Audit 386978

Finding 2025-002: Significant Deficiency – Error in Payroll Charge Federal Program: Research & Development Cluster Assistance Listing Number: 12.630, Award Number: W911NF-16-2-0092 U.S. Army Research Institute - Basic, Applied and Advanced Research in Science and Engineering Grant Year: 2025 Criteria: Per 2 CFR § 200.430(g), charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must be supported by a system of internal control that provides reasonable assurance that the charges are accurate, allowable, and properly allocated. Condition: During testing of payroll charges to the federal awards, we identified an overcharge resulting from an error in the allocation of one employee’s time. The employee’s payroll was charged to the grant for hours that were not supported by time and effort documentation. Context: The Consortium implemented a new payroll and time keeping system during 2025 and was unaware that employees could amend their time after the cost was posted. Effect: The federal award was overcharged by $1,387. Cause: An employee adjusted their allocation of hours subsequent to the posting of the expense to the cost center. The finance department was unaware that this had occurred. Questioned costs: $1,387. Perspective: Statistical sampling was not used, however, samples were determined using AICPA approved guidelines. Repeat finding: This is not a repeat finding. Recommendation: The Consortium should remit payment to the agency in the amount of $1,387 and adjust the settings in the timekeeping module to not allow adjustments after time has been posted. Management’s response (unaudited): See Management’s Corrective Action Plan.

Finding 2025-001: Significant Deficiency – Unallowable Cost Included in Indirect Cost Pool Agency: Department of Defense Federal Program: Research & Development Cluster Assistance Listing Number: 12.630, Award Number: W911NF-16-2-0092 U.S. Army Research Institute - Basic, Applied and Advanced Research in Science and Engineering Assistance Listing Number: 12.300, Award Number: FA8650-13-2-6366 U.S. Air Force/Air Force Materiel Command - Basic and Applied Scientific Research Grant Year: 2025 Criteria: Per 2 CFR § 200.411 and § 200.414(e), indirect cost rates must be developed using only allowable costs. Unallowable costs must be excluded from the indirect cost pool, and if included, the rates must be adjusted or refunds issued to the Federal Government. Per 2 CFR § 200.411 Each cost incurred for the same purpose in like circumstances must be treated consistently either as a direct or an indirect cost to avoid possible double-charging of Federal awards. Condition: During our testing of the indirect cost pool, we noted inclusion of bad debt expense. Bad debt is explicitly addressed at §200.426 of 2 CFR Part 200 and identified as an unallowable cost. In addition, we noted that rent expense for leased space was charged directly as well as being included in the indirect cost pool, thus causing it to be double-counted. Context: The bad debt and duplicative rent included in the indirect cost pool totaled $52,400. We observed that the indirect rates for these awards were capped at a lower rate than the Consortium’s negotiated indirect rate, resulting in a portion of allowable indirect costs incurred not being charged to the grant in amounts greater than the error. Effect: Including unallowable costs in the indirect cost pool resulted in an inflated indirect cost rate, however, the approved rates used for the awards was less than the actual negotiated rate and therefore, not all possible allowable indirect was passed through to the government agency. Cause: The inclusion of bad debt and duplicative rent expense in the indirect cost pool appears to be due to a lack of adequate internal controls regarding review of the preparation of the Indirect Cost Rate Proposal and review of cost classifications against Uniform Guidance requirements. Questioned costs: No questioned costs. Perspective: Statistical sampling was not used, however, samples were determined using AICPA approved guidelines. Repeat finding: This is not a repeat finding. Recommendation: The Consortium should remove the bad debt and duplicative rent expense from the indirect cost pool, recalculate their indirect rate based on the adjusted indirect cost pool and implement a stronger review for any unallowable costs in alignment with the Cost Principles as outlined in the Uniform Guidance when preparing the incurred cost submission. Management’s response (unaudited): See Management’s Corrective Action Plan.