Finding 1075675 (2023-001)

Item # 2023-001 Conditional Grant Revenue Recognition (Material Weakness in Internal Control) Criteria: Under Generally Accepted Accounting Principles (GAAP), advances received for conditional grants for expenses not yet incurred are considered a refundable advance liability and should be recognized as revenue only once the barriers are overcome, which includes incurrence of allowable costs under Office of Management and Budget Circular A-122. Condition: Management did not recognize conditional grant revenue for the full amount of the award after allowable costs were incurred. Cause: Management was unaware that conditional grant revenue was required to be deferred until allowable costs under the federal grant agreement were incurred and did not record the related revenue in the proper period. Effect: Conditional grant revenue was understated by $593,838. This is considered a material weakness in the Organization’s internal control over financial reporting. Recommendation: We recommend that management ensure that conditional grant revenue is recognized upon incurrence of allowable costs under the federal grant. We also recommend that management enroll in a professional education program that covers Uniform Guidance compliance. Views of Responsible Officials and Planned Corrective Actions: Management has been making updates to its policies and procedures throughout 2024 to be in full compliance with GAAP and the Uniform Guidance. This exercise is anticipated to be complete by the end of the fiscal year.