Finding Text
Finding 2023-002
Identification of the federal program:
Federal Grantor: United States Department of Homeland Security
Assistance Listing No.: 97.036, COVID-19 Disaster Grants – Public Assistance (Presidentially
Declared Disasters)
Pass-Through Grantor: State of Minnesota
Pass-Through Award Period: 01/20/2020 – 05/11/2023
Criteria or specific requirement (including statutory, regulatory, or other citation):
Section 200.303 of the Uniform Guidance states the following regarding internal control: “The
non-Federal entity must: (a) Establish and maintain effective internal control over the Federal
award that provides reasonable assurance that the non-Federal entity is managing the Federal
award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal
award. These internal controls should be in compliance with guidance in “Standards for Internal
Control in the Federal Government” issued by the Comptroller General of the United States or the
“Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).”
The Uniform Guidance 2 CRF Subpart E Section 200.403 states the following: “Costs must meet
the following general criteria in order to be allowable under Federal awards: (c) be consistent with
policies and procedures that apply uniformly to both federally financed and other activities of the
non-Federal entity; and (g) be adequately documented.”
Condition:
Management did not maintain supporting documentation to demonstrate how it validated the
completeness and accuracy of the internal labor data used in the contract labor allowability
percentage calculation (which represents the variance between internal labor cost and contract
labor cost). In addition, supporting documentation was not retained to demonstrate that the contract
labor allowability percentage calculation was reviewed and approved.
The methodology used to calculate the labor allowability percentage to be applied to contract labor
was based on assessing financial information for one pay period vs. assessing the two years to
which the labor allowability percentage was applied.
Cause:
The Company did not have internal controls in place to formally document its review of the
allowability percentage calculation applied to the contract labor.
The review of the contract labor allowability percentage performed by management was not
precise enough to challenge the appropriateness of the methodology.
Effect or potential effect:
Contract labor expenses may be charged to the federal award that are greater than the contract
labor allowability percentage.
Questioned costs:
None.
Context:
For Assistance Listing No. 97.036, total contract labor expenses calculated with the allowability
percentage were $17,856,115, representing 36% of total federal expenditures of $49,821,059 for
the year ended December 31, 2023.
Identification as a repeat finding, if applicable:
The finding is not a repeat finding from the prior year.
Recommendation:
The Company should retain formal documentation of review and approval controls related to the
contract labor allowability percentage calculation.
The Company should reinforce the importance of applying the adopted methodology consistently
related to the contract labor calculation.
Views of responsible officials:
“Management agrees with the finding. In May 2023, the COVID-19 emergency ended and,
therefore, remediation of internal controls specific to allowability of costs for the FEMA program
is no longer applicable. However, remediation steps were taken to improve documentation of
review of internal controls over all federal expenditures, not limited to the FEMA program.”
Fairview revised its internal control processes to improve the retention and documentation of the
review and approval of inputs to the calculation of federal expenditures, as well as ensure that the
review is precise enough to challenge the appropriateness of the methodology utilized.