Finding Text
Finding 2022-001 Identification of the federal program: Research and Development (R&D) Cluster Federal Agency: U.S. Department of Health and Human Services Assistance Listing: 93.399 Award numbers: 5UG1CA189830-08, 5UG1CA189830-09 Criteria or specific requirement (including statutory, regulatory or other citation): 2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control: ?The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in ?Standards for Internal Control in the Federal Government? issued by the Comptroller General of the United States or the ?Internal Control Integrated Framework?, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).? Per Memorial Health?s (MH) Hospital Rate Agreement dated October 12, 2021, the indirect cost rate is 26.9% effective October 1, 2021. In addition, the base for indirect costs is defined as: ?Total direct costs excluding capital expenditures (buildings, individual items of equipment; alterations and renovation), the portion of each subaward in excess of $25,000 and flow-through funds.? Condition: Management did not calculate indirect costs related to the R&D Cluster using the indirect cost rate per the Hospital Rate Agreement dated October 21, 2021. In addition, the base upon which the indirect costs were calculated was incorrect for subawards as Management applied the indirect cost rate to the portion of subawards in excess of $25,000. Cause: Management?s internal controls over the calculation and application of indirect costs to the R&D Cluster grants were ineffective due to the incorrect indirect cost rate being used. In addition, Management did not have an understanding of the terms and conditions of the Hospital Rate Agreement. Effect or potential effect: Indirect costs were not calculated in accordance with the federal Hospital Rate Agreement and the incorrect amount was charged to the federal program. Questioned costs: Total: $39,589 ? AL # 93.399 NIH Award 5UG1CA189830-08: $38,261 ? AL # 93.399 NIH Award 5UG1CA189830-09: $1,328 Context: In obtaining an understanding of the indirect costs charged to the R&D grants, we identified that Management did not have effectively designed and operating internal controls in place during the year over the calculation of indirect costs and that the incorrect rate and base was used in the indirect calculations. As such, we did not select a sample of transactions for further testing. We performed an analysis over indirect costs in order to determine the questioned costs. We identified that Management used the incorrect rate (29.6%) for the first 10 months of the fiscal year. Additionally, the indirect cost base was calculated incorrectly as Management included subrecipient direct expenses greater than $25,000 per contract year, which caused an overstatement of the indirect costs charged to the R&D federal grants. Management should have charged $323,128. Management charged $362,718. This resulted in questioned costs charged to the grants equal to $39,589. The total R&D Cluster expenditures reported on the Schedule of Expenditures of Federal Awards (SEFA) are $3,578,529 for the year ended September 30, 2022, including indirect costs of $362,718, which represents 10.1% of total R&D Cluster expenditures. Identification as a repeat finding: Repeat of Finding 2021-002 Recommendation: MH should calculate the indirect costs monthly in accordance with the terms and conditions outlined in the Hospital Rate Agreement. In addition, Management should design and implement effective internal controls over the review and approval of the indirect cost calculation. Views of responsible officials: Management agrees with the finding. Management will update its processes to ensure all calculations are made in accordance with the terms and conditions outlined in the Hospital Rate Agreement and such calculations are reviewed and approved as a means of effective internal control. These updates will be implemented to cover MH?s fiscal year 2023.