Finding Text
Criteria: Uniform Guidance requires that when a non-federal organization owns a building, allowable facility costs charged to a federal award are generally limited to depreciation, properly computed and allocated to the benefiting programs. Charges equivalent to rent or mortgage principal payments are not an allowable method of recovering facility costs for owned property. Interest on borrowed capital is generally unallowable, except in limited circumstances and only when specific conditions are met under Uniform Guidance and applicable award terms. Condition: During testing and expanded procedures, it was identified that the Organization charged occupancy costs totaling $17,166 to the federal program for buildings it owns. The Organization developed and applied a methodology to calculate a fair market value rental rate for its facilities and charged this rate to the program. In addition, the Organization occasionally charged actual mortgage payments directly to the grant. These practices are not consistent with Uniform Guidance requirements for allowable occupancy costs. Cause: This condition appears to result from a misunderstanding of federal cost principles and reliance on informal guidance from external parties. Management indicated that it was advised that mortgage costs could not be charged, and subsequently developed a fair market value rental methodology based on discussions with other nonprofit organizations. However, the Organization did not establish controls to ensure that its methodology complied with Uniform Guidance. Effect: As a result, the Organization utilized an unallowable methodology to charge occupancy costs to the federal program, leading to noncompliance with federal requirements. The issue is pervasive in nature and resulted in questioned costs totaling $17,165.51. Recommendation: The Organization should discontinue charging rent equivalents or mortgage payment amounts to federal programs for owned facilities. Going forward, management should charge allowable facility costs using depreciation, computed in accordance with Uniform Guidance and properly allocated to benefiting programs. Management should also ensure that any interest costs charged to federal awards, if any, are specifically allowable under Uniform Guidance and the terms of the award and are supported by appropriate documentation and approvals. Management’s Response: Management acknowledged the finding and stated that the occupancy charges were intended to recover facility costs incurred in operating the federal program. Management indicated that policies and procedures will be updated to ensure compliance with Uniform Guidance requirements for charging facility costs to federal awards.