Finding 36386 (2022-001)

2022-001 Indirect cost rate incorrectly applied to HEERF lost revenue Cluster: Not appliable Grantor: Department of Education Award Name: COVID-19 - Higher Education Emergency Relief Fund (?HEERF?) ? Institutional Portion Award Year: FY2021 Assistance Listing Number: 84.425F Condition During the year ended June 30, 2022, the University expended $6,026,364 in HEERF III Institutional Portion funds and of that amount, $1,088,066 pertained to amounts claimed as indirect costs. Through testing of indirect costs, it was noted that the University appropriately made adjustments to their direct cost base to remove direct expenses associated with rental activities, consistent with the Uniform Guidance and the definition of Modified Total Direct Costs. However, lost revenue claimed was included in the direct cost base which resulted in indirect costs being overstated by $759,410. Following this, upon further review the University identified other costs that are allowable to swap out the identified unallowable costs, amended their Q1 2022 and Q2 2022 reports and reposted these reports to their website. Criteria Department of Education HEERF guidance notes that indirect costs may be charged only to Institutional Portion awards, both new and supplemental, and generally, this indirect cost rate will be the on-campus rate specified in an institution?s negotiated indirect cost rate agreement. Specifically, the 2022 OMB Compliance Supplement notes that an institution may not apply an indirect cost rate to its estimated amount of lost revenue. Cause The University was not aware indirect costs could not be charged to lost revenue, due to this information not being explicitly stated in various Department of Education HEERF published guidance and HEERF FAQs. Effect The University claimed too much under HEERF III for indirect costs versus identifying other allowable qualifying activities under HEERF III and had to amend their previous quarterly report submissions. Questioned Costs Indirect costs claimed were overstated by $759,410. However, those costs were ultimately replaced with other allowable expenses. Recommendation We recommend the University continue to strengthen their control environment around the review and approval of costs to be charged to federal awards, particularly when the awards are not directly managed through the sponsored research office. Management?s Views and Corrective Action Plan Management?s response is included in ?Management?s Views and Corrective Action Plan? included at the end of this report after the summary schedule of status of prior audit findings.