Finding 1089133 (2022-002)

Criteria: Uniform Guidance, federal cost principles and many of the Organization’s grant agreements require that AIRS financial reporting be completed on an accounting basis in accordance with U.S. generally accepted accounting principles (GAAP). Condition: During the year ended September 30, 2022, AIRS internal financial reporting was initially completed by internal accounting personnel on a cash basis rather than on a GAAP accrual basis. In preparation for the audit, AIRS engaged a third-party accountant to assist management with converting the cash basis financial statements to a GAAP accrual basis. Many of the accounts were properly adjusted and reported in accordance with GAAP prior to the start of the audit. However, the following audit adjustments were still required to properly state certain amounts in accordance with GAAP: • Government grants receivable, in the amount of $30,673, were not properly recorded as receivable and revenue. • Certain small equipment. in the combined amount of $9,688, that was below the capitalization threshold was improperly capitalized as property and equipment. • A vehicle held under capital lease and related capital lease liability, in the amount of $5,000, was not properly recorded. Cause: Although AIRS did engage a third-party accountant to assist with preparation for the audit, it does not appear that processes, procedures and internal control over financial reporting were fully implemented to completely ensure that, on a material basis, the year-end financial reporting is completed on the appropriate GAAP accrual basis of accounting. Effect: Audit adjustments, that are material on a combined basis, were required to properly state the year-end financial statements in accordance with a GAAP accrual basis of accounting. Repeat Finding from Prior Year: Yes Recommendation: In response to finding 2021-002 during the audit for the year ended September 30, 2021, AIRS engaged a third-party accountant to assist with converting the financial statements from a cash basis of accounting to a GAAP accrual basis of accounting. I commend management for engaging this accountant and for its efforts to convert its books and records to GAAP. Since Uniform Guidance and federal cost accounting principles require that AIRS report on a GAAP basis, AIRS management strongly consider fully converting the books and records to a GAAP accrual basis during the year and not just at year end in preparation for the audit. Senior management and board may also want to consider providing accounting staff with additional training and education related to nonprofit GAAP, and training and education related to federal cost principles and allowable costs accounting for federal award programs. Finally, senior management and the board may want to consider engaging the third-party accountant to assist with converting its books and records to a GAAP accrual basis of accounting. Views of Responsible Officials: Management concurs with this audit finding.