Finding 503685 (2022-004)

Activities Allowed or Unallowed; Allowable Costs/Cost Principles; Cash Management Federal Award Identification Assistance Listing Program Title: Formula Grants for Rural Areas Assistance Listing Program Number: 20.509 Federal Award ID Number and Year: Various Federal Agency: U.S. Department of Transportation Pass-Through Entity: Nebraska Department of Transportation Criteria The Organization must establish and maintain effective internal control over the Federal award that provides reasonable assurance that they are managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal Award (2 CFR 200.303). Costs must be adequately documented. (2 CFR 200.403(g)). Costs must be paid for prior to the date of the reimbursement request. (2 CFR 200.305(b)(3)). Condition The Organization lacked adequate documentation to support: - That certain expenditures followed an approval process before being paid. - That certain expenditures were for allowable activities and in accordance with allowable cost principles. The Organization requested reimbursement for expenses that had not yet been paid. Repeat Finding No. Cause Procedures within the Organization were inadequate to ensure that expenditures follow a review and approval process prior to being paid, that costs were in accordance with Federal requirements and that only costs which had been paid for were requested for reimbursement. Effect or Potential Effect Increased potential for errors or misuse of funds. Questioned Costs Known $35,806 Statistical Sample No. Context During the fiscal year, the Organization requested a monthly reimbursement from the pass-through entity. Auditor selected three of these monthly reimbursement requests (September 2021, May 2022, and June 2022) for testing, reviewing all non-payroll-related expenses, resulting in testing approximately 90 different line items composing many more individual transactions. Within this sample, auditor noted: - Multiple instances where no documentation existed to support a system of internal control whereby expenditures were approved by a competent individual prior to their being paid. - Multiple instances where documentation provided did not include sufficient detail to determine if products and/or services provided meet the definition of allowable activity, resulting in questioned costs of $2,921. - One expenditure for which reimbursement was requested in May 2022 and again in June 2022 amounting to $1,283 (questioned cost amount included in previous point). - For June 2022, an inability to crosswalk between the Organization’s internal fuel summary report and the related vendor statements, resulting in questioned costs of $32,885. Additionally, we noted both character and line transposition errors between the fuel summary report and the reimbursement request. Similarly, auditor was unable to obtain evidence that fuel expenditures were paid prior to the Organization requesting reimbursement. - Multiple instances of expenditure misclassification in violation of the invoicing and documentation guidelines issued by the pass-through entity, resulting in no additional questioned costs. Recommendation We recommend the Organization establish a system of internal control consisting of policies and procedures whereby all expenditures are properly explained with supporting documentation and are reviewed and approved prior to payment. Additionally, that only those expenditures which have been paid for are requested for reimbursement. Views of Responsible Officials See Corrective Action Plan, below.