2024-001 [2023-001] — INDIRECT COST CALCULATIONS AND REPORTING
Type of Finding:
(F) Significant Deficiency in Internal Control Over Compliance of Federal Awards
(G) Instance of Noncompliance Related to Federal Awards
Funding Agency: U.S. Department of Veteran Affairs
Title: VA Homeless Providers Grant and Per Diem Program
Assistance Listing #: 64.024
Award #: NMVI604-2909-501-PD
Award Period: 10/1/2023–9/30/2024
Estimated Questioned Costs: $29,745
Statement of Condition:
During our review of the NMVIC’s indirect cost (IDC) calculations, we identified discrepancies between the calculated allowable IDC and the amounts reported. The NMVIC reported total direct costs of $652,406, and after removing rent of $9,083, we calculated a Modified Total Direct Cost (MTDC) base of $643,323. However, because the NMVIC does not separately track federal versus non-federal expenditures, the accuracy of this base is uncertain. As a result, we used revenue received of $427,443 as the base for estimating allowable IDC, applying the approved indirect cost rate of 10% to arrive at an allowable IDC of $42,744. In comparison, the NMVIC’s Profit and Loss report reflected IDC of $64,830, and the SF-425 reports and client-provided calculations indicated IDC of $72,490. The variance appears to have resulted from the calculation method and inconsistent bases used by the NMVIC.
Criteria:
Per Uniform Guidance (2 CFR 200.403 and 2 CFR 200.414), indirect costs must be calculated based on the approved indirect cost rate agreement and applied to the appropriate base (Modified Total Direct Costs), excluding specifically unallowable costs such as rent. Additionally, the cost base should be properly supported and consistently applied.
Cause:
The NMVIC did not apply the approved indirect cost rate to an appropriate and supported cost base. Instead, alternative and inconsistent calculation methods were used, resulting in the overstatement of IDC.
Effect:
As a result of this miscalculation, the NMVIC claimed indirect costs in excess of the allowable amount under their approved rate. This raises the risk of disallowed costs and potential repayment requirements and reflects a deficiency in internal controls over financial reporting related to grant compliance.
Recommendation:
We recommend that the NMVIC implement procedures to ensure indirect costs are calculated accurately and consistently, in accordance with the approved indirect cost rate agreement and applicable federal regulations. Specifically, the NMVIC should establish controls to maintain a properly supported cost base that distinguishes between federal and non-federal expenditures and ensures that unallowable costs, such as rent, are excluded from the calculation. Additionally, management should reconcile indirect cost calculations across internal reports and federal filings to prevent discrepancies.
View of Responsible Officials and Corrective Action Plan
We acknowledge the findings and appreciate the diligence of the audit team in identifying the discrepancies in our indirect cost calculations and reporting as outlined in the draft findings. The Veterans Integration Center (VIC) is committed to maintaining the highest standards of compliance with all federal regulations and grant requirements.
Corrective Action Plan
1. Training and Guidelines: All relevant staff will undergo training to understand and implement the correct procedures for calculating indirect costs. Comprehensive guidelines will be developed and disseminated to ensure consistency across all calculations and reporting.
2. Completion of SF-425 Jointly: The COO, and VIC’s contracted Accountant will confirm the accurate Modified Total Direct Costs (MTDC) which is to be used in completing the SF-425, then prepare the GPD SF-425 jointly to ensure its accuracy.
3. Review and Approval Process: An additional layer of review and approval will be established for all indirect cost calculations before they are reported. This step will involve our Chief Executive Officer (CEO) to ensure accuracy and compliance.
Corrective Action Plan Timeline
• Staff Training and Guidelines Distribution: Completed by Q4 2025
• Completion of SF-425 Jointly: Starting Q3 2025 with SF-425 revision
• Review and Approval Process: Effective immediately, with CEO, reviews starting Q3 2025
Designation of Employee Position Responsible for Meeting Deadline
The Chief Operating Officer (COO) will be responsible for the oversight and successful implementation of the corrective action plan. The COO will coordinate with the contracted internal Accountant to ensure all actions are taken within the stipulated timelines and report directly to the Chief Executive Officer on the progress.
2024-001 [2023-001] — INDIRECT COST CALCULATIONS AND REPORTING
Type of Finding:
(F) Significant Deficiency in Internal Control Over Compliance of Federal Awards
(G) Instance of Noncompliance Related to Federal Awards
Funding Agency: U.S. Department of Veteran Affairs
Title: VA Homeless Providers Grant and Per Diem Program
Assistance Listing #: 64.024
Award #: NMVI604-2909-501-PD
Award Period: 10/1/2023–9/30/2024
Estimated Questioned Costs: $29,745
Statement of Condition:
During our review of the NMVIC’s indirect cost (IDC) calculations, we identified discrepancies between the calculated allowable IDC and the amounts reported. The NMVIC reported total direct costs of $652,406, and after removing rent of $9,083, we calculated a Modified Total Direct Cost (MTDC) base of $643,323. However, because the NMVIC does not separately track federal versus non-federal expenditures, the accuracy of this base is uncertain. As a result, we used revenue received of $427,443 as the base for estimating allowable IDC, applying the approved indirect cost rate of 10% to arrive at an allowable IDC of $42,744. In comparison, the NMVIC’s Profit and Loss report reflected IDC of $64,830, and the SF-425 reports and client-provided calculations indicated IDC of $72,490. The variance appears to have resulted from the calculation method and inconsistent bases used by the NMVIC.
Criteria:
Per Uniform Guidance (2 CFR 200.403 and 2 CFR 200.414), indirect costs must be calculated based on the approved indirect cost rate agreement and applied to the appropriate base (Modified Total Direct Costs), excluding specifically unallowable costs such as rent. Additionally, the cost base should be properly supported and consistently applied.
Cause:
The NMVIC did not apply the approved indirect cost rate to an appropriate and supported cost base. Instead, alternative and inconsistent calculation methods were used, resulting in the overstatement of IDC.
Effect:
As a result of this miscalculation, the NMVIC claimed indirect costs in excess of the allowable amount under their approved rate. This raises the risk of disallowed costs and potential repayment requirements and reflects a deficiency in internal controls over financial reporting related to grant compliance.
Recommendation:
We recommend that the NMVIC implement procedures to ensure indirect costs are calculated accurately and consistently, in accordance with the approved indirect cost rate agreement and applicable federal regulations. Specifically, the NMVIC should establish controls to maintain a properly supported cost base that distinguishes between federal and non-federal expenditures and ensures that unallowable costs, such as rent, are excluded from the calculation. Additionally, management should reconcile indirect cost calculations across internal reports and federal filings to prevent discrepancies.
View of Responsible Officials and Corrective Action Plan
We acknowledge the findings and appreciate the diligence of the audit team in identifying the discrepancies in our indirect cost calculations and reporting as outlined in the draft findings. The Veterans Integration Center (VIC) is committed to maintaining the highest standards of compliance with all federal regulations and grant requirements.
Corrective Action Plan
1. Training and Guidelines: All relevant staff will undergo training to understand and implement the correct procedures for calculating indirect costs. Comprehensive guidelines will be developed and disseminated to ensure consistency across all calculations and reporting.
2. Completion of SF-425 Jointly: The COO, and VIC’s contracted Accountant will confirm the accurate Modified Total Direct Costs (MTDC) which is to be used in completing the SF-425, then prepare the GPD SF-425 jointly to ensure its accuracy.
3. Review and Approval Process: An additional layer of review and approval will be established for all indirect cost calculations before they are reported. This step will involve our Chief Executive Officer (CEO) to ensure accuracy and compliance.
Corrective Action Plan Timeline
• Staff Training and Guidelines Distribution: Completed by Q4 2025
• Completion of SF-425 Jointly: Starting Q3 2025 with SF-425 revision
• Review and Approval Process: Effective immediately, with CEO, reviews starting Q3 2025
Designation of Employee Position Responsible for Meeting Deadline
The Chief Operating Officer (COO) will be responsible for the oversight and successful implementation of the corrective action plan. The COO will coordinate with the contracted internal Accountant to ensure all actions are taken within the stipulated timelines and report directly to the Chief Executive Officer on the progress.