Finding Text
Finding Reference: 2023-003
Prior Year Finding: 2022-006
Federal Agency: Department of Health and Human Services
Compliance Requirement: Allowable Costs (Indirect Costs)
Type of Finding: Material Weakness in Internal Control over Compliance
Federal Program: 93.569 – Community Services Block Grant (CSBG)
Grant Award: Various
Condition/Context:
During the testing of indirect cost allocations to federal programs, it was determined that SMTCCAC charged excess indirect costs for programs to the Community Services Block Grant. The actual indirect costs allocated to all programs exceeded the approved provisional federal indirect cost rate of 22%; and was ultimately reported as administration costs within other costs for the grant, which exceeded the CSBG budget line without obtaining approval from the applicable funding agencies.
Criteria:
On November 13, 2023, the Department of Health and Human Services approved a provisional indirect cost rate of 22% to be applied to total direct salaries and fringe benefit costs related to all federal programs. This rate is applicable to SMTCCAC’s grants, contract, and other agreements covered by 2 CFR 200 for the period effective from December 1, 2020 to June 30, 2024. According to the approved rate agreement, if any federal contract, grant, or other agreement is reimbursing indirect costs by a means other than the approved rate in this agreement, the organization should (1) credit such costs to the affected programs, and (2) apply the approved rate to the appropriate base to identify the proper amount of indirect costs allocable to these programs.
Cause:
SMTCCAC allocated general and administration costs to the grant based on its monthly calculated indirect cost rate per program, rather than allocating indirect costs to programs which should not exceed the approved provisional rate of 22%. For FY2023, SMTCCAC calculated an actual indirect cost rate of 57.48% and the excess above the approved provisional rate of 22% was charged to CSBG program for all programs. These excess costs were not within the approved budget for the category administration costs.
Effect:
SMTCCAC allocated indirect costs for programs in excess of the approved provisional rate to the Community Services Block Grant. These costs were in excess of the budget for administration costs, although within the aggregate budget total.
Questioned Costs:
Based on our assessment using the approved provisional rate, SMTCCAC overallocated indirect costs to the CSBG grant by $385,819, which exceeded the CSBG budget line category for administration costs.
Recommendation:
We recommend that SMTCCAC ensures compliance with the cost principles in 2 CFR Part 200, Subpart E, adhere to the approved federal indirect cost rate agreement, and properly apply either the actual annual indirect cost rate or the approved federal rate, whichever is lower, when determining indirect costs charged to federal awards. In addition, other general and administrative costs charged to CSBG should be within an approved budget for the costs.