Audit 400496

Section II – Financial Statement Findings - Finding #2024-001 - Material Weakness Criteria and Condition: Management is responsible for establishing and maintaining an effective system of internal control which includes financial reporting policies and procedures sufficient to prepare financial statements in accordance with generally accepted accounting principles (GAAP). Without an effective system of controls, errors in financial reporting or misappropriations of assets could occur and not be identified and corrected in a timely manner. Adjustments to capital assets of $374,637, prepaid deposits of $115,317 and refundable advances of $626,421 were required to properly state financial statements in accordance with GAAP. The current year change in net assets was adjusted by approximately $(136,467) as a result of the adjustments. Cause: Virgin Islands Diabetes Center of Excellence Inc.’s policies and procedures were not sufficient to ensure that capital assets and prepaid deposits were properly recorded. Also, government grant revenue received in advance were recognized as revenue ahead of allowable costs being incurred in accordance with grant provisions. Effect: Assets and prepayments were expensed rather than capitalized and amortized during the period. This resulted in the overstatement of expenses and understatement of assets and net assets in the affected period. Also, the timing of revenue recognition was improper, causing government grant revenue to be recognized before allowable costs were incurred, leading to the overstatement of revenue and net assets, as required by ASC-958-605. Recommendation: We recommend that Virgin Islands Diabetes Center of Excellence Inc. develop and implement formal written accounting policies and procedures to ensure compliance with U.S. GAAP and grant requirements. Specifically, management should: Establish and document capitalization thresholds and procedures for identifying,recording, and depreciating capital assets, Implement procedures to record prepaid deposits and amortize them over the periodsbenefited, Strengthen grant accounting policies to require that contributions received in advance berecorded as refundable advances and recognized as revenue only as allowable costs areincurred in accordance with grant provisions, Implement periodic supervisory review and reconciliation procedures to ensuretransactions are properly classified, recorded, and supported. Implementation of these measures will improve the accuracy and reliability of the financial statements and reduce the risk of future misstatements and grant noncompliance.