Finding Text
Criteria:In accordance with the grant agreement between Head Start of Rockland, Inc. (“HSOR”) and the United States Department of Health and Human Services (“DOHHS”), HSOR must ensure actual expenditures closely align with the approved budget in their Notice of Award, following federal regulations under 45 CFR Parts 75 and 1303. Any significant rebudgeting, which is defined as a variance of 25% or more in a budget category or the total award, requires prior written approval from the Office of Head Start. Requests for such changes must include a revised budget, justification, and confirmation that the program’s scope remains unchanged. All costs, whether within or outside the variance threshold, must be allowable, allocable, reasonable, and consistent with federal cost principles and program goals.Condition/context:During the review of fiscal year expenditures, it was noted that HSOR reallocated funds between major budget categories in excess of the 25% threshold established in the Notice of Award without obtaining prior written approval from the Office of Head Start. Specifically, there were actual expenditures in excess of budget over 25% for the supplies category. This deviation indicates that HSOR did not follow required federal grant management protocols for significant budget revisions.Cause: Existing procedures did not include automated alerts or periodic variance checks to identify when budget adjustments approached the 25% threshold. Questioned Costs:None.Effect: Failure to obtain prior approval for significant budget changes constitutes noncompliance with federal grant requirements and the conditions of the award. This noncompliance exposes HSOR to potential financial risk, including disallowance of costs associated with unauthorized expenditures, mandatory corrective actions, and possible restrictions or conditions on future funding. It also raises concerns about HSOR’s ability to maintain fiscal accountability and adhere to federal regulations, which could negatively impact its standing with the funding agency.Auditors’ Recommendation:We recommend HSOR implement enhanced fiscal monitoring procedures, including automated variance alerts and periodic compliance reviews, and establish a formal escalation process for budget changes nearing the 25% threshold. Prior approval requests must be submitted before reallocating funds beyond the allowable threshold.Management’s Response:HSOR acknowledges and agrees with the finding and is in the process of developing procedures to ensure compliance with the grant/contract provisions and will start implementing this recommendation during the year ended February 28, 2026.