Finding 2024- 006 – Indirect Cost Rate Pool, Noncompliance and Significant Deficiency Federal award agency: Federal Transit Administration Program name and ALN: Federal Transit Cluster ALN 20.507 Federal Transit Formula Grants, ALN 20.525 State of Good Repair Grants Federal award identification number: IL-90-X717, IL-90-X726, IL-90-X743, IL-2016-021-01, IL-2017-028-02, IL-2018-024-01, IL-2019-022-02, IL-2021-002-02, IL-2020-050-02, IL-2021-002-01, IL-2020-018-01, IL-2021-050-02, IL-2021-024-01, IL-2022-032-02, IL-2022-005-01, IL-2023-036-02, IL-2023-036-04, IL-2024-025-02, IL-54-0002, IL-54-0003, IL-54-0006, IL-2016-020-01, IL-2017-028-01, IL-2018-024-02, IL-2019-022-01, IL-2020-050-01, IL-2021-050-01, IL-2022-032-01, IL-2022-032-03, IL-2023-036-01, IL-2023-036-03, IL-2024-025-01 Federal award year: 2013, 2014, 2015, 2016, 2017, 2018, 2020, 2021, 2022, 2023, 2024 Criteria: Under 2 CFR 200.441 (Fines, penalties, damages and other settlements), fines and penalties resulting from violations of, or failure to comply with, federal, state, local, or tribal laws and regulations are unallowable costs, unless incurred as a result of compliance with specific provisions of a federal award or with prior written approval of the federal awarding agency. Appendix V to 2 CFR Part 200 provides the required framework for states and local governments to identify, document, and allocate centralized service costs to benefitted Federal programs through a governmentwide cost allocation plan, as referenced by 200.414 for indirect cost recovery. Additionally, 2 CFR 200.403 and 2 CFR 200.414 require that indirect cost rates be based on allowable, allocable, and reasonable costs and that unallowable costs be excluded from indirect cost pools used to allocate costs to federal awards. Condition: During our testing of the underlying activity supporting the auditee’s federally approved indirect cost rate, we identified that the indirect cost rate pool submitted to and approved by the Federal Transit Administration (FTA) included a tax penalty related to the late payment of a state/local tax obligation. The tax penalty was not identified and excluded from the indirect cost pool prior to submission for rate approval. The tax penalty was not directly charged to any federal award; however, because it was included in the approved indirect cost rate pool, a portion of the unallowable cost was allocated to federal awards through application of the indirect cost rate during the audit period. Cause: The auditee did not have sufficient review controls over the preparation of the indirect cost rate proposal to ensure that unallowable costs, including tax penalties, were identified and excluded from the indirect cost pool prior to submission and approval by the FTA. Effect or potential effect: As a result, the FTA approved indirect cost rate was calculated using a pool that included unallowable costs, causing a portion of the tax penalty to be indirectly charged to federal awards. Questioned costs: N/A Context: The unallowable tax penalty identified in the indirect cost pool represents $487,000, an amount in relation to the total overhead costs included in the cost allocation plan of approximately $87.9 million. The approved indirect cost allocation plan was used to charge approximately $17 million to the major program during the audit period. Recommendation: We recommend that the auditee: • Revise its indirect cost rate development procedures to ensure unallowable costs are excluded from the indirect cost pool prior to submission; • Strengthen review controls over indirect cost proposals to ensure compliance with 2 CFR Part 200; and • Coordinate with the FTA to determine whether a rate adjustment, rate correction, or reimbursement to federal programs is required for amounts allocated using the affected indirect cost rate. Views of responsible officials: Management acknowledges the finding and agrees that remediation is necessary. Management will implement the recommendations that it has defined within the corrective action plan required by Title 2 CFR 200.511 (c) executed on April 16, 2026.
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.
2022-006 -FINDING - Insufficient Controls over Expenses Charged to TRIO Grant Federal Agency: Department of Education Assistance Listing Number: 84.042 Program Names and Award Numbers: TRIO ? Student Support Services, P042A200421 Program Expenditures: $809,380 Questioned Costs: $19,174 Northeastern Illinois University (University) charged unallowable expenditures to the Federal TRIO Program (TRIO) - Student Support Services grant During the testing of 40 expenditures selected from all of the TRIO grants, we noted one (3%) expenditure from the TRIO Student Support Services grant was an unallowable direct cost. It was for a legal settlement of $17,500 paid to an employee plus directly associated costs of $1,674. There was no approval request sent to the Department of Education. The sample was not intended to be, and was not, a statistically valid sample. Uniform Guidance (2 CFR 200.441) state that costs resulting from non-Federal entity violations of, alleged violations of, or failure to comply with, Federal, state, tribal, local or foreign laws and regulations are unallowable, except when incurred as a result of compliance with specific provisions of the Federal award, or with prior written approval of the Federal awarding agency. Uniform Guidance (2 CFR 200.303(a)) requires nonfederal entities receiving federal awards establish and maintain effective internal control designed to reasonably ensure compliance with Federal laws, statutes, regulations, and the terms and conditions of the Federal award. Effective internal controls should include procedures to ensure that all allowability policies are followed. University officials stated, there was inadequate communication between the departments involved. Failure to adequately review costs allowable under the uniform guidance principles resulted in the University overstating expenditures charged to the grant. (Finding Code No. 2022-006) RECOMMENDATION - We recommend the University ensure costs charged to grants are allowable under the Uniform Guidance. UNIVERSITY?S RESPONSE - The University agrees with the recommendation.
2022-006 -FINDING - Insufficient Controls over Expenses Charged to TRIO Grant Federal Agency: Department of Education Assistance Listing Number: 84.042 Program Names and Award Numbers: TRIO ? Student Support Services, P042A200421 Program Expenditures: $809,380 Questioned Costs: $19,174 Northeastern Illinois University (University) charged unallowable expenditures to the Federal TRIO Program (TRIO) - Student Support Services grant During the testing of 40 expenditures selected from all of the TRIO grants, we noted one (3%) expenditure from the TRIO Student Support Services grant was an unallowable direct cost. It was for a legal settlement of $17,500 paid to an employee plus directly associated costs of $1,674. There was no approval request sent to the Department of Education. The sample was not intended to be, and was not, a statistically valid sample. Uniform Guidance (2 CFR 200.441) state that costs resulting from non-Federal entity violations of, alleged violations of, or failure to comply with, Federal, state, tribal, local or foreign laws and regulations are unallowable, except when incurred as a result of compliance with specific provisions of the Federal award, or with prior written approval of the Federal awarding agency. Uniform Guidance (2 CFR 200.303(a)) requires nonfederal entities receiving federal awards establish and maintain effective internal control designed to reasonably ensure compliance with Federal laws, statutes, regulations, and the terms and conditions of the Federal award. Effective internal controls should include procedures to ensure that all allowability policies are followed. University officials stated, there was inadequate communication between the departments involved. Failure to adequately review costs allowable under the uniform guidance principles resulted in the University overstating expenditures charged to the grant. (Finding Code No. 2022-006) RECOMMENDATION - We recommend the University ensure costs charged to grants are allowable under the Uniform Guidance. UNIVERSITY?S RESPONSE - The University agrees with the recommendation.