Finding Text
#2025-005 – Major Federal Award Finding – Allowable Costs/Cost Principles – Non-Payroll Nature of Finding: Allowable Costs Compliance Finding and Significant Deficiency in Internal Controls over Compliance Criteria/Condition: Federal regulations 2 CFR 200.405 provide that costs benefiting two or more projects in proportions that can be easily determined must be allocated to the projects based on the proportional benefit. If proportions cannot be easily determined, the costs may be allocated to the benefited projects on a reasonable and documented basis. Questioned Costs: $25,268 Identification of How Questioned Costs Were Computed: A sample of 53 non-payroll expenditures totaling $2,239,801 was selected from a population of approximately $2,539,000 non-payroll expenditures charged to the major program during the year ended December 31, 2025. Of these invoices selected for testing, the following are identified questioned costs: One employee benefit expenditure from April 2025 was selected for which no documentation was maintained to support the allocation method. During an independent examination, management identified that employee benefit costs may have been allocated inappropriately from March 2025 through June 2025. Management reviewed and reallocated employee benefit costs incurred during this time, resulting in a net reduction in federal expenditures totaling $3,370. Management indicated this correction was reported on the reimbursement request submitted in April 2026. One expenditure selected for testing was for professional audit service fees relating to the prior fiscal year’s financial statement audit. Federal regulations 2 CFR 200.425 provide a reasonably proportionate share of the costs of audits required by and performed in accordance to the Single Audit Act Amendments of 1996 are allowable. Based on guidance included in the federal regulations, approximately $34,000 of the fee could be considered the reasonably proportionate share of the costs. Approximately $21,898 in costs were charged to the grant in excess of this reasonable share. Cause/Context: Controls were not in place to evaluate the allocation of costs to grants based on proportional benefit provided to each grant. For 1 of the 25 expenditures selected for testing, costs were divided using an unknown method, and 1 was charged to the grant in an amount higher than is reasonably allowed by federal regulations. Effect: Expenditures that involve an allocation of costs between grants are not correct or not supported. The lack of controls results in questioned costs as a disproportionate amount of expenditures may be charged to the federal program. Recommendation: Management has indicated the employee benefit cost allocations have been corrected with the grantor subsequent to year end. We recommend management establish procedures and controls to allocate costs between grants based upon actual costs attributed to the grant and the particular expenditure allowed by the grant. Any such allocations should be supported by activity-level substantiation and be reviewed. Documentation of the allocation methodology, review and approval should be maintained. Views of Responsible Officials and Planned Corrective Actions: Management identified an inappropriate benefit cost allocation from March through June 2025 during an independent internal review, corrected the allocation, and reported the reduction in federal expenditures on the reimbursement request submitted in April 2026. Beginning this fiscal year, the annual financial statement audit fee is being charged entirely to the grant supporting general operations rather than allocated across federal awards, removing the proportionality question for this cost going forward.