Finding Text
#2023-007 – Major Federal Award Finding – Allowable Costs – Non-Payroll
Nature of Finding: Compliance Finding – Allowable Costs and Material Weakness in Internal Controls Over Compliance
This is a partial repeat of prior year finding #2022-008.
Criteria/Condition: A non-federal entity may only charge allowable costs incurred by the entity that are necessary and reasonable for the administration of the program and are of a nature in line with the categories allowed in the grant budget. The Organization did not have controls in place to verify that costs were being charged to the award in the correct amount or for necessary and reasonable expenditures.
Questioned Costs: Approximately $41,300
Identification of How Questioned Costs Were Computed: A sample of 40 non-payroll expenditures totaling approximately $110,000 was selected from a population of approximately $175,000 of non-payroll expenditures charged to the major program during the year ending December 31, 2023. Of the invoices selected for testing, the following are identified as questioned costs:
• 2 expenditures, totaling $5,708, were erroneously billed to the grant twice. Questioned costs are estimated to be approximately $9,000 by projecting this error identified in the sample tested to the population of non-payroll expenditures of the major program.
• 2 invoices were billed to the grant at amounts higher than the supporting invoice, totaling $426 overbilled to the grant. Questioned costs are estimated to be approximately $700 by projecting this error identified in the sample tested to the population of non-payroll expenditures of the major program.
• 5 expenditures totaling $5,868 were charged to the grant for costs relating to marketing purchases, including branded merchandise, branded apparel, etc. The Organization indicated these items were purchased with the primary intent to distribute during the National Alliance of Recovery Residences (NARR) annual conference. Though certain costs related to this conference were allowed under the grant budget, marketing costs were not included, and therefore appear to be unallowable. Questioned costs are estimated to be approximately $9,400 by projecting this error identified in the sample tested to the population of non-payroll expenditures of the major program.
• Questioned costs were identified for costs relating to the lease of a second space. Costs totaling up to $12,000 were allocated in part to the major program as office lease expenditures but were instead described to be an employee fringe benefit. These costs were determined to be outside of those necessary and reasonable for the administration of the program.
• 3 expenditures were charged to the grant for costs that were at least partially not necessary and reasonable or otherwise appear to be unallowable. Questioned costs are estimated to be approximately $10,200 by projecting this error identified in the sample tested to the population of non-payroll expenditures of the major program.
Cause/Context: There are not proper controls in place to review invoices and ensure grant billings are in line with allowable costs incurred. Further, a portion of lease costs appear to be classified inconsistent with the underlying nature of the space.
Effect: An overstatement of expenditures for the grant was reported and submitted for reimbursement.
Recommendation: We recommend that a full-range of controls over costs charged to federal programs be implemented. The Organization should devote the resources necessary to ensure that such costs are allowable, of direct benefit to the program, are reviewed, approved, documented, and that the accounting and reporting process is accurate. Further, controls over grant billings should be established to ensure expenditures represent actual costs incurred. All control activities, including independent review should be documented and evidence of review and approval be maintained.
Views of Responsible Officials and Planned Corrective Actions: MARR will retain a CPA consultant to implement a full range of controls over costs charged to federal programs. MARR’s protocol shall ensure that such costs are the direct benefit to the program, are reviewed, approved, documented and ensure the accounting and reporting process be accurate. Further, controls over grant billings will be established to ensure expenditures represent actual costs incurred. All control activities, including independent review, should be documented and evidence of review and approval will be maintained.