Audit 3140

Criteria: Compliance: In accordance with 2 CFR Section 200.431.8(d), fringe benefits may be assigned to cost objectives by identifying specific benefits to specific individuals or by allocating on the basis of entity-wide salaries and wages of the employees receiving the benefits. When the allocation method is used, separate allocations must be made to selective groupings of employees, unless the non-Federal entity demonstrates that costs in relationships to salaries and wages do not differ significantly for different groups of employees. Internal Control: Per 2 CFR section 200.303(a), a non-Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non- Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should comply with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: Charges to the Federal award for fringe benefits were based on the budgeted fringe benefit rate, rather than the actual rate. Cause: NADPH did not maintain evidence of cost assignment objectives. Effect: Charges to Federal awards for salaries and wages may not reflect specific time worked or amounts allocated to the specific Federal program, even though the charges are not in excess of amounts approved for the grant period. Questioned costs: None. Context: Ten transactions were selected to test fringe benefit transactions charged to the Federal program and to test controls over allowable costs by haphazardly selecting four employees per transaction and applying a fringe benefit cost rate to actual salaries and wages for all employees tested. The fringe benefit cost rate was based on anticipated fringe benefit cost rate which was neither supported by an actual calculation nor analysis of the related group of employees used in such calculation. Adjusting journal entries were proposed to correct the transactions and the salaries and fringe benefits were reallocated in the financial statements to support the annual activity. Repeat Finding: No Recommendation: I recommend that NADPH develop and incorporate policies to demonstrate adherence to the fringe benefits cost objectives of 2 CFR Section 200.431.8(d). I further recommend management to retain evidence of internal controls over the allowability of payroll expenditures. View of Responsible Officials: Management agrees with the finding. The response to this finding is described in the accompanying management’s corrective action plan.

Criteria: Compliance: In accordance with 2 CFR Section 200.68, Modified Total Direct Cost (MTDC) means all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $25,000 of each subaward (regardless of the period of performance of the subawards under the award). MTDC excludes equipment, capital expenditures, charges for patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs and the portion of each subaward in excess of $25,000. Other items may only be excluded when necessary to avoid a serious inequity in the distribution of indirect costs, and with the approval of the cognizant agency for indirect costs. Internal Control: Per 2 CFR section 200.303(a), a non-Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non- Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should comply with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: Charges to the Federal award for indirect costs were based on the total direct cost base rather than the MTDC. Cause: Inadequate monitoring of policies and procedures and administrative oversight with respect to review of federal expenditures for indirect costs. Effect: Charges to Federal awards for indirect costs may not reflect allowable costs allocated to the Federal program, even though the charges are not in excess of amounts approved for the grant period. Questioned costs: None. Context: The condition occurred in fourteen out of fourteen allowable cost transactions selected for testing. Adjusting journal entries were proposed to correct the transactions and indirect costs were reallocated in the financial statements to support the modified total direct cost. Repeat Finding: No Recommendation: I recommend NADPH perform indirect cost reconciliations to the underlying general ledger detail and a timely detailed review by a knowledgeable individual other than the preparer. View of Responsible Officials: Management agrees with the finding. The response to this finding is described in the accompanying management’s corrective action plan.

Criteria: Compliance: In accordance with 2 CFR Section 200.431.8(d), fringe benefits may be assigned to cost objectives by identifying specific benefits to specific individuals or by allocating on the basis of entity-wide salaries and wages of the employees receiving the benefits. When the allocation method is used, separate allocations must be made to selective groupings of employees, unless the non-Federal entity demonstrates that costs in relationships to salaries and wages do not differ significantly for different groups of employees. Internal Control: Per 2 CFR section 200.303(a), a non-Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non- Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should comply with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: Charges to the Federal award for fringe benefits were based on the budgeted fringe benefit rate, rather than the actual rate. Cause: NADPH did not maintain evidence of cost assignment objectives. Effect: Charges to Federal awards for salaries and wages may not reflect specific time worked or amounts allocated to the specific Federal program, even though the charges are not in excess of amounts approved for the grant period. Questioned costs: None. Context: Ten transactions were selected to test fringe benefit transactions charged to the Federal program and to test controls over allowable costs by haphazardly selecting four employees per transaction and applying a fringe benefit cost rate to actual salaries and wages for all employees tested. The fringe benefit cost rate was based on anticipated fringe benefit cost rate which was neither supported by an actual calculation nor analysis of the related group of employees used in such calculation. Adjusting journal entries were proposed to correct the transactions and the salaries and fringe benefits were reallocated in the financial statements to support the annual activity. Repeat Finding: No Recommendation: I recommend that NADPH develop and incorporate policies to demonstrate adherence to the fringe benefits cost objectives of 2 CFR Section 200.431.8(d). I further recommend management to retain evidence of internal controls over the allowability of payroll expenditures. View of Responsible Officials: Management agrees with the finding. The response to this finding is described in the accompanying management’s corrective action plan.

Criteria: Compliance: In accordance with 2 CFR Section 200.68, Modified Total Direct Cost (MTDC) means all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $25,000 of each subaward (regardless of the period of performance of the subawards under the award). MTDC excludes equipment, capital expenditures, charges for patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs and the portion of each subaward in excess of $25,000. Other items may only be excluded when necessary to avoid a serious inequity in the distribution of indirect costs, and with the approval of the cognizant agency for indirect costs. Internal Control: Per 2 CFR section 200.303(a), a non-Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non- Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should comply with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: Charges to the Federal award for indirect costs were based on the total direct cost base rather than the MTDC. Cause: Inadequate monitoring of policies and procedures and administrative oversight with respect to review of federal expenditures for indirect costs. Effect: Charges to Federal awards for indirect costs may not reflect allowable costs allocated to the Federal program, even though the charges are not in excess of amounts approved for the grant period. Questioned costs: None. Context: The condition occurred in fourteen out of fourteen allowable cost transactions selected for testing. Adjusting journal entries were proposed to correct the transactions and indirect costs were reallocated in the financial statements to support the modified total direct cost. Repeat Finding: No Recommendation: I recommend NADPH perform indirect cost reconciliations to the underlying general ledger detail and a timely detailed review by a knowledgeable individual other than the preparer. View of Responsible Officials: Management agrees with the finding. The response to this finding is described in the accompanying management’s corrective action plan.