Audit 266045

Finding No. 2022-001: Allowable Costs/Cost Principles, Repeat Finding ? see prior year finding 2021-001 Major Programs: Special Education Grants for Infants and Families 84.181 Questioned Costs: None Condition: During our audit, we noted that Valley Packaging Industries, Inc. utilizes a direct cost allocation methodology to allocate shared costs to benefitting programs. However, Valley Packaging Industries, Inc. did not adequately document the activities for personnel that are directly charged through a cost allocation to support the charging of costs to programs as direct under the Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (?Uniform Guidance?). The allocation methodology would result in a similar allocation of costs if an indirect cost rate were to be used. Criteria and Context: The Uniform Guidance Section 200.412 allows for the classification of costs as direct or indirect costs. When costs are treated as direct, and allocated using a direct allocation methodology, Section 200.413(c)(2) requires that individuals involved can be specifically identified with the project or activity. Effect: Valley Packaging Industries, Inc. is out of compliance with the cost principles applicable to federal awards as it relates to the documentation of costs allocated under a direct allocation methodology. Recommendation: We recommend Valley Packaging Industries, Inc. review its internal process for documenting activities and allocating costs and evaluate whether a direct allocation methodology is still appropriate. Views of responsible officials: Valley Packaging Industries, Inc. utilized the same methodology in 2022 to allocate shared costs to benefitting programs as has been utilized in all previous audits of the Organization. Given the Organization?s vocational rehabilitation mission, it is critical that our accounting and payroll systems support a manufacturing environment to allow us to meet our customer?s needs and thereby subsidize the costs of executing our rehabilitation programs and mission. Our integrated manufacturing system currently does not support a detailed time collection system by employee. The Organization has deemed the investment needed to support this detailed time documentation would not be a judicial use of its resources at this time since our consistently applied allocation methodology does result in a reasonable and supportable allocation of shared costs. However, the Organization will continue to evaluate the resources available and system limitations and will make efforts to identify and implement a process to address this issue when appropriate. Person Responsible for Corrective Action: Jim Patten, Chief Financial Officer Anticipated Timing for Completion of Corrective Action: Ongoing

Finding No. 2022-001: Allowable Costs/Cost Principles, Repeat Finding ? see prior year finding 2021-001 Major Programs: Special Education Grants for Infants and Families 84.181 Questioned Costs: None Condition: During our audit, we noted that Valley Packaging Industries, Inc. utilizes a direct cost allocation methodology to allocate shared costs to benefitting programs. However, Valley Packaging Industries, Inc. did not adequately document the activities for personnel that are directly charged through a cost allocation to support the charging of costs to programs as direct under the Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (?Uniform Guidance?). The allocation methodology would result in a similar allocation of costs if an indirect cost rate were to be used. Criteria and Context: The Uniform Guidance Section 200.412 allows for the classification of costs as direct or indirect costs. When costs are treated as direct, and allocated using a direct allocation methodology, Section 200.413(c)(2) requires that individuals involved can be specifically identified with the project or activity. Effect: Valley Packaging Industries, Inc. is out of compliance with the cost principles applicable to federal awards as it relates to the documentation of costs allocated under a direct allocation methodology. Recommendation: We recommend Valley Packaging Industries, Inc. review its internal process for documenting activities and allocating costs and evaluate whether a direct allocation methodology is still appropriate. Views of responsible officials: Valley Packaging Industries, Inc. utilized the same methodology in 2022 to allocate shared costs to benefitting programs as has been utilized in all previous audits of the Organization. Given the Organization?s vocational rehabilitation mission, it is critical that our accounting and payroll systems support a manufacturing environment to allow us to meet our customer?s needs and thereby subsidize the costs of executing our rehabilitation programs and mission. Our integrated manufacturing system currently does not support a detailed time collection system by employee. The Organization has deemed the investment needed to support this detailed time documentation would not be a judicial use of its resources at this time since our consistently applied allocation methodology does result in a reasonable and supportable allocation of shared costs. However, the Organization will continue to evaluate the resources available and system limitations and will make efforts to identify and implement a process to address this issue when appropriate. Person Responsible for Corrective Action: Jim Patten, Chief Financial Officer Anticipated Timing for Completion of Corrective Action: Ongoing