Finding Text
2024-002 Noncompliance with Allowable Costs/Cost Principles and Weakness in Internal Controls over Indirect Cost Calculation (Significant Deficiency)
Federal Award Program – 93.600 Head Start Cluster
Criteria – Per the Organization’s nonprofit indirect cost rate agreement with U.S. Department of Health and Human Services, the base for calculating indirect costs is total direct costs excluding capital expenditures.
Condition and Context – Audit procedures noted MMCA included capital expenditures in the direct cost base used for indirect cost calculations.
Cause – The non-compliance resulted from management’s oversight of the indirect cost rate agreement requirements for calculating the base.
Effect – MMCA was not in compliance with indirect cost calculation requirements. The total direct costs base used for the indirect expense calculation was overstated, which lead to an overstatement of indirect costs charged to the federal Head Start award 01CH107081-06.
Questioned Costs – The overstatement of indirect cost totaled $109,521.
Recommendations – We recommend the Organization ensure its indirect cost calculation methodology excludes capital expenditures from the direct cost base. All amounts included in the base should be reviewed for unallowable costs as part of the Organization’s internal review process prior to charging expenses. The Organization should ensure that all key personnel involved in calculating and reviewing indirect costs have a clear understanding of both the indirect cost rate agreement and the applicable Uniform Guidance standards. It is our understanding that management has reported this error to the funding administrators for Agreement No. 01CH107081-06 in order to address the questioned costs noted above.
Views of Responsible Officials and Planned Corrective Actions – All costs related to indirect cost calculations will be thoroughly reviewed and analyzed prior to being posted in the accounting system. The formulas within the current indirect cost allocation spreadsheet will be examined to ensure accuracy and compliance with all applicable restrictions. The approved indirect cost rate agreement and its associated restrictions will be reviewed with all members of the fiscal team, Program Directors, the President/CEO, and the Board of Directors. It is essential that all relevant staff maintain a thorough understanding of the terms outlined in the letter issued by the U.S. Department of Health and Human Services (HHS). This review will be conducted annually to ensure ongoing compliance and awareness.