Finding Text
Type: Significant deficiency in internal control over compliance and an instance of noncompliance with respect to procurement requirements.
Federal program: AL# 21.027, Coronavirus State and Local Fiscal Recovery Funds.
Criteria: The Organization is obligated to comply with the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards at 2 C.F.R. Part 200, of which paragraph 200.324(d) states that the cost plus a percentage of cost and percentage of construction cost methods of contracting must not be used.
Questioned costs: $9,684; calculated as vendor’s profit based on 20% of the actual construction cost of $48,420 per vendor invoices.
Condition: The Organization entered into a cost plus a percentage of cost contract with a vendor for restoration services related to its Bend, Oregon location.
Effect: The Organization was out of compliance with 2 C.F.R. § 200.324(d).
Cause: The contract was signed on April 7, 2023. The contract does not directly stipulate that the Organization would be billed under a cost plus a percentage of cost method, however, per the progress billing invoices, it is clear that the Organization was billed at cost plus 20 percent. The Organization did not have sufficient internal controls in place to identify that the contract was billed under a cost plus a percentage of cost method. The total fee estimates were agreed to before commencement of the project and were not modified from the actual amount billed. Additionally, the contract does state any changes to the price of the contract are subject to written, signed change orders for pre-approval by the Organization.
Prevalence: This is an internal control design deficiency and an instance of immaterial noncompliance resulting in questioned costs of $9,684.
Repeat finding: No.
Auditor’s recommendation: Modify internal control policies to disallow entering into any contract that will be paid with federal award funds billed as a cost plus a percentage of cost method and implement a policy to review applicable invoices in enough detail to identify if, in fact, not being billed under such an arrangement.