Finding Text
U.S. Department of Health and Human Services - 93.600 Head Start 2025-003 Inconsistencies with Cost Allocations Criteria: In accordance with 2 CFR §200.405(d), any cost allocated to a federal award must be allocable, reasonable, and based on a method that is supported and consistently applied. In addition, 2 CFR §200.403(g) requires that costs be adequately documented. A written allocation plan is essential to demonstrate that the allocation of shared costs is equitable and in compliance with Uniform Guidance. Condition: During our audit testing of payroll allocations, we noted the Organization uses a payroll allocation spreadsheet to distribute employee salaries across programs and administrative cost centers. However, the spreadsheet did not include all employees, resulting in staff members’ payroll costs being allocated based on default or informal assumptions rather than established methodology. During our review of expense allocations for both payroll and non-payroll expenses, we noted that the Organization did not consistently follow the cost allocation plan. Cause: The omission of certain employees appears to be the result in oversight in maintaining the allocation spreadsheet and/or the inconsistent communication between HR/payroll and program management. This may have been due to changes in personnel that were not adequately briefed on procedures or lack of review for the allocated expenses. Effect: Failing to include all employees in the payroll allocation policy may result in noncompliance with the Organization’s cost allocation plan and applicable grant requirements or inaccurate distribution of payroll costs to programs. Not following the cost allocation plan increases the risk of noncompliance with grant requirements, inaccurate reporting of program costs, or misstatement of financial results. Questioned Costs: None noted. Recommendation: We recommend the Organization implement a formal process for updating the allocation spreadsheet whenever there are staffing changes and conduct periodic reviews (at least quarterly) to verify that payroll allocations remain accurate and compliant with the cost allocation plan. We recommend the Organization implement a stronger documentation process for shared cost distribution and monitor compliance regularly to ensure all allocations continue to follow the cost allocation plan. Views of Responsible Officials and Planned Corrective Actions: Management agrees with the finding and will document the allocation methods used for employees and expenses.