The January 31, 2021 deadline for the medical Annual Financial Statement reports (AFS) is now behind us! We can comfortably say that the requirement of the AFS required by section 701 of the Medical Marihuana Facilities Licensing Act (MMFLA) has been a daunting and challenging one for many Michigan CPAs. While many licensees missed the deadline, the MRA appears to have understood the challenges and has still been accepting reports without officially granting extensions. This grace period will certainly not extend for the second year.
Many licensees have already received notices surrounding their adult use licenses requiring an AFS by June 30, 2021. As we gear up towards those filings, here are a summary of some of the most common deficiencies from the MRA that required additional clarification and/or procedures:
- Initial licensure dates provided were not accurate, which affected reporting periods.
- Lease agreements were matching what has been provided to the MRA.
- Ownership tables do not agree to documents provided to the MRA.
- Revenue within the general ledger was not reconciled with METRC or the POS.
- Individual sales transactions from METRC do not agree to the underlying support in the general ledger.
- Vendors and customers recorded in the general ledger are not the legal names of the entities.
- Supporting documentation for transactions were not maintained.
- Payroll entered into the general ledger was not reconciled with payroll tax returns.
- Entities with multiple licensees and a centralized corporate management function did not have a clear allocation of expenses to each corresponding license tested.
As we ramp up for the next round of adult-use AFS reports, it is critical that companies be prepared for the testing by reviewing and reconciling their 2020 record keeping. Here are some tips to help ensure you are well prepared for the next wave of testing:
- Ensure all legal documents such as leases, licensing agreements, and other agreements are readily available and all transactions in the general ledger are properly recorded in accordance with those agreements.
- Ensure that all agreements are properly executed by all parties and have be recorded with the MRA. Any revisions, even if verbal, should be documented.
- Reconcile sales to METRC and to the POS (if applicable) on a monthly basis, and document the reason for any discrepancies.
- Obtain form W-9 for all vendors and ensure that the information recorded in the general ledger includes the full legal entity name vendor. Be sure to have license numbers and caregiver numbers available for all vendors where applicable.
- Ensure that all supporting documentation for revenue and expense transactions are retained as part of the accounting process and controls.
- Perform a quarterly wage reconciliation of the 941s to the general ledger.
- Maintain proper documentation license approval dates.
- Ensure that the ownership structure is properly identified and agrees to underlying agreements on file with the MRA.
Here at UHY we have a dedicated team of experts that specialize in the cannabis industry. If you received notice of an upcoming AFS report that you have coming due, please contact us today to schedule a meeting to get started on your next AFS report.