Finding Text
2023 – 004: Cost Allocation of Fringe Benefits to LSC Grants
Federal Agency: Legal Services Corporation (LSC)
Federal Program Name: LSC Native American Grant
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:
Significant Deficiency in Internal Control over Compliance
Other Matters
Criteria or specific requirement: Federal regulations (45 CFR 1630.5 and 2 CFR 200.403) state that expenditures are allowable under an LSC (or federal) grant or contract only if the recipient can demonstrate that the cost was consistent with accounting policies and procedures that apply uniformly to both LSC (or, federal)-funded and non-LSC (of, federal) -funded activities.
Condition: During our testing we noted that 100% of medical insurance for a specific location was allocated to the grant. However, we noted that medical insurance for other pay periods and locations were allocated on a trimester basis using an allocation base of total grant hours for the period divided by total general fund hours. As such, the fringe benefit cost mentioned above was allocated in an inconsistent manner to other grant fringe benefit costs was not fully representative of the employees’ time and effort. However, management noted that these costs were allocated in a manner to comply with 45 CFR 1630.5(g) which allows LSC award recipients to allocate proportional share of another funding source’s share of an indirect cost to LSC funds.
Questioned costs: None.
Context: This single instance was noted during testing of 26 payroll and payroll-related disbursements.
Cause: The Organization’s employee benefit cost allocation methodology is primarily based on a periodic calculation of grant hours versus general fund hours multiplied by period costs, but it often includes manual adjustments based on review of individual expense data. Therefore, the methodology is challenging to apply consistently, document contemporaneously, and apply in accordance with federal regulations.
Effect: The inclusion of frequent manual adjustments in the Organization’s employee benefit cost allocation methodology could cause costs to be allocated to grants in a manner where costs are not applied uniformly to both LSC (or, federal)-funded and non-LSC (of, federal) -funded activities.
Repeat Finding: This is not a repeat finding.
Recommendation: We recommend that the Organization consider updating its employee benefit cost allocation methodology and process to reduce the frequency of manual adjustments based on review of expense data and maximize the use of automated allocations that are calculated in a consistent manner that ensure costs are applied uniformly to respective benefited activities.
Views of responsible officials: There is no disagreement with the audit finding