Finding Text
Kentucky's Full-Service Community Schools Program - Assistance Listing No. 84.215J; Grant No. S215J220173; Grant period - Years ended December 31, 2025 and 2024 Condition. Fringe benefit reimbursements for the major program exceeded actual costs incurred, resulting in questioned costs of $349,687. The auditee applied a fixed fringe benefit rate of 30% to salaries charged to the program without reconciling these amounts to actual fringe benefit costs incurred. No periodic true-up process was performed. Criteria. Under 2 CFR 200.403 and 200.431, costs charged to federal awards must be allowable, reasonable, and allocable, and fringe benefits must be based on actual costs incurred or an approved indirect/fringe benefit rate agreement. Cause. The lack of reconciliation controls described in Finding 2025-001 contributed to this condition, as management did not identify that fringe benefit charges exceeded actual costs incurred. Effect. Federal program expenditures and related revenue reimbursements were overstated due to fringe benefit charges exceeding actual costs incurred. This resulted in questioned costs totaling $167,426 for the year ended December 31, 2025 and $182,260 for the year ended December 31, 2024, totaling $349,687. This represents material noncompliance with Uniform Guidance requirements related to allowable and allocable costs and a material weakness in internal control over compliance. Recommendation. We recommend that the auditee charge fringe benefits to federal awards based on actual costs incurred or, alternatively, obtain a formally approved fringe benefit rate agreement and perform required periodic reconciliations to actual costs. Management should implement internal controls to ensure that fringe benefit costs are accurately calculated, properly supported, and consistently allocated to benefiting programs. In addition, reimbursement requests submitted to federal programs should be reviewed to ensure they are supported by actual incurred costs and comply with Uniform Guidance requirements. Finally, management should evaluate prior period charges and consult with the federal awarding agency to determine the appropriate resolution of questioned costs. View of Responsible Officials and Planned Corrective Actions. Management agrees with and will implement corrective action. The following corrective actions will be implemented: strengthening budget monitoring by requiring monthly budget-to-actual reviews for all active grants; standardizing grant allocation procedures through the development and documentation of formal cost allocation methodologies; enhancing review and approval processes by conducting quarterly internal audits of grant expenditures; and improving reconciliation practices by performing monthly reconciliations of each grant account, requiring sign-off by both finance and program managers, and investigating and resolving variances within 10 business days.