Finding Text
Federal Grant Revenue Recognition Repeat Finding: This finding was first reported in 2022 (Finding 2022-001). See Section IV: Prior Year Findings for management’s status update. Criteria: A sound system of internal control over financial reporting includes the recognition of revenues for expenditure-driven grant agreements in the proper reporting period. Condition: During 2023, the District incurred qualified expenditures associated with grant agreements with the U.S. Department of Federal Emergency Management Agency. These agreements are categorized as voluntary nonexchange reimbursement-type or expenditure-driven transactions, requiring the recipient to incur allowable costs and comply with specific grant stipulations in accordance with GASB Statement No. 33. However, the District did not initially recognize certain federal grant receivables and related revenues associated with qualified grant expenditures incurred during the reporting period. Audit adjustments were required to properly accrue federal grant receivables and revenues for the current reporting period. Cause: Turnover of critical staff and understaffing in key accounting functions of the District resulted in a prioritization of operating responsibilities over the valuation of revenue accruals for federal grants. Additionally, the prior year audit report containing recommendations related to this matter was not issued until January 29, 2025, subsequent to the 2023 reporting period; therefore, management did not have the opportunity during the year under audit to implement corrective actions related to this finding. Effect: Material adjustments were required to accrue federal grant receivables and revenues for the current reporting period and to correct prior-period omissions. Recommendation: We recommend the District expand the operational capacity of the finance team with additional accounting personnel possessing an understanding of the reporting and compliance frameworks of the District. The District should also continue utilizing specialized grant compliance and accounting consultants, as necessary, to assist with the timely evaluation and recognition of federal grant activity. Views of Responsible Officials and Planned Corrective Action: Management acknowledges the need to expand the current capacities of the finance team and is in the process of recruiting additional experienced and qualified personnel. To assist with immediate reporting and compliance needs, the District continues to utilize external consultants to provide assistance with grant programs and related accounting procedures.