Item 2024-008: Allowable Costs
Federal Agency: U.S. Department of Housing and Urban Development; U.S. Department of Treasury
Program: COVID-19—HOME Investment Partnerships Program, American Rescue Plan (ALN 14.239); COVID-19 - Emergency Rental Assistance (ALN 21.023); COVID-19—Homeowner Assistance Fund Program (ALN 21.026)
Pass-through Entity: None
Federal Assistance Identification Number or Pass-Through Number: None
Federal Award Year: Year ended June 30, 2024
Type of Finding: Compliance Finding and Material Weakness in Internal Control over Compliance
Criteria: The Agency is required to comply with 2 CFR 200.502 which states, “The determination of when a Federal award is expended must be based on when the activity related to the Federal award occurs.” The Agency is also required to comply with 2 CFR 200.403 which indicates that allowable costs must be determined in accordance with accounting principles generally accepted in the United States of America (GAAP).
Appendix VII to 2 CFR 200—State/Local Government and Indian Tribe-Wide Central Service Cost Allocation Plans 2 states, “Indirect cost rates will be reviewed, negotiated, and approved by the cognizant agency on a timely basis. Once a rate has been agreed upon, it will be accepted and used by all Federal agencies unless prohibited or limited by statute. Where a Federal awarding agency has reason to believe that special operating factors affecting its Federal awards necessitate special indirect cost rates, the funding agency will, prior to the time the rates are negotiated, notify the cognizant agency for indirect costs.”
Condition: We noted the Agency charged $119,169 of direct and indirect costs from fiscal year 2021 and 2022, and direct costs from fiscal year 2023 to COVID-19—HOME Investment Partnerships Program, American Rescue Plan (ALN 14.239) in fiscal year 2024. We noted the Agency charged $426,504 of direct costs from fiscal year 2021 through 2023 to COVID-19 - Emergency Rental Assistance (ALN 21.023). We noted the Agency charged $1,153,427 of direct costs from fiscal year 2021 through 2023 to COVID-19—Homeowner Assistance Fund Program (ALN 21.026) in fiscal year 2024. These costs do not meet the allowable cost criteria as they were not determined in accordance with GAAP which requires expenses to be recorded when incurred. The Agency had an approved indirect cost rate which allowed them to charge the indirect costs in those previous fiscal years.
Cause: The Agency incorrectly charged direct and indirect costs in fiscal year 2024 that were incurred in previous fiscal years for the programs noted above.
Effect: The Agency inappropriately charged the above federal programs for direct and indirect costs in fiscal year 2024. During the audit, the Agency reevaluated its direct and indirect costs incurred in previous years that were charged in fiscal year 2024. The Agency identified additional direct and indirect costs incurred in fiscal year 2024 that were eligible to be charged to ALN 14.239, ALN 21.023, and ALN 21.026 which were not previously charged to the program to offset a portion of the errors identified above. This resulted in the expenditures charged to ALN 14.239, ALN 21.023, and ALN 21.026 being overstated by $99,928, $0, and $403,795, respectively.
Questioned Costs: ALN 14.239 – $119,169; ALN 21.023 – $426,504; ALN 21.026 – $1,153,427;
Total – $1,699,100
Context: The Agency’s expenditures of federal awards charged to ALN 14.239, ALN 21.023 and ALN 21.026 were overstated $119,169, $426,504, and $1,153,427, respectively. During the audit, the Agency identified additional direct and indirect costs incurred in fiscal year 2024 that were eligible to be charged to ALN 14.239, ALN 21.023, and ALN 21.026 which were not previously charged to the program which resulted in the expenditures charged to ALN 14.239, ALN 21.023, and ALN 21.026 being overstated by $99,928, $0, and $403,795, respectively. The total expenditures for ALN 14.239, ALN 21.023, and ALN 21.026 are $81,364,920, $41,673,294, and $14,339,711, respectively.
Repeat Finding?: No
Recommendation: The Agency should charge direct and indirect costs to federal programs in the year the costs are incurred and using its approved indirect cost rate.
Views of responsible officials of the auditee: We agree with the above finding and our response is included in the corrective action plan.