Finding Text
CRITERIA Under the Uniform Guidance (2 CFR Part 200, Subpart E), recipients of federal awards must maintain documentation to support costs charged to federal programs, including indirect costs. The documentation should demonstrate that costs are allocable, allowable, and in accordance with the approved indirect cost rate agreement, if applicable. CONDITION AND CONTEXT UHU charged indirect costs to federal awards throughout the fiscal year using a provisional indirect cost rate that exceeded the actual rate calculated based on year-end financial information. Management did not perform a year-end reconciliation or adjustment to align indirect costs charged to federal awards with the actual allowable indirect cost rate. As a result, indirect costs charged to federal programs were overstated by the difference between the provisional and actual rates. CAUSE Management lacked procedures to perform a comprehensive year-end review and reconciliation of indirect costs charged to federal awards. In addition, there was no control in place requiring management to calculate the actual indirect cost rate and record any necessary true-up adjustment before the close of the fiscal year. EFFECT OR POTENTIAL EFFECT This may affect the accuracy of the Schedule of Expenditures of Federal Awards and compliance with federal requirements. RECOMMENDATION We recommend that management establish formal procedures to calculate the actual indirect cost rate at year-end, compare actual indirect costs charged to amounts allowable under the final rate calculation, and record any required adjustments prior to financial reporting and federal reporting. Management should also implement a review control to ensure all indirect cost reconciliations are completed and documented annually.