Finding Text
Criteria: In accordance with the operating contract, section 6, and federal regulations, entities charging indirect costs to federal programs must prepare, maintain, and make available an Annual Cost Allocation Plan in compliance with 2 CFR §200.414 and 2 CFR §200.416-200.417. The plan must be retained and be made available for audit to support the methodology used to charge indirect costs. Condition: The auditor was unable to obtain the entity’s Annual Cost Allocation Plan. Without this plan, the auditor could not assess whether the entity used the proper indirect cost rate or whether the methodology for calculating and allocation costs complied with federal requirements. Cause: The Annual Cost Allocation Plan could not be obtained to determine if the organization submitted indirect costs using the correct rate. It is unclear whether the plan was never created or whether it was not preserved due to deficiencies in the entity’s record-keeping procedures. Effect: The auditor could not validate the appropriateness or accuracy of indirect costs charged to the federal program. This lack of documentation increases the risk that indirect costs charged may be unallowable, improperly allocated, or inaccurately calculated. Recommendation: The entity should prepare an Annual Cost Allocation Plan in accordance with the program’s operating contract and federal regulations and ensure it is consistently retained and made available for audit. The entity should also establish internal controls over the preparation, approval, and retention of the plan.Management’s Response: Management agrees with the finding and will ensure that the Annual Cost Allocation Plan is completed in a timely manner in accordance with the operating contract and ensure it complied with applicable federal regulations.