Finding Text
Finding 2023-001 – Allocation of Fringe Benefits
Federal Agency: U.S. Department of Health and Human Services
Major Program: AL# 93.104 Comprehensive Community Mental Health Services for Children
with Serious Emotional Disturbances (SED)
Type of Finding: Significant deficiency in Internal Control over Compliance (Allowable Costs)
Criteria: Per guidance: 2CFR 200.431 Compensation—fringe benefits.(i) (1) … Costs of severance pay
are allowable only to the extent that in each case, it is required by (i) Law; (ii) Employer-employee
agreement; (iii) Established policy that constitutes, in effect, an implied agreement on the non-Federal
entity's part; or (iv) Circumstances of the particular employment.
In accordance with 2 CFR 200.430(i), payroll costs charged to federal awards must be supported by a
system of internal control which provides reasonable assurance that the charges are accurate, allowable,
and properly allocated.
Condition: The Organization allocates fringe costs to grants based on budget while capturing actual costs
in a fringe cost pool. During the audit we found that the fringe cost pool contained severance pay that
exceeded the organization policy and thus unallowable. The removal of these costs resulted in the
overcharging of fringe benefits to all projects.
Questioned Costs: None
Cause: Management does not have sufficient internal controls to ensure fringe benefits are allowable and
that estimated fringe allocations represent with actual costs.
Effect: Expenditures that are not properly identified within the accounting system or supported by
underlying documentation are at risk of being owed back to the funding source.
Recommendation: Management and those charged with governance should consider increasing controls
around ensuring costs charged to the fringe pool are allowable under Uniform Guidance cost principles.
The fringe allocation percentage for reimbursement should be reviewed and approved to ensure it
represents actual direct costs incurred. This review should be documented and performed monthly
(quarterly at minimum).
Management’s Response: Management’s response to the finding is discussed in the attached Corrective
Action Plan.