Audit 35902

Finding No. 2022-002 Internal Control over Preparation of Schedule of Expenditures of Federal Awards (?SEFA?) ? Material Weakness in Internal Control over Compliance; U.S. Department of Transportation; Research and Development Cluster: PHMSA Pipeline Safety Research and Development; ALN #20.723; Various federal awards (see Schedule of Expenditures of Federal Awards) Criteria Uniform Guidance prescribes the required Schedule of Expenditures of Federal Awards (SEFA) contents and delineates how or what is deemed to be expenditures for purposes of completing the SEFA, including that the accrual basis of accounting be used in the preparation of the SEFA. Condition Over the course of PRCI?s federal awards with cost-share requirements, management recorded inconsistent amounts related to federal expenditures for the year ended December 31, 2022. Context The requirements of PRCI?s federal awards are such that costs are required to be incurred by PRCI in order to meet the deliverables identified in the related fixed price contracts with PHMSA. Initial amounts reported by PRCI on the SEFA corresponded with PRCI?s share of expenditures over its cost share requirement associated with its performance towards meeting the deliverables identified, resulting in a SEFA expense recognition that did not necessarily align with the period the expenses were incurred, as required by the accrual basis of accounting. This resulted in timing differences as to when federal expenditures and cost sharing were being recognized in any given fiscal year in relation to SEFA reporting. However, at the end of the respective contract periods, cost share requirements were met in full, but not always within the period of performance (see finding 2022-003 below). Cause PRCI did not have a systematic process in place to allocate federal expenditures and cost sharing over the contract period and failed to understand the need account for federal expenditures on the accrual basis regardless of when deliverables are met and invoiced under the contract. Effect A difference noted between reported federal expenditures against the cost share requirement could lead to awards being over or under drawn and not in compliance with respective awards. Questioned Costs None. Recommendation To ensure adequate internal controls over the preparation of the SEFA, we recommend that PRCI enhance internal controls over the preparation of the SEFA to ensure that it is prepared by one individual with another individual reviewing the underlying support to ensure completeness and accuracy. Views of Responsible Officials and Planned Corrective Actions See Corrective Action Plan

Finding No. 2022-003: Period of Performance ? Material Weakness in Internal Control over Compliance; U.S. Department of Transportation; Research and Development Cluster: PHMSA Pipeline Safety Research and Development; ALN #20.723; Various federal awards (see Schedule of Expenditures of Federal Awards) Criteria Uniform Guidance prescribes to be eligible for federal funding, expenditures must be expended in the period of performance identified by the federal awarding agency. Condition For multiple federal awards, PRCI incurred and reported expenditures outside of the period of performance as identified in the original award agreements. We were unable to obtain appropriate evidence related to modifying the related periods of performance to allow for these expenditures to be recorded outside of the identified period of performance. Context PRCI management was not in compliance with the period of performance requirements. There were six federal award contracts during the year ended December 31, 2022 where amounts were incurred after the period of performance for these awards had ended. The amounts incurred outside of the period of performance included $117,328 of federal award expenditures and $58,334 of cost share requirement. Cause According to PRCI management, employee turnover and inadequate procedures resulted in lack of documentation supporting compliance with the period of performance requirements. Additionally, for certain contracts, the structure over the deliverables in the federal awards are such that some deliverables, which triggers the fixed fee draw allowed in the contracts, were originally scheduled outside of the period of performance without the appropriate documentation to extend the related period of performance. Effect Noncompliance with the period of performance requirement could result in the federal awarding agency imposing conditions or taking corrective actions, including additional requirements or withholding/terminating funds. Questioned Costs $117,328 Recommendation PRCI management should develop and implement procedures and modify accounting structures to ensure compliance with period of performance requirements. Views of Responsible Officials and Planned Corrective Actions See Corrective Action Plan

Finding No. 2022-002 Internal Control over Preparation of Schedule of Expenditures of Federal Awards (?SEFA?) ? Material Weakness in Internal Control over Compliance; U.S. Department of Transportation; Research and Development Cluster: PHMSA Pipeline Safety Research and Development; ALN #20.723; Various federal awards (see Schedule of Expenditures of Federal Awards) Criteria Uniform Guidance prescribes the required Schedule of Expenditures of Federal Awards (SEFA) contents and delineates how or what is deemed to be expenditures for purposes of completing the SEFA, including that the accrual basis of accounting be used in the preparation of the SEFA. Condition Over the course of PRCI?s federal awards with cost-share requirements, management recorded inconsistent amounts related to federal expenditures for the year ended December 31, 2022. Context The requirements of PRCI?s federal awards are such that costs are required to be incurred by PRCI in order to meet the deliverables identified in the related fixed price contracts with PHMSA. Initial amounts reported by PRCI on the SEFA corresponded with PRCI?s share of expenditures over its cost share requirement associated with its performance towards meeting the deliverables identified, resulting in a SEFA expense recognition that did not necessarily align with the period the expenses were incurred, as required by the accrual basis of accounting. This resulted in timing differences as to when federal expenditures and cost sharing were being recognized in any given fiscal year in relation to SEFA reporting. However, at the end of the respective contract periods, cost share requirements were met in full, but not always within the period of performance (see finding 2022-003 below). Cause PRCI did not have a systematic process in place to allocate federal expenditures and cost sharing over the contract period and failed to understand the need account for federal expenditures on the accrual basis regardless of when deliverables are met and invoiced under the contract. Effect A difference noted between reported federal expenditures against the cost share requirement could lead to awards being over or under drawn and not in compliance with respective awards. Questioned Costs None. Recommendation To ensure adequate internal controls over the preparation of the SEFA, we recommend that PRCI enhance internal controls over the preparation of the SEFA to ensure that it is prepared by one individual with another individual reviewing the underlying support to ensure completeness and accuracy. Views of Responsible Officials and Planned Corrective Actions See Corrective Action Plan

Finding No. 2022-003: Period of Performance ? Material Weakness in Internal Control over Compliance; U.S. Department of Transportation; Research and Development Cluster: PHMSA Pipeline Safety Research and Development; ALN #20.723; Various federal awards (see Schedule of Expenditures of Federal Awards) Criteria Uniform Guidance prescribes to be eligible for federal funding, expenditures must be expended in the period of performance identified by the federal awarding agency. Condition For multiple federal awards, PRCI incurred and reported expenditures outside of the period of performance as identified in the original award agreements. We were unable to obtain appropriate evidence related to modifying the related periods of performance to allow for these expenditures to be recorded outside of the identified period of performance. Context PRCI management was not in compliance with the period of performance requirements. There were six federal award contracts during the year ended December 31, 2022 where amounts were incurred after the period of performance for these awards had ended. The amounts incurred outside of the period of performance included $117,328 of federal award expenditures and $58,334 of cost share requirement. Cause According to PRCI management, employee turnover and inadequate procedures resulted in lack of documentation supporting compliance with the period of performance requirements. Additionally, for certain contracts, the structure over the deliverables in the federal awards are such that some deliverables, which triggers the fixed fee draw allowed in the contracts, were originally scheduled outside of the period of performance without the appropriate documentation to extend the related period of performance. Effect Noncompliance with the period of performance requirement could result in the federal awarding agency imposing conditions or taking corrective actions, including additional requirements or withholding/terminating funds. Questioned Costs $117,328 Recommendation PRCI management should develop and implement procedures and modify accounting structures to ensure compliance with period of performance requirements. Views of Responsible Officials and Planned Corrective Actions See Corrective Action Plan