Finding 1124060 (2024-003)

Significant Deficiency
Requirement
AB
Questioned Costs
-
Year
2024
Accepted
2025-03-31
Audit: 351801
Organization: Kitsap Mental Health Services (WA)
Auditor: Bdo USA PC

AI Summary

  • Core Issue: KMHS used budgeted rates for payroll allocations instead of adjusting to actual costs, leading to potential inaccuracies in federal program charges.
  • Impacted Requirements: This violates 2 CFR §200.430, which mandates accurate documentation and internal controls for personnel expenses.
  • Recommended Follow-Up: Implement system improvements to reconcile budgeted versus actual fringe expenditures and enhance review processes to prevent errors.

Finding Text

Federal Agencies: Department of Health and Human Services Federal Assistance Listing Number: 93.696 Program: Certified Community Behavioral Health Clinic Expansion Grants Award/Pass-Through Entity Identifying Number: H79SM086589 Criteria: The Uniform Guidance in 2 CFR §200.303 requires that non-Federal entities receiving Federal awards (i.e., auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. Per 2 CFR §200.430 Compensation – Personal Services: “Standards for Documentation of Personnel Expenses (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control, which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity; (iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities; (iv) Encompass federally assisted and all other activities compensated by the non-Federal entity on an integrated basis, but may include the use of subsidiary records as defined in the non-Federal entity’s written policy; (v) Comply with the established accounting policies and practices of the non-Federal entity; and (vi) [Reserved] (vii) Support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities, which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. (viii) Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards, but may be used for interim accounting purposes, provided that: (A) The system for establishing the estimates produces reasonable approximations of the activity actually performed; (B) Significant changes in the corresponding work activity (as defined by the non-Federal entity’s written policies) are identified and entered into the records in a timely manner. Short-term (such as one or two months) fluctuation between workload categories need not be considered as long as the distribution of salaries and wages is reasonable over the longer term; and (C) The non-Federal entity’s system of internal controls includes processes to review after-the-fact interim charges made to a Federal award based on budget estimates. All necessary adjustment must be made such that the final amount charged to the Federal award is accurate, allowable, and properly allocated.” Condition: We noted that KMHS allocated payroll expenditures using budgeted allocation rates that were not trued up to actual. One out of 11 payroll selections used budgeted allocation rates that needed to be adjusted down to actual. Cause: KMHS did not have adequate policies/procedures in place to ensure fringe allocations are trued down to actual if applicable. KMHS relied heavily on manual processes that are more prone to error and did not have an adequate review process to identify and correct calculation errors. Effect or Potential Effect: Without adequate controls to detect calculation errors and ensure that costs allocated to federal programs are supported, KMHS could incorrectly charge expenditures to the federal program, or not request appropriate reimbursement KMHS is entitled to under the terms of the grant. Questioned Costs: Below reporting threshold. Context: This is a condition identified per review of KMHS’s compliance with specified requirements not using a statistically valid sample. Payroll costs including fringe benefits towards the program in 2024 were $861,659. The over-allocation of fringe benefits in excess of actuals is considered questioned costs. Identification as a Repeat Finding: Not a repeat finding. Recommendation: We recommend implementing system improvements to compare budget to actual fringe expenditures and complete reconciliations when necessary. Views of Responsible Officials: Management agrees with the finding. Management is updating their written procedures to ensure that allowable costs and cost principles comply with §200.430 as well as enhancements to the allocation procedures.

Categories

Allowable Costs / Cost Principles Matching / Level of Effort / Earmarking

Other Findings in this Audit

  • 547618 2024-003
    Significant Deficiency

Programs in Audit

ALN Program Name Expenditures
93.696 Certified Community Behavioral Health Clinic Expansion Grants $990,944
93.958 Block Grants for Community Mental Health Services $296,880
93.243 Substance Abuse and Mental Health Services Projects of Regional and National Significance $267,146
93.959 Block Grants for Prevention and Treatment of Substance Abuse $168,972
84.425U Education Stabilization Fund $28,830
14.276 Youth Homelessness Demonstration Program $3,403