Program: Various, including AL 93.778 – Medical Assistance Program (Medicaid) – Allowable Costs/Cost Principles Grant Number & Year: Various, including 2305NE5ADM, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 2 CFR § 200.403 (January 1, 2024) and 45 CFR § 75.403 (October 1, 2023) state, in relevant part, the following: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: * * * * (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. * * * * (g) Be adequately documented. 2 CFR § 200.405(b) (January 1, 2024) and 45 CFR § 75.405(b) (October 1, 2023) state, in relevant part, the following: All activities which benefit from the non-Federal entity’s indirect (F&A) cost, including unallowable activities and donated services by the non-Federal entity or third parties, will receive an appropriate allocation of indirect costs. 2 CFR § 200, Appendix V, Subsection (G)(2) (January 1, 2024) and 45 CFR § 75, Appendix V, Subsection (G)(2) (October 1, 2023) state the following: Internal service funds are dependent upon a reasonable level of working capital reserve to operate from one billing cycle to the next. Charges by an internal service activity to provide for the establishment and maintenance of a reasonable level of working capital reserve, in addition to the full recovery of costs, are allowable. A working capital reserve as part of retained earnings of up to 60 calendar days cash expenses for normal operating purposes is considered reasonable. A working capital reserve exceeding 60 calendar days may be approved by the cognizant agency for indirect costs in exceptional cases. 2 CFR § 200, Appendix V, Subsection (G)(4) (January 1, 2024) and 45 CFR § 75, Appendix V, Subsection (G)(4) (October 1, 2023) state, in relevant part, the following: Billing rates used to change Federal awards must be based on the estimated costs of providing the services, including an estimate of the allocable central service costs. A comparison of the revenues generated by each billed service (including total revenues whether or not billed or collected) to the actual allowable costs of the service will be made at least annually, and an adjustment will be made for the difference between the revenue and the allowable costs. Neb. Rev Stat. § 81-1120.22 (Cum. Supp. 2022) provides the following: The Director of Communications shall develop a system of equitable billings and charges for communications services provided in any consolidated or joint-use system of communications. Such system of charges shall reflect, as nearly as may be practical, the actual share of costs incurred on behalf of or for services to each department, agency, or political subdivision provided communications services. Using agencies shall pay for such services out of appropriated or available funds. Beginning July 1, 2011, all payments shall be credited to the Communications Revolving Fund. Beginning July 1, 2011, all collections for payment of telephone expenses shall be credited to the Communications Revolving Fund. 2 CFR § 200.444(a) (January 1, 2024) and 45 CFR § 75.444(a) (October 1, 2023) state, in relevant part, the following: For states . . . the general costs of government are unallowable . . . . Unallowable costs include: (1) Salaries and expenses of the Office of the Governor of a state . . . [.] (2) Salaries and other expenses of a state legislature . . . [.] A good internal control plan requires: • Procedures to ensure rate charges are equitable, reflect actual costs incurred, and are reviewed periodically to ensure charges are appropriate for the services provided. • Maintenance of adequate documentation to support both rates charged and the approval of those rates. • Periodic review of internal service fund balances to ensure revenues are not in excess of expenses. Condition: The Agency lacked adequate documentation to support the rates charged by the Office of the Chief Information Office (OCIO). Additionally, the Agency’s Material Division lacked adequate documentation to support service rates charges for the Print Shop. Furthermore, we noted also that the Agency lacked adequate documentation to support the allocation of security costs in developing building rental rates. Lastly, the OCIO Internal Service Fund Balance was greater than 60 calendar days for cash expenses for normal operations incurred. A similar finding has been noted in prior audits since 2015. Repeat Finding: 2023-021 Questioned Costs: Unknown Statistical Sample: No Context: We noted the following: Office of the Chief Information Officer (OCIO) As noted in prior audits, the OCIO lacked adequate support for service rates charged. The Agency was in the process of updating its rates through a new methodology, but no changes were made for fiscal year 2024. In that year, the OCIO receipted $26,824,419 in Federal dollars for services performed for Federal programs. Of this amount, $12,871,044 was charged to Medicaid. Print Shop As noted in prior audits, the Print Shop lacked adequate support for service rates charged. The Agency was in the process of updating its rates through a new methodology, but no changes were made for fiscal year 2024. Receipts from sales for that year totaled $3,254,109. Building Division The rental rate charged to agencies for building space includes an allocation for security costs. We noted that neither the State Capitol Building (Capitol) nor the Governor’s residence was allocated any costs for security, even though both locations have security. Because these locations were not allocated any security costs, Federal programs could be overcharged. Moreover, security costs to the Capitol and the Governor’s residence are general costs of government and, therefore, not allowable. The fiscal year 2024 indirect allocations for security totaled $1,083,488. OCIO Internal Service Fund Balance Per the Agency’s calculation, as of June 30, 2023, the OCIO Internal Service Fund Balance for allowable costs was $27.922 million; however, the allowable reserve was only $20.048 million, a difference of $7.874 million. The Agency has not completed its calculation for June 30, 2024; however, per the APA’s review of the State accounting system, the fund balance has increased by over $40 million during State fiscal year 2024 and was significantly larger than the allowable reserve at June 30, 2024. Cause: Inadequate procedures to ensure that rates are adequately supported, and the Internal Service Fund Balances do not exceed allowable thresholds. Effect: Without adequate controls and procedures to ensure rates are equitable and based on actual costs, there is an increased risk that Federal programs or State agencies will be overcharged for services, and the Agency’s internal service funds will exceed the allowable threshold per Federal regulations. When security costs are not allocated to all buildings in an equitable manner, moreover, the risk of Federal programs not being charged in accordance with Federal cost principles is increased. Recommendation: We recommend the Agency review its allocation of security costs to ensure that such costs are allocated in an equitable manner to all activities that benefit from the services. Additionally, we recommend the Agency maintain adequate documentation to support charges and ensure rates are equitable and reflect the actual costs incurred for services. Lastly, we recommend the Agency implement procedures to ensure fund balances do not exceed the allowable threshold. Management Response: OCIO - The OCIO agrees with the finding as it is the result of rates calculated 18 months in advance of the period under review. DAS Materiel – Print Shop continues to work with software that was purchased to assist with developing rates. Work continues to capture costs and actual historical units sold. DAS Building - The methodology for the allocation for security (an Indirect Cost) is a management decision and there have been no changes in the allocation methodology. APA Response: Regardless of any management business decision, security costs to both the Capitol and the Governor’s residence remain, as noted above, general costs of government and, therefore, not allowable.
Program: Various, including AL 93.778 – Medical Assistance Program (Medicaid) – Allowable Costs/Cost Principles Grant Number & Year: Various, including 2305NE5ADM, FFY 2023 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 2 CFR § 200.403 (January 1, 2024) and 45 CFR § 75.403 (October 1, 2023) state, in relevant part, the following: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: * * * * (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. * * * * (g) Be adequately documented. 2 CFR § 200.405(b) (January 1, 2024) and 45 CFR § 75.405(b) (October 1, 2023) state, in relevant part, the following: All activities which benefit from the non-Federal entity’s indirect (F&A) cost, including unallowable activities and donated services by the non-Federal entity or third parties, will receive an appropriate allocation of indirect costs. 2 CFR § 200, Appendix V, Subsection (G)(2) (January 1, 2024) and 45 CFR § 75, Appendix V, Subsection (G)(2) (October 1, 2023) state the following: Internal service funds are dependent upon a reasonable level of working capital reserve to operate from one billing cycle to the next. Charges by an internal service activity to provide for the establishment and maintenance of a reasonable level of working capital reserve, in addition to the full recovery of costs, are allowable. A working capital reserve as part of retained earnings of up to 60 calendar days cash expenses for normal operating purposes is considered reasonable. A working capital reserve exceeding 60 calendar days may be approved by the cognizant agency for indirect costs in exceptional cases. 2 CFR § 200, Appendix V, Subsection (G)(4) (January 1, 2024) and 45 CFR § 75, Appendix V, Subsection (G)(4) (October 1, 2023) state, in relevant part, the following: Billing rates used to change Federal awards must be based on the estimated costs of providing the services, including an estimate of the allocable central service costs. A comparison of the revenues generated by each billed service (including total revenues whether or not billed or collected) to the actual allowable costs of the service will be made at least annually, and an adjustment will be made for the difference between the revenue and the allowable costs. Neb. Rev Stat. § 81-1120.22 (Cum. Supp. 2022) provides the following: The Director of Communications shall develop a system of equitable billings and charges for communications services provided in any consolidated or joint-use system of communications. Such system of charges shall reflect, as nearly as may be practical, the actual share of costs incurred on behalf of or for services to each department, agency, or political subdivision provided communications services. Using agencies shall pay for such services out of appropriated or available funds. Beginning July 1, 2011, all payments shall be credited to the Communications Revolving Fund. Beginning July 1, 2011, all collections for payment of telephone expenses shall be credited to the Communications Revolving Fund. 2 CFR § 200.444(a) (January 1, 2024) and 45 CFR § 75.444(a) (October 1, 2023) state, in relevant part, the following: For states . . . the general costs of government are unallowable . . . . Unallowable costs include: (1) Salaries and expenses of the Office of the Governor of a state . . . [.] (2) Salaries and other expenses of a state legislature . . . [.] A good internal control plan requires: • Procedures to ensure rate charges are equitable, reflect actual costs incurred, and are reviewed periodically to ensure charges are appropriate for the services provided. • Maintenance of adequate documentation to support both rates charged and the approval of those rates. • Periodic review of internal service fund balances to ensure revenues are not in excess of expenses. Condition: The Agency lacked adequate documentation to support the rates charged by the Office of the Chief Information Office (OCIO). Additionally, the Agency’s Material Division lacked adequate documentation to support service rates charges for the Print Shop. Furthermore, we noted also that the Agency lacked adequate documentation to support the allocation of security costs in developing building rental rates. Lastly, the OCIO Internal Service Fund Balance was greater than 60 calendar days for cash expenses for normal operations incurred. A similar finding has been noted in prior audits since 2015. Repeat Finding: 2023-021 Questioned Costs: Unknown Statistical Sample: No Context: We noted the following: Office of the Chief Information Officer (OCIO) As noted in prior audits, the OCIO lacked adequate support for service rates charged. The Agency was in the process of updating its rates through a new methodology, but no changes were made for fiscal year 2024. In that year, the OCIO receipted $26,824,419 in Federal dollars for services performed for Federal programs. Of this amount, $12,871,044 was charged to Medicaid. Print Shop As noted in prior audits, the Print Shop lacked adequate support for service rates charged. The Agency was in the process of updating its rates through a new methodology, but no changes were made for fiscal year 2024. Receipts from sales for that year totaled $3,254,109. Building Division The rental rate charged to agencies for building space includes an allocation for security costs. We noted that neither the State Capitol Building (Capitol) nor the Governor’s residence was allocated any costs for security, even though both locations have security. Because these locations were not allocated any security costs, Federal programs could be overcharged. Moreover, security costs to the Capitol and the Governor’s residence are general costs of government and, therefore, not allowable. The fiscal year 2024 indirect allocations for security totaled $1,083,488. OCIO Internal Service Fund Balance Per the Agency’s calculation, as of June 30, 2023, the OCIO Internal Service Fund Balance for allowable costs was $27.922 million; however, the allowable reserve was only $20.048 million, a difference of $7.874 million. The Agency has not completed its calculation for June 30, 2024; however, per the APA’s review of the State accounting system, the fund balance has increased by over $40 million during State fiscal year 2024 and was significantly larger than the allowable reserve at June 30, 2024. Cause: Inadequate procedures to ensure that rates are adequately supported, and the Internal Service Fund Balances do not exceed allowable thresholds. Effect: Without adequate controls and procedures to ensure rates are equitable and based on actual costs, there is an increased risk that Federal programs or State agencies will be overcharged for services, and the Agency’s internal service funds will exceed the allowable threshold per Federal regulations. When security costs are not allocated to all buildings in an equitable manner, moreover, the risk of Federal programs not being charged in accordance with Federal cost principles is increased. Recommendation: We recommend the Agency review its allocation of security costs to ensure that such costs are allocated in an equitable manner to all activities that benefit from the services. Additionally, we recommend the Agency maintain adequate documentation to support charges and ensure rates are equitable and reflect the actual costs incurred for services. Lastly, we recommend the Agency implement procedures to ensure fund balances do not exceed the allowable threshold. Management Response: OCIO - The OCIO agrees with the finding as it is the result of rates calculated 18 months in advance of the period under review. DAS Materiel – Print Shop continues to work with software that was purchased to assist with developing rates. Work continues to capture costs and actual historical units sold. DAS Building - The methodology for the allocation for security (an Indirect Cost) is a management decision and there have been no changes in the allocation methodology. APA Response: Regardless of any management business decision, security costs to both the Capitol and the Governor’s residence remain, as noted above, general costs of government and, therefore, not allowable.
Program: Various, including AL 93.778 – Medical Assistance Program (Medicaid), and AL 93.563 – Child Support Enforcement – Allowable Costs/Cost Principles Grant Number & Year: Various, including 2205NE5ADM, FFY 2022; 2201NECSES, FFY 2022 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 2 CFR § 200.403 (January 1, 2023) and 45 CFR § 75.403 (October 1, 2022) state, in relevant part, the following: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: * * * * (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. * * * * (g) Be adequately documented. 2 CFR § 200.405(b) (January 1, 2023) and 45 CFR § 75.405(b) (October 1, 2022) state, in relevant part, the following: All activities which benefit from the non-Federal entity’s indirect (F&A) cost, including unallowable activities and donated services by the non-Federal entity or third parties, will receive an appropriate allocation of indirect costs. 2 CFR § 200, Appendix V, subsection (G)(2), (January 1, 2023) and 45 CFR § 75 Appendix V, subsection (G)(2), (October 1, 2022) state the following: Internal service funds are dependent upon a reasonable level of working capital reserve to operate from one billing cycle to the next. Charges by an internal service activity to provide for the establishment and maintenance of a reasonable level of working capital reserve, in addition to the full recovery of costs, are allowable. A working capital reserve as part of retained earnings of up to 60 calendar days cash expenses for normal operating purposes is considered reasonable. A working capital reserve exceeding 60 calendar days may be approved by the cognizant agency for indirect costs in exceptional cases. 2 CFR § 200, Appendix V, subsection (G)(4), (January 1, 2023) and 45 CFR § 75 Appendix V, subsection (G)(4), (October 1, 2022) state, in relevant part, the following: Billing rates used to charge Federal awards must be based on the estimated costs of providing the services, including an estimate of the allocable central service costs. A comparison of the revenues generated by each billed service (including revenues whether or not billed or collected) to the actual allowable costs of the service will be made at least annually and an adjustment will be made for the difference between the revenue and the allowable costs. Neb. Rev Stat. § 81-1120.22 (Cum. Supp. 2022) states the following: The Director of Communications shall develop a system of equitable billings and charges for communications services provided in any consolidated or joint-use system of communications. Such system of charges shall reflect, as nearly as may be practical, the actual share of costs incurred on behalf of or for services to each department, agency, or political subdivision provided communications services. Using agencies shall pay for such services out of appropriated or available funds. Beginning July 1, 2011, all payments shall be credited to the Communications Revolving Fund. Beginning July 1, 2011, all collections for payment of telephone expenses shall be credited to the Communications Revolving Fund. 2 CFR § 200.444(a) (January 1, 2023) and 45 CFR § 75.444(a) (October 1, 2022) state, in relevant part, the following: For states . . . the general costs of government are unallowable . . . . Unallowable costs include: (1) Salaries and expenses of the Office of the Governor of a state . . . . (2) Salaries and other expenses of a state legislature . . . . A good internal control plan requires: • Procedures to ensure rate charges are equitable, reflect actual costs incurred, and are reviewed periodically to ensure charges are appropriate for the services provided. • Adequate documentation is maintained to support both rates charged and the approval of those rates. Condition: The Agency did not have adequate documentation to support the allocation of information services and communications costs in developing rates charged by the Office of the Chief Information Officer (OCIO). Additionally, the OCIO did not maintain adequate documentation to support that charges were reasonable, equitable, and consistently applied. We also noted the Agency did not have adequate documentation to support the allocation of security costs in developing building rental rates, and the Agency’s Materiel Division did not maintain adequate documentation to support that charges were reasonable, equitable, and consistently applied. A similar finding has been noted in prior audits since 2015. Repeat Finding: 2022-017 Questioned Costs: Unknown Statistical Sample: No Context: We noted the following: Office of the Chief Information Officer (OCIO) For 6 of 14 OCIO rates selected for testing, documentation provided by the division was not adequate to support the rate charged. • Five of the rates selected utilized an employee time allocation spreadsheet prepared by the OCIO. The spreadsheet was prepared by supervisors utilizing an estimate of how much time each year every employee spends on services provided by the division. During testing, it was noted that these estimates are not backed by a time study, nor is a review of actual hours worked on each service completed by the division. • For one rate selected, we identified variances between the total for networking equipment used in the calculation of the rate charged and the totals per the supporting documentation provided, netting to $1,313,693. When asked about the variances, the OCIO was unable to explain why the amounts did not agree. • For one rate tested, the rate included equipment and maintenance costs incurred by the University of Nebraska (University). The fee was related to the network operated and maintained by Network Nebraska (a collaborative aggregation partnership between the OCIO, the University, and the Nebraska Educational Telecommunications commission). The OCIO receipts funds from the services provided to participants on the network. However, it was noted during testing that the OCIO does not pay the University for its portion of costs incurred for this fee. Per documentation provided to support the calculation of the rate charged, the University incurs $582,049 of the total annual costs of $788,510. For 8 of 14 OCIO rates selected for testing, the rate charged was not reasonable or was improper. • For the six rates previously mentioned above, we were unable to determine if the rate was proper due to the lack of supporting documentation. • For one rate tested, we noted that actual costs incurred for the service provided recalculated to 40 cents per unit. The OCIO charged 22 cents per unit for the service. Total units sold for the service in calendar year 2022 were 39,348,448, resulting in an expected loss of $7,165,169. • For one rate tested, we noted that the rate calculation included employee salaries as a base for costs incurred. Per the calculation, the OCIO utilized salaries that were effective as of January 1, 2018. We compared the hourly compensation for a sample of employees at January 1, 2018, and as of July 1, 2021. During this period, we noted an average pay increase of 9.1% for the employees selected; thus, the rate charged is inappropriate per the actual costs incurred for providing the service. For 3 of 15 OCIO receipts tested, documentation provided was not adequate to support the rate charged. • For one receipt tested, we noted that the OCIO did not charge from an outside communications provider at the same rate that was shown on the invoice from the provider. These rates were “Re-rated” by the OCIO and then charged to the agency. The OCIO could not provide support for how the re-rates were determined. The APA selected seven rates from the OCIO billing to trace to support, and five of those rates could not be traced back to the provider invoice. Of the total payment of $116,175, $11,397 was charged at a rate that could not be traced to support. • For one receipt tested, we noted that the amount charged for a monthly Supreme Court retainer fee of $56,250 is determined by a rate calculated by the OCIO, but the OCIO could not provide support for the amounts used in the calculation. • For one receipt tested, $9,057 was charged for IT Support. This was based on an employee’s annual salary being paid 90% by the agency and 10% by the OCIO. The OCIO could not provide supporting documentation for how the 90/10 split was determined. In addition to the testing mentioned previously, we asked the OCIO how rates are calculated and what procedures are performed to ensure that the rates are appropriate. Most of the rates selected for testing were last updated in 2020. The staff that created these rates are no longer with the OCIO due to turnover. The OCIO reviews each rate on a yearly basis to determine if the amount charged is appropriate based on actual costs incurred. However, no documentation on the individual rate setting processes was developed or maintained when the rates were initially created. The APA reviewed the OCIO’s fund balances and found them to be compliant with Federal regulations. However, because some rates charged are improper or inadequately supported, there is a risk of some Federal programs being overcharged and some being undercharged. The OCIO receipted $36,684,244 in Federal dollars for services performed for Federal programs. Of this amount, $16,480,956 was charged to Medicaid, and $4,597,226 was charged to Child Support Enforcement. Building Division The rental rate charged to agencies for building space includes an allocation for indirect administrative costs, grounds keeping, security, and energy management. We noted that security costs were allocated for neither the Capitol nor the Governor’s residence, even though security is provided at those locations. Because those locations were not allocated any security costs, Federal programs could be overcharged. Additionally, security costs for the Capitol and the Governor’s residence are general costs of government and, therefore, not allowable. The fiscal year 2023 indirect allocations for security were $785,709. Print Shop As noted in prior audits, the Print Shop lacked adequate support for service rates charged. The Agency was in the process of developing new rates using a new methodology, but no changes were made for fiscal year 2023. Receipts from sales for fiscal year 2023 totaled $3,058,910. Cause: Inadequate procedures. Per the Agency, the methodology used to allocate the security allocation is based on a management decision; however, management cannot simply choose to disregard Federal regulations. Effect: When information services and communications costs are not allocated to all agencies in an equitable manner, there is an increased risk that Federal programs will not be charged in accordance with Federal cost principles. Additionally, without adequate controls and procedures to ensure rates are equitable and based on actual costs, there is an increased risk that Federal programs or State agencies will be overcharged for services. When security costs are not allocated to all buildings in an equitable manner, Federal programs will not be charged in accordance with Federal cost principles. Recommendation: We recommend the Agency review its allocation of information and communications costs to ensure that the costs are allocated in an equitable manner to all activities that benefit from the services. Additionally, we recommend the Agency maintain adequate documentation to support charges and ensure rates are equitable and reflect the actual costs incurred for services. We also recommend the Agency improve procedures to ensure that published rates are the actual rates charged. Lastly, we recommend the Agency review its allocation of security costs to ensure that the costs are allocated in an equitable manner to all activities that benefit from the services, in accordance with Federal regulations. Management Response: The OCIO agrees with the findings as identified by the APA. The Building and Grounds security allocation is based on a management business decision. The Print Shop lacked the data needed to substantiate published rates at the individual service line level. In response to prior findings, the Print Shop purchased a Cost Rate Advisor license to support future rate setting methodology at the individual service line level. That tool is currently being utilized to build Print Shop rates for the fiscal year 2026 - 2027 biennium. APA Response: As noted above, security costs for the Capitol and the Governor’s residence are general costs of government; therefore, despite any management business decision, such costs are not allowable.
Program: Various, including AL 93.778 – Medical Assistance Program (Medicaid), and AL 93.563 – Child Support Enforcement – Allowable Costs/Cost Principles Grant Number & Year: Various, including 2205NE5ADM, FFY 2022; 2201NECSES, FFY 2022 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 2 CFR § 200.403 (January 1, 2023) and 45 CFR § 75.403 (October 1, 2022) state, in relevant part, the following: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: * * * * (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. * * * * (g) Be adequately documented. 2 CFR § 200.405(b) (January 1, 2023) and 45 CFR § 75.405(b) (October 1, 2022) state, in relevant part, the following: All activities which benefit from the non-Federal entity’s indirect (F&A) cost, including unallowable activities and donated services by the non-Federal entity or third parties, will receive an appropriate allocation of indirect costs. 2 CFR § 200, Appendix V, subsection (G)(2), (January 1, 2023) and 45 CFR § 75 Appendix V, subsection (G)(2), (October 1, 2022) state the following: Internal service funds are dependent upon a reasonable level of working capital reserve to operate from one billing cycle to the next. Charges by an internal service activity to provide for the establishment and maintenance of a reasonable level of working capital reserve, in addition to the full recovery of costs, are allowable. A working capital reserve as part of retained earnings of up to 60 calendar days cash expenses for normal operating purposes is considered reasonable. A working capital reserve exceeding 60 calendar days may be approved by the cognizant agency for indirect costs in exceptional cases. 2 CFR § 200, Appendix V, subsection (G)(4), (January 1, 2023) and 45 CFR § 75 Appendix V, subsection (G)(4), (October 1, 2022) state, in relevant part, the following: Billing rates used to charge Federal awards must be based on the estimated costs of providing the services, including an estimate of the allocable central service costs. A comparison of the revenues generated by each billed service (including revenues whether or not billed or collected) to the actual allowable costs of the service will be made at least annually and an adjustment will be made for the difference between the revenue and the allowable costs. Neb. Rev Stat. § 81-1120.22 (Cum. Supp. 2022) states the following: The Director of Communications shall develop a system of equitable billings and charges for communications services provided in any consolidated or joint-use system of communications. Such system of charges shall reflect, as nearly as may be practical, the actual share of costs incurred on behalf of or for services to each department, agency, or political subdivision provided communications services. Using agencies shall pay for such services out of appropriated or available funds. Beginning July 1, 2011, all payments shall be credited to the Communications Revolving Fund. Beginning July 1, 2011, all collections for payment of telephone expenses shall be credited to the Communications Revolving Fund. 2 CFR § 200.444(a) (January 1, 2023) and 45 CFR § 75.444(a) (October 1, 2022) state, in relevant part, the following: For states . . . the general costs of government are unallowable . . . . Unallowable costs include: (1) Salaries and expenses of the Office of the Governor of a state . . . . (2) Salaries and other expenses of a state legislature . . . . A good internal control plan requires: • Procedures to ensure rate charges are equitable, reflect actual costs incurred, and are reviewed periodically to ensure charges are appropriate for the services provided. • Adequate documentation is maintained to support both rates charged and the approval of those rates. Condition: The Agency did not have adequate documentation to support the allocation of information services and communications costs in developing rates charged by the Office of the Chief Information Officer (OCIO). Additionally, the OCIO did not maintain adequate documentation to support that charges were reasonable, equitable, and consistently applied. We also noted the Agency did not have adequate documentation to support the allocation of security costs in developing building rental rates, and the Agency’s Materiel Division did not maintain adequate documentation to support that charges were reasonable, equitable, and consistently applied. A similar finding has been noted in prior audits since 2015. Repeat Finding: 2022-017 Questioned Costs: Unknown Statistical Sample: No Context: We noted the following: Office of the Chief Information Officer (OCIO) For 6 of 14 OCIO rates selected for testing, documentation provided by the division was not adequate to support the rate charged. • Five of the rates selected utilized an employee time allocation spreadsheet prepared by the OCIO. The spreadsheet was prepared by supervisors utilizing an estimate of how much time each year every employee spends on services provided by the division. During testing, it was noted that these estimates are not backed by a time study, nor is a review of actual hours worked on each service completed by the division. • For one rate selected, we identified variances between the total for networking equipment used in the calculation of the rate charged and the totals per the supporting documentation provided, netting to $1,313,693. When asked about the variances, the OCIO was unable to explain why the amounts did not agree. • For one rate tested, the rate included equipment and maintenance costs incurred by the University of Nebraska (University). The fee was related to the network operated and maintained by Network Nebraska (a collaborative aggregation partnership between the OCIO, the University, and the Nebraska Educational Telecommunications commission). The OCIO receipts funds from the services provided to participants on the network. However, it was noted during testing that the OCIO does not pay the University for its portion of costs incurred for this fee. Per documentation provided to support the calculation of the rate charged, the University incurs $582,049 of the total annual costs of $788,510. For 8 of 14 OCIO rates selected for testing, the rate charged was not reasonable or was improper. • For the six rates previously mentioned above, we were unable to determine if the rate was proper due to the lack of supporting documentation. • For one rate tested, we noted that actual costs incurred for the service provided recalculated to 40 cents per unit. The OCIO charged 22 cents per unit for the service. Total units sold for the service in calendar year 2022 were 39,348,448, resulting in an expected loss of $7,165,169. • For one rate tested, we noted that the rate calculation included employee salaries as a base for costs incurred. Per the calculation, the OCIO utilized salaries that were effective as of January 1, 2018. We compared the hourly compensation for a sample of employees at January 1, 2018, and as of July 1, 2021. During this period, we noted an average pay increase of 9.1% for the employees selected; thus, the rate charged is inappropriate per the actual costs incurred for providing the service. For 3 of 15 OCIO receipts tested, documentation provided was not adequate to support the rate charged. • For one receipt tested, we noted that the OCIO did not charge from an outside communications provider at the same rate that was shown on the invoice from the provider. These rates were “Re-rated” by the OCIO and then charged to the agency. The OCIO could not provide support for how the re-rates were determined. The APA selected seven rates from the OCIO billing to trace to support, and five of those rates could not be traced back to the provider invoice. Of the total payment of $116,175, $11,397 was charged at a rate that could not be traced to support. • For one receipt tested, we noted that the amount charged for a monthly Supreme Court retainer fee of $56,250 is determined by a rate calculated by the OCIO, but the OCIO could not provide support for the amounts used in the calculation. • For one receipt tested, $9,057 was charged for IT Support. This was based on an employee’s annual salary being paid 90% by the agency and 10% by the OCIO. The OCIO could not provide supporting documentation for how the 90/10 split was determined. In addition to the testing mentioned previously, we asked the OCIO how rates are calculated and what procedures are performed to ensure that the rates are appropriate. Most of the rates selected for testing were last updated in 2020. The staff that created these rates are no longer with the OCIO due to turnover. The OCIO reviews each rate on a yearly basis to determine if the amount charged is appropriate based on actual costs incurred. However, no documentation on the individual rate setting processes was developed or maintained when the rates were initially created. The APA reviewed the OCIO’s fund balances and found them to be compliant with Federal regulations. However, because some rates charged are improper or inadequately supported, there is a risk of some Federal programs being overcharged and some being undercharged. The OCIO receipted $36,684,244 in Federal dollars for services performed for Federal programs. Of this amount, $16,480,956 was charged to Medicaid, and $4,597,226 was charged to Child Support Enforcement. Building Division The rental rate charged to agencies for building space includes an allocation for indirect administrative costs, grounds keeping, security, and energy management. We noted that security costs were allocated for neither the Capitol nor the Governor’s residence, even though security is provided at those locations. Because those locations were not allocated any security costs, Federal programs could be overcharged. Additionally, security costs for the Capitol and the Governor’s residence are general costs of government and, therefore, not allowable. The fiscal year 2023 indirect allocations for security were $785,709. Print Shop As noted in prior audits, the Print Shop lacked adequate support for service rates charged. The Agency was in the process of developing new rates using a new methodology, but no changes were made for fiscal year 2023. Receipts from sales for fiscal year 2023 totaled $3,058,910. Cause: Inadequate procedures. Per the Agency, the methodology used to allocate the security allocation is based on a management decision; however, management cannot simply choose to disregard Federal regulations. Effect: When information services and communications costs are not allocated to all agencies in an equitable manner, there is an increased risk that Federal programs will not be charged in accordance with Federal cost principles. Additionally, without adequate controls and procedures to ensure rates are equitable and based on actual costs, there is an increased risk that Federal programs or State agencies will be overcharged for services. When security costs are not allocated to all buildings in an equitable manner, Federal programs will not be charged in accordance with Federal cost principles. Recommendation: We recommend the Agency review its allocation of information and communications costs to ensure that the costs are allocated in an equitable manner to all activities that benefit from the services. Additionally, we recommend the Agency maintain adequate documentation to support charges and ensure rates are equitable and reflect the actual costs incurred for services. We also recommend the Agency improve procedures to ensure that published rates are the actual rates charged. Lastly, we recommend the Agency review its allocation of security costs to ensure that the costs are allocated in an equitable manner to all activities that benefit from the services, in accordance with Federal regulations. Management Response: The OCIO agrees with the findings as identified by the APA. The Building and Grounds security allocation is based on a management business decision. The Print Shop lacked the data needed to substantiate published rates at the individual service line level. In response to prior findings, the Print Shop purchased a Cost Rate Advisor license to support future rate setting methodology at the individual service line level. That tool is currently being utilized to build Print Shop rates for the fiscal year 2026 - 2027 biennium. APA Response: As noted above, security costs for the Capitol and the Governor’s residence are general costs of government; therefore, despite any management business decision, such costs are not allowable.
Program: Various, including AL 93.778 – Medical Assistance Program (Medicaid), and AL 93.563 – Child Support Enforcement – Allowable Costs/Cost Principles Grant Number & Year: Various, including 2205NE5ADM, FFY 2022; 2201NECSES, FFY 2022 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 2 CFR § 200.403 (January 1, 2023) and 45 CFR § 75.403 (October 1, 2022) state, in relevant part, the following: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: * * * * (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. * * * * (g) Be adequately documented. 2 CFR § 200.405(b) (January 1, 2023) and 45 CFR § 75.405(b) (October 1, 2022) state, in relevant part, the following: All activities which benefit from the non-Federal entity’s indirect (F&A) cost, including unallowable activities and donated services by the non-Federal entity or third parties, will receive an appropriate allocation of indirect costs. 2 CFR § 200, Appendix V, subsection (G)(2), (January 1, 2023) and 45 CFR § 75 Appendix V, subsection (G)(2), (October 1, 2022) state the following: Internal service funds are dependent upon a reasonable level of working capital reserve to operate from one billing cycle to the next. Charges by an internal service activity to provide for the establishment and maintenance of a reasonable level of working capital reserve, in addition to the full recovery of costs, are allowable. A working capital reserve as part of retained earnings of up to 60 calendar days cash expenses for normal operating purposes is considered reasonable. A working capital reserve exceeding 60 calendar days may be approved by the cognizant agency for indirect costs in exceptional cases. 2 CFR § 200, Appendix V, subsection (G)(4), (January 1, 2023) and 45 CFR § 75 Appendix V, subsection (G)(4), (October 1, 2022) state, in relevant part, the following: Billing rates used to charge Federal awards must be based on the estimated costs of providing the services, including an estimate of the allocable central service costs. A comparison of the revenues generated by each billed service (including revenues whether or not billed or collected) to the actual allowable costs of the service will be made at least annually and an adjustment will be made for the difference between the revenue and the allowable costs. Neb. Rev Stat. § 81-1120.22 (Cum. Supp. 2022) states the following: The Director of Communications shall develop a system of equitable billings and charges for communications services provided in any consolidated or joint-use system of communications. Such system of charges shall reflect, as nearly as may be practical, the actual share of costs incurred on behalf of or for services to each department, agency, or political subdivision provided communications services. Using agencies shall pay for such services out of appropriated or available funds. Beginning July 1, 2011, all payments shall be credited to the Communications Revolving Fund. Beginning July 1, 2011, all collections for payment of telephone expenses shall be credited to the Communications Revolving Fund. 2 CFR § 200.444(a) (January 1, 2023) and 45 CFR § 75.444(a) (October 1, 2022) state, in relevant part, the following: For states . . . the general costs of government are unallowable . . . . Unallowable costs include: (1) Salaries and expenses of the Office of the Governor of a state . . . . (2) Salaries and other expenses of a state legislature . . . . A good internal control plan requires: • Procedures to ensure rate charges are equitable, reflect actual costs incurred, and are reviewed periodically to ensure charges are appropriate for the services provided. • Adequate documentation is maintained to support both rates charged and the approval of those rates. Condition: The Agency did not have adequate documentation to support the allocation of information services and communications costs in developing rates charged by the Office of the Chief Information Officer (OCIO). Additionally, the OCIO did not maintain adequate documentation to support that charges were reasonable, equitable, and consistently applied. We also noted the Agency did not have adequate documentation to support the allocation of security costs in developing building rental rates, and the Agency’s Materiel Division did not maintain adequate documentation to support that charges were reasonable, equitable, and consistently applied. A similar finding has been noted in prior audits since 2015. Repeat Finding: 2022-017 Questioned Costs: Unknown Statistical Sample: No Context: We noted the following: Office of the Chief Information Officer (OCIO) For 6 of 14 OCIO rates selected for testing, documentation provided by the division was not adequate to support the rate charged. • Five of the rates selected utilized an employee time allocation spreadsheet prepared by the OCIO. The spreadsheet was prepared by supervisors utilizing an estimate of how much time each year every employee spends on services provided by the division. During testing, it was noted that these estimates are not backed by a time study, nor is a review of actual hours worked on each service completed by the division. • For one rate selected, we identified variances between the total for networking equipment used in the calculation of the rate charged and the totals per the supporting documentation provided, netting to $1,313,693. When asked about the variances, the OCIO was unable to explain why the amounts did not agree. • For one rate tested, the rate included equipment and maintenance costs incurred by the University of Nebraska (University). The fee was related to the network operated and maintained by Network Nebraska (a collaborative aggregation partnership between the OCIO, the University, and the Nebraska Educational Telecommunications commission). The OCIO receipts funds from the services provided to participants on the network. However, it was noted during testing that the OCIO does not pay the University for its portion of costs incurred for this fee. Per documentation provided to support the calculation of the rate charged, the University incurs $582,049 of the total annual costs of $788,510. For 8 of 14 OCIO rates selected for testing, the rate charged was not reasonable or was improper. • For the six rates previously mentioned above, we were unable to determine if the rate was proper due to the lack of supporting documentation. • For one rate tested, we noted that actual costs incurred for the service provided recalculated to 40 cents per unit. The OCIO charged 22 cents per unit for the service. Total units sold for the service in calendar year 2022 were 39,348,448, resulting in an expected loss of $7,165,169. • For one rate tested, we noted that the rate calculation included employee salaries as a base for costs incurred. Per the calculation, the OCIO utilized salaries that were effective as of January 1, 2018. We compared the hourly compensation for a sample of employees at January 1, 2018, and as of July 1, 2021. During this period, we noted an average pay increase of 9.1% for the employees selected; thus, the rate charged is inappropriate per the actual costs incurred for providing the service. For 3 of 15 OCIO receipts tested, documentation provided was not adequate to support the rate charged. • For one receipt tested, we noted that the OCIO did not charge from an outside communications provider at the same rate that was shown on the invoice from the provider. These rates were “Re-rated” by the OCIO and then charged to the agency. The OCIO could not provide support for how the re-rates were determined. The APA selected seven rates from the OCIO billing to trace to support, and five of those rates could not be traced back to the provider invoice. Of the total payment of $116,175, $11,397 was charged at a rate that could not be traced to support. • For one receipt tested, we noted that the amount charged for a monthly Supreme Court retainer fee of $56,250 is determined by a rate calculated by the OCIO, but the OCIO could not provide support for the amounts used in the calculation. • For one receipt tested, $9,057 was charged for IT Support. This was based on an employee’s annual salary being paid 90% by the agency and 10% by the OCIO. The OCIO could not provide supporting documentation for how the 90/10 split was determined. In addition to the testing mentioned previously, we asked the OCIO how rates are calculated and what procedures are performed to ensure that the rates are appropriate. Most of the rates selected for testing were last updated in 2020. The staff that created these rates are no longer with the OCIO due to turnover. The OCIO reviews each rate on a yearly basis to determine if the amount charged is appropriate based on actual costs incurred. However, no documentation on the individual rate setting processes was developed or maintained when the rates were initially created. The APA reviewed the OCIO’s fund balances and found them to be compliant with Federal regulations. However, because some rates charged are improper or inadequately supported, there is a risk of some Federal programs being overcharged and some being undercharged. The OCIO receipted $36,684,244 in Federal dollars for services performed for Federal programs. Of this amount, $16,480,956 was charged to Medicaid, and $4,597,226 was charged to Child Support Enforcement. Building Division The rental rate charged to agencies for building space includes an allocation for indirect administrative costs, grounds keeping, security, and energy management. We noted that security costs were allocated for neither the Capitol nor the Governor’s residence, even though security is provided at those locations. Because those locations were not allocated any security costs, Federal programs could be overcharged. Additionally, security costs for the Capitol and the Governor’s residence are general costs of government and, therefore, not allowable. The fiscal year 2023 indirect allocations for security were $785,709. Print Shop As noted in prior audits, the Print Shop lacked adequate support for service rates charged. The Agency was in the process of developing new rates using a new methodology, but no changes were made for fiscal year 2023. Receipts from sales for fiscal year 2023 totaled $3,058,910. Cause: Inadequate procedures. Per the Agency, the methodology used to allocate the security allocation is based on a management decision; however, management cannot simply choose to disregard Federal regulations. Effect: When information services and communications costs are not allocated to all agencies in an equitable manner, there is an increased risk that Federal programs will not be charged in accordance with Federal cost principles. Additionally, without adequate controls and procedures to ensure rates are equitable and based on actual costs, there is an increased risk that Federal programs or State agencies will be overcharged for services. When security costs are not allocated to all buildings in an equitable manner, Federal programs will not be charged in accordance with Federal cost principles. Recommendation: We recommend the Agency review its allocation of information and communications costs to ensure that the costs are allocated in an equitable manner to all activities that benefit from the services. Additionally, we recommend the Agency maintain adequate documentation to support charges and ensure rates are equitable and reflect the actual costs incurred for services. We also recommend the Agency improve procedures to ensure that published rates are the actual rates charged. Lastly, we recommend the Agency review its allocation of security costs to ensure that the costs are allocated in an equitable manner to all activities that benefit from the services, in accordance with Federal regulations. Management Response: The OCIO agrees with the findings as identified by the APA. The Building and Grounds security allocation is based on a management business decision. The Print Shop lacked the data needed to substantiate published rates at the individual service line level. In response to prior findings, the Print Shop purchased a Cost Rate Advisor license to support future rate setting methodology at the individual service line level. That tool is currently being utilized to build Print Shop rates for the fiscal year 2026 - 2027 biennium. APA Response: As noted above, security costs for the Capitol and the Governor’s residence are general costs of government; therefore, despite any management business decision, such costs are not allowable.
Program: Various, including AL 93.778 – Medical Assistance Program (Medicaid), and AL 93.563 – Child Support Enforcement – Allowable Costs/Cost Principles Grant Number & Year: Various, including 2205NE5ADM, FFY 2022; 2201NECSES, FFY 2022 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 2 CFR § 200.403 (January 1, 2023) and 45 CFR § 75.403 (October 1, 2022) state, in relevant part, the following: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: * * * * (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. * * * * (g) Be adequately documented. 2 CFR § 200.405(b) (January 1, 2023) and 45 CFR § 75.405(b) (October 1, 2022) state, in relevant part, the following: All activities which benefit from the non-Federal entity’s indirect (F&A) cost, including unallowable activities and donated services by the non-Federal entity or third parties, will receive an appropriate allocation of indirect costs. 2 CFR § 200, Appendix V, subsection (G)(2), (January 1, 2023) and 45 CFR § 75 Appendix V, subsection (G)(2), (October 1, 2022) state the following: Internal service funds are dependent upon a reasonable level of working capital reserve to operate from one billing cycle to the next. Charges by an internal service activity to provide for the establishment and maintenance of a reasonable level of working capital reserve, in addition to the full recovery of costs, are allowable. A working capital reserve as part of retained earnings of up to 60 calendar days cash expenses for normal operating purposes is considered reasonable. A working capital reserve exceeding 60 calendar days may be approved by the cognizant agency for indirect costs in exceptional cases. 2 CFR § 200, Appendix V, subsection (G)(4), (January 1, 2023) and 45 CFR § 75 Appendix V, subsection (G)(4), (October 1, 2022) state, in relevant part, the following: Billing rates used to charge Federal awards must be based on the estimated costs of providing the services, including an estimate of the allocable central service costs. A comparison of the revenues generated by each billed service (including revenues whether or not billed or collected) to the actual allowable costs of the service will be made at least annually and an adjustment will be made for the difference between the revenue and the allowable costs. Neb. Rev Stat. § 81-1120.22 (Cum. Supp. 2022) states the following: The Director of Communications shall develop a system of equitable billings and charges for communications services provided in any consolidated or joint-use system of communications. Such system of charges shall reflect, as nearly as may be practical, the actual share of costs incurred on behalf of or for services to each department, agency, or political subdivision provided communications services. Using agencies shall pay for such services out of appropriated or available funds. Beginning July 1, 2011, all payments shall be credited to the Communications Revolving Fund. Beginning July 1, 2011, all collections for payment of telephone expenses shall be credited to the Communications Revolving Fund. 2 CFR § 200.444(a) (January 1, 2023) and 45 CFR § 75.444(a) (October 1, 2022) state, in relevant part, the following: For states . . . the general costs of government are unallowable . . . . Unallowable costs include: (1) Salaries and expenses of the Office of the Governor of a state . . . . (2) Salaries and other expenses of a state legislature . . . . A good internal control plan requires: • Procedures to ensure rate charges are equitable, reflect actual costs incurred, and are reviewed periodically to ensure charges are appropriate for the services provided. • Adequate documentation is maintained to support both rates charged and the approval of those rates. Condition: The Agency did not have adequate documentation to support the allocation of information services and communications costs in developing rates charged by the Office of the Chief Information Officer (OCIO). Additionally, the OCIO did not maintain adequate documentation to support that charges were reasonable, equitable, and consistently applied. We also noted the Agency did not have adequate documentation to support the allocation of security costs in developing building rental rates, and the Agency’s Materiel Division did not maintain adequate documentation to support that charges were reasonable, equitable, and consistently applied. A similar finding has been noted in prior audits since 2015. Repeat Finding: 2022-017 Questioned Costs: Unknown Statistical Sample: No Context: We noted the following: Office of the Chief Information Officer (OCIO) For 6 of 14 OCIO rates selected for testing, documentation provided by the division was not adequate to support the rate charged. • Five of the rates selected utilized an employee time allocation spreadsheet prepared by the OCIO. The spreadsheet was prepared by supervisors utilizing an estimate of how much time each year every employee spends on services provided by the division. During testing, it was noted that these estimates are not backed by a time study, nor is a review of actual hours worked on each service completed by the division. • For one rate selected, we identified variances between the total for networking equipment used in the calculation of the rate charged and the totals per the supporting documentation provided, netting to $1,313,693. When asked about the variances, the OCIO was unable to explain why the amounts did not agree. • For one rate tested, the rate included equipment and maintenance costs incurred by the University of Nebraska (University). The fee was related to the network operated and maintained by Network Nebraska (a collaborative aggregation partnership between the OCIO, the University, and the Nebraska Educational Telecommunications commission). The OCIO receipts funds from the services provided to participants on the network. However, it was noted during testing that the OCIO does not pay the University for its portion of costs incurred for this fee. Per documentation provided to support the calculation of the rate charged, the University incurs $582,049 of the total annual costs of $788,510. For 8 of 14 OCIO rates selected for testing, the rate charged was not reasonable or was improper. • For the six rates previously mentioned above, we were unable to determine if the rate was proper due to the lack of supporting documentation. • For one rate tested, we noted that actual costs incurred for the service provided recalculated to 40 cents per unit. The OCIO charged 22 cents per unit for the service. Total units sold for the service in calendar year 2022 were 39,348,448, resulting in an expected loss of $7,165,169. • For one rate tested, we noted that the rate calculation included employee salaries as a base for costs incurred. Per the calculation, the OCIO utilized salaries that were effective as of January 1, 2018. We compared the hourly compensation for a sample of employees at January 1, 2018, and as of July 1, 2021. During this period, we noted an average pay increase of 9.1% for the employees selected; thus, the rate charged is inappropriate per the actual costs incurred for providing the service. For 3 of 15 OCIO receipts tested, documentation provided was not adequate to support the rate charged. • For one receipt tested, we noted that the OCIO did not charge from an outside communications provider at the same rate that was shown on the invoice from the provider. These rates were “Re-rated” by the OCIO and then charged to the agency. The OCIO could not provide support for how the re-rates were determined. The APA selected seven rates from the OCIO billing to trace to support, and five of those rates could not be traced back to the provider invoice. Of the total payment of $116,175, $11,397 was charged at a rate that could not be traced to support. • For one receipt tested, we noted that the amount charged for a monthly Supreme Court retainer fee of $56,250 is determined by a rate calculated by the OCIO, but the OCIO could not provide support for the amounts used in the calculation. • For one receipt tested, $9,057 was charged for IT Support. This was based on an employee’s annual salary being paid 90% by the agency and 10% by the OCIO. The OCIO could not provide supporting documentation for how the 90/10 split was determined. In addition to the testing mentioned previously, we asked the OCIO how rates are calculated and what procedures are performed to ensure that the rates are appropriate. Most of the rates selected for testing were last updated in 2020. The staff that created these rates are no longer with the OCIO due to turnover. The OCIO reviews each rate on a yearly basis to determine if the amount charged is appropriate based on actual costs incurred. However, no documentation on the individual rate setting processes was developed or maintained when the rates were initially created. The APA reviewed the OCIO’s fund balances and found them to be compliant with Federal regulations. However, because some rates charged are improper or inadequately supported, there is a risk of some Federal programs being overcharged and some being undercharged. The OCIO receipted $36,684,244 in Federal dollars for services performed for Federal programs. Of this amount, $16,480,956 was charged to Medicaid, and $4,597,226 was charged to Child Support Enforcement. Building Division The rental rate charged to agencies for building space includes an allocation for indirect administrative costs, grounds keeping, security, and energy management. We noted that security costs were allocated for neither the Capitol nor the Governor’s residence, even though security is provided at those locations. Because those locations were not allocated any security costs, Federal programs could be overcharged. Additionally, security costs for the Capitol and the Governor’s residence are general costs of government and, therefore, not allowable. The fiscal year 2023 indirect allocations for security were $785,709. Print Shop As noted in prior audits, the Print Shop lacked adequate support for service rates charged. The Agency was in the process of developing new rates using a new methodology, but no changes were made for fiscal year 2023. Receipts from sales for fiscal year 2023 totaled $3,058,910. Cause: Inadequate procedures. Per the Agency, the methodology used to allocate the security allocation is based on a management decision; however, management cannot simply choose to disregard Federal regulations. Effect: When information services and communications costs are not allocated to all agencies in an equitable manner, there is an increased risk that Federal programs will not be charged in accordance with Federal cost principles. Additionally, without adequate controls and procedures to ensure rates are equitable and based on actual costs, there is an increased risk that Federal programs or State agencies will be overcharged for services. When security costs are not allocated to all buildings in an equitable manner, Federal programs will not be charged in accordance with Federal cost principles. Recommendation: We recommend the Agency review its allocation of information and communications costs to ensure that the costs are allocated in an equitable manner to all activities that benefit from the services. Additionally, we recommend the Agency maintain adequate documentation to support charges and ensure rates are equitable and reflect the actual costs incurred for services. We also recommend the Agency improve procedures to ensure that published rates are the actual rates charged. Lastly, we recommend the Agency review its allocation of security costs to ensure that the costs are allocated in an equitable manner to all activities that benefit from the services, in accordance with Federal regulations. Management Response: The OCIO agrees with the findings as identified by the APA. The Building and Grounds security allocation is based on a management business decision. The Print Shop lacked the data needed to substantiate published rates at the individual service line level. In response to prior findings, the Print Shop purchased a Cost Rate Advisor license to support future rate setting methodology at the individual service line level. That tool is currently being utilized to build Print Shop rates for the fiscal year 2026 - 2027 biennium. APA Response: As noted above, security costs for the Capitol and the Governor’s residence are general costs of government; therefore, despite any management business decision, such costs are not allowable.
Program: Various, including AL 93.778 ? Medical Assistance Program ? Allowable Costs/Cost Principles Grant Number & Year: Various, including #2105NE5ADM, FFY 2021 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 2 CFR ? 200.403 (January 1, 2022) and 45 CFR ? 75.403 (October 1, 2021) state, in relevant part, the following: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: * * * * (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. * * * * (g) Be adequately documented. 2 CFR ? 200.405(b) (January 1, 2022) and 45 CFR ? 75.405(b) (October 1, 2021) state, in relevant part, the following: All activities which benefit from the non-Federal entity?s indirect (F&A) cost, including unallowable activities and donated services by the non-Federal entity or third parties, will receive an appropriate allocation of indirect costs. 2 CFR ? 200.444(a) (January 1, 2022) and 45 CFR ? 75.444(a) (October 1, 2021) state, in relevant part, the following: For states, local governments, and Indian Tribes, the general costs of government are unallowable ?.Unallowable costs include: (1) Salaries and expenses of the Office of the Governor of a state . . . [.] (2) Salaries and other expenses of a state legislature . . . [.] 2 CFR ? 200, Appendix V, subsection (G)(2), (January 1, 2022) and 45 CFR ? 75, Appendix V, subsection (G)(2), (October 1, 2021) state the following: Internal service funds are dependent upon a reasonable level of working capital reserve to operate from one billing cycle to the next. Charges by an internal service activity to provide for the establishment and maintenance of a reasonable level of working capital reserve, in addition to the full recovery of costs, are allowable. A working capital reserve as part of retained earnings of up to 60 calendar days cash expenses for normal operating purposes is considered reasonable. A working capital reserve exceeding 60 calendar days may be approved by the cognizant agency for indirect costs in exceptional cases. 2 CFR ? 200, Appendix V, subsection (G)(4), (January 1, 2022) and 45 CFR ? 75, Appendix V, subsection (G)(4), (October 1, 2021) state, in relevant part, the following: Billing rates used to charge Federal awards must be based on the estimated costs of providing the services, including an estimate of the allocable central service costs. A comparison of the revenue generated by each billed service (including total revenues whether or not billed or collected) to the actual allowable costs of the service will be made at least annually and an adjustment will be made for the difference between the revenue and the allowable costs. These adjustments will be made through one of the following adjustment methods: (a) a cash refund including earned or imputed interest from the date of transfer and debt interest, if applicable, chargeable in accordance with applicable Federal cognizant agency for indirect costs regulations to the Federal Government for the Federal share of the adjustment, (b) credits to the amounts charged to the individual programs, (c) adjustments to future billing rates, or (d) adjustments to allocated central service costs. A good internal control plan requires: ? Procedures to ensure rate charges are equitable, reflect actual costs incurred, and are reviewed periodically to ensure such charges are appropriate for the services provided. ? Maintenance of adequate documentation to support both rates charged and the approval of those rates. ? Periodic review of internal service fund balances to ensure revenues are not in excess of expenses. ? Internal service rates that are published and available for State agency review and applied consistently for all State agencies. Condition: The Agency did not have adequate documentation to support the allocation of security costs in developing building rental rates. Additionally, the Agency?s Material Division did not maintain adequate documentation to support that charges were reasonable, equitable, and consistently applied. A similar finding was noted in prior audits since 2015. Lastly, the Accounting Internal Service Fund balance was greater than 60 calendar days for cash expenses for normal operations incurred. A similar finding was noted in the prior audit. Repeat Finding: 2021-024 Questioned Costs: Unknown Statistical Sample: No Context: We noted the following: Building Division The rental rate charged to agencies for building space includes an allocation for indirect costs for administration, grounds keeping, security, and energy management. We noted that neither the State Capitol nor the Governor?s residence were allocated any costs for security, even though there is security at both locations. Because these locations were not allocated any security costs, Federal programs could be overcharged. Additionally, security costs to the State Capitol and the Governor?s residence are general costs of government and, therefore, not allowable. The fiscal year 2022 indirect allocations for security totaled $884,797. Material Division We tested three Print Shop billings and noted the following: ? In prior audits, we noted that 24 Print Shop rates were based on calculations from fiscal year 2008, and 3 other Print Shop rates were based on calculations from fiscal year 2011. The Print Shop increased all the rates by 10% in fiscal year 2019, then increased the rates by an additional 5% in fiscal year 2020. In 2022, the rates were decreased by 5%. No support was provided to show that the current rates are reasonable. ? The Agency?s published markup price for special purchases, paper costs, plate material, special order supplies, and colored ink was 35%. The Agency did not have adequate documentation to support the reasonableness of the markup percentage rate. Receipts from sales of print shop services during the fiscal year ended June 30, 2022, totaled $2,835,540. Accounting Division Per the Agency?s calculation, as of June 30, 2021, the Accounting Services Internal Service Fund Balance for allowable costs was $4.528 million; however, the allowable reserve was only $1.007 million, a difference of $3.521 million, more than triple the allowable reserve. The Agency has not completed its calculation for June 30, 2022. The Auditor of Public Accounts (APA) estimate of the fund balance, per review of the accounting system, as of June 30, 2022, was $4.388 million, and the APA estimate of the allowable reserve was $1.007 million, a difference of $3.381 million. Therefore, the Agency appears to be charging too much for services. Cause: Inadequate procedures. Effect: When security costs are not allocated to all buildings in an equitable manner, Federal programs will not be charged in accordance with Federal cost principles. Additionally, without adequate controls and procedures to ensure rates are equitable and based on actual costs, there is an increased risk that Federal programs will be overcharged for services, and the Agency?s internal service funds will exceed the allowable threshold per Federal regulations. Recommendation: We recommend the Agency review its allocation of security costs to ensure that such costs are allocated in an equitable manner to all activities that benefit from the services. Additionally, we recommend the Agency maintain adequate documentation to support charges and ensure rates are equitable and reflect the actual costs incurred for services. Lastly, we recommend the Agency implement procedures to ensure fund balances do not exceed the allowable threshold. Management Response: The Building and Grounds security allocation is based on a management business decision. The Print Shop lacked the data needed to substantiate current rates at the individual service line level. In response to the prior year finding, the Print Shop purchased a Cost Rate Advisor license to support future rate setting methodology at the individual service line level. The Print Shop expects to finalize its analysis by July 2023. State Accounting Rates were reduced by $450,000 in fiscal year 2021, and from that level reduced another $132,000 in fiscal year?s 2022 and 2023 (current biennium). Further offsets of $700,000 are planned for each year of the coming biennium, and planned expenditures will exceed billed revenues by $1.7 million to bring the cash balance to within a 60-day operating level by June 2025.
Program: Various, including AL 93.778 ? Medical Assistance Program ? Allowable Costs/Cost Principles Grant Number & Year: Various, including #2105NE5ADM, FFY 2021 Federal Grantor Agency: U.S. Department of Health and Human Services Criteria: 2 CFR ? 200.403 (January 1, 2022) and 45 CFR ? 75.403 (October 1, 2021) state, in relevant part, the following: Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: * * * * (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. * * * * (g) Be adequately documented. 2 CFR ? 200.405(b) (January 1, 2022) and 45 CFR ? 75.405(b) (October 1, 2021) state, in relevant part, the following: All activities which benefit from the non-Federal entity?s indirect (F&A) cost, including unallowable activities and donated services by the non-Federal entity or third parties, will receive an appropriate allocation of indirect costs. 2 CFR ? 200.444(a) (January 1, 2022) and 45 CFR ? 75.444(a) (October 1, 2021) state, in relevant part, the following: For states, local governments, and Indian Tribes, the general costs of government are unallowable ?.Unallowable costs include: (1) Salaries and expenses of the Office of the Governor of a state . . . [.] (2) Salaries and other expenses of a state legislature . . . [.] 2 CFR ? 200, Appendix V, subsection (G)(2), (January 1, 2022) and 45 CFR ? 75, Appendix V, subsection (G)(2), (October 1, 2021) state the following: Internal service funds are dependent upon a reasonable level of working capital reserve to operate from one billing cycle to the next. Charges by an internal service activity to provide for the establishment and maintenance of a reasonable level of working capital reserve, in addition to the full recovery of costs, are allowable. A working capital reserve as part of retained earnings of up to 60 calendar days cash expenses for normal operating purposes is considered reasonable. A working capital reserve exceeding 60 calendar days may be approved by the cognizant agency for indirect costs in exceptional cases. 2 CFR ? 200, Appendix V, subsection (G)(4), (January 1, 2022) and 45 CFR ? 75, Appendix V, subsection (G)(4), (October 1, 2021) state, in relevant part, the following: Billing rates used to charge Federal awards must be based on the estimated costs of providing the services, including an estimate of the allocable central service costs. A comparison of the revenue generated by each billed service (including total revenues whether or not billed or collected) to the actual allowable costs of the service will be made at least annually and an adjustment will be made for the difference between the revenue and the allowable costs. These adjustments will be made through one of the following adjustment methods: (a) a cash refund including earned or imputed interest from the date of transfer and debt interest, if applicable, chargeable in accordance with applicable Federal cognizant agency for indirect costs regulations to the Federal Government for the Federal share of the adjustment, (b) credits to the amounts charged to the individual programs, (c) adjustments to future billing rates, or (d) adjustments to allocated central service costs. A good internal control plan requires: ? Procedures to ensure rate charges are equitable, reflect actual costs incurred, and are reviewed periodically to ensure such charges are appropriate for the services provided. ? Maintenance of adequate documentation to support both rates charged and the approval of those rates. ? Periodic review of internal service fund balances to ensure revenues are not in excess of expenses. ? Internal service rates that are published and available for State agency review and applied consistently for all State agencies. Condition: The Agency did not have adequate documentation to support the allocation of security costs in developing building rental rates. Additionally, the Agency?s Material Division did not maintain adequate documentation to support that charges were reasonable, equitable, and consistently applied. A similar finding was noted in prior audits since 2015. Lastly, the Accounting Internal Service Fund balance was greater than 60 calendar days for cash expenses for normal operations incurred. A similar finding was noted in the prior audit. Repeat Finding: 2021-024 Questioned Costs: Unknown Statistical Sample: No Context: We noted the following: Building Division The rental rate charged to agencies for building space includes an allocation for indirect costs for administration, grounds keeping, security, and energy management. We noted that neither the State Capitol nor the Governor?s residence were allocated any costs for security, even though there is security at both locations. Because these locations were not allocated any security costs, Federal programs could be overcharged. Additionally, security costs to the State Capitol and the Governor?s residence are general costs of government and, therefore, not allowable. The fiscal year 2022 indirect allocations for security totaled $884,797. Material Division We tested three Print Shop billings and noted the following: ? In prior audits, we noted that 24 Print Shop rates were based on calculations from fiscal year 2008, and 3 other Print Shop rates were based on calculations from fiscal year 2011. The Print Shop increased all the rates by 10% in fiscal year 2019, then increased the rates by an additional 5% in fiscal year 2020. In 2022, the rates were decreased by 5%. No support was provided to show that the current rates are reasonable. ? The Agency?s published markup price for special purchases, paper costs, plate material, special order supplies, and colored ink was 35%. The Agency did not have adequate documentation to support the reasonableness of the markup percentage rate. Receipts from sales of print shop services during the fiscal year ended June 30, 2022, totaled $2,835,540. Accounting Division Per the Agency?s calculation, as of June 30, 2021, the Accounting Services Internal Service Fund Balance for allowable costs was $4.528 million; however, the allowable reserve was only $1.007 million, a difference of $3.521 million, more than triple the allowable reserve. The Agency has not completed its calculation for June 30, 2022. The Auditor of Public Accounts (APA) estimate of the fund balance, per review of the accounting system, as of June 30, 2022, was $4.388 million, and the APA estimate of the allowable reserve was $1.007 million, a difference of $3.381 million. Therefore, the Agency appears to be charging too much for services. Cause: Inadequate procedures. Effect: When security costs are not allocated to all buildings in an equitable manner, Federal programs will not be charged in accordance with Federal cost principles. Additionally, without adequate controls and procedures to ensure rates are equitable and based on actual costs, there is an increased risk that Federal programs will be overcharged for services, and the Agency?s internal service funds will exceed the allowable threshold per Federal regulations. Recommendation: We recommend the Agency review its allocation of security costs to ensure that such costs are allocated in an equitable manner to all activities that benefit from the services. Additionally, we recommend the Agency maintain adequate documentation to support charges and ensure rates are equitable and reflect the actual costs incurred for services. Lastly, we recommend the Agency implement procedures to ensure fund balances do not exceed the allowable threshold. Management Response: The Building and Grounds security allocation is based on a management business decision. The Print Shop lacked the data needed to substantiate current rates at the individual service line level. In response to the prior year finding, the Print Shop purchased a Cost Rate Advisor license to support future rate setting methodology at the individual service line level. The Print Shop expects to finalize its analysis by July 2023. State Accounting Rates were reduced by $450,000 in fiscal year 2021, and from that level reduced another $132,000 in fiscal year?s 2022 and 2023 (current biennium). Further offsets of $700,000 are planned for each year of the coming biennium, and planned expenditures will exceed billed revenues by $1.7 million to bring the cash balance to within a 60-day operating level by June 2025.