Finding Text
Finding 2022-002 Internal control deficiency and noncompliance over calculation of indirect costs Identification of the Federal Program: Assistance Listing Number 93.697: ? COVID-19 ? COVID-19 Testing and Mitigation for Rural Health Clinics ? U.S. Department of Health and Human Services ? Federal award identification number ? Not Applicable ? Federal award year ? January 27, 2020, to December 31, 2022 Criteria or specific requirement (including statutory, regulatory or other citation): Title 2, Subtitle A Chapter II Part 200 Subpart D 200.303 Internal controls. 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). Title 2, Subtitle A, Chapter II Part 200 Subpart E 200.414 Direct and Indirect Costs. In addition to the procedures outlined in the appendices in paragraph (e) of this section, any non-Federal entity that does not have a current negotiated (including provisional) rate, except for those non-Federal entities described in appendix VII to this part, paragraph D.1.b, may elect to charge a de minimis rate of 10% of modified total direct costs (MTDC) which may be used indefinitely. No documentation is required to justify the 10% de minimis indirect cost rate. As described in ?200.403, costs must be consistently charged as either indirect or direct costs but may not be double charged or inconsistently charged as both. If chosen, this methodology once elected must be used consistently for all Federal awards until such time as a non-Federal entity chooses to negotiate for a rate, which the non-Federal entity may apply to do at any time. Per Title 2, Subtitle A, Chapter II Part 200 Subpart A 200.1 Definitions: ?Modified Total Direct Cost (MTDC) means all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $25,000 of each subaward (regardless of the period of performance of the subawards under the award). MTDC excludes equipment, capital expenditures, charges for patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs and the portion of each subaward in excess of $25,000. Other items may only be excluded when necessary to avoid a serious inequity in the distribution of indirect costs, and with the approval of the cognizant agency for indirect costs.? Condition: During our testing over indirect costs, we observed that the entity used a cost base of Total Grant Expenditures to which they applied the de minimis cost rate. In addition, items that should be excluded from the calculation, per the MTDC definition above, were inappropriately included in the cost base. This led to indirect costs in excess of that allowable per Title 2, Subtitle A, Chapter II Part 200 Subpart E 200.414 Direct and Indirect Costs. Cause: Management did not have effective internal controls in place to ensure that indirect costs were calculated accurately. Effect or potential effect Total indirect costs charged to the program were in excess of the amount allowable using the correct cost base and the 10% de minimis rate. Questioned costs: Questioned costs amount to $149,545 for 93.697, which is calculated as the amount of indirect costs in excess of 10% of MTDC. Context: During our testing over indirect costs, we noted that the entity used total grant funds available (as opposed to total direct costs) as a cost base to which they applied the de minimis 10% rate to calculate indirect costs. In addition, a portion of the overstatement of indirect costs resulted from the existence of equipment and other costs charged to the grant that are not considered part of MTDC as defined above Identification as a repeat finding, if applicable: No. Recommendation: We recommend that management develop and implement effective internal controls to ensure that the de minimis cost rate is applied to the appropriate cost base (MTDC) across all markets and programs. Views of responsible officials: Adventist Health grants management team will be trained on the correct indirect cost calculation and requirements. Review of the indirect calculation will be included in the Fund Transfer Request (FTR) review meetings. This will allow for proper application and reporting of the de minimis indirect cost rate.