Finding Text
2023-003 Indirect Cost Allocation Methodology
Program Name/ Assistance Listing Number: 93. 959 Block Grants for Prevention and Treatment of Substance Abuse
Federal Agency: Department of Health and Human Services
Federal Award Identification: Unknown
Type of Finding: Material Weakness
Compliance Requirement: Allowable Costs/Cost Principles
Criteria: Based on 2 CFR Part 200 subpart E, Appendix IV, NPOs that receive Federal Awards are required to comply with the cost principles outlined in the Uniform Guidance when charging indirect costs to those awards. The criteria for NPO documentation of indirect cost allocation methodology include identifying the methods used to allocate indirect costs, documenting the basis for determining the allocation of each indirect cost, describing changes made to the methodology, accounting for differences between estimated and actual amounts, supporting the indirect cost rate(s) used, and demonstrating compliance with any specific limitations on indirect cost reimbursement imposed by the Federal Award.
Condition: The management was not able to provide documentation on how they allocate indirect costs and expenses to the federal awards.
Cause of Condition: The management has used an informal method to allocate indirect costs, which was not documented or if documented, may not meet the requirements of Uniform Guidance.
Effect: If an organization's indirect cost allocation methodology is not properly documented, it may be difficult for the auditors to verify that the indirect costs allocated to a particular federal award are reasonable, necessary, and allocable. This may result in disallowed costs or findings in the audit report, which could impact the organization's ability to receive future federal awards.
Questioned Cost: Not quantifiable.
Recommendation: We recommend that management should consider documenting their indirect cost allocation methodology by doing the following:
1. Develop a written policy: Develop a written policy that outlines the methodology used to allocate indirect costs. This policy should be reviewed and updated periodically to ensure that it remains current and accurate.
2. Establish procedures: Establish procedures for documenting the allocation of indirect costs. This can include maintaining detailed records of costs and the methodology used to allocate them.
3. Train employees: Provide training to employees who are responsible for indirect cost allocation to ensure that they understand the policy and procedures for documenting the allocation of indirect costs.
4. Review documentation regularly: Review the documentation of the indirect cost allocation process regularly to ensure that it is accurate and complete.
5. Engage internal and external auditors: Engage internal and external auditors to review the documentation of the indirect cost allocation process periodically to ensure that it complies with Uniform Guidance.
6. Assign responsibility: Assign responsibility to specific individuals within the organization for documenting the indirect cost allocation process to ensure that it is a priority.
Description of the Nature and Extent of Issues Reported: We consider the following materiality for consideration of material noncompliance for the major program 93.959 at 5% of the total awards expended amounting to $51,253.
View of Responsible Official: Management agrees with the finding and will implement corrective action.