Audit 403684

2025 - 01 Non-compliance with Allowable Cost/Cost principle Condition: Certain expenses included in the Health Center Program (HCP) included amounts that were unallowable under Uniform Guidance allowable cost and compliance requirements. Specifically, these expenses included late fees on rent and finance charges on unpaid rent totaling $8,851. Criteria: Costs included in a federal award must be necessary, reasonable, and allowable under the applicable cost principles. Late fees on rent, finance charges on unpaid rent, and other penalties for late payment are not allowable and should not be included in federal programs in accordance with the provisions of Uniform Guidance. Cause: The inclusion of late fees and finance charges in HCP expenditures appears to have resulted from limitations in the expense coding and review processes, including insufficient procedures to identify and exclude unallowable costs related to late payments before they were included in the federal award. Effect: As a result, unallowable costs totaling $8,851 were included in the Health Center Program federal award. These expenditures do not meet Uniform Guidance allowable cost principles, and accordingly, a refund liability in the amount of $8,851 has been recognized by the Organization as payable to the Department. Recommendation: We recommend that the Organization strengthen its internal controls over the coding, approval, and review of expenditures included in the Health Center Program to ensure compliance with Uniform Guidance allowable cost principles, including establishing procedures to systematically identify and exclude late fees, finance charges, and other penalty-type costs from federal awards, and providing training to finance and program staff on allowable versus unallowable costs. Management views and corrective action plans: Management will update policies and procedures and the chart of accounts to clearly identify and prevent late fees, finance charges, and similar unallowable costs from being included in the Health Center Program, provide additional training to relevant finance and program personnel on Uniform Guidance allowable cost requirements, and implement enhanced review and periodic monitoring of HCP expenditures to ensure that only allowable costs are included in the federal award and that any exceptions are identified and corrected in a timely manner.