Finding Text
Finding: Failure to apply proper cost principles including tracking expenses against approved budget. Criteria: Allowable Costs/ Cost Principles (Non-profit Organization) Per the Office of Management and Budget Compliance Supplement (2 CFR Part 200, Appendix XI), allowable costs/cost principles is a relevant compliance requirement for the Unaccompanied Children Program cluster. Per the Compliance Supplement, nonprofit recipients of the Unaccompanied Children grant must follow the cost principles in 2 CFR Part 200 Subpart E (Cost Principles). Basic guidelines under this guidance states that costs must meet criteria including but not limited to: A. Be necessary and reasonable for the performance of the federal award and be allocable thereto under the principles in 2 CFR Part 200, Subpart E. B. Conform to any limitations or exclusions set forth in 2 CFR Part 200, Subpart E or in the federal award as to types or amount of cost items. C. Be adequately documented. Condition and Context, and Cause: As discussed above, the long-time CFO separated from the Organization and the former President directed employees to allocate expenses which did not relate the Unaccompanied Children’s Programs based on an inaccurate understanding of allowable cost principles. Prior to separation, the CFO had procedures in place to ensure that only allowable expenses related to the Unaccompanied Children Programs were allocated to the grants. This included but was not limited to the use of an “804- Non-reimbursable” classification in the general ledger, and a “UC Draw” spreadsheet which tracked and reconciled cash draws from the UC program with expenses incurred and remaining available budget amounts. After her departure, both procedures were discontinued. The Draw Sheet continued to be filled out, however it only provided actual cash drawn with no reconciliation to expenditures. The Organization is not required to submit detailed vouchers under the grants. However, under the 2 CFR Subpart 200 guidance, expenditures must be adequately documented. During our audit, the Organization was initially unable to provide a detailed breakdown of invoices/qualifying expenditures correlating with cash draw requests. It was determined that the Organization was not tracking the cash draw requests based on qualifying expenditures, but rather the cash needs of the Organization as a whole with little to no consideration of allowable costs under the budget. Per the Compliance Supplement: Amounts approved under budget line items in awards are not automatically approved for drawdown. Drawdowns and the related reporting of expenditures to ACF via the Standard Form (SF)-425, "Federal Financial Report," must be based on actual expenditures incurred. Additionally, SF-425 reporting must be based on the entity's basis for accounting (e.g., cash or accrual) as designated by the recipient in their financial records and audited financial statements The Organization was using the class system in the general ledger to allocate direct expenses to the programs; however, the general ledger did not correlate with actual cash drawn from the program. See finding below regarding cash management and finding detail of questioned costs relating to budget overages and allowable activities. Result: Amounts related to failure to comply with compliance procedures are summarized in the accompanying Summary of Questioned costs schedule. Amounts are not included in the contract liability discussed in Note 12, as the Granting Agency has the authority to determine if noncompliance with procedures will result in disallowed expenditures. Recommendation: The auditors recommend the Organization re-implement internal controls to track allowable expenditures and reconcile qualifying costs with cash draws.