DENVER RESEARCH INSTITUTENon-Profit

Finding 2022-002: U.S. Department of Health and Human Services - Regents of the University of California San Francisco - Allergy and Infectious Diseases Research - Assistance Listing No. 93.855.U.S. Department of Health and Human Services - Palo Alto Veterans Institute for Research - Family and Community Violence Prevention Program - Assistance Listing No. 93.910. Allowable Costs, Significant Deficiency Auditor Recommendation: We recommend the Organization enhance its year-end close process to include calculating the indirects charged to all federal awards for the entire year to ensure the indirects have been properly charged to the grant and with the correct rate. Corrective Action: The Standard Operating Procedures (SOPs) for the Grants & Contracts department have been enhanced to include the current indirect rates through the monitoring process of the Grants Milestone Calendar. As previously noted, this cornerstone process reminds the grants department of a monthly review for all areas of each grant. This provides insight of the progression of the grant, meeting or exceeding thresholds and milestones, the project timeline of the grant, accuracy for invoicing, correct indirect rates, and so on. This is monitored on a monthly basis through the Operations Timeline Schedule, moving through the monthly system and is reviewed, and approved by the Grants Director, then the Executive Director. This is an actionable item in the system. Responsible Party: Grants Department, and Executive Director Anticipated Completion Date: This corrective action is currently in effect as of April 30, 2023

Finding 2020-001: Adjusting Journal Entries Material Weakness Auditor Recommendation: We recommend the Organization implement procedures to ensure its internal financial statements are properly stated. This should also include a review of revenue and expenses under reimbursement contracts to ensure the revenues matches the expenses. Furthermore, we recommend revenue be invoiced in a timely manner and properly recorded through the accounts receivable module as an invoice then recording revenue through a journal entry. Corrective Action: Due to staff transitions, DRI engaged multiple independent accountant contractors over the course of fiscal year 2020 to provide accounting support for the organization and its financial processes, including audit preparation. While DRI made every effort to initiate a monthly close process in Q3/Q4 2020 following the completion of the 2019 audit, it became evident while closing the books and preparing for the CY 2020 audit that the contractors had not only not performed their work to the expectations of management but had created incorrect accounting transactions within our financial database that required many months of staff time to resolve. We have since hired a permanent director of financial operations, who has already implemented a monthly close process beginning in January 2021 to include reconciliation of all accounts on a regular basis and that will minimize the volume of year-end adjusting journal entries. In addition, DRI recently formed a Finance Committee to review DRI financial statements on a monthly basis. This committee will provide an additional layer of governance and is compromised of the Executive Director, the Director of Financial Operations, and two Board members with extensive experience reviewing financial statements, financial auditing and quality control. Finally, in light of the fact that DRI?s revenue has been increasing year over year since 2018, we will evaluate the addition of an accounting generalist FTE to the administrative team prior to year-end. This position will provide additional AR and AP support to the organization, while minimizing the need to engage external contractors or consultants. In addition, we will begin documenting procedures in greater detail and cross-training staff to our accounting processes to accommodate seamless transition of duties during naturally occurring staff transitions. Responsible Party: Director of Financial Operations in consultation with Executive Director. Anticipated Completion Date: beginning January 2021 and ongoing

2019-001

Finding 2020-002: U.S. Department of Defense ? USA Medical Research Acquisition Activity CFDA No. 12.420 Non-Compliance Compliance Requirement: Reporting Auditor Recommendation: We recommend that the Organization review its procedures to ensure reports are remitted on time in accordance with the terms outlined by the agreement. Corrective Action: The annual Federal Financial Report to the Department of Defense was filed after the due date. We deeply regret missing this one deadline. In addition to documenting procedures in greater detail and cross-training staff to our accounting processes, the Director of Financial Operations, in conjunction with the Grant & Contracts Manager, will ensure that all grant reporting deadlines are added to our annual shared calendar and will monitor compliance to same. Anticipated Completion Date: 09/30/2021

Finding 2020-003: U.S. Department of Health and Human Services ? Allergy and Infectious Diseases Research CFDA No. 93.855 Non-Compliance Compliance Requirement: Procurement and Suspension and Debarment Corrective Action: In the course of procurement of equipment, DRI staff neglected to maintain documentation of verification that the vendor had not been suspended, debarred or otherwise excluded prior to the purchase. While this provision is contained within DRI?s Finance & Accounting Manual, CY 2020 marked DRI?s first year at setting up multiple vendors with equipment purchases of this size. The Director of Financial Operations has subsequently reviewed the policies and procedures with the staff accountant responsible for obtaining and maintaining this documentation. Moving forward, the Director of Financial Operations will ensure that these documents are centrally filed with rest of the purchase documents. In addition, DRI will implement training and cross-training of these processes, so that staff understand what is expected. Also, the Director of Finance will verify the inclusion of these documents prior to any payments being processed. Anticipated Completion Date: 12/31/2021

Section II - Financial Statement Findings Finding 2019-001: Adjusting Journal Entries - Material Weakness Criteria: The Organization is responsible for designing and implementing effective internal controls over financial reporting. Condition: During the audit, we noted general ledger accounts were not properly reconciled prior to the commencement of the audit. We also noted numerous instances where invoices for both revenue and expenses were not recorded in the proper period. Additionally, approximately $775,000 in purchase orders were recorded with no costs being incurred during 2019. Furthermore, the Organization received lease incentives on its new office space which was not properly recorded as required by Generally Accepted Accounting Principles. Effect: During the course of the audit, there were 29 journal entries proposed to the Organization?s accounting records which had a material effect to the Organization?s accounting records and financial statements for the year ended December 31, 2019. Questioned Cost: None Cause: Cash, contracts receivable, contributions receivable, accounts payable, accrued liabilities, deferred revenue, federal contract revenue, other grants and contract revenue, contributions and expenses were not properly reflected in the Organization?s internal financial statements. Recommendation: We recommend the Organization reconcile all accounts prior to the commencement of the audit. This should also include a review of revenue and expenses under reimbursement contracts to ensure the revenues matches the expenses. The Organization should also review purchases orders recorded in the accounting system to ensure a liability is only recorded in the financial statements for what the Organization has incurred during that fiscal year. Response: Under the guidance of the Director of Finance, the Organization plans to implement a monthly ?hard-close?, which will include the reconciliation of all accounts every thirty days. This will not only ensure year-end revenue and expenses match for cost reimbursements prior to the audit, but also tie them out on a monthly basis. The Organization also plans to examine its purchase order process and determine the best practices to ensure the purchase orders encumbered balances match the trial balance at year end. The Organization will accomplish this by integrating the management of our purchase orders into our monthly close. Section III ? Federal Award Findings and Questioned Costs Finding 2019-002: U.S. Department of Defense - Regents of the University of Michigan - USA Medical Research Acquisition Activity CFDA No. 12.420 and U.S. Department of Health and Human Services - Regents of the University of California San Francisco - Allergy and Infectious Diseases Research CFDA No. 93.855. Allowable Costs, Significant Deficiency Criteria: 2 CFR 200 requires indirect costs to be accorded consistent treatment to all federal awards. Condition: The indirect cost rate was not correctly charged to two federal awards during the year. Effect: Two federal awards were under billed for indirects which resulted in an audit adjustment. Questioned Costs: None. Context: During our testing of indirects, we noted two out of the seven federal awards tested were not charged the correct indirect cost rate for the year. Cause: The Organization did not include an indirect charge on each invoice for two federal awards. Recommendation: We recommend the Organization enhance its year-end close process to include calculating the indirects allocated to all federal awards for the entire year to ensure the indirects have been properly allocated. Response: As part of our monthly close process, we plan to instill a monthly IDC calculation process. This will include working with BlackBaud to establish an automatic IDC calculation for all active project IDs. This will serve to streamline the process and eliminate human errors and oversight.

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