Finding Text
Type of deficiency: Significant deficiency in internal control over compliance AL number 10.561 AL title: Supplemental Nutrition Assistance Program Name of federal agency: U.S. Department of Agriculture Federal award/contract: FFY 2026 SNAP Employment and Training Contract No. 26 IHGA 206885 Repeat finding: No Criteria: In accordance with 2 CFR §§ 200.403, 200.404, and 200.405, costs charged to a federal award must be adequately documented, necessary and reasonable for the performance of the federal award, and allocable to the federal award. Recipients are required to maintain documentation sufficient to support the methodologies used to charge costs to federal programs and to demonstrate that federal awards receive benefits commensurate with the amounts charged. The FFY 2026 contract and Program Operator Plan also require the Organization to maintain documentation supporting costs charged to the program and make such documentation available for State and federal review. The approved budget further contemplated participant-based and component-based pricing methodologies for certain program services.Condition: The FFY 2026 Department-approved Employment First Program Operator Plan incorporated into Contract No. 26 IHGA 201182 included a materials cost for Launch licensing based on a participant fee of $2,600 per participant. The Program Operator Plan described the participant-based fee and related services to be provided through the Launch platform, and the methodology was incorporated into the executed contract. The related budget documents also contemplated billing at established component rates rather than reimbursement solely on the basis of actual costs incurred. During our audit procedures, we noted that the Organization billed $412,100 under the participant-based licensing methodology included in the approved Program Operator Plan. Based on the approved Program Operator Plan, supporting budget schedules, and executed contract, management operated under the belief that the participant-based pricing methodology was approved by the Department, was reasonable and necessary, and complied with program requirements. Subsequent to implementation of the program, the Organization obtained a transfer-pricing and fair value study intended to evaluate and support the participant-based pricing methodology. The Colorado Department of Human Services later performed a fiscal management evaluation and questioned whether sufficient documentation existed to support the participant-based pricing methodology and the basis used to allocate charges to the federal program. The Department approved invoices and reimbursed for these costs, and did not communicate issues until the fiscal management evaluation was conducted. During our audit, we noted that while the participant-based methodology was disclosed within and approved through the Program Operator Plan and management had obtained a supporting valuation analysis, documentation retained regarding the assumptions, analyses, and support underlying the participant-based methodology was not sufficient to fully address the concerns subsequently raised during the State's review as part of their fiscal management evaluation. As a result of the State's determination and the uncertainty surrounding the ultimate resolution of the matter, management has recorded a liability associated with the expenditures identified by the State pending final resolution. Cause: The Organization established a participant-based pricing methodology that was incorporated into the Department-approved Program Operator Plan and executed contract and subsequently obtained a valuation analysis supporting the methodology. However, controls were not operating effectively to ensure that supporting documentation, assumptions, analyses, and valuation support underlying the methodology were maintained in a manner sufficient to support future monitoring and compliance reviews.Possible effect: Without sufficient documentation supporting the participant-based pricing methodology, the Organization may be unable to fully demonstrate the reasonableness, allocability, and support for amounts charged under the methodology. As a result of the State's determination and the uncertainty surrounding the ultimate resolution of the matter, management has recorded a liability associated with the amounts identified by the Colorado Department of Human Services pending final resolution of the matter. Questioned cost: $412,100 Recommendation: We recommend the Organization enhance documentation supporting participantbased pricing methodologies utilized in federally funded programs. Documentation should identify the basis used to establish the participant fee, the assumptions and analyses supporting the pricing methodology, the relationship between the participant fee and benefits received by the federal program, and procedures demonstrating that costs are not recovered through other reimbursement categories. Supporting documentation should be retained and periodically reviewed to ensure it is available for future monitoring, compliance, and audit activities. Views of responsible officials: Management has established a separate entity to hold the technology related to these charges. Additionally, management engaged a reputable accounting firm on May 4, 2026 prior to the fiscal management evaluation to assist with fee benchmarking to independently validate the participant fee, and is currently working on valuing the developed technology to contribute into a separate legal entity. Although documentation was retained, management has developed a plan to enhance the documentation to follow federal cost principles to appropriately demonstrate the benefits received by the federal program.