Finding Text
Federal Program Information: Assistance Listing Number (ALN): 14.251 Federal Program Name: Economic Development Initiative, Community Project Funding, and Miscellaneous Grants Federal Agency: U.S. Department of Housing and Urban Development Passed-through Entity: Not applicable Federal Award Number: B-23-CP-CA-0189 Federal Award Year: 12/29/2022 - 8/31/2031 Compliance Requirement: Activities Allowed or Unallowed and Allowable Costs/Cost Principles Criteria or Specific Requirements: Pursuant to 2 CFR 200.414(f), Indirect costs, a non-Federal entity that does not have a negotiated indirect cost rate agreement (NICRA) may elect to charge indirect costs using the 10% de minimis rate of Modified Total Direct Costs (MTDC). Once an indirect cost rate is elected for a federal award, the rate must be applied in accordance with the terms of the grant agreement. Condition: LYRIC charged indirect costs using 15% rate, instead of the 10% indirect cost rate elected in the grant agreement. This resulted in overbilling of indirect costs by $48,814. Questioned Costs: $48,814 Cause: LYRIC did not have sufficient review procedures in place to ensure that indirect costs charged to the federal award were calculated using the elected indirect cost rate. As this was LYRIC’s first federal award subject to Single Audit requirements, LYRIC applied the indirect cost rate of 15% included in the original grant budget and did not verify the rate elected in the grant agreement. Effect: indirect costs charged to the federal awards exceeded the amount allowable under the grant agreement, resulting in questioned costs and noncompliance with federal cost principles, potentially requiring repayment of funds. Recommendation: We recommend that LYRIC coordinate with the federal awarding agency to resolve the questioned indirect costs, including returning any amounts determined to be unallowable. In addition, management should implement review procedures to ensure the indirect cost rate applied to federal awards is consistent with the approved award terms and applicable federal requirements. Views of Responsible Officials and Planned Corrective Actions: Management agrees with this finding. LYRIC will take the following corrective actions: (1) immediately correct the indirect cost rate applied to the HUD award and all future grant budgets to ensure it does not exceed the 10% rate; (2) work with HUD to address the $48,814 overcharge and determine the appropriate remedy, including offsetting other legitimate expenses against the overdrawn amount as necessary; (3) document the organization's elected indirect cost rate and methodology in each grant's budget file and award documentation; (4) evaluate whether to pursue a new NICRA through the cognizant federal agency if a rate above 10% is needed to accurately recover indirect costs with future grants; and (5) provide specific and targeted training to concerned staff on indirect cost rate rules, MTDC calculation, and Uniform Guidance compliance. Responsible Official and Position: Ana Rubio, Director of Finance, and Laura Chavez, Contracts Manager Expected Implementation Date: July 1, 2026