Audit 406840

Federal Agency: Department of Labor ETA Office of Grants Management Federal Program Name: Community Projects Funding/Congressionally Directed Funding Assistance Listing Number: 17.289 Federal Award Identification Number and Year: 23A60CP000091-01-00 (2023) Award Period: 6/1/2023 - 5/31/2026 Type of Finding: • Material Weakness in Internal Control over Compliance • Other Matters Criteria or specific requirement: Per 2 CFR Part 200.303(a), entities must "establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statues, regulations, and the terms and conditions of the Federal award." Additionally, per 200.414, entities that do not have a current Federal negotiated indirect cost rate may charge a de minimis rate of up to 15% of modified total direct costs. Per the award agreements, the 10% historical de minimis rate is used by the Organization. Condition: There was no documented review or approval of the reimbursement requests, including the indirect cost rate calculation and totals that were invoiced to the awarding agency. Indirect costs are calculated as part of the reimbursement request process. 5 of 5 samples tested were incorrectly calculated, resulting in discrepancies between actual indirect costs and program-attributable indirect costs. Questioned costs: $13,066 Context: A sample of five was made from a population of 14 reimbursement requests for the fiscal year ended 12/31/2025. All five samples lacked documentation supporting a key control. Of these, four totals were found to have allocated expenses not directly related to the award, resulting in overstated reimbursement requests to the awarding agency and an overstatement of expenses related to the award; the remaining sample resulted in an undercharge of indirect costs to the program. The variations were partially due to indirect costs been calculated off of full Organization direct costs rather than program-specific direct costs, and partially due to unallowable cost categories being included in the indirect cost rate calculation, per the modified total direct cost definition and requirements. CLA sighted correspondence from January of 2026 between Evergreen Rural Water of Washington staff and the awarding agency that specifically outlines the correct way to allocate indirect costs. In this same correspondence, staff state the Organization's historic treatment of the indirect costs, which shows an incorrect understanding of the underlying requirements of this award and all federal expenditures that allow for indirect cost allocations. Cause: A lack of sufficient internal controls and procedures to effectively mitigate noncompliance. Misunderstanding of compliance requirements and accounting treatment for federal awards. Staff were notified during the FY24 audit that the indirect allocations were being incorrectly calculated, CLA noted that the indirect calculations were all significantly below the applicable 10% de minimis rate at this time, as such no finding was issued as no excess federal funds were spent as a result of the prior year incorrect calculations. Effect: A misunderstanding of the allocation of costs and the costs allowable under modified total direct costs can result in a miscalculation of indirect cost; in some cases the indirect allocations were overstated or understated compared to the actual modified total direct costs that were directly attributable to the award cluster tested. Repeat Finding: No Recommendation: CLA recommends the Organization revise the indirect costs calculation process to review program-only costs, rather than entity-wide costs. Develop policies and procedures to incorporate appropriate internal controls over indirect cost calculations; ensure the performer of the internal control has the required knowledge & understanding of compliance requirements & accounting to catch errors during the review & approval process. Views of responsible officials: Management is in agreement with this finding.