Finding Text
2023-102 - Allowable Costs/Cost Principle (Material Weakness, Compliance Finding)
Federal program information:
Funding agency: U.S. Department of Health and Human
Services
Title: Head Start
CFDA number: 93.600
Award number and years: 72609; July 1, 2022 through June 30, 2023
Pass-through grantor: City of Phoenix
Compliance Requirements: Allowable Costs/Cost Principles
Questioned Costs: $92,129
Criteria: The Uniform Guidance requires nonfederal entities that receive federal funding to identify in its general ledger accounts the specific expenses that are paid for by each federal assistance program. To help ensure that grants receivable, deferred revenue and the expenses reported on the Schedule of Expenditures of Federal Awards are accurate, all expenses charged to federal and state contracts should be specifically identified in the general ledger system, through the use of funds or QuickBooks classes, and these specific identified expenses should be reconciled to the amounts reported to the grantor and reimbursed and further reconciled to the full award to ensure any grants receivable will ultimately be reimbursed from the grantor.
Condition: The Organization does not fully track all expenses charged to each federal award
within its accounting system or allocate costs specifically identified to a contract to a separate class or other distinguishing account code specific to each contract. Costs specifically reported for the Head Start program were identified in the general ledger and other spreadsheets for fiscal year 2023. However, costs associated with other federal and state programs, such as
Assistance Listing No. 93.185 totaling $40,000 and part of the Assistance Listing No. 10.551 totaling $52,129 could not be identified by the Organization. It is therefore possible that the total unidentifiable costs associated with these two programs totaling $92,129 could have been part of the Head Start expenses reimbursed in addition to being funded by these other federal programs. The auditors were unable to verify that this $92,129 was not double charged during fiscal year 2023. The inability to track federal award expenditures directly in the general ledger also causes delays in the completion of the Single Audit, causing the Organization to not be able to issue its Single Audit reports by the required nine month deadline.
Cause and Effect: The organization does not fully utilize its accounting system to track federal
and state contract expenses on an ongoing basis throughout the fiscal year. In addition, reports submitted to the grantor are not annually reconciled to a complete list of allowable expenses incurred after all adjustments and to the total award and required match. If a specific account code structure is utilized to track specific program expenses, then reimbursement and other reports should be reconciled directly to the underlying general ledger accounts. Without tracking these expenses within the general ledger by program, errors in reporting to the grantor could be made and amounts reported as grants receivable and deferred revenue, and amounts reported on the Schedule of Expenditures of Federal Awards may not be accurate. Auditors’ Recommendations: The Organization should establish separate classes within
QuickBooks or utilize fund accounting for each federal and state contract and each request for
reimbursement should be reconciled to the total of all expenses within this class. Further, an
overall reconciliation should be performed where the total award amounts are compared to total
reimbursements requested and to any required match.