Finding Text
2023 – 007: Allocation of LSC Derivative Income
Federal Agency: Legal Services Corporation (LSC)
Federal Program Name: LSC Grants
Assistance Listing Number: 09.706060
Federal Award Identification Number and Year: 09-706060 - 2023
Award Period: January 1, 2023 – December 31, 2023
Type of Finding:
Material Weakness in Internal Control over Compliance
Other Matters
Criteria or specific requirement: Federal regulations (45 CFR 1630.17) state that derivative income resulting from an activity supported in whole or in part with LSC funds shall be allocated to the fund in which the recipient’s LSC grant is recorded in the same proportion that the amount of LSC funds expended bears to the total amount expended by the recipient to support the activity.
Condition: During our testing, we noted that the Organization allocated interest income earned on LSC funds were allocated to the LSC based on the proportion of LSC funds earning interest as opposed to the ratio of LSC expenses compared to total Organization expenses.
Questioned costs: None.
Context: This instance was noted during our recalculation of the Organization’s interest income allocation to the LSC fund.
Cause: The Organization’s policy describes an allocation method for interest income that is different from the method described in the federal regulations.
Effect: The difference between the allocation method listed in the federal regulations and the method used by the Organization resulted in an under allocation of $198,593 of interest income to the LSC fund.
Repeat Finding: This is not a repeat finding.
Recommendation: We recommend that the Organization update its derivative income allocation method, policy and procedures to reflect the method described in the federal regulations.
Views of responsible officials: There is no disagreement with the audit finding