Finding Text
Criteria: The Maternal, Infant and Early Childhood Home Visiting Program requires that costs charged to a federal award must be allocable in accordance with 2 CFR § 75.405, meaning they are incurred for the Federal award, benefit the award in proportion to the relative benefit, and are necessary to the overall operation of the non-Federal entity. Condition: A test of 60 non-payroll expenses revealed that expenses are first reserved through an internal funding request, with each line item assigned to a program code, while each funding request could be comprised of multiple programs. When actual expenses are incurred, they are allocated to programs based on the original funding request percentages rather than the actual costs. While individual over and under allocations occurred, the net variance across the sample was $20. The review of the total population indicates that the offsetting effect of over and under allocations is consistent, limiting the overall financial impact. Cause: The allocation process relied on percentages from the original internal funding request rather than actual expenses incurred for each program. This process design did not include the inclusion of actual program costs, resulting in misallocated expenses that are not fully consistent with 2 CFR § 75.405, which requires costs charged to a federal award to be allocable based on the relative benefits received by the program. Questioned Cost: $-0- Effect: Expenses may be charged to the program despite not actually incurring them, leading to allocations that are not fully reflective of actual program costs. While the net financial impact is minimal, the allocation methodology does not fully comply with 2 CFR § 75.405 requirements for allocable costs. Recommendation: We recommend that the Center’s management review and revise the expense allocation process to ensure that actual costs are allocated to programs based on expenses actually incurred. This will help prevent misallocations and ensure that costs charged to Federal awards are properly allocable under 2 CFR § 75.405. Classification: Compliance finding and control deficiency in internal controls.