Finding Text
Finding 2023-005 Unallowable and Improperly Documented Direct Expenditures
Type of Finding:
Noncompliance and Material Weakness in Internal Control over Compliance
Condition and Context:
The Organization failed to establish critical processes and internal controls over direct expenditures to ensure compliance with Uniform Guidance requirements and several compliance issues were identified. As part of audit procedures, 81 transactions were selected in a testing sample from a population of 315 direct expense transactions. Of the transactions tested, the auditors noted 15 instances of payments to contractors for work that were not sufficiently documented to support the allocatable work efforts performed on the grants in which they were charged. The auditors noted 4 instances where the costs charged to the federal grant were determined to not be reasonable, as they were either unallowable per Uniform Guidance, or were outside of the allowable costs approved in the federal award budgets. The auditors noted 1 instance of a transaction being claimed twice on different federal grants. The auditors also noted a significant lack of approvals for costs spent, as well as a failure to maintain adequate documentation, as noted in Finding 2023-003.
Criteria:
According to Uniform Guidance 2 CFR §200.402 - 405, costs charged to federal awards must be necessary, reasonable, consistent, allocable, and supported be adequate documentation. Federal requirements also mandate that expenditures align with the program budget and adhere to specific limitations on allowable costs.
Cause:
The Organization failed to implement appropriate policies, procedures, and internal controls that would allow management to properly record, track, and claim direct expenditures compliant with Uniform Guidance requirements. The root cause of these matters appears to be due to a lack of sufficient skills, knowledge, and experience in the grant administrators and leadership roles.
Effect:
The impact of failing to establish a robust system of processes and internal controls to determine that costs charged against federal grants are necessary, reasonable, consistent, allocable, and properly supported by adequate documentation significantly increases the risk that federal grants would be charged for expenses that did not occur, were not reasonably spent, or were charged against the wrong grant. These issues could lead to the misallocation of federal resources and the diminished impact on the program’s intended outcomes. Overall, the failure to establish sufficient internal controls in these areas greatly increases the risks that federal funds would be spent outside of the Uniform Guidance requirements.
Questioned Costs:
Known questioned costs of $17,959 were identified.
Repeat Finding:
This is not a repeat finding.
Recommendation:
It is recommended that the Organization implement more robust processes and internal controls over their procurement cycle that results in expenditures being properly reviewed and approved. Expenditures should only be approved by individuals with sufficient knowledge of allowable costs and should be familiar with Uniform Guidance and grant document requirements. Source documentation should clearly provide sufficient information to identify the scope of the expenses and to which grant the costs were charged against. The Organization should also better utilize its accounting database to ensure costs are properly tracked and categorized against its grant activities to prevent duplicate claims.
Views of Responsible Officials:
The Organization retained a licensed CPA firm with significant expertise in financial reporting and single audit compliance. The Organization will develop and implement a formal procurement policy to ensure all contractor and vendor selections are based on program needs and comply with federal regulations. The procurement process will include clear criteria for vendor selection and justification, requirement to document scope of work, deliverables, and costs before engaging contractors, and verification of vendor eligibility against the Suspension and Debarment list.