Finding Text
Finding No. 2023-005
Federal Agency: United States Department of Agriculture
Compliance Requirement: Allowable Cost
Type of Finding: Material Weakness in Internal Control (MW). Instance of Noncompliance (NC)
Unallowable Costs
Criteria
Article 7 CFR 251.8(e)(1) establishes the Allowable administrative costs. State agencies and eligible recipient
agencies may use funds made available under this part to pay the direct expenses associated with the distribution of
USDA Foods and foods secured from other sources to the extent that the foods are ultimately distributed by
eligible recipient agencies which have entered into agreements in accordance with § 251.2. Direct expenses include
the following, regardless of whether they are charged to TEFAP as direct or indirect costs:
i. The intrastate and interstate transport, storing, handling, repackaging, processing, and distribution of
foods (including donated wild game); except that for interstate expenditures to be allowable, the foods
must have been specifically earmarked for the particular State or eligible recipient agency which incurs
the cost;
ii. Costs associated with determinations of eligibility, verification, and documentation;
iii. Costs of providing information to persons receiving USDA Foods concerning the appropriate storage
and preparation of such foods;
iv. Costs involved in publishing announcements of times and locations of distribution; and
v. Costs of recordkeeping, auditing, and other administrative procedures required for program
participation.
Statement of Condition
The entity used federal program funds from The Emergency Food Assistance Program (TEFAP) to acquire items
that are not considered allowable administrative costs under 7 CFR § 251.8(e)(1). Specifically, printing machine, a
food truck, and a tractor were purchased using TEFAP funds. These expenditures were identified as unallowable
costs in a monitoring procedure by ADSEF (Administración de Desarrollo Socioeconómico de la Familia). As a
result, the entity has entered into a repayment agreement with ADSEF to reimburse the disallowed amount. The
unallowable costs amount to $219,875.
Cause of Condition
Internal monitoring procedures are not established to assure that all disbursements are made in accordance with
programs requirements.
Section III - Major Federal Award Program Findings and Questioned Costs (Continued)
Effect of Condition
The Organization incurred a financial liability resulting from the improper use of TEFAP funds, as determined by
ADSEF. The Organization was required to reimburse the disallowed amount and has reflected the obligation in its
financial statements. This situation also represents noncompliance with federal program requirements and
increases the risk of future funding restrictions.
Recommendation
The Organization should strengthen its internal review procedures and ensure that all expenditures charged to
federal programs are reviewed for allowability based on applicable regulations. Personnel responsible for
procurement and program management should receive training on TEFAP guidelines, and purchases of capital
assets should be pre-approved and funded through allowable sources only.
Questioned Costs
$219,875
Management Response
Management acknowledges the finding and has entered into a formal repayment agreement with ADSEF to
reimburse the disallowed amount through monthly payments of $5,000. The Organization is in the process of
updating its procurement and expenditure approval procedures and will implement training for staff involved in
managing federally funded programs.
Responsible official
Mr. Marcos Rivera
CEO