Audit 370633

Condition: During testing of allowable costs/cost principles charged to the federal program, we identified a $450,000 payment made to a former executive in settlement of an employment dispute. This cost was charged directly to the federal program. Criteria: Title 2, CFR, Part 200, Subpart E-Cost Principles, Basic Considerations, section 200.403, Factors Affecting Allowability of Costs, states, in part, that “Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: a) be necessary and reasonable for the performance of the Federal award, b) be properly documented showing the business nature of the charge. Cause: Internal controls over allowable costs compliance requirements were not properly designed and were not placed in operation. Management is responsible for compliance with the requirements of allowable costs and for the design, implementation, and maintenance of effective internal controls over compliance with the requirements of laws, statutes, regulations, rules, and provisions of grant agreements applicable to its federal program. Effect: As a result, $450,000 of unallowable costs were charged to the program. This represents questioned costs that must be refunded to the federal awarding agency or otherwise resolved. Questioned Costs: $450,000 Recommendation: We recommend the Agency develop a written policies and procedures manual for allowable/unallowable costs compliance, which should include a checklist detailing all the necessary steps to ensure proper review of all costs charged to the federal program.