VIRGINIA ASSOCIATION OF RECOVERY RESIDENCES INC

Consideration of Management’s Ability to Draft the Financial Statements, Schedule of Expenditures of Federal Awards (“SEFA”) and Related Footnotes

VARR agrees with the finding and will continue to enhance our knowledge and understanding of financial reporting, knowing that due to the small size and limited financial resources obtaining a qualified accounting professional either as an employee or an outside consultant to the level of skills, knowledge and experience necessary may be difficult. Effective November 27, 2023, VARR’s management and executive director is taking remedial steps to become better acquainted with the matters and items contained in its financial statements that may allow VARR to prepare its financial statements in an acceptable manner to its independent auditor by January 31, 2024. This action is in accordance with the requirements of Uniform Guidance 2 CFR §200.511(c).

2021-001

Segregation of Duties

VARR agrees with the finding and as VARR grows, it will seek opportunities beginning November 27, 2023 to delegate responsibilities to qualified individuals to provide a greater level of segregation of duties that will enhance our internal control. We also believe that our integrity and relationship with the Virginia Department of Behavioral Health Development Services and our recovery community centers provide an external layer of control that when tied into our software system known as REC-CAP will alert management when an error occurs. We expect that we will enhance the development of our systems to capture and provide for the seamless integration of this finding by January 31, 2024. This action is in accordance with the requirements of Uniform Guidance 2 CFR §200.511(c).

2021-002

Consideration of Management’s Ability to Recognize the Need for Adjusting Journal Entries for its Financial Statements to be Reported in accordance with U.S. GAAP

VARR agrees with the finding and will continue to enhance our knowledge and understanding of financial reporting, knowing that due to the small size and limited financial resources obtaining a qualified accounting professional either as an employee or an outside consultant to the level of skills, knowledge, and experience necessary may be difficult. VARR commenced obtaining this knowledge as the audit progressed and obtained enhanced bookkeeping knowledge necessary to facilitate the posting of these adjustments by November 27, 2023. We expect that our skills, knowledge and experience will improve throughout the remainder of 2023 and beyond. We expect that we will enhance the development of our systems to capture and provide for the seamless integration of this finding by January 31, 2024. This action is in accordance with the requirements of Uniform Guidance 2 CFR §200.511(c).

2021-003

Consideration of Management?s Ability to Draft the Financial Statements, Schedule of Expenditures of Federal Awards (?SEFA?) and Related Footnotes We believe that Virginia Association of Recovery Residences, Inc. (?VARR?) or certain of its Board members may be capable of drafting the financial statements and its SEFA for the Organization. VARR has asked this Firm to use its resources and financial reporting knowledge to assist with the preparation of its financials. VARR has contributed much of the wording contained in Organization section of the footnotes to the financial statements and has left the implementation of disclosure requirements with this Firm. VARR has obtained an understanding of the technical matters contained in the financial statements. As a result, we note as auditors the interpretation of AU-Section 265, Communicating Internal Control Matters Identified in an Audit that this does not create, in this specific instance, a material weakness, but may be indicative of a material weakness if there were numerous material misstatements present. However, this opportunity is used to alert management and the Board of the current thinking in the audit and GAO community. VARR?s management takes its responsibilities for maintaining ethical practices seriously and sets the proper tone at the top to carry out its internal financial reporting in a manner that could be easily transferred to the more formalized reporting required. Views of Responsible Officials and Planned Corrective Actions: We agree with the finding and will continue to enhance our knowledge and understanding of financial reporting, knowing that due to the small size and limited financial resources obtaining a qualified accounting professional either as an employee or an outside consultant to the level of skills, knowledge and experience necessary may be difficult.

We agree with the finding and will continue to enhance our knowledge and understanding of financial reporting, knowing that due to the small size and limited financial resources obtaining a qualified accounting professional either as an employee or an outside consultant to the level of skills, knowledge and experience necessary may be difficult.

Segregation of Duties We understand that VARR does not have adequate personnel to permit the segregation of duties that may be present in larger organizations. The Executive Director, President, other Officers and Board members provide some supervision, but we believe that the supervision does not provide for an adequate and consistent documentation of the review process that may be required over the current financial function to timely ensure that transactions are being executed in accordance with the requirements established by the Uniform Guidance which mandates internal controls for recipients of Federal and Virginia funds. The lack of segregation of duties which creates the appearance of a lack of internal controls did not negatively impact the result of the audit and the financials. It is also noted, as noted previously, that management sets a proper tone at the top for the responsibility and heavy burden that has been entrusted with them by the Virginia General Assembly and the Department of Behavioral Development Services. Views of Responsible Officials and Planned Corrective Actions: We agree with the finding and as VARR grows, we will seek opportunities to delegate responsibilities to qualified individuals to provide a greater level of segregation of duties that will enhance our internal control. We also believe that our integrity and relationship with the Virginia Department of Behavioral Health Development Services and our recovery community centers provide an external layer of control that when tied into our software system known as REC-CAP will alert management when an error occurs.

We agree with the finding and as VARR grows, we will seek opportunities to delegate responsibilities to qualified individuals to provide a greater level of segregation of duties that will enhance our internal control. We also believe that our integrity and relationship with the Virginia Department of Behavioral Health Development Services and our recovery community centers provide an external layer of control that when tied into our software system known as REC-CAP will alert management when an error occurs.

Consideration of Management?s Ability to Recognize the Need for Adjusting Journal Entries for its Financial Statements to be Reported in accordance with U.S. GAAP We understand that VARR does not possess the skills, knowledge and experience to perform adjustments for deferred revenue associated with grant funds received in excess of amounts spent, capitalization of right-of-use assets and related lease liability recognition under FASB ASC 842, capitalization of fixed assets and related depreciation expense recognition and the recording wages and payroll taxes in their internal financials at their gross amounts rather than net and the recognition of prepaid assets associated with its 3-year ARMS software subscription. As a very small not-for-profit, the organization would need to obtain the necessary skills, knowledge and experience, or hire CPAs knowledgeable of the accounting rules for the VARR to be able to fully report its financials in accordance with US GAAP. The cost in this endeavor could very well exceed the benefit derived. VARR?s internal reporting using existing predefined QuickBooks Online software parameters allows it to accurately track the costs associated with its grant contract and programs prior immediately prior to posting US GAAP adjustments. VARR was able to understand and accept the adjustments that were proposed during the audit to correct its financials. As a result, the education provided and understood enabled VARR to accept the adjustments and the audit was not impacted from these corrections. Views of Responsible Officials and Planned Corrective Actions: We agree with the finding and will continue to enhance our knowledge and understanding of financial reporting, knowing that due to the small size and limited financial resources obtaining a qualified accounting professional either as an employee or an outside consultant to the level of skills, knowledge and experience necessary may be difficult.

We agree with the finding and will continue to enhance our knowledge and understanding of financial reporting, knowing that due to the small size and limited financial resources obtaining a qualified accounting professional either as an employee or an outside consultant to the level of skills, knowledge and experience necessary may be difficult.

Bank Reconciliations Not Performed During the audit, it was learned that management had not routinely reconciled its bank statements. Although, the executive director had the requisite intimate knowledge of its transactions through the downloading and assignment of its bank transactions, it had not become familiar with the features in QuickBooks Online that would facilitate the preparation of bank reconciliations that would timely present issues with any unreconciled items identified should they have occurred during the year. This omission, while considered a material weakness, did not cause the financial statements to be materially misstated. Views of Responsible Officials and Planned Corrective Actions: We agree with the finding and will take the steps necessary to performing timely bank reconciliations from the point forward.

We agree with the finding and will take the steps necessary to performing timely bank reconciliations from the point forward.