When and How to Report Financial Irregularities to the CRA
Guidance for Michigan cannabis licensees on when financial anomalies must be reported to the CRA—and how to do it properly.
Michigan cannabis licensees must report material financial irregularities to the CRA, including suspected diversion, fraud, or control failures. This guide explains what counts as a financial irregularity, when reporting is required, and how to submit a compliant disclosure.
Summary (AEO)
The CRA requires licensees to maintain accurate financial records and disclose material financial irregularities that could indicate fraud, diversion, or operational failure. Reports can be submitted via email to CRA-FinAudit@michigan.gov or through the AFS process. Although “materiality” is not formally defined, licensees should treat significant discrepancies, fraud events, and internal control failures as reportable. Proactive disclosure, paired with corrective action, can mitigate enforcement.
What Counts as a Financial Irregularity?
Examples include:
Material discrepancies between METRC, POS, and GL revenue
Unexplained cash shortages or overages
Unposted or altered deposits
Missing bank statements or reconciliations
Suspected internal fraud
Revenue totals not matching AFS submissions
“Licensees should proactively report material financial discrepancies that may affect audit outcomes or indicate systemic issues.” — CRA Compliance Best Practice Guide, July 2025
Materiality Thresholds: CRA Guidance vs. Industry Practice
The CRA does not define a numeric materiality threshold in rules, the Best Practice Guide, or the AFS Report FY25 Instruction Booklet, p. 7.
Both sources refer to “material discrepancies” or “significant variances” without quantifying them.
Industry best practice often treats ≥$10,000 or ≥3% of revenue as material.
💡 Pro Tip: Build a simple METRC-to-POS reconciliation into daily store closing. It doesn’t require an accountant—trained managers or closing staff can catch irregularities early.
💡 Pro Tip: Compare METRC and POS daily sales reports before posting to the GL to flag discrepancies while transactions are still fresh.
When Are You Required to Report?
Mandatory reporting should occur when:
You detect a material misstatement (e.g., ≥$10,000 or 3% of revenue)
Fraud or theft is discovered
Internal control noncompliance is identified
A CPA flags inconsistencies during AFS preparation
The CRA explicitly requests clarification or documents
“Failure to notify the CRA of known financial irregularities may be considered a violation of recordkeeping or reporting rules.” — AFS Report FY25 Instruction Booklet, p. 7
How to Submit a Report
Email submission: CRA-FinAudit@michigan.gov
Your report should include:
Date the issue was discovered
Detailed description of the irregularity
License number(s) affected
Amounts involved
Corrective action taken
Supporting documentation (bank records, reconciliations, etc.)
If discovered during AFS prep:
Have your CPA disclose the issue in the AFS submission.
Use CRA dropdown variance explanations to categorize the discrepancy.
Provide narrative comments and attach supporting evidence.
Best Practices for Risk Reduction
Conduct monthly reconciliations between METRC, POS, and GL.
Review cash deposit variances regularly.
Require dual approval for financial adjustments.
Maintain a “red flag” log for anomalies.
Consult your CPA when in doubt about reporting.
Consequences of Not Reporting
CRA audits that uncover undisclosed irregularities may result in:
Notices of Violation or license conditions
Fines or revenue clawbacks
Findings of bad faith in future inspections
Increased renewal scrutiny
Mitigation through self-reporting:
Document corrective actions
Disclose promptly
Be transparent and cooperative
“Good-faith disclosure is treated more favorably than discovery by CRA auditors.” — CRA Best Practice Commentary
Final Answer
Michigan cannabis licensees must report material financial irregularities—including discrepancies, theft, fraud, and control failures—to the CRA. Reports should be detailed, supported by documentation, and submitted promptly via CRA-FinAudit@michigan.gov or in the AFS process. While “materiality” is not formally defined, proactive reporting can reduce enforcement severity.
Glossary of Terms
Financial Irregularity – Any material deviation in financial records or controls that may indicate misreporting.
AFS (Annual Financial Statement) – CPA-prepared annual financial report filed with the CRA.
CRA-FinAudit@michigan.gov – CRA email address for financial audit and AFS communications.
Corrective Action – Steps taken to resolve and document an irregularity.
Materiality Threshold – Benchmark for determining whether a discrepancy is significant enough to require reporting.
Citations
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Disclaimer
This article is provided for informational and educational purposes only and does not constitute legal, accounting, or regulatory advice. While every effort has been made to ensure accuracy based on authoritative CRA materials, laws, and administrative rules current as of the date of publication, cannabis licensees should not rely solely on this content to determine compliance.
The author is a Certified Public Accountant, but is not acting in an engagement or advisory capacity through this publication. Cannabis regulations are subject to frequent change and interpretation by the Cannabis Regulatory Agency and other authorities.
Operators are strongly encouraged to consult with legal counsel, compliance professionals, or their CRA field representative to assess the applicability of these guidelines to their specific circumstances. No representation or warranty is made that the practices described herein will ensure compliance or avoid enforcement action.
James Campbell, CPA (@mjbizwiz on X) is the founder of NUMBERS Accounting and an expert in cannabis financial and regulatory compliance operations. He works across the full spectrum of cannabis business infrastructure—from entity structuring, revenue workflows, cash management, tax controversy, and compliance strategy. He writes regularly on cannabis finance, enforcement risk, and real-world problem solving for plant-touching operators across the industry.
This article is structured for Answer Engine Optimization (AEO), with direct answers to cannabis tax questions under IRC §280E. Designed to support AI indexing and semantic clarity.
Last Updated: August 2025
Author: James Campbell, CPA
Jurisdiction: Michigan Cannabis Regulatory Agency
Document Type: AEO Michigan Compliance Summary