Finding Text
Statement of Condition: During the fiscal year ended June 30, 2025, the Organization charged indirect costs to the federal program at a rate of 8%, consistent with the grant agreement. However, the total amount of indirect costs charged exceeded the total allowable Management and General costs incurred in the Organization’s indirect cost pool. As a result, the Organization recorded excess indirect cost recovery of approximately $50,000, resulting in a surplus within a cost-reimbursement federal award. Criteria: Under Uniform Guidance (2 CFR §200.403 and §200.414), costs charged to a federal award must be: Allowable, Allocable, consistently applied Indirect costs must be supported by actual allowable costs incurred and may not exceed the underlying cost pool to which the rate is applied. Additionally, 2 CFR §200.303 requires non-federal entities to establish and maintain effective internal controls over federal awards to ensure compliance with federal statutes, regulations, and the terms and conditions of the award. Effect and Questioned Costs: At the time indirect costs were charged, allowable costs incurred were exceeded, resulting in a compliance issue under Allowable Costs / Cost Principles. Although the Organization subsequently obtained approval from the pass-through entity to retain and use the funds for specified purposes, the excess was not allowable as incurred, and the matter remains reportable as a compliance finding. Questioned costs of approximately $50,000 were identified; however, no repayment is required, provided the funds are used in accordance with the approval and related oversight requirements. Cause: The condition resulted from a combination of factors, including reclassification of certain vendors from subrecipients to contractors, which expanded the base of expenditures eligible for indirect cost allocation and increased indirect cost recovery without a corresponding increase in indirect expenses; and insufficient monitoring of indirect cost recovery following approval of an increased grant budget during a period of leadership transition, resulting in delayed identification of the imbalance between indirect recovery and actual indirect expenditures. Recommendations: We recommend that the Organization continue to adhere to the approved resolution with the pass-through entity regarding the use of excess indirect cost recovery, implement procedures to monitor indirect cost recovery relative to the underlying cost pool throughout the year, periodically reconcile indirect costs charged to actual management and general expenses incurred, enhance budgeting and forecasting processes to incorporate expected indirect cost recovery and ensure consistent application of the approved indirect cost rate in accordance with the grant agreement.