Finding Text
Finding 2023-003: Contribution Requirement Documentation Federal Agency: United States Department of Agriculture Federal Program: Foreign Market Development Cooperator Program (FMD) Assistance Listing Number: 10.600 Pass-through Entity, if Applicable: NoneAward Identification Number and Year: F23GXCHSHO, F23GXCHDES, F23GXWWDES, F23GXSTNDS, F22GXEVALU Criteria or Specific Requirement: The 2023 Foreign Market Development Cooperator Program approval letter requires a contribution level of 70% of project expenditures. This amount may include cash, goods, or services provided by U.S. entities in support of LHCA’s FMD program. All contributions must be documented and verifiable by audit. Condition: During the audit, we noted inconsistencies in the documentation supporting reported contributions. Although the Organization ultimately provided a schedule showing how the requirement was met, the underlying support for contributions met by Laboratory and other expenses was in some cases not clearly documented, and lacked a clear review and approval process. The Organization received prior USDA guidance indicating that certain research conducted by the Leather Research Laboratory may qualify as industry contributions if aligned with USDA export promotion activities. However, not all Laboratory activities are allowable under the program. To capture the Laboratory’s contribution, the Organization initially provided a schedule summarizing related revenue as contributions. While using revenue as a basis to estimate and allocate qualifying costs is conceptually reasonable, the approach of reporting revenue alone was not permissible under Uniform Guidance (2 CFR Part 200), as revenue does not represent allowable, verifiable expenditures. Management subsequently provided a listing of actual Laboratory expenses believed to qualify as contributions, illustrating that the required contribution amount was met. Cause: The condition resulted from the absence of a formalized contributions policy and internal control process governing the identification, documentation, and review of allowable contributions. While management relied on general USDA guidance regarding qualifying industry contributions, the Organization did not establish detailed procedures to distinguish allowable from unallowable activities, or to ensure contributions were supported by verifiable expense documentation in accordance with Uniform Guidance. In addition, roles and responsibilities for review and approval were not clearly defined, resulting in inconsistent tracking methodologies and the use of an impermissible revenue-based approach. Effect: Contributions reported to USDA may not meet Uniform Guidance requirements, resulting in noncompliance and potential disallowance. Questioned Costs: None noted, as the Organization ultimately has numerous sources of contributions that illustrate that it met it's requirement, despite the inconsistent tracking and reporting. Context: Our audit procedures consisted of statistical sampling as well as substantive testwork over various samples of expenditures, and were deemed to be representative of the population for the fiscal year under audit. Identification as a Repeat Finding, if Applicable: This is not a repeat finding.Recommendation: We recommend the Organization establish and implement a formal contributions policy and review process to ensure amounts reported comply with Uniform Guidance (2 CFR Part 200) and program requirements. The policy should clearly define allowable contributions activities, require that reported amounts be supported by verifiable and auditable expense documentation (rather than revenue), and outline procedures for consistent tracking of personnel time and other contributions. Management should also implement a documented review and approval process to ensure contributions are accurate, allowable, and properly supported prior to submission. The Organization should also consult with USDA to formally clarify acceptable documentation and reporting requirements for industry contributions associated with lab activities.