Finding Text
Criteria: The Organization?s accounting and reporting policies conform with accounting principles generally accepted in the United States of America established the following: ? Grant revenue is recognized after the program expenditures have been incurred. As such, the Organization recognizes revenue and records a receivable from reimbursement amount from the granting agency. ? Expenses are recognized when incurred. Section four of Lease Agreement established that the Organization entered into a lease agreement with RFRE for the rental of two land lots located in Humacao, for a lease term of ninety-nine years expiring on February 11, 2120. The annual rental payment amounts to $17,500 and shall be paid in arrears commencing on February 11, 2022. Any unpaid amount of rent shall accrue interest at an annual rate of one point sixty one percent (1.61%). Accounting Standards Codification (ASC) Topic 250, Accounting Changes and Error Corrections, addresses certain circumstances that require special accounting or disclosure, including Correction of an Error in Previously Issued Financial Statements. Condition: During our audit, we noted the following areas need to be addressed: ? The Federal grant award is on a cost-reimbursement basis. Grant revenue should be recognized when expenditures have been incurred. We observed instances where grant revenue of $652,946 for fiscal year 2021 was received in 2022 and recorded as revenue in 2022. We noted that Organization recognized grant revenue on cash basis when deposit received from federal agency. ? During the audit, we noted that the Organizations recognizes rental revenue on a cash basis rather than on an accrual basis in accordance with U.S. generally accepted accounting principles. ? In overall the Organization maintains its books on a cash basis. We noted that the cash basis method of accounting is easy to administer and understand. However, recording transactions on an accrual basis should be in accordance with U.S. generally accepted accounting principles, and provides more meaningful financial information. ? We noted correction of errors in previous financial statement which mainly consist of an understatement of grant and rental income, and an overstatement of accrued expense. Cause: This situation occurs because the Organizations has not enforced, effective, and efficient accounting and financial reporting policies and procedures to address the requirements of accounting principles generally accepted in the United States of America. The review and analysis of certain balances and transactions are performed late in the year-end closing process. Effect: The overall effect is that complete and accurate financial information may not be readily available, thus impacting management decisions taken throughout the year. In addition, errors or irregularities may occur and not be detected on a timely basis. Recommendations: We suggest that the accrual method of accounting be implemented for recording all transactions into the general ledger. View of responsible Officials: Management concurs with the finding. The closing process should improve to seek ways to reduce the adjustment. We will continue to review and enhance our processes to ensure that financial reporting and accounting are accurate.