Finding Text
Statement of Condition: During testing of disbursements, we identified three instances in which expenditures were recognized in full in FY 2025 despite portions of the costs relating to services to be received in FY 2026. These items included: one multi-year subscription membership, and two additional expenditures with smaller prepaid components. In each instance, the Organization did not record a prepaid expense or allocate the costs between fiscal periods based on the period benefited. As a result, costs benefiting a period outside the fiscal year and outside the reporting period for FY 2025 federal expenditures were included in FY 2025 grant costs. Criteria: Under 2 CFR §200.403 and 2 CFR §200.405, costs charged to a federal award must be allowable, allocable, reasonable, incurred during the applicable period of performance and be allocable to a federal award in proportion to the relative benefits received. Additionally, 2 CFR §200.302 requires nonfederal entities to maintain financial management systems that provide for accurate and complete disclosure of the financial results of each federal award. Costs that benefit multiple accounting periods must be allocated to the periods benefited, regardless of the timing of cash disbursement. Effect and Questioned Costs: Federal expenditures reported for FY 2025 were overstated by $15,253, representing the portion of costs applicable to FY 2026. This resulted in noncompliance with Uniform Guidance requirements related to cost allocability and accurate financial reporting. Cause: The Organization did not have a formal process in place to identify and allocate prepaid or multiperiod costs to the appropriate fiscal periods for federal grant reporting purposes. Expenditures were recorded and charged to the federal award based on payment date rather than the period in which the costs were incurred and benefited the program. The lack of procedures to identify and allocate multi-period costs represents a deficiency in internal control over compliance, as controls were not designed or operating effectively to ensure that costs were charged to the appropriate fiscal period in accordance with Uniform Guidance. This deficiency did not rise to the level of a significant deficiency or material weakness, as the costs were otherwise allowable, within the period of performance, and the issue was limited to timing. Recommendations: We recommend that the Organization implement procedures to identify costs that benefit multiple accounting periods and allocate such costs to the appropriate fiscal years for both financial reporting and federal grant reporting purposes. Additionally, we recommend that the Organization record prepaid expenses at year end, as applicable, and ensure that only costs incurred and allocable to the fiscal year are included in federal expenditures and reported on the Schedule of Expenditures of Federal Awards.