Finding Text
Criteria: Management is responsible for only changing allowable costs to the federal award. In accordance with cash management requirements for cost-reimbursed contracts, the Foundation is required to request reimbursement for (a) only allocable, allowable, and reasonable contract costs that have already been paid or (b) if the non-federal entity is not delinquent in paying costs of contract performance in the ordinary course of business, costs incurred, but not necessarily paid.
Condition: In June 2023, the Foundation expensed and requested reimbursement of $350,000 for marketing services. However, as of December 31, 2023, only $256,479 of marketing services had been provided. The remaining $93,521 in marketing services were provided in January and February of 2024. In accordance with GAAP, expenses should be recorded when incurred. Since services were not provided until 2024, there was a $93,521 audit adjustment to reduce expenditures for the services along with $5,250 to reduce the 10% de minims indirect charge to the grant. An audit adjustment was recorded to record this as a prepaid expense and deferred grant revenue. This expenditure is not included in the schedule of federal awards for the year ended December 31, 2023. Total questioned costs amounted to $98,771.
Cause: The Foundation is using a contractor to complete the marketing services. The vendor billed for the entire contract upfront. Management is maintaining a tracker of marketing services billed compared to marketing services completed. However, the expenditure was recorded based on marketing services billed.
Effect or potential effect: The financial statements required a material adjustment to be in accordance with GAAP. The federal award was charged $98,771 in advance of when the expense was incurred.
Recommendation: We recommend that management record the cost of marketing services in the period the marketing services are completed, as documented in the tracker of marketing services.
Views of responsible officers: Management acknowledges this finding and will address remediation in the accompanying management’s corrective action plan in appendix A.