Finding Text
Criteria: Accounting principles generally accepted in the United States of America require that amounts be recognized as revenues, with corresponding receivables if applicable, when the product or service has been delivered to a customer and when the dollar amount is readily determinable. Additionally, standards require that advanced payments of funds received, but which are unearned, be recognized as deferred revenue on the statements of financial position.
Condition: The Association’s controls were not effective to ensure it was recognizing revenues, receivables, and deferred revenue for reimbursement-based programming in the same period the expenditure occurred.
This internal control deficiency is considered to be a significant deficiency.
Context: Procedures included examining subsequent cash receipts and vouching to expenditures made during the fiscal year, identifying several such receipts that should have been posted as receivables as of December 31, 2022 but were not. Additionally, we examined general ledger detail and grant agreements related to advanced funding received, but not yet expended, in determining whether or not a liability for unearned revenue existed.
Cause: The Association typically records cash receipts on a cash basis instead of accrual basis as stipulated in U.S. GAAP.
Effect: By not recording receivables in the correct period, revenues from reimbursement-based awards could be materially misstated.
Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number was 2021-003.
Recommendation: The Association establish controls that allow for the timely and accurate recording of grants and contracts receivable from reimbursement-based awards in the same period as their corresponding expenditures. Additionally, we recommend the Association establish controls to ensure that funds received from advance awards are recognized as revenue when earned.
View of Responsible Officials: There is no disagreement with this audit finding.