Finding Number: 2024-091 Prior Year Finding Number: 2023-074 Compliance Requirement: Activities Allowed or Unallowed and Allowable Costs/Cost Principles – Non-Payroll Activities Program: U.S. Department of Health and Human Services Government Department/Agency: Department of Human Services (DHS) Social Services Block Grant ALN: 93.667 Award #: Various Award Period: Various Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e., auditee management) establish, document, and maintain internal control designed to ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Management is responsible for establishing and maintaining a system of internal control that should include controls over its activities allowed or unallowed, allowable cost/cost principal process. CFR 200.403(g) states that for costs to be allowed under federal awards, they must be adequately documented. Condition – We sampled 60 of the 362 non-payroll transactions and noted 1 instance where the benefit date and payment are outside of the period under audit. Cause – DHS does not appear to have adequate policies and procedures in place to ensure compliance with applicable cost principles and maintenance of underlying documentation. Effect or Potential Effect - Failure to properly review and support expenditures can result in noncompliance with laws and regulations along with loss of funding. Questioned Costs – $29,985. Context – This is a condition identified per review of compliance with the specified requirements using a statistically valid sample. Total amount of non-payroll expenditures charged to the program in fiscal year 2024 were $2,642,402. Total amount sampled is $918,181. The known amount of the exception is $29,985. Recommendation – We recommend that DHS improve internal controls to ensure adherence to federal regulations related to the fiscal and administrative requirements for expending and accounting for non-payroll expenditures. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. DHS will update policies and procedures to ensure all costs are properly documented and comply with federal allowable cost principles. DHS is committed to addressing the identified issues and maintaining ongoing compliance with federal regulations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report.
Criteria: 2 CFR §200.403 and §200.412–.415 require recipients to utilize consistent and equitable methods for allocating indirect costs to Federal programs. Condition: The Organization was unable to provide adequate supporting documentation to substantiate its allocation of indirect costs to various Federal award programs. Cause: The Organization has not established written policies and procedures regarding the methodology and allocation of indirect costs to Federal programs. Effect: The absence of a formal policy leads to an increased risk of inconsistent or non-compliant cost allocation practices, which may lead to questioned costs, audit findings, or indemnification of Federal awarding agencies. Questioned Costs: None Context: The Organization does not have formal or informal procedures in place to allocate indirect costs to Federal awards and other activities using a specific allocation method set forth in the Uniform Guidance. While performing testing over indirect costs, we proposed adjustments for allocated indirect costs based on rates approved by Federal awarding agencies. Recommendation: We recommend that management establish and implement a comprehensive indirect cost allocation policy that aligns with the requirements of the Uniform Guidance. The policy should clearly define the methodology for calculating, allocating, and applying indirect costs to Federal programs and other activities. Views of Responsible Officials: See management’s view and corrective action plan at the end of this report.
Criteria: 2 CFR §200.403 and §200.430 require all costs charged to Federal awards by recipients to be allowable, allocable, and adequately documented. Specifically, payroll costs must reflect actual time worked and be supported by appropriate review and approval processes. Condition: The Organization was unable to provide sufficient documentary evidence that all payroll-related costs were charged to Federal programs in compliance with the Uniform Guidance requirements. Cause: Due to staff turnover and vacancies, the Organization did not perform regular reconciliations of payroll records to the general ledger and accounting system throughout the year. Effect: Identified controls over the Organization’s compliance with allowed cost requirements for Federal award programs were not functioning as designed. Questioned Costs: None Context: As part of our follow-up procedures required by professional auditing standards with respect to prior year audit findings, we tested whether solutions were implemented by the Organization to address prior year identified deficiencies related to allocating payroll-related costs. Those follow-up procedures did not provide us with documentary evidence to support the assertion that corrective action was taken in the current year. This deficiency was discovered in the prior year as part of testing the Organization’s compliance with allocating indirect costs. The indirect cost allocation compliance requirement was not deemed to be direct and material to the Organization’s major Federal program for the period under audit. Recommendation: The Organization should adhere to its policies and procedures regarding supervisory review of documentation to support the allowability of costs charged to Federal award programs. Furthermore, we recommend that the individual performing reviews of documentation for allowable costs initial or sign off on such support to provide evidence of their actions. In addition, the Organization should review, and possibly revise, its policies and procedures for preventing or detecting and correcting unallowable costs charged to Federal programs to ensure consistent application of those policies and procedures to all costs charged to federal awards. Views of Responsible Officials: See management’s view and corrective action plan at the end of this report.
2024–002 [2022–002]—Unallowable Disbursements Charged to Federal Program Type of Finding: (G) Instance of Noncompliance Related to Federal Awards Funding Agency: U.S. Department of Health and Human Services AL #: 93.231 – Epidemiology and Laboratory Capacity Award #: Various Award Period: 09/30/2021 – 09/29/2026 Estimated Questioned Costs: $7,600 Compliance Requirement: Allowable Costs/Cost Principles Statement of Condition AAIHB distributed gift cards to independent contractors as a gesture of appreciation for working extended hours related to COVID-19 contact tracing efforts. An annual bonus was also paid out to independent contractors that was not included in the signed contract. The total value of the gift cards was approximately $600, and the total value of the bonuses was approximately $7,000. Both were charged to the Epidemiology and Laboratory Capacity grant (AL #93.231). These gift cards and bonuses were provided in addition to their regular compensation. Neither set of disbursements were processed through payroll or formalized in contract terms, and there is no documentation indicating the entity obtained approval from the awarding agency. Criteria In accordance with 2 CFR §200.403, costs charged to federal awards must be necessary, reasonable, allocable, adequately documented, and conform to applicable limitations. To the extent the gift cards constitute promotional gifts, cite 2 CFR §200.421(e)(3). Payments to contractors also should conform to written contract terms and applicable procurement requirements. Contractor payments must align with procurement standards in 2 CFR § 200.318–200.324 and be governed by written contracts. Effect The use of federal funds to provide gift cards or bonuses constitutes an unallowable cost under Uniform Guidance. The questioned amount may be subject to repayment to the awarding agency or passthrough entity. Cause The auditee sought to recognize the extraordinary efforts of independent contractors during and towards the end of the COVID-19 public health response. However, they were unaware that the use of gift cards or bonuses not outlined in the contact for this purpose was inconsistent with Uniform Guidance and lacked prior approval or supporting policy. Recommendation We recommend the auditee discontinue the use of federal funds for gift card distributions or bonuses to contractors. Payments to contractors should be governed by written contracts and comply with applicable procurement standards. If the auditee believes these costs are justifiable, they should consult the awarding agency for a determination and, if necessary, reimburse the federal award. View of Responsible Officials and Corrective Action Plan We acknowledge the finding regarding the use of gift cards and bonus payments to contractors. During the Covid-19 pandemic, our staff and contractors were tasked with responding to urgent and overwhelming public health demands, particularly as the New Mexico Department of Health became overextended. To recognize the efforts and to ensure timely case reporting and investigations for tribal communities, gift cards and bonuses were used as a form of appreciation. Corrective Action Plan Moving forward, we will ensure full compliance with federal grant requirements. Specifically: 1. We will adhere strictly to the cost principles and allowability guidance outlined in federal regulations and the terms of each Notice of Award. 2. In instances where the allowability of an expense is unclear, we will proactively seek guidance and written approval from our Federal Grant Management Officer before incurring the cost. 3. We will provide refresher training to program and fiscal staff on allowable costs under federal awards to prevent recurrence of similar findings. These corrective actions will ensure future expenditures are fully compliant with federal guidelines. Corrective Action Plan Timeline As part of being a continued finding, AAIHB has already ceased the use of gift cards. Going forward we will also discontinue the use of bonuses for contractors. Within the next quarter, Finance and Program Leadership will review current grant guidance, the applicable Notice of Award, and other relevant federal requirements to ensure compliance. To prevent this issue for recurring, whenever there is uncertainty regarding the allowability of a cost, staff will consult Grants Management Officers prior to obligating or expending funds. Designation of Employee Position Responsible for Meeting Deadline Program Managers/Directors, Finance Officer, and Accounting Manager.
Finding No. 2024-002: Activities Allowed or Unallowed and Allowable Costs/Cost Principles – Significant Deficiency in Internal Control over Compliance (Cost Allocation Plan) Federal Program Name: All Pass-through Entity: All Federal Assistance Listing Number: All Criteria In accordance with 2 CFR §200.403 and §200.405, costs charged to federal awards must be adequately documented, allowable, and allocated to programs based on relative benefits received. Organizations allocating shared or indirect costs among multiple funding sources are required to maintain a reasonable, consistently applied, and current cost allocation methodology. Condition The Organization’s cost allocation plan (“CAP”) has not been formally reviewed or updated in several years and does not reflect the current structure of awards and programs. As a result, the Organization could not demonstrate that costs charged to federal awards were consistently allocated in accordance with a current, formally approved methodology. Questioned Costs None. Context The Organization's cost allocation plan had not been formally reviewed or updated since 2015. The outdated plan was utilized during the audit period to allocate shared costs among multiple funding sources and programs. Effect Without a current and formally maintained CAP, there is an increased risk that costs charged to federal awards may not be properly allocated, may not reflect relative benefits received, or may not be consistently applied in accordance with federal requirements. Cause The Organization does not have established procedures requiring periodic review and update of the CAP to ensure it remains current with changes in operations and funding sources. Repeat Finding No Recommendation We recommend that the Organization formally document its cost allocation methodology and establish procedures for periodic review and update of the CAP to ensure it reflects current operations and funding sources. The CAP should be formally approved by governance and retained as support for allocation of shared costs to federal programs. Management’s Response/View of Responsible Officials Management agrees with this finding, see the Corrective Action Plan.
Pass-Through Entity: Federated States of Micronesia National Government Federal Agency: U.S. Department of the Interior Assistance Listing: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D24AF00340, D24AF00341, D23AF00263, D20AP00054, D24AF00350 Area: Allowable Costs/Cost Principles Questioned Costs: $27,217 Criteria: Article VI, section 1(a)(ii) of the FSM-U.S. Fiscal Procedures Agreement requires accounting records sufficient to support the source and application of grant funds, including canceled checks, paid bills, payroll and time-and-attendance records, contracts, subaward documents, and other financial data. Under 2 CFR 200.403, costs charged to a federal award must be necessary, reasonable, allocable, and adequately documented. Under 2 CFR 200.430(g), salary and wage charges must be supported by records that accurately reflect the work performed. Condition: The instances of noncompliance were as follows: 1) For 5 (8%) of 65 nonpayroll transactions tested, from a sample totaling $1,303,256 and a population totaling $24,317,028, the State did not provide sufficient financial or programmatic records, such as vendor invoices, contracts, receiving reports, or approved budgets, to establish allowability:2) For 22 (37%) of 60 payroll transactions tested, from a sample totaling $36,422 and a population totaling $24,317,028, the State either (a) did not provide uniform or departmental timecards or timesheets supporting compensation, taxes, and fringe benefits; (b) provided departmental records supporting fewer hours than the uniform timesheet; (c) had unexplained differences between regular and leave hours in the two records; or (d) did not provide underlying support for retroactive regular pay, as follows:2) For 22 (37%) of 60 payroll transactions tested, from a sample totaling $36,422 and a population totaling $24,317,028, the State either (a) did not provide uniform or departmental timecards or timesheets supporting compensation, taxes, and fringe benefits; (b) provided departmental records supporting fewer hours than the uniform timesheet; (c) had unexplained differences between regular and leave hours in the two records; or (d) did not provide underlying support for retroactive regular pay, as follows: Cause: Documentation-retention controls at the State Treasury and responsible departments were not operating effectively. Departmental and uniform timekeeping records were not consistently reconciled, and supporting personnel records were not consistently retained. • For Conditions 1, 2(a), and 2(d), disbursement and timekeeping records were not consistently filed and retained by the State Treasury and responsible departments. • For Conditions 2(b) and 2(c), departmental controls did not ensure reconciliation of departmental timesheets to the uniform timesheets submitted to the State Treasury. The Treasury did not consistently receive departmental support and relied on agency review and certification. Cause: (continued) • For Conditions 3(a) and 3(b), personnel-record retention controls were not operating effectively. Effect: The State did not comply with applicable allowable-cost and compensation requirements. Unsupported expenditures constitute known questioned costs of $27,217. Likely questioned costs exceeded $25,000 based on projection of the sample results. Recommendation: The State should: • Strengthen centralized documentation filing and retention controls for disbursement, payroll, and personnel records. • Because the State Treasury relies on departmental monitoring, the State should: 1. Enhance monitoring at the departmental level or implement a uniform timekeeping system. 2. Require departments to submit timekeeping reports to the State Treasury for secondary reconciliation. 3. Require retention of explanations and approvals for changes affecting uniform timesheets that are not reflected in departmental records. Identification as a Repeat Finding: 2023-002 View of Responsible Officials: The State’s response and corrective action plan addressing this finding is included in the accompanying corrective action plan.
Finding 2024-009 Pass-Through Entity: Federated States of Micronesia National Government Federal Agency: U.S. Department of Education Assistance Listing: 84.027 Special Education – Grants to States (IDEA, Part B) Federal Award No.: H027A230005 Area: Allowable Costs/Cost Principles Questioned Costs: $4,165 Criteria: Under 2 CFR 200.403, costs must be necessary, reasonable, allocable, and adequately documented. Under 2 CFR 200.430(g), salary and wage charges must be based on records that accurately reflect work performed. 2 CFR 200.441 establishes that expenditures for fines related to the violation of laws or regulations are generally unallowable unless specifically required by the award or approved in writing by the awarding agency. Condition: 1) For 5 (8%) of 60 nonpayroll transactions tested, from a sample totaling $79,617 and a population totaling $951,629, the State either (a) did not provide sufficient financial or programmatic support to establish allowability or (b) charged a cost that was unallowable under 2 CFR 200.441, as follows: 2) For 9 (15%) of 60 payroll transactions tested, from a sample totaling $28,999 and a population totaling $951,629, the State either (a) did not provide timekeeping documentation supporting compensation, taxes, and fringe benefits or (b) reported full regular hours while the time export showed leave and no approved leave request was provided, as follows: Condition: (continued) 3) Of the payroll transactions tested and cited above, we noted that personnel action forms or contracts were unavailable for two employees, and authorized direct-deposit forms were unavailable for three employees. Cause: Documentation-retention and review controls at the State Treasury and responsible departments were not operating effectively, and personnel did not understand or consider 2 CFR 200.441. • For Conditions 1(a), 2(a), and 2(b), disbursement and timekeeping documentation was not consistently filed and retained. • For Condition 1(b), personnel did not consistently understand or apply 2 CFR 200.441. • For Conditions 3(a) and 3(b), personnel-record retention controls were not operating effectively. Effect: The State did not comply with applicable allowable-cost and compensation requirements. Unsupported or unallowable expenditures constitute known questioned costs of $4,165. Likely questioned costs exceeded $25,000 based on projection of the sample results. Recommendation: The State should strengthen document-retention, payroll reconciliation, and personnel-authorization controls and incorporate review of entertainment-cost restrictions into preapproval and payment checklists and periodically monitor compliance. Identification as a Repeat Finding: 2023-006 View of Responsible Officials: The State’s response and corrective action plan addressing this finding is included in the accompanying corrective action plan.
Finding 2024-011 Federal Agency: U.S. Department of Health and Human Services Assistance Listing: 93.224 – Health Center Program (Community Health Centers, Migrant Health Center Health Care for the Homeless, and Public Housing Primary Care). Federal Award No.: 5 H80CS04302-19-00, 6 H80CS04302-20-02, 2 H80CS04302-20-00, and H80CS04302-20-05 Area: Allowable Costs/Cost Principles Questioned Costs: $3,816 Criteria: Sections 200.403 and 200.430(g) of Title 2 of the CFR require adequately documented costs and compensation records that accurately reflect work performed. Section 200.302(b) requires financial records that identify the source and application of federal funds and permit transactions to be traced to the applicable award. Condition: 1. For 15 (25%) of 60 payroll transactions tested, from a sample totaling $62,084 and a population totaling $1,094,077, the State either (a) did not provide sufficient timekeeping support; (b) provided departmental records supporting fewer hours than the uniform timesheet; (c) had unexplained differences between regular and leave hours; or (d) did not provide support for retroactive regular pay, as follows: Condition: (continued) 2. Of the payroll transactions tested and cited above, we additionally noted the following: a. For two employees, the State did not provide the personnel action form or employment contract applicable to the tested pay period. b. For test items 9, 10, 11, 12, 13, 20, 22, 31, and 33, the general ledger did not identify which of the three Health Center awards was charged. Cause: Payroll documentation-retention controls were ineffective, and the chart of accounts was not designed to identify the specific Health Center award applicable to each transaction. a. For Conditions 1(a) through 1(d) and 2(a), payroll and personnel support was not consistently retained. b. For Condition 2(b), the chart of accounts did not include award-level coding for each Health Center award. Effect: The State did not comply with allowable-cost, compensation, and financial-management requirements. Unsupported payroll charges constitute known questioned costs of $3,816. Likely questioned costs exceeded $25,000 based on projection of the sample results. Recommendation: The State should: 1. Strengthen payroll documentation-retention and departmental monitoring controls or implement a uniform timekeeping system. 2. Require departments to submit supporting timekeeping reports to the State Treasury for secondary reconciliation. 3. Retain explanations for differences between uniform and departmental records and establish award-level codes in the chart of accounts. Identification as a Repeat Finding: Not applicable View of Responsible Officials: The State’s response and corrective action plan addressing this finding is included in the accompanying corrective action plan.
2024-001 – Internal Control over Compliance and Compliance with Activities Allowed or Unallowed and Allowable Costs/Cost Principles Information on Federal Program(s) - Department of Education Assistance Listing Number: 84.351 Assistance Listing Name: Arts in Education National Program Grant Award Number: S351A220007 Award Period: October 1, 2023 to September 30, 2024 Criteria or Specific Requirement – The Uniform Guidance in 2 CFR Section 200.303 requires that non-Federal entities receiving Federal awards (i.e., auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. In addition, per 2 CFR Section 200.403, “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 and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity. (d) Be accorded consistent treatment. A cost may not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost. (e) Be determined in accordance with generally accepted accounting principles (GAAP). (f) Not be included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or a prior period. (g) Be adequately documented. (h) Cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3).” Condition – In evaluating the Center’s compliance with the requirements of Activities Allowed or Unallowed and Allowable Costs Cost Principles, our test work identified one instance out of a sample of sixty payroll transactions, totaling $66,904.92, in which an employee was not paid according to his (her) contract. For the one exception, the employee was underpaid a total of $0.24. Cause – The Center did not adhere to their internal process to ensure approved salary information was accurately applied. Effect or Potential Effect – Without adequate internal controls in place to ensure costs are properly verified and applied, the Center could inaccurately charge expenditures to the federal program. Questioned Costs – N/A Context – This is a condition based on testing of the Center’s compliance. Based on tested samples, we noted a total underpayment of $0.24. The prevalence of the finding is detailed in the condition section above. The samples were selected using a non-statistical method. Repeat Finding – This is a repeat finding from prior year. This was reported as finding 2023-001 in the 2023 report. Recommendation - We recommend management of the Center strengthen their internal process to ensure that employee salary information recorded in the payroll system is approved, supported by salary documentation in the personnel files, and accurately applied. Views of Responsible Officials – After performing a detailed analysis, the Center’s management identified that the likely net underpayment amounted to $1.32. The likely underpayment was determined by management through examination of the total salary charged to the federal program. The Center’s management agrees with the finding and will strengthen the internal process surrounding the activities allowed or unallowed and allowable costs and will ensure adequate documentation is in place and approved salary rates are consistently and properly applied. See the Center’s corrective action for more details.
2024-001 – Internal Control over Compliance and Compliance with Activities Allowed or Unallowed and Allowable Costs/Cost Principles Information on Federal Program(s) - Department of Education Assistance Listing Number: 84.351 Assistance Listing Name: Arts in Education National Program Grant Award Number: S351A220007 Award Period: October 1, 2023 to September 30, 2024 Criteria or Specific Requirement – The Uniform Guidance in 2 CFR Section 200.303 requires that non-Federal entities receiving Federal awards (i.e., auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. In addition, per 2 CFR Section 200.403, “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 and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity. (d) Be accorded consistent treatment. A cost may not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost. (e) Be determined in accordance with generally accepted accounting principles (GAAP). (f) Not be included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or a prior period. (g) Be adequately documented. (h) Cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3).” Condition – In evaluating the Center’s compliance with the requirements of Activities Allowed or Unallowed and Allowable Costs Cost Principles, our test work identified one instance out of a sample of sixty payroll transactions, totaling $66,904.92, in which an employee was not paid according to his (her) contract. For the one exception, the employee was underpaid a total of $0.24. Cause – The Center did not adhere to their internal process to ensure approved salary information was accurately applied. Effect or Potential Effect – Without adequate internal controls in place to ensure costs are properly verified and applied, the Center could inaccurately charge expenditures to the federal program. Questioned Costs – N/A Context – This is a condition based on testing of the Center’s compliance. Based on tested samples, we noted a total underpayment of $0.24. The prevalence of the finding is detailed in the condition section above. The samples were selected using a non-statistical method. Repeat Finding – This is a repeat finding from prior year. This was reported as finding 2023-001 in the 2023 report. Recommendation - We recommend management of the Center strengthen their internal process to ensure that employee salary information recorded in the payroll system is approved, supported by salary documentation in the personnel files, and accurately applied. Views of Responsible Officials – After performing a detailed analysis, the Center’s management identified that the likely net underpayment amounted to $1.32. The likely underpayment was determined by management through examination of the total salary charged to the federal program. The Center’s management agrees with the finding and will strengthen the internal process surrounding the activities allowed or unallowed and allowable costs and will ensure adequate documentation is in place and approved salary rates are consistently and properly applied. See the Center’s corrective action for more details.
Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Title: Social Services Block Grant Block Grants for Community Mental Health Services ALN: 93.667 93.958 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: Social Services Block Grant 2401TXSOSR October 1, 2023 – September 30, 2025 Block Grants for Community Mental Health Services 1B09SM085994, 6B09SM085994 October 1, 2021 – September 30, 2023 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR 200.303(a), Health and Human Services Commission (HHSC) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that it is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should be in compliance with guidance in the “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403(h) cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3). Condition: For awards with period of performance beginning dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the first month of the award. For awards with period of performance end dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the last month and after the period of performance end date. We noted the following instances of noncompliance: Social Services Block Grant (SSBG) – Audit procedures included testing 40 sampled transactions from projects with period of performance beginning dates during the fiscal year totaling $5,034. Two of the expenditures, totaling $486, were related to costs incurred prior to the period of performance begin date. The Project Period Start Date per the grant award was October 1, 2023, however costs were incurred on September 6, 2023 and September 11, 2023. Block Grants for Community Mental Health Services (MHBG) – Audit procedures included testing 40 sampled transactions, totaling $1,695,512, from projects with period of performance end dates during the fiscal year for which the obligation had not been paid as of the end of the period of performance. Twelve of the expenditures, totaling $312,929, were not paid within 120 days of the period of performance end date, which is the allowed time period to liquidate obligations. The required liquidation date was December 29, 2023; however, these obligations were paid between January 2, 2024 and April 11, 2024. Questioned costs: Social Services Block Grant: $486 Block Grants for Community Mental Health Services: $312,929 Context: See “Condition.” Cause: The two exceptions for SSBG were related to travel costs where the employee’s supervisor approved the transaction, which was coded to the incorrect grant. For the exceptions noted in the liquidation period testing for MHBG, the late payments are due to the HHSC’s reconciliation and closeout process not being performed in a timely manner. Effect: Ineffective internal controls may result in questioned costs and noncompliance with the terms of the grant. In addition, costs paid with non-federal sources remain in the population which is being included on the schedule of federal expenditures (SEFA) for the current fiscal year. Repeat Finding: 2023-016 Recommendation: HHSC should provide additional training over its review process to ensure that reviewers are verifying that transactions are posted to the proper grant. Additionally, HHSC should verify that all obligations incurred are liquidated during the closeout process and adjustments are not made subsequent to closeout. Views of responsible officials: HHSC concurs with the finding.
Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Title: Social Services Block Grant Block Grants for Community Mental Health Services ALN: 93.667 93.958 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: Social Services Block Grant 2401TXSOSR October 1, 2023 – September 30, 2025 Block Grants for Community Mental Health Services 1B09SM085994, 6B09SM085994 October 1, 2021 – September 30, 2023 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR 200.303(a), Health and Human Services Commission (HHSC) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that it is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should be in compliance with guidance in the “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403(h) cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3). Condition: For awards with period of performance beginning dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the first month of the award. For awards with period of performance end dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the last month and after the period of performance end date. We noted the following instances of noncompliance: Social Services Block Grant (SSBG) – Audit procedures included testing 40 sampled transactions from projects with period of performance beginning dates during the fiscal year totaling $5,034. Two of the expenditures, totaling $486, were related to costs incurred prior to the period of performance begin date. The Project Period Start Date per the grant award was October 1, 2023, however costs were incurred on September 6, 2023 and September 11, 2023. Block Grants for Community Mental Health Services (MHBG) – Audit procedures included testing 40 sampled transactions, totaling $1,695,512, from projects with period of performance end dates during the fiscal year for which the obligation had not been paid as of the end of the period of performance. Twelve of the expenditures, totaling $312,929, were not paid within 120 days of the period of performance end date, which is the allowed time period to liquidate obligations. The required liquidation date was December 29, 2023; however, these obligations were paid between January 2, 2024 and April 11, 2024. Questioned costs: Social Services Block Grant: $486 Block Grants for Community Mental Health Services: $312,929 Context: See “Condition.” Cause: The two exceptions for SSBG were related to travel costs where the employee’s supervisor approved the transaction, which was coded to the incorrect grant. For the exceptions noted in the liquidation period testing for MHBG, the late payments are due to the HHSC’s reconciliation and closeout process not being performed in a timely manner. Effect: Ineffective internal controls may result in questioned costs and noncompliance with the terms of the grant. In addition, costs paid with non-federal sources remain in the population which is being included on the schedule of federal expenditures (SEFA) for the current fiscal year. Repeat Finding: 2023-016 Recommendation: HHSC should provide additional training over its review process to ensure that reviewers are verifying that transactions are posted to the proper grant. Additionally, HHSC should verify that all obligations incurred are liquidated during the closeout process and adjustments are not made subsequent to closeout. Views of responsible officials: HHSC concurs with the finding.
Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Title: Social Services Block Grant Block Grants for Community Mental Health Services ALN: 93.667 93.958 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: Social Services Block Grant 2401TXSOSR October 1, 2023 – September 30, 2025 Block Grants for Community Mental Health Services 1B09SM085994, 6B09SM085994 October 1, 2021 – September 30, 2023 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR 200.303(a), Health and Human Services Commission (HHSC) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that it is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should be in compliance with guidance in the “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403(h) cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3). Condition: For awards with period of performance beginning dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the first month of the award. For awards with period of performance end dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the last month and after the period of performance end date. We noted the following instances of noncompliance: Social Services Block Grant (SSBG) – Audit procedures included testing 40 sampled transactions from projects with period of performance beginning dates during the fiscal year totaling $5,034. Two of the expenditures, totaling $486, were related to costs incurred prior to the period of performance begin date. The Project Period Start Date per the grant award was October 1, 2023, however costs were incurred on September 6, 2023 and September 11, 2023. Block Grants for Community Mental Health Services (MHBG) – Audit procedures included testing 40 sampled transactions, totaling $1,695,512, from projects with period of performance end dates during the fiscal year for which the obligation had not been paid as of the end of the period of performance. Twelve of the expenditures, totaling $312,929, were not paid within 120 days of the period of performance end date, which is the allowed time period to liquidate obligations. The required liquidation date was December 29, 2023; however, these obligations were paid between January 2, 2024 and April 11, 2024. Questioned costs: Social Services Block Grant: $486 Block Grants for Community Mental Health Services: $312,929 Context: See “Condition.” Cause: The two exceptions for SSBG were related to travel costs where the employee’s supervisor approved the transaction, which was coded to the incorrect grant. For the exceptions noted in the liquidation period testing for MHBG, the late payments are due to the HHSC’s reconciliation and closeout process not being performed in a timely manner. Effect: Ineffective internal controls may result in questioned costs and noncompliance with the terms of the grant. In addition, costs paid with non-federal sources remain in the population which is being included on the schedule of federal expenditures (SEFA) for the current fiscal year. Repeat Finding: 2023-016 Recommendation: HHSC should provide additional training over its review process to ensure that reviewers are verifying that transactions are posted to the proper grant. Additionally, HHSC should verify that all obligations incurred are liquidated during the closeout process and adjustments are not made subsequent to closeout. Views of responsible officials: HHSC concurs with the finding.
Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Title: Social Services Block Grant Block Grants for Community Mental Health Services ALN: 93.667 93.958 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: Social Services Block Grant 2401TXSOSR October 1, 2023 – September 30, 2025 Block Grants for Community Mental Health Services 1B09SM085994, 6B09SM085994 October 1, 2021 – September 30, 2023 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR 200.303(a), Health and Human Services Commission (HHSC) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that it is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should be in compliance with guidance in the “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403(h) cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3). Condition: For awards with period of performance beginning dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the first month of the award. For awards with period of performance end dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the last month and after the period of performance end date. We noted the following instances of noncompliance: Social Services Block Grant (SSBG) – Audit procedures included testing 40 sampled transactions from projects with period of performance beginning dates during the fiscal year totaling $5,034. Two of the expenditures, totaling $486, were related to costs incurred prior to the period of performance begin date. The Project Period Start Date per the grant award was October 1, 2023, however costs were incurred on September 6, 2023 and September 11, 2023. Block Grants for Community Mental Health Services (MHBG) – Audit procedures included testing 40 sampled transactions, totaling $1,695,512, from projects with period of performance end dates during the fiscal year for which the obligation had not been paid as of the end of the period of performance. Twelve of the expenditures, totaling $312,929, were not paid within 120 days of the period of performance end date, which is the allowed time period to liquidate obligations. The required liquidation date was December 29, 2023; however, these obligations were paid between January 2, 2024 and April 11, 2024. Questioned costs: Social Services Block Grant: $486 Block Grants for Community Mental Health Services: $312,929 Context: See “Condition.” Cause: The two exceptions for SSBG were related to travel costs where the employee’s supervisor approved the transaction, which was coded to the incorrect grant. For the exceptions noted in the liquidation period testing for MHBG, the late payments are due to the HHSC’s reconciliation and closeout process not being performed in a timely manner. Effect: Ineffective internal controls may result in questioned costs and noncompliance with the terms of the grant. In addition, costs paid with non-federal sources remain in the population which is being included on the schedule of federal expenditures (SEFA) for the current fiscal year. Repeat Finding: 2023-016 Recommendation: HHSC should provide additional training over its review process to ensure that reviewers are verifying that transactions are posted to the proper grant. Additionally, HHSC should verify that all obligations incurred are liquidated during the closeout process and adjustments are not made subsequent to closeout. Views of responsible officials: HHSC concurs with the finding.
Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: U.S. Department of Transportation Federal Program Title: Airport Improvement Program ALN: 20.106 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 3–48–SBGP–148–2022 September 14, 2022 – September 13, 2026 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Department of Transportation (TxDOT) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403, except where otherwise authorized by statute, costs must meet the following criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient. (d) Be accorded consistent treatment. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for State and local governments and Indian Tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing requirements of any other federally – financed program in either the current or a prior period. (g) Be adequately documented. Condition: Audit procedures included a sample of 40 expenditures, totaling $9,426,808, to test allowability with grant awards. We noted that for one of the 40 samples, TxDOT overpaid an invoice to a vendor by $70,000. Upon detection by the vendor, TxDOT corrected the overpayment by reducing a subsequent payment to the vendor by the $70,000. Questioned costs: None Context: See “Condition.” Cause: The amount requested to be reimbursed was manually entered incorrectly in eGrants. TxDOT did not detect the discrepancy during the review and approval process prior to the payment. Effect: Failure to thoroughly review invoices prior to payment may lead to overpayment or underpayment of funds to vendors and potential questioned costs. Repeat Finding: No Recommendation: We recommend that TxDOT provide additional training to individuals performing reviews of expenditures. We also recommend TxDOT establish internal controls to monitor that reviews of expenditures are being completed to the level of detail required by internal policies and procedures. Views of responsible officials: TxDOT AVN agrees with the finding.
Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: U.S. Department of Transportation Federal Program Title: Airport Improvement Program ALN: 20.106 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 3–48–SBGP–148–2022 September 14, 2022 – September 13, 2026 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Department of Transportation (TxDOT) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403, except where otherwise authorized by statute, costs must meet the following criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient. (d) Be accorded consistent treatment. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for State and local governments and Indian Tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing requirements of any other federally – financed program in either the current or a prior period. (g) Be adequately documented. Condition: Audit procedures included a sample of 40 expenditures, totaling $9,426,808, to test allowability with grant awards. We noted that for one of the 40 samples, TxDOT overpaid an invoice to a vendor by $70,000. Upon detection by the vendor, TxDOT corrected the overpayment by reducing a subsequent payment to the vendor by the $70,000. Questioned costs: None Context: See “Condition.” Cause: The amount requested to be reimbursed was manually entered incorrectly in eGrants. TxDOT did not detect the discrepancy during the review and approval process prior to the payment. Effect: Failure to thoroughly review invoices prior to payment may lead to overpayment or underpayment of funds to vendors and potential questioned costs. Repeat Finding: No Recommendation: We recommend that TxDOT provide additional training to individuals performing reviews of expenditures. We also recommend TxDOT establish internal controls to monitor that reviews of expenditures are being completed to the level of detail required by internal policies and procedures. Views of responsible officials: TxDOT AVN agrees with the finding.
Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: U.S. Department of Transportation Federal Program Title: Airport Improvement Program ALN: 20.106 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 3–48–SBGP–148–2022 September 14, 2022 – September 13, 2026 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Department of Transportation (TxDOT) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403, except where otherwise authorized by statute, costs must meet the following criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient. (d) Be accorded consistent treatment. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for State and local governments and Indian Tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing requirements of any other federally – financed program in either the current or a prior period. (g) Be adequately documented. Condition: Audit procedures included a sample of 40 expenditures, totaling $9,426,808, to test allowability with grant awards. We noted that for one of the 40 samples, TxDOT overpaid an invoice to a vendor by $70,000. Upon detection by the vendor, TxDOT corrected the overpayment by reducing a subsequent payment to the vendor by the $70,000. Questioned costs: None Context: See “Condition.” Cause: The amount requested to be reimbursed was manually entered incorrectly in eGrants. TxDOT did not detect the discrepancy during the review and approval process prior to the payment. Effect: Failure to thoroughly review invoices prior to payment may lead to overpayment or underpayment of funds to vendors and potential questioned costs. Repeat Finding: No Recommendation: We recommend that TxDOT provide additional training to individuals performing reviews of expenditures. We also recommend TxDOT establish internal controls to monitor that reviews of expenditures are being completed to the level of detail required by internal policies and procedures. Views of responsible officials: TxDOT AVN agrees with the finding.
Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: U.S. Department of Transportation Federal Program Title: Airport Improvement Program ALN: 20.106 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 3–48–SBGP–148–2022 September 14, 2022 – September 13, 2026 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Department of Transportation (TxDOT) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403, except where otherwise authorized by statute, costs must meet the following criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient. (d) Be accorded consistent treatment. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for State and local governments and Indian Tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing requirements of any other federally – financed program in either the current or a prior period. (g) Be adequately documented. Condition: Audit procedures included a sample of 40 expenditures, totaling $9,426,808, to test allowability with grant awards. We noted that for one of the 40 samples, TxDOT overpaid an invoice to a vendor by $70,000. Upon detection by the vendor, TxDOT corrected the overpayment by reducing a subsequent payment to the vendor by the $70,000. Questioned costs: None Context: See “Condition.” Cause: The amount requested to be reimbursed was manually entered incorrectly in eGrants. TxDOT did not detect the discrepancy during the review and approval process prior to the payment. Effect: Failure to thoroughly review invoices prior to payment may lead to overpayment or underpayment of funds to vendors and potential questioned costs. Repeat Finding: No Recommendation: We recommend that TxDOT provide additional training to individuals performing reviews of expenditures. We also recommend TxDOT establish internal controls to monitor that reviews of expenditures are being completed to the level of detail required by internal policies and procedures. Views of responsible officials: TxDOT AVN agrees with the finding.
Activities Allowed and Unallowed, Allowable Costs/Cost Principles – Indirect Costs Federal Agency: U.S. Department of Labor Federal Program Title: Employment Service Cluster ALN: 17.207, 17.801 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 23555DV000036 – 01, 24555DV000076 – 01 October 1, 2022 – December 31, 2024, October 1, 2023 – December 31, 2025 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Veterans Commission (TVC) must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR section 200.403, except where otherwise authorized by statute, costs must meet the following criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient. (d) Be accorded consistent treatment. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for State and local governments and Indian Tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing requirements of any other federally – financed program in either the current or a prior period. (g) Be adequately documented. Condition: Audit procedures included a sample of five indirect cost expenditures, totaling $1,248,175, incurred during the fiscal year to verify that the rates used were in accordance with the terms and conditions of the award and the amounts claimed were applied to the appropriate base. During our testing, we noted one sample in which an incorrect rate was applied to the base, resulting in $69,481 of unallowed indirect costs. In addition, there was no evidence of review and approval for three of the five expenditures selected for testing, including the expenditure noted in the preceding paragraph. Questioned costs: $69,481 Context: See “Condition.” Cause: Management failed to retain documentation that would support the review and approval of the indirect cost amounts. The exceptions were caused due to high turnover within the agency. Employees who were responsible for the approvals are no longer employed through TVC. Effect: Lack of formal documentation of reviews may result in questioned costs. In addition, failure to maintain adequate documentation pertinent to a federal award may result in noncompliance with grant terms and conditions. Repeat Finding: No Recommendation: We recommend TVC enforce establish document retention processes to ensure it has access to documentation for review in the event of management turnover. In addition, we recommend TVC strengthen its controls over the review of the indirect cost calculations to ensure accuracy of costs being calculated. Views of responsible officials: TVC agrees to the recommendation of improved record retention in the event of management turnover. TVC also agrees to the recommendation of strengthening its internal controls over the review of VES’s grant costs associated with the indirect revenues being calculated.
Activities Allowed and Unallowed, Allowable Costs/Cost Principles – Indirect Costs Federal Agency: U.S. Department of Labor Federal Program Title: Employment Service Cluster ALN: 17.207, 17.801 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 23555DV000036 – 01, 24555DV000076 – 01 October 1, 2022 – December 31, 2024, October 1, 2023 – December 31, 2025 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Veterans Commission (TVC) must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR section 200.403, except where otherwise authorized by statute, costs must meet the following criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient. (d) Be accorded consistent treatment. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for State and local governments and Indian Tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing requirements of any other federally – financed program in either the current or a prior period. (g) Be adequately documented. Condition: Audit procedures included a sample of five indirect cost expenditures, totaling $1,248,175, incurred during the fiscal year to verify that the rates used were in accordance with the terms and conditions of the award and the amounts claimed were applied to the appropriate base. During our testing, we noted one sample in which an incorrect rate was applied to the base, resulting in $69,481 of unallowed indirect costs. In addition, there was no evidence of review and approval for three of the five expenditures selected for testing, including the expenditure noted in the preceding paragraph. Questioned costs: $69,481 Context: See “Condition.” Cause: Management failed to retain documentation that would support the review and approval of the indirect cost amounts. The exceptions were caused due to high turnover within the agency. Employees who were responsible for the approvals are no longer employed through TVC. Effect: Lack of formal documentation of reviews may result in questioned costs. In addition, failure to maintain adequate documentation pertinent to a federal award may result in noncompliance with grant terms and conditions. Repeat Finding: No Recommendation: We recommend TVC enforce establish document retention processes to ensure it has access to documentation for review in the event of management turnover. In addition, we recommend TVC strengthen its controls over the review of the indirect cost calculations to ensure accuracy of costs being calculated. Views of responsible officials: TVC agrees to the recommendation of improved record retention in the event of management turnover. TVC also agrees to the recommendation of strengthening its internal controls over the review of VES’s grant costs associated with the indirect revenues being calculated.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All Federal awarding agency: All Pass-through Entity: All Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses. Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process. Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs. Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits. Repeat finding: This is not a repeat finding. Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness. Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate. Recommendation: We recommend that the Organization: • Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation. • Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance. • Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses. Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All Federal awarding agency: All Pass-through Entity: All Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses. Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process. Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs. Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits. Repeat finding: This is not a repeat finding. Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness. Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate. Recommendation: We recommend that the Organization: • Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation. • Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance. • Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses. Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All Federal awarding agency: All Pass-through Entity: All Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses. Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process. Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs. Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits. Repeat finding: This is not a repeat finding. Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness. Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate. Recommendation: We recommend that the Organization: • Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation. • Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance. • Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses. Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All Federal awarding agency: All Pass-through Entity: All Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses. Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process. Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs. Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits. Repeat finding: This is not a repeat finding. Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness. Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate. Recommendation: We recommend that the Organization: • Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation. • Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance. • Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses. Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All Federal awarding agency: All Pass-through Entity: All Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses. Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process. Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs. Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits. Repeat finding: This is not a repeat finding. Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness. Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate. Recommendation: We recommend that the Organization: • Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation. • Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance. • Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses. Management’s response and corrective action plan (unaudited): See corrective action plan.
Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Title: Social Services Block Grant Block Grants for Community Mental Health Services ALN: 93.667 93.958 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: Social Services Block Grant 2401TXSOSR October 1, 2023 – September 30, 2025 Block Grants for Community Mental Health Services 1B09SM085994, 6B09SM085994 October 1, 2021 – September 30, 2023 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR 200.303(a), Health and Human Services Commission (HHSC) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that it is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should be in compliance with guidance in the “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403(h) cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3). Condition: For awards with period of performance beginning dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the first month of the award. For awards with period of performance end dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the last month and after the period of performance end date. We noted the following instances of noncompliance: Social Services Block Grant (SSBG) – Audit procedures included testing 40 sampled transactions from projects with period of performance beginning dates during the fiscal year totaling $5,034. Two of the expenditures, totaling $486, were related to costs incurred prior to the period of performance begin date. The Project Period Start Date per the grant award was October 1, 2023, however costs were incurred on September 6, 2023 and September 11, 2023. Block Grants for Community Mental Health Services (MHBG) – Audit procedures included testing 40 sampled transactions, totaling $1,695,512, from projects with period of performance end dates during the fiscal year for which the obligation had not been paid as of the end of the period of performance. Twelve of the expenditures, totaling $312,929, were not paid within 120 days of the period of performance end date, which is the allowed time period to liquidate obligations. The required liquidation date was December 29, 2023; however, these obligations were paid between January 2, 2024 and April 11, 2024. Questioned costs: Social Services Block Grant: $486 Block Grants for Community Mental Health Services: $312,929 Context: See “Condition.” Cause: The two exceptions for SSBG were related to travel costs where the employee’s supervisor approved the transaction, which was coded to the incorrect grant. For the exceptions noted in the liquidation period testing for MHBG, the late payments are due to the HHSC’s reconciliation and closeout process not being performed in a timely manner. Effect: Ineffective internal controls may result in questioned costs and noncompliance with the terms of the grant. In addition, costs paid with non-federal sources remain in the population which is being included on the schedule of federal expenditures (SEFA) for the current fiscal year. Repeat Finding: 2023-016 Recommendation: HHSC should provide additional training over its review process to ensure that reviewers are verifying that transactions are posted to the proper grant. Additionally, HHSC should verify that all obligations incurred are liquidated during the closeout process and adjustments are not made subsequent to closeout. Views of responsible officials: HHSC concurs with the finding.
Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Title: Social Services Block Grant Block Grants for Community Mental Health Services ALN: 93.667 93.958 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: Social Services Block Grant 2401TXSOSR October 1, 2023 – September 30, 2025 Block Grants for Community Mental Health Services 1B09SM085994, 6B09SM085994 October 1, 2021 – September 30, 2023 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR 200.303(a), Health and Human Services Commission (HHSC) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that it is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should be in compliance with guidance in the “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403(h) cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3). Condition: For awards with period of performance beginning dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the first month of the award. For awards with period of performance end dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the last month and after the period of performance end date. We noted the following instances of noncompliance: Social Services Block Grant (SSBG) – Audit procedures included testing 40 sampled transactions from projects with period of performance beginning dates during the fiscal year totaling $5,034. Two of the expenditures, totaling $486, were related to costs incurred prior to the period of performance begin date. The Project Period Start Date per the grant award was October 1, 2023, however costs were incurred on September 6, 2023 and September 11, 2023. Block Grants for Community Mental Health Services (MHBG) – Audit procedures included testing 40 sampled transactions, totaling $1,695,512, from projects with period of performance end dates during the fiscal year for which the obligation had not been paid as of the end of the period of performance. Twelve of the expenditures, totaling $312,929, were not paid within 120 days of the period of performance end date, which is the allowed time period to liquidate obligations. The required liquidation date was December 29, 2023; however, these obligations were paid between January 2, 2024 and April 11, 2024. Questioned costs: Social Services Block Grant: $486 Block Grants for Community Mental Health Services: $312,929 Context: See “Condition.” Cause: The two exceptions for SSBG were related to travel costs where the employee’s supervisor approved the transaction, which was coded to the incorrect grant. For the exceptions noted in the liquidation period testing for MHBG, the late payments are due to the HHSC’s reconciliation and closeout process not being performed in a timely manner. Effect: Ineffective internal controls may result in questioned costs and noncompliance with the terms of the grant. In addition, costs paid with non-federal sources remain in the population which is being included on the schedule of federal expenditures (SEFA) for the current fiscal year. Repeat Finding: 2023-016 Recommendation: HHSC should provide additional training over its review process to ensure that reviewers are verifying that transactions are posted to the proper grant. Additionally, HHSC should verify that all obligations incurred are liquidated during the closeout process and adjustments are not made subsequent to closeout. Views of responsible officials: HHSC concurs with the finding.
Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Title: Social Services Block Grant Block Grants for Community Mental Health Services ALN: 93.667 93.958 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: Social Services Block Grant 2401TXSOSR October 1, 2023 – September 30, 2025 Block Grants for Community Mental Health Services 1B09SM085994, 6B09SM085994 October 1, 2021 – September 30, 2023 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR 200.303(a), Health and Human Services Commission (HHSC) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that it is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should be in compliance with guidance in the “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403(h) cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3). Condition: For awards with period of performance beginning dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the first month of the award. For awards with period of performance end dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the last month and after the period of performance end date. We noted the following instances of noncompliance: Social Services Block Grant (SSBG) – Audit procedures included testing 40 sampled transactions from projects with period of performance beginning dates during the fiscal year totaling $5,034. Two of the expenditures, totaling $486, were related to costs incurred prior to the period of performance begin date. The Project Period Start Date per the grant award was October 1, 2023, however costs were incurred on September 6, 2023 and September 11, 2023. Block Grants for Community Mental Health Services (MHBG) – Audit procedures included testing 40 sampled transactions, totaling $1,695,512, from projects with period of performance end dates during the fiscal year for which the obligation had not been paid as of the end of the period of performance. Twelve of the expenditures, totaling $312,929, were not paid within 120 days of the period of performance end date, which is the allowed time period to liquidate obligations. The required liquidation date was December 29, 2023; however, these obligations were paid between January 2, 2024 and April 11, 2024. Questioned costs: Social Services Block Grant: $486 Block Grants for Community Mental Health Services: $312,929 Context: See “Condition.” Cause: The two exceptions for SSBG were related to travel costs where the employee’s supervisor approved the transaction, which was coded to the incorrect grant. For the exceptions noted in the liquidation period testing for MHBG, the late payments are due to the HHSC’s reconciliation and closeout process not being performed in a timely manner. Effect: Ineffective internal controls may result in questioned costs and noncompliance with the terms of the grant. In addition, costs paid with non-federal sources remain in the population which is being included on the schedule of federal expenditures (SEFA) for the current fiscal year. Repeat Finding: 2023-016 Recommendation: HHSC should provide additional training over its review process to ensure that reviewers are verifying that transactions are posted to the proper grant. Additionally, HHSC should verify that all obligations incurred are liquidated during the closeout process and adjustments are not made subsequent to closeout. Views of responsible officials: HHSC concurs with the finding.
Period of Performance Federal Agency: U.S. Department of Health and Human Services Federal Program Title: Social Services Block Grant Block Grants for Community Mental Health Services ALN: 93.667 93.958 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: Social Services Block Grant 2401TXSOSR October 1, 2023 – September 30, 2025 Block Grants for Community Mental Health Services 1B09SM085994, 6B09SM085994 October 1, 2021 – September 30, 2023 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR 200.303(a), Health and Human Services Commission (HHSC) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that it is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should be in compliance with guidance in the “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403(h) cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3). Condition: For awards with period of performance beginning dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the first month of the award. For awards with period of performance end dates during the fiscal year, audit procedures included testing transactions posted to the general ledger during the last month and after the period of performance end date. We noted the following instances of noncompliance: Social Services Block Grant (SSBG) – Audit procedures included testing 40 sampled transactions from projects with period of performance beginning dates during the fiscal year totaling $5,034. Two of the expenditures, totaling $486, were related to costs incurred prior to the period of performance begin date. The Project Period Start Date per the grant award was October 1, 2023, however costs were incurred on September 6, 2023 and September 11, 2023. Block Grants for Community Mental Health Services (MHBG) – Audit procedures included testing 40 sampled transactions, totaling $1,695,512, from projects with period of performance end dates during the fiscal year for which the obligation had not been paid as of the end of the period of performance. Twelve of the expenditures, totaling $312,929, were not paid within 120 days of the period of performance end date, which is the allowed time period to liquidate obligations. The required liquidation date was December 29, 2023; however, these obligations were paid between January 2, 2024 and April 11, 2024. Questioned costs: Social Services Block Grant: $486 Block Grants for Community Mental Health Services: $312,929 Context: See “Condition.” Cause: The two exceptions for SSBG were related to travel costs where the employee’s supervisor approved the transaction, which was coded to the incorrect grant. For the exceptions noted in the liquidation period testing for MHBG, the late payments are due to the HHSC’s reconciliation and closeout process not being performed in a timely manner. Effect: Ineffective internal controls may result in questioned costs and noncompliance with the terms of the grant. In addition, costs paid with non-federal sources remain in the population which is being included on the schedule of federal expenditures (SEFA) for the current fiscal year. Repeat Finding: 2023-016 Recommendation: HHSC should provide additional training over its review process to ensure that reviewers are verifying that transactions are posted to the proper grant. Additionally, HHSC should verify that all obligations incurred are liquidated during the closeout process and adjustments are not made subsequent to closeout. Views of responsible officials: HHSC concurs with the finding.
Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: U.S. Department of Transportation Federal Program Title: Airport Improvement Program ALN: 20.106 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 3–48–SBGP–148–2022 September 14, 2022 – September 13, 2026 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Department of Transportation (TxDOT) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403, except where otherwise authorized by statute, costs must meet the following criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient. (d) Be accorded consistent treatment. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for State and local governments and Indian Tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing requirements of any other federally – financed program in either the current or a prior period. (g) Be adequately documented. Condition: Audit procedures included a sample of 40 expenditures, totaling $9,426,808, to test allowability with grant awards. We noted that for one of the 40 samples, TxDOT overpaid an invoice to a vendor by $70,000. Upon detection by the vendor, TxDOT corrected the overpayment by reducing a subsequent payment to the vendor by the $70,000. Questioned costs: None Context: See “Condition.” Cause: The amount requested to be reimbursed was manually entered incorrectly in eGrants. TxDOT did not detect the discrepancy during the review and approval process prior to the payment. Effect: Failure to thoroughly review invoices prior to payment may lead to overpayment or underpayment of funds to vendors and potential questioned costs. Repeat Finding: No Recommendation: We recommend that TxDOT provide additional training to individuals performing reviews of expenditures. We also recommend TxDOT establish internal controls to monitor that reviews of expenditures are being completed to the level of detail required by internal policies and procedures. Views of responsible officials: TxDOT AVN agrees with the finding.
Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: U.S. Department of Transportation Federal Program Title: Airport Improvement Program ALN: 20.106 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 3–48–SBGP–148–2022 September 14, 2022 – September 13, 2026 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Department of Transportation (TxDOT) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403, except where otherwise authorized by statute, costs must meet the following criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient. (d) Be accorded consistent treatment. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for State and local governments and Indian Tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing requirements of any other federally – financed program in either the current or a prior period. (g) Be adequately documented. Condition: Audit procedures included a sample of 40 expenditures, totaling $9,426,808, to test allowability with grant awards. We noted that for one of the 40 samples, TxDOT overpaid an invoice to a vendor by $70,000. Upon detection by the vendor, TxDOT corrected the overpayment by reducing a subsequent payment to the vendor by the $70,000. Questioned costs: None Context: See “Condition.” Cause: The amount requested to be reimbursed was manually entered incorrectly in eGrants. TxDOT did not detect the discrepancy during the review and approval process prior to the payment. Effect: Failure to thoroughly review invoices prior to payment may lead to overpayment or underpayment of funds to vendors and potential questioned costs. Repeat Finding: No Recommendation: We recommend that TxDOT provide additional training to individuals performing reviews of expenditures. We also recommend TxDOT establish internal controls to monitor that reviews of expenditures are being completed to the level of detail required by internal policies and procedures. Views of responsible officials: TxDOT AVN agrees with the finding.
Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: U.S. Department of Transportation Federal Program Title: Airport Improvement Program ALN: 20.106 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 3–48–SBGP–148–2022 September 14, 2022 – September 13, 2026 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Department of Transportation (TxDOT) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403, except where otherwise authorized by statute, costs must meet the following criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient. (d) Be accorded consistent treatment. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for State and local governments and Indian Tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing requirements of any other federally – financed program in either the current or a prior period. (g) Be adequately documented. Condition: Audit procedures included a sample of 40 expenditures, totaling $9,426,808, to test allowability with grant awards. We noted that for one of the 40 samples, TxDOT overpaid an invoice to a vendor by $70,000. Upon detection by the vendor, TxDOT corrected the overpayment by reducing a subsequent payment to the vendor by the $70,000. Questioned costs: None Context: See “Condition.” Cause: The amount requested to be reimbursed was manually entered incorrectly in eGrants. TxDOT did not detect the discrepancy during the review and approval process prior to the payment. Effect: Failure to thoroughly review invoices prior to payment may lead to overpayment or underpayment of funds to vendors and potential questioned costs. Repeat Finding: No Recommendation: We recommend that TxDOT provide additional training to individuals performing reviews of expenditures. We also recommend TxDOT establish internal controls to monitor that reviews of expenditures are being completed to the level of detail required by internal policies and procedures. Views of responsible officials: TxDOT AVN agrees with the finding.
Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: U.S. Department of Transportation Federal Program Title: Airport Improvement Program ALN: 20.106 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 3–48–SBGP–148–2022 September 14, 2022 – September 13, 2026 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Department of Transportation (TxDOT) must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.403, except where otherwise authorized by statute, costs must meet the following criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient. (d) Be accorded consistent treatment. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for State and local governments and Indian Tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing requirements of any other federally – financed program in either the current or a prior period. (g) Be adequately documented. Condition: Audit procedures included a sample of 40 expenditures, totaling $9,426,808, to test allowability with grant awards. We noted that for one of the 40 samples, TxDOT overpaid an invoice to a vendor by $70,000. Upon detection by the vendor, TxDOT corrected the overpayment by reducing a subsequent payment to the vendor by the $70,000. Questioned costs: None Context: See “Condition.” Cause: The amount requested to be reimbursed was manually entered incorrectly in eGrants. TxDOT did not detect the discrepancy during the review and approval process prior to the payment. Effect: Failure to thoroughly review invoices prior to payment may lead to overpayment or underpayment of funds to vendors and potential questioned costs. Repeat Finding: No Recommendation: We recommend that TxDOT provide additional training to individuals performing reviews of expenditures. We also recommend TxDOT establish internal controls to monitor that reviews of expenditures are being completed to the level of detail required by internal policies and procedures. Views of responsible officials: TxDOT AVN agrees with the finding.
Activities Allowed and Unallowed, Allowable Costs/Cost Principles – Indirect Costs Federal Agency: U.S. Department of Labor Federal Program Title: Employment Service Cluster ALN: 17.207, 17.801 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 23555DV000036 – 01, 24555DV000076 – 01 October 1, 2022 – December 31, 2024, October 1, 2023 – December 31, 2025 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Veterans Commission (TVC) must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR section 200.403, except where otherwise authorized by statute, costs must meet the following criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient. (d) Be accorded consistent treatment. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for State and local governments and Indian Tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing requirements of any other federally – financed program in either the current or a prior period. (g) Be adequately documented. Condition: Audit procedures included a sample of five indirect cost expenditures, totaling $1,248,175, incurred during the fiscal year to verify that the rates used were in accordance with the terms and conditions of the award and the amounts claimed were applied to the appropriate base. During our testing, we noted one sample in which an incorrect rate was applied to the base, resulting in $69,481 of unallowed indirect costs. In addition, there was no evidence of review and approval for three of the five expenditures selected for testing, including the expenditure noted in the preceding paragraph. Questioned costs: $69,481 Context: See “Condition.” Cause: Management failed to retain documentation that would support the review and approval of the indirect cost amounts. The exceptions were caused due to high turnover within the agency. Employees who were responsible for the approvals are no longer employed through TVC. Effect: Lack of formal documentation of reviews may result in questioned costs. In addition, failure to maintain adequate documentation pertinent to a federal award may result in noncompliance with grant terms and conditions. Repeat Finding: No Recommendation: We recommend TVC enforce establish document retention processes to ensure it has access to documentation for review in the event of management turnover. In addition, we recommend TVC strengthen its controls over the review of the indirect cost calculations to ensure accuracy of costs being calculated. Views of responsible officials: TVC agrees to the recommendation of improved record retention in the event of management turnover. TVC also agrees to the recommendation of strengthening its internal controls over the review of VES’s grant costs associated with the indirect revenues being calculated.
Activities Allowed and Unallowed, Allowable Costs/Cost Principles – Indirect Costs Federal Agency: U.S. Department of Labor Federal Program Title: Employment Service Cluster ALN: 17.207, 17.801 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 23555DV000036 – 01, 24555DV000076 – 01 October 1, 2022 – December 31, 2024, October 1, 2023 – December 31, 2025 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR section 200.303(a), Texas Veterans Commission (TVC) must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR section 200.403, except where otherwise authorized by statute, costs must meet the following criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient. (d) Be accorded consistent treatment. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for State and local governments and Indian Tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing requirements of any other federally – financed program in either the current or a prior period. (g) Be adequately documented. Condition: Audit procedures included a sample of five indirect cost expenditures, totaling $1,248,175, incurred during the fiscal year to verify that the rates used were in accordance with the terms and conditions of the award and the amounts claimed were applied to the appropriate base. During our testing, we noted one sample in which an incorrect rate was applied to the base, resulting in $69,481 of unallowed indirect costs. In addition, there was no evidence of review and approval for three of the five expenditures selected for testing, including the expenditure noted in the preceding paragraph. Questioned costs: $69,481 Context: See “Condition.” Cause: Management failed to retain documentation that would support the review and approval of the indirect cost amounts. The exceptions were caused due to high turnover within the agency. Employees who were responsible for the approvals are no longer employed through TVC. Effect: Lack of formal documentation of reviews may result in questioned costs. In addition, failure to maintain adequate documentation pertinent to a federal award may result in noncompliance with grant terms and conditions. Repeat Finding: No Recommendation: We recommend TVC enforce establish document retention processes to ensure it has access to documentation for review in the event of management turnover. In addition, we recommend TVC strengthen its controls over the review of the indirect cost calculations to ensure accuracy of costs being calculated. Views of responsible officials: TVC agrees to the recommendation of improved record retention in the event of management turnover. TVC also agrees to the recommendation of strengthening its internal controls over the review of VES’s grant costs associated with the indirect revenues being calculated.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All Federal awarding agency: All Pass-through Entity: All Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses. Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process. Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs. Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits. Repeat finding: This is not a repeat finding. Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness. Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate. Recommendation: We recommend that the Organization: • Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation. • Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance. • Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses. Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All Federal awarding agency: All Pass-through Entity: All Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses. Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process. Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs. Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits. Repeat finding: This is not a repeat finding. Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness. Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate. Recommendation: We recommend that the Organization: • Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation. • Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance. • Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses. Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All Federal awarding agency: All Pass-through Entity: All Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses. Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process. Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs. Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits. Repeat finding: This is not a repeat finding. Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness. Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate. Recommendation: We recommend that the Organization: • Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation. • Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance. • Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses. Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All Federal awarding agency: All Pass-through Entity: All Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses. Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process. Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs. Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits. Repeat finding: This is not a repeat finding. Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness. Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate. Recommendation: We recommend that the Organization: • Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation. • Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance. • Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses. Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All Federal awarding agency: All Pass-through Entity: All Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses. Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process. Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs. Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits. Repeat finding: This is not a repeat finding. Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness. Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate. Recommendation: We recommend that the Organization: • Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation. • Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance. • Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses. Management’s response and corrective action plan (unaudited): See corrective action plan.
U.S. Department of Housing and Urban Development #14.251 Economic Development Initiative, Community Project Funding, and Miscellaneous Grants 2024-005 Lack of Written Allocation Plan for Shared Costs (Significant Deficiency) Criteria: In accordance with 2 CFR §200.405(d), any cost allocated to a federal award must be allocable, reasonable, and based on a method that is supported and consistently applied. In addition, 2 CFR §200.403(g) requires that costs be adequately documented. A written allocation plan is essential to demonstrate that the allocation of shared costs is equitable and in compliance with Uniform Guidance. Condition: The Organization does not have a written cost allocation plan to document the basis for distributing shared costs such as salaries, occupancy, and administrative expenses among its programs and grants. Instead, management relies on grant budgets and staff judgment to determine which costs are charged to each grant. As a result, there is no consistent or documented methodology supporting the allocation of shared costs to benefiting programs. Cause: Management has not developed or implemented a written cost allocation plan. Cost allocations have historically been based on grant budgets or management's understanding of what each grant will support, rather than on a systematic and documented method. Effect: Without a written cost allocation plan, there is an increased risk that costs may not be allocated consistently or accurately among programs and grants. This could result in noncompliance with federal cost principles and potential questioned costs if expenses are not properly supported. Questioned Costs: None noted. Recommendation: We recommend that the Organization develop and implement a written cost allocation plan that outlines the basis for distributing shared costs, including the allocation methodology, the types of costs involved, and the programs affected. The plan should be reviewed periodically and updated as necessary to reflect changes in funding or operations. Supporting documentation for allocations should be maintained and readily available for audit purposes. Views of Responsible Officials and Planned Corrective Actions: Management agrees and recognizes the importance of consistent allocation methodologies. Corrective Action: Increase the Cost Allocation Plan defining allocation bases for shared expenses, supported by documentation and reviewed annually.
2024 – 001: Improper Payroll Calculation Federal Agency: U.S. Department of Energy Federal Program Name: Research & Development Cluster Assistance Listing Number: 81.049 Federal Award Identification Number: DE-SC0023385 Award Period: July 1, 2023 – June 30, 2024 Type of Finding: Significant Deficiency in Internal Control over Compliance, Other Matters Criteria or specific requirement: Internal Control – Per 2 CFR section 200.303(a), a non-Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Compliance – Per 2 CFR § 200.403, except where otherwise authorized by statute, costs must meet the following general criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award to be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award regarding types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally‐financed and other activities of the non‐Federal entity. (d) Be accorded consistent treatment. A cost may not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except for state and local governments and Indian tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing or matching requirements of any other federally‐financed program in either the current or a prior period. (g) Be adequately documented. Condition: The University incorrectly calculated payroll costs charged to the grant after an employee was double paid for the same work hours. Questioned costs: $400. Context: This condition occurred for 1 out of 40 payroll costs selected for testing resulting in $400 being incorrectly charged to the program. Cause: An employee failed to accurately enter time worked into the university timekeeping system for the pay period 5/1/24 – 5/15/24. The employee reported the hours to their department contact on 5/29/24, which was after the pay period had closed and paychecks had already been processed. The department liaison contacted Kronos Support to have the hours added to the timecard retroactively. Kronos Support received confirmation from the employee that the missed hours could be added to the paycheck for 6/14/24. During payroll processing for 6/14/24, Kronos Support added the missed hours to the employee’s payline on 6/5/24. The department liaison also submitted a CU Special Pay for the same missed hours on 6/5/24. Due to the timing of each separate transaction, Kronos Support did not have visibility into the duplication of the hours. The department failed to identify the duplication during its review of payroll reports. Effect: Expenditures may be incorrectly charged to the program. Repeat Finding: No Recommendation: We recommend that the institution strengthen its internal controls to ensure that expenditures are reviewed and adjusted for, if necessary, in a timely manner. Views of responsible officials: Management acknowledges the finding.
2024-001 – Significant Deficiency in Internal Control over Major Federal Program and Noncompliance – Budget Allocation. Career and Technical Education – Basic Grants to the States, ALN # 84.048 and #84.048A, Award Numbers 233480 231400, 233480 231405, 233480 231410 and 243520 24124; and American Rescue Plan Act, Homeless Children and Youth II (COVID-19), ALN # 84.425W, Award Number 211012 2122 Federal Agency: U.S. Department of Education Criteria – Management is responsible for complying with the specific compliance requirements set forth by the Uniform Guidance, the U.S. Department of Education and the District’s pass-through entity Michigan Department of Education (MDE), as it relates to federally funded grants. Title 2 CFR 200.403 requires that costs be charged appropriately according to budget and that costs be necessary and reasonable for the performance of the grant. Condition- As a result of our audit procedures, we identified function and object codes misallocated in comparison to the grant budget approved by MDE. Neither grant misallocations were material to the grants. Cause and Effect – The District’s internal control over grant compliance, along with budgetary review, were not sufficient to detect and correct errors in a timely manner. The effect was that actual costs were not recorded accurately with the grant budget by either function or object codes. Questioned Costs – None. The grants were not overspent in total, nor would the grant expenditure tests have been considered unallowable if they had been correctly allocated with the budget. Career and Technical Education had five instances. American Rescue Plan Act, Homeless Children and Youth II had one instance which was adjusted and corrected. Recommendation – We recommend the School District expand its internal control over budgetary review of its grants, particularly in regard to reviewing MDE approved budgeted amounts to actual expenditures. View of Responsible Officials – The School District agrees with our finding and recommendation. Planned Corrective Actions – See corrective action plan, annexed.
2024-001 – Significant Deficiency in Internal Control over Major Federal Program and Noncompliance – Budget Allocation. Career and Technical Education – Basic Grants to the States, ALN # 84.048 and #84.048A, Award Numbers 233480 231400, 233480 231405, 233480 231410 and 243520 24124; and American Rescue Plan Act, Homeless Children and Youth II (COVID-19), ALN # 84.425W, Award Number 211012 2122 Federal Agency: U.S. Department of Education Criteria – Management is responsible for complying with the specific compliance requirements set forth by the Uniform Guidance, the U.S. Department of Education and the District’s pass-through entity Michigan Department of Education (MDE), as it relates to federally funded grants. Title 2 CFR 200.403 requires that costs be charged appropriately according to budget and that costs be necessary and reasonable for the performance of the grant. Condition- As a result of our audit procedures, we identified function and object codes misallocated in comparison to the grant budget approved by MDE. Neither grant misallocations were material to the grants. Cause and Effect – The District’s internal control over grant compliance, along with budgetary review, were not sufficient to detect and correct errors in a timely manner. The effect was that actual costs were not recorded accurately with the grant budget by either function or object codes. Questioned Costs – None. The grants were not overspent in total, nor would the grant expenditure tests have been considered unallowable if they had been correctly allocated with the budget. Career and Technical Education had five instances. American Rescue Plan Act, Homeless Children and Youth II had one instance which was adjusted and corrected. Recommendation – We recommend the School District expand its internal control over budgetary review of its grants, particularly in regard to reviewing MDE approved budgeted amounts to actual expenditures. View of Responsible Officials – The School District agrees with our finding and recommendation. Planned Corrective Actions – See corrective action plan, annexed.
2024-001 – Significant Deficiency in Internal Control over Major Federal Program and Noncompliance – Budget Allocation. Career and Technical Education – Basic Grants to the States, ALN # 84.048 and #84.048A, Award Numbers 233480 231400, 233480 231405, 233480 231410 and 243520 24124; and American Rescue Plan Act, Homeless Children and Youth II (COVID-19), ALN # 84.425W, Award Number 211012 2122 Federal Agency: U.S. Department of Education Criteria – Management is responsible for complying with the specific compliance requirements set forth by the Uniform Guidance, the U.S. Department of Education and the District’s pass-through entity Michigan Department of Education (MDE), as it relates to federally funded grants. Title 2 CFR 200.403 requires that costs be charged appropriately according to budget and that costs be necessary and reasonable for the performance of the grant. Condition- As a result of our audit procedures, we identified function and object codes misallocated in comparison to the grant budget approved by MDE. Neither grant misallocations were material to the grants. Cause and Effect – The District’s internal control over grant compliance, along with budgetary review, were not sufficient to detect and correct errors in a timely manner. The effect was that actual costs were not recorded accurately with the grant budget by either function or object codes. Questioned Costs – None. The grants were not overspent in total, nor would the grant expenditure tests have been considered unallowable if they had been correctly allocated with the budget. Career and Technical Education had five instances. American Rescue Plan Act, Homeless Children and Youth II had one instance which was adjusted and corrected. Recommendation – We recommend the School District expand its internal control over budgetary review of its grants, particularly in regard to reviewing MDE approved budgeted amounts to actual expenditures. View of Responsible Officials – The School District agrees with our finding and recommendation. Planned Corrective Actions – See corrective action plan, annexed.
2024-001 – Significant Deficiency in Internal Control over Major Federal Program and Noncompliance – Budget Allocation. Career and Technical Education – Basic Grants to the States, ALN # 84.048 and #84.048A, Award Numbers 233480 231400, 233480 231405, 233480 231410 and 243520 24124; and American Rescue Plan Act, Homeless Children and Youth II (COVID-19), ALN # 84.425W, Award Number 211012 2122 Federal Agency: U.S. Department of Education Criteria – Management is responsible for complying with the specific compliance requirements set forth by the Uniform Guidance, the U.S. Department of Education and the District’s pass-through entity Michigan Department of Education (MDE), as it relates to federally funded grants. Title 2 CFR 200.403 requires that costs be charged appropriately according to budget and that costs be necessary and reasonable for the performance of the grant. Condition- As a result of our audit procedures, we identified function and object codes misallocated in comparison to the grant budget approved by MDE. Neither grant misallocations were material to the grants. Cause and Effect – The District’s internal control over grant compliance, along with budgetary review, were not sufficient to detect and correct errors in a timely manner. The effect was that actual costs were not recorded accurately with the grant budget by either function or object codes. Questioned Costs – None. The grants were not overspent in total, nor would the grant expenditure tests have been considered unallowable if they had been correctly allocated with the budget. Career and Technical Education had five instances. American Rescue Plan Act, Homeless Children and Youth II had one instance which was adjusted and corrected. Recommendation – We recommend the School District expand its internal control over budgetary review of its grants, particularly in regard to reviewing MDE approved budgeted amounts to actual expenditures. View of Responsible Officials – The School District agrees with our finding and recommendation. Planned Corrective Actions – See corrective action plan, annexed.
2024-001 – Significant Deficiency in Internal Control over Major Federal Program and Noncompliance – Budget Allocation. Career and Technical Education – Basic Grants to the States, ALN # 84.048 and #84.048A, Award Numbers 233480 231400, 233480 231405, 233480 231410 and 243520 24124; and American Rescue Plan Act, Homeless Children and Youth II (COVID-19), ALN # 84.425W, Award Number 211012 2122 Federal Agency: U.S. Department of Education Criteria – Management is responsible for complying with the specific compliance requirements set forth by the Uniform Guidance, the U.S. Department of Education and the District’s pass-through entity Michigan Department of Education (MDE), as it relates to federally funded grants. Title 2 CFR 200.403 requires that costs be charged appropriately according to budget and that costs be necessary and reasonable for the performance of the grant. Condition- As a result of our audit procedures, we identified function and object codes misallocated in comparison to the grant budget approved by MDE. Neither grant misallocations were material to the grants. Cause and Effect – The District’s internal control over grant compliance, along with budgetary review, were not sufficient to detect and correct errors in a timely manner. The effect was that actual costs were not recorded accurately with the grant budget by either function or object codes. Questioned Costs – None. The grants were not overspent in total, nor would the grant expenditure tests have been considered unallowable if they had been correctly allocated with the budget. Career and Technical Education had five instances. American Rescue Plan Act, Homeless Children and Youth II had one instance which was adjusted and corrected. Recommendation – We recommend the School District expand its internal control over budgetary review of its grants, particularly in regard to reviewing MDE approved budgeted amounts to actual expenditures. View of Responsible Officials – The School District agrees with our finding and recommendation. Planned Corrective Actions – See corrective action plan, annexed.
Federal Agency: U.S. Department of Justice Federal Program Title: Postconviction Testing of DNA Evidence; Capital Case Litigation Initiative Assistance Listing Number: 16.820; 16.746 Federal Award Identification Number and Year: Multiple Award Period: July 1, 2023 to June 30, 2024 Type of Finding: Other Matters Significant Deficiency in Internal Control over Compliance Criteria or specific requirement: Per 2 CFR 200.516(4): Known questioned costs that are greater than $25,000 for a Federal program which is not audited as a major program should be reported as finding. Except for audit follow-up, the auditor is not required under this part to perform audit procedures for such a Federal program; therefore, the auditor will normally not find questioned costs for a program that is not audited as a major program. However, if the auditor does become aware of questioned costs for a Federal program that is not audited as a major program (e.g., as part of audit follow-up or other audit procedures) and the known questioned costs are greater than $25,000, then the auditor must report this as an audit finding. Additionally, per Uniform Guidance 2 CFR 200.303, nonfederal entities receiving federal awards are required to establish and maintain internal controls designed to reasonably ensure compliance with federal laws, regulations, and program compliance requirements. CFR 200.403(a) requires costs incurred on federal awards to be necessary and reasonable for the performance of the Federal award and be allocable thereto. Condition: CLA was notified by the Post-Award Office of Sponsored Programs that they were informed about several irregularities and potentially unallowable costs related to certain Department of Justice Awards. Context: The University conducted an internal investigation in conjunction with the Idaho State Board of Education Internal Audit and Advisory Services, the investigation identified unallowable costs/activities that were charged to Department of Justice Awards. The University notified the Department of Justice of this situation through a Disclosure Letter to the Department. The disallowed costs were related to time and effort that was not allocable to the affected grants as well as lobbying efforts and related indirect cost recoveries. Questioned costs: $65,750.67. Effect: The University was out of compliance as it relates to charging disallowable costs/activities to federal programs. Cause: An employee was found to have intentionally overridden the system of internal controls in violation of University policy. Repeat finding: No Recommendation: We recommend the University continue to foster a research and creative activity environment that stresses the importance of compliance and prompt disclosure and resolution of any self-identified issues. Views of responsible officials: Management agrees with the finding and has developed a plan to correct the finding.
Federal Agency: U.S. Department of Justice Federal Program Title: Postconviction Testing of DNA Evidence; Capital Case Litigation Initiative Assistance Listing Number: 16.820; 16.746 Federal Award Identification Number and Year: Multiple Award Period: July 1, 2023 to June 30, 2024 Type of Finding: Other Matters Significant Deficiency in Internal Control over Compliance Criteria or specific requirement: Per 2 CFR 200.516(4): Known questioned costs that are greater than $25,000 for a Federal program which is not audited as a major program should be reported as finding. Except for audit follow-up, the auditor is not required under this part to perform audit procedures for such a Federal program; therefore, the auditor will normally not find questioned costs for a program that is not audited as a major program. However, if the auditor does become aware of questioned costs for a Federal program that is not audited as a major program (e.g., as part of audit follow-up or other audit procedures) and the known questioned costs are greater than $25,000, then the auditor must report this as an audit finding. Additionally, per Uniform Guidance 2 CFR 200.303, nonfederal entities receiving federal awards are required to establish and maintain internal controls designed to reasonably ensure compliance with federal laws, regulations, and program compliance requirements. CFR 200.403(a) requires costs incurred on federal awards to be necessary and reasonable for the performance of the Federal award and be allocable thereto. Condition: CLA was notified by the Post-Award Office of Sponsored Programs that they were informed about several irregularities and potentially unallowable costs related to certain Department of Justice Awards. Context: The University conducted an internal investigation in conjunction with the Idaho State Board of Education Internal Audit and Advisory Services, the investigation identified unallowable costs/activities that were charged to Department of Justice Awards. The University notified the Department of Justice of this situation through a Disclosure Letter to the Department. The disallowed costs were related to time and effort that was not allocable to the affected grants as well as lobbying efforts and related indirect cost recoveries. Questioned costs: $65,750.67. Effect: The University was out of compliance as it relates to charging disallowable costs/activities to federal programs. Cause: An employee was found to have intentionally overridden the system of internal controls in violation of University policy. Repeat finding: No Recommendation: We recommend the University continue to foster a research and creative activity environment that stresses the importance of compliance and prompt disclosure and resolution of any self-identified issues. Views of responsible officials: Management agrees with the finding and has developed a plan to correct the finding.
Finding: Allowable Costs and Allowable Activities Federal Assistance Listing Number 84.425U – COVID-19 – Elementary and Secondary School Emergency Relief Fund (ESSER III) Department of Education, Passed-Through Colorado Department of Education Award Number – 4414/4431/9414; Award Year 2021 Criteria: According to 2 CFR Part 200.403 factors affecting allowability of costs – 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 and be allocable thereto under these principles, (b) conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items, (c) be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity, (d) be accorded consistent treatment, (e) be determined in accordance with generally accepted accounting principles, (f) to be included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or a prior period and (g) be adequately documented. In addition, according to 2 CFR Part 200.303, the non-Federal entity must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: During our testing we noted the following: a. 3 out of the 25 payroll selections applied to the grant did not agree back to supporting payroll information. b. The indirect costs applied to the grant were not consistently applied between the quarters of the fiscal year due to variations in the indirect cost base used. Questioned Costs: a. $2,089. Questioned costs were determined by reviewing the payroll registers for the three impacted selections. b. None. The District under applied the amount of indirect costs allowable to the grant. Context: a. We tested 25 payroll, 25 nonpayroll and 25 fringe benefit transactions applied to the grant for the year ended June 30, 2024. The tested population covered expenditures of $7.1 million and the total population of expenditures were approximately $24.4 million. A non-statistical sampling methodology was used to select the sample. b. We tested the four quarters indirect costs calculations which were applied to the above grant award numbers for the year ended June 30, 2024. The tested population covered expenditures of $3.0 million and the total population of expenditures were approximately $3.1 million. A non-statistical sampling methodology was used to select the sample. Effect: The District did not have adequate internal controls in place over the ESSER grant which resulted in unallowable costs being applied to the grant and inconsistently applying indirect costs to the grant. Cause: The District continued to experience turnover within the positions overseeing grants during fiscal year 2024. There were not detailed reviews over the calculations and supporting documentation used to determine the expenditure amount to be applied to the grant. Identification as a Repeat Finding: Not applicable. Recommendation: We recommend that the District strengthen the internal controls surrounding review of all expenditures applied against federal grants including the supporting detail or calculations used to determine the expenditure amount to help ensure it recalculates and is consistent with District polices and procedures. Views of Responsible Officials: We agree with the finding. See separate report for planned corrective actions.