidance.While certain compliance requirements have been formally documented, Innovative Health Solutions has not documented all required compliance policies and procedures.Without adequate compliance policies and procedures, there is risk that the system of internal control over compliance may not identify related errors, fraud, or abuse. This is the second audit undergone by Innovative Health Solutions (the first audit was completed in fiscal 2024, when this recommendation was first made).Innovative Health Solutions should identify all required Uniform compliance requirements under each grant and ensure that written policies and procedures exist, including key internal controls over compliance. Job descriptions should be updated accordingly

DELINQUENT FILING OF SINGLE AUDIT REPORTS – significant deficiency. Uniform Guidance requires audit reports be filed within the earlier of 30 days after receipt of audit report or nine months after the end of the audit period. Innovative Health Solutions is not in compliance with such filing requirement in the current year. Funders may delay future grant reimbursement or discontinue contracts. The fiscal 2023 audit report is the Agency’s first audit under both U.S. generally accepted auditing standards and under the Uniform Guidance. After it was understood that the Federal expenditure threshold for a Single Audit had been exceeded, the Agency began preparing for its initial audit, which included converting its financial statements from a cash basis to an accrual basis and contracting with a new outside public accounting firm to perform the audit. We recommend that the Agency audit begin earlier in the year to ensure compliance with the deadline.

SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS – significant dificiency. The books and records support the preparation of the Schedule of Expenditures of Federal Awards. A separate income statement is maintained for each cost reimbursement Federal award; however, contract expenditures require significant reconciliation in order to determine the expenditures required to be disclosed in the SEFA. Reconciliation of the respective income statements for each Federal award is required for SEFA disclosure, with unreconciled differences. The income statements should include full GAAP accounting including prepaid expenses, accrued expenses, unbilled receivables, additional indirect costs, program income, and other differences. The surplus and deficit should be nearly zero for each cost reimbursement contract. It is a best practice to utilize a grand bridging report monthly (based on the contract income statements) to understand any differences between contract revenues and expenses (for cost reimbursement contracts) as well as progress against grant budgets. Expenditures of federal awards should agree to each contract income statement.