Finding Text
Criteria: The requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, (Uniform Guidance), Subpart E, Cost Principles, include the following: -The total cost of a federal award is the sum of the allowable direct and allocable indirect costs less any applicable credits. -A cost is allocable to a particular federal award if the goods or services involved are chargeable or assignable to that federal award or the cost objective in accordance with the relative benefits received. -Indirect Facilities and Administrative Costs are those costs incurred for a common purpose benefiting more than one cost objective, and not readily assignable to the cost objectives specifically benefited. Indirect costs should be allocated equitably to all programs and cost centers of an organization. -A Direct Allocation Method for allocating indirect costs is acceptable provided each joint cost is prorated using a basis that accurately measures the benefits provided to each federal award and other activity of an entity. The basis must be established in accordance with reasonable criteria and be supported by current data. -An organization should have appropriate internal controls in place to ensure the compliance requirements indicated above are met. Additionally, the Organization?s Continuum of Care cost-reimbursement grant contracts with U.S. Department of Housing and Urban Development (HUD), contain the following eligible cost categories: operating costs, supportive services costs, and administrative costs. Condition: -During the year ended December 31, 2022, the Organization had HUD Continuum of Care grant contracts for eight of its programs. These contracts are funded on the basis of cost reimbursement. The Organization prepares monthly schedules identifying allowable direct and allocable indirect costs incurred during the month and submits to HUD on a monthly basis based upon the reimbursable costs identified on these schedules. The Organization includes facilities and maintenance costs as allocable indirect costs in these monthly reimbursement schedules. The Organization allocates these indirect facility and maintenance costs based on a calculation that includes the total square footage of the building space occupied by the program, the number of clients served by the program on a monthly basis, and a program?s classification as residential or nonresidential. Prior to the commencement of the audit, the Organization alerted us that an error was made in the monthly spreadsheet that allocated the indirect facility maintenance costs to the various programs, and as such, the Organization submitted reimbursement requests for facilities and maintenance costs of $29,630 in excess of actual costs allocable to the programs. The Organization?s detective internal control process identified this error. The Organization has already corrected this error by reducing their January and February 2023 reimbursement requests by $29,630. -Our audit testing revealed that the February 2022 monthly reimbursement schedule included $41,003 of construction costs related to the House of Joseph Holistic Housing Program. This does not qualify as an allowable cost under the three eligible cost categories included in the underlying HUD grant contract. After this was brought to the attention of the finance office, the Organization was able to identify additional operating costs of $41,003 during the same contract period that had not been included in previous reimbursement requests. -Part of the Organization?s internal control process over this compliance requirement includes the review and approval of each monthly reimbursement schedule. Our audit testing revealed that this internal control was not implemented for the majority of the monthly reimbursement schedules during 2022. While the schedules had the signature of the preparer, most did not contain the approval signature of the reviewer. Cause: An error in the spreadsheet used to allocate indirect facilities and maintenance costs resulted in reimbursement requests which exceeded allocable costs by $29,630. A misunderstanding of what constitutes eligible operating costs under the HUD grant contracts resulted in the Organization requesting reimbursement for ineligible construction costs. Lastly, the monthly reimbursement schedules did not contain documentation of the review and approval by someone other than the preparer. Effect: Requests for reimbursement were made in excess of amounts allowed based on the provision of the Uniform Guidance and the underlying grant contract with HUD. Recommendation: We recommend the Organization implement procedures to ensure the proper amounts of eligible costs are submitted for reimbursement.