Finding Text
Criteria: In accordance with 2 CFR 200.405(a), costs must be allocable to the Federal award in proportion to the benefits received. A cost is allocable to a Federal award if it is incurred specifically for the award, benefits both the award and other work, and can be distributed in proportions that may be approximated using reasonable methods.
Condition: During the fiscal year under audit, the auditee hosted two events at the same hotel—one charged to a nonfederal program and the other related to a Federal program. Initially, all event-related costs were charged to the nonfederal program. Subsequently, $28,500 was reclassified to the Federal program. However, only $14,500 of this amount was applicable to the Federal program. As a result, $14,000 was incorrectly charged to the Federal award. Additional review identified further errors in related reclassifications, with total known questioned costs of $18,387.
Cause: The auditee did not implement sufficient review controls over cost allocations and reclassifications between programs, resulting in misallocation of shared event costs.
Effect: A total of $18,387 in known questioned costs was charged to the Federal program inappropriately. Based on a sample of 40 transactions and one error totaling $14,000. One of 40 sampled transactions contained this error, which represents 2.5% of the sample population. This misallocation could lead to disallowed costs and potential recovery actions by the granting agency.
Repeat finding: This is not a repeat finding.
Questioned costs: $18,387
Recommendation: We recommend that the Organization implement stronger internal controls over the expenditure process to ensure that all costs charged to the program are allowable under 2 CFR 200.403, provide training to staff on the requirements for allowable costs and importance of proper oversight and conduct regular reviews of expenses charged to the programs to identify and correct any unallowable costs promptly.