Finding 2023-003 – Allowable Costs/Cost Principles (Allocation of Payroll)
Federal Agency: Department of Health and Human Services
Federal program title: Block Grants for Community Mental Health Services
Assistance Listing Number: 93.958
Pass-Through Agency: Illinois Department of Human Services
Pass-Through Number: 45CBB04278; 45CBB03514; 45CBB00648
Award Period: 07/01/2022 – 06/30/2023
Criteria or specific requirement: Uniform Guidance section 200.430(h)(8)(i) indicates that the standards for documentation of personnel expenses are such that (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must:(i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated;(ii) Be incorporated into the official records of the non-Federal entity and (iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities. Furthermore, subsection (viii) indicates: Budget estimates alone do not qualify as support for charges to Federal awards, but may be used for interim accounting purposes, provided that:(A) The system for establishing the estimates produces reasonable approximations of the activity actually performed;(B) Significant changes in the corresponding work activity are identified and entered into the records in a timely manner and (C) The non-Federal entity's system of internal controls includes processes to review after-the-fact interim charges made to a Federal awards based on budget estimates.
Condition: The Organization is allocating payroll costs to grants based upon budgeted amounts/percentages submitted to the funding agency and does not currently have a system for ensuring that the estimates used produce reasonable approximations of the activity actually performed.
Questioned Costs: Unknown
Context: This condition affected nineteen (19) of thirty (30) payroll transactions selected for testing, representing fourteen different employees.
Cause: The Organization has a tracking system in place to monitor the wages by employee charged to federal grants to avoid over-allocation of individual employee wages, but this tracking system does not contain a process for allocating wages based on actual time and effort.
Effect: Inaccurate payroll costs may be charged to federal programs if the Organization does not have procedures in place to monitor and record employee time devoted to federal programs.
Repeat Finding: Yes, prior year finding number was 2022-001.
Recommendation: Management should review and refine its process of tracking payroll costs by federal grants to ensure that these costs are supported by a system of internal controls which provides reasonable assurance that the charges are accurate, are allowable and properly allocated, reasonably reflect the total activity for which the employee is compensated, and support the distribution of the employee’s wages among specific activities or cost objectives if the employee woks on more than one federal award.
Views of responsible officials: There is no disagreement with the audit finding.
Finding 2023-004 – Period of Performance
Federal Agency: Department of Health and Human Services
Federal program title: Block Grants for Community Mental Health Services
Assistance Listing Number: 93.958
Pass-Through Agency: Illinois Department of Human Services
Pass-Through Number: 45CBB04278; 45CBB03514; 45CBB00648
Award Period: 07/01/2022 – 06/30/2023
Criteria or specific requirement: A non-federal entity may charge only allowable costs incurred during the approved budget period of a federal award's period of performance and any costs incurred before the federal awarding agency or pass-through entity made the federal award that were authorized by the federal awarding agency or pass-through entity (2 CFR sections 200.308 200.309 and 200.403(h)). A period of performance may contain one or more budget periods.
Condition: Costs outside of the period of performance were charged to the grant.
Questioned Costs: $7,253
Context: Four (4) of the sixteen (16) transactions selected for testing.
Cause: The Organization did not have a control in place to ensure the proper cut-off of expense charged to federal awards.
Effect: The Organization allocated unallowable costs to the federal grant.
Repeat Finding: No
Recommendation: Management should review and revise its process for allocating costs to federal grants to include additional layers of review related to the cut-off of grant expenditures. Particular attention should be focused on the first and last month of the grant budget period.
Views of responsible officials: There is no disagreement with the audit finding.
Finding 2023-005 – Allowable Costs/Cost Principles (Indirect Cost Rate)
Federal Agency: Department of Health and Human Services
Federal program title: Block Grants for Community Mental Health Services
Assistance Listing Number: 93.958
Pass-Through Agency: Illinois Department of Human Services
Pass-Through Number: 45CBB04278; 45CBB03514; 45CBB00648
Award Period: 07/01/2022 – 06/30/2023
Type of Finding: Material weakness in internal control over compliance
Criteria or specific requirement: Appendix IV to Part 200—Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Nonprofit Organizations - Section C. Negotiation and Approval of Indirect Cost Rates - Subsection 2. Negotiation and approval of Rates - Clauses "c:" Unless approved by the cognizant agency for indirect costs in accordance with § 200.414(g), organizations that have previously established indirect cost rates must submit a new indirect cost proposal to the cognizant agency for indirect costs within six months after the close of each fiscal year; and "g:" The results of each negotiation must be formalized in a written agreement between the cognizant agency for indirect costs and the nonprofit organization. The cognizant agency for indirect costs must make available copies of the agreement to all concerned Federal agencies.
Condition: The Organization requested reimbursement for indirect costs for a twelve-month period in which its indirect cost rate had expired.
Questioned Costs: None.
Context: The Organization's indirect cost rate expired on June 30, 2022; however, the Organization did not become aware of this or request an extension until June 2023. In August 2023, the Cognizant Agency for indirect costs (the Agency) did provide written notice to the Organization that it could continue using its previous indirect cost rate until the Agency completed its review of the Organization's new indirect cost rate proposal and a new rate could be established.
Cause: Staff turnover.
Effect: Potential unallowable costs could be charged to and reimbursed by the grant.
Repeat Finding: No
Recommendation: Management should refine its processes and controls over indirect costs to more closely monitor whether indirect costs being allocated to a grant are based on its current federally negotiated indirect cost rate. This may include identifying the expiration date of the Organization's indirect cost rate during the grant budget preparation process and requesting an extension before the rate expires, or preparing and submitting a new indirect cost rate proposal at the earliest opportunity.
Views of responsible officials: There is no disagreement with the audit finding.
Finding 2023-003 – Allowable Costs/Cost Principles (Allocation of Payroll)
Federal Agency: Department of Health and Human Services
Federal program title: Block Grants for Community Mental Health Services
Assistance Listing Number: 93.958
Pass-Through Agency: Illinois Department of Human Services
Pass-Through Number: 45CBB04278; 45CBB03514; 45CBB00648
Award Period: 07/01/2022 – 06/30/2023
Criteria or specific requirement: Uniform Guidance section 200.430(h)(8)(i) indicates that the standards for documentation of personnel expenses are such that (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must:(i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated;(ii) Be incorporated into the official records of the non-Federal entity and (iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities. Furthermore, subsection (viii) indicates: Budget estimates alone do not qualify as support for charges to Federal awards, but may be used for interim accounting purposes, provided that:(A) The system for establishing the estimates produces reasonable approximations of the activity actually performed;(B) Significant changes in the corresponding work activity are identified and entered into the records in a timely manner and (C) The non-Federal entity's system of internal controls includes processes to review after-the-fact interim charges made to a Federal awards based on budget estimates.
Condition: The Organization is allocating payroll costs to grants based upon budgeted amounts/percentages submitted to the funding agency and does not currently have a system for ensuring that the estimates used produce reasonable approximations of the activity actually performed.
Questioned Costs: Unknown
Context: This condition affected nineteen (19) of thirty (30) payroll transactions selected for testing, representing fourteen different employees.
Cause: The Organization has a tracking system in place to monitor the wages by employee charged to federal grants to avoid over-allocation of individual employee wages, but this tracking system does not contain a process for allocating wages based on actual time and effort.
Effect: Inaccurate payroll costs may be charged to federal programs if the Organization does not have procedures in place to monitor and record employee time devoted to federal programs.
Repeat Finding: Yes, prior year finding number was 2022-001.
Recommendation: Management should review and refine its process of tracking payroll costs by federal grants to ensure that these costs are supported by a system of internal controls which provides reasonable assurance that the charges are accurate, are allowable and properly allocated, reasonably reflect the total activity for which the employee is compensated, and support the distribution of the employee’s wages among specific activities or cost objectives if the employee woks on more than one federal award.
Views of responsible officials: There is no disagreement with the audit finding.
Finding 2023-004 – Period of Performance
Federal Agency: Department of Health and Human Services
Federal program title: Block Grants for Community Mental Health Services
Assistance Listing Number: 93.958
Pass-Through Agency: Illinois Department of Human Services
Pass-Through Number: 45CBB04278; 45CBB03514; 45CBB00648
Award Period: 07/01/2022 – 06/30/2023
Criteria or specific requirement: A non-federal entity may charge only allowable costs incurred during the approved budget period of a federal award's period of performance and any costs incurred before the federal awarding agency or pass-through entity made the federal award that were authorized by the federal awarding agency or pass-through entity (2 CFR sections 200.308 200.309 and 200.403(h)). A period of performance may contain one or more budget periods.
Condition: Costs outside of the period of performance were charged to the grant.
Questioned Costs: $7,253
Context: Four (4) of the sixteen (16) transactions selected for testing.
Cause: The Organization did not have a control in place to ensure the proper cut-off of expense charged to federal awards.
Effect: The Organization allocated unallowable costs to the federal grant.
Repeat Finding: No
Recommendation: Management should review and revise its process for allocating costs to federal grants to include additional layers of review related to the cut-off of grant expenditures. Particular attention should be focused on the first and last month of the grant budget period.
Views of responsible officials: There is no disagreement with the audit finding.
Finding 2023-005 – Allowable Costs/Cost Principles (Indirect Cost Rate)
Federal Agency: Department of Health and Human Services
Federal program title: Block Grants for Community Mental Health Services
Assistance Listing Number: 93.958
Pass-Through Agency: Illinois Department of Human Services
Pass-Through Number: 45CBB04278; 45CBB03514; 45CBB00648
Award Period: 07/01/2022 – 06/30/2023
Type of Finding: Material weakness in internal control over compliance
Criteria or specific requirement: Appendix IV to Part 200—Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Nonprofit Organizations - Section C. Negotiation and Approval of Indirect Cost Rates - Subsection 2. Negotiation and approval of Rates - Clauses "c:" Unless approved by the cognizant agency for indirect costs in accordance with § 200.414(g), organizations that have previously established indirect cost rates must submit a new indirect cost proposal to the cognizant agency for indirect costs within six months after the close of each fiscal year; and "g:" The results of each negotiation must be formalized in a written agreement between the cognizant agency for indirect costs and the nonprofit organization. The cognizant agency for indirect costs must make available copies of the agreement to all concerned Federal agencies.
Condition: The Organization requested reimbursement for indirect costs for a twelve-month period in which its indirect cost rate had expired.
Questioned Costs: None.
Context: The Organization's indirect cost rate expired on June 30, 2022; however, the Organization did not become aware of this or request an extension until June 2023. In August 2023, the Cognizant Agency for indirect costs (the Agency) did provide written notice to the Organization that it could continue using its previous indirect cost rate until the Agency completed its review of the Organization's new indirect cost rate proposal and a new rate could be established.
Cause: Staff turnover.
Effect: Potential unallowable costs could be charged to and reimbursed by the grant.
Repeat Finding: No
Recommendation: Management should refine its processes and controls over indirect costs to more closely monitor whether indirect costs being allocated to a grant are based on its current federally negotiated indirect cost rate. This may include identifying the expiration date of the Organization's indirect cost rate during the grant budget preparation process and requesting an extension before the rate expires, or preparing and submitting a new indirect cost rate proposal at the earliest opportunity.
Views of responsible officials: There is no disagreement with the audit finding.